Lineage Logistics, a real estate investment trust (REIT) focused on cold storage facilities, is preparing to go public. It's seeking to raise up to $3.9 billion -- a $19.2 billion valuation -- making it the biggest initial public offering (IPO) of 2024 by a wide margin. It would be more than double the $1.5 billion raised by cruise operator Viking Holdings earlier this year at a $10.4 billion valuation.
Lineage Logistics' IPO could benefit another REIT: W.P. Carey (NYSE: WPC). The diversified REIT owns a small stake in the leading cold storage operator. Here's a look at how Lineage's IPO could provide a boost to W.P. Carey and its nearly 6%-yielding dividend.
Cashing in on its investment
Lineage Logistics is the largest company focused on operating cold storage facilities. It has 482 of these warehouses worldwide, with about 3 billion cubic feet of space. The company has 312 facilities in North America, where it controls nearly a third of the cold storage market. That's significantly more market share than rival Americold's 19.3% slice of the North American cold storage market.
The company has grown briskly by consolidating the cold storage sector over the years. It has made several acquisitions, including buying Preferred Freezer Services for $1 billion and Emergent Cold for $900 million. Lineage has raised $9 billion from investors to fund its acquisition boom, including from W.P. Carey.
Last year, the REIT noted that its stake was worth around $400 million. It has since recorded a non-cash mark-to-market gain on its investment of $38.6 million. That investment hasn't generated much income for the REIT over the years. While it wasn't producing dividend income in 2023, Lineage did pay a $3 million dividend to the REIT earlier this year.
W.P. Carey has planned to hold its interest in Lineage until that company completes an IPO. It then intends to monetize its stake in the company. Given Lineage's IPO range, the REIT's investment is likely to be worth more than $400 million. It can start selling off its stake shortly after Lineage's IPO, giving it additional capital to fund new investments.
Adding to its war chest
W.P. Carey has been in the midst of a significant portfolio refresh over the past year. The REIT sold or spun off the bulk of its office properties. It also sold off a large portion of its non-operated self-storage properties after one of its top tenants, U-Haul, exercised its option to buy back those facilities. The company expected to generate $500 million to $600 million of cash from selling its remaining office properties in the first half of this year. Meanwhile, it collected $464 million from U-Haul's property sale. Additional non-core property sales could bring in another $150 million to $350 million this year. On top of that, it will soon be able to start monetizing its investment in Lineage.
These sales give W.P. Carey significant financial firepower to rebuild its portfolio around property types that should deliver above-average rental growth rates. It has already closed or committed to investing $700 million into deals this year, with another $300 million of transactions in the pipeline. The biggest deal was a two-phased investment in industrial facilities leased to TPG Angelo Gordon. It paid $74 million for a portfolio of 10 industrial facilities earlier this year and expects to close the follow-on purchase of nine more buildings for $116 million next month. The REIT also bought three newly built distribution centers for $40 million and two fitness centers for $28 million.
These deals will supply W.P. Carey with incremental streams of rising rental income to support a growing dividend. Cashing in on Lineage Logistics, which doesn't supply predictable income, will enable the REIT to reinvest that cash into more income-generating properties. That should enhance its ability to grow its dividend in the future.
An attractive and growing income stream
W.P. Carey offers investors a hefty dividend yield of nearly 6%, even after resetting its payout following its office exit strategy. It has already started rebuilding its portfolio and dividend, having alredy raised its payout twice this year. The upcoming IPO of Lineage Logistics represents another opportunity to build for future growth, as the REIT will be able to turn an investment that hasn't generated much income into properties that should produce rising rental income. That should enhance its ability to increase its dividend, making it an even more enticing option for those seeking to collect passive income.
Should you invest $1,000 in W. P. Carey right now?
Before you buy stock in W. P. Carey, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and W. P. Carey wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $722,626!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. TheStock Advisorservice has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of July 22, 2024
Matt DiLallo has positions in W.P. Carey. The Motley Fool recommends U-Haul. The Motley Fool has a disclosure policy.
