The big story at W.P. Carey (NYSE:WPC) is the potential for it breaking up. Even the sudden departure of the CEO doesn't change that. But it could mean there's more going on than Carey has been letting on.
The big story
W.P. Carey has hinted that it could break into as many as three different companies. One focused on the U.S. market, a second focused on Europe, and the third an asset management company selling things like non-traded REITs. This is a big deal for a company that has decades of history under its belt operating a little differently from the crowd. Indeed, Carey's diversity is one of the main reasons to like the real estate investment trust.
Since the potential break up was announced, I've been suggesting investors hold off on initiating a position in W.P. Carey until they know what they will actually be buying. My big concern is that Carey's successful business practices could change quickly once the company is broken apart. For those who already own it, however, I'd give management some time to explain what's going on before acting. Based on the company's long and successful history, it makes sense not to act rashly.
But what's going on in management? The REIT's CEO just abruptly stepped down...
Does management matter?
One of Carey's strengths is that it has a very specific way of doing things. If you work at the REIT you pretty much have to embrace the Carey model. In fact, the risk of watering down this model is one reason the breakup worries me. That said, I don't think the departure of the CEO is going to materially alter how Carey does business today. That's the good news. But, the departure says a lot about the pending break up, in my opinion.
The question to ask is why do CEOs depart? The most obvious reason is that the company they are running isn't living up to expectations. On that score, Carey appears to be doing fine. In fact, the release announcing the CEO change made a point of saying as much.
CEOs also leave for medical or family problems or because of other opportunities. Although none of these can be ruled out here, the content and tone of the news release announcing the change doesn't suggest any of these were the cause. And there's no suggestion whatsoever of corporate malfeasance, which is another reason for a CEO to fall on his sword.
But here's an interesting thought: CEOs also depart when they don't see eye to eye with the board of directors. And with Carey looking at a break up, I'm guessing that a disagreement here is what prompted Trevor Bond to depart as CEO. That could have been his decision or at the request of the board, but, in the end, who made the choice isn't all that important.
Indeed, I'm guessing there are varying opinions of what W.P. Carey should be in the future relative to what it is today. The REIT is, according to the news release, still examining its corporate options. But what was already an uncertainty just became even more uncertain. In fact, whatever plans there were may have just gotten tossed into the trash.
I wouldn't run for the hills if I were a shareholder, but any expectations you might have had should be reset to zero. You'll have to wait until the next earnings release and conference call to get a new baseline. If you were looking at Carey from the outside, I'd still stay on the sidelines.
In my view a change in direction could be good news if it meant Carey remained as it is or chose to spin off just the asset management arm. That would preserve the global property diversification that makes Carey so desirable. And spinning off the 20% of the business devoted to asset management wouldn't alter the company enough to matter. In some ways, it would make Carey a more predicable business even though asset management did add another layer of diversification.
But, no matter what you think is likely to happen, it's just too early to tell what will happen to the plans with a new CEO at the helm - presumably one more in-line with the board's view of things. The biggest takeaway from this news, then, is that investors still have to wait before they find out what's going to happen to the W.P. Carey we know today.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.