W. P. CAREY INC.
10-Ks and 10-Qs
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-K
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2016
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from__________ to __________
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Commission File Number: 001-13779
W. P. CAREY INC.
(Exact name of registrant as specified in its charter)
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Maryland
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45-4549771
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(State of incorporation)
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(I.R.S. Employer Identification No.)
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50 Rockefeller Plaza
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New York, New York
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10020
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(Address of principal executive offices)
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(Zip Code)
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Investor Relations (212) 492-8920
(212) 492-1100
(Registrant’s telephone numbers, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of exchange on which registered
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Common Stock, $0.001 Par Value
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
þ
No
o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
o
No
þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
þ
No
o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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Accelerated filer
o
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Non-accelerated filer
o
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Smaller reporting company
o
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
o
No
þ
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of last business day of the registrant’s most recently completed second fiscal quarter:
$7.2 billion
.
As of
February 17, 2017
there were
106,321,207
shares of Common Stock of registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant incorporates by reference its definitive Proxy Statement with respect to its
2017
Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of its fiscal year, into Part III of this Annual Report on Form 10-K.
INDEX
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Page No.
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PART I
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Item 1.
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Item 1A.
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Item 1B.
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Item 2.
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Item 3.
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Item 4.
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PART II
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Item 5.
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Item 6.
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Item 7.
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Item 7A.
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Item 8.
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Item 9.
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Item 9A.
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Item 9B.
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PART III
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Item 10.
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Item 11.
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Item 12.
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Item 13.
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Item 14.
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PART IV
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Item 15.
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Item 16.
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W. P. Carey 2016 10-K
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1
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Forward-Looking Statements
This Annual Report on Form 10-K, or this Report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of Part II of this Report, contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. These forward-looking statements include, but are not limited to, statements regarding: capital markets; tenant credit quality; the general economic outlook; our expected range of Adjusted funds from operations, or AFFO; our corporate strategy; our capital structure; our portfolio lease terms; our international exposure and acquisition volume, including the effects of the United Kingdom’s referendum to approve an exit from the European Union; our expectations about tenant bankruptcies and interest coverage; statements regarding estimated or future economic performance and results, including our underlying assumptions, occupancy rate, credit ratings, and possible new acquisitions and dispositions by us and our investment management programs; the Managed Programs discussed herein, including their earnings; statements that we make regarding our ability to remain qualified for taxation as a real estate investment trust, or REIT; the impact of a recently issued pronouncement regarding accounting for leases; the amount and timing of any future dividends; our existing or future leverage and debt service obligations; our ability to sell shares under our “at-the-market” program and the use of proceeds from that program; our future prospects for growth; our projected assets under management; our future capital expenditure levels; our future financing transactions; our estimates of growth; and our plans to fund our future liquidity needs. These statements are based on the current expectations of our management. It is important to note that our actual results could be materially different from those projected in such forward-looking statements. There are a number of risks and uncertainties that could cause actual results to differ materially from these forward-looking statements. Other unknown or unpredictable factors could also have material adverse effects on our business, financial condition, liquidity, results of operations, AFFO, and prospects. You should exercise caution in relying on forward-looking statements as they involve known and unknown risks, uncertainties, and other factors that may materially affect our future results, performance, achievements, or transactions. Information on factors that could impact actual results and cause them to differ from what is anticipated in the forward-looking statements contained herein is included in this Report as well as in our other filings with the Securities and Exchange Commission, or the SEC, including but not limited to those described in
Item 1A. Risk Factors
of this Report. Moreover, because we operate in a very competitive and rapidly changing environment, new risks are likely to emerge from time to time. Given these risks and uncertainties, potential investors are cautioned not to place undue reliance on these forward-looking statements as a prediction of future results, which speak only as of the date of this presentation, unless noted otherwise. Except as required by federal securities laws and the rules and regulations of the SEC, we do not undertake to revise or update any forward-looking statements.
All references to “Notes” throughout the document refer to the footnotes to the consolidated financial statements of the registrant in Part II,
Item 8. Financial Statements and Supplementary Data
.
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W. P. Carey 2016 10-K
–
2
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General Development of Business
Overview
W. P. Carey Inc., or W. P. Carey, together with our consolidated subsidiaries and predecessors, is a self-managed diversified REIT and a leading owner and manager of commercial real estate, primarily net leased to companies in the United States and Europe on a long-term basis. The majority of our revenues are lease revenues, which are derived from our owned real estate portfolio. In addition, we earn fee revenue by managing a series of non-traded public and private investment programs through our investment management business.
Our owned real estate portfolio, which we believe is diversified by property type, tenant, tenant industry, and geographic location, is comprised primarily of single-tenant industrial, office, retail, and warehouse facilities that are essential to our corporate tenants’ operations. We have
217
corporate tenants and own
903
properties in
19
countries. As of
December 31, 2016
, approximately
66%
of our contractual minimum annualized base rent, or ABR, was generated by properties located in the United States and approximately
34%
was generated by properties located outside the United States, primarily in Western and Northern European countries.
The vast majority of our leases specify a base rent with scheduled rent increases, either fixed or tied to an inflation-related index, and require our tenants to pay substantially all of the costs associated with operating and maintaining the property, including the real estate taxes, insurance, and maintenance of the facilities. See
Our Portfolio
below for more information on the characteristics of our properties. Furthermore, we actively manage our owned real estate portfolio to try to mitigate risk with respect to changes in tenant credit quality and the likelihood of lease renewal.
Originally founded in 1973, we operated primarily as a sponsor of and advisor to a series of income-generating investment programs under the Corporate Property Associates, or CPA
®
, brand name; until September 2012, when we reorganized as a REIT in connection with our merger with Corporate Property Associates 15 Incorporated, or CPA
®
:15, which we refer to as the CPA
®
:15 Merger. On January 31, 2014, Corporate Property Associates 16 – Global Incorporated, or CPA
®
:16 – Global, merged with and into us, which we refer to as the CPA
®
:16 Merger (
Note 3
).
Our shares of common stock are listed on the New York Stock Exchange under the ticker symbol “WPC.”
Headquartered in New York, we also have offices in Dallas, London, and Amsterdam. At
December 31, 2016
, we employed
281
individuals.
Financial Information About Segments
Our business operates in two segments: Owned Real Estate and Investment Management, as described below.
Narrative Description of Business
Business Objectives and Strategy
Our primary business objective is to increase stockholder value through accretive acquisitions for our owned real estate portfolio and to grow the assets managed by our investment management operations, which in turn will allow us to grow earnings and to maintain or increase our dividend.
Our investment strategy primarily focuses on owning and actively managing a diverse portfolio of commercial real estate that is net leased to credit-worthy companies globally. We believe that many companies prefer to lease rather than own their corporate real estate. We structure long-term financing for our corporate tenants primarily in the form of sale-leaseback transactions, where we acquire what we believe is a company’s essential real estate and then lease it back to them on a long-term net lease basis, which typically produces a more predictable income stream compared to other types of real estate investments and requires minimal capital expenditures.
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W. P. Carey 2016 10-K
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3
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We actively manage our real estate portfolio to mitigate risk with respect to any changes in tenant credit quality and probability of lease renewal. We believe that diversification with respect to property type, tenant, tenant industry, and geographic location is an important component of portfolio risk management and that we own a portfolio of real estate that is well-diversified across each of these categories.
In addition to managing our owned real estate portfolio, we manage a series of non-traded public and private investment programs with assets under management of approximately
$12.9 billion
as of
December 31, 2016
. For each of these programs, we raise equity capital through either public or private offerings of their shares or limited partnership units, invest those funds, and manage their assets in return for fee revenue as specified in our advisory agreements with them.
Since 1979, we have sponsored a series of 17 income-generating investment programs under the CPA
®
brand name that invest primarily in commercial real estate properties net leased to single tenants. At
December 31, 2016
, we were the advisor to Corporate Property Associates 17 – Global Incorporated, or CPA
®
:17 – Global, and Corporate Property Associates 18 – Global Incorporated, or CPA
®
:18 – Global. We were the advisor to CPA
®
:16 – Global until the CPA
®
:16 Merger on January 31, 2014. We refer to CPA
®
:16 – Global, CPA
®
:17 – Global, and CPA
®
:18 – Global together as the CPA
®
REITs.
At
December 31, 2016
, we were also the advisor to Carey Watermark Investors Incorporated, or CWI 1, and Carey Watermark Investors 2 Incorporated, or CWI 2, two non-traded publicly registered REITs that invest in lodging and lodging-related properties. We refer to CWI 1 and CWI 2 together as the CWI REITs, and, together with the CPA
®
REITs, as the Managed REITs (
Note 4
).
At
December 31, 2016
, we also served as the advisor to Carey Credit Income Fund, or CCIF, a business development company, or BDC, which is the master fund in a master/feeder fund structure. We refer to CCIF and the feeder funds of CCIF, or the CCIF Feeder Funds, collectively as the Managed BDCs. At
December 31, 2016
, we were also the advisor to Carey European Student Housing Fund I, L.P., or CESH I, a limited partnership formed for the purpose of developing, owning, and operating student housing properties and similar investments in Europe. We refer to the Managed REITs, Managed BDCs, and CESH I collectively as the Managed Programs. See
Financial Update in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
for a summary of the funds we have raised on behalf of the Managed Programs.
We believe that our owned real estate investments provide our stockholders with a stable, growing source of income, primarily from lease revenues. We also believe that the fee income we generate from our advisory contracts with the Managed Programs provides our stockholders with attractive sources of additional income, a portion of which is more variable in nature.
We have two primary reportable segments, Owned Real Estate and Investment Management. These segments are each described below.
Owned Real Estate
We own and invest in commercial real estate properties primarily located in the United States and Europe and leased on a triple-net lease basis, which requires the tenant to pay substantially all of the costs associated with operating and maintaining the property (
Note 18
). We earn revenues or equity income from:
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our wholly owned commercial real estate investments;
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our co-owned commercial real estate investments;
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our investments in the shares of the Managed REITs; and
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our participation in the cash flows of the Managed REITs through distributions of up to 10% of the Available Cash (as defined in the respective advisory agreements) from the operating partnerships of each of the Managed REITs.
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W. P. Carey 2016 10-K
–
4
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Investment Management
We earn revenue as the advisor to the Managed Programs. Under the advisory agreements with the Managed Programs, we perform various services, including but not limited to the day-to-day management of the Managed Programs and transaction-related services, for which we earn revenues as follows:
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we earn dealer manager fees in connection with the offerings of the Managed Programs;
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we structure and negotiate investments and debt placement transactions for the Managed REITs and CESH I, for which we earn structuring revenue;
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we manage the portfolios of the Managed REITs’ and CESH I’s real estate investments and the loans made by CCIF, for which we earn asset-based management revenue;
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the Managed Programs reimburse us for certain costs that we incur on their behalf, consisting primarily of broker-dealer commissions and marketing costs while we are raising funds for their offerings, and certain personnel and overhead costs;
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under the limited partnership agreement we have with CESH I, we pay all organization and offering costs on behalf of CESH I, and instead of being reimbursed by CESH I on a dollar-for-dollar basis for those costs, we receive limited partnership units of CESH I; and
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we may also earn incentive and disposition revenue and receive other compensation in connection with providing liquidity alternatives to the Managed Programs’ stockholders and limited partners.
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In addition, we earn equity income from our investment in the shares of CCIF. Our business strategy includes exploring alternatives for expanding our investment management operations beyond advising the existing Managed Programs. Any such expansion could involve the purchase of properties or other investments as principal, either for our owned portfolio or with the intention of transferring such investments to a newly created fund.
Investment Strategies
In analyzing potential investments for our owned real estate portfolio and the CPA
®
REITs, we review various aspects of a transaction, including tenant and real estate fundamentals, to determine whether a potential investment and lease will satisfy our investment criteria. In evaluating net-lease transactions, we generally consider, among other things, the following aspects of each transaction:
Tenant/Borrower Evaluation
— We evaluate each potential tenant or borrower for its creditworthiness, typically considering factors such as management experience, industry position and fundamentals, operating history, and capital structure, as well as other factors that may be relevant to a particular investment. We seek opportunities in which we believe the tenant may have a stable or improving credit profile or credit potential that has not been fully recognized by the market. Whether a prospective tenant or borrower is creditworthy is determined by our investment department and our independent investment committee, as described below. We define creditworthiness as a risk-reward relationship appropriate to our investment strategies, which may or may not coincide with ratings issued by the credit rating agencies. As such, creditworthy may not mean “investment grade,” as defined by the credit rating agencies.
We generally seek investments in facilities that we believe are critical to a tenant’s current business and that we believe have a low risk of tenant default. We rate each asset based on the asset’s market and liquidity and also based on how critical the asset is to the tenant’s operations. We also assess the relative risk of the portfolio quarterly. We evaluate the credit quality of our tenants utilizing an internal five-point credit rating scale, with one representing the highest credit quality (investment grade or equivalent) and five representing the lowest (bankruptcy or foreclosure). Investment grade ratings are provided by third-party rating agencies such as Standard & Poor’s Ratings Services or Moody’s Investors Service, although we may determine that a tenant is equivalent to investment grade even if the credit rating agencies have not made that determination. We refer to such tenants as being implied investment grade in this Report. As of
December 31, 2016
, we had
32
tenants that were rated investment grade. Ratings for other tenants are generated internally utilizing metrics such as interest coverage and debt-to-earnings before interest, taxes, depreciation, and amortization, or EBITDA. These metrics are computed internally based on financial statements obtained from each tenant on a quarterly basis. Under the terms of our lease agreements, tenants are generally required to provide us with periodic financial statements. As of
December 31, 2016
, we had
185
below-investment grade tenants, including implied investment grade tenants, with a weighted-average credit rating of
3.1
.
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W. P. Carey 2016 10-K
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5
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Properties Critical to Tenant/Borrower Operations
— We generally focus on properties that we believe are critical to the ongoing operations of the tenant. We believe that these properties provide better protection generally as well as in the event of a bankruptcy, since a tenant/borrower is less likely to risk the loss of a critically important lease or property in a bankruptcy proceeding or otherwise.
Diversification
— We attempt to diversify our owned and managed portfolios to avoid undue dependence on any one particular tenant, borrower, collateral type, geographic location, or tenant/borrower industry. By diversifying the portfolios, we seek to reduce the adverse effect of a single underperforming investment or a downturn in any particular industry or geographic region. While we have not endeavored to maintain any particular standard of diversity in our owned portfolio, we believe that it is reasonably well-diversified.
Lease Terms
— Generally, the net-leased properties in which we invest will be leased on a full-recourse basis to the tenants or their affiliates. In addition, we seek to include a clause in each lease that provides for increases in rent over the term of the lease. These increases are fixed or tied generally to increases in indices such as the Consumer Price Index, or CPI, or other similar index in the jurisdiction in which the property is located, but may contain caps or other limitations, either on an annual or overall basis. In the case of retail stores and hotels, the lease may provide for participation in gross revenues of the tenant above a stated level, which we refer to as a percentage rent. Alternatively, a lease may provide for mandated rental increases on specific dates.
Real Estate Evaluation
— We review and evaluate the physical condition of the property and the market in which it is located. We consider a variety of factors, including current market rents, replacement cost, residual valuation, property operating history, demographic characteristics of the location and accessibility, competitive properties, and suitability for re-leasing. We obtain third-party environmental and engineering reports and market studies, if needed. When considering an investment outside the United States, we will also consider factors particular to foreign countries, including those mentioned in
Item 1A. Risk Factors
, in addition to the risks normally associated with real property investments.
Transaction Provisions to Enhance and Protect Value
— We attempt to include provisions in the leases that we believe may help to protect an investment from changes in the operating and financial characteristics of a tenant that may affect the tenant’s ability to satisfy its obligations to us or reduce the value of the investment. Such provisions include covenants requiring our consent for certain specified activities, requiring the tenant to provide indemnification protections and/or security deposits, and requiring the tenant to satisfy specific operating tests. We may also seek to enhance the likelihood of a tenant’s lease obligations being satisfied through a guaranty of such obligations from the tenant’s corporate parent or other entity, or through a letter of credit. This credit enhancement, if obtained, provides us with additional financial security. However, in markets where competition for net-lease transactions is strong, some or all of these provisions may be difficult to obtain. In addition, in some circumstances, tenants may retain the right to repurchase the property leased by the tenant. The option purchase price is generally the greater of the contract purchase price or the fair market value of the property at the time the option is exercised.
Other Equity Enhancements
— We may attempt to obtain equity enhancements in connection with transactions. These equity enhancements may involve warrants exercisable at a future time to purchase stock of the tenant or borrower or their parent. If warrants are obtained and become exercisable, and if the value of the stock subsequently exceeds the exercise price of the warrant, equity enhancements can help us to achieve our goal of increasing investor returns.
Investment Committee
— We have an independent investment committee that provides services to us, the CPA
®
REITs, and CESH I. Our investment department, under the oversight of our chief investment officer, is primarily responsible for evaluating, negotiating, and structuring potential investment opportunities. The investment committee is not directly involved in originating or negotiating potential investments, but instead functions as a separate and final step in the investment process. We place special emphasis on having experienced individuals serve on our investment committee. For 2017, the investment committee has delegated to management the authority to enter into transactions for our own portfolio of less than $100.0 million without the prior approval of the committee, and it retains the authority to identify other categories of transactions that may be entered into without its prior approval.
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W. P. Carey 2016 10-K
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6
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Financing Strategies
We seek to maintain a conservative capital structure that enhances equity returns, maintains financial flexibility, and enables us to effectively match our assets and liabilities. Since 2014, we have generally repaid all maturing mortgages and purchased all new acquisitions unencumbered by mortgage debt, thereby increasing the level of unencumbered assets on our balance sheet and giving us greater flexibility to issue unsecured bonds in the capital markets. Through the date of this Report, we have issued senior unsecured notes, which we refer to collectively as the Senior Unsecured Notes, as follows (
Note 11
,
Note 20
):
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$500.0 million of 4.6% Senior Notes, issued on March 14, 2014 with a maturity date of April 1, 2024;
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€500.0 million of 2.0% Senior Notes, issued on January 21, 2015 with a maturity date of January 20, 2023;
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$450.0 million of 4.0% Senior Notes, issued on January 26, 2015 with a maturity date of February 1, 2025;
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$350.0 million of 4.25% Senior Notes, issued on September 12, 2016 with a maturity date of October 1, 2026; and
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€500.0 million of 2.25% Senior Notes, issued in a public offering on January 19, 2017 with a maturity date of July 19, 2024.
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As part of this strategy to finance acquisitions and fund working capital needs with unsecured debt, we also utilize our senior credit facility that provides for an unsecured revolving credit facility, or our Revolver, and a term loan facility, or our Term Loan Facility, which we refer to collectively as our Senior Unsecured Credit Facility, and we amended and restated that facility in February 2017 for a total capacity of
$1.85 billion
, which we refer to as our Amended Credit Facility (
Note 20
). We have also issued shares of our common stock through public offerings, including through an “at-the-market,” or ATM, program (
Note 14
). We expect to continue to have access to a wide variety of capital sources, including the public debt and equity markets, although there can be no assurance that such access will be available to us at all times.
Asset Management
We believe that effective management of our assets is essential to maintaining and enhancing property values. Important aspects of asset management include entering into new or modified transactions to meet the evolving needs of current tenants, re-leasing properties, credit and real estate risk analysis, building expansions and redevelopments, and strategic dispositions.
We monitor, on an ongoing basis, compliance by tenants with their lease obligations and other factors that could affect the financial performance of any of our real estate investments. Monitoring involves receiving assurances that each tenant has paid real estate taxes, assessments, and other expenses relating to the properties it occupies and confirming that appropriate insurance coverage is being maintained by the tenant. For international compliance, we often engage third-party asset managers. We review the financial statements of tenants and undertake regular physical inspections of the condition and maintenance of properties. Additionally, we periodically analyze each tenant’s financial condition, the industry in which each tenant operates, and each tenant’s relative strength in its industry.
Our Portfolio
At
December 31, 2016
, our portfolio had the following characteristics:
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Number of properties – full or partial ownership interests in
903
net-leased properties and two hotels;
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Total net-leased square footage –
87.9 million
; and
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Occupancy rate – approximately
99.1%
.
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For more information about our portfolio, please see
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Portfolio Overview
.
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W. P. Carey 2016 10-K
–
7
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Tenant/Lease Information
At
December 31, 2016
, our tenants/leases had the following characteristics:
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Number of tenants –
217
;
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Investment grade tenants as a percentage of total ABR –
16%
;
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Implied investment grade tenants as a percentage of total ABR –
9%
;
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Weighted-average remaining lease term –
9.7
years;
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99%
of our leases provide rent adjustments as follows:
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◦
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CPI and similar –
69%
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◦
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Fixed –
26%
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◦
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Other –
4%
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Competition
We face active competition in both our Owned Real Estate segment and our Investment Management segment from many sources for investment opportunities in commercial properties net leased to tenants both domestically and internationally. In general, we believe that our management’s experience in real estate, credit underwriting, and transaction structuring should allow us to compete effectively for commercial properties. However, competitors may be willing to accept rates of return, lease terms, other transaction terms, or levels of risk that we may find unacceptable.
