W. P. Carey Inc. (WPC)
April 04, 2013 1:30 pm ET
Trevor P. Bond - Chief Executive Officer, President, Independent Director, Member of Executive Committee and Member of Strategic Planning Committee
Gino M. Sabatini - Managing Director and Co-Head of Global Investments
Jason E. Fox - Managing Director and Co-Head of Global Investments
Thomas E. Zacharias - Chief Operating Officer and Managing Director of Asset Management Department
Brooks G. Gordon - Executive Director
Mark Goldberg - Managing Director
Catherine D. Rice - Chief Financial Officer and Managing Director
Good afternoon. My name is Kristin Brown, Vice President of Investor Relations. I'd just like to thank everyone for joining us for our first Investor Meeting as a REIT. Today's meeting is being simulcast on our website, wpcarey.com, and will be archived for 90 days.
Before we get started, I need to inform you that some statements made during this meeting are not historic facts and may be deemed to be forward-looking statements. Factors that could cause actual results to differ materially from W.P. Carey's expectations are listed in our SEC filings. For the Q&A section, please wait for a runner with a microphone.
And with that, I'd like to turn the meeting over to Trevor Bond, our President and CEO.
Trevor P. Bond
Thanks, Kristin. Hi, everyone. Welcome and thanks for joining us. I'm going to try to find a place where the glare isn't too demanding. I just wanted to welcome you all, thank everybody for taking the time to be here today. We appreciate it. We know that some of you have been longtime supporters of ours, and we want to thank you for your continued support. And then for those of you who are just learning the story, thanks for again -- again, thanks for coming out and taking the time to understand how we're different from some of the other net lease REITs that are out there. So welcome.
Yesterday was a big day for us. We celebrated actually our 40th anniversary. And if we just go to the timeline here, as I'm talking, you can see the sweep of time. We celebrated our 40th anniversary, and also, we celebrated our sixth anniversary -- our 6-month anniversary of being a REIT. It was 6 months ago on October 1 of last year that we issued 28 million shares of stock and welcomed a lot of additional new investors to W.P. Carey. And at the time, we were concerned -- as many of you know, those of you who we met when we were on the road, we weren't exactly sure what the trade would be that day. We had made the decision not to have any lockup and just to go ahead and issue the shares. Our trading volume up until that point had been probably to somewhere actually 38,000 shares a day, and so we didn't know what the volume would be, given that we were going to be issuing 28 million shares. It was gratifying to us to see that the market did absorb that. Average daily volume went into the millions and then settled down into the hundreds of thousands. And today, the average daily volume is about 260,000. So, again, it's gratifying to see. Obviously, there's been a lot of acceptance of the stock, and part of that comes to your support. So, again, thank you for that.
So just very briefly. Before I get into the timeline, I'd like to introduce who we will have talking with you -- talking to you today. At the table, I have Brooks Gordon and Tom Zacharias in our Asset Management Group. Tom is the Chief Operating Officer. To their right are the 2 co-heads of global acquisition, Gino Sabatini and Jason Fox. In the audience, we have Katy Rice, our Chief Financial Officer; and also, John Park, our Director of Strategic Planning; and Mark Goldberg, who is the President of Carey Financial, our subsidiary broker-dealer. And we're going to try to give you a holistic picture of W.P. Carey during your time here.
Let's just do a quick review, the timeline of our history. 40 years ago, the company was founded by Bill Carey. And as we said in some of our meetings and some of our calls, Bill was not a pioneer in the sale-leaseback business. He wasn't the first to invent the concept of sale-leasebacks. But he was really the pioneer in the concept of providing to retail investors access to a securitized investment in net lease that they otherwise would not have access to. And today, 40 years later, we've expanded that concept. And so now it's taken for granted. But Bill was one of the first to come up with that idea.
In 1979, he began the actual CPA series, which was at first limited partnerships. There were 9 of those, CPAs 1 through 9. In 1998, that series went public. It was a roll-up and started trading as Carey Diversified, LLC on the New York Stock Exchange. In 1999, we established our London office. And then in 2000, W.P. Carey merged with Carey Diversified. And that's when we really began the sort of that stage of our life that could be considered the hybrid business model, where we were both an owner of real estate, as well as an investment manager. And then as you all know, in 2012, one of the most eventful of our 40 years, we did finally convert to a REIT and then simultaneously merged with one of our managed funds, CPA:15. It was an accretive transaction, it was transformative for us in so many ways and some of which we'll get into today. So that's sort of the distant past and also the more recent past.
In the net lease industry, speaking of the recent past, clearly, since our announcement back in February of last year, February 17, actually, since the time that we announced the merger, if you reflect on all the changes that have taken place in the net lease business, it's really mind-boggling in a way when you think. There was our transaction and then there was American Realty Capital's multiple transactions first. Their non-traded REIT was listed, then it merged with Realty Income and then there were the Spirit transaction, the more publicized recent Cole transactions. And so there's been quite a lot of press and a lot more attention paid to net lease. For all the right reasons and for some reasons that you'd rather not, there's been a lot of drama in the field. But in any event, a lot of eyes are focused on the net lease sector now. And we think that's a good thing. We believe that net lease -- the net lease sector is not monolithic, although it's often talked about in the same graph as the retail sector or office sector. Net lease is not a monolithic field. And as you studied the other entrants in the sector, I'm sure you've come to that same conclusion yourself.
So one of the goals that we have today, an important goal for us, is to try to help you sort out. And we want to leave you with how we're different from the other net leases. And I think that through the presentations that you'll see as the afternoon wears on, you'll get a clear sense for how we are distinct. We're going to talk about our investment approach, we're going to talk about our active asset management approach and we'll talk about the investment management platform and other issues as well.
But before I proceed to the next slide, just really the 3 most important features by which we're sort of distinguished from the rest of the market, I would say, are that we do have that very strategically valuable investment management platform. Mark and John are going to go into a lot of detail about that and how it fits into our business. The second thing that really distinguishes us from other net lease peers is our international capabilities. We've been working in Europe and abroad from a number of years. We have a very established presence there. Tom Zacharias is going to go through how we manage our international effort. But we -- it really does take unique skills and capabilities. It's not something that you just decide to do in the spur of the moment. And we've really been working at it for quite some time. And we've been successful there. And the third thing that distinguishes us from the other net leases, not as much so now as it did 1 year or 2 ago, is that we have never not been diversified. For W.P. Carey, for us to not be diversified would really constitute style drift because from the beginning, from the time Bill set the company up at the very beginning, the whole idea was to look at a wide range of credits, tenants, property types and put it all together because at the end, you get better risk-adjusted returns through diversification. So it's not something that we could run away from and hide even if we wanted to. And I think that, that again distinguishes us from the other net lease peers that we have, some of whom have decided more recently to embrace the concept of diversification.
And so if I just now -- just briefly to go into our business model for those of you who may be a little new to it. We earn money in 2 different ways. We have the net lease ownership business through which we derive 83% of our revenues. And we have -- and that's a portfolio of properties, and it's our pro rata share of joint ventures that we own mostly with our managed funds. That's approximately -- this value is based on share price, but it's about, call it, $6.6 billion; obviously that will fluctuate with the share price. And that portfolio is 98.7% occupied. The other business is the Investment Management business that I alluded to and that we're going to go into more detail on later, that's the business of managing the CPA REITs and CWI hotel. We will get into more detail on that later. That's $8.5 billion of assets under management, and it's 98% occupied.
So how do we earn revenues? First, in the net lease portfolio, as I mentioned, we have positions in directly owned assets, as well as joint ventures with the REITs. And so we get FFO from that and also from our ownership stakes that we take in the CPA REITs themselves. Over time, we've made investments in our own REITs, and we've done that primarily by earning fees through shares themselves, in-kind fees. And we find that, that's a good way to align our interest with the shareholders. And the reason that you see that CPA:16 up there is 18% is that we decided to take a much larger stake in CPA:16 back in May 2011. That was an accretive transaction for us and, again, aligned our interest very well with CPA:16. CPA:17, we only have 1.3% of. So most of the FFO from ownership in the CPA REITs is coming from those 2 funds, 16 and 17. Also, we earn a special GP interest, which is up to 10% of the cash flow for both CPA:16 and CPA:17.
Now how do make money from the Investment Management side? And, again, to put it in perspective, revenue-wise, this represents some 17%. In terms of actual AFFO, the number is less because when you factor in the expenses of running each of those businesses, the actual AFFO from the investment benefit business last year was about 10% or 11%. So we earn it through structuring revenues, 4.5% acquisition fee on the value of the asset itself, and then a 50 basis points management fee on asset value for the -- of the assets of the managed funds. In addition, we get other subordinated disposition fees and incentive fees. Those are less material than the first 2. The asset management revenue is stable and ongoing. It, just like the 10% GP interest, is fairly stable recurring income, and that's the way we've come to view it. The other disposition fees are somewhat less. And structuring revenues will vary somewhat. Jason and Gino will get into what our average sort of volume has been on the investment side over the years. That's where we see some seasonal fluctuation at times, and that ties into some of our decision-making with respect to disclosures and whatnot because it's a little difficult to predict sometimes exactly how much we're going to put on the board in a given year. We don't start the year with a quota.
So this gives you a sense for the relative size of those portfolios. Obviously, at this point, the largest one is the company itself, the REIT, W.P. Carey Inc. with -- this has us at $6.6 billion and then CPA:16 and CPA:17. And then the much smaller portion on the right is a new hotel fund that we launched a couple of years ago called Carey Watermark Investors.
So I had mentioned that in addition to the Investment Management platform, another thing that makes us unique as a REIT is our ability to tap into international markets. And it's obviously not just a matter of going over there and writing the check, which, as you know, is investors. That's the easiest part of the investment process, bring your checkbook along, you have the money, you can write the check. It's actually -- it's living with the asset and then getting out whole with a profit that's most important and does require specialized skills. We've been investing in Europe. Our first investment was actually in 2001. And so -- and that was in Europe. We started in Paris, then moved the office to London. At this point, we have a fully staffed asset management office in Amsterdam, and Tom will go into the staffing and approach of that office. But you can see it's concentrated in Europe. What you see -- I don't think I have a pointer on here, but when you look at the peripheral Eurozone countries, I should emphasize that this is for the whole group of W.P. Carey companies, including those -- the portfolios that I just saw. W.P. Carey Inc. does not own the asset in Italy and the other peripheral assets. Most of W.P. Carey Inc.'s European exposure is to the northern European countries, to France and Germany and Finland, et cetera, The Netherlands. But we did make some good opportunistic investments in Spain and Italy post-crisis. And we can talk about that later during the Q&A if you have any questions about those. Spain and Italy represent 3 investor relationships in pretty good tenant relationships. We do have small investments in Thailand and Malaysia, 1 in China and 1 as of late last year in Japan. We have an office in Shanghai that we established back in 2005. And we're seeing Asia right now -- Shanghai right now as sort of a hub to build our Asian presence, even though deals in China are somewhat slow in coming. But we're pretty optimistic we can get some growth over the years there.
Again, diversity. And this is what we mean by diversity. We mean not only by property type, because we are represented in most of the major property types, but also in the industry. And we've invested in some 3 dozen industries over the course of our history. And so we've developed a point of view on a lot of different industries. And when you've developed a point of view and when you've accumulated the knowledge in those industries, you like to try to keep that knowledge in-house and leverage off it as best you can by just making smart risk-adjusted investments. And so that's our experience there. And then, of course, this is the property type, as you can see. I will make the distinction here as we do between industrial, which is at the top right corner, and warehouse/distribution. We do invest in properties where things are actually made or assembled, not heavy-duty manufacturing, but we have somewhat of a niche of expertise in industrial real estate. We find that it's a certain type of underwriting and a certain type of management process. We find that good renewal probabilities come out of that type of property. So it's something that we continue to do in a modest way.
So before we turn it over to the investment side, I just wanted to talk about 2 other hallmarks to our approach that are important and that you're going to hear about from the next group. The first is that we have a very active asset management approach. We don't believe that net lease, contrary to what may have been said about it or what maybe people's initial impressions are, we don't believe the net lease is something that you can do in a passive way. Just because the leases are long-term and we try to shoot for 15-, 20-, 25-year leases doesn't mean that you sign the lease and walk away and you begin to clip coupons. It's just not a smart approach. So what you need to do is be active because the property that you initially underwrote as being critical for a tenant may no longer be critical to a tenant. And so you need to follow it over the term of the lease. But we have early warning systems, and Brooks and Tom are going to get into how we develop an awareness that a tenant may not be using the facility in the same way. And, of course, that then is a red flag -- a warning system to us that perhaps there may not be a renewal at the end of the lease. And, of course, the closer you get to the lease expiration, the more you're going to want to be proactive about managing that. So active asset management is very important. It involves forward planning and the early warning systems that I mentioned. It involves, whenever possible, smoothing out the lease expiration schedule. Tom's going to show you the lease expiration schedule, and you'll see what ours is. It's very manageable. You want to try to smooth it out so that in any given year, to the extent the lease revenues are going down from rollovers and whatnot, that you can manage that and offset the loss with new investments and things like that. So we really make an effort to smooth out the lease expirations. We try to enhance value wherever we can. A lot of our tenant relationships are very good, most of them are very good, and they continue to be good because we keep in touch. And tenants, when they want to expand their property and they want some additional capital, that's gold for us because, usually, when we provide that capital, we're going to get an accretive investment on those dollars but also improve lease terms, usually a longer lease. And so we're always trying to enhance value, and Brooks will have some case studies of how we've done that.
And I think the final thing is that we're always looking to try to backfill whatever rent we're losing for whatever reason, whether it's a roll-down to current markets that may occur or whatnot. We're always using our own capital to backfill lost revenues and think about constantly recycling our assets because we are aware that at the end of their lease term, some of the assets that we have may not be as valuable. And so we're always thinking about managing the residual risk, and that group is very active in its approach.
The other hallmark, and Gino and Jason will get a lot more into this, is that we have a very disciplined investment process. W.P. Carey is known in the financial advisory community for being sort of process-oriented. In contrast to many of the -- many of our peers in the non-traded REIT space, many of whom you may have developed your own impressions of, we are not a sales organization first. In the spectrum between being a sales and marketing organization and an investment organization, we clearly favor the investment side. Senior management has a lot of experience in the investing of real estate. Senior management is very involved in the investment process. And most importantly, one of the things that would keep us up at night, keep me up at night, is raising too much money that can't be matched with good investment opportunity. So keeping that equilibrium is something that we stay very focused on. And so, again, we're an investment culture more than a sales culture, although you'll see when you hear Mark talk that we have a very professional, obviously, a deeply experienced sales and marketing team. And it's something that we see as incredibly valuable to us strategically. It's just that we feel that you need to keep one of those things paramount, and that's to maintain the quality of the investment process. And so we have a lot of eyes looking at each investment. We have a pricing committee on which I sit; Katy, our CFO, sits; John, Director of Strategy; Tom, the COO, sits; and others. And we screen deals before they even go to our outside independent investment committee, which is comprised of 7 outside directors, no skin in the game. They don't get paid anymore whether we do an investment or not. And they're conservative people, generally, and probably have more to fear from a reputation risk if a deal goes bad than the desire to sort of boost volumes. So, again, lots of eyes are looking at that. And that's a process that we've had for many, many years, and that served us very well.
So before I turn the floor over to Gino and Jason, just very briefly what we do in our approach is to try to think about what sectors of the market are we going to find the best risk-adjusted returns? And so we are looking for companies that are going to pay the rent for the next 15 to 25 years, irrespective of what might have happened sort of that would lead to this sort of headline risk that causes volatility in the stock market. So that's it, first and foremost. And we want to make sure, when we find a good company, that we are able to sit down with management, understand their business model and really try to figure out whether they'll have the legs to survive and continue to pay rent over that 15- or 20-year period. And we are shooting for through a detailed underwriting process. What we're trying to achieve is -- and, again, we got this through diversity and looking and structuring the deal. But what we're trying to achieve is a return that is related more to some investment grade but actual risks that are associated with investment grade. And we have done internal studies and whatnot to try to keep ourselves honest in this approach. And, generally, we found that, that's been the case. The track record that you'll see later when our Investment Management platform is discussed will be indicative of how we've been able to achieve those returns because that's been our focus over time.
So with that, I'm going to turn the floor over to these guys. I'll be back later. And if you have any questions during the investment process, we'll wait until after they give their presentation and then you can answer questions. So Gino and Jason?
Gino M. Sabatini
Thanks, Trevor. Thank you, all, for coming. My name is Gino Sabatini together with Jason Fox. We head up the investment group at W.P. Carey. And we put together a 3-part presentation, during which I'm going to start off and go through what our strategy is and how we underwrite particular transactions. Jason is then going to get into specifics, deal sourcing, how we implement the strategy and various ways in which we think we're different from many of our competitors. We then have a series of case studies, which we're going to go through, which I think will show good examples of both of these sections.
So every deal we look at, we really view it as having 4 components. And the first and foremost is the creditworthiness of the tenant. We've really throughout our history been known for our very thorough credit underwriting. Many of you may be familiar with some of the members on our investment committee. They all have deep credit background. And that's been something that Jason and I were taught growing up within this organization, to really dive deep into the credit of the tenant, because when you have a 15- or 20-year lease, it's clear, your return is going to be based on whether or not that tenant stays in business and pays your rent for the entire lease term. So as part of the credit underwriting process, we look at everything. In many deals, we'll spend 2 to 3 months just digging into that particular company, their history. We may do customer interviews. We may -- we'll certainly have at least 1 or 2 meetings with management. From industries we're not familiar with, software is a good example. We may hire an outside industry consultant. And then we kick it around for weeks and really make sure we understand that credit to the best of our abilities from all angles. And we have to convince ourselves before we move on to the next stop that it is a company that will be able to pay the rent.