In our Investment Management segment, we face active competition in raising funds for the Managed Programs, from other funds with similar investment objectives such as non-traded publicly registered funds, publicly traded funds, and private funds (including hedge funds). In addition, we face broad competition from other forms of investment. Currently, we raise substantially all of the investment funds for the Managed Programs from investors within the United States.
Environmental Matters
We and the CPA
®
REITs have invested, and expect to continue to invest, in properties currently or historically used as industrial, manufacturing, and commercial properties. Under various federal, state, and local environmental laws and regulations, current and former owners and operators of property may have liability for the cost of investigating, cleaning up, or disposing of hazardous materials released at, on, under, in, or from the property. These laws typically impose responsibility and liability without regard to whether the owner or operator knew of or was responsible for the presence of hazardous materials or contamination, and liability under these laws is often joint and several. Third parties may also make claims against owners or operators of properties for personal injuries and property damage associated with releases of hazardous materials. As part of our efforts to mitigate these risks, we typically engage third parties to perform assessments of potential environmental risks when evaluating a new acquisition of property, and we frequently require sellers to address them before closing or obtain contractual protection (indemnities, cash reserves, letters of credit, or other instruments) from property sellers, tenants, a tenant’s parent company, or another third party to address known or potential environmental issues. With respect to our hotels and other operating properties that any of the Managed REITs or CESH I may acquire, which are not subject to net lease arrangements, there is no tenant of the property to provide indemnification, so we may be liable for costs associated with environmental contamination in the event any such circumstances arise after we acquire the property.
Financial Information About Geographic Areas
See
Our Portfolio
above and
Note 18
for financial information pertaining to our geographic operations.
Available Information
We will supply to any stockholder, upon written request and without charge, a copy of this Report as filed with the SEC. All filings we make with the SEC, including this Report, our quarterly reports on Form 10-Q, and our current reports on Form 8-K, and any amendments to those reports, are available for free on our website, http://www.wpcarey.com, as soon as reasonably practicable after they are filed with or furnished to the SEC. We are providing our website address solely for the information of investors. We do not intend our website to be an active link or to otherwise incorporate the information contained on our website into this Report or other filings with the SEC. Our SEC filings are available to be read or copied at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information regarding the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. Our filings can also be obtained for free on the SEC’s website at http://www.sec.gov. Our Code of Business Conduct and Ethics, which applies to all employees, including our chief executive
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officer and chief financial officer, is available on our website at http://www.wpcarey.com. We intend to make available on our website any future amendments or waivers to our Code of Business Conduct and Ethics within four business days after any such amendments or waivers. Generally, we also post the dates of our upcoming scheduled financial press releases, telephonic investor calls, and investor presentations on the Investor Relations portion of our website at least ten days prior to the event. Our investor calls are open to the public and remain available on our website for at least two weeks thereafter.
Our business, results of operations, financial condition, and ability to pay dividends could be materially adversely affected by various risks and uncertainties, including those enumerated below. These risk factors may have affected, and in the future could affect, our actual operating and financial results, and could cause such results to differ materially from those in any forward-looking statements. You should not consider this list exhaustive. New risk factors emerge periodically and we cannot assure you that the factors described below list all risks that may become material to us at any later time.
Risks Related to Our Business
Adverse changes in general economic conditions can negatively affect our business.
Our success is dependent upon general economic conditions in the United States and in the international geographic areas where a substantial number of our investments are located. Adverse changes in economic conditions in the United States or those countries or regions would likely have a negative impact on real estate values and, accordingly, our financial performance, the market prices of our securities, and our ability to pay dividends.
Changes in investor preferences or market conditions could limit our ability to raise funds or make new investments on behalf of the Managed Programs.
In order to raise funds on behalf of the Managed Programs, we have relied predominantly on sales of the Managed Programs’ publicly registered, non-traded securities to individual investors through participating selected dealers. Although we have diversified the selected dealers we use for fundraising on behalf of the Managed Programs, the majority of our fundraising efforts remain channeled through three major selected dealers. If this capital raising method were to become less available as a result of changes in market receptivity to non-liquid investments with high selected dealer fees, regulatory scrutiny, or other reasons, our ability to raise funds and make investments on behalf of the Managed Programs could be adversely affected. While we are not limited to raising funds through selected dealers (for example, some of the Managed Programs have obtained credit facilities for investment), our experience with other fundraising methods is limited.
The U.S. Department of Labor’s regulation expanding the definition of fiduciary investment advice under ERISA could adversely affect our financial condition and results of operations.
On April 6, 2016, the U.S. Department of Labor, or the DOL, issued its final regulation addressing when a person providing investment advice with respect to an employee benefit plan or individual retirement account is considered to be a fiduciary under the Employee Retirement Income Security Act of 1974, or ERISA, and the Internal Revenue Code. The final regulation, which we refer to as the Fiduciary Rule, significantly expands the class of advisers and the scope of investment advice that are subject to fiduciary standards, imposing the same fiduciary standards on advisers to individual retirement accounts that have historically only applied to plans covered under ERISA. The Fiduciary Rule also contains certain exemptions that allow investment advisers to receive compensation for providing investment advice under arrangements that would otherwise be prohibited due to conflicts of interest, such as the Best Interest Contract Exemption and the Principal Transaction Exemption. The Fiduciary Rule was scheduled to take effect on April 10, 2017. However, the memorandum issued by the new presidential administration on February 3, 2017 has caused the DOL to seek a delay of the implementation date from the Office of Management and Budget. As a result, we cannot predict when or how the Fiduciary Rule may be implemented.
The changes required by the Fiduciary Rule have already triggered significant changes in the operations of financial advisors and broker-dealers. The implementation of the Fiduciary Rule could (i) have negative implications on our ability to raise capital from potential investors, including those investing through individual retirement accounts; and (ii) impact our ability to raise funds from individual retirement accounts on behalf of the Managed Programs (as well as any other funds that we may sponsor in the future) through their public or private offerings and affect their operations, as well as the fees we earn by serving as their advisor, which could adversely impact our financial condition and results of operations. In the near term, we believe that these changes have already created uncertainty in the industry, which has negatively impacted fundraising from individual retirement accounts for unlisted REITs and direct participation programs generally.
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In addition, the SEC is authorized under the Dodd-Frank Wall Street Reform and Consumer Protection Act to enact its own fiduciary rule; however, it is not clear if or when the SEC intends to release a proposed rule or whether the rule will work in tandem with the DOL regulations to create a uniform set of fiduciary rules.
We face active competition for investments.
We face active competition for our investments from many sources, including insurance companies, credit companies, pension funds, private individuals, financial institutions, finance companies, and investment companies. These institutions may accept greater risk or lower returns, allowing them to offer more attractive terms to prospective tenants. In addition, when evaluating acceptable rates of return on behalf of the CPA
®
REITs, we consider a variety of factors, such as the cost of raising capital, the amount of revenue we can earn, and the performance hurdle rates of the relevant REIT. These factors may limit the number of investments that we make on behalf of the CPA
®
REITs, which will in turn restrict revenue growth from our investment management operations. We believe that the investment community remains risk averse and that the net lease financing market is perceived as a relatively conservative investment vehicle. Accordingly, we expect increased competition for investments, both domestically and internationally. Further capital inflows into our marketplace will place additional pressure on the returns that we can generate from our investments, as well as our willingness and ability to execute transactions. In addition, the majority of our and the CPA
®
REITs’ current investments are in single-tenant commercial properties that are subject to triple-net leases. Many factors, including changes in tax laws or accounting rules, may make these types of sale-leaseback transactions less attractive to potential sellers and lessees, which could negatively affect our ability to increase the amount of assets of this type under management.
A significant amount of our leases will expire within the next five years and we may have difficulty re-leasing or selling our properties if tenants do not renew their leases.
Within the next five years, approximately
19%
of our leases, based on our ABR as of
December 31, 2016
, are due to expire. If these leases are not renewed, or if the properties cannot be re-leased on terms that yield comparable payments, then our lease revenues could be substantially adversely affected. In addition, if the current tenants choose to vacate, we may incur substantial costs in attempting to re-lease such properties. The terms of any new or renewed leases will depend on market conditions prevailing at the time of lease expiration. We may also seek to sell these properties, in which event we may incur losses, depending upon market conditions prevailing at the time of sale. Some of our net leases involve properties that are designed for the particular needs of a tenant. With these properties, we may be required to renovate or make rent concessions in order to lease the property to another tenant. In addition, if we are forced to sell these properties, we may have difficulty selling it to a party other than the tenant due to the property’s unique design. Real estate investments are generally less liquid than many other financial assets, which may limit our ability to quickly adjust our portfolio in response to changes in economic or other conditions. These and other limitations may affect our ability to re-lease or sell properties without adversely affecting returns to stockholders.
There may be competition among us and the CPA
®
REITs for business opportunities.
We currently manage, and may in the future manage, REITs and other entities that have investment and/or rate of return objectives similar to our own. Those entities may be in competition with us with respect to properties; potential purchasers, sellers and lessees of properties; and mortgage financing opportunities. We have agreed to implement certain procedures to help manage any perceived or actual conflicts between us and the CPA
®
REITs, including the following:
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allocating funds based on numerous factors, including available cash, diversification/concentration, transaction size, tax, leverage, and fund life;
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all transactions where we co-invest with a CPA
®
REIT are subject to the approval of the independent directors of the applicable CPA
®
REIT;
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investment allocations are reviewed as part of the annual advisory contract renewal process of each CPA
®
REIT; and
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quarterly review of all of our investment activities and the investment activities of the CPA
®
REITs by the independent directors of the CPA
®
REITs.
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We are not required to meet any diversification standards; therefore, our investments may become subject to concentration risks.
Subject to our intention to maintain our qualification as a REIT, there are no limitations on the number or value of particular types of investments that we may make. We are not required to meet any diversification standards, including geographic
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diversification standards. Therefore, our investments may become concentrated in type or geographic location, which could subject us to significant concentration risks with potentially adverse effects on our investment objectives.
Because we invest in properties located outside the United States, we are exposed to additional risks.
We have invested, and may continue to invest, in properties located outside the United States. At
December 31, 2016
, our directly owned real estate properties located outside of the United States represented
34%
of current ABR. These investments may be affected by factors particular to the local jurisdiction where the property is located and may expose us to additional risks, including:
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enactment of laws relating to the foreign ownership of property (including expropriation of investments), or laws and regulations relating to our ability to repatriate invested capital, profits, or cash and cash equivalents back to the United States;
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legal systems where the ability to enforce contractual rights and remedies may be more limited than under U.S. law;
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difficulty in complying with conflicting obligations in various jurisdictions and the burden of complying with a wide variety of foreign laws, which may be more stringent than U.S. laws (including land use, zoning, and environmental laws);
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tax requirements vary by country and existing foreign tax laws and interpretations may change (e.g., the on-going implementation of the European Union’s Anti-Tax Avoidance Directive), which may result in additional taxes on our international investments;
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changes in operating expenses, including real estate and other tax rates, in particular countries;
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adverse market conditions caused by changes in national or local economic or political conditions;
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changing laws or governmental rules and policies; and
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changes in relative interest rates and the availability, cost, and terms of mortgage funds resulting from varying national economic policies.
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The failure of our compliance and internal control systems to properly mitigate such additional risks, or of our operating infrastructure to support such international investments, could result in operational failures, regulatory fines, or other governmental sanctions.
In addition, the lack of publicly available information in certain jurisdictions in accordance with U.S. generally accepted accounting principles, or GAAP, could impair our ability to analyze transactions and may cause us to forego an investment opportunity for ourselves or the CPA
®
REITs. It may also impair our ability to receive timely and accurate financial information from tenants necessary to meet reporting obligations to financial institutions or governmental and regulatory agencies. Certain of these risks may be greater in emerging markets and less developed countries. Further, our expertise to date is primarily in the United States and certain countries in Europe and Asia. We have less experience in other international markets and may not be as familiar with the potential risks to our and the CPA
®
REITs’ investments in these areas, which could cause us to incur losses as a result.
We may engage third-party asset managers in international jurisdictions to monitor compliance with legal requirements and lending agreements with respect to properties we own or manage on behalf of the CPA
®
REITs. Failure to comply with applicable requirements may expose us or our operating subsidiaries to additional liabilities. Our operations in the United Kingdom, the European Economic Area, Australia, and other countries are subject to significant compliance, disclosure, and other obligations. The European Union’s Alternative Investment Fund Managers Directive, or AIFMD, as transposed into national law within the states of the European Economic Area, established a new regulatory regime for alternative investment fund managers, including private equity and hedge fund managers. AIFMD generally applies to managers with a registered office in the European Economic Area managing one or more alternative investments funds. Compliance with the requirements of AIFMD will impose additional compliance burdens and expense on us and could reduce our operating flexibility and fundraising opportunities. AIFMD may also limit our operating flexibility and impact our ability to expand in the European Economic Area or other markets.
We are also subject to potential fluctuations in exchange rates between foreign currencies and the U.S. dollar (our principal foreign currency exposure is to the euro). Since we have historically placed both our debt obligations and tenants’ rental obligations to us in the same currency, our results of foreign operations are adversely affected by a stronger U.S. dollar relative to foreign currencies (i.e., absent other considerations, a stronger U.S. dollar will reduce both our revenues and our expenses).
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Economic conditions and regulatory changes leading up to and following the United Kingdom’s potential exit from the European Union could have a material adverse effect on our business and results of operations.
Following a referendum on June 23, 2016, in which voters in the United Kingdom approved an exit from the European Union, it was expected that the British government would initiate a process to leave the European Union (a process commonly referred to as “Brexit”). On January 24, 2017, however, the Supreme Court of the United Kingdom ruled that Parliamentary approval will be required to give the Article 50 Notice that will start the United Kingdom’s withdrawal process. We cannot predict when or how the referendum may be implemented, if at all, and are continuing to assess the potential impact, if any, of these events on our operations, financial condition, and results of operations.
If the referendum is passed into law, negotiations would commence to determine the future terms of the United Kingdom’s relationship with the European Union, including the terms of trade between the United Kingdom and the European Union. The announcement of Brexit caused significant volatility in global stock markets and currency exchange rate fluctuations that resulted in the strengthening of the U.S. dollar against foreign currencies in which we conduct business. As described elsewhere in this Report, we own real estate in foreign jurisdictions, including the United Kingdom and other European countries, and we translate revenue denominated in foreign currency into U.S. dollars for our financial statements. During periods of a strengthening U.S. dollar, our reported international lease revenue is reduced because foreign currencies translate into fewer U.S. dollars.
The longer-term effects of Brexit will depend on any agreements that the United Kingdom makes to retain access to European Union markets, either during a transitional period or more permanently. The real estate industry faces substantial uncertainty regarding the impact of the potential exit of the United Kingdom from the European Union. Adverse consequences could include, and are not limited to: global economic uncertainty and deterioration, volatility in currency exchange rates, adverse changes in regulation of the real estate industry, disruptions to the markets we invest in and the tax jurisdictions we operate in (which may adversely impact tax benefits or liabilities in these or other jurisdictions), and/or negative impacts on the operations and financial conditions of our tenants. In addition, Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the United Kingdom determines which European Union laws to replace or replicate. Any of these effects of Brexit, among others, could have a material negative impact on our operations, financial condition, and results of operations.
Our participation in joint ventures creates additional risk.
From time to time, we participate in joint ventures to purchase assets together with the CPA
®
REITs and may do so as well with third parties. There are additional risks involved in joint venture transactions. As a co-investor in a joint venture, we may not be in a position to exercise sole decision-making authority relating to the property, joint venture, or our investment partner. In addition, there is the potential that our investment partner may become bankrupt or that we may have diverging or inconsistent economic or business interests. These diverging interests could, among other things, expose us to liabilities in the joint venture in excess of our proportionate share of those liabilities. The partition rights of each owner in a jointly owned property could reduce the value of each portion of the divided property. In addition, the fiduciary obligation that members of our board may owe to our partner in an affiliated transaction may make it more difficult for us to enforce our rights.
If we recognize substantial impairment charges on our properties or investments, our net income may be reduced.
We recognized impairment charges totaling
$59.3 million
for the year ended
December 31, 2016
. In the future, we may incur substantial impairment charges, which we are required to recognize: (i) whenever we sell a property for less than its carrying value or we determine that the carrying amount of the property is not recoverable and exceeds its fair value; (ii) for direct financing leases, whenever the unguaranteed residual value of the underlying property has declined on an other-than-temporary basis; and (iii) for equity investments, whenever the estimated fair value of the investment’s underlying net assets in comparison with the carrying value of our interest in the investment has declined on an other-than-temporary basis. By their nature, the timing or extent of impairment charges are not predictable. We may incur non-cash impairment charges in the future, which may reduce our net income.
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Because we use debt to finance investments, our cash flow could be adversely affected.
Prior to 2014, most of our investments were made by borrowing a portion of the total investment and securing the loan with a mortgage on the property. We generally borrowed on a non-recourse basis to limit our exposure on any property to the amount of equity invested in the property. If we are unable to make our debt payments as required, a lender could foreclose on the property or properties securing its debt. Additionally, lenders for our international mortgage loan transactions typically incorporate various covenants and other provisions (including loan to value ratio, debt service coverage ratio, and material adverse changes in the borrower’s or tenant’s business) that can cause a technical loan default. Accordingly, if the real estate value declines or the tenant defaults, the lender would have the right to foreclose on its security. If any of these events were to occur, it could cause us to lose part or all of our investment, which could reduce the value of our portfolio and revenues available for distribution to our stockholders.
Some of our financing may also require us to make a balloon payment at maturity. Our ability to make such balloon payments may depend upon our ability to refinance the obligation, invest additional equity, or sell the underlying property. When a balloon payment is due, however, we may be unable to refinance the balloon payment on terms as favorable as the original loan, make the payment with existing cash or cash resources, or sell the property at a price sufficient to cover the payment. Our ability to accomplish these goals will be affected by various factors existing at the relevant time, such as the state of national and regional economies, local real estate conditions, available mortgage or interest rates, availability of credit, our equity in the mortgaged properties, our financial condition, the operating history of the mortgaged properties, and tax laws. A refinancing or sale could affect the rate of return to stockholders and the projected disposition timeline of our assets.
Our level of indebtedness and the limitations imposed on us by our debt agreements could have significant adverse consequences.
Our consolidated indebtedness as of
December 31, 2016
was approximately
$4.4 billion
, representing a leverage ratio (total debt less cash to EBITDA) of approximately
5.9
. This consolidated indebtedness was comprised of (i)
$1.8 billion
in Senior Unsecured Notes, (ii)
$1.7 billion
in non-recourse mortgages, and (iii)
$926.7 million
outstanding under our Senior Unsecured Credit Facility. Our level of indebtedness and the limitations imposed by our debt agreements could have significant adverse consequences, including the following:
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it may increase our vulnerability to general adverse economic conditions and limit our flexibility in planning for, or reacting to, changes in our business and industry;
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we may be required to use a substantial portion of our cash flow from operations for the payment of principal and interest on indebtedness, thereby reducing our ability to fund working capital, acquisitions, capital expenditures, and general corporate requirements;
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we may be at a disadvantage compared to our competitors with comparatively less indebtedness;
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it could cause us to violate restrictive covenants in our debt agreements, which would entitle lenders and other debtholders to accelerate the maturity of such debt;
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debt service requirements and financial covenants relating to our indebtedness may limit our ability to maintain our REIT qualification;
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we may be unable to hedge our debt; counterparties may fail to honor their obligations under our hedge agreements; our hedge agreements may not effectively protect us from interest rate or currency fluctuation risk; and we will be exposed to existing, and potentially volatile, interest or currency exchange rates upon the expiration of our hedge agreements;
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because a portion of our debt bears interest at variable rates, increases in interest rates could materially increase our interest expense;
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we may be forced to dispose of one or more of our properties, possibly on disadvantageous terms, in order to service our debt or if we fail to meet our debt service obligations, in whole or in part;
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upon any default on our secured indebtedness, lenders may foreclose on the properties or our interests in the entities that own the properties securing such indebtedness and receive an assignment of rents and leases; and
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we may be unable to raise additional funds as needed or on favorable terms, which could, among other things, adversely affect our ability to capitalize upon acquisition opportunities or meet operational needs.
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If any one of these events were to occur, our business, financial condition, liquidity, results of operations, earnings, and prospects, as well as our ability to satisfy all of our debt obligations (including those under our Senior Unsecured Credit Facility, our Senior Unsecured Notes, or other similar debt securities that we issue), could be materially and adversely affected. Furthermore, foreclosures could create taxable income without accompanying cash proceeds, a circumstance that could hinder our ability to meet the REIT distribution requirements imposed by the Internal Revenue Code.
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We may not be able to generate sufficient cash flow to meet all of our existing or potential future debt service obligations.
Our ability to meet all of our existing or potential future debt service obligations (including those under our Senior Unsecured Credit Facility and our Senior Unsecured Notes, or other similar debt securities that we issue); to refinance our existing or potential future indebtedness; and to fund our operations, working capital, acquisitions, capital expenditures, and other important business uses; depends on our ability to generate sufficient cash flow in the future. Our future cash flow is subject to, among other factors, general economic, industry, financial, competitive, operating, legislative, and regulatory conditions, many of which are beyond our control.
We cannot assure you that our business will generate sufficient cash flow from operations or that future sources of cash will be available to us on favorable terms, or at all; in amounts sufficient to enable us to meet all of our existing or potential future debt service obligations; or to fund our other important business uses or liquidity needs. Furthermore, if we incur additional indebtedness in connection with future acquisitions or development projects, or for any other purpose, our existing or potential future debt service obligations could increase significantly and our ability to meet those obligations could depend, in large part, on the returns from such acquisitions or projects, as to which no assurance can be given.
We may need to refinance all or a portion of our indebtedness at or prior to maturity. Our ability to refinance our indebtedness or obtain additional financing will depend on, among other things, (i) our business, financial condition, liquidity, results of operations, Adjusted funds from operations, or AFFO, prospects, and then-current market conditions; and (ii) restrictions in the agreements governing our indebtedness. As a result, we may not be able to refinance any of our indebtedness or obtain additional financing on favorable terms, or at all.
If we do not generate sufficient cash flow from operations and additional borrowings or refinancings are not available to us, we may be unable to meet all of our existing or potential future debt service obligations. As a result, we would be forced to take other actions to meet those obligations, such as selling properties, raising equity, or delaying capital expenditures, any of which could have a material adverse effect on us. Furthermore, we cannot assure you that we will be able to effect any of these actions on favorable terms, or at all.
The effective subordination of our Senior Unsecured Notes, or other similar debt securities that we issue, may limit our ability to meet all of our debt service obligations.
Our Senior Unsecured Notes are unsecured and unsubordinated obligations and rank equally in right of payment with each other and with all of our unsecured and unsubordinated indebtedness. However, our Senior Unsecured Notes are effectively subordinated in right of payment to all of our secured indebtedness to the extent of the value of the collateral securing such indebtedness. As of
December 31, 2016
, we had
$1.7 billion
of secured consolidated indebtedness outstanding. While the indentures governing our Senior Unsecured Notes limit our ability to incur secured indebtedness in the future, they do not prohibit us from incurring such indebtedness if we and our subsidiaries are in compliance with certain financial ratios and other requirements at the time of incurrence. In the event of a bankruptcy, liquidation, dissolution, reorganization, or similar proceeding with respect to us, the holders of any secured indebtedness will be entitled to proceed directly against the collateral that secures such indebtedness. Therefore, the collateral will not be available for satisfaction of any amounts owed under our unsecured indebtedness, including our Senior Unsecured Notes or similar debt securities that we issue, until such secured indebtedness is satisfied in full.
Our Senior Unsecured Notes are also effectively subordinated to all liabilities, whether secured or unsecured, and any preferred equity of our subsidiaries, which is particularly important because we have no significant operations or assets other than our equity interests in our subsidiaries. In the event of a bankruptcy, liquidation, dissolution, reorganization, or similar proceeding with respect to any of our subsidiaries, we (as a common equity owner of such subsidiary), and therefore holders of our debt (including our Senior Unsecured Notes or similar debt securities that we issue), will be subject to the prior claims of such subsidiary's creditors, including trade creditors and preferred equity holders. As of
December 31, 2016
, we had consolidated indebtedness of
$5.0 billion
outstanding, of which
$1.7 billion
was secured indebtedness issued by certain of our subsidiaries, and no preferred equity.
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Despite our substantial outstanding indebtedness, we may still incur significantly more indebtedness in the future, which would exacerbate any or all of the risks described herein.
We may incur substantial additional indebtedness in the future. Although the agreements governing our indebtedness do limit our ability to incur additional indebtedness, these restrictions are subject to a number of qualifications and exceptions and, under certain circumstances, debt incurred in compliance with these restrictions could be substantial. To the extent that we incur substantial additional indebtedness in the future, the risks associated with our substantial leverage described herein, including our inability to meet all of our debt service obligations, would be exacerbated.
The indentures governing our Senior Unsecured Notes contain restrictive covenants that may limit our ability to expand or fully pursue our business strategies.
The indentures governing our Senior Unsecured Notes contain financial and operating covenants that, among other things, may limit our ability to take specific actions, even if we believe them to be in our best interest (e.g., subject to certain exceptions, our ability to consummate a merger, consolidation, or a transfer of all or substantially all of our consolidated assets to another person is restricted).
In addition, our current debt agreements require us to meet specified financial ratios and the indentures governing our Senior Unsecured Notes require us to (i) limit the amount of our total debt and the amount of our secured debt before incurring new debt, (ii) maintain at all times a specified ratio of unencumbered assets to unsecured debt, and (iii) meet a debt service coverage ratio before incurring new debt. These covenants may restrict our ability to expand or fully pursue our business strategies. Our ability to comply with these and other provisions of our debt agreements may be affected by changes in our operating and financial performance, changes in general business and economic conditions, adverse regulatory developments, or other events beyond our control. The breach of any of these covenants could result in a default under our indebtedness, which could result in the acceleration of the maturity of such indebtedness and potentially other indebtedness. If any of our indebtedness is accelerated prior to maturity, we may not be able to repay such indebtedness or refinance such indebtedness on favorable terms, or at all.
The market price of our Senior Unsecured Notes may be volatile.
The market price of our Senior Unsecured Notes may be highly volatile and subject to wide fluctuations. The market price of our Senior Unsecured Notes may fluctuate as a result of factors (such as changes in interest rates) that are beyond our control or unrelated to our historical and projected business, financial condition, liquidity, results of operations, earnings, or prospects. It is impossible to assure investors that the market price of our Senior Unsecured Notes will not fall in the future and it may be difficult for investors to resell our Senior Unsecured Notes at prices they find attractive, or at all. Furthermore, while the euro-denominated 2.0% Senior Notes have been listed on the New York Stock Exchange and the euro-denominated 2.25% Senior Notes have been listed on the Global Exchange Market, no assurance can be given that such listings can be maintained or that it will ensure an active trading market for these notes. In addition, there is currently no public market for the other Senior Unsecured Notes. Therefore, if an active trading market does not exist for our Senior Unsecured Notes, investors may not be able to resell them on favorable terms when desired, or at all. The liquidity of the trading market, if any, and the future market price of our Senior Unsecured Notes will depend on many factors, including, among other things, prevailing interest rates; our business, financial condition, liquidity, results of operations, AFFO, and prospects; the market for similar securities; and the state of the overall securities market. It is possible that the market for the Senior Unsecured Notes will be subject to disruptions, which may have a negative effect on the holders of our Senior Unsecured Notes, regardless of our business, financial condition, liquidity, results of operations, AFFO, or prospects.
Volatility and disruption in capital markets could materially and adversely impact us.
The capital markets may experience extreme volatility and disruption, which could make it more difficult to raise capital. If we cannot access the capital markets or if we cannot access capital upon favorable terms, we may be required to liquidate one or more investments in properties at times that may not permit us to realize the maximum return on those investments, which could also result in adverse tax consequences and affect our ability to capitalize on acquisition opportunities and/or meet operational needs. Moreover, market turmoil could lead to decreased consumer confidence and widespread reduction of business activity, which may materially and adversely impact us, including our ability to acquire and dispose of properties.
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A downgrade in our credit ratings could materially adversely affect our business and financial condition as well as the market price of our Senior Unsecured Notes.
We plan to manage our operations to maintain investment grade status with a capital structure consistent with our current profile, but there can be no assurance that we will be able to maintain our current credit ratings. Our credit ratings could change based upon, among other things, our historical and projected business, financial condition, liquidity, results of operations, AFFO, and prospects. These ratings are subject to ongoing evaluation by credit rating agencies and we cannot provide any assurance that our ratings will not be changed or withdrawn by a rating agency in the future. If any of the credit rating agencies that have rated us downgrades or lowers our credit rating, or if any credit rating agency indicates that it has placed our rating on a “watch list” for a possible downgrading or lowering, or otherwise indicates that its outlook for our rating is negative, it could have a material adverse effect on our costs and availability of capital, which could in turn have a material adverse effect on us and on our ability to satisfy our debt service obligations (including those under our Senior Unsecured Credit Facility, our Senior Unsecured Notes, or other similar debt securities that we issue) and to pay dividends on our common stock. Furthermore, any such action could negatively impact the market price of our Senior Unsecured Notes.
Certain of our leases permit tenants to purchase a property at a predetermined price, which could limit our realization of any appreciation or result in a loss.
We have granted certain tenants a right to repurchase the properties they lease from us. The purchase price may be a fixed price or it may be based on a formula or the market value at the time of exercise. If a tenant exercises its right to purchase the property and the property’s market value has increased beyond that price, we would not be able to fully realize the appreciation on that property. Additionally, if the price at which the tenant can purchase the property is less than our carrying value (e.g., where the purchase price is based on an appraised value), we may incur a loss. In addition, we may also be unable to reinvest proceeds from these dispositions in investments with similar or better investment returns.
Our ability to fully control the management of our net-leased properties may be limited.
The tenants or managers of net-leased properties are responsible for maintenance and other day-to-day management of the properties. If a property is not adequately maintained in accordance with the terms of the applicable lease, we may incur expenses for deferred maintenance expenditures or other liabilities once the property becomes free of the lease. While our leases generally provide for recourse against the tenant in these instances, a bankrupt or financially troubled tenant may be more likely to defer maintenance and it may be more difficult to enforce remedies against such a tenant. In addition, to the extent tenants are unable to successfully conduct their operations, their ability to pay rent may be adversely affected. Although we endeavor to monitor, on an ongoing basis, compliance by tenants with their lease obligations and other factors that could affect the financial performance of our properties, such monitoring may not always ascertain or forestall deterioration either in the condition of a property or the financial circumstances of a tenant.
The value of our real estate is subject to fluctuation.
We are subject to all of the general risks associated with the ownership of real estate. While the revenues from our leases are not directly dependent upon the value of the real estate owned, significant declines in real estate values could adversely affect us in many ways, including a decline in the residual values of properties at lease expiration, possible lease abandonments by tenants, and a decline in the attractiveness of triple-net lease transactions to potential sellers. We also face the risk that lease revenue will be insufficient to cover all corporate operating expenses and debt service payments we incur. General risks associated with the ownership of real estate include:
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adverse changes in general or local economic conditions;
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changes in the supply of, or demand for, similar or competing properties;
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changes in interest rates and operating expenses;
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competition for tenants;
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changes in market rental rates;
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inability to lease or sell properties upon termination of existing leases;
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renewal of leases at lower rental rates;
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inability to collect rents from tenants due to financial hardship, including bankruptcy;
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changes in tax, real estate, zoning, or environmental laws that adversely impact the value of real estate;
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uninsured property liability, property damage, or casualty losses;
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unexpected expenditures for capital improvements or to bring properties into compliance with applicable federal, state, and local laws;
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exposure to environmental losses;
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changes in foreign exchange rates; and
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force majeure and other factors beyond the control of our management.
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In addition, the initial appraisals that we obtain on our properties are generally based on the value of the properties when they are leased. If the leases on the properties terminate, the value of the properties may fall significantly below the appraised value, which could result in impairment charges on the properties.
Because most of our properties are occupied by a single tenant, our success is materially dependent upon the tenant’s financial stability.
Most of our properties are occupied by a single tenant; therefore, the success of our investments is materially dependent on the financial stability of these tenants. Revenues from several of our tenants/guarantors constitute a significant percentage of our lease revenues. Our top ten tenants accounted for approximately
31.0%
of total ABR at
December 31, 2016
. Lease payment defaults by tenants could negatively impact our net income and reduce the amounts available for distribution to stockholders. As some of our tenants may not have a recognized credit rating, these tenants may have a higher risk of lease defaults than tenants with a recognized credit rating. In addition, the bankruptcy or default of a tenant could cause the loss of lease payments as well as an increase in the costs incurred to carry the property until it can be re-leased or sold. We have had, and may in the future have, tenants file for bankruptcy protection. In the event of a default, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting the investment and re-leasing the property. If a lease is terminated, there is no assurance that we will be able to re-lease the property for the rent previously received or sell the property without incurring a loss.
The bankruptcy or insolvency of tenants or borrowers may cause a reduction in our revenue and an increase in our expenses.
Bankruptcy or insolvency of a tenant or borrower could cause the loss of lease or interest and principal payments, an increase in the costs incurred to carry the property, litigation, a reduction in the value of our shares, and/or a decrease in amounts available for distribution to our stockholders. Under U.S. bankruptcy law, a tenant that is the subject of bankruptcy proceedings has the option of assuming or rejecting any unexpired lease. If the tenant rejects the lease, any resulting claim we have for breach of the lease (excluding collateral securing the claim) will be treated as a general unsecured claim. The maximum claim will be capped at the amount owed for unpaid rent prior to the bankruptcy (unrelated to the termination), plus the greater of one year’s lease payments or 15% of the remaining lease payments payable under the lease (but no more than three years’ lease payments). In addition, due to the long-term nature of our leases and, in some cases, terms providing for the repurchase of a property by the tenant, a bankruptcy court could recharacterize a net lease transaction as a secured lending transaction. If that were to occur, we would not be treated as the owner of the property, but we might have rights as a secured creditor. Those rights would not include a right to compel the tenant to timely perform its obligations under the lease but may instead entitle us to “adequate protection,” a bankruptcy concept that applies to protect against a decrease in the value of the property if the value of the property is less than the balance owed to us.
Insolvency laws outside the United States may not be as favorable to reorganization or the protection of a debtor’s rights as in the United States. Our right to terminate a lease for default may be more likely to be enforced in foreign jurisdictions where a debtor/tenant or its insolvency representative lacks the right to force the continuation of a lease without our consent. Nonetheless, such laws may permit a tenant or an appointed insolvency representative to terminate a lease if it so chooses.
In addition, in circumstances where the bankruptcy laws of the United States are considered to be more favorable to debtors and/or their reorganization, entities that are not ordinarily perceived as U.S. entities may seek to take advantage of U.S. bankruptcy laws (an entity would be eligible to be a debtor under the U.S. bankruptcy laws if it had a domicile (state of incorporation or registration), place of business, or assets in the United States). If a tenant became a debtor under U.S. bankruptcy laws, it would then have the option of assuming or rejecting any unexpired lease. As a general matter, after the commencement of bankruptcy proceedings and prior to assumption or rejection of an expired lease, U.S. bankruptcy laws provide that, until such unexpired lease is assumed or rejected, the tenant or its trustee must perform the tenant’s obligations under the lease in a timely manner. However, under certain circumstances, the time period for performance of such obligations may be extended by an order of the bankruptcy court. We and certain of the CPA
®
programs have had tenants file for bankruptcy protection and have been involved in bankruptcy-related litigation (including with several international tenants). Historically, four of the seventeen CPA
®
programs temporarily reduced the rate of distributions to their investors as a result of adverse developments involving tenants.
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Similarly, if a borrower under one of our loan transactions declares bankruptcy, there may not be sufficient funds to satisfy its payment obligations to us, which may adversely affect our revenue and distributions to our stockholders. The mortgage loans that we may invest in may also be subject to delinquency, foreclosure, and loss, which could result in losses to us.
Because we are subject to possible liabilities relating to environmental matters, we could incur unexpected costs and our ability to sell or otherwise dispose of a property may be negatively impacted.
We own commercial properties and are subject to the risk of liabilities under federal, state, and local environmental laws. These responsibilities and liabilities also exist for properties owned by the Managed REITs, and if they become liable for these costs, their ability to pay for our services could be materially affected. Some of these laws could impose the following on us:
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responsibility and liability for the cost of investigation and removal or remediation (including at appropriate disposal facilities) of hazardous or toxic substances in, on, or migrating from our property, generally without regard to our knowledge of, or responsibility for, the presence of these contaminants;
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liability for claims by third parties based on damages to natural resources or property, personal injuries, or costs of removal or remediation of hazardous or toxic substances in, on, or migrating from our property;
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responsibility for managing asbestos-containing building materials and third-party claims for exposure to those materials; and
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claims being made against us by the Managed REITs for inadequate due diligence.
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Our costs of investigation, remediation, or removal of hazardous or toxic substances, or for third-party claims for damages, may be substantial. The presence of hazardous or toxic substances at any of our properties, or the failure to properly remediate a contaminated property, could (i) give rise to a lien in favor of the government for costs it may incur to address the contamination or (ii) otherwise adversely affect our ability to sell or lease the property or to borrow using the property as collateral. In addition, environmental liabilities, or costs or operating limitations imposed on a tenant by environmental laws, could affect its ability to make rental payments to us. And although we endeavor to avoid doing so, we may be required, in connection with any future divestitures of property, to provide buyers with indemnifications against potential environmental liabilities.
Revenue and earnings from our investment management operations are subject to volatility, which may cause our investment management revenue to fluctuate.
Growth in revenue from our investment management operations is dependent in large part on (i) future capital raising in existing or future managed entities and (ii) our ability to make investments that meet the investment criteria of these entities, both of which are subject to uncertainty with respect to capital market and real estate market conditions. This uncertainty creates volatility in our earnings because of the resulting fluctuation in transaction-based revenue. Asset management revenue may be affected by factors that include not only our ability to increase the Managed REITs’ portfolio of properties under management, but also changes in valuation of those properties and sales of the Managed REIT properties. In addition, revenue from our investment management operations, as well as the value of our interests in the Managed REITs and dividend income from those interests, may be significantly affected by the results of operations of the Managed REITs. Each of the CPA
®
REITs has invested the majority of its assets (other than short-term investments) in triple-net leased properties substantially similar to those we hold. Consequently, the results of operations of, and cash available for distribution by, each of the CPA
®
REITs are likely to be substantially affected by the same market conditions, and are subject to the same risk factors, as the properties we own. Historically, four of the seventeen CPA
®
programs temporarily reduced the rate of distributions to their investors as a result of adverse developments involving tenants.
Each of the Managed REITs may incur significant debt that, either due to liquidity problems or restrictive covenants contained in their borrowing agreements, could restrict their ability to pay revenue owed to us when due. In addition, the revenue payable under each of our current investment advisory agreements is subject to a variable annual cap based on a formula tied to the assets and income of that Managed REIT. This cap may limit the growth of our investment management revenue. Furthermore, our ability to earn revenue related to the disposition of properties is primarily tied to providing liquidity events for the Managed REIT investors. Our ability to provide such liquidity, and to do so under circumstances that will satisfy the applicable subordination requirements, will depend on market conditions at the relevant time, which may vary considerably over a period of years. In any case, liquidity events typically occur several years apart, and income from our investment management operations is likely to be significantly higher in years when such events occur.
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Because the revenue streams from the advisory agreements we have with the Managed
REITs are subject to limitation or cancellation, any such termination could have a material adverse effect on our business, results of operations, and financial condition.
The advisory agreements under which we provide services to the Managed REITs are renewable annually and may generally be terminated by each Managed REIT upon 60 days’ notice, with or without cause. Unless otherwise renewed, the advisory agreement with each of the Managed REITs is scheduled to expire on December 31, 2017. There can be no assurance that these agreements will not expire or be terminated. Upon certain terminations, the Managed REITs each have the right, but not the obligation, to repurchase our interests in their operating partnerships at fair market value. If such right is not exercised, we would remain as a limited partner of the respective operating partnerships. Nonetheless, any such termination would have a material adverse effect on our business, results of operations, and financial condition.
The recent changes in both U.S. and international accounting standards regarding operating leases may make the leasing of facilities less attractive to our potential tenants, which could reduce overall demand for our leasing services.
A lease is classified by a tenant as a capital lease if the significant risks and rewards of ownership are considered to reside with the tenant. This situation is generally considered to be met if, among other things, the non-cancelable lease term is more than 75% of the useful life of the asset or if the present value of the minimum lease payments equals 90% or more of the leased property’s fair value at lease inception. Under capital lease accounting for a tenant, both the leased asset and liability are reflected on their balance sheet. If the lease does not meet any of the criteria for a capital lease, the lease is considered an operating lease by the tenant and the obligation does not appear on the tenant’s balance sheet; rather, the contractual future minimum payment obligations are only disclosed in the footnotes thereto. Thus, entering into an operating lease can appear to enhance a tenant’s balance sheet in comparison to direct ownership. In the first quarter of 2016, both the Financial Accounting Standards Board, or FASB, and the International Accounting Standards Board, or IASB, issued new standards on lease accounting which bring most leases, both existing and new, on the balance sheet for lessees. For lessors, however, the accounting remains largely unchanged and the distinction between operating and finance leases is retained. The new standards also replace existing sale-leaseback guidance with new models applicable to both lessees and lessors. These changes would impact most companies, but are particularly applicable to those that are significant users of real estate. The standards outline a completely new model for accounting by lessees, whereby their rights and obligations under most leases, existing and new, would be capitalized and recorded on the balance sheet. For some companies, the new accounting guidance may influence whether or not, or the extent to which, they may enter into the type of sale-leaseback transactions in which we specialize.
The BDCs are subject to extensive regulation.
We sponsor several closed-end funds in a master/feeder fund structure that have each elected to be treated as a BDC. These BDCs are subject to certain provisions of the Investment Company Act of 1940, as amended, and the rules and regulations thereunder, collectively referred to herein as the Investment Company Act. One of our subsidiaries also serves as the investment adviser for the master fund, CCIF, and is subject to the Investment Advisers Act of 1940, as amended, and the rules and regulations thereunder, collectively referred to herein as the Investment Advisers Act. Failure to comply with such rules and regulations could result in liability and/or adversely affect the operation of the BDCs and our ability to successfully raise funds for the BDCs or to generate revenue as the advisor to CCIF.