If we're successful in that step and we think it is a good credit, we then move on to the asset itself. Is that asset critical to the company's business? And there are a lot of examples of net lease deals that get done in the United States, specifically single retail stores, which we would argue, any one of them is not critical to that tenant's overall success. So that's why you'll see in the U.S., we really don't focus too much on individual retail stores. If we do, do retail, we want to make sure that we get a group of retail stores. We try to tie them together on a single lease in the U.S. so that in bankruptcy, the tenant has less flexibility to cherry-pick the better stores. In addition, we would only want to tie up good stores on that single lease.
From the industrial and office perspectives, are those facilities important to the company? If it's an office building, is it a headquarter building? Is it an R&D facility, which even if the company gets in trouble, it's core to their business and they're going to need it when they exit bankruptcy? In the manufacturing space, is this their team manufacturing facility? So we look at -- where are we here, let's go back to -- yes, so we -- again, we look at the asset itself, make sure it's important to the tenant. Then we get to the real estate itself. Would the real estate have value, absent the lease that we're putting in place, as a standalone building? In looking at those -- at that valuation, we have many different metrics that we look at. And this is very important because if you're dealing with credits, which may not survive the entire lease term, as downside protection, it's great to have a piece of collateral, which you can then release to a new tenant or sell to someone else who could make use of it. So we dig deep into the value of that asset as a standalone building. We have a third-party appraisal done. We hire outside third-party environmental analysts to tell us if there are any issues with it. We do a downside analysis, assuming that the tenant leaves for whatever reason. How long is it going to take us to lease up the building? What are the -- what's the vacancy in that particular market? How much money is it going to cost us to get a new tenant in there? And what kind of IRR are we going to wind up with if this tenant leaves in 3 to 4 years unexpectedly? We look at that very carefully, especially with the tougher credits.
And then we get down to the last part of the deal, which is structure. And we take all of these components I just mentioned, and we really try to structure a deal which works for us and is, from our perspective, a good return on a risk-adjusted basis. So all the 3 previous categories that I mentioned, in every deal, you're going to have some areas that are stronger and some that are weaker. Sometimes we'll be dealing with a very good credit, an investment grade credit. And in a case like that, we're not overly concerned with the value of the asset because we're very confident that the tenant will be able to stay in business and pay all the rent. In other cases, we're not quite as confident, and we want to make sure we have special things in place to help protect our downside. And we have some of them listed up here: security deposits, letters of credit. We'll put financial covenants in, especially in more lever types of companies to try to protect the balance sheet since, ultimately, that is our credit. And we usually put non-recourse property level debt on each deal to protect the downside. If it is a disaster scenario and our equity becomes worthless, we do have the option in those cases to hand the keys back to the lender. We typically put long-term fixed rate amortizing debt on each asset as well, minimizing the refinancing risk that we might have, both on an interest rate -- from an interest rate perspective, as well as just an availability of financing perspective.
Jason E. Fox
And I think the other thing to emphasize here on financing is that we don't assume in our underwriting our modeling that we're using high leverage. I think our deals work with low leverage, and that's the nature of single tenant investing is you typically don't get high leverage. So that does help your refinance scenario. We're a conservative investor in many ways, including on the financing side.
Gino M. Sabatini
So overall, we try to balance all of these aspects in each deal. And we kick all of them around for weeks before we make a decision to move forward on a transaction. We don't think we're getting paid enough for the risks we're taking, whether it's the risk of the credit, whether it's the reusability of the asset, whether it's the structure of the transaction, then we take a pass. If we think we are getting paid enough and our investors are likely to see a very nice return for the risk that we're taking, that's the point at which we decide to move forward and start the internal process, which Trevor mentioned with the pricing committee, the investment committee and so on and so forth.
Jason is going to now go through how we actually implement this strategy, how we go out, find the deals and what we think makes ourselves a little bit different.
Jason E. Fox
Right. So the W. Carey difference, what makes us unique in this net lease space. There are peers that certainly we compete against, that we think we're unique in many ways. We'll kind of go through 3 things that we'll focus on here. We do feel that the vast majority of the deals we look at and complete are through proprietary deal flow. As Trevor had talked about, we have a long history of being a true global investor. Our international presence sets us apart where no net lease, especially in the U.S., has the type of experience or the geographic diversification that we have. And then lastly, our diversified underwriting capabilities, combined with Tom and Brooks' group in terms of active asset management, let's us do deals that, again, a lot of other net lease investors don't do.
We'll first start with proprietary deal flow. Our long history is a great benefit to us in a lot of ways, but we have a 40-year brand that's very meaningful within the brokerage community. And real estate markets are efficient. In these days, a lot of the deals are being advised by the large brokerage shops, Cb Richard Ellises, the Cushman & Wakefields. We don't win auctions, but what we do win, when we look at broker deals, are deals where certainty of execution and history of long-term ownership. And these deep relationships with a lot of the top investment sales brokers and leasing brokers really helps. Most of the deals we win is because we get the first look, and probably the last look as well. Not to mention in many cases, we're pitched to the tenants themselves. Going through the sale-leaseback, these are the investors that are more aligned with your business niche that you want to develop a relationship with. They have a history of capital, they can do follow-on transactions, there's a history of ease of working with the Asset Management Group when it comes to lease amendments, expansions, things along those lines. And our history really sets us apart. No one has a 40-year history, and the brand really is important as we go out and market ourselves to win new investments.
We also focus through private equity firms. That's been a big part of our deal flow, working with the various private equity investors and their portfolio of companies to help do sale-leasebacks or help them access capital that may be tied up in their real estate. Again, back in -- I think we really started focusing on this, probably 10 years ago, and it benefited us greatly during the bubble period of '05, '06 and '07. We weren't winning any deals that were marketed by brokers, but we were doing a lot of deals with private equity firms. And in those cases, a lot of those transactions, you get outside yields given the risk because of the leverage that these private equity firms tend to put on their portfolio companies, but you also have opportunities for significant credit upgrades as those firms exit their investments. We'd had good success there, and as I said, private equity firms aren't necessarily concerned about the top pricing or the lowest yield, they're more concerned with certainty of execution especially when you're participating as a financial source in the public to private, or a deal in which they have no financing contingencies in their buyouts. So we've developed quite a business there, and we continue to do that as well.
Developers are also an important source of business for us. Similar to private equity firms, certainty of execution, experience in structuring build-to-suits, having access to capital that doesn't rely on third-party financing, we can commit and close investments on an all-equity basis. And again, developers as they respond to RFPs, they want to know who their partner is, who they can trust in their pricing because they're submitting a package that's representing themselves, and the financing, obviously, is an important part of that.
And then lastly, given our 40-year history, our $14-plus billion of assets under management, and I think close to 1,000 properties, we have a massive installed base of existing tenants. And at any given year, a meaningful part of our new investments comes from our existing tenant base, either sale-leasebacks in different assets, expansions of assets that we own, or even trading assets into facilities that may have become -- from facilities that are less critical to more critical assets. I think what also sets us apart, as Trevor talked about, our global presence. We can follow -- go to where the best risk-adjusted opportunities are. If a particular region is being overheated, then we'll allocate capital somewhere else. And we have a long track record of doing this. I think we've seen some of our peers try to invest globally, and they've looked for partners, but we do it in-house, and we've been doing it for quite some time. I think we did our first investment in France, I believe it was 1988 -- in 1998, and we currently own assets in 19 countries, including 12 in Europe. You can see the number of properties that we have, almost 300, internationally spread out between 52 tenants and that totals over $3 billion of total value overseas.
Gino M. Sabatini
This is something we really can't stress enough, though. All of our domestic competitors talk about how they'd like to start investing overseas. But it's really hard to do. I mean, we've spent a long time and a lot of money figuring out each country. Each country is its own deal, and we spend, possibly, $0.5 million in each new country that we go into. So it can't be overstated. People talk about it, but they haven't really been there yet.
Jason E. Fox
I think that's a good point. There is a strong barrier to going to new countries, whether it's understanding the tax environment, landlord rights, bankruptcy, things along those lines. It's a complex and expensive process to even begin to get comfortable investing in a country. And then you have to find the deals. And to find the deals, you have people on the ground. There's really no substitute than to be local in these markets. You really can't invest in Asia, sitting at a desk in New York all that well when it comes to real estate.
So here's how our offices are. These are all investment offices. We have 12 people here in the U.S. About 8 of those are in New York, focusing on, mainly, net lease investments. We also have several people in Dallas. A number of them are dedicated to self-storage, an asset class that we really got to know since we did a large deal with U-Haul back in 2004. We like the dynamics of it, and we have a dedicated team that focuses on it. I think we're now a top 10 owner of self-storage in the United States. Europe, we've had a presence there since the late '90s. We have 4 people out of London that lead that charge. As Tom's going to talk about, we also have a very substantial asset management team in Amsterdam. Asia, we've been there for about 5 years now. We've been patient in terms of exploring which countries and markets are -- and where we want to put our money. We have 5 investment professionals there. And these are native Chinese and very experienced, and we think that there's going to be great growth out of our Asia office. Latin America and India, these are places that we have 1 investment professional in each market. And there -- and we've been in both markets, we're looking at both markets for probably 2 years now. More R&D efforts at this point. I think that we have some investment potential or possibilities that are on our plate right now. We're going through the investment environment there, but we also feel that some emerging markets are places that add sort of a diversification and can also be a good source of high risk-adjusted returns. So we cover the globe, and I think we will build these offices further over time as opportunities arise. But it's a big advantage relative to our net lease peers.
Europe. We have -- as we mentioned, we have $3.5 billion of investments in Europe, and there are a number of reasons why we like it. For one, there's a bigger opportunity there, there's -- for sale-leasebacks at least. It's -- I think the stat I've heard, is roughly 2/3 of the real estate is owner-occupied by companies. So those are opportunities for us to pitch the benefits of the sale-leaseback, and how they can utilize the capital tied up in their real estate more efficiently and the rest of their business. And then that's a pitch that we've been successful for and we're seeing the evolution of Europe moving more towards the U.S., which I think is the inverse, it's about 1/3 owner-occupied. It's also a higher population density, which is going to add to the underlying value of real estate. It's more difficult to build and find excess land.
There's also, in many countries, stronger political involvement, countries like France. As Gino talked about, our goal is to underwrite transactions such that we get critical operating assets. In a country like France, it's very difficult for a company, even if it's underutilized, to shut down a plant, and that only benefits the landlords, they continue to pay you rent.
There's also stricter zoning and land-use regulations. Again, barriers-to-entry for new development, which is only going to help either increase or maintain the value of already built real estate. And I think, we mentioned this before, they really are high barriers-to-entry for our U.S. competitors, where a lot of the net lease money has been raised. It's complicated, it's complex, and you need experience with international transactions, especially on a country-by-country basis. Each country is unique. Just because you've invested in Poland doesn't mean that you're going to be able to -- it's all going to translate to Croatia. So that's important. I think lastly, what we're seeing now in Europe, is there is opportunistic pricing. Where there's distress, there's opportunity. We think that there is -- there are very good opportunities in Europe right now and as with everything, it all comes down to underwriting, pricing and structuring. But we think it's important to continue to focus on our global operations, which includes Europe. As we said, we -- what -- we're seeing a pretty significant spread between similar deals in the U.S. relative to Europe.
We talked about our asset, our active asset management, and really kind of the diverse underwriting capabilities of the investment team as well and how we work together on doing new transactions. We are not a commodity buyer of net lease real estate. We tend not to, as Gino mentioned, do a lot of sale-leaseback in the U.S. in retail. They trade very aggressively. We think the U.S. is over-retailed in many ways. And we just don't think that there's the right risk premium that you're getting in investing in one-off stores. That's the commodity side of the business and we're set up where we can do more highly structured investments, and we'll get into some of these with some case studies. We've had some success with the project in Las Vegas, and this building right here, we own floors 2 through 20 in a sale-leaseback that we did with the New York Times, which we'll get into as well. Build-to-suits are also a big part of our deal flow and something, again, we think that we can earn some yield premium, taking some of the perceived risks that we were really able to box and get comfortable with doing. And a lot of that has to do with our in-house build-to-suit management. We're not outsourcing a lot of our construction management and draw monitoring. We do that in-house, and we have a capable staff that's been doing this for quite some time. And as I said, there's dedicated personnel for that. We also, as Trevor mentioned, can do things that are a little bit outside of just the typical net lease investor where you're just buying and holding a long-term asset. We can look at assets that have value-add opportunities. We'll talk about a deal we have with KBR down in Houston a little later. We also have a meaningful presence in the self-storage industry, and we have a team that has spent 9 years now in that business, and again, that's more value-add, management intensive and our asset management team is really able to do that, which gives us comfort that we can make those investments and continue to generate value out of those.
So through the years, just to give you a little snapshot of our underwriting process, how we're unique and how that's turned into results, at least on the investment volume. This is kind of an 8- or 9-year history here. You can see it's a little bit lumpy, but I think that a couple of things to focus on here would be that it's not predictable, the investment volume. We're not setting goals and trying to hit certain numbers, necessarily. We're looking for the right opportunities. And we need to be patient. And as Trevor said, we're not raising as much money as we can and trying to invest it. We're finding opportunities and fundraising to meet those opportunities.
So the last 3 years, we've been fairly consistent. A lot of it is discrete transactions. So it's hard to predict, but we've had success with putting -- buying assets as total asset value, and I should point out, this is managed funds in W.P. Carey, and it's predominantly managed funds, since that's where our capital raise has been. But we've averaged over $1 billion in the last 3 years. We've found some very unique opportunities in '08, '09, when there was not that much deal flow. '07 looks like a large year for us, but in fact, that was a year in which we had lost significant market share in the net lease industry. If we had a chart to overlay on top of this that it illustrated what the total market was, '06 and '07 would be through the roof. And so, we were more cautious, we didn't fund raise during '05, '06 and '07 in its entirety, and I think that's -- this chart may not indicate that we did have patience and again, lost lots of market share in that period.
Now we'll go through a number of case studies to give you some ideas of what we've purchased in our thinking and the process we go through when we make these investments. Keep in mind, again, that many of these transactions are in our managed funds. Some of them are either partially owned through joint ventures at W.P. Carey, and I think there's 1 in here that's entirely owned by W.P. Carey.
We'll start with the building that we're sitting in right now. As I mentioned, we did a sale-leaseback with the New York Times in 2009, for floors 2 through 20. Although, I think we own this TimesCenter where we're sitting right now as well. This was -- the timing of this transaction, March 2009, it was also -- we closed the same week that the S&P bottomed out. So we couldn't have picked better timing in terms of pricing and scarcity of capital. The $225 million investment, we structured it with a 15-year lease with the New York Times, very high-yielding, this has a double-digit cap rate, with annual increases each year. You'll also notice the price relative to the size of the building. We bought this for roughly $300 a square foot, which -- I should probably speak a little quietly about this, in the building. But that's roughly probably 1/3 of what the market value may be now. It was certainly well-below replacement costs. It still is. This is the time when the New York Times had a need and we had capital. I think this is a good example of kind of our whole process here, that Gino described earlier.
Credit underwriting, criticality, the real estate, and the underlying value of the real estate all led into how we structure transactions. And our mind process was this. In hindsight, this looks like an easy transaction we have done, but in March 2009, print media was plummeting fast in terms of ad revenues. Our premise was that the New York Times, the USA Today, The Wall Street Journal, these national papers, we thought that there was a valid story of why they're going to continue. Regional papers, there is more uncertainty, but we had a lot of confidence in them as a national paper especially given the brand. And that being said, though -- yes, that being said, we looked at making sure that this really had a strong downside protection in how we bought this asset. Again, we paid well-below market, and this is a transaction that we were able to name our pricing in many ways. So our downside position in this transaction, our downside scenario is probably our upside. I'm not going to -- especially since we're in the building, which is the New York Times, we're either default or go away, but that's our upside in many ways. We revert to market, which is probably $30 or $40 above where our pricing is. It's a pretty good story. So there's very little downside risk here.
Gino M. Sabatini
In terms of rent, I mean, we paid $300 a foot. It's probably worth $600 a foot.
Jason E. Fox
Yes, or more than that.
Gino M. Sabatini
More than that. Right.
Jason E. Fox
And I think lastly, we talked about criticality, and this building was built specifically for them. There's a newsroom, and it's -- too bad we can't go on a tour with everyone here. But there's a new room that's specifically built. It functions like a trading floor, it's a very collaborative workspace, and it's something that's very critical in how the New York Times goes about their business. So at the end of the day, this is a deal that I think also demonstrates how important our managed fund business can be. In 2009, public REITs didn't have access to equity capital. If they did, they were using it to restructure their balance sheets. It's probably very dilutive in many ways. However, our managed funds, we continue to raise money. We were sitting on quite a bit of capital, being patient on where to put it. And so this is the transaction there was really no one else able to do. And there was no debt financing available. This is the $225 million check to write. Again, office space in New York was dropping because of the layoffs in the financial services industry, and it was print media. So we did finance it. Bank of China put a loan in place about 6 months later, so now we've leveraged these returns. We have probably a 700 or 800 basis-point spread between our cap rate and our borrowing costs. So it's obviously, it's a highly accretive track -- transaction with little downside risk.
I think the only thing I'll add is we did cap our upside a little bit. We gave the New York Times a purchase option in year 10. Very unusual for us to do that during the lease term, but in this case, it was something that was necessary to get the deal done.
McKesson, or when we did the deal, it was U.S. Oncology. This is a deal, if you're familiar with the Houston office market, it's a submarket called The Woodlands, which is one of the more, perhaps most successful master-planned communities just north of Houston. It was built by The Woodlands development company, and they owned it in a 50/50 joint venture with U.S. Oncology, who was also the tenant. U.S. Oncology is the largest cancer center operator in the country, radiation treatments, chemotherapy, things along those lines. This is their corporate headquarters in the town center of The Woodlands, which is a very sought-after market, very low vacancies. We were able to buy this. Rents were also at probably 20% below market, which is very important in our real estate underwriting. The company at that time was owned by Welsh Carson, a private equity firm, and they are probably 6x or 7x levered and there is risk in the balance sheet side. But -- so we wanted to make sure we protected our downside and really bought the real estate right. Low market rents, we got a mid-8s cap rate, which is very attractive annual increases in the lease.