The investment advisory agreement with CCIF may be terminated upon short notice.
Under the investment advisory agreement with CCIF, its board of trustees has the right to terminate our subsidiary’s management of CCIF upon 60 days’ prior notice. If our subsidiary is terminated as CCIF’s advisor, (i) we will lose the management and incentive fees that it is paid for managing CCIF and (ii) CCIF may terminate our interest in their revenues, expenses, income, losses, distributions, and capital by paying us an amount equal to the then-present fair market value of our interest (excluding any interest we may have in CCIF’s common shares), as determined between us and CCIF. There can be no assurance that the investment advisory agreement with CCIF will not be terminated. Any such termination would diminish our ability to generate revenue from the BDCs, which could have a material adverse effect on our business, results of operations, and financial condition.
The BDCs may be affected by weak investment performance by portfolio companies in which CCIF invests.
Weak investment returns for the portfolio companies in which CCIF invests may reduce the amount of management and incentive fees that we earn. CCIF may experience weak returns due to general market conditions or underperformance by portfolio companies in which it invests. These factors may also affect CCIF’s ability to invest in new portfolio companies or
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reinvest in existing portfolio companies. If such factors continue to persist, CCIF may be forced to liquidate its position in a portfolio company at an inopportune time.
Our operations could be restricted if we become subject to the Investment Company Act and your investment return, if any, may be reduced if we are required to register as an investment company under the Investment Company Act.
A person will generally be deemed to be an “investment company” for purposes of the Investment Company Act if:
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it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, or trading in securities; or
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it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis.
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We believe that we and our subsidiaries are engaged primarily in the business of acquiring and owning interests in real estate. We do not hold ourselves out as being engaged primarily in the business of investing, reinvesting, or trading in securities. Accordingly, we do not believe that we are an investment company as defined under the Investment Company Act. If we were required to register as an investment company, we would have to comply with a variety of substantive requirements under the Investment Company Act that impose, among other things, (i) limitations on our capital structure (including our ability to use leverage), (ii) restrictions on specified investments, (iii) prohibitions on proposed transactions with “affiliated persons” (as defined in the Investment Company Act), and (iv) compliance with reporting, record keeping, voting, proxy disclosure, and other rules and regulations that would significantly increase our operating expenses.
Although we intend to monitor our portfolio, there can be no assurance that we will be able to maintain an exclusion or exemption from registration as an investment company under the Investment Company Act. In order to maintain compliance with an Investment Company Act exemption or exclusion, we may be unable to sell assets that we would otherwise want to sell and may need to sell assets we would otherwise wish to retain. In addition, we may have to acquire additional income or loss generating assets that we might not otherwise have acquired, or may have to forego opportunities to acquire interests in companies that we would otherwise want to acquire and that would be important to our investment strategy. If we were required to register as an investment company, we may be prohibited from engaging in our business as currently conducted because, among other things, the Investment Company Act imposes significant limitations on an investment company’s leverage. Furthermore, if we fail to comply with the Investment Company Act, criminal and civil actions could be brought against us, our contracts could be unenforceable, and a court could appoint a receiver to take control of us and liquidate our business. Were any of these results to occur, your investment return, if any, may be reduced.
W. P. Carey is not currently registered as an Investment Advisor and our failure to do so could subject us to civil and/or criminal penalties.
If the SEC determines that W. P. Carey is an investment advisor, we will have to register as an investment adviser with the SEC pursuant to the Investment Advisers Act. Registration requirements and other obligations imposed upon investment advisers may be costly and burdensome. In addition, if we are deemed to be an investment advisor and are required to register with the SEC as an investment adviser, we will become subject to the requirements of the Investment Advisers Act. The Investment Advisers Act requires: (i) fiduciary duties to clients; (ii) substantive prohibitions and requirements; (iii) contractual requirements; (iv) record-keeping requirements; and (v) administrative oversight by the SEC, primarily by inspection. If we are deemed to be out of compliance with such rules and regulations, we may be subject to civil and/or criminal penalties.
We depend on key personnel for our future success, and the loss of key personnel or inability to attract and retain personnel could harm our business.
Our future success depends in large part on our ability to hire and retain a sufficient number of qualified personnel, including our executive officers. The nature of our executive officers’ experience and the extent of the relationships they have developed with real estate professionals and financial institutions are important to the success of our business. We cannot provide any assurances regarding their continued employment with us. The loss of the services of certain of our executive officers could detrimentally affect our business and prospects.
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Our accounting policies and methods are fundamental to how we record and report our financial position and results of operations, and they require management to make estimates, judgments, and assumptions about matters that are inherently uncertain.
Our accounting policies and methods are fundamental to how we record and report our financial position and results of operations. We have identified several accounting policies as being critical to the presentation of our financial position and results of operations because they require management to make particularly subjective or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be recorded under different conditions or using different assumptions. Because of the inherent uncertainty of the estimates, judgments, and assumptions associated with these critical accounting policies, we cannot provide any assurance that we will not make subsequent significant adjustments to our consolidated financial statements. If our judgments, assumptions, and allocations prove to be incorrect; or if circumstances change; our business, financial condition, revenues, operating expense, results of operations, liquidity, ability to pay dividends, or stock price may be materially adversely affected.
Our charter and Maryland law contain provisions that may delay or prevent a change of control transaction.
Our charter contains 7.9% ownership limits. Our charter, subject to certain exceptions, authorizes our directors to take such actions as are necessary and desirable to limit any person to beneficial or constructive ownership of (i) 7.9%, in either value or number of shares, whichever is more restrictive, of our aggregate outstanding shares of common and preferred stock (excluding any outstanding shares of our common or preferred stock not treated as outstanding for federal income tax purposes) or (ii) 7.9%, in either value or number of shares, whichever is more restrictive, of our aggregate outstanding shares of common stock (excluding any of our outstanding shares of common stock not treated as outstanding for federal income tax purposes). Our board of directors, in its sole discretion, may exempt a person from such ownership limits, provided that they obtain such representations, covenants, and undertakings as appropriate to determine that the exemption would not affect our REIT status. Our board of directors may also increase or decrease the common stock ownership limit and/or the aggregate stock ownership limit so long as the change would not result in five or fewer persons beneficially owning more than 49.9% in value of our outstanding stock. The ownership limits and other stock ownership restrictions contained in our charter may delay or prevent a transaction or change of control that might involve a premium price for our common stock or otherwise be in the best interests of our stockholders.
Our board of directors may modify our authorized shares of stock of any class or series and may create and issue a class or series of common stock or preferred stock without stockholder approval.
Our charter empowers our board of directors to, without stockholder approval, increase or decrease the aggregate number of shares of our stock or the number of shares of stock of any class or series that we have authority to issue; classify any unissued shares of common stock or preferred stock; reclassify any previously classified, but unissued, shares of common stock or preferred stock into one or more classes or series of stock; and issue such shares of stock so classified or reclassified. Our board of directors may determine the relative rights, preferences, and privileges of any class or series of common stock or preferred stock issued. As a result, we may issue series or classes of common stock or preferred stock with preferences, dividends, powers, and rights (voting or otherwise) senior to the rights of current holders of our common stock. The issuance of any such classes or series of common stock or preferred stock could also have the effect of delaying or preventing a change of control transaction that might otherwise be in the best interests of our stockholders.
Certain provisions of Maryland law could inhibit changes in control.
Certain provisions of the Maryland General Corporation Law may have the effect of inhibiting a third party from making a proposal to acquire us or impeding a change of control that could provide our stockholders with the opportunity to realize a premium over the then-prevailing market price of our common stock, including:
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“business combination” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our outstanding voting stock), or an affiliate thereof, for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter imposes special appraisal rights and supermajority voting requirements on these combinations; and
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“control share” provisions that provide that holders of “control shares” of our company (defined as voting shares which, when aggregated with all other shares owned or controlled by the stockholder, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of issued and outstanding “control shares”) have no voting rights except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.
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The statute permits various exemptions from its provisions, including business combinations that are exempted by a board of directors prior to the time that the “interested stockholder” becomes an interested stockholder. Our board of directors has, by resolution, exempted any business combination between us and any person who is an existing, or becomes in the future, an “interested stockholder.” Consequently, the five-year prohibition and the supermajority vote requirements will not apply to business combinations between us and any such person. As a result, such person may be able to enter into business combinations with us that may not be in the best interest of our stockholders, without compliance with the supermajority vote requirements and the other provisions of the statute. Additionally, this resolution may be altered, revoked, or repealed in whole or in part at any time and we may opt back into the business combination provisions of the Maryland General Corporation Law. If this resolution is revoked or repealed, the statute may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer. In the case of the control share provisions of the Maryland General Corporation Law, we have elected to opt out of these provisions of the Maryland General Corporation Law pursuant to a provision in our bylaws.
Additionally, Title 3, Subtitle 8 of the Maryland General Corporation Law permits our board of directors, without stockholder approval and regardless of what is currently provided in our charter or our bylaws, to implement certain governance provisions, some of which we do not currently have. We have opted out of Section 3-803 of the Maryland General Corporation Law, which permits a board of directors to be divided into classes pursuant to Title 3, Subtitle 8 of the Maryland General Corporation Law. Any amendment or repeal of this resolution must be approved in the same manner as an amendment to our charter. The remaining provisions of Title 3, Subtitle 8 of the Maryland General Corporation Law may have the effect of inhibiting a third party from making an acquisition proposal for our company or of delaying, deferring, or preventing a change in control of our company under circumstances that otherwise could provide the holders of our common stock with the opportunity to realize a premium over the then-current market price. Our charter, our bylaws, and Maryland law also contain other provisions that may delay, defer, or prevent a transaction or a change of control that might involve a premium price for our common stock or otherwise be in the best interests of our stockholders.
Future issuances of debt and equity securities may negatively affect the market price of our common stock.
We may issue debt or equity securities or incur additional borrowings in the future. Future issuances of debt securities would rank senior to our common stock upon our liquidation and additional issuances of equity securities would dilute the holdings of our existing common stockholders (and may rank senior to our common stock for the purposes of making distributions), both of which may negatively affect the market price of our common stock.
Upon our liquidation, holders of our debt securities and other loans and preferred stock will receive a distribution of our available assets before common stockholders. If we incur debt in the future, our future interest costs could increase and adversely affect our liquidity, AFFO, and results of operations.
The issuance or sale of substantial amounts of our common stock (directly or through convertible or exchangeable securities, warrants, or options) to raise additional capital, or pursuant to our stock incentive plans; or the perception that such securities are available or that such issuances or sales are likely to occur; could materially and adversely affect the market price of our common stock and our ability to raise capital through future offerings of equity or equity-related securities. However, our future growth will depend, in part, upon our ability to raise additional capital, including through the issuance of equity securities. We are not required to offer any additional equity securities to existing common stockholders on a preemptive basis and our charter empowers our board of directors to make significant changes to our stock without stockholder approval. See the risk factor above titled “Our board of directors may modify our authorized shares of stock of any class or series and may create and issue a class or series of common stock or preferred stock without stockholder approval.” Our preferred stock, if any are issued, would likely have a preference on distribution payments, periodically or upon liquidation, which could eliminate or otherwise limit our ability to make distributions to common stockholders.
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Because our decision to issue additional debt or equity securities or incur additional borrowings in the future will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing, nature, or success of our future capital raising efforts. Thus, common stockholders bear the risk that our future issuances of debt or equity securities, or our incurrence of additional borrowings, will negatively affect the market price of our common stock.
The trading volume and market price of shares of our common stock may fluctuate or be adversely impacted by various factors.
Our current or historical trading volume and share prices are not indicative of the number of shares of our common stock that will trade going forward or how the market will value shares of our common stock in the future. One factor that may influence the price of our common stock will be our dividend yield relative to yields on other financial instruments (e.g., if an increase in market interest rates results in higher yields on other financial instruments, the market price of our common stock could be adversely affected). In addition, our use of taxable REIT subsidiaries, or TRSs, may cause the market to value our common stock differently than the shares of other REITs, which may not use TRSs as extensively as we do. In addition, the trading volume and market price of our common stock may fluctuate significantly and be adversely impacted in response to a number of factors, including:
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actual or anticipated variations in our operating results, earnings, or liquidity, or those of our competitors;
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changes in our dividend policy;
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publication of research reports about us, our competitors, our tenants, or the REIT industry;
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changes in market valuations of similar companies;
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speculation in the press or investment community;
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our failure to meet, or the lowering of, our earnings estimates, or those of any securities analysts;
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increases in market interest rates, which may lead investors to demand a higher dividend yield for our common stock and would result in increased interest expense on our debt;
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adverse market reaction to the amount of maturing debt in the near and medium term and our ability to refinance such debt and the terms thereof;
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adverse market reaction to any additional indebtedness we incur or equity or equity-related securities we issue in the future;
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changes in our credit ratings;
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actual or perceived conflicts of interest;
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additions or departures of key management personnel;
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our compliance with GAAP and its policies;
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our compliance with the listing requirements of the New York Stock Exchange;
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the financial condition, liquidity, results of operations, and prospects of our tenants;
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failure to maintain our REIT qualification;
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actions by institutional stockholders;
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general market and economic conditions, including the current state of the credit and capital markets; and
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the realization of any of the other risk factors presented in this Report or in subsequent reports that we file with the SEC.
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Compliance or failure to comply with the Americans with Disabilities Act and other similar regulations could result in substantial costs.
Under the Americans with Disabilities Act, places of public accommodation must meet certain federal requirements related to access and use by disabled persons. Noncompliance could result in the imposition of fines by the federal government or the award of damages to private litigants. If we are required to make unanticipated expenditures to one or more of our properties in order to comply with the Americans with Disabilities Act, our cash flow and the amounts available for dividends to our stockholders may be adversely affected. We have not conducted a compliance audit or investigation of all of our or the Managed REITs’ properties and we cannot predict the ultimate cost of compliance with the Americans with Disabilities Act or similar legislation.
Our properties are also subject to various federal, state, and local regulatory requirements, such as state and local fire and life-safety requirements. We could incur fines or private damage awards if we fail to comply with these requirements. While we believe that our properties are currently in material compliance with these regulatory requirements, the requirements may change or new requirements may be imposed that could require significant unanticipated expenditures by us that will affect our cash flow and results of operations.
|
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23
|
|
The occurrence of cyber incidents, or a deficiency in our cyber security, could negatively impact our business by causing a disruption to our operations, a compromise or corruption of our confidential information, and/or damage to our business relationships, all of which could negatively impact our financial results.
A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity, or availability of our information resources. More specifically, a cyber incident could be (i) an intentional attack, which could include gaining unauthorized access to systems to disrupt operations, corrupt data, or steal confidential information; or (ii) an unintentional accident or error. As our reliance on technology has increased, so have the risks posed to our systems, both internal and outsourced. We may also store or come into contact with sensitive information and data. If we or our partners fail to comply with applicable privacy or data security laws in handling this information, we could face significant legal and financial exposure to claims of governmental agencies and parties whose privacy is compromised. The three primary risks that could directly result from the occurrence of a cyber incident include operational interruption, damage to our relationship with our tenants, and private data exposure. We maintain insurance intended to cover some of these risks, but it may not be sufficient to cover the losses from any future breaches of our systems. We have implemented processes, procedures, and controls to help mitigate these risks, but these measures, as well as our increased awareness of a risk of a cyber incident, do not guarantee that our financial results will not be negatively impacted by such an incident.
Impairment of goodwill may adversely affect our results of operations.
Impairment of goodwill could adversely affect our financial condition and results of operations. We assess our goodwill and other intangible assets for impairment at least annually and more frequently when required by GAAP. We are required to record an impairment charge if circumstances indicate that the asset carrying values exceed their fair values. Our assessment of goodwill or other intangible assets could indicate that an impairment of the carrying value of such assets may have occurred, resulting in a material, non-cash write-down of such assets, which could have a material adverse effect on our results of operations and future earnings. We are also required to write off a portion of goodwill whenever we dispose of a property that constitutes a business under GAAP from a reporting unit with goodwill. We allocate a portion of the reporting unit’s goodwill to that business in determining the gain or loss on the disposal of the business. The amount of goodwill allocated to the business is based on the relative fair value of the business for the reporting unit.
There can be no assurance that we will be able to maintain cash dividends, and certain agreements relating to our indebtedness may prohibit or otherwise restrict our ability to pay dividends to holders of our common stock.
Our ability to continue to pay dividends in the future may be adversely affected by the risk factors described in this Report. More specifically, while we expect to continue our current dividend practices, we can give no assurance that we will be able to maintain dividend levels in the future for various reasons, including the following:
|
•
|
there is no assurance that rents from our properties will increase or that future acquisitions will increase our cash available for distribution to stockholders, and we may not have enough cash to pay such dividends due to changes in our cash requirements, capital plans, cash flow, or financial position;
|
|
•
|
our board of directors, in its sole discretion, determines whether, when, and in which amounts to make any future distributions to our stockholders based on a number of factors (including, but not limited to: our results of operations and financial condition, capital requirements and borrowing capacity, general economic conditions, tax considerations, maintenance of our REIT status, Maryland law, contractual limitations relating to our indebtedness (such as debt covenant restrictions that may impose limitations on cash payments, future acquisitions and divestitures), and other factors relevant from time to time), therefore, our dividend levels are not guaranteed and may fluctuate; and
|
|
•
|
the amount of dividends that our subsidiaries may distribute to us may be subject to restrictions imposed by state law or regulators, as well as the terms of any current or future indebtedness that these subsidiaries may incur.
|
Furthermore, certain agreements relating to our borrowings may, under certain circumstances, prohibit or otherwise restrict our ability to pay dividends to our common stockholders. Future dividends, if any, are expected to be based upon our earnings, financial condition, cash flows and liquidity, debt service requirements, capital expenditure requirements for our properties, financing covenants, and applicable law. If we do not have sufficient cash available to pay dividends, we may need to fund the shortage out of working capital or revenues from future acquisitions, if any, or borrow to provide funds for such dividends, which would reduce the amount of funds available for investment and increase our future interest costs. Our inability to pay dividends, or to pay dividends at expected levels, could adversely impact the market price of our common stock.
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|
|
Risks Related to REIT Structure
While we believe that we are properly organized as a REIT in accordance with applicable law, we cannot guarantee that the Internal Revenue Service will find that we have qualified as a REIT.
We believe that we are organized in conformity with the requirements for qualification as a REIT under the Internal Revenue Code beginning with our 2012 taxable year and that our current and anticipated investments and plan of operation will enable us to meet and continue to meet the requirements for qualification and taxation as a REIT. Investors should be aware, however, that the Internal Revenue Service or any court could take a position different from our own. Given the highly complex nature of the rules governing REITs, the ongoing importance of factual determinations, and the possibility of future changes in our circumstances, no assurance can be given that we will qualify as a REIT for any particular year.
Furthermore, our qualification and taxation as a REIT will depend on our satisfaction of certain asset, income, organizational, distribution, stockholder ownership, and other requirements on a continuing basis. Our ability to satisfy the quarterly asset tests under applicable Internal Revenue Code provisions and Treasury Regulations will depend in part upon our board of directors’ good faith analysis of the fair market values of our assets, some of which are not susceptible to a precise determination. Our compliance with the REIT income and quarterly asset requirements also depends upon our ability to successfully manage the composition of our income and assets on an ongoing basis. While we believe that we will satisfy these tests, we cannot guarantee that this will be the case on a continuing basis.
If we fail to remain qualified as a REIT, we would be subject to federal income tax at corporate income tax rates and would not be able to deduct distributions to stockholders when computing our taxable income.
If, in any taxable year, we fail to qualify for taxation as a REIT and are not entitled to relief under the Internal Revenue Code, we will:
|
•
|
not be allowed a deduction for distributions to stockholders in computing our taxable income;
|
|
•
|
be subject to federal and state income tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates; and
|
|
•
|
be barred from qualifying as a REIT for the four taxable years following the year when we were disqualified.
|
Any such corporate tax liability could be substantial and would reduce the amount of cash available for distributions to our stockholders, which in turn could have an adverse impact on the value of our common stock. This adverse impact could last for five or more years because, unless we are entitled to relief under certain statutory provisions, we will be taxed as a corporation beginning the year in which the failure occurs and for the following four years.
If we fail to qualify for taxation as a REIT, we may need to borrow funds or liquidate some investments to pay the additional tax liability. Were this to occur, funds available for investment would be reduced. REIT qualification involves the application of highly technical and complex provisions of the Internal Revenue Code to our operations, as well as various factual determinations concerning matters and circumstances not entirely within our control. There are limited judicial or administrative interpretations of these provisions. Although we plan to continue to operate in a manner consistent with the REIT qualification rules, we cannot assure you that we will qualify in a given year or remain so qualified.
If we fail to make required distributions, we may be subject to federal corporate income tax.
We intend to declare regular quarterly distributions, the amount of which will be determined, and is subject to adjustment, by our board of directors. To continue to qualify and be taxed as a REIT, we will generally be required to distribute at least 90% of our REIT taxable income (determined without regard to the dividends-paid deduction and excluding net capital gain) each year to our stockholders. Generally, we expect to distribute all, or substantially all, of our REIT taxable income. If our cash available for distribution falls short of our estimates, we may be unable to maintain the proposed quarterly distributions that approximate our taxable income and we may fail to qualify for taxation as a REIT. In addition, our cash flows from operations may be insufficient to fund required distributions as a result of differences in timing between the actual receipt of income and the recognition of income for federal income tax purposes or the effect of nondeductible expenditures (e.g. capital expenditures, payments of compensation for which Section 162(m) of the Internal Revenue Code denies a deduction, the creation of reserves, or required debt service or amortization payments). To the extent we satisfy the 90% distribution requirement, but distribute less than 100% of our REIT taxable income, we will be subject to federal corporate income tax on our undistributed taxable income. We will also be subject to a 4.0% nondeductible excise tax if the actual amount that we pay out to our stockholders for a calendar year is less than a minimum amount specified under the Internal Revenue Code. In addition, in order to continue to
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25
|
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qualify as a REIT, any C-corporation earnings and profits to which we succeed must be distributed as of the close of the taxable year in which we accumulate or acquire such C-corporation’s earnings and profits.
Because certain covenants in our debt instruments may limit our ability to make required REIT distributions, we could be subject to taxation.
Our existing debt instruments include, and our future debt instruments may include, covenants that limit our ability to make required REIT distributions. If the limits set forth in these covenants prevent us from satisfying our REIT distribution requirements, we could fail to qualify for federal income tax purposes as a REIT. If the limits set forth in these covenants do not jeopardize our qualification for taxation as a REIT, but prevent us from distributing 100% of our REIT taxable income, we will be subject to federal corporate income tax, and potentially a nondeductible excise tax, on the retained amounts.
Because we will be required to satisfy numerous requirements imposed upon REITs, we may be required to borrow funds, sell assets, or raise equity on terms that are not favorable to us.
In order to meet the REIT distribution requirements and maintain our qualification and taxation as a REIT, we may need to borrow funds, sell assets, or raise equity, even if the then-prevailing market conditions are not favorable for such transactions. If our cash flows are not sufficient to cover our REIT distribution requirements, it could adversely impact our ability to raise short- and long-term debt, sell assets, or offer equity securities in order to fund the distributions required to maintain our qualification and taxation as a REIT. Furthermore, the REIT distribution requirements may increase the financing we need to fund capital expenditures, future growth, and expansion initiatives, which would increase our total leverage.
In addition, if we fail to comply with certain asset ownership tests at the end of any calendar quarter, we must generally correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification. As a result, we may be required to liquidate otherwise attractive investments. These actions may reduce our income and amounts available for distribution to our stockholders.
Because the REIT rules require us to satisfy certain rules on an ongoing basis, our flexibility or ability to pursue otherwise attractive opportunities may be limited.
To qualify as a REIT for federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders, and the ownership of our common stock. Compliance with these tests will require us to refrain from certain activities and may hinder our ability to make certain attractive investments, including the purchase of non-qualifying assets, the expansion of non-real estate activities, and investments in the businesses to be conducted by our TRSs, thereby limiting our opportunities and the flexibility to change our business strategy. Furthermore, acquisition opportunities in domestic and international markets may be adversely affected if we need or require target companies to comply with certain REIT requirements prior to closing on acquisitions.
To meet our annual distribution requirements, we may be required to distribute amounts that may otherwise be used for our operations, including amounts that may be invested in future acquisitions, capital expenditures, or debt repayment; and it is possible that we might be required to borrow funds, sell assets, or raise equity to fund these distributions, even if the then-prevailing market conditions are not favorable for such transactions.
Because the REIT provisions of the Internal Revenue Code limit our ability to hedge effectively, the cost of our hedging may increase and we may incur tax liabilities.
The REIT provisions of the Internal Revenue Code limit our ability to hedge assets and liabilities that are not incurred to acquire or carry real estate. Generally, income from hedging transactions that have been properly identified for tax purposes (which we enter into to manage interest rate risk with respect to borrowings to acquire or carry real estate assets) and income from certain currency hedging transactions related to our non-U.S. operations, do not constitute “gross income” for purposes of the REIT gross income tests (such a hedging transaction is referred to as a “qualifying hedge”). In addition, if we enter into a qualifying hedge, but dispose of the underlying property (or a portion thereof) or the underlying debt (or a portion thereof) is extinguished, we can enter into a hedge of the original qualifying hedge, and income from the subsequent hedge will also not constitute “gross income” for purposes of the REIT gross income tests. To the extent that we enter into other types of hedging transactions, the income from those transactions is likely to be treated as non-qualifying income for purposes of the REIT gross income tests. As a result of these rules, we may need to limit our use of advantageous hedging techniques or implement those hedges through a TRS. This could increase the cost of our hedging activities because our TRSs could be subject to tax on
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|
|
income or gains resulting from such hedges or expose us to greater interest rate risks than we would otherwise want to bear. In addition, losses in any of our TRSs generally will not provide any tax benefit, except for being carried forward for use against future taxable income in the TRSs.
We intend to use TRSs, which may cause us to fail to qualify as a REIT.
To qualify as a REIT for federal income tax purposes, we plan to hold our non-qualifying REIT assets and conduct our non-qualifying REIT income activities in or through one or more TRSs. The net income of our TRSs is not required to be distributed to us and income that is not distributed to us will generally not be subject to the REIT income distribution requirement. However, there may be limitations on our ability to accumulate earnings in our TRSs and the accumulation or reinvestment of significant earnings in our TRSs could result in adverse tax treatment. In particular, if the accumulation of cash in our TRSs causes the fair market value of our TRS interests and certain other non-qualifying assets to exceed 25% of the fair market value of our assets, we would lose tax efficiency and could potentially fail to qualify as a REIT. For taxable years beginning after December 31, 2017, no more than 20% of the value of a REIT’s gross assets may consist of interests in TRSs.
Because the REIT rules limit our ability to receive distributions from TRSs, our ability to fund distribution payments using cash generated through our TRSs may be limited.
Our ability to receive distributions from our TRSs is limited by the rules we must comply with in order to maintain our REIT status. In particular, at least 75% of our gross income for each taxable year as a REIT must be derived from real estate-related sources, which principally includes gross income from the leasing of our properties. Consequently, no more than 25% of our gross income may consist of dividend income from our TRSs and other non-qualifying income types. Thus, our ability to receive distributions from our TRSs is limited and may impact our ability to fund distributions to our stockholders using cash flows from our TRSs. Specifically, if our TRSs become highly profitable, we might be limited in our ability to receive net income from our TRSs in an amount required to fund distributions to our stockholders commensurate with that profitability.
Our ownership of TRSs will be subject to limitations that could prevent us from growing our investment management business and our transactions with our TRSs could cause us to be subject to a 100% penalty tax on certain income or deductions if those transactions are not conducted on an arm’s-length basis.
Overall, (i) for taxable years beginning prior to January 1, 2018, no more than 25% of the value of a REIT’s gross assets, and (ii) for taxable years beginning after December 31, 2017, no more than 20% of the value of a REIT’s gross assets, may consist of interests in TRSs; compliance with this limitation could limit our ability to grow our investment management business. In addition, the Internal Revenue Code limits the deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation. The Internal Revenue Code also imposes a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm’s-length basis. We will monitor the value of investments in our TRSs in order to ensure compliance with TRS ownership limitations and will structure our transactions with our TRSs on terms that we believe are arm’s-length to avoid incurring the 100% excise tax described above. There can be no assurance, however, that we will be able to comply with the TRS ownership limitation or be able to avoid application of the 100% excise tax.
Because distributions payable by REITs generally do not qualify for reduced tax rates, the value of our common stock could be adversely affected.
Certain distributions payable by domestic or qualified foreign corporations to individuals, trusts, and estates in the United States are currently eligible for federal income tax at a maximum rate of 20%. Distributions payable by REITs, in contrast, are generally not eligible for this reduced rate, unless the distributions are attributable to dividends received by the REIT from other corporations that would otherwise be eligible for the reduced rate. This more favorable tax rate for regular corporate distributions could cause qualified investors to perceive investments in REITs to be less attractive than investments in the stock of corporations that pay distributions, which could adversely affect the value of REIT stocks, including our common stock.
Even if we continue to qualify as a REIT, certain of our business activities will be subject to corporate level income tax and foreign taxes, which will continue to reduce our cash flows, and we will have potential deferred and contingent tax liabilities.
Even if we qualify for taxation as a REIT, we may be subject to certain (i) federal, state, local, and foreign taxes on our income and assets, including alternative minimum taxes; (ii) taxes on any undistributed income and state, local, or foreign income; and (iii) franchise, property, and transfer taxes. In addition, we could be required to pay an excise or penalty tax under certain
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|
|
circumstances in order to utilize one or more relief provisions under the Internal Revenue Code to maintain qualification for taxation as a REIT, which could be significant in amount.
Any TRS assets and operations would continue to be subject, as applicable, to federal and state corporate income taxes and to foreign taxes in the jurisdictions in which those assets and operations are located. Any of these taxes would decrease our earnings and our cash available for distributions to stockholders.
We will also be subject to a federal corporate level tax at the highest regular corporate rate (currently 35% for year
2017
) on all or a portion of the gain recognized from a sale of assets formerly held by any C corporation that we acquire on a carry-over basis transaction occurring within a five-year period after we acquire such assets, to the extent the built-in gain based on the fair market value of those assets on the effective date of the REIT election is in excess of our then tax basis. The tax on subsequently sold assets will be based on the fair market value and built-in gain of those assets as of the beginning of our holding period. Gains from the sale of an asset occurring after the specified period will not be subject to this corporate level tax. We expect to have only a de minimis amount of assets subject to these corporate tax rules and do not expect to dispose of any significant assets subject to these corporate tax rules.
Because dividends received by foreign stockholders are generally taxable, we may be required to withhold a portion of our distributions to such persons.
Ordinary dividends received by foreign stockholders that are not effectively connected with the conduct of a U.S. trade or business are generally subject to U.S. withholding tax at a rate of 30%, unless reduced by an applicable income tax treaty. Additional rules with respect to certain capital gain distributions will apply to foreign stockholders that own more than 10% of our common stock.
The ability of our board of directors to revoke our REIT election, without stockholder approval, may cause adverse consequences for our stockholders.
Our organizational documents permit our board of directors to revoke or otherwise terminate our REIT election, without the approval of our stockholders, if it determines that it is no longer in our best interest to continue to qualify as a REIT. If we cease to be a REIT, we will not be allowed a deduction for dividends paid to stockholders in computing our taxable income and we will be subject to federal income tax at regular corporate rates and state and local taxes, which may have adverse consequences on the total return to our stockholders.
Federal and state income tax laws governing REITs and related interpretations may change at any time, and any such legislative or other actions affecting REITs could have a negative effect on us and our stockholders.
Federal and state income tax laws governing REITs or the administrative interpretations of those laws may be amended at any time. Federal, state, and foreign tax laws are under constant review by persons involved in the legislative process, at the Internal Revenue Service and the U.S. Department of the Treasury, and at various state and foreign tax authorities. Changes to tax laws, regulations, or administrative interpretations, which may be applied retroactively, could adversely affect us or our stockholders. We cannot predict whether, when, in what forms, or with what effective dates, the tax laws, regulations, and administrative interpretations applicable to us or our stockholders may be changed. Accordingly, we cannot assure you that any such change will not significantly affect our ability to qualify for taxation as a REIT or the federal income tax consequences to you or us.
None.
Our principal corporate offices are located at 50 Rockefeller Plaza, New York, NY 10020 and our international offices are located in London and Amsterdam. We have additional office space domestically in New York and Dallas. We lease all of these offices and believe these leases are suitable for our operations for the foreseeable future.
See
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Portfolio Overview — Net-Leased Portfolio
for a discussion of the properties we hold for rental operations and Part II,
Item 8. Financial Statements and Supplementary Data — Schedule III — Real Estate and Accumulated Depreciation
for a detailed listing of such properties.
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|
|
Various claims and lawsuits arising in the normal course of business are pending against us. The results of these proceedings are not expected to have a material adverse effect on our consolidated financial position or results of operations.
Item 4.
Mine Safety Disclosures.
Not applicable.
|
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29
|
|
Common Stock and Distributions
Our common stock is listed on the New York Stock Exchange under the ticker symbol “WPC.” At
February 17, 2017
there were
9,083
holders of record of our common stock. The following table shows the high and low prices per share and quarterly cash distributions declared for the past two fiscal years:
|
|
2016
|
2015
|
||||||||||||||||||||||
|
Period
|
High
|
Low
|
Cash
Distributions
Declared
|
High
|
Low
|
Cash
Distributions
Declared
|
||||||||||||||||||
|
First quarter
|
$
|
62.27
|
|
$
|
51.12
|
|
$
|
0.9742
|
|
$
|
73.88
|
|
$
|
65.46
|
|
$
|
0.9525
|
|
||||||
|
Second quarter
|
69.44
|
|
59.25
|
|
0.9800
|
|
69.47
|
|
58.15
|
|
0.9540
|
|
||||||||||||
|
Third quarter
|
72.89
|
|
63.83
|
|
0.9850
|
|
62.55
|
|
56.01
|
|
0.9550
|
|
||||||||||||
|
Fourth quarter
|
64.35
|
|
55.77
|
|
0.9900
|
|
65.19
|
|
57.25
|
|
0.9646
|
|
||||||||||||
Our Amended Credit Facility (as described in
Item 7
) contains covenants that restrict the amount of distributions that we can pay.
Stock Price Performance Graph
The graph below provides an indicator of cumulative total stockholder returns for our common stock for the period
December 31, 2011
to
December 31, 2016
, as compared with the S&P 500 Index and the FTSE NAREIT Equity REITs Index. The graph assumes a $100 investment on
December 31, 2011
, together with the reinvestment of all dividends.
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30
|
|
|
|
At December 31,
|
||||||||||||||||||||||
|
|
2011
|
2012
|
2013
|
2014
|
2015
|
2016
|
|||||||||||||||||
|
W. P. Carey Inc.
(a)
|
$
|
100.00
|
|
$
|
133.95
|
|
$
|
166.17
|
|
$
|
200.90
|
|
$
|
180.00
|
|
$
|
191.77
|
|
|||||
|
S&P 500 Index
|
100.00
|
|
116.00
|
|
153.57
|
|
174.60
|
|
177.01
|
|
198.18
|
|
|||||||||||
|
FTSE NAREIT Equity REITs Index
|
100.00
|
|
118.06
|
|
120.97
|
|
157.43
|
|
162.46
|
|
176.30
|
|
|||||||||||
___________
|
(a)
|
Prices in the tables above reflect the price of the listed shares of our predecessor through the date of the CPA
®
:15 Merger and our REIT conversion on September 28, 2012, as well as the price of our common stock thereafter.
|
The stock price performance included in this graph is not indicative of future stock price performance.
Securities Authorized for Issuance Under Equity Compensation Plans
This information will be contained in our definitive proxy statement for the
2017
Annual Meeting of Stockholders, to be filed within 120 days following the end of our fiscal year, and is incorporated herein by reference.
|
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31
|
|
The following selected financial data should be read in conjunction with the consolidated financial statements and related notes in
Item 8
(in thousands, except per share data):
|
|
Years Ended December 31,
|
||||||||||||||||||
|
|
2016
|
2015
|
2014
|
2013
|
2012
|
||||||||||||||
|
Operating Data
|
|||||||||||||||||||
|
Revenues from continuing operations
(a) (b)
|
$
|
941,533
|
|
$
|
938,383
|
|
$
|
908,446
|
|
$
|
489,851
|
|
$
|
352,361
|
|
||||
|
Income from continuing operations
(a) (b) (c)
|
274,807
|
|
185,227
|
|
212,751
|
|
93,985
|
|
87,514
|
|
|||||||||
|
Net income
(a) (c) (d)
|
274,807
|
|
185,227
|
|
246,069
|
|
132,165
|
|
62,779
|
|
|||||||||
|
Net income attributable to noncontrolling interests
|
(7,060
|
)
|
(12,969
|
)
|
(6,385
|
)
|
(32,936
|
)
|
(607
|
)
|
|||||||||
|
Net loss (income) attributable to redeemable noncontrolling interest
|
—
|
|
—
|
|
142
|
|
(353
|
)
|
(40
|
)
|
|||||||||
|
Net income attributable to W. P. Carey
(a) (c) (d)
|
267,747
|
|
172,258
|
|
239,826
|
|
98,876
|
|
62,132
|
|
|||||||||
|
Basic Earnings Per Share:
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Income from continuing operations attributable to W. P. Carey
|
2.50
|
|
1.62
|
|
2.08
|
|
1.22
|
|
1.83
|
|
|||||||||
|
Net income attributable to W. P. Carey
|
2.50
|
|
1.62
|
|
2.42
|
|
1.43
|
|
1.30
|
|
|||||||||
|
Diluted Earnings Per Share:
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Income from continuing operations attributable to W. P. Carey
|
2.49
|
|
1.61
|
|
2.06
|
|
1.21
|
|
1.80
|
|
|||||||||
|
Net income attributable to W. P. Carey
|
2.49
|
|
1.61
|
|
2.39
|
|
1.41
|
|
1.28
|
|
|||||||||
|
Cash distributions declared per share
(e)
|
3.9292
|
|
3.8261
|
|
3.6850
|
|
3.5000
|
|
2.4420
|
|
|||||||||
|
Balance Sheet Data
|
|||||||||||||||||||
|
Total assets
(f)
|
$
|
8,453,954
|
|
$
|
8,742,089
|
|
$
|
8,641,029
|
|
$
|
4,671,965
|
|
$
|
4,600,563
|
|
||||
|
Net investments in real estate
|
5,511,706
|
|
5,826,544
|
|
5,656,555
|
|
2,803,634
|
|
2,675,573
|
|
|||||||||
|
Senior Unsecured Notes, net
(f)
|
1,807,200
|
|
1,476,084
|
|
494,231
|
|
—
|
|
—
|
|
|||||||||
|
Non-recourse debt, net
(f)
|
1,706,921
|
|
2,269,421
|
|
2,530,217
|
|
1,485,425
|
|
1,706,918
|
|
|||||||||
|
Senior credit facilities
(f)
|
926,693
|
|
734,704
|
|
1,056,648
|
|
575,000
|
|
253,000
|
|
|||||||||
|
Other Information
|
|||||||||||||||||||
|
Net cash provided by operating activities
|
$
|
517,771
|
|
$
|
477,277
|
|
$
|
399,092
|
|
$
|
207,908
|
|
$
|
80,643
|
|
||||
|
Cash distributions paid
|
416,655
|
|
403,555
|
|
347,902
|
|
220,395
|
|
113,867
|
|
|||||||||
__________
|
(a)
|
The years ended
December 31, 2016
,
2015
, and
2014
reflect the impact of the CPA
®
:16 Merger, which was completed on January 31, 2014 (
Note 3
). All years reflect the impact of the CPA
®
:15 Merger, which was completed on September 28, 2012.
|
|
(b)
|
Amounts for the years ended December 31, 2016, 2015, and 2014 include the operating results of properties sold or reclassified as held for sale during those years. For the year ended December 31, 2014, operating results of properties held for sale as of December 31, 2013 and sold during 2014, and properties we acquired in the CPA
®
:16 Merger that were held for sale and sold during 2014, were included in income from discontinued operations. Prior to 2014, operating results of properties sold or held for sale were included in income from discontinued operations (
Note 17
).
|
|
(c)
|
Amount for the year ended December 31, 2014 includes a Gain on change in control of interests of $105.9 million recognized in connection with the CPA
®
:16 Merger (
Note 3
).
|
|
(d)
|
Amounts from year to year will not be comparable primarily due to fluctuations in gains/losses recognized on the sale of real estate and impairment charges.
|
|
(e)
|
The year ended December 31, 2013 includes a special distribution of $0.110 per share paid in January 2014 to stockholders of record at December 31, 2013.
|
|
W. P. Carey 2016 10-K
–
32
|
|
|
(f)
|
On January 1, 2016, we adopted ASU 2015-03, which changes the presentation of debt issuance costs (previously recognized as an asset) and requires that they be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability (
Note 2
). As a result of adopting this guidance, we reclassified deferred financing costs totaling
$12.6 million
,
$7.5 million
,
$7.0 million
, and
$8.5 million
from Other assets, net to our secured and unsecured debt as of December 31, 2015, 2014, 2013, and 2012, respectively.
|
|
W. P. Carey 2016 10-K
–
33
|
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide the reader with information that will assist in understanding our financial statements and the reasons for changes in certain key components of our financial statements from period to period. Management’s Discussion and Analysis of Financial Condition and Results of Operations also provides the reader with our perspective on our financial position and liquidity, as well as certain other factors that may affect our future results. The discussion also provides information about the financial results of the segments of our business to provide a better understanding of how these segments and their results affect our financial condition and results of operations.
The following discussion should be read in conjunction with our consolidated financial statements included in Item 8 of this Report and the matters described under
Item 1A. Risk Factors
.
Business Overview
We provide long-term financing via sale-leaseback and build-to-suit transactions for companies worldwide and, as of
December 31, 2016
, manage an investment portfolio of
1,373
properties, including
903
net-leased properties and
two
operating properties within our owned real estate portfolio. Our business operates in two segments: Owned Real Estate and Investment Management, as described below.