And that was our story. We like the credit because we thought there was long-term play there, even though their balance sheet was in difficult position. This is highly critical, given that their senior management all lived in The Woodlands area and there just wasn't much office space to be able to replace them. So we saw in a bankrupt situation -- this is our kind of thought process when we go through deals -- downside protection is very important to us. We felt that in any kind of bankruptcy situation they're going to absolutely affirm this lease. But for those who aren't familiar with, were not familiar with bankruptcy law, it's really a binary process. The asset, it's critical, and you need it to exit bankruptcy. You're going to affirm the lease. If it's not you reject it, but there's no middle ground like there is with bond investing where you can get crammed down or paid off, cents on the dollar. It's really a binary situation.
So we talk about bankruptcies. We don't have many of them, but it's always part of our underwriting process to think about the downside.
So this one, we made a good real estate investment here, very good residual likelihood. But we also -- and I think another benefit of how we structure our deal is in most of them, New York Times being the exception, we don't give purchase options. So when these guys got bought by McKesson, a Fortune 14 company, single-A rated, we got a massive credit upgrade. We went from a single-B credit, that had some uncertainties on its balance sheet, to an investment grade company guaranteeing our lease, which means this cap rate probably went from mid-8, what we paid for it -- to, in this market right now a 6 or sub 6 investment. The point I made before about purchase options, this wasn't callable, like a bond. You might pay a little bit of 104% to repay your higher yield bond, but this was not. So we maintained that yield and captured all the upside of a credit upgrade. And that's one of the benefits of investing alongside private equity firms. This is not an uncommon result. It's something that we talk about, although we deal with underwrite, too.
Kraft Foods. This is the deal that we did in W.P. Carey Inc., the public REIT earlier this year. The leaseback with Kraft for their corporate headquarters, this was done in conjunction with their split of the company into Mondelez and Kraft Foods. They wanted to be more asset-light. They didn't feel like they needed to own the real estate. A couple of things to point out here. We're buying into this asset at not much more than $100 per square foot, well below replacement costs, probably perhaps as low as 1/3 of replacement costs. Rents are around $7 per square foot in a market that is $14 to $16, well-below market, very good downside protection. This is also an asset that they had committed to. They did an RFP about where they wanted to move their headquarters, if they were to move. They went to the Loop, went to different locations north of Chicago, and identified that this had everything they wanted in it. And they've committed to put upwards of $20 million of new money and tenant improvements into this building. So critical asset, corporate headquarters, very low basis, and rents that are on a substantial discount to market, give us a lot of protection and give us a high level of certainty that at the end of the 10-year lease, we feel they are going to renew. And if they don't, it may take a little bit of time to backfill a building this size, but with increasing rents, our downside analysis is still a very attractive investment for us, especially given the quality of the tenant, an investment grade company, everyone knows who they are.
Here's an example of a large retail portfolio, actually 2 separate transactions that we've done in Germany, Hellweg, one of the leading do-it-yourself retailers, a Home Depot basically for -- within Germany.
Gino M. Sabatini
Home Depot. Right.
Jason E. Fox
2 separate transactions. Europe, as we mentioned, has a much lower retail per capita. So we're more interested in investing in retail, getting core assets under portfolios. We have the bulk of their best stores, which is important in a transaction like this. I think you'll see later that Hellweg, buy it from a rent perspective, is one of our, perhaps the largest tenant. However, there was some opportunistic financing we used in this case. So from a equity cash flow standpoint, the exposure is much lower than it may indicate, based on the size of the deal and the rent.
Walgreens. We talked before how -- this is in Las Vegas, that we're not a significant player in retail in the United States. And really, we're absolutely not a market buyer of Walgreens and CVS, and in Home Depots and the like, kind of one-off basis. We'd buy this and this was -- the goal of this transaction was to own this Walgreens, which we did purchase for $38.5 million, a 30-year lease with Walgreens. But there's a lot of uniqueness to this transaction. I think this just kind of brings together a lot of the structuring capabilities and strong developer relationships we have. This was a deal that we bid on some excess land that was created when the city center was built, or after the city center was built, some excess land which created when they rerouted Harmon, if you're familiar with the strip in Las Vegas. This is right at the corner of Harmon and Las Vegas Boulevard in Las Vegas. As I mentioned, our goal was to own a long-term single-tenant lease to Walgreens. To get there -- and to get there, the cap rate at which we bought this, which was an 8.8% cap rate, we agreed to fund construction of a development project, which is a little bit unique in many ways. It wasn't leased up at that point in time. But we put in protections that kind of was consistent with our conservative underwriting and really downside protection. We had personal guarantees from the group developers, whose net worth was in excess of $1 billion in total. We had funding requirements that were based on, or actually funding draws that were based on lease-up requirements. We didn't fund until we had certain levels of lease-up. So we staged the leasing. And then we also had a tremendous piece of real estate, and we knew that. Even at the time we bought this, we knew how -- what the potential was. And what we built is a 90,000 square feet shopping center, the Walgreens is on the first floor that we own, as a separate unit. We own, in a partnership, the rest of the center, the remaining 70,000 square feet. And it's a multi-tenant retail. It has pedestrian bridges that lead both across Harmon and Las Vegas Boulevard directly into our second floor. Second-floor rents, therefore, are actually higher than first-floor rents, in this case.
Gino M. Sabatini
The numbers are amazing on this. We have 74,000 pedestrians a day that walk here.
Jason E. Fox
Yes, on average, I think 75,000. It's -- this location on The Strip is second only to a couple of points in Times Square in terms of pedestrian access. So you hit all the major demographic requirements that you're going to want in retail development. And at this point, this transaction is worth multiples of the cost. I think the other 2 things quickly to mention is, on top of this building, and when you go to Las Vegas next week, it would be easily recognizable. We have the largest LED screen in North America. It's a 60-foot by 300-foot wide LED screen that is going to produce -- what we think is it probably pays for itself in 2 years’ time in terms of the return. So we also own the back parcel of this lot, which the development rights up to 800 rooms for a boutique hotel. We won't build that but there's leasing rights for the airspace that we can do. So a unique deal for us, and I think that it's -- a lot of our net lease peers, it's something that this is what -- that they don't do or haven't done in the past. One more.
Gino M. Sabatini
Yes. CARQUEST. This is the deal we did in December 2010. It's a typical sale-leaseback where we get the tenant on a single lease to commit for a long period of time to pay us rent. So here we have a 20-year lease term, fixed increases every 5 years. We closed, in place with the debt from Morgan Stanley, for a fixed rate for 10 years. And CARQUEST, it's a privately owned company. These guys actually did the sale-leaseback for tax planning reasons. It's owned by a family called the Sloans, out of North Carolina, and they were concerned that capital gains, tax rates were going to go up, so they tried to get it done by the end of 2010. And we had that deadline, which we had to hit. It turned out to be a terrific transaction. It's a terrific company. This is one which we think could certainly be an investment grade company at some point in the future. So we're excited about it.
NSG. This is a build-to-suit we did over in Poland. NSG is a Japanese company. They're one of the largest producers of sheet glass in the world. They have contracts with auto manufacturers to build windshields and other parts of the car. It's actually a very good company. They have a BBB- rating by Ratings and Information, which is a Japanese credit-rating agency. And this is a good example of a build-to-suit where we'll commit to fund the project on an all-equity basis upfront. Once the project's finished, we go out and we place debt on it. In exchange, we get a very long lease, and we typically get a very nice cap rate relative to our debt cost. In this deal, we're talking a cap rate in the 9s and a debt cost in the very low 5s. So you could see there's a very nice spread there.
Jason E. Fox
I think the other thing to mention about this deal, this is our second or third, may be even more than that transaction or development project we've done with Panattoni, a large global developer. So it kind of goes to our deal-sourcing -- proprietary deal flow. This is a partnership we have. They have very good working relations with us. They trust our underwriting and pricing, and it helps their ability to win these transactions when they respond to RPs. So we've done some deals with them in the U.S. as well and it's a good partnership, and we expect more transactions out of that.
Gino M. Sabatini
Absolutely. Wanbishi, this is the deal that Trevor mentioned. It's our first deal in Japan, and the lease, it may appear a bit short of 10 years, but there are multiple reasons we think there's a very high likelihood of renewal on this asset. Wanbishi is a record storage company somewhere in the Iron Mountain. It's owned by Toyota. And this is right in the middle of that box where we're talking about critical operating asset. Without a building such as this, they would have a very tough time being in business. There are all kinds of rules and restrictions for the property. They had to be in an earthquake-proof zone. And we certainly think they're going to stay.
Jason E. Fox
I think the other thing to mention about this asset is we bought 2 of their 4 buildings. We own the ground underneath the other 2. So if they don't renew our lease at the end of the year 10, then those 2 buildings will revert to us. Our basis will be cut in half, and it's very downside protection. I think again, we think there may be some upside there, but at the very least, it's going to add a lot of certainty to these guys renew these assets.
Gino M. Sabatini
Maybe -- this is a deal we just closed. It's a CBD office tower in Houston and on the surface, it may seem a bit unusual for us. We haven't really been known for buying multi-tenant office buildings and CBDs but this particular deal was interesting to us, primarily because KBR occupies 90% of the building, and they agreed to a 17-year lease. So in our underwriting process, we assume that the other 10% would be vacant, even though it's mostly occupied at this point because there will be lease rollover throughout the term as we own it. And we said, "Okay well, what is our worst-case scenario here? We're confident in KBR, it's a very, very good credit. We know they're going to pay the rent. What's the worst that can happen to us if that 10% vacates?" The returns still look very attractive. We were able to put debt in place at closing, that's actually interest-only debt. The lenders were crawling all over each other to try to put the mortgage on this facility. And we are very excited about it. Our basis is very reasonable.
Jason E. Fox
But I think the other thing to mention about this deal, and it goes back to proprietary deal flow, this was a fairly marketed deal and it was on the market for quite some time. But what was marketed was not the deal that we did. What was marketed was a deal on which -- and this was jointly owned by KBR in an institutional fund, and what had been marketed was the lease with KBR that had a 10-year out. So effectively, you had a 10-year lease. And the pricing expectation that they had were not consistent with having just a 10-year lease in the cost of re-tenanting a building this size. One of our Investment officers though knew those brokers that were marketing it very, very well and they spent probably 6 months after the process was ended, maintaining that contact, asking about the deal over and over again about what we can do. And we happened to hit them on a point in time when we decided they wanted to move forward, and they said, "How would you structure this transaction? What would you do to get the kind of pricing, the proceeds that we're looking for?" And we said we're going to need a 17-year lease or some lease that was longer than 10 years. We settled on 17, we paid an amount that was a little bit higher than the pricing they had looked for on a 10-year lease and it made perfect sense based on the lease term and the strength of credit and that was not a deal that anyone else had the opportunity to do. It was not in the market as a 17...
Gino M. Sabatini
Yes, this guy stayed on them. He called them once a month and he happened to hit them and it was a Friday morning. He called them, and they said, "You know what, we have been talking about that. What is the premium you would pay?" It actually was a 17-year lease with a 10-year termination option. So they were able to leave in 10 years. What is the premium you would pay to remove that 10-year out and we said we'll get back to you right away. So we ran around that day. We knew the deal because we've been chasing it for a long type. That afternoon, we got back to them. We told them we'll pay you $10 million over our last bid and it never went back to market. So as Jason said, a lot of people have seen this deal but even to this day, people are like, you did that KBR deal? And we're like yes, we did it. Because everyone still assumes that 10-year termination option is still on the lease.
Jason E. Fox
I think that's our presentation. I think we’re going to hold -- no are we going to do Q&A right now? Or are we going to...
Trevor P. Bond
If you do have questions, you're certainly welcome to ask. Otherwise, if you want to wait until the end, we can also do that. Yes.
Jason E. Fox
I think we want to get the mic. If you want to hold on for 1 second.
I noticed that the lease terms were longer than the debt that you put on those properties. You had mentioned that you were match funding earlier.
Trevor P. Bond
What we do is -- nonrecourse financing has been our typical strategy for most deals. It's best for us. In terms of bringing [ph] things in the risk, that's always been our tradition. And in terms of the -- to actually match duration for 15-, 20-year leases is quite difficult in today's market. And so whatever I said that might have implied that we're always going to be matched until the end of the lease term, that's actually not the case. We usually will underwrite to a 10-year underwriting because we find that, that's sort of when you're getting in the sweet spot of when you want to be thinking about an exit. And so traditionally over the course of time, we focused on 10-year debt. Over in Europe, it's harder to get that so we're getting more like 5- to 7-year debt. We have a little bit more of a mismatch there in Europe but that's typically -- what we've done is low leverage. We amortized down in most cases, not all and typically, we've been fine with refinance.
With cap rates compressing on assets that you might be acquiring in the marketplace, how are you retaining your spread between the debt that you're putting on the assets and the cap rate that you're buying them at?
Jason E. Fox
Well, it's not easy on the marketplace. I mean, it is competitive, and we have that cap rate compression. We've also had the benefit obviously, of a low base treasury, but lending spreads are coming in as well. But it's not easy on a lot of the highly sought after transactions, which are going to be CBD properties, probably like the one we're sitting in right now. We wouldn't be competitive in this market. Instead, we'd rely on a lot of things that we talked about, to find deals that provide us with outside returns that are premium to what I think a market deal is right now. But if you think about it, our borrowing cost in a 10-year basis and just assume we're using long-term non-recourse debt, right now, it's kind of high 3s, low 4s. And for us to kind of hit target returns, a 200-plus basis point spread is something that we need. So there's still opportunities out there, given our cost of capital and how we look at when to have current cash flow. There are opportunities out there and we're finding them.
Gino M. Sabatini
When you mention cap rates have come in, and they have, but they come in on retail in the U.S. much more so than industrial and office. We're not a big retail player in the U.S. so they haven't impacted us quite as much as they've impacted others, some of our competitors.
Jason E. Fox
I don't have a percentage, but I think generally speaking, the vast majority of our deals do not have purchase options, especially during the lease term. It's very rare for us to have a purchase option during the term of the lease. We will occasionally, and we'd rather not but sometimes, that's what it takes to win a transaction, we will occasionally give purchase option at the end of the lease term. We tend to structure those, not in all cases and not the case here at the New York Times building. We tend to structure those at the greater of some premium over our purchase price and at fair market value so that we still capture that upside. The tenant still has the opportunity to control their real estate, which is what they want, so we still have a market value residual, which helps us.
To the question next to me, the first question that was asked, that mismatched funding that you have, how do you incorporate that if you do into your residual risk on each deal?
Trevor P. Bond
Well, typically what we're going to do on an underwriting is just -- and we don't have a crystal ball, but we will build in some kind of a rate increase and we do sensitivity analysis that include not just increases in interest expense, but also different rates of growth of the underlying market rent. And that's the way we do it. So it has to -- it's a stress test of sorts and each deal has to come out all right under the stress test.
Gino M. Sabatini
One thing to point out is most of the leases are indexed either on a fixed basis or tied to inflation. So part of the hedge is if interest rates do happen to move up, our rental stream should move up in a commensurate amount. And it should make the refinancing easier because our rental stream to cover a new piece of debt at a higher rate will be larger.
Do you have a follow-up?
I'll do but I think I'll do it off-line.
When looking at acquisitions, how do you decide if it goes to W.P. Carey or if it goes to some of the managed rates? And then do they have different spread requirements?
Trevor P. Bond
At this stage, every new deal that comes in is first considered for CPA:17 because we've raised that money. We just closed that fund in December of last year and at this time, we have about $350 million of capital that's not spoken for. And so we expect to invest that through the end of this year and possibly into 2014. So every deal is first considered in the light of will it fit for the managed fund and we just think that's the right thing to do and it's just the way we've always done it. I will say that as a result of now, our bigger balance sheet and a lower cost of capital, that there's a lot of opportunities that did not make sense for CPA:17, largely due to the cost structure of that fund and dividend requirements and whatnot. And so there's a lot of deal flow over time where we are bidders, but we know that we may not be the winning bidder for CPA:17 and yet, W.P. Carey Inc. can clearly afford it, and it fits right in our wheelhouse in terms of the credit, the quality of the real estate, et cetera. And so, one thing we're pretty enthusiastic about with respect to future growth is our ability to do more balance sheet purchases going forward. And so there's no conflict there. We do report back to our REITs -- the managed funds at the end of each quarter as to what W.P. Carey's Inc.'s activity has been, and we don't have any problems with respect to communicating that to them. But I think that in short, it sort of sorts itself out pretty clearly. Certain assets, that Kraft deal that you saw up on the screen would not have worked for CPA:17.
So after CPA:17 is fully invested, would you start looking at rolling in CPA:18?
Trevor P. Bond
Right now, that's in the works and has not been approved by the SEC, but it's been registered. CPA:18 will be a smaller fund. We do intend to continue the asset of the investment management business. And so yes, CPA:18 will be out there.
The one in the middle there.
I wonder if you can tell me the sourcing of the deals that you described here. How much came in just directly over the trans and how much came from brokers? And then secondarily, were these deals also shopped to the private equity market or are they shopped more to the net lease market?
Gino M. Sabatini
I would say 50% of them come in through brokers. As Jason mentioned, there are several brokers who are very big in this businesses. We have deep relationships with many of those brokers. So it often affords us first and last look. Private equity firms continue to be an important source of business for us. I think it's less so than maybe 5 years ago but we do get direct calls from that group. And then existing tenants as well, form a significant piece of our business.
Trevor P. Bond
We lost the microphone. Let's take a question down here first, Andrew.