Owned Real Estate
—
We own and invest in commercial properties, primarily in the United States and Europe, that are leased to companies, primarily on a triple-net lease basis, which requires the tenant to pay substantially all of the costs associated with operating and maintaining the property. We earn lease revenues from our wholly owned and co-owned real estate investments that we control. In addition, we generate equity earnings through our investments in shares of the Managed REITs and certain co-owned real estate investments that we do not control. In addition, through our ownership of special member interests in the operating partnerships of the Managed REITs, we participate in the cash flows of those REITs.
Investment Management
—
We earn revenue as the advisor to the Managed Programs. Under the advisory agreements with the Managed Programs, we perform various services, including but not limited to the day-to-day management of the Managed Programs and transaction-related services. We earn dealer manager fees in connection with the offerings of the Managed Programs. We structure and negotiate investments and debt placement transactions for certain of the Managed Programs, for which we earn structuring revenue, and we manage their portfolios of real estate investments, for which we earn asset-based management revenue. In addition, we generate equity earnings (losses) through our investment in the shares of CCIF. The Managed Programs reimburse us for certain costs that we incur on their behalf, consisting primarily of broker-dealer commissions and marketing costs while we are raising funds for their public offerings, and certain personnel and overhead costs. We pay all organization and offering costs on behalf of CESH I, and instead of being reimbursed by CESH I on a dollar-for-dollar basis for those costs, we receive limited partnership units of CESH I.
Financial Highlights
During the year ended
December 31, 2016
, we completed the following activities, as further described below and in the consolidated financial statements:
|
•
|
We acquired three investments totaling
$530.3 million
for our Owned Real Estate segment, with an additional build-to-suit commitment of
$128.1 million
, and placed one build-to-suit project into service at a cost totaling
$13.8 million
(
Note 5
).
|
|
•
|
As part of our active capital recycling program, we disposed of
33
properties and a parcel of vacant land from our Owned Real Estate portfolio for total proceeds of
$632.1 million
, net of selling costs (
Note 17
).
|
|
•
|
On
September 12, 2016
, we issued
$350.0 million
of 4.25% Senior Notes, at a price of
99.682%
of par value, in a registered public offering. These 4.25% Senior Notes have a ten-year term and are scheduled to mature on
October 1, 2026
(
Note 11
).
|
|
•
|
We reduced our mortgage debt outstanding by prepaying or repaying at maturity
$405.9 million
of non-recourse mortgage loans with a weighted-average interest rate of
5.4%
(
Note 11
).
|
|
•
|
We structured new investments on behalf of the Managed Programs totaling
$1.6 billion
, increasing our assets under management to
$12.9 billion
as of
December 31, 2016
, an increase of approximately
17%
as compared to
December 31, 2015
.
|
|
•
|
We reduced our general and administrative expenses by
$20.8 million
as compared to 2015, primarily resulting from various cost saving initiatives, including a reduction in force, or RIF, implemented early in 2016.
|
|
W. P. Carey 2016 10-K
–
34
|
|
|
•
|
We issued
1,249,836
shares of our common stock under the ATM program at a weighted-average price of
$68.52
per share for net proceeds of
$84.4 million
(
Note 14
).
|
|
•
|
We declared cash distributions totaling
$3.93
per share in the aggregate amount of
$415.1 million
, comprised of four quarterly dividends per share declared of
$0.9742
,
$0.9800
,
$0.9850
, ad
$0.9900
.
|
Consolidated Results
(in thousands, except shares)
|
Years Ended December 31,
|
|||||||||||
|
2016
|
2015
|
2014
|
|||||||||
|
Revenues from Owned Real Estate
|
$
|
755,364
|
|
$
|
735,448
|
|
$
|
645,383
|
|
||
|
Reimbursable tenant costs
|
25,438
|
|
22,832
|
|
24,862
|
|
|||||
|
Revenues from Owned Real Estate (excluding reimbursable tenant costs)
|
729,926
|
|
712,616
|
|
620,521
|
|
|||||
|
Revenues from Investment Management
|
186,169
|
|
202,935
|
|
263,063
|
|
|||||
|
Reimbursable costs from affiliates
|
66,433
|
|
55,837
|
|
130,212
|
|
|||||
|
Revenues from Investment Management (excluding reimbursable costs from affiliates)
|
119,736
|
|
147,098
|
|
132,851
|
|
|||||
|
Total revenues
|
941,533
|
|
938,383
|
|
908,446
|
|
|||||
|
Total reimbursable costs
|
91,871
|
|
78,669
|
|
155,074
|
|
|||||
|
Total revenues (excluding reimbursable costs)
|
849,662
|
|
859,714
|
|
753,372
|
|
|||||
|
Net income from Owned Real Estate attributable to W. P. Carey
|
252,353
|
|
146,810
|
|
228,387
|
|
|||||
|
Net income from Investment Management attributable to W. P. Carey
|
15,394
|
|
25,448
|
|
11,439
|
|
|||||
|
Net income attributable to W. P. Carey
(a)
|
267,747
|
|
172,258
|
|
239,826
|
|
|||||
|
Cash distributions paid
|
416,655
|
|
403,555
|
|
347,902
|
|
|||||
|
Net cash provided by operating activities
|
517,771
|
|
477,277
|
|
399,092
|
|
|||||
|
Net cash used in investing activities
|
(269,806
|
)
|
(645,185
|
)
|
(640,226
|
)
|
|||||
|
Net cash (used in) provided by financing activities
|
(242,804
|
)
|
152,537
|
|
343,140
|
|
|||||
|
Supplemental financial measure:
|
|
|
|
|
|||||||
|
Adjusted funds from operations attributable to W. P. Carey (AFFO) — Owned Real Estate
(b)
|
518,654
|
|
482,773
|
|
447,106
|
|
|||||
|
Adjusted funds from operations attributable to W. P. Carey (AFFO) — Investment Management
(b)
|
29,043
|
|
48,429
|
|
33,360
|
|
|||||
|
Adjusted funds from operations attributable to W. P. Carey (AFFO)
(b)
|
547,697
|
|
531,202
|
|
480,466
|
|
|||||
|
Diluted weighted-average shares outstanding
(c)
|
107,073,203
|
|
106,507,652
|
|
99,827,356
|
|
|||||
__________
|
(a)
|
Amount for the year ended December 31, 2014 includes a Gain on change in control of interests of $105.9 million recognized in connection with the CPA
®
:16 Merger (
Note 3
).
|
|
(b)
|
We consider the performance metrics listed above, including AFFO, a supplemental measure that is not defined by GAAP, referred to as a non-GAAP measure, to be important measures in the evaluation of our operating performance. See
Supplemental Financial Measures
below for our definition of this non-GAAP measure and a reconciliation to its most directly comparable GAAP measure.
|
|
(c)
|
Amount for the year ended December 31, 2014 includes the dilutive impact of the 4,600,000 shares issued in the Equity Offering on September 30, 2014 and the 30,729,878 shares issued to stockholders of CPA
®
:16 – Global in connection with the CPA
®
:16 Merger on January 31, 2014.
|
|
W. P. Carey 2016 10-K
–
35
|
|
Revenues and Net Income Attributable to W. P. Carey
2016
vs.
2015
— Total revenues increased in 2016 as compared to 2015, primarily due to higher revenues within our Owned Real Estate segment, partially offset by lower revenues within our Investment Management segment. The growth in revenues within our Owned Real Estate segment was generated substantially from lease termination income related to a domestic property sold during 2016 (
Note 17
), as well as from properties acquired in 2015 and 2016. Investment Management revenue declined primarily as a result of a decrease in structuring revenue due to lower investment volume for the Managed Programs during 2016, partially offset by an increase in asset management revenue, primarily as a result of growth in assets under management for the Managed Programs.
Net income attributable to W. P. Carey increased in 2016 as compared to 2015, primarily driven by an increase in net income from our Owned Real Estate segment, partially offset by a decrease in net income from our Investment Management segment. Within our Owned Real Estate segment, we had increases in lease revenues and in the distributions of Available Cash received from the Managed REITs (
Note 4
), as well as a decline in interest expense. Dispositions of properties from our Owned Real Estate segment generated higher lease termination income and increased gains on sales in 2016, which were partially offset by increased impairment charges. Net income from our Investment Management segment decreased due to lower structuring revenue in 2016, partially offset by higher asset management revenue and a lower provision for income taxes. Within both segments, we reduced general and administrative expenses in 2016, primarily as a result of implementing cost savings initiatives, including the RIF, for which we recognized one-time restructuring and other compensation expense.
2015
vs.
2014
— Total revenues increased in 2015 as compared to 2014, primarily due to higher revenues within our Owned Real Estate segment. The growth in revenues within our Owned Real Estate segment was generated substantially from the nine investments we acquired during 2015 (
Note 5
) and the properties we acquired in the CPA
®
:16 Merger on January 31, 2014, which we owned for the full year ended December 31, 2015 (
Note 3
). Additionally, total revenues within our Investment Management segment improved as a result of increases in structuring revenue and asset management revenue, due to higher investment volume on behalf of the Managed REITs in 2015 as compared to 2014, which increased our assets under management. These increases were partially offset by the impact of a decrease in the average exchange rate of the U.S. dollar in relation to foreign currencies (primarily the euro) during 2015 as compared to 2014.
Net income attributable to W. P. Carey decreased in 2015 as compared to 2014, primarily due to a Gain on change in control of interests of $105.9 million recognized in connection with the CPA
®
:16 Merger during 2014 (
Note 3
), income from properties in discontinued operations recognized during 2014, and an increase in interest expense described below in Results of Operations, partially offset by the increase in total revenues during 2015 as compared to 2014 described above, the reversal of liabilities for German real estate transfer taxes recognized in 2015 (
Note 7
), lease termination income related to a domestic property that was classified as held for sale as of December 31, 2015 and sold during 2016 (
Note 17
), and an increase in the distributions of Available Cash received from the Managed REITs, which was driven by growth in assets under management (
Note 4
).
Net Cash Provided by Operating Activities
2016
vs.
2015
— Net cash provided by operating activities increased in 2016 as compared to 2015, primarily due to the lease termination income received in connection with the sale of a property during 2016, an increase in operating cash flow generated from properties we acquired during 2015 and 2016, and higher distributions of Available Cash received from the Managed REITs, partially offset by a decrease in structuring revenue received in cash from the Managed Programs due to lower investment volume during 2016.
2015
vs.
2014
— Net cash provided by operating activities increased in 2015 as compared to 2014, primarily due to operating cash flow generated from properties we acquired during 2014 and 2015 and the properties we acquired in the CPA
®
:16 Merger in January 2014, as well as increases in structuring revenue and asset management revenue received in cash from the Managed REITs.
AFFO
2016
vs.
2015
— AFFO increased in 2016 as compared to 2015, primarily due to lower general and administrative expenses, higher asset management revenue, higher distributions of Available Cash received from the Managed REITs, and lower interest expense, partially offset by lower structuring revenue due to lower investment volume for the Managed Programs during 2016.
|
W. P. Carey 2016 10-K
–
36
|
|
2015
vs.
2014
— AFFO increased in 2015 as compared to 2014, primarily due to income generated from the nine investments that we acquired during 2015, the full year effect of the CPA
®
:16 Merger, the increases in structuring revenue and asset management revenue described above, and the increase in distributions of Available Cash received from the Managed REITs, partially offset by the impact of the decrease in the average exchange rate of the U.S. dollar in relation to foreign currencies (primarily the euro) during 2015 as compared to 2014.
Owned Real Estate
Acquisitions
During
2016
, we acquired three sale-leaseback investments totaling
$530.3 million
, inclusive of acquisition-related costs, with an additional commitment of
$128.1 million
of build-to-suit financing (
Note 5
), as follows:
|
•
|
one investment of
$167.7 million
in three private school campuses in Coconut Creek and Windermere, Florida and Houston, Texas, with a commitment to fund
$128.1 million
of build-to-suit financing over the next four years in order to fund expansions of the existing facilities;
|
|
•
|
one investment of
$218.2 million
in 43 manufacturing facilities in various locations in the United States and six manufacturing facilities in various locations in Canada; in addition, we subsequently acquired a manufacturing facility in San Antonio, Texas from the tenant for
$3.8 million
(which we consider to be part of the original investment) and simultaneously disposed of a manufacturing facility in Mascouche, Canada, which was acquired as part of the original investment, for the same amount (
Note 17
); and
|
|
•
|
one investment of
$140.7 million
for 13 manufacturing facilities and one office facility in various locations in Canada, Mexico, and the United States.
|
In addition, during
2016
we placed into service a build-to-suit investment at a cost totaling
$13.8 million
.
Dispositions
During
2016
, we sold
30
properties and a parcel of vacant land from our Owned Real Estate portfolio for total proceeds of
$542.4 million
, net of selling costs, and recorded a net gain on sale of real estate of
$42.6 million
, inclusive of amounts attributable to noncontrolling interests of
$0.9 million
. In connection with the sale of one of these properties, we recognized
$32.2 million
of lease termination income during
2016
. We also disposed of
three
properties with an aggregate carrying value of
$56.7 million
, either through transferring ownership to the mortgage lender or foreclosure, in satisfaction of mortgage loans encumbering the properties totaling
$89.7 million
(net of
$2.6 million
of cash held in escrow that was retained by the mortgage lender for one of these dispositions), resulting in an aggregate net gain of
$28.6 million
(
Note 17
).
Financing Transactions
During
2016
, we entered into the following financing transactions (
Note 11
):
|
•
|
On
September 12, 2016
, we issued
$350.0 million
of 4.25% Senior Notes, at a price of
99.682%
of par value, in a registered public offering. These 4.25% Senior Notes have a ten-year term and are scheduled to mature on
October 1, 2026
.
|
|
•
|
On July 29, 2016, a jointly owned investment with CPA
®
:17 – Global, which we consolidate, refinanced a non-recourse mortgage loan that had an outstanding balance of
$33.8 million
with new financing of
$34.6 million
, inclusive of the amount attributable to a noncontrolling interest of
$17.0 million
. The previous loan had an interest rate of
5.9%
and a maturity date of
July 31, 2016
. The new loan has a rate of the Euro Interbank Offered Rate, or EURIBOR, plus a
3.3%
margin and a term of five years.
|
During
2016
, we prepaid non-recourse mortgage loans totaling
$321.7 million
, including a mortgage loan of
$50.8 million
encumbering a property that was sold in August 2016 (
Note 17
). In connection with these payments, we recognized a loss on extinguishment of debt of
$4.1 million
during 2016, which was included in Other income and (expenses) in the consolidated financial statements. In addition, we made balloon payments aggregating
$84.2 million
at maturity on non-recourse mortgage loans during 2016, including a payment of
$33.8 million
in connection with the refinancing described above.
|
W. P. Carey 2016 10-K
–
37
|
|
Composition
As of
December 31, 2016
, our Owned Real Estate portfolio consisted of
903
net-lease properties, comprising
87.9 million
square feet leased to
217
tenants, and
two
hotels, which are classified as operating properties. As of that date, the weighted-average lease term of the net-lease portfolio was
9.7
years and the occupancy rate was
99.1%
.
Investment Management
During
2016
, we managed CPA
®
:17 – Global, CPA
®
:18 – Global, CWI 1, CWI 2, CCIF, and CESH I. As of
December 31, 2016
, these Managed Programs had total assets under management of approximately
$12.9 billion
.
Investment Transactions
During
2016
, we structured new investments totaling
$1.6 billion
on behalf of the Managed REITs and CESH I, from which we earned
$47.3 million
in structuring revenue.
|
•
|
CWI 2: We structured investments in
six
domestic hotels for an aggregate of
$936.0 million
, inclusive of acquisition-related costs, on behalf of CWI 2.
|
|
•
|
CPA
®
:17 – Global: We structured investments in
23
properties and a build-to-suit expansion on an existing property for an aggregate of
$240.3 million
, inclusive of acquisition-related costs, on behalf of CPA
®
:17 – Global. Approximately
$134.1 million
was invested in the United States and
$106.2 million
was invested in Europe.
|
|
•
|
CPA
®
:18 – Global: We structured investments in
ten
properties, a build-to-suit project, and a mezzanine loan collateralized by a portfolio of properties for an aggregate of
$200.7 million
, inclusive of acquisition-related costs, on behalf of CPA
®
:18 – Global. Approximately
$119.5 million
was invested in the United States and
$81.2 million
was invested internationally.
|
|
•
|
CWI 1: We structured investments in
two
domestic hotels and a property adjacent to one of these hotels for an aggregate of
$108.6 million
, inclusive of acquisition-related costs, on behalf of CWI 1.
|
|
•
|
CESH I: We structured
three
investments in international student housing properties for
$73.3 million
, inclusive of acquisition-related costs, on behalf of CESH I.
|
Financing Transactions
During
2016
, we arranged mortgage financing totaling
$465.5 million
for CPA
®
:17 – Global,
$387.6 million
for CWI 2,
$324.8 million
for CWI 1, and
$184.9 million
for CPA
®
:18 – Global.
Regulatory Changes
On April 6, 2016, the DOL issued its final regulation addressing when a person providing investment advice with respect to an employee benefit plan or individual retirement account is considered to be a fiduciary under ERISA and the Internal Revenue Code. This Fiduciary Rule significantly expands the class of advisers and the scope of investment advice that are subject to fiduciary standards, imposing the same fiduciary standards on advisers to individual retirement accounts that have historically only applied to plans covered under ERISA. The Fiduciary Rule also contains certain exemptions that allow investment advisers to receive compensation for providing investment advice under arrangements that would otherwise be prohibited due to conflicts of interest, such as the Best Interest Contract Exemption and the Principal Transaction Exemption. The Fiduciary Rule was scheduled to take effect on April 10, 2017. However, the memorandum issued by the new presidential administration on February 3, 2017 has caused the DOL to seek a delay of the implementation date from the Office of Management and Budget. We will continue to monitor how the regulation may be implemented. In anticipation of the effectiveness of this new regulation, some broker-dealers and financial advisors have already made significant changes to their operations, which has led to additional uncertainty in this industry.
|
W. P. Carey 2016 10-K
–
38
|
|
Investor Capital Inflows
Fundraising from investment products such as non-traded REITs and non-traded BDCs overall was significantly lower in
2016
as compared to
2015
, due in large part to the uncertainty that has resulted from the regulatory changes described above. The investor capital inflows for the funds managed by us during
2016
were as follows:
|
•
|
CWI 2 commenced its initial public offering in the first quarter of 2015 and began to admit new stockholders on May 15, 2015. Through
December 31, 2016
, CWI 2 had raised approximately
$616.3 million
through its offering, of which
$369.3 million
was raised during 2016. We earned
$4.6 million
in Dealer manager fees during 2016 related to this offering.
|
|
•
|
Two CCIF Feeder Funds commenced their respective initial public offerings in the third quarter of 2015 and invest the proceeds that they raise in the master fund, CCIF. Through
December 31, 2016
, these funds have invested
$125.1 million
in CCIF, of which
$123.1 million
was invested during 2016. We earned
$1.8 million
in Dealer manager fees during 2016 related to these offerings.
|
|
•
|
In May 2016, a new feeder fund of CCIF, Carey Credit Income Fund 2018 T, filed a registration statement on Form N-2 with the SEC to sell up to
102,564,103
shares of common stock and intends to invest the net proceeds from the public offering in CCIF. The registration statement was declared effective by the SEC in October 2016 but fundraising has not yet commenced.
|
|
•
|
CESH I commenced its private placement in July 2016 (
Note 4
). We earned
$1.5 million
in Dealer manager fees during 2016 related to this offering.
|
Significant Developments
Management Changes
On December 7, 2016, we announced that Mr. Thomas E. Zacharias, our chief operating officer and head of asset management, had informed our board of directors of his decision to retire effective March 31, 2017. We do not currently intend to appoint a successor to the office of chief operating officer and all responsibilities associated with that role will be reallocated to other members of our management.
On February 1, 2017, we announced that our board of directors had appointed Ms. ToniAnn Sanzone as our chief financial officer, effective immediately. Ms. Sanzone had been serving as our interim chief financial officer since October 14, 2016, having previously served as our chief accounting officer since June 2015 and, prior to that, as our controller since April 2013 (
Note 20
).
Issuance of Senior Unsecured Notes
On January 19, 2017, we completed a public offering of €500.0 million of 2.25% Senior Notes, at a price of 99.448% of par value, issued by our wholly owned subsidiary, WPC Eurobond B.V., which are guaranteed by us. These 2.25% Senior Notes have a 7.5-year term and are scheduled to mature on July 19, 2024 (
Note 20
).
Amended Credit Facility
On February 22, 2017, we amended and restated our Senior Unsecured Credit Facility. We increased the capacity of our unsecured line of credit under our Amended Credit Facility to
$1.85 billion
, which is comprised of a
$1.5 billion
revolving line of credit maturing in
four
years with two six-month extension options, a
€236.3 million
term loan maturing in
five
years, and a
$100.0 million
delayed draw term loan also maturing in five years. The delayed draw term loan may be drawn within one year and allows for borrowings in U.S. dollars, euros, or British pounds sterling. We will incur interest at the London Interbank Offered Rate, or LIBOR, or a LIBOR equivalent, plus
1.00%
on the revolving line of credit, EURIBOR plus
1.10%
on the term loan, and LIBOR, or a LIBOR equivalent, plus
1.10%
on the delayed draw term loan (
Note 20
).
|
W. P. Carey 2016 10-K
–
39
|
|
Portfolio Overview
We intend to continue to acquire a diversified portfolio of income-producing commercial real estate properties and other real estate-related assets. We expect to make these investments both domestically and internationally. Portfolio information is provided on a pro rata basis, unless otherwise noted below, to better illustrate the economic impact of our various net-leased jointly owned investments. See Terms and Definitions below for a description of pro rata amounts.
Portfolio Summary
|
As of December 31,
|
|||||||||||
|
2016
|
2015
|
2014
|
|||||||||
|
Number of net-leased properties
|
903
|
|
869
|
|
783
|
|
|||||
|
Number of operating properties
(a)
|
2
|
|
3
|
|
4
|
|
|||||
|
Number of tenants (net-leased properties)
|
217
|
|
222
|
|
219
|
|
|||||
|
Total square footage (net-leased properties, in thousands)
|
87,866
|
|
90,120
|
|
87,300
|
|
|||||
|
Occupancy (net-leased properties)
|
99.1
|
%
|
98.8
|
%
|
98.6
|
%
|
|||||
|
Weighted-average lease term (net-leased properties, in years)
|
9.7
|
|
9.0
|
|
9.1
|
|
|||||
|
Number of countries
|
19
|
|
19
|
|
18
|
|
|||||
|
Total assets (consolidated basis, in thousands)
|
$
|
8,453,954
|
|
$
|
8,742,089
|
|
$
|
8,641,029
|
|
||
|
Net investments in real estate (consolidated basis, in thousands)
|
5,511,706
|
|
5,826,544
|
|
5,656,555
|
|
|||||
|
Years Ended December 31,
|
|||||||||||
|
2016
|
2015
|
2014
|
|||||||||
|
Financing obtained
— consolidated
(in millions)
(b)
|
$
|
384.6
|
|
$
|
1,541.7
|
|
$
|
1,750.0
|
|
||
|
Financing obtained
— pro rata
(in millions)
(b)
|
367.6
|
|
1,541.7
|
|
1,750.0
|
|
|||||
|
Acquisition volume (in millions, pro rata amount equals consolidated amount)
(c)
|
530.3
|
|
688.7
|
|
906.9
|
|
|||||
|
Build-to-suit projects placed into service (in millions, pro rata amount equals consolidated amount)
|
13.8
|
|
53.2
|
|
—
|
|
|||||
|
New equity investments (in millions)
|
—
|
|
—
|
|
25.0
|
|
|||||
|
Average U.S. dollar/euro exchange rate
|
1.1067
|
|
1.1099
|
|
1.3295
|
|
|||||
|
Average U.S. dollar/British pound sterling exchange rate
|
1.3558
|
|
1.5286
|
|
1.6482
|
|
|||||
|
Change in the U.S. CPI
(d)
|
2.0
|
%
|
0.7
|
%
|
0.8
|
%
|
|||||
|
Change in the German CPI
(d)
|
1.7
|
%
|
0.3
|
%
|
0.2
|
%
|
|||||
|
Change in the Spanish CPI
(d)
|
1.6
|
%
|
0.1
|
%
|
(1.0
|
)%
|
|||||
|
Change in the Finnish CPI
(d)
|
1.0
|
%
|
(0.2
|
)%
|
0.5
|
%
|
|||||
|
Change in the French CPI
(d)
|
0.6
|
%
|
0.2
|
%
|
0.1
|
%
|
|||||
__________
|
(a)
|
At
December 31, 2016
, operating properties included two hotel properties acquired in the CPA
®
:16 Merger with an average occupancy of
82.1%
for
2016
. During each of 2016 and 2015, we sold one self-storage property (
Note 17
). At
December 31, 2014
, operating properties included the two hotel properties and two self-storage properties.
|
|
(b)
|
Both the consolidated and pro rata amounts for 2016 include the issuance of
$350.0 million
of 4.25% Senior Notes in September 2016. The consolidated amount for 2016 includes the refinancing of a non-recourse mortgage loan for
$34.6 million
, while the pro rata amount includes our proportionate share of such refinancing of
$17.6 million
. Amount for 2015 represents the exercise of the accordion feature under our Senior Unsecured Credit Facility in January 2015, which increased our borrowing capacity under our Revolver by $500.0 million, and the issuances of €500.0 million of 2.0% Senior Notes and $450.0 million of 4.0% Senior Notes in January 2015. Amount for 2014 includes $500.0 million of 4.6% Senior Notes and our $1.25 billion Senior Unsecured Credit Facility (
Note 11
).
|
|
W. P. Carey 2016 10-K
–
40
|
|
|
(c)
|
Amount for 2016 excludes an aggregate commitment for
$128.1 million
of build-to-suit financing (
Note 5
). Amount for 2016 also excludes
$1.9 million
for land acquired in connection with build-to-suit or expansion projects (
Note 5
). Amounts for 2015 and 2014 include acquisition-related costs for business combinations, which were expensed in the consolidated financial statements. We did not complete any business combinations during 2016. Amount for 2014 excludes properties acquired in the CPA
®
:16 Merger in January 2014 with a total fair value of approximately $3.7 billion (
Note 3
).
|
|
(d)
|
Many of our lease agreements include contractual increases indexed to changes in the CPI or similar indices in the jurisdictions in which the properties are located.
|
Net-Leased Portfolio
The tables below represent information about our net-leased portfolio at
December 31, 2016
on a pro rata basis and, accordingly, exclude all operating properties. See Terms and Definitions below for a description of pro rata amounts and ABR.
Top Ten Tenants by ABR
(in thousands, except percentages)
|
Tenant/Lease Guarantor
|
Property Type
|
Tenant Industry
|
Location
|
Number of Properties
|
ABR
|
ABR Percent
|
||||||||||
|
Hellweg Die Profi-Baumärkte GmbH & Co. KG
(a)
|
Retail
|
Retail Stores
|
Germany
|
53
|
|
$
|
32,019
|
|
4.9
|
%
|
||||||
|
U-Haul Moving Partners Inc. and Mercury Partners, LP
|
Self Storage
|
Cargo Transportation, Consumer Services
|
Various U.S.
|
78
|
|
31,853
|
|
4.8
|
%
|
|||||||
|
State of Andalucia
(a)
|
Office
|
Sovereign and Public Finance
|
Spain
|
70
|
|
25,253
|
|
3.8
|
%
|
|||||||
|
Pendragon Plc
(a)
|
Retail
|
Retail Stores, Consumer Services
|
United Kingdom
|
73
|
|
20,682
|
|
3.1
|
%
|
|||||||
|
Marriott Corporation
|
Hotel
|
Hotel, Gaming and Leisure
|
Various U.S.
|
18
|
|
19,774
|
|
3.0
|
%
|
|||||||
|
Forterra Building Products
(a) (b)
|
Industrial
|
Construction and Building
|
Various U.S. and Canada
|
49
|
|
16,981
|
|
2.6
|
%
|
|||||||
|
True Value Company
|
Warehouse
|
Retail Stores
|
Various U.S.
|
7
|
|
15,372
|
|
2.3
|
%
|
|||||||
|
OBI Group
(a)
|
Office, Retail
|
Retail Stores
|
Poland
|
18
|
|
14,375
|
|
2.2
|
%
|
|||||||
|
UTI Holdings, Inc.
|
Education Facility
|
Consumer Services
|
Various U.S.
|
5
|
|
14,359
|
|
2.2
|
%
|
|||||||
|
ABC Group Inc.
(c)
|
Industrial, Office, Warehouse
|
Automotive
|
Various Canada, Mexico, and U.S.
|
14
|
|
13,771
|
|
2.1
|
%
|
|||||||
|
Total
|
385
|
|
$
|
204,439
|
|
31.0
|
%
|
|||||||||
__________
|
(a)
|
ABR amounts are subject to fluctuations in foreign currency exchange rates.
|
|
(b)
|
Of the 49 properties leased to Forterra Building Products,
44
are located in the United States and
five
are located in Canada.
|
|
(c)
|
Of the
14
properties leased to ABC Group Inc.,
six
are located in Canada,
four
are located in Mexico, and
four
are located in the United States. Tenant has 15 addresses for
14
properties, subject to three master leases denominated in U.S. dollars.
|
|
W. P. Carey 2016 10-K
–
41
|
|
Portfolio Diversification by Geography
(in thousands, except percentages)
|
Region
|
ABR
|
Percent
|
Square Footage
|
Percent
|
|||||||||
|
United States
|
|||||||||||||
|
South
|
|||||||||||||
|
Texas
|
$
|
55,891
|
|
8.5
|
%
|
8,217
|
|
9.4
|
%
|
||||
|
Florida
|
27,928
|
|
4.2
|
%
|
2,600
|
|
3.0
|
%
|
|||||
|
Georgia
|
19,795
|
|
3.0
|
%
|
3,293
|
|
3.7
|
%
|
|||||
|
Tennessee
|
15,317
|
|
2.3
|
%
|
2,306
|
|
2.6
|
%
|
|||||
|
Other
(a)
|
9,717
|
|
1.5
|
%
|
1,987
|
|
2.3
|
%
|
|||||
|
Total South
|
128,648
|
|
19.5
|
%
|
18,403
|
|
21.0
|
%
|
|||||
|
East
|
|||||||||||||
|
North Carolina
|
19,680
|
|
3.0
|
%
|
4,518
|
|
5.1
|
%
|
|||||
|
Pennsylvania
|
18,518
|
|
2.8
|
%
|
2,526
|
|
2.9
|
%
|
|||||
|
New Jersey
|
18,339
|
|
2.8
|
%
|
1,097
|
|
1.2
|
%
|
|||||
|
New York
|
18,063
|
|
2.7
|
%
|
1,178
|
|
1.3
|
%
|
|||||
|
Massachusetts
|
14,895
|
|
2.3
|
%
|
1,390
|
|
1.6
|
%
|
|||||
|
Virginia
|
8,048
|
|
1.2
|
%
|
1,093
|
|
1.2
|
%
|
|||||
|
Other
(a)
|
24,005
|
|
3.6
|
%
|
4,894
|
|
5.6
|
%
|
|||||
|
Total East
|
121,548
|
|
18.4
|
%
|
16,696
|
|
18.9
|
%
|
|||||
|
West
|
|||||||||||||
|
California
|
42,097
|
|
6.4
|
%
|
3,303
|
|
3.8
|
%
|
|||||
|
Arizona
|
26,434
|
|
4.0
|
%
|
3,049
|
|
3.5
|
%
|
|||||
|
Colorado
|
10,768
|
|
1.6
|
%
|
1,268
|
|
1.4
|
%
|
|||||
|
Utah
|
6,781
|
|
1.0
|
%
|
920
|
|
1.1
|
%
|
|||||
|
Other
(a)
|
18,265
|
|
2.8
|
%
|
2,322
|
|
2.6
|
%
|
|||||
|
Total West
|
104,345
|
|
15.8
|
%
|
10,862
|
|
12.4
|
%
|
|||||
|
Midwest
|
|||||||||||||
|
Illinois
|
21,041
|
|
3.2
|
%
|
3,246
|
|
3.7
|
%
|
|||||
|
Michigan
|
11,894
|
|
1.8
|
%
|
1,396
|
|
1.6
|
%
|
|||||
|
Indiana
|
9,163
|
|
1.4
|
%
|
1,418
|
|
1.6
|
%
|
|||||
|
Ohio
|
8,407
|
|
1.3
|
%
|
1,911
|
|
2.2
|
%
|
|||||
|
Missouri
|
6,900
|
|
1.1
|
%
|
1,305
|
|
1.5
|
%
|
|||||
|
Minnesota
|
6,854
|
|
1.0
|
%
|
811
|
|
0.9
|
%
|
|||||
|
Other
(a)
|
17,065
|
|
2.6
|
%
|
3,080
|
|
3.5
|
%
|
|||||
|
Total Midwest
|
81,324
|
|
12.4
|
%
|
13,167
|
|
15.0
|
%
|
|||||
|
United States Total
|
435,865
|
|
66.1
|
%
|
59,128
|
|
67.3
|
%
|
|||||
|
International
|
|||||||||||||
|
Germany
|
56,683
|
|
8.6
|
%
|
7,131
|
|
8.1
|
%
|
|||||
|
United Kingdom
|
31,778
|
|
4.8
|
%
|
2,569
|
|
2.9
|
%
|
|||||
|
Spain
|
26,753
|
|
4.1
|
%
|
2,927
|
|
3.3
|
%
|
|||||
|
Finland
|
18,707
|
|
2.8
|
%
|
1,588
|
|
1.8
|
%
|
|||||
|
Poland
|
16,163
|
|
2.5
|
%
|
2,189
|
|
2.5
|
%
|
|||||
|
The Netherlands
|
13,662
|
|
2.1
|
%
|
2,233
|
|
2.6
|
%
|
|||||
|
France
|
13,247
|
|
2.0
|
%
|
1,338
|
|
1.5
|
%
|
|||||
|
Canada
|
12,232
|
|
1.9
|
%
|
2,196
|
|
2.5
|
%
|
|||||
|
Australia
|
11,162
|
|
1.7
|
%
|
3,160
|
|
3.6
|
%
|
|||||
|
Other
(b)
|
22,677
|
|
3.4
|
%
|
3,407
|
|
3.9
|
%
|
|||||
|
International Total
|
223,064
|
|
33.9
|
%
|
28,738
|
|
32.7
|
%
|
|||||
|
Total
(c)
|
$
|
658,929
|
|
100.0
|
%
|
87,866
|
|
100.0
|
%
|
||||
|
W. P. Carey 2016 10-K
–
42
|
|
Portfolio Diversification by Property Type
(in thousands, except percentages)
|
Property Type
|
ABR
|
Percent
|
Square Footage
|
Percent
|
|||||||||
|
Industrial
|
$
|
196,803
|
|
29.9
|
%
|
39,781
|
|
45.3
|
%
|
||||
|
Office
|
167,609
|
|
25.4
|
%
|
11,650
|
|
13.2
|
%
|
|||||
|
Retail
|
102,687
|
|
15.6
|
%
|
9,862
|
|
11.3
|
%
|
|||||
|
Warehouse
|
93,576
|
|
14.2
|
%
|
18,705
|
|
21.3
|
%
|
|||||
|
Self Storage
|
31,853
|
|
4.8
|
%
|
3,535
|
|
4.0
|
%
|
|||||
|
Other
(d)
|
66,401
|
|
10.1
|
%
|
4,333
|
|
4.9
|
%
|
|||||
|
Total
(c)
|
$
|
658,929
|
|
100.0
|
%
|
87,866
|
|
100.0
|
%
|
||||
|
(a)
|
Other properties within South include assets in Louisiana, Alabama, Arkansas, Mississippi, and Oklahoma. Other properties within East include assets in Connecticut, South Carolina, Kentucky, New Hampshire, Maryland, and West Virginia. Other properties within West include assets in Washington, Nevada, Oregon, Wyoming, New Mexico, Alaska, and Montana. Other properties within Midwest include assets in Nebraska, Kansas, Wisconsin, Iowa, South Dakota, and North Dakota.
|
|
(b)
|
Includes assets in Norway, Mexico, Thailand, Hungary, Austria, Sweden, Belgium, Malaysia, and Japan.
|
|
(c)
|
Includes square footage for vacant properties.
|
|
(d)
|
Includes ABR from tenants with the following property types: hotel, education facility, theater, net-lease student housing, and fitness facility.
|
|
W. P. Carey 2016 10-K
–
43
|
|
Portfolio Diversification by Tenant Industry
(in thousands, except percentages)
|
Industry Type
|
ABR
|
Percent
|
Square Footage
|
Percent
|
|||||||||
|
Retail Stores
(a)
|
$
|
110,802
|
|
16.8
|
%
|
14,961
|
|
17.0
|
%
|
||||
|
Consumer Services
|
68,557
|
|
10.4
|
%
|
5,565
|
|
6.3
|
%
|
|||||
|
Automotive
|
52,296
|
|
7.9
|
%
|
8,864
|
|
10.1
|
%
|
|||||
|
Sovereign and Public Finance
|
37,846
|
|
5.7
|
%
|
3,408
|
|
3.9
|
%
|
|||||
|
Construction and Building
|
35,986
|
|
5.5
|
%
|
8,142
|
|
9.3
|
%
|
|||||
|
Hotel, Gaming, and Leisure
|
34,614
|
|
5.3
|
%
|
2,254
|
|
2.6
|
%
|
|||||
|
High Tech Industries
|
33,138
|
|
5.0
|
%
|
2,905
|
|
3.3
|
%
|
|||||
|
Beverage, Food, and Tobacco
|
29,204
|
|
4.4
|
%
|
6,680
|
|
7.6
|
%
|
|||||
|
Cargo Transportation
|
27,711
|
|
4.2
|
%
|
3,860
|
|
4.4
|
%
|
|||||
|
Media: Advertising, Printing, and Publishing
|
27,695
|
|
4.2
|
%
|
1,695
|
|
1.9
|
%
|
|||||
|
Healthcare and Pharmaceuticals
|
27,537
|
|
4.2
|
%
|
1,988
|
|
2.3
|
%
|
|||||
|
Containers, Packaging, and Glass
|
26,665
|
|
4.1
|
%
|
5,325
|
|
6.1
|
%
|
|||||
|
Capital Equipment
|
25,891
|
|
3.9
|
%
|
4,873
|
|
5.5
|
%
|
|||||
|
Wholesale
|
14,414
|
|
2.2
|
%
|
2,806
|
|
3.2
|
%
|
|||||
|
Business Services
|
12,060
|
|
1.8
|
%
|
1,730
|
|
2.0
|
%
|
|||||
|
Durable Consumer Goods
|
11,089
|
|
1.7
|
%
|
2,486
|
|
2.8
|
%
|
|||||
|
Aerospace and Defense
|
10,697
|
|
1.6
|
%
|
1,183
|
|
1.4
|
%
|
|||||
|
Grocery
|
10,515
|
|
1.6
|
%
|
1,260
|
|
1.4
|
%
|
|||||
|
Chemicals, Plastics, and Rubber
|
9,568
|
|
1.5
|
%
|
1,108
|
|
1.3
|
%
|
|||||
|
Metals and Mining
|
8,885
|
|
1.3
|
%
|
1,341
|
|
1.5
|
%
|
|||||
|
Oil and Gas
|
8,014
|
|
1.2
|
%
|
368
|
|
0.4
|
%
|
|||||
|
Non-Durable Consumer Goods
|
7,689
|
|
1.2
|
%
|
1,883
|
|
2.1
|
%
|
|||||
|
Telecommunications
|
7,254
|
|
1.1
|
%
|
447
|
|
0.5
|
%
|
|||||
|
Banking
|
7,155
|
|
1.1
|
%
|
596
|
|
0.7
|
%
|
|||||
|
Other
(b)
|
13,647
|
|
2.1
|
%
|
2,138
|
|
2.4
|
%
|
|||||
|
Total
|
$
|
658,929
|
|
100.0
|
%
|
87,866
|
|
100.0
|
%
|
||||
__________
|
(a)
|
Includes automotive dealerships.
|
|
(b)
|
Includes ABR from tenants in the following industries: insurance, electricity, media: broadcasting and subscription, forest products and paper, and environmental industries. Also includes square footage for vacant properties.
|
|
W. P. Carey 2016 10-K
–
44
|
|
Lease Expirations
(in thousands, except percentages and number of leases)
|
Year of Lease Expiration
(a)
|
Number of Leases Expiring
|
ABR
|
Percent
|
Square Footage
|
Percent
|
|||||||||||
|
December 31, 2016
(b)
|
2
|
|
$
|
7,222
|
|
1.1
|
%
|
466
|
|
0.5
|
%
|
|||||
|
2017
(c)
|
11
|
|
8,238
|
|
1.3
|
%
|
1,530
|
|
1.7
|
%
|
||||||
|
2018
|
11
|
|
12,059
|
|
1.8
|
%
|
1,528
|
|
1.7
|
%
|
||||||
|
2019
|
23
|
|
30,459
|
|
4.6
|
%
|
3,375
|
|
3.8
|
%
|
||||||
|
2020
|
23
|
|
34,430
|
|
5.2
|
%
|
3,433
|
|
3.9
|
%
|
||||||
|
2021
|
81
|
|
41,602
|
|
6.3
|
%
|
6,639
|
|
7.6
|
%
|
||||||
|
2022
|
38
|
|
66,337
|
|
10.1
|
%
|
8,732
|
|
10.0
|
%
|
||||||
|
2023
|
17
|
|
38,334
|
|
5.8
|
%
|
5,387
|
|
6.1
|
%
|
||||||
|
2024
|
43
|
|
91,362
|
|
13.9
|
%
|
11,441
|
|
13.0
|
%
|
||||||
|
2025
|
43
|
|
32,344
|
|
4.9
|
%
|
3,553
|
|
4.1
|
%
|
||||||
|
2026
|
24
|
|
21,489
|
|
3.3
|
%
|
3,275
|
|
3.7
|
%
|
||||||
|
2027
|
27
|
|
42,704
|
|
6.5
|
%
|
6,911
|
|
7.9
|
%
|
||||||
|
2028
|
9
|
|
18,693
|
|
2.8
|
%
|
2,166
|
|
2.5
|
%
|
||||||
|
2029
|
11
|
|
19,272
|
|
2.9
|
%
|
2,897
|
|
3.3
|
%
|
||||||
|
2030
|
11
|
|
45,853
|
|
7.0
|
%
|
4,804
|
|
5.5
|
%
|
||||||
|
Thereafter
|
86
|
|
148,531
|
|
22.5
|
%
|
20,910
|
|
23.8
|
%
|
||||||
|
Vacant
|
—
|
|
—
|
|
—
|
%
|
819
|
|
0.9
|
%
|
||||||
|
Total
|
460
|
|
$
|
658,929
|
|
100.0
|
%
|
87,866
|
|
100.0
|
%
|
|||||
__________
|
(a)
|
Assumes tenant does not exercise any renewal option.
|
|
(b)
|
Reflects ABR for leases that expired on December 31, 2016.
|
|
(c)
|
One
month-to-month lease with ABR of
$0.1 million
is included in 2017 ABR.
|
Terms and Definitions
Pro Rata Metrics
—The portfolio information above contains certain metrics prepared under the pro rata consolidation method.