Two questions. Can you better articulate the different investment strategies [indiscernible] WPC [indiscernible]? Two, is it theoretically possible that we have 18, 19, 20 and WPC has no deal flow?
Trevor P. Bond
Sure, the question is I don't know whether everybody heard that, to differentiate the investment strategies between W.P. Carey Inc. and the fund that currently is in its investment mode. The second question is do we have plans for CPA:19, 20, et cetera?
Trevor P. Bond
Okay, so I'll take one of those at a time. In terms of strategy, no. It's the same strategy for every deal that comes in. It's the same fundamental approach. What we're attempting to do is look for transactions that are in the less efficiently priced, more opportunistic set of opportunities that are out there. And so, if you look at the spectrum of opportunities that are available in the net lease world, as I mentioned, it's not monolithic. But if you group them all together, the most heavily marketed on the extreme end would be the individual McDonald's or fast food franchises that you can buy as individual investors, and you may already get the email blasters in your computer several times a day. And that's the kind of product that sometimes gets sold in portfolios and the point is that you can wave that product in. If you can write the check, you can wave the product in and there's very little sort of in the way of nuanced underwriting that occurs with that type of purchase. And so it's a very efficiently priced market. You refer to it really as cap rate and it's a commodity price from our point of view. We don't buy those deals unless we have some unusual situation that gives us a good price relative to underlying value. And so -- but on the other end of the extreme are the deals that are not as widely marketed or maybe they were marketed but they're very complex and difficult to do, either because a lot of capital is required in a very short time or because it requires more detailed underwriting, more difficult underwriting and obviously, as we've said, a geographic issue might be involved. It may be overseas and people can't underwrite. So that's our subset of opportunities. Now as I mentioned, because of the cost structure of our managed funds, which includes the high organization and offering cost and then those -- the lucrative fee stream frankly, that we mentioned, when you factor in how much equity you have to invest and then you put that through our model, there's quite a lot of deals that we would love to own, but we're just not the high bidder. And we know right away that we're not going to be the high bidder. And so what we like about our current positioning is that W.P. Carey can now avail itself of its own lower cost of capital and buy those opportunities. So it's not as if we have changed our approach. In fact, our approach hasn't changed in 30, 40 years. It's just that now we have a greater buying strength. With respect to the other question about other funds, I think that just by virtue of the dynamic that I mentioned, there's always going to be that type of deal that falls outside the spectrum in terms of the managed fund and yet it's suitable for W.P. Carey. So I really don't anticipate deal flow drying up with respect to our balance sheet expansion. In fact, I think that it's going to be -- it could be potentially very strong. Obviously, we can't predict what volume will be right now, but we're pretty encouraged that there's a deep market out there worldwide, there's a lot of corporate-owned real estate, which is mission-critical, it's good real estate and good credit. And this form of financing is quite important to corporations. And you can go back and forth all day long and talk about well, is this just some form of high-yield debt and what's going to happen with lease accounting and things like that, and we can go into that maybe in the Q&A later on, but we just think that there's a large supply of corporate real estate that's still untapped.
Jason E. Fox
And anecdotally at this point in time, our pipeline is probably equal in terms of deals that fit into our managed funds and ones that don't and therefore are candidates for W.P. Carey. So there are opportunities out there and this is a point for us and our investments team. We've seen a lot of these deals over the years, but we didn't have a capital source to invest there. So this is just going to broaden our opportunity set and it's really -- the investing is no different, it's just a matter of the risks that you're taking and these might be a bit lower yielding but they're very strong risk-adjusted opportunities that we think are available to W.P. Carey Inc.
Trevor P. Bond
We better take just one more question and then we should move on, I think.
Real quick. With that in mind, is that why the CPA:18 is going to be smaller in size because you're seeing more opportunities for the REIT?
Trevor P. Bond
Well, CPA:18 is going to be smaller in size also due to certain changes in the non-traded REIT industry, certain regulatory changes that make it, we think, smart to do that, smaller -- we've learned that with CPA:15, 16 and 17 that got into these multibillion-dollar sizes that the liquidity options that are available to the Boards of directors make it sometimes awkward, and we've seen some of the drama that ensues from that unfolding in the market today. So we think smaller funds are faster and more efficient to raise and then easier to liquidate. That's more the rationale behind the smaller size.
And then if I may, there's 2 of the transactions that you guys did were 10-year lease terms, I guess, it's a little bit smaller than what I would have expected. Is there something going on with that in terms of what future tenants are looking for?
Trevor P. Bond
Well, it is true some tenants perhaps moved by this possibility of the lease accounting project, to which is now tabled even further. Maybe that's caused some to go to the shorter-term leases. With respect to those 2 specific deals, we'll do shorter term leases. The Wanbishi deal, which was mentioned, is a good example of why we would do a shorter-term lease. It's a 10-year lease but Wanbishi, this fully-owned subsidiary of Toyota, a leader in its field, owns the buildings that sit on grounds that we own. And if they don't renew the lease, the leases that we own, if they don't renew those, then they have to demolish these buildings and walk away and then that's some 50% of the capacity of the site. So it's not just that it's a mission-critical facility with -- that they have on earthquake-proof ground, which is very rare in Japan. It's not just the location and the use that's very important, it's the fact that we're very over collateralized with respect to the investment. So because we had a high degree of confidence in the renewal, we decided that made sense. In fact, initially the seller, Carlyle, wanted us to buy all of them and Wanbishi didn't want to sell their 2 buildings. And we said well, don't sell it. We'll take a smaller investment but they're our tenant on half the property. The other one had similar characteristics. So Kraft, the rent is what, at 50% of market?
Trevor P. Bond
So Kraft wanted a low occupancy cost and they put a lot of money into the building. So our cost per pound in the building is very low and relative to market and then the rents in the building are very low relative to market. And they put a lot into the design and whatnot, and so we just have a high degree of confidence that they'll renew. So we are not -- we don't redline deals that are below 15 years, we prefer them. And in some ways, the riskier the credit, the longer-term you want on the lease. The better the real estate, the shorter-term we'll be willing to tolerate. I think that should be it and any other questions, please if you wouldn't mind just holding them until we get into the next section.
So I'll now turn it over to Tom Zacharias and Brooks Gordon of our Asset Management Department.
Thomas E. Zacharias
Hello, everyone. I'm Tom Zacharias, I head the Asset Management Group. We have a 3-part presentation. The first part, we'll provide some details on the W.P. Carey Inc. portfolio, that's the portfolio in the public REIT. We'll then provide more detail on some of the comments that Trevor made about our proactive asset management approach, how we structure it, what our teams look like, where they are, what the capabilities are. Then Brooks will take over and provide 7 case studies, which exemplify what we're talking about when we talk about our asset management abilities. And then we'll have a question-and-answer on this section.
But just quickly, here's the square footage of these free net lease funds and the CWI, which is the hotel-specific fund. You can see that CPA:16 is the larger in square footage, CPA:17 is growing, it'll be about same size. The hotel fund had -- this is statistics at year end, had 8 hotels, it's now up to 14 and it's growing fast.
This slide here shows the difference between WPC Inc. and then the group, which is everything. It's worth seeing that comparing the 2 green columns here as far as number of tenants. In Inc., we have 124, with 423 properties. Annual rent from our properties in the public company, 317 million, very little vacancy. Occupancy rate, 98.7%, a little higher than the group or about the same. Still very good numbers, very little revenue expiring in the next 3 years, under 15%. Investment-grade tenant revenue, the public company is 33.8. I have a slide that we'll go into later on that provides a little more detail on that. Low leverage under 30% in the public company, a little higher when you're looking at across the group with an average lease term of about 9 years.
These are the top 10 tenants. The public company in Inc., they make up about 40% of the annualized rent. We've talked about how we -- in the top 10, we have 5 that are investment-grade, 4 that are international. How are we do [ph] self retailer, U-Haul, the net lease deal, 78 self storage properties across the U.S. Marriott, also a net lease deal. 12 courtyards at airports with radius restrictions and that has percentage rent in it. Carrefour France, 8 distribution facilities. OBI, it's German retailer we have in Poland. 18 of their do-it-yourself home centers, very strong retailer. UTI, we have a number of their schools for training mechanics, interesting business. FedEx, we have their technology center in Collierville, Tennessee. True Value, 6 of the warehouses we have their whole warehouse distribution system. Foster Wheeler, North American headquarters in Clinton, New Jersey. Pohjola, headquarters of an insurance and banking company in Helsinki.
So where is the rent coming from? You'll see that 28.5% is coming from Europe, that's primarily Germany, France, Poland. What is important to know is that 80% of this cash flow is hedged for the next 5 years. We have forwards in place for recontracts of between $1.27 and $1.35. For the first quarter of 2008, we actively managed this, detects any down side in case there's a weakening of the euro. As far as the other locations of the rent, you can see that we're underweighted in the Midwest, but basically split equally around the United States.
This chart shows from what property type the rent is coming from in WPC Inc. Different in North America than Europe and one of the things that you have picked up on is that we own very little retail in the U.S. We own more REIT and it's like 5.4%. We own more retail in Europe and that because there's real barriers to entry and we're able to get these good, critical portfolios of these companies. It's very stable, good, long-term rent. In U.S., the other asset class that Trevor mentioned, industrial. It's a very sticky tenant. We've had -- we have bottling plants and once they make the commitment to build these bottling plants, they aren't going to leave after 10 or 15 years. I mean, we keep renewing these leases and we just did a 15-year renewal on the Dr. Pepper bottling plants in Texas. The second-largest category here is warehouse distribution. It's very good investment class throughout Europe.
So this is an important slide. We are net lease portfolio, but we have increases built in to 98% of the revenue. And of that 64 -- 68% of that is CPI-based. This -- we only have -- the other is the percentage rent on the mark board [ph] portfolio primarily and this -- a lot of internal growth comes out of just our existing lease stream. We saw the numbers $317 million of revenue at 2%, that's like $6 million built in before we do the other stuff, which we'll talk about in a minute. Very excited about that.
As far as the profile of the credit in WPC Inc., 33% is investment grade. That means if we have leases with rated tenants, we also have another 16% that's implied investment grade. And this is a category that is -- that consists of companies that are subsidiaries of investment grade, that just -- we just don't have the parent on the lease or companies that meet the metrics of being investment grade, they just don't have rated debt.
We actively monitor the credits of our tenants in our leases. I mean, you heard Gino and Jason talk about the restructuring and all this stuff. We put in a leasing with all private companies that they need to submit quarterly financial statements, yearend audited financial statements during the whole length of the lease. That comes in, we have an extra -- make sure we have a person who makes sure they submit all the material and that's analyzed by each transaction officer who's responsible for that credit. So we're constantly looking at it. We're doing it, we actually get daily alerts from Capital IQ of all activity with our roughly 300 tenants. And there's a real sort of culture of finally -- of really knowing what's really going on unlike whatever existed in the other real estate company.
We have a watchlist, and that's tenants that are either operating in somewhat challenged industries, we have, let's say, some homebuilding tenants there. We used to have all the parts in the watchlist. They've actually done a remarkable turnaround. We also might have some leveraged companies that we're monitoring.
So we're actively monitoring all credits. Two more slides as it relates to the portfolio. Here's a very manageable lease exploration schedule for the next 9 years, it's either between 3% to 8.2% of the revenue. And what we do is we work 3 to 4, 5 years in advance of when the lease is going to expire as to what the tenant's intentions are.
And so you'll see we're -- done all of 2013 already. 2014, we're very far along on. And we feel very comfortable about what the -- either renewing the existing tenant or selling a replacement revenue stream.
As far as the debt maturity, again, well-laddered. Maturity schedule, we have in the public company about $1.6 billion of mortgage debt. So 2014, which is one of the bigger years, that's only about 13% of the debt coming due. It's 10 loans, very manageable. We also have the line of credit, that's the end of 2014, it has a year extension. Katy, in her presentation, will talk a little bit about the debt strategies that we're looking at going forward.
So second part of the presentation. What do we mean by this proactive asset management that we talk about all the time? Because we aren't really looking at this as these long-term leases where nothing changes because we sign up as long as we can, 15, 20, 25 years, but then, we're constantly daily looking at how these tenants are doing. What if the opportunities may exist? Both what's going on or what we might do at the asset level and how that might affect what goes on at the portfolio level.
We're looking at maintaining portfolio returns and getting the best asset level of return. Mentioned about industry and credit analysis. Tenant relationships are critical. Books, in this case, studies, we'll give many examples of how that brings -- comes to bear in the kinds of returns and value we're able to create. We use an investment banking model, where we have 13 transaction officers, each responsible for a tenant relationship. And they're -- and the release of the private companies are very much in contact over time with the CFO, what their needs are. The larger companies, it tends to be the head of real estate.
Local markets, inside it's critical. We use -- then whether the investment team does, we use a network of brokers in each market where we have property. It works very well. They're many times, as I'd say, in a 15- or 20-year lease, the 10-year financing comes due when we have to make a decision, do we want to refinance, do we want to sell, what's the best outcome for the fund that we feel it? At a certain price, we will be sellers. Another price, we'll refinance. And we will be able to kind of call up who we think is our best broker in that market and say, "Look, here's what we're thinking, if you can produce a buyer at this price or better, we'd be interested, otherwise, we'll refinance." And there's some examples where we've exited very strategically at prices that were well beyond what we thought they were worth. The people didn't see maybe the same risk we did.
In relation to residual risk analysis, which I covered, proactive lease restructuring speaks for itself. So I have 3 more slides, then we'll start on the case studies. We split the roughly 42 people that are dedicated asset-management in 2 groups. Transactions team, they are the ones who are working with the tenants on a variety of things, I have a slide on that in a minute. The operations team has a specialized expertise, the larger, the ones that are working on, monitor, executing built to suit, they're collecting the rent, they're doing the lease compliance, the rent increases. They're managing our insurance. Tenants are required to have insurance. We put in sort of a contingency above that in case their insurance is inadequate. There's mention of letters of credit, security deposits, all this needs to be managed and we have a team doing that, and both these teams work together. So you have ability to do a high volume of transactions, with a high degree of compliance.
Just to give you a sense of scale. 2012, we had -- the transaction teams did about 100 transactions, roughly about 30 dispositions, 30 refinancing and about 40 leases, totaling about $850 million in transaction volume. The leases being additional lease revenue, that's was around $250 million, about $300 million of dispositions, $300 million of refinancings. They're very active.
How are we doing global asset management? We're doing it with offices, where we need to have them. So in New York, we have a total of 19 people, the transaction officers and the operations team.
Amsterdam, we opened the office in 2008. We have 21 people there. We have a little more in operations because we also have tax accounting, corporate compliance, built to suit monitoring capability. So we have more people there that -- in that group and it's really a remarkable team there.
In Shanghai, we have 2 people that are dedicated asset management. So 42 in all in many languages. And you need -- so you need, in order to do this global business, you need to have the language and be in the same time zone.
Last slide. The transactions team is doing leasing, financings, dispositions, lease modifications, workouts, bankruptcy, we have slides on that. Operations team, we've talked about it.
And we'll do questions and answers at the end. But now, I'd like to go to -- turn it over to Brooks Gordon, he's the person who heads our transaction team. And here he is.
Brooks G. Gordon
Thanks, Tom. So I'm going to quickly take you through some case studies, which are examples of each of those types of transactions that we discussed. And so, first, I'm going to talk about how we proactively minimize vacancy and downtime when these leases are scheduled to expire.
The first thing, and I think there's a common theme that you've heard all day is that tenants relationships are absolutely critical. So each member of the transactions team has a portfolio of tenants and they have very close relationships with them. Those are constant conversations. We know them personally. We're out visiting these tenants all the time. And what that results in is our ability to proactively and early renew these leases. That's a huge focus of our group. It's something we're doing all the time. And we only get that through that communication with the tenant.
In addition, I think Tom mentioned, we have extensive network of brokerage relationships. We really leverage this very effectively, we think. The investment team has very good relationships. We know those same people in these markets. That gives us very clear visibility on, not only what's going in the market, but what's going on with our specific building. Is our tenant in the market, are there competitors coming in the market, is there new capacity coming online, all those things. That gives us very good early visibility on the leases.
And in the event we do we think we're going to get a vacancy, we're very strict about the maintenance and CapEx obligations. One thing that Jason and Gino will always talk about is these are absolute net leases in the vast majority of cases. That means the tenant is responsible for absolutely everything with respect to the property. And so years in advance of their lease expiring, we're doing extensive inspections, engineering work, to really make sure that their upkeep is in accordance with the lease.
So a quick example. We call this the Binoculars Building. This is a -- right on downtown Main Street, Venice. You've probably seen it if you've been out in Venice, California. It's a 67,000-foot Class A office building. It was designed by Frank Gehry. We originally acquired it in 1994. It was the headquarters of a very famous ad agency called Chiat/Day, which is a unit of Omnicom, investment-grade tenant.
In 2010, and in the months and years before that, we had a very good relationship with Omnicom. And we got an indication from them that the space wasn't working anymore. It's too small. They were going to consolidate several different ad agencies in another building. And so we were -- we had extensive negotiations to keep them. It didn't appear it was going to work out in early 2010. And so we went through our typical program. We did a full inspection of the building, did a large financial settlement with Omnicom on some different maintenance items. But most importantly, we were marketing the building while they were still on lease. So we had a good 9 months of marketing period during 2010 while we're collecting rent, and we were able to secure Google. Binoculars, for a facade, helped the fact that Google became our tenant there.
But one of the key issues with that, at 70,000 feet, while they wanted to be here, this is going to be their Southern California headquarters, it didn't fit, it wasn't big enough. So same problem. So what we did is we got creative. We went and talked to the neighboring landlords. So all behind this building, behind Main Street, there are several other large buildings. And we convinced them to work with us. And so what we have here is a 200,000 foot now campus right in downtown Venice. They are now paying rent about 30 bucks a foot, that's roughly double what the rent was from the previous tenant. We put about $5 million into the renovation, and Google has more than doubled that in their own work. And if anybody's familiar with Google's program with respect to office building, you can imagine it's a pretty interesting facility now.
We got a 15-year lease and subsequently refinanced with coterminous debt in this case with insurance company, very attractive terms. And the takeaway here is, again, that early visibility and being able to get creative and flexible. So we think there's a great outcome, it's really fundamentally changed the nature of Main Street in Venice, it's really a creative hub for technology companies now.
So when do we sell an asset? There are a bunch of different examples about how we approach this. But we're always looking at all these investments in real time. And we like to be opportunistic. And so a couple of different ways we do that. The first is where we think the market value materially exceeds what we expect the intrinsic value of the assets to be. So really just mispriced market opportunities.
Another twist on that is where -- how we're taking very constant approach to credit analysis and real estate analysis. So if we think the market is not appreciating a particular risk and mispricing it in that respect, we'll go ahead and try next year to transaction there as well.
Another example is monetizing upside. So for instance, excess land. When we acquire a property, an office building, say a leaseback transaction, there could be several acres of excess land, and we recently did one out in Pleasanton, California. We were able to entitle that for residential over a several-year period and dispose of that property to a developer and keep that upside, not impacting our lease stream.
And finally, there's these end of life cycle, as we call it. If there's an investment that's a second or third, if we re-tenanted it several times or if it goes vacant, often we'll make that assessment, what's the best that fits with our investment strategy and selling assets. In that case, it's potentially the best option for us.
So a couple of quick case studies. This is a 200,000 foot industrial building in -- right near the airport in Miami. One of the hottest markets, industrial markets in the country right now. We've been watching it very closely for years. The tenant is B/E -- was B/E Aerospace. We acquired the property in 2002 for approximately $15 million. And what you'll notice, on the bottom right of the building, there's a 3-story office building dangling off the side. And so this is a purely industrial market, and we didn't like the residual risk picture of that office space. It really prevents the cross-dock and multi-tenant capability of the building. About 25% of square footage is in that office building. And as a result, we think the renewal probability is very low. The building was originally built for a predecessor company called M & M Aerospace that B/E Aerospace bought. So you can imagine they had their headquarters and their industrial space in one building. When B/E Aerospace acquired them, that's no longer the case, they sort of used the office space because they have it.
So in 2012, we had our mortgage coming due and we were looking at this market several months in advance -- years in advance, I should say, and we saw an opportunity. People were overlooking the residual risk in that market because institutional investors want that exposure in this market, it's a good credit. We have several other buildings with B/E Aerospace. We have very good relationship with them. We understood that this office space was very much not a priority and that the rent was about 20% above market.
So as a result, we end up selling asset. We did it a market process with fully marketed disposition effort. And that's really an example of us taking a view prior to mortgage maturity. And the key here, to tie it back to Jason and Gino's conversation, we were in parallel chasing the Kraft deal. We knew that was going to be an option. And we saw this as a perfect opportunity to trade into that asset.
So what we did is we traded out of a -- some investment-grade credit with a 10-year lease remaining, 20% above market rents, very opportunistically into the deal that they discussed, which had much less residual risk, similar lease term, investment grade credit. And so we're looking for these opportunities all the time.
Here's a clear example of our take on retail. We had a portfolio of 12 Best Buy stores, this was across the country. We did the original deal in 1993. It was actually 17 stores at the time. In around 2002, we restructured that one. Swapped some stores with them. They wanted to shut certain ones, so we ended up with this 12-store portfolio. About $46 million purchase price. And at the time, we had about 6.5 years of lease term remaining.
We had a lot of issues with this portfolio. #1, it had partial renewal rights. The tenant could cherrypick at lease expiration. We very much didn't like that. We think it had above market rent on average and especially in specific markets.
The average store sales were very strong across the portfolio, but at a huge range. So certain stores were very weak and a few really carried the day that made that average look much more attractive.
But the key here was that 70% of the rent was coming from the big format store, 50,000-foot and above actually format stores. And we -- in listening to their earnings calls, over the course of several years, they made it very clear that they were trying to scale down that store size. There was no mystery there.
And from a credit perspective, it was an investment grade rating at the time, we thought that was suspect. We had a negative view on this industry in their competitive landscape. And we really focused in on after the Circuit City bankruptcy and took a much closer look at this.
So as a result, in 2011, we did an accelerated marketing effort. We ended up selling the asset to an institutional investor for $53 million. We thought that was a great exit relative to our expected value in the downside case. And just to close the loop on that, after we did the disposition, Best Buy, as many of you know, subsequently downgraded to BB-. They've actually closed 4 of the stores in this portfolio already, representing about 30% of the rent.
So this is an example of us really taking a view on a space in terms of an industry and a product type and moving forward executing on that transaction. And we think that was a good outcome. We get that from that constant credit and real estate analysis.
Another opportunistic sale, this is a portfolio of 6 nursing homes. We did a deal in -- and they're outside of Paris. We did the deal in 2002. We acquired it for $43 million and in -- we worked to restructure this deal. In 2009, there was -- we were able to extend the lease by another 9 years. And instead of just putting it back on the shelf, that kind of triggered our thinking, well, what's the long-term strategy with this asset? And in 2011 and '12, we were looking at it and we decided because of the age of the asset, because of some of the CapEx requirements we thought in the future and some potential residual risk, let's look at an exit. So we approached an investor, a French REIT, that had a lot of experience in this space and they wanted to bulk up on this type of asset, about an acquisition.
The keys here is we structured the deal in such a way that we did it at a share sale. We avoided French capital gains tax. We had them assume our mortgage in place. That's a very efficient transaction. So we ended up -- the outcome was selling for $74 million in 2012. That was a, I believe, a 27% IRR. And we thought this was a very good exit, an efficient transaction, and one thing to note, which enhanced it, was that when we did the deal, it was a, essentially, parity exchange rate and when we exited, it was about 134 [ph] on the euro. Again, efficient deal, opportunistic exit and being able to get creative with the structure allowed us to move on from that investment in an effective way.
Okay, so when do we restructure a transaction? When I say restructure, I'm talking about taking the status quo and doing something else. So we're not talking about restructure from a workout perspective, we have a different slide on that.
So several ways. First is the -- your traditional blend and extend. We'll approach a tenant early, extend the lease, blend the rent over a longer period of time. We're very proactive with that. Again, we were working on lease explorations now that we are happening 3 and 5 years out. And we have a good track record with doing that.
As Jason and Gino mentioned, we have -- many of our investment are multi-property, multistate deals. And over the course of a 20 -- 15- or 20-year lease, a company very well might not require all of those in the long run. So we'll work with them to figure out their priorities very early. We will often sell one piece, extend on the rest and that gives us a good long-term stability, it keeps our tenants very happy, and we're able to be very flexible with them.
One example, we have 2 slides on, is expansions. This is another example of that proprietary deal flow. No one else can do these deals that we're expanding properties we own and we're working very closely with our tenants to see what their capacity needs are. So I have a couple of examples of that.
The credit upgrades, we can't stress enough. I think Jason is a little modest on the McKesson deal. That's one example, but these happen all the time. So any one, you can't predict. But over the long run, we've had a very good track record here. These are noncallable leases. When the company is acquired, it grows organically, we're able to move up the chain and get credit upgrades, and the yield stays in place and the value of the asset substantially increases and we -- that value enters to our benefit and our investors.
The final one, is again, on long leases like this, especially with companies that involve with M&A. They often need to sublease properties. We will work with them to do that. So we don't just say, "Go, sublease it on your own." We'll say, "Why don't we help you with that?" We have the expertise. And we'll make sure we're putting the right type of tenant in there, we'll work with them to do leases beyond our primary lease term and actually go to direct with them in certain cases.
So a couple of quick case studies. This is a tenant called Gestamp. It was a property we acquired in 2003 for $15 million. It's a 400,000-foot auto parts manufacturing facility. The interesting thing to note here is the Mercedes M-Class is manufactured about 15 miles down the road. So when Jason and Gino talked about criticality, that's more than just the criticality to our tenant, it's a criticality of their customer. So this plant serves the Mercedes M-Class, it's a 4 million square foot facility down the road. It's absolutely critical to the supply chain.
As you'll note, those are Schuler Presses, that's another tenant of ours. So we had very good communication with Gestamp. It's down in Alabama. We didn't -- we were getting towards the end of the lease and we were about 5 years in advance, saying what's the plan? What do you guys -- what's the strategy? And so we were physically down there, meeting with them, and they said, "Guys, we're growing like gangbusters. Mercedes just put tons of capital into the plant down the street. We're going to need to get spillover space if we can't figure something out here. So what can you guys offer?" So we said, "We're happy to expand the building for you, it's designed to do that." We actually built the building. It was a build-to-suit transaction.
So in 2013, we agreed to a new lease with them. We're putting $6.3 million in the facility, a new 15-year lease, expansion-ing by 80,000 feet. And a couple of results here is, #1, that's an accretive transaction for us, it's proprietary deal flow, and we understand the tenant, we already know the real estate, it's very efficient. But most importantly, in our view, we extend the lease, but even more importantly, increase the renewal probability. So if they were leasing a spillover space in a neighboring park, we think that fundamentally reduces the renewal probability and the criticality, so we can proactively increase criticality by doing these transactions. We don't get that without physically being there, meeting with the manager of the facility, not just the finance guy, but the guy who actually designs the work process and understanding his needs and bringing that opportunity back to his boss.
Here's another very similar example, but a very different stage in the asset's life cycle. We actually just announced this, this morning. This is a deal with Harbor Freight Tools in Dillon, South Carolina. We did -- it's 1 million square foot distribution facility. We acquired it originally in 2011 for $35 million. And just today, we've agreed to basically double the size. They're growing very quickly and they need more capacity. And we said, absolutely, we understand that, we love the credit, we like the real estate. And again, most importantly, we can extend that lease and do a very efficient transaction. So we put in -- we have agreed to fund another $37 million expansion. That's, again, very accretive, efficient deal. And this is -- these follow-on deals, they're not just occasional, it's a constant thing we're working on. And as Jason said, I think the best word is installed base, which we think very few have access to in a similar way.
So we love these deals, we're going to do many more of them and those opportunities will be coming regularly, we hope.
Okay, just a few more. This is the -- we want to talk about how we proactively manage defaults. Because they happen. It's something that we own, and we think we manage very well. Our track record, we think is pretty good here when defaults do happen. #1, again, the same theme, early visibility is the critical piece. We would much rather be sitting down with the tenant with their PE sponsor to understand what their strategy is long before we got a notice they're in bankruptcy. What that allows us to do is provide alternatives and say, "Guys, here's the best outcome. We have an alternative user for this building; we're going to sell this asset. We will restructure the lease here, allow you to avoid that default together." We get very creative, which we'll have a slide on that. And we can be very flexible with those outcomes. When things do go into the worst case, we have very sophisticated internal bankruptcy expertise, our leases are very highly evolved to contemplate that outcome, as rare as it is. They're designed to protect us in that outcome. We have excellent legal counsel as well, so we think our outcomes on bankruptcy on the whole are actually quite good.
And finally, as Gino mentioned, at the end of the day, we do use nonrecourse debt when structuring the new investments.
So a quick case study. We did this transaction in 2003. It was a portfolio of 17 fitness clubs. It was a very large transaction, about $200 million deal with Wellbridge, which was a PE-sponsored company. And so we did it in 2003. And approximately 3 years later, we were monitoring the credit of Wellbridge, we didn't like where it was headed. We were also monitoring the performance of the gyms and they were not competing well in the markets. And we were understanding that competing gyms were doing better, other operators were doing better. And so we approached their sponsor and said, "Guys, what's the strategy here? What's the long-term vision for this investment?" And I think this is a point we need to stress because that's 3 years after we did a $200 million investment. We think that's pretty unique. Many of our competitors might not be willing to roll up their sleeves and dive back into an investment they just completed 3 years earlier.
Well, we needed to be proactive on this one because we didn't like where it was going. We didn't like the residual risk associated with these investments. So what we did is we worked with them to find new operators. We put Life Time fitness in 6 of the gyms. It's a best-in-class operator. We have a close relationship. We've done, I think, 4 follow-on transactions with them. And we love doing business with Life Time. We put Town Sports into one other one. This is actually in Boca Raton, Florida.
And in 2007, having done that, we sold 7 of the gyms to a REIT for $77 million. Not the ones leased, we kept the ones leased to Life Time. We then refinanced the leases, the portfolio lease to Life Time with the new nonrecourse debt. And we thought the investment wasn't stable. We had Town Sports in one of the other investments. While we were in close contact with Life Time and we were speaking with their management, it was impressive management, best-in-class operator and they said, "Guys, these gyms are diluting our margin across our company, they're subpar, what can we do?" We said, "Look, the most -- the best possible outcome for you is if you just own them. You guys should buy them back from us. You'll feel more comfortable putting CapEx in." From a financial statement point of view, the margins will improve because the rent goes away and what they did is they acquired their portfolio for $108 million in 2011, they actually assumed our in-place debt at their expense, which made it a very efficient exit.
And as a result, this transaction as a whole, achieved approximately 10% IRR and which we think would have been significantly worse had we not been proactive and addressed the situation and brought them this outcome. So again, credit-driven decision here and a proactive approach allowed us to avoid a potential large downside situation. So a final slide on -- just quickly on how we approach mortgage debt. I know there was a couple of questions about that. It's a big part of our job and it's a very well-laddered schedule.
So #1, in any given year, our transaction volume is very manageable. We want to have a comprehensive strategy 3 years, 2 to 3 years prior to mortgage maturity. We're looking at the lease -- refinance versus sell decision. We're looking at what do we need to extend the lease early, so that when we do have a refinancing, we have the lease term in place. That only happens, again, with this communication with our tenants. We have -- we do all this in-house. It's very rare that we farm out a refinancing effort to a broker. We have direct lender relationships, extensively in the CMBS and bank balance sheets and insurance companies, as well as we've, over the years, developed a lot of regional and local lenders. And so what this allows us to do is with any given investment, really optimize the capital source accordingly.
So as you all know, some assets are perfect for CMBS deals and some really need to be a local lender who lives a mile away from the site just because he can understand it better and is willing to do -- underwrite a particular risk and everything in between. So we really do take out a tailored approach asset by asset, optimize the lease and then put the best possible financing in place. Again, almost always long-term fixed-rate financing when available.
We do that opportunistically. If we have a big spread between where we could refinance net of prepayment costs, we will go ahead and do that so we're not just waiting for maturities to happen. And one thing, which is subtle but is absolutely critical, is the sophisticated document negotiation. So again, we're not farming these documents out to a law firm and signing when they're done. Each of the transactions officers and investments officers negotiates every word of those documents very closely and we've got a lot of experience with that and in the long run, those specifics that we've negotiated have proven to pay off time and again. Médica, Life Time, those are examples that we had negotiated those provisions to allow them to assume that debt. So those are the case studies and quick description of the various buckets we put these transactions in. Again, as Tom said, we did about 100 of these last year. And so it's a productive group.
And with that, I'll conclude. #1, it's a very large and diversified portfolio. We have a very diverse skill set to match. And we think that unique staffing model allows us to keep that relationship continuity, which, I think -- you've probably gotten the picture, that's something we emphasize very much. That allows us to be highly productive and in this core group, this proactive asset and portfolio approach we think allows us to maximize returns for investors and the critical thing that I want to focus on is that we replicate these outcomes, we think over and over. So when we've had a particular experience with a certain type of investment, we'll then try and look at everything else in that industry, everything in that property type, everything with a similar dynamic and say, can we replicate that again and get the same outcome? And often, we do. So that's the concluding slide. I think from there, we'll do another quick round of Q&A if there are new questions.
There's one up there.
Can you talk about on an overall portfolio basis, maybe over the last 10 years, what's been your average renewal rates across the assets, what percentage of those have defaulted, what percentage of those have been extended and what the average basis is in your rents? I love these cases, I think they're very instructive, but can you just talk in broad terms about what's been your experience, what percentage of rent sort of 10 years out, have you actually been able to retain?
Trevor P. Bond
You want to take that? I can -- take it, Tom.
Thomas E. Zacharias
Yes. So 2 questions I think there. One was renewal rate and obviously, it's a range. But our experience has been in that sort of 70% and 80% range. Again, certain property types domestically are very different than in Europe. So that's, again, why we love certain types of industrial assets. We think that's very sticky. Gestamp being, in that case, being a perfect example. In terms of default frequency, I don't have that stat right off the top of my head, but what I can tell you is that over our history, we've had a default frequency more akin to an investment-grade portfolio from sort of a Moody's default frequency standpoint. But we think we're getting paid a yield more akin with more of a BB+ type portfolio. And so that really comes from the diversification, criticality and our downside protection.
Think we have one -- Andrew in the middle.
Little different topic than what you've been discussing but are there opportunities to build in euro protection beyond your hedging program into lease terms?
Thomas E. Zacharias
It's not something we've been able to get. I mean, we're always in a competitive bid situation. So in those cases where we've suggested it to the deal team, they haven't been able to really do that. So I mean, we get nonrecourse debt when we can in the local currency. We think that's a natural hedge. And so I think most of the time, we're content with the 80% or so of the cash flow is hedged in that currency.
And I think you said that's hedged out over a 5-year type of term per series?
Trevor P. Bond
Yes. We have a series of hedges. We're always sort of keeping an eye on the market. And when we can, we improve upon it by pushing it out. So given the natural cycles that exist, so that when the euro changed a few months ago, we went ahead and took advantage of that to push out -- I'm sorry, when it improved a few months ago, we took advantage of that timing to push out the hedge. Back there.
I believe you said you had more than one Best Buy retail outlet and that -- like we sold one of them. You're monitoring very closely I assume the balance or are you...
Thomas E. Zacharias
All right. So we sold all but one of our Best Buys. And the one we continue to own is in Torrance, California, It's right on Maine and Maine of the Pacific Coast Highway. And we think it's actually one of the best retail locations we can -- we've ever seen. And so we're working on it. It's actually a Best Buy and an OfficeMax. So actually next month, we're going there and meeting with the tenants, as well as the development community to see if there's maybe a higher and better use there. That's actually a good sample of sort of the opportunistic approach. Those have, I think, on average of about 8 years remaining on the leases. But we think there's actually a potential to have some upside there. So that format is a bit big for Best Buy. We think we might be able to shrink them down and improve the asset. And there's actually an opportunity for a pad site as well. So to answer your question, we're watching Best Buy very closely. But in this one, it's actually -- we would be best if they weren't there. So we think the downside is actually very attractive on that.
In the 20% to 30% of the situations where you're not able to achieve a lease renewal, how much time would you give to market the property to find a single replacement tenant? And if you're not successful with that, would you revert to a multi-tenant situation before or sell the building vacant?
Jason E. Fox
Yes, it's interesting. If you look at our vacancy rate, which is very low, you'll see that we're way out in front before the lease expires. So we have a plan -- there's not really -- by the time that the lease is up, we either have it renewed, a new tenant or it's sold. And we aren't holding these things long term vacant. And examples, what we just showed you, let's say what happened with Google, what we knew with Omnicom, we knew they were leaving, we have a strategy in place. So we're very -- we move very quickly because we have a lot of visibility and lead time on that.
What percentage of your dispositions are third party dispositions as opposed to related company dispositions?
Thomas E. Zacharias
When you say related company, you mean the tenant buying it back or...
No, I meant more WPC 16 buying WPC 15 versus WPC 16 selling to a third party, a handful of assets.
Thomas E. Zacharias
So none of the disposition activity we're referring to is intercompany or -- it was in WPC Group. So to answer your question, over those, 100 transactions, none are internal. There is a large subset that are with our tenants. We think that's a great outcome a lot of the time. Life Time Fitness being an example. So that's over 3 years. I think we've done 750 million or so of dispositions. Of that number, 0 is within the company.
Gino M. Sabatini
To clarify, CPA:16 merged with CPA:14 in May 2011. So technically, that was a sale of a lot of assets to CPA:16. At the time, investors were given the opportunity to take cash at a third party determined NAV or to roll their shares into CPA:16. So I mean, just to take the question literally, that has happened. But we would never -- we think that would be a bit too much of a confident to say, "Well, hey, the best buyer is the next REIT that's out there." That would be -- and we think inappropriate.
The other question, in that situation that you just mentioned, the 14 disposing the 16, would WPC collect any sort of management fees or disposition fees on that?
Gino M. Sabatini
Well, we were entitled to fees in that transaction. We were entitled to, in fact, about a 50 million plus, what was called a termination fee, that was incentive-based, there was a percentage over a hurdle. We had earned the hurdle based on what the NAV was as determined by the third party and on the purchase consideration. But what we chose to do, because there was such a high cash election, and there was a shortfall in the amount of cash that would be required to make the transaction happen, W.P. Carey did invest the fee into shares of 16 instead of taking cash. And then also W.P. Carey invested 120 million of fresh equity into the transaction. And that is why we now own 18% of CPA:16 because the board and the investment committee had to look at that like every other investment. And since we knew the assets, it was easy to underwrite them. We just decided that it was an accretive transaction in its own right and gave us some strategic advantages and things looking towards the future and just control over that investment.
And then also, I guess, just big pictures, stepping back a little bit, is there any consideration given from the litigation issues with non-traded REITs and from the complications and the volatility in your fee, your manage fees on the actual -- what you're earning on the income statement, is there any consideration to maybe eventually rolling all that up and making it just more simplified, just become WPC and stop the non-traded CPA kind of funneling into it?
Gino M. Sabatini
That's a great segue into the whole second half of the talk because it speaks to the strategic value of the platform. And certainly, we could zero it out and walk away. And I think we would enjoy a long healthy life as a REIT that only does what the other net lease REITs do. But we just think that it's of tremendous value. And we're going to get into the specific aspects of the value in the next part of the talk. So it's a great question and we'll speak directly to that.
So if that's it for now -- and again, you can ask questions at the end as well -- why don't we -- I think we're going to take a little bit of a break right now? 15 minutes? If possible, 15 minutes, and then we'll get started again. Thanks.
Trevor P. Bond
I think everybody's back from our break. One of the questions towards the end of the last session was a perfect segue, as I mentioned, into this next section. And the question was reinterpreted as why we're crazy enough to stay in this investment management business, maybe that's one way of putting it. And we've got some good answers for that. We love the business, in fact. It's very strategically valuable to us. It is in fact, the original business that Bill Carey really created back in 1973 as we discussed, and so -- but there's much more than just the maintaining of the tradition. We think it's extremely valuable and unique.
And so John and Mark are going to get into more detail about that. Thanks.
Thank you, Trevor. Welcome back. Welcome to our Investor Day. This is not our first Investor Day, but it feels like one because I think it's the first time where we had more investors than employees.
So -- and we're new to the REIT world. But as Trevor said, we've been at it for quite some time. In fact, 40 years. And over that time, I hope you got a sampling of what makes us different and what has made us successful over the last 40 years. And I think that if I had to put a theme on what we have done over the last 40 years, I would say that we've been doing the same thing over and over again. And at the same time, we've changed a lot. So what do I mean by that?
In fact, we've been doing the same thing, but we keep fine-tuning what we're doing and we keep extending what we're doing in a way that's organic and deliberate. So European investment is a perfect example of an extension of our core competence into a different market. And that's what we do in terms of regions. That's also what we do in terms of when we underwrite a different industry or different property type.
So because we've underwritten dozens of industries over the years, we're still staying in our core competency, in our comfort zone, when we're underwriting a new industry. And we spend a lot of time doing that and we do it in a deliberate way so that we're still applying what we do best in a new way, in a new industry. And that's the same thing we do when we underwrite a new property type. So that evolution that's occurred still feels like we're doing the same thing. And it's something that we've done over and over again, and we have core competencies at many different levels of the company.
So obviously, at the investment team and asset management team that you observe today, that exists in every layer of the company, including the senior management and the board level at the Investment Committee.
But that still doesn't mean that we don't make mistakes. So we're constantly trying to learn from our mistakes. And as Brooks said, we try to learn what worked well in a particular transaction and try to extend it all across our group. And we constantly refine that, and that's really where the institutional knowledge comes into end, where we can create that extra return on behalf of our investors. And so we're constantly looking for that extra edge in terms of generating a return. But at the same time, we're extremely mindful, as you heard earlier, of protecting the down side for our investors. So we want to make new mistakes. And even after 40 years, when we make new mistakes, we'll try to learn from that.
But -- so our investment process and philosophy and discipline has stayed the same, but we've been quite willing to be -- willing to change over time. In fact, we've actually been transformed over the last 40 years. We've gone from a C Corp to a Sub S as an LLC to, finally, a REIT. And we've transformed ourselves from a pure asset manager into a public REIT. And that transformation, obviously, culminated with our conversion to an acquisition of CPA: 15 last fall.
So now we have this publicly traded REIT, and we believe that getting access to capital markets is very, very important for our future growth. We also believe that having the currency to pursue future growth opportunities is also very, very important.
So now that we've done it, I think that question that was asked at the last -- in the last session is a perfect one. Right? Why do we keep doing this? Why do we want to have this investment management business? And admittedly, it seems really, really complicated. And why is that?
I think a big reason for that is that we own some assets, we own assets as 100% owner and a majority owner and a minority owner. We also own assets indirectly as a fixed shareholder of our CPA funds, we're also the general partner and the manager. And depending on the ownership, it creates different reporting. And I know some of you have tried to model W.P. Carey and have spent a lot of time doing that, and I know that it seems a lot more complicated than other REITs that you looked at. And that ownership structure and our revenue stream does complicate our reporting, but complex reporting doesn't necessarily mean complex business. And the way we run our business is quite simple, with all the complications, and the reason is it's because we apply the same process.
So I think Trevor has said it before, whether we purchase an asset for our CPA fund or for ourselves, it's the same process we pursue. It's the same origination process, it's the same underwriting, same pricing committee, same investment committee, for all of those transactions. And the same risk return analysis that we pursue. It's also the same people doing all of those things.
And finally, this is an important distinction, it's the same control we have all with that process. So we make all of the asset-level decisions regardless of whether we own 100% of the assets or 2% of the assets, whether it's on our fund or not. So because we have the same control over the asset, we can leverage ourselves and leverage our people and platform in extending it across a wider variety of opportunities. So that creates the operating leverage for our business.
So another way to look at it, our investment management business, it's just as another source of capital. So I would ask a different question. Instead of asking us why do you still pursue this investment management business, I would ask a different question to other REITs and their management teams.
If they had assets to capital that's non-dilutive to current existing shareholders that's also long-term and patient and very sticky and it's also may provide cycle-resistant access, so that it may be available when capital markets are frozen or too expensive, would you want access to that capital? And I think that the answer, for most teams, would be a qualified yes. And what would the qualification be? I would say, some of the questions might be how much does it cost and how much time and effort and aggravation does it take to have access to this?
And what if the answer is, I can wave a magic wand and you can have it with no money and no aggravation and just for good measure I'll throw in a track record that goes back over 30 years. And that's, in effect, what we have.
So this is our track record going back to 1979, our very first CPA fund. These are all public information. And I don't want to bore you with all the numbers, but what I'll point out is that obviously, this has been achieved over a very long period of time, through many, many different cycles, both real estate markets and capital markets. And also, these numbers are net of all of the expenses, including significant fundraising cost that's been much talked about and all of the expenses of running public funds and our fees and participations, which are also significant. So the investment level returns that produced these investor returns are in the high teens, and that's a strategy that's produced, it's cycle tested.
So those are the strategic benefits of our investment management platform. But obviously, we're here to make money for our shareholders. So what are the economic benefits? So in our business, we have very high margins and coupled with the operating leverage I talked about, that produces very attractive cash flow and FFO for our shareholders. Our -- it also allows us to have, to spread our cost and it's really, as Tom said, in order to succeed in the lease business, we need to apply an active management and a terrific underwriting origination team and investment team, and it allows us to spread those costs over a larger asset base. So Trevor touched on this a little bit, the acquisition fees and asset management fees, both of which are applied on the gross asset, and these are very attractive fees.
The top 2 categories run-through are TRS and tax. The bottom 2, which are participation as general partner, 10% cash flow and 15% participation on the gain over 6. Those revenues run through directly to the REIT. So they're not taxable. So together, these revenues produce meaningful contribution to our bottom line and, again, without dilution to existing shareholders. And that's the economic benefit, and that's not including the benefits of expense sharing with that.
So I think to conclude, what's our long-term strategy? And I think that as you heard before, we're going to keep fine-tuning our process and try to extend our franchising core competence into new markets and new categories, and do it in a way that's organic. And the other thing that we want to do, continue to do is to maintain enhanced access to capital. Now we understand that we're in a very, very capital-intensive business and we want to be able to access capital at all times at reasonable cost and we believe that the best way to do that is to have as many sources of capital available to us that we can access in various points of cycle, depending on the price and availability.
So with that, I'll turn it over to Mark Goldberg, who's President of Carey Financial.
Thank you, John. John is quite an authority on the history of W.P. Carey, as I think it's his 23 years -- 23rd year here at the company, so he's seen it all and done it all. But he's a good source to ask any question you might have.
In preparing for this session, Kristin and others were kind enough to pass on some of your questions and inquiries and I do the short story and try to answer some of the more difficult ones, particularly about the non-traded REIT space. So I'm going to address these questions. Why, as an investment manager, do we like the non-traded REIT vehicle? The size and scope of the investment management space, why do we attract significant capital, what are the reasons for that? How do we use our investment discipline to allow us to stand alone in this space, in the investment management fund space? Is the model sustainable? Sometimes you hear that it's not. We're going to discuss that briefly. And what are our growth prospects and how we do we define them?
As an asset manager, being in the investment management business, what structure would you prefer? Since we earn fees on an ongoing basis, as well as the structuring fees, you want the one with the longest -- the vehicle that affords you the longest access to that capital. So the mutual funds, based on ICI numbers, the average holding period for a mutual fund is 2.9 years, except for accounts, 3.7, although I believe that's come down since I put this together. Variable annuities, 9.1. Non-traded REIT is represented by at least the CPA history. We tend to target a liquidity event, 8 to 12 years, at least by prospectus, obviously, it depends on the cycle and the right time to liquidate, but 8 to 12 years.
So as an asset manager, why do we select the vehicle that has a cap of 5% redemption of money, and we can have access for 8 to 12 years, it's because as an investment manager, that's where we want to be, certainly, as generating fees for our WPC shareholders. It also matches very nicely when you think about the time horizons for the vehicle. The actually matching the capital with the investment discipline, which is long-term leases with as long-term capital as we can match it with.
So the capital actually matches -- the equity capital matches the investment, the investment horizon is long. The assets, by definition in a non-traded REIT, are sticky because they're not -- it's not a liquid security. There's caps on the redemptions. And obviously, as an asset manager, we believe that non-traded REIT vehicle is an excellent choice for us.
So I wanted to sort the size and scope of the investment management space as it's defined by non-traded REITs. So here's the historic fundraising since 2003, the last 10 years. And you'll notice highlighted in green, 2002 -- 2007 and 2008, which had big ratings. But over the 10-year period, there's been $80 billion that's been rated raised in non-traded REIT space, averaging about $8 billion except for that outstanding period of '07-'08. And we see now, beginning in 2011, 2012, and you'll see in 2013 an incredible capital raise in this space. I believe it will be as big as 2007.
And there's a reason for it. I do believe that the sort of the sustained rate of new capital coming into non-traded REITs is closer to $6 billion to $8 billion every year, meaning new capital, new investment coming in. The reason these numbers are bigger is because they cycle to liquidity events.
So in end of 2006, TCT trust dividend capital had a liquidity event, 2007 inland retail, P&M hospitality, these are big liquidity events in the non-traded REIT space, and a lot of that money got recycled and you had a lot of investment capital come back in, and that's why you see that you see those 2 outlier years, 2007, 2008. Obviously, we see the same thing in 2012 and the expectations for 2013, I don't have to tell you about.
But what does that look like relative to the equity? Just equity, not preferreds, not debt, just equity capital raised. In the public REIT market, and I think this is a pretty surprising number when you put them up to scale, which is that overall 31% of all equity that's been raised in the last decade for REITs, whether you define them as non-traded or the listed kind, has actually been raised in the non-traded REIT space, which is pretty staggering.
One of the things that John mentioned in his talk is if you had it, would you give it up? I would say that for every 1 firm that is successful in their entry into non-traded REIT space in raising capital, there are historically 4 who fail.
This is how it looks more visually. And the reason I point out that visual is that the trailing 3 months in the non-traded REIT business has raised $2.8 billion, so it's on track to do $11.4 billion, and that's before you consider the liquidity events that are upcoming. So we think it's going to be a very big reel in sales. And there, you could see in the green line that it's pretty steady as you look at the new capital coming in to the non-traded REIT space. This is internally generated, but we think pretty accurate and pretty complete. This lists every non-traded REIT in the last 15 years that's had a liquidity event and liquidity event is defined as a listing, a merger, an acquisition of sale of assets, whatever it is, in order to create an event in which an investor can cash out, either a marketable security cash, something of that sort. And these are all the events. You'll notice in green are the 5 that are W.P. Carey, and the amount of equity in each of those REITs. What's not listed here that you saw on John's slide was the 9 LPs that W.P. Carey did, those were publicly offered LPs to retail clients of similar fee structure and similar kind. They were only, as John said, just happened to be a different structure but it was really the same thing. But to be accurate in terms of the presentation of non-traded REITs, I didn't include them in this particular slide.
Some of you may be wondering what the total number is down that right column. Some of you are good enough to eyeball it and figure it out just like that. I'm sure it's over $27 billion of liquidity events that have taken place in the non-traded REIT space based on our internal counting. The shortest term was 2.3 years, the longest was 14.2.
What was the rated average hold? I did this by equity, it was 8.5 years. Remember, we tend to hold it a little bit longer, therefore it's harder to generate higher IRRs. The weighted average IRR, by looking on this, was 9.55% for all those liquidity events. You have the low and the high there, but it does start to answer the question, beyond the superficial dismissal of non-traded REITs, why do non-traded REITs actually attract significant capital? In my opinion new capital of about $6 billion to $8 billion a year, it's because it's generating that type of return. So how does our performance fit into this particular picture?
This is a slide I like, this is within the standard deviation and ease of direction around the mean of our 10.1 average IRR, against all of our fund CPA, 1 through 15, from 1979 to 2012, when we liquidated that portfolio. The dots represent, along the bottom, I hope you can see it, CPA:1 through CPA:15, I would tell you the outlier back at CPA:3 was a small portfolio. I would also mention what risk pre rates of return were then, so that's quite an outlier. So pretty much within a standard deviation, all our investment returns have fallen within that band.
To give you a sense of scope, that is $2.6 billion of equity capital that we took from retail investors. And we tell you that's an average $30,000 investment, give or take. The total return back to our investors including all liquidity events and dividends was $5.9 billion for a creation of $3.244 billion on behalf of CPA REIT -- CPA holders from 1 to 15.
And indeed, when John talks about what is the brand and why we don't want to give up the investment fund business, that, in large part, is the reason why. We have about 100,000 CPA REIT investors. We've had many more before them, and some of them actually are very loyal investors and shareholders today in W.P. Carey. So it's also a source -- the people who hold W.P. Carey today were our original investors in our CPA programs.
So what about the rest of what's out there? I want to go back to the industry. This is what's left. Based on Stanger, as the source, Robert A. Stanger & Co., there's 72 remaining funds, which represents about $60 billion of equity, original equity raised for purposes of coming up with some number that I asked them for. They said 68 of them, based on what they had, had an $88.3 billion GAAP book assets. But quickly, if you did something in your -- calculated in your head, you looked at Cole II and III, but I think about $7 billion or $8 billion in original equity capital, if you looked at 16 and 17, you looked at some of the other large REITs and think over the next coming years -- or in the case of Cole, soon, liquidity events can take down that $60 billion number very quickly by those liquidations.
So what about W.P. Carey? How is our investment discipline had let us stand alone? And it's interesting that I would ask that question, then I'd put up a fundraising chart. Why was an investment discipline on a fundraising chart?. This is what we've raised, 2003 through 2012, $4.7 billion. Last year, we raised about $1 billion.
Someone asked me recently, at an industry event, "So you raised $1 billion last year, what do you plan to raise this year?" And I said, "Hopefully, a lot less." And to this crowd, that certainly shouldn't come as much of a surprise, particularly when you've heard everybody speak before me in terms of this firm being an investment discipline shop [ph]. And sometimes, the investment discipline is the discipline to say no to new capital if we don't feel it's the right time to raise it, if we have capital and other funds to use and/or the specific markets don't allow for it. But I thought it was useful to look in 2005, '06 and '07. I think Jason earlier today and, certainly, Trevor and John mentioned the fact that we didn't raise capital in those 3 years. Most of 2006 was CPA:16. A lot of that -- the deal flow, as Jason mentioned, was international, while we still felt we could put it to work. But in those 2 cyclical peak years, the 2 top sponsors in the non-traded REIT business, who'll go unmentioned, raised $3.4 billion and $5.1 billion respectively in those years, and we raised $10 million and we're very proud of it.
But it occurred to me -- I joined the firm in 2008, and I was amazed the first time I went through this story -- and an analyst by background early in my career and I went through everything. And I was just -- at that time, the firm was mostly an investment management firm. Again, like John said, we did all the same things, but a lot of our revenue came from our management of the REITs. So if you're an investment management firm at the time we were an LLC and we had earnings calls and we were out of the market, raising capital when more capital was being raised than in any time in this space, I wonder what those analyst calls were like, what were the questions they asked and what the answers were given. And I went back and I read the transcripts, and I came across this and I can't go through an investor day without bringing up Bill and a good quote from Mr. Carey, our founder. This was in August 8, 2006. "I continue to be proud of the job that our people are doing for me as an investor and for all my fellow investors." That first statement says quite a bit. He was making a distinguishing characteristic between a shareholder and an investor in the fund. There were a lot of reasons, but I think it was explained very clearly by several people on the panel -- our view on that. But thinking that, at CPA:16, we own 18% -- oh, that's a public company, certainly, you understand Bill's outlook.
As to one of the things I've been striving for was not to be too dependent on investment volume because we don't want to be pressured into investing when it's not the time to do it. We want to be opportunistic. We want to purchase for all our investors when it's the right time to do it. No amount of fees -- and it's certainly -- our fees for managing and structuring these funds are very lucrative, but no amount of fees is going to get in the way of good investment discipline. So I call this the discipline to say no.
How are our investment discipline allowing us to stand alone? This is part of the track record that I mentioned before. We've had 801 quarterly distributions over a 30-year -- 40-year period. We've had, actually, I think, 16 or 17 initial distributions. For those who don't count, quarter-over-quarter, your first dividend or distribution, 676 have gone up. We're not perfect. Certainly, I know I'm not. 8 quarterly distributions decreased over the prior quarter. This is in our prospectus, for all our public filings, our entire track record is not part of it. Full part of the prospectus is that distributions in all these funds, including CPA:16 and 17, Carey Watermark, our hotel fund, had increased quarter-over-quarter 85% of the time. And there's not a lot more powerful thing you can tell a retail customer than that statement, except for one.
And that's -- the next thing you'll find in the prospectus is that no full-term investor has lost money in any completed CPA program. And I can tell you, from personal conversations with Bill, that there were very few things that would -- Bill, as a child of the Depression, was more proud of the net statement.
Is the model sustainable? I think that's a very legitimate question. There's certainly a lot of media coverage, regulatory actions. Some of you have read about some broker-dealers being written up in some states. FINRA's issued certain potential rule changes. There's a lot going on, and we're deeply involved in it. And our particular view about regulatory actions are that we're -- and this may sound odd, coming from somebody in the securities business, is we really welcome it, and we do welcome it because not every firm in this space is W.P. Carey and conducts itself like W.P. Carey.
A lot of the things that we do as a matter of course, and have done for 20 years, like issuing independent NAVs on all our funds, some of these funds for 5, 10, 15, 20 years might have carried based on the original issue price. Obviously, that didn't make any sense to us, not because there wasn't a rule but because it just didn't make any sense, and we've been doing them that long. That recently became a rule about 2 years ago that you have to produce a NAV. We still believe that the NAV needs to have definitions around it, including strict standardization in terms of determining that NAV. We actually, in our writings to FINRA on the rule, are encouraging to take a tougher and tougher stance on these issues because there's nothing like a good referee to let a good competitor beat his competition.
It's a high-commission product. I hear this all the time, and it is. It is a high-commission product. And can a high commission product be sustained? Well, it has for a very long time, but that's irrelevant. If the regulatory change that comes is the type that we'd like, it's going to drive down the commissions in these products. It will. And let me tell you what our attitude towards that is: great because we have the same 6% hurdle rate, the same 15% incentive rate. We're just raising our capital on a lot lower base. There's nothing about lowering of commissions and regulatory actions that we, at W.P. Carey, see as a negative. And as we structure our products in the future, including some registrations that are effective, that I, of course, can't talk about, but you can look up on EDGAR, you'll see some of the things that we're thinking about in terms of future product and commissions.
So what are our growth prospects? Well, certainly, Carey Watermark Investors, we talked about a lot of organic growth. Different people mentioned, I think in Tom's presentation and others, we talked about -- or Jason, I think it was about, our storage efforts were now is, I think, the seventh largest owner of self-storage. That came as organic growth by doing the same disciplines that we do across different industries and we have a big storage effort. Well, the same thing is true in the hotel and lodging effort. We've been engaged in purchasing hotels for our CPA funds for a very long period of time. We saw an investment opportunity. We now have Carey Watermark Investors, which is in the middle of its fundraising. It's closing in August. We've raised $230 million to date. We're doing about $30 million a month. And typically, although I certainly wouldn't project what we'll ultimately raise for the fund, but that typically doubles in the last several months. So we think it's going to be a very healthy equity raise. We're very, very excited about the prospects of the investment opportunity for our clients. Future funds, I think we've covered. There was a question about whether there'll be 18, 19 and 20. In fact, if there's the -- it's the right time to do it, we will. If there isn't, there may be gaps between funds, as there is today between CPA:17 and CPA:18. So just because there'll be a series of funds, as I imagine, unless something changes, there will be -- that doesn't mean there will be serial funds. Just like we took a break in '05 and '07, it's always possible that we'll take a break from raising capital if we don't think it's the time to do it. We are broadening our distribution. We do raise money through the independent channel. We have a lot of experience at it. We're very good at it.
Frankly, we have a lot more capacity. We could raise a lot more money than the $1 billion we raised last year. We choose not to do that. But we do like diversity and distribution, so we're expanding in our distribution capabilities to the bank channel, and that's an effort that is ongoing.
So going back to my original slide, let me answer the questions that I -- that were post to me through Kristin and others. Why, as an asset manager, do we like the non-traded REIT vehicle? Because it's long duration and matches our investment discipline. And as an asset manager, you want to hold on to the assets as long as you can. The size and scope of the non-traded REIT business -- we talked about that, it's steady and it's growing.
Why do we attract significant capital? It's an inconvenient truth that, I think on first flush, people who don't look at the -- or classify all non-traded REITs in the same space and fail to look at the better players, including W.P. Carey, at the end of the day, we're raising this capital because performance after fees. That's a reality. It's an inconvenient truth, but it is the truth.
How did our investment discipline allow us to stand alone, and what does it have to do with capital? It's a buy-and-sell discipline, that is a discipline. And it's a discipline also to say no to new capital when we can't put it to work.
Is the model sustainable? We think everything that's going on in terms of the discussions about changes, increased restrictions, increased transparency, lowering of commission are all to our advantage from -- as an investment manager. Those aren't costs for us. That's not money that we're making, that's money we're spending, and it's creating a higher hurdle rate and return prospect for us. In order to generate those fees, we talked about the 10.1% IRR after all fees.
What are our growth prospects? I went backwards. That's not good, and this is something different that you'll hear -- you heard over and over today, but we're limited only by the availability of sound investment opportunities. To the extent the investment opportunities get away from us, we simply don't -- we won't raise capital.
And -- So I don't know if we're doing Q&A now or we're going to turn it over to Katy?
Trevor P. Bond
Yes. I mean, If anybody does have questions, Katy's going to give an update next. And, please, so why don't we open it up in case there are [indiscernible] questions?
I mean, as you go back across the 40 years, you've never been in an interest rate or a cap rate environment similar to the one we're in now. Is your challenge going to be yield? Or is it going to be, we're just not going to invest to see yields out there?
Well, one obviously plays into the other. Interestingly enough, the non-traded REITs, from an investment management point of view, much of the REITs were raised based on yield, right? They were yields, [indiscernible] yields, the alternative vehicles. When you start getting into the cap rate brush and then to [ph] spread over your data, it can only generate X yield and whether those will sell. What has developed over time though is that there are several non-traded REITs with much lower dividends that are growth offerings that, of [ph] more recent date, have generated a lot of interest and capital, not as much as the yield offerings. But if the market is because -- and this gets into the question about other players in the industry. A lot of players in the industry much -- offer much higher initial yields than we do, and they do it by doing different types of deals. They do it by using interest-only debt. They use it -- they do it by doing non-amortizing debt. You can generate yields in a lot of ways to make the market salable. At times, we do find ourselves at a marketing disadvantage when financial intermediaries look at yield in a very simplistic fashion. And I think the more aggressive players will be able to continue to offer a higher-yielding product in a low cap rate environment and will pull out. If you went back to my slide in '05, '06, '07, when those -- 1 year, there was 2 sponsors that raised $5.1 billion. The way they did that was using 5-year, interest-only debt, high LTV. It was a low cap rate environment, as you know. And when the 5-year debt matured, it did what it did. So I think, from a marketing standpoint, we'll just pull out. We just will.
Trevor P. Bond
I think the other point I would make is, again, as much as the regulatory developments will help in that regard because some of the competitors' tactics will be more exposed. And I think that one thing that I would mention is, in addition to the investment discipline that we've shown is that we've been disciplined about managing the funds, which means that one of the core beliefs that we have had is paying distribution out of cash flow, which may seem shocking to you. But it's not always followed by some in the nontraded sector.
Can you talk quickly about your dividend reductions, how severe they were and what actually precipitated that?
Trevor P. Bond
Go ahead, John.
Sure. We've had some dividend reactions [ph] in about 4 of our funds, and I think that, that was precipitated by some kind of bankruptcies. But I think that -- and again, going back to the discipline of cutting the dividend with -- when it's warranted. So in most of those cases, the dividend was cut, at least at [ph] to a new level, and we've been able to increase from that point on. And the track record that you saw before is obviously inclusive of all kind of dividend cuts that we made.
Given the time, I think it might be...
Catherine D. Rice
I think there's one more.
I don't. The data was sourced at Stanger, and it's -- they would be the better source. I mean, you can take back of the envelope and figure out in general what the debt is. But I would quickly eliminate the deals you would anticipate would liquidate in the coming months and/or years. And my guess would be that they're running at 40% to 50% debt levels to their original equity but then you'd have to go back and consider book. So it's a really hard number to come up with. It'd be revealing a lot of N99 [ph] and Stanger is the better choice for a number like that. But again, if you took the 2 Cole deals, which I believe is about $7 billion, $8 billion that I know about and you know about, just looked at 16 and 17, that's $4.5 billion of equity, CPA:17 was $2.9 billion and the other $1.6 billion-or-so [ph] and 16 of equity. There are other funds -- it's a little -- you'll get into dangerous ground when you start talking about this. So I'm going to pass on talking about other funds, and there are things -- but I think, suffice to say, some of the book value -- you generally assume that there's more than book value in them, and I don't know if that's a fair assumption. In some cases, it is. In some cases, it isn't. So when I put up the number of $88 billion of book value, I don't know that that's $88 billion of real value, could be more, could be less. It's just the number that I had.
Trevor P. Bond
Okay, one more question in the back, I think?
Yes, real quick on the nontradeds, the commission's potentially -- the upfront commission's being lowered. I think you're absolutely right. It can easily allow you to increase your fees. But do you worry that these FAs might start looking to public REITs to invest their clients' funds given that the upfront load is not as attractive as maybe it has been historically?
I hope so. We're a public REIT, right? And that's an important distinction about us. We're not really -- we're not trying to push anybody in either direction, right? But there are different customers for different products. So on an institutional basis, clearly, the direct purchase of WPC is where they're going, right? That makes all the sense in the world. On a retail side, that's a little different. That goes through a financial intermediary. And financial intermediaries are assembling portfolios. They're trying to pay their way. Even if they were out buying REIT stocks directly, say, on a direct purchase basis, they'd be packaging that up in terms of some sort of fee structure per their advice, right? They'd be -- it could be in a separate account. It would be in a managed portfolio, of which they'd be charging fees for. And they'd be on retainer, they may have a fixed price fee. So this notion that it's always cheaper to do it that way, it depends whoever is the intermediary managing that portfolio. So everybody has the intelligence and access that this room did, and they can buy it directly and manage their own portfolio, they certainly can do it cheaper than purchasing it through a non-traded REIT. So I think it's really driven by the customer. So their financial intermediaries, who are doing a fine job managing a lot of things, their portfolios, their tax implications, their allocations or rebalancing portfolios, they want to get paid. Whether they get paid with an asset management fee or a fixed fee or with a brokerage commission, we're somewhat agnostic to, and we certainly would encourage them to buy public REITs because we are one. And to the extent that it makes more sense for their client and themselves to buy a non-traded REIT with less liquidity, less redemption features and fits the profile of the portfolios that we have in a non-traded REIT, then that's their selection. Whichever fits, we're really agnostic to it.
Trevor P. Bond
Thanks, Mark. I think we'll move on to Katy Rice, our Chief Financial Officer, now.
Catherine D. Rice
Okay. So I do the last spot. I'm the new kid on the block. Joined in January. Thrilled to be here. I think we have a great team and a very exciting growth platform. You've heard a lot of good information this afternoon, and I hope you got a good feel for the strength of our investment process and the asset management discipline that we bring to triple net lease investing. But what would good investment they'd be without a quick overview of the operating results and balance sheet? So let's take a quick high-level tour.
First, a little bit on our operating results over the last 5 years. Our AFFO growth has averaged about 7.7%. And with the CPA merger and REIT conversion, which we completed last October, we've really created a platform for growth on the WPC balance sheet.
With the REIT conversion, we now have better access to the public equity markets. In addition, we'll continue to raise private capital, as an investment manager. As we've discussed, we completed the raising -- the capital raising for CPA:17 late last year. We raised a total of $2.9 billion of equity. And currently, we have about $372 million of equity capital to invest, so that's our dry powder in CPA:17. And if you translate that into total assets with the debt, you'd probably assume we have about $750 million of additional asset growth in CPA:17.
As Mark mentioned, we're currently raising capital for Carey Watermark Investors, which is our hotel platform. To date, we've raised about $228 million, and we have just under $40 million of equity capital to invest. Now that number will continue to go up, as we continue to raise additional equity in CWI.
And although you've heard this from a number of my partners this afternoon, I think it bears repeating, our capital raises are dictated by investment opportunities, not fee generation.
From a balance sheet perspective, we have a conservative capital structure, our total debt to total market cap is just under 30% today. Currently, all of our debt is nonrecourse mortgage leverage, except for our line of credit. And we are exploring the feasibility and cost of an unsecured debt funding model for WPC. Over the years, our strong investment and asset management discipline has resulted in a consistent growing dividend. We've increased the quarterly dividends for the past 48 quarters, and our annual dividend growth has averaged 2.9% for the past 14 years.
Take a little bit closer look at our asset growth, both on our balance sheet, so on the WPC Inc. balance sheet and in our managed funds. As you can see, the WPC balance sheet has been growing slowly over the last 5 years, except for 2012 when, again, we merged, and you'll see it just below, with CPA:15.
CPA:16 is a mature fund, which has about $3.7 billion of assets. CPA:17, we've talked about, we've just finished our fundraising. It's currently -- at the end of the year, it had about $4.5 billion of assets.
CWI, we're still raising money in. And at the end of the year, we had about $282 million of assets. So it's a bottom -- on the bottom line there, we talked about the WPC group. That's the WPC Inc. balance sheet as well as the managed funds. You can see, at the end of the year, we had about $14 billion of AUM.
Now historically, as an asset manager, our AFFO has been variable or lumpy, primarily due to the timing and the size of the fees that we received. The pro forma for the merger with CPA:15 and the REIT conversion, almost 88% of our AFFO is now derived from real estate ownership, which should reduce that variability over time.
Historically, the company has not given earnings guidance. But with the REIT conversion, we recognized the importance of doing so. We're currently working on a detailed bottoms up forecast, and it's a pretty high priority internally. And once we've completed that forecast, we'll be providing earnings guidance.
Quick -- some quick balance sheet stats. Our total cap rate now is about $6.6 billion. Historically, we've had a very conservative payout ratio. But if you look back, remember we were -- we're not a REIT, we were an LLC. So the payout -- the dividend was not based on taxable income.
Our weighted-average interest rates on our debt is about 4.8%. And our strong balance sheet is supported by the fact that over 50% of our real estate revenues are derived from investment-grade or implied investment-grade credits.
We talked about our historical dividend growth. But in Q1, we increased our quarterly dividend by 24% to $0.82 a share. This increase reflects the increase in our balance sheet due to the CPA:15 assets.
Going forward, we plan to distribute 100% of our taxable income. And while our payout ratio will increase, it may be lower than some of our peers because of our investment management revenue and the variability that's associated with that.
And last but not least, I thought I'd conclude with this slide. As you can see, our activities over the past 5 years have resulted in a very strong 127% total rate of return. So I think it compares very favorably with the relevant indexes.
So with that high-level tour, let's -- let me turn it over to Trevor, where we can take questions, if you'd like.
Trevor P. Bond
Actually, why don't we, at this stage, invite the other members of the team who spoke earlier to come on up and sit so that I -- and I'll wrap things up very quickly while they're coming up. And then we can open up to any follow-up questions that might have occurred to any of you just over the past session. I think the one thing that I'd like to leave everybody with, just a few thoughts about how we intend to grow because obviously, that's a question on everyone's mind. I talked about a little bit on the earnings call, some of you may or may not had a chance to listen in on that, but very briefly, the 3 paths that we intend to grow would be, as we've mentioned here, to put more assets on our balance sheet, and we can do that using modest leverage increases or going into the market. We've, in fact, never done a public offering, I think we're probably highly due for one after 40 years, and it's just that we've never had to do one. It's never been something that's been a requirement, and I think we're benefiting in a lot of ways from doing that. So at some point, we will be doing one. It's just we've never wanted to do a gratuitous offering just for the sake of doing it, so we'll do it when we have very good strategic reasons for that. In any event, we have plenty of capacity, we feel, on our balance sheet. We already mentioned the way that we would evaluate growing that segment of the business. And we do think that there's opportunity out there, notwithstanding a more competitive environment, generally, for net lease. But because of the factors we talked about, we think that we can still find attractive risk-adjusted returns for both the managed funds and then for our shelves as well. The other way that we'll grow, as we've talked about, is to continue to grow assets under management. When you think about every billion of dollars worth of assets that we add to assets under management implies 50 basis points of ongoing stable asset management fees, as well as the 10% of the cash flow that we get through the GP interest. You can see that, that's a very attractive source of revenue growth with no dilutive equity required. And so we'll continue to do that. We have good visibility on the deals that are out there, and as we mentioned before, there's still plenty of corporate-owned real estate available. And so we'll continue to tap into that. And the third, the third one, which is a bit more complex to sort of forecast or project out is the internal growth from the existing portfolio itself. Right now, we mentioned, Tom in his slides, that it -- the base rent for the portfolio, including our pro rata investments, is about $318 million. That's sort of the baseline that we use to do our sort of -- our own forecasting internally. We have pretty good visibility on that revenue, that base revenue, about 90% of it, more than 90% of it, really. In any given year, whatever's expiring is going to be something that we worked to understand years in advance. And in fact, we have sort of a 4-year model where we look at all the expiring revenues and then with each -- with respect to each of the deals expiring, come up with our own scenario as to what's likely and what's not, and then what we're going to do about it and what the potential declines might be, that number is always in flux. I'm not going to tell you what that is because it's always in flux, and many of the deals are already being worked on. But the point is that if you look at the bumps that we get from the rent, from CPI adjustments and fixed adjustments, the base rent grows pretty well, roughly 2% last year. When inflation inevitably kicks in, and I think that there's a good chance that it will at some point, we will clearly benefit from that. And that 2% goes to the levered equity, of course. But of course, offsetting that are, and possibly enhanced if there's increases in any given year, are what we're doing with that vacant space. As I mentioned before, we're always looking to smooth out the lease expiration schedule. You can see that in 2013, we have very low expirations. Tom had mentioned that we're already on top of the 2014 expirations. A lot of those deals are actually in place, so we don't want to talk in too much detail about them. But we're pretty comfortable with what's going on there, and you'll hear more as we get the deals done. So 3 ways that we're going to grow: And it's balance sheet, it's assets under management and also the internal growth from the portfolio itself. And the way that we, I think, will be able to grow that is the same way that we've talked about all day. I think that we're as well-positioned as any of the net lease REITs and really, any of the REITs generally speaking, to grow, because of the 3 things just to go back to the very thing that I started out with. The 3 things that differentiate us from almost any other REIT, not just the net lease REITs, is that we are diversified, which means that we can take advantage of opportunities in a way that others can't. When a certain market gets hot, as you may have guessed, we will sell into it. If we were specializing in that one particular market and we've sold an asset, the dilemma would be, well then, what do you reinvest in? Because you're reinvesting in a hot market as well. Being diversified, we're able to sell into a hot market, so sell a Best Buy when the credit's faltering, but the rating hasn't gone down yet. And you can still get a good cap rate and invest it, as we did, in a deal like KBR, Class B but solid well-located office in Houston, Texas, which is a pretty strong market. And we can do that because we're diversified and we do it unhesitatingly. Because we're international, we obviously have -- there are risks associated with that, and obviously, from the discussion, you can see that we need to be careful when we execute an international growth strategy. But it's something that we do take very seriously and we've learned how to box the risks in ways that others haven't figured out yet. And because we're able to do that, we have access to a much deeper and broader pool of opportunities than our competitors who are sort of stuck in a market that's -- that could get pretty frothy, if it hasn't already. And then I think finally, just growing the international -- sorry, the Investment Management platform is a natural for us. We haven't talked much about the hotel fund; it's a negligible amount of our revenues and we don't even factor that into any kind of forecasting because for us, it's a project that we're working hard to make work. But there are opportunities like that, that we can develop over time and use the platform that Mark manages, and that we all manage, to selectively, in an organic way, add products and just get incremental revenue from that platform without significantly increasing either our reputational risk or our operating risk to the company. We can do it in a very manageable way.
So I think I'm going to conclude with that. We think the future is looking pretty bright for us right now, we think we're well-positioned. We do think the model is sustainable and we're very happy to have had you here. So why don't we open it up to any follow-up questions you might have before we break for the day.
Although the assumption is the model is sustainable, do you worry ever that the publicly traded REIT will cannibalize the non-publicly traded channel? Because if the brokers were objective, I would assume they'd buy the publicly traded REIT all day because they'd get everything for a lower cost.
Trevor P. Bond
Well, I certainly have been in a lot of situations, I'm sure all of us have, where you go to meetings where you meet with financial advisors and they say, well, they ask that very question, which would you recommend, or do you buy W.P. Carey, do you buy CPA:17, and they offer very different things. I always say I prefer you to buy both, in fact, and they have different characteristics in terms of average lease duration at any given time. There was a time when W.P. Carey lease duration was much shorter than the managed portfolios. What was surprising to me, one of the most surprising comments that was ever made to me was following the merger with CPA:15, a financial advisor proudly told me that she quickly sold the W.P. Carey stock on behalf of her client and then put it into CPA:17, which wasn't something that we asked them to do, it certainly wasn't what our goal was. I thought it was a little puzzling because you get the liquidity for having W.P. Carey traded on the stock exchange. But I think that there's -- it underscores something about that demographic. The financial advisors are representing retirees who value mostly the income that they're receiving, they get their dividend check. Sometimes in this very room at our shareholder meetings, we have investors who stand up and there are some of them are advanced in age and they say, I bought this investment in CPA:3 [ph] and I keep getting my dividend checks now from a company called W.P. Carey and what do I do? And because they only care about the income, they've never really paid much attention to anything but that. And so they'll continue to buy -- they like the illiquidity, ironically. They don't like to...
The absence of the visible volatility.
Trevor P. Bond
Yes, they don't like the headline risks, they don't like waking up and seeing on their computer screens, sees one that the price is going up and down.
We call it the illiquidity premium.
Trevor P. Bond
Yes, the illiquidity premium.
I just have a quick couple of questions on mix, just to -- are there any restrictions or targets that you have in terms of the amount of international assets that you're going to have within the REIT or within your funds business?
Trevor P. Bond
Well, we don't have a quota and we don't have a black box that tells us what the ideal composition is. We're investors and we're aware of risks as they come up. We haven't redlined Europe. We never redline Europe, for instance. But last year, we became much more selective on behalf of CPA:17 in terms of what we would look at. So we stopped looking at peripheral Eurozone and just focused on northern Europe, more physically disciplined countries and those countries that whose currencies would've thrived in the event that there was a breakup of the euro, for instance, and businesses that were defensive in nature, recession-resistant. So as long as -- and we widened out our spreads on the bid. So that -- and that would continue to be our attitude. I doubt we would get much higher than the 30% to 35% where we are now; it's not our goal to suddenly pour money into Europe. But we are starting to see some pretty good opportunities, shaking loose from funds now finally from financial institutions, and so we could see some attractive opportunities. In CPA:17, at one point, we had gotten up to the high 40% range in Europe, not because that's what we set out to do, but because for a certain period, that's where the very good deals were and we took down some very large ones that we're still very happy with. And -- but last year, we began working that down.
And just to follow up, just with respect to the funds business, are there any targets or parameters that you can tell us in terms of the AUM you might have in the funds business versus the size of the REIT at any given time? Or is it you're just going to tap each market independently?
Trevor P. Bond
Yes, I mean, I think it will depend on how the specific opportunities unfold. Assets under management now, about $8.5 billion, and we begin the year without a quota of any kind. We believe that we can get -- or invest approximately $700 million a year on average, that's sort of a 10-year average, and we've done more than that the last few. But if you can do your own audition, if that's the way that assets under management portfolio grows, that's at a certain level. But as I mentioned, because we'll be investing on balance sheet as well, the company that is now enterprise value of $6.6 billion could reach that level of cover quality. It's a little hard to tell when you think about the opportunity set and then you have the CPA:17 in one part of the chart in terms of risk-adjusted returns. It's a little hard to tell who the sellers will be and whether they will be more oriented towards W.P. Carey Inc.'s sweet spot or the CPA:17 sweet spot. It depends on a lot of factors and it's difficult to predict.
And just given your history of acquiring some of your funds, how should we think about that as a potential for pipeline or growth? And if you could just comment on how the process you would go ahead and underwrite those acquisitions.
Trevor P. Bond
Yes, sure. I mean, it begs the question because, as I said, Bill Carey merged his company into CPA 1 through 9, so we got the first 9. And then last year, we merged because the stars were in the right alignment with CPA:15, and it made sense for both of us and it was a great outcome for both investors. So it begs the question what will happen with CPA:16 and then down the road, CPA:17. And all I would say is that each fund reaches its own stage where liquidity options must be considered. That's our fiduciary responsibility, and each fund has a Board of Directors. The Board of Directors of CPA:15 hired Deutsche Bank to advise them and outside counsel and came to us for ideas, and as I said, the stars were in the right alignment at that time for an acquisition of 15. But we can't promise, nor should you believe, that it's a certainty that CPA:16 is something that we would clearly merge with this year, for instance. When we're doing our own forecasting, we just look to those 3 sources of growth that I mentioned: the balance sheet, assets under management and internal growth. There is a fourth one, and that is strategic growth. I didn't mention that. There are possibilities for us to go after a larger portfolio: An existing public company, for instance; a private portfolio of net leased assets, and that's something that having a stronger balance sheet allows us to do. But in terms of forecasting and getting back to what's most important to us, which is growing our dividend and being able to sort of project out what dividend coverage will be, that's something that would be gravy to us. And it's not something that we can really count on or talk about too confidently. Paul [ph]?
You guys provide net asset value calculations at the CPA level. I was wondering if you could tell us what methodology you used to calculate that. And secondly, was wondering if you would consider providing some sort of guidance on NAV at the WPC level.
Trevor P. Bond
Well, I'll take them in reverse, but I can't give you NAV because I don't know how you're going to value the asset management piece -- Investment Management piece. We don't -- historically, as an entity, we've never had to value ourselves, except at a time when, back in 2000, when Bill merged this company into the REIT. So it's -- we're shifting our life -- some of the focus of our life from being a manager of finite life entities and the things that go into that are somewhat different than being an owner now of a perpetual life entity. But the devaluations that you talk about with respect to the managed REITs are relevant because fees are based on them. And so very early on, we wanted to get outside verification because we're a public company and you wanted to have the transparency, and it just made sense to go and value those portfolios, especially because as liquidity events come near, you need to have some kind of a guideline, a guidepost. But as to W.P. Carey, this is somewhat of a new world for us. As you know, we've only been trading as a public REIT for 6 months, and to our knowledge, it wouldn't be worth it to spend money on appraisals for ourselves given that it would really only form a reference point against which we'd be valued, and so, anyway, there's a moving target. There's NAV and then there's the premium NAV, so it's a little -- we're still trying to get our arms around that and we'll wait for some feedback on that. With respect to the REITs themselves, years ago, we began, in the early '90s, in fact, began retaining outside appraisers to value each asset individually. And it's a ground-up approach, it's the sum of the parts that each asset gets a discount and cash flow analysis with a residual value. They don't ask us what discount rate to use, they don't ask us what back-end cap rate to use, they decide that themselves. They do sit down and talk to us about the credit and the real estate and whatnot and they develop a point of view and they roll it all up and subtract out a fair market value of the debt and then divide by the shares, and that's all that goes into the NAV for the managed funds themselves. Yes?
Have you ever had a bid from an outside company to buy one of the managed REITs?
Trevor P. Bond
We have not. No. But what happened with CPA:15 though was that we announced the transaction on February 17, 2012, and what we did was we had an exchange value and a price and whatnot, and it didn't vote for another 7 months. The shareholder vote was 7 months later. And during that period, there was no breakup fee. And so the Board of Directors chose to go that route, expose it to other potential offers, there were none, so we've never received a bid.
Would you have any kind of right of first refusal if, for example, another company came along and made a bid on CPA:17 or 18?
Trevor P. Bond
No, we have no right of first refusal, nothing of that nature. I will say that we own 18% of CPA:16. But that doesn't give us any more rights other than our pro rata rights as an owner or co-owner.
Can you provide any clarity on what happens to that block of stock that the W.P. Carey estate owns? I think that's been off-putting for some people.
Trevor P. Bond
Well, yes. Less so now, I think, based on sort of the developments of the last year. I mean when Bill passed away, very, very late in 2011, at that time, he owned 28% of the company, of W.P. Carey LLC. And we spent a fair amount of time working with the estate to accommodate its liquidity needs in terms of housekeeping, paying taxes and whatnot, and did come to an agreement with them, which also involved securing their vote for the transaction ahead of time. That's the voting agreement, and it's all been disclosed publicly as to what that was all about. Pursuant to that, the estate had 3 options to put some shares to us, totaling $85 million. All those have now been put and bought by us, and we did, in some transactions, match some of that with outside investors. That was something that had been in the works for some time. But right now, there's no more puts available to them. They do have the ability and the right to request that we help them sell those shares publicly in a shareholder offering, and so we're working with them. But if you look at the shares themselves, they represent only about 16% to 17% right now. And Bill's will, which also happens to be a public record, stipulates that about half the shares, which would be about 5.5 million shares, goes to the foundation that he established for his philanthropic activities. Of the 11 million that are remaining out of our close to 70 million shares, of the 11 remaining, 5.5 million or so will go to the foundation, and then over time, will be given in specific bequests to some his -- the causes that he supported during his life. The others will go to family members who will eventually, we assume, make their own decisions about how quickly they want to liquidate those. The bottom line is we don't think that, that's much of an overhang. We don't think that it's much of an issue that we would have to deal with. And in fact, I think that there'd be some benefit to having a little bit more liquidity in the stock from our point of view.
Trevor, could you comment kind of on the current acquisition market? Do you find it very attractive, moderately attractive? Kind of what's your viewpoint given where interest rates are, but at the same time, given how low your cap rate is relative to where you can acquire? Can you kind of give us some thoughts there?
Trevor P. Bond
Sure. I think that we're -- we're looking at quite a lot of deals, and everybody has a funnel that they talk about, here's the deals we look at, and here's how many we do, and it does seem that the funnel's getting wider relative to the spout. And we're finding that there are more potential bidders for each transaction, I think is a fair comment, here in the U.S. And -- but at the same time, there's also some evidence that there's more deals possibly coming to life, so sellers who might have been on the sidelines waiting to liquidate their assets may be starting to dip their toe in the water. So that as supply increases, if supply increases at the same pace as the bidders, the new entrants into the net lease space, we should be okay. And so I think that we do have a large pipeline that we're working on, and certainly, in Europe, it seems to be as strong as ever in terms of attractive transactions. Does that answer your question? You had a second part to the question?
No, not really. And then the last question would be kind of on lease accounting. It seems to be very much up in the air containers get pushed out. What are you guys thinking is going to happen? How are you looking at that?
Trevor P. Bond
We were more concerned about it a couple of years ago. And I think as I mentioned earlier, we may be dealing with the aftermath of the fear that was created by the project, but there's been quite a lot of pushback. And I'm sure all of us as real estate professionals, all of you would agree, we weren't sure what the impetus was for this other than maybe merging with IFRS, the international accounting standard. Other than that, we couldn't really tell what the impetus was for it. It really, we thought, introduced, possibly, distorted kinds of behavior, pushing tenants toward short-term leases even when it might not be in their strategic interest. And for a variety of reasons, it just didn't seem to make sense. So there's been a lot of pushback, and as I'm sure you know now, it's been reopened for comment and I think the part that was most damaging was the part that said that you treated lease income like debt and that the amortization of it would favor short-term leases because you have less expense. And the longer-term leases had more of an expense number associated with them. So we think now that years away, maybe the aftermath has affected the willingness of some of our tenants to do longer-term leases and it might take a while for them to come back to longer-term leases.
If I could just add to that quickly, getting operating lease treatment is a factor that drives some people to do sell leasebacks, but it's not one of the top 3 or 4. Most of our transactions are not brought to us for that reason. So if all leases went back on balance sheet and the operating lease treatment was not available, I don't think it would seriously diminish our universe of opportunity.
Trevor P. Bond
Okay. Well, if there's no further questions, thanks very much, everybody, for coming out for our Investor Day. And if you have follow-up questions, let any of us know. Thank you.
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