We refer to these metrics as pro rata metrics. We have a number of investments, usually with our affiliates, in which our economic ownership is less than 100%. Under the full consolidation method, we report 100% of the assets, liabilities, revenues, and expenses of those investments that are deemed to be under our control or for which we are deemed to be the primary beneficiary, even if our ownership is less than 100%. Also, for all other jointly owned investments, which we do not control, we report our net investment and our net income or loss from that investment. Under the pro rata consolidation method, we present our proportionate share, based on our economic ownership of these jointly owned investments, of the portfolio metrics of those investments.
ABR
—
ABR represents contractual minimum annualized base rent for our net-leased properties and reflects exchange rates as of the date of this Report. If there is a rent abatement, we annualize the first monthly contractual base rent following the free rent period. ABR is not applicable to operating properties.
|
W. P. Carey 2016 10-K
–
45
|
|
Results of Operations
We operate in two reportable segments: Owned Real Estate and Investment Management. We evaluate our results of operations with a primary focus on increasing and enhancing the value, quality, and number of properties in our Owned Real Estate segment, as well as assets owned by the Managed Programs, which are managed by our Investment Management segment. We focus our efforts on improving underperforming assets through re-leasing efforts, including negotiation of lease renewals, or selectively selling assets in order to increase value in our real estate portfolio. The ability to increase assets under management by structuring investments on behalf of the Managed Programs is affected, among other things, by our ability to raise capital on behalf of the Managed Programs and our ability to identify and enter into appropriate investments and related financing on their behalf.
|
W. P. Carey 2016 10-K
–
46
|
|
Owned Real Estate
The following table presents the comparative results of our Owned Real Estate segment (in thousands):
|
Years Ended December 31,
|
|||||||||||||||||||||||
|
2016
|
2015
|
Change
|
2015
|
2014
|
Change
|
||||||||||||||||||
|
Revenues
|
|||||||||||||||||||||||
|
Lease revenues
|
$
|
663,463
|
|
$
|
656,956
|
|
$
|
6,507
|
|
$
|
656,956
|
|
$
|
573,829
|
|
$
|
83,127
|
|
|||||
|
Lease termination income and other
|
35,696
|
|
25,145
|
|
10,551
|
|
25,145
|
|
17,767
|
|
7,378
|
|
|||||||||||
|
Operating property revenues
|
30,767
|
|
30,515
|
|
252
|
|
30,515
|
|
28,925
|
|
1,590
|
|
|||||||||||
|
Reimbursable tenant costs
|
25,438
|
|
22,832
|
|
2,606
|
|
22,832
|
|
24,862
|
|
(2,030
|
)
|
|||||||||||
|
755,364
|
|
735,448
|
|
19,916
|
|
735,448
|
|
645,383
|
|
90,065
|
|
||||||||||||
|
Operating Expenses
|
|||||||||||||||||||||||
|
Depreciation and amortization:
|
|||||||||||||||||||||||
|
Net-leased properties
|
266,637
|
|
270,241
|
|
(3,604
|
)
|
270,241
|
|
228,418
|
|
41,823
|
|
|||||||||||
|
Operating properties
|
4,238
|
|
|
4,251
|
|
(13
|
)
|
4,251
|
|
3,889
|
|
362
|
|
||||||||||
|
Corporate depreciation and amortization
|
1,399
|
|
1,744
|
|
(345
|
)
|
1,744
|
|
792
|
|
952
|
|
|||||||||||
|
272,274
|
|
276,236
|
|
(3,962
|
)
|
276,236
|
|
233,099
|
|
43,137
|
|
||||||||||||
|
Property expenses:
|
|||||||||||||||||||||||
|
Net-leased properties
|
26,762
|
|
30,080
|
|
(3,318
|
)
|
30,080
|
|
16,877
|
|
13,203
|
|
|||||||||||
|
Reimbursable tenant costs
|
25,438
|
|
22,832
|
|
2,606
|
|
22,832
|
|
24,862
|
|
(2,030
|
)
|
|||||||||||
|
Operating property expenses
|
22,669
|
|
22,119
|
|
550
|
|
22,119
|
|
20,848
|
|
1,271
|
|
|||||||||||
|
74,869
|
|
75,031
|
|
(162
|
)
|
75,031
|
|
62,587
|
|
12,444
|
|
||||||||||||
|
Impairment charges
|
59,303
|
|
29,906
|
|
29,397
|
|
29,906
|
|
23,067
|
|
6,839
|
|
|||||||||||
|
General and administrative
|
34,591
|
|
47,676
|
|
(13,085
|
)
|
47,676
|
|
38,797
|
|
8,879
|
|
|||||||||||
|
Stock-based compensation expense
|
5,224
|
|
7,873
|
|
(2,649
|
)
|
7,873
|
|
12,659
|
|
(4,786
|
)
|
|||||||||||
|
Restructuring and other compensation
|
4,413
|
|
—
|
|
4,413
|
|
—
|
|
—
|
|
—
|
|
|||||||||||
|
Merger, property acquisition, and other expenses
|
2,993
|
|
(9,908
|
)
|
12,901
|
|
(9,908
|
)
|
34,465
|
|
(44,373
|
)
|
|||||||||||
|
453,667
|
|
426,814
|
|
26,853
|
|
426,814
|
|
404,674
|
|
22,140
|
|
||||||||||||
|
Other Income and Expenses
|
|||||||||||||||||||||||
|
Interest expense
|
(183,409
|
)
|
(194,326
|
)
|
10,917
|
|
(194,326
|
)
|
(178,122
|
)
|
(16,204
|
)
|
|||||||||||
|
Equity in earnings of equity method investments in the Managed REITs and real estate
|
62,724
|
|
52,972
|
|
9,752
|
|
52,972
|
|
44,116
|
|
8,856
|
|
|||||||||||
|
Other income and (expenses)
|
3,665
|
|
1,952
|
|
1,713
|
|
1,952
|
|
(14,505
|
)
|
16,457
|
|
|||||||||||
|
Gain on change in control of interests
|
—
|
|
—
|
|
—
|
|
—
|
|
105,947
|
|
(105,947
|
)
|
|||||||||||
|
(117,020
|
)
|
(139,402
|
)
|
22,382
|
|
(139,402
|
)
|
(42,564
|
)
|
(96,838
|
)
|
||||||||||||
|
Income from continuing operations before income taxes
|
184,677
|
|
169,232
|
|
15,445
|
|
169,232
|
|
198,145
|
|
(28,913
|
)
|
|||||||||||
|
Benefit from (provision for) income taxes
|
3,418
|
|
(17,948
|
)
|
21,366
|
|
(17,948
|
)
|
916
|
|
(18,864
|
)
|
|||||||||||
|
Income from continuing operations before gain on sale of real estate
|
188,095
|
|
151,284
|
|
36,811
|
|
151,284
|
|
199,061
|
|
(47,777
|
)
|
|||||||||||
|
Income from discontinued operations, net of tax
|
—
|
|
—
|
|
—
|
|
—
|
|
33,318
|
|
(33,318
|
)
|
|||||||||||
|
Gain on sale of real estate, net of tax
|
71,318
|
|
6,487
|
|
64,831
|
|
6,487
|
|
1,581
|
|
4,906
|
|
|||||||||||
|
Net Income from Owned Real Estate
|
259,413
|
|
157,771
|
|
101,642
|
|
157,771
|
|
233,960
|
|
(76,189
|
)
|
|||||||||||
|
Net income attributable to noncontrolling interests
|
(7,060
|
)
|
(10,961
|
)
|
3,901
|
|
(10,961
|
)
|
(5,573
|
)
|
(5,388
|
)
|
|||||||||||
|
Net Income from Owned Real Estate Attributable to W. P. Carey
|
$
|
252,353
|
|
$
|
146,810
|
|
$
|
105,543
|
|
$
|
146,810
|
|
$
|
228,387
|
|
$
|
(81,577
|
)
|
|||||
|
W. P. Carey 2016 10-K
–
47
|
|
Lease Composition and Leasing Activities
As of
December 31, 2016
,
94.7%
of our net leases, based on ABR, have rent increases, of which
68.7%
have adjustments based on CPI or similar indices and
26.0%
have fixed rent increases. CPI and similar rent adjustments are based on formulas indexed to changes in the CPI, or other similar indices for the jurisdiction in which the property is located, some of which have caps and/or floors. Over the next 12 months, fixed rent escalations are scheduled to increase ABR by an average of
2.8%
, excluding leases that are set to expire within the next 12 months. We own international investments and, therefore, lease revenues from these investments are subject to exchange rate fluctuations in various foreign currencies, primarily the euro.
The following discussion presents a summary of rents on existing properties arising from leases with new tenants and renewed leases with existing tenants for the period presented and, therefore, does not include new acquisitions for our portfolio during the period presented.
During
2016
, we entered into
six
new leases for a total of approximately
0.4 million
square feet of leased space. The average rent for the leased space is
$10.38
per square foot. We provided a tenant improvement allowance on
four
of these leases totaling
$2.6 million
. In addition, during
2016
, we extended
16
leases with existing tenants for a total of approximately
3.2 million
square feet of leased space. The estimated average new rent for the leased space is
$7.17
per square foot, compared to the average former rent of
$8.24
per square foot, reflecting current market conditions. We provided a tenant improvement allowance on
five
of these leases totaling
$17.3 million
.
|
W. P. Carey 2016 10-K
–
48
|
|
Property Level Contribution
The following table presents the Property level contribution for our consolidated net-leased and operating properties, as well as a reconciliation to Net income from Owned Real Estate attributable to W. P. Carey (in thousands):
|
Years Ended December 31,
|
|||||||||||||||||||||||
|
2016
|
2015
|
Change
|
2015
|
2014
|
Change
|
||||||||||||||||||
|
Existing Net-Leased Properties
|
|||||||||||||||||||||||
|
Lease revenues
|
$
|
250,758
|
|
$
|
253,364
|
|
$
|
(2,606
|
)
|
$
|
253,364
|
|
$
|
259,556
|
|
$
|
(6,192
|
)
|
|||||
|
Property expenses
|
(5,537
|
)
|
(8,256
|
)
|
2,719
|
|
(8,256
|
)
|
(4,715
|
)
|
(3,541
|
)
|
|||||||||||
|
Depreciation and amortization
|
(96,439
|
)
|
(95,909
|
)
|
(530
|
)
|
(95,909
|
)
|
(100,268
|
)
|
4,359
|
|
|||||||||||
|
Property level contribution
|
148,782
|
|
149,199
|
|
(417
|
)
|
149,199
|
|
154,573
|
|
(5,374
|
)
|
|||||||||||
|
Net-Leased Properties Acquired in the CPA
®
:16 Merger
|
|||||||||||||||||||||||
|
Lease revenues
|
217,110
|
|
220,640
|
|
(3,530
|
)
|
220,640
|
|
211,626
|
|
9,014
|
|
|||||||||||
|
Property expenses
|
(10,683
|
)
|
(10,697
|
)
|
14
|
|
(10,697
|
)
|
(3,739
|
)
|
(6,958
|
)
|
|||||||||||
|
Depreciation and amortization
|
(81,832
|
)
|
(87,264
|
)
|
5,432
|
|
(87,264
|
)
|
(82,994
|
)
|
(4,270
|
)
|
|||||||||||
|
Property level contribution
|
124,595
|
|
122,679
|
|
1,916
|
|
122,679
|
|
124,893
|
|
(2,214
|
)
|
|||||||||||
|
Recently Acquired Net-Leased Properties
|
|||||||||||||||||||||||
|
Lease revenues
|
142,406
|
|
103,244
|
|
39,162
|
|
103,244
|
|
15,796
|
|
87,448
|
|
|||||||||||
|
Property expenses
|
(6,898
|
)
|
(6,207
|
)
|
(691
|
)
|
(6,207
|
)
|
(1,277
|
)
|
(4,930
|
)
|
|||||||||||
|
Depreciation and amortization
|
(58,099
|
)
|
(49,948
|
)
|
(8,151
|
)
|
(49,948
|
)
|
(6,827
|
)
|
(43,121
|
)
|
|||||||||||
|
Property level contribution
|
77,409
|
|
47,089
|
|
30,320
|
|
47,089
|
|
7,692
|
|
39,397
|
|
|||||||||||
|
Properties Sold or Held for Sale
|
|||||||||||||||||||||||
|
Lease revenues
|
53,189
|
|
79,708
|
|
(26,519
|
)
|
79,708
|
|
86,851
|
|
(7,143
|
)
|
|||||||||||
|
Operating revenues
|
64
|
|
944
|
|
(880
|
)
|
944
|
|
1,063
|
|
(119
|
)
|
|||||||||||
|
Property expenses
|
(3,749
|
)
|
(5,464
|
)
|
1,715
|
|
(5,464
|
)
|
(7,739
|
)
|
2,275
|
|
|||||||||||
|
Depreciation and amortization
|
(30,275
|
)
|
(37,280
|
)
|
7,005
|
|
(37,280
|
)
|
(38,539
|
)
|
1,259
|
|
|||||||||||
|
Property level contribution
|
19,229
|
|
37,908
|
|
(18,679
|
)
|
37,908
|
|
41,636
|
|
(3,728
|
)
|
|||||||||||
|
Operating Properties
|
|||||||||||||||||||||||
|
Revenues
|
30,703
|
|
29,571
|
|
1,132
|
|
29,571
|
|
27,862
|
|
1,709
|
|
|||||||||||
|
Property expenses
|
(22,564
|
)
|
(21,575
|
)
|
(989
|
)
|
(21,575
|
)
|
(20,255
|
)
|
(1,320
|
)
|
|||||||||||
|
Depreciation and amortization
|
(4,230
|
)
|
(4,091
|
)
|
(139
|
)
|
(4,091
|
)
|
(3,679
|
)
|
(412
|
)
|
|||||||||||
|
Property level contribution
|
3,909
|
|
3,905
|
|
4
|
|
3,905
|
|
3,928
|
|
(23
|
)
|
|||||||||||
|
Property Level Contribution
|
373,924
|
|
360,780
|
|
13,144
|
|
360,780
|
|
332,722
|
|
28,058
|
|
|||||||||||
|
Add: Lease termination income and other
|
35,696
|
|
25,145
|
|
10,551
|
|
25,145
|
|
17,767
|
|
7,378
|
|
|||||||||||
|
Less other expenses:
|
|||||||||||||||||||||||
|
Impairment charges
|
(59,303
|
)
|
(29,906
|
)
|
(29,397
|
)
|
(29,906
|
)
|
(23,067
|
)
|
(6,839
|
)
|
|||||||||||
|
General and administrative
|
(34,591
|
)
|
(47,676
|
)
|
13,085
|
|
(47,676
|
)
|
(38,797
|
)
|
(8,879
|
)
|
|||||||||||
|
Stock-based compensation expense
|
(5,224
|
)
|
(7,873
|
)
|
2,649
|
|
(7,873
|
)
|
(12,659
|
)
|
4,786
|
|
|||||||||||
|
Restructuring and other compensation
|
(4,413
|
)
|
—
|
|
(4,413
|
)
|
—
|
|
—
|
|
—
|
|
|||||||||||
|
Merger, property acquisition, and other expenses
|
(2,993
|
)
|
9,908
|
|
(12,901
|
)
|
9,908
|
|
(34,465
|
)
|
44,373
|
|
|||||||||||
|
Corporate depreciation and amortization
|
(1,399
|
)
|
(1,744
|
)
|
345
|
|
(1,744
|
)
|
(792
|
)
|
(952
|
)
|
|||||||||||
|
Other Income and Expenses
|
|
|
|
|
|
|
|||||||||||||||||
|
Interest expense
|
(183,409
|
)
|
(194,326
|
)
|
10,917
|
|
(194,326
|
)
|
(178,122
|
)
|
(16,204
|
)
|
|||||||||||
|
Equity in earnings of equity method investments in the Managed REITs and real estate
|
62,724
|
|
52,972
|
|
9,752
|
|
52,972
|
|
44,116
|
|
8,856
|
|
|||||||||||
|
Other income and (expenses)
|
3,665
|
|
1,952
|
|
1,713
|
|
1,952
|
|
(14,505
|
)
|
16,457
|
|
|||||||||||
|
Gain on change in control of interests
|
—
|
|
—
|
|
—
|
|
—
|
|
105,947
|
|
(105,947
|
)
|
|||||||||||
|
(117,020
|
)
|
(139,402
|
)
|
22,382
|
|
(139,402
|
)
|
(42,564
|
)
|
(96,838
|
)
|
||||||||||||
|
Income from continuing operations before income taxes and gain on sale of real estate
|
184,677
|
|
|
169,232
|
|
|
15,445
|
|
|
169,232
|
|
|
198,145
|
|
|
(28,913
|
)
|
||||||
|
Benefit from (provision for) income taxes
|
3,418
|
|
(17,948
|
)
|
21,366
|
|
(17,948
|
)
|
916
|
|
(18,864
|
)
|
|||||||||||
|
Income from continuing operations before gain on sale of real estate
|
188,095
|
|
|
151,284
|
|
|
36,811
|
|
|
151,284
|
|
|
199,061
|
|
|
(47,777
|
)
|
||||||
|
Income from discontinued operations, net of tax
|
—
|
|
—
|
|
—
|
|
—
|
|
33,318
|
|
(33,318
|
)
|
|||||||||||
|
Gain on sale of real estate, net of tax
|
71,318
|
|
6,487
|
|
64,831
|
|
6,487
|
|
1,581
|
|
4,906
|
|
|||||||||||
|
Net Income from Owned Real Estate
|
259,413
|
|
|
157,771
|
|
|
101,642
|
|
|
157,771
|
|
|
233,960
|
|
|
(76,189
|
)
|
||||||
|
Net income attributable to noncontrolling interests
|
(7,060
|
)
|
(10,961
|
)
|
3,901
|
|
(10,961
|
)
|
(5,573
|
)
|
(5,388
|
)
|
|||||||||||
|
Net Income from Owned Real Estate Attributable to W. P. Carey
|
$
|
252,353
|
|
|
$
|
146,810
|
|
|
$
|
105,543
|
|
|
$
|
146,810
|
|
|
$
|
228,387
|
|
|
$
|
(81,577
|
)
|
|
W. P. Carey 2016 10-K
–
49
|
|
Property level contribution is a non-GAAP financial measure that we believe to be a useful supplemental measure for management and investors in evaluating and analyzing the financial results of our net-leased and operating properties included in our Owned Real Estate segment over time. Property level contribution presents the lease and operating property revenues, less property expenses and depreciation and amortization. We believe that Property level contribution allows for meaningful comparison between periods of the direct costs of owning and operating our net-leased assets and operating properties. When a property is leased on a net-lease basis, reimbursable tenant costs are recorded as both income and property expense and, therefore, have no impact on the Property level contribution. While we believe that Property level contribution is a useful supplemental measure, it should not be considered as an alternative to Net income from Owned Real Estate attributable to W. P. Carey as an indication of our operating performance.
Existing Net-Leased Properties
Existing net-leased properties are those that we acquired or placed into service prior to January 1, 2014 and that were not sold or held for sale during the periods presented. For the periods presented, there were
313
existing net-leased properties.
2016
vs.
2015
— For the year ended
December 31, 2016
as compared to
2015
, property level contribution from existing net-leased properties decreased by
$0.4 million
, due to a decrease in lease revenues of
$2.6 million
and an increase in depreciation and amortization expense of
$0.5 million
, partially offset by a decrease in property expenses of
$2.7 million
. Lease revenues decreased primarily due to the termination of an existing lease on a domestic property that was subsequently demolished and redeveloped into an industrial facility (
Note 5
). Property expenses decreased primarily due to the conversion of a gross lease into a triple-net lease in November 2015, which decreased non-reimbursable property expenses by $1.6 million.
2015
vs.
2014
— For the year ended
December 31, 2015
as compared to
2014
, property level contribution from existing net-leased properties decreased by
$5.4 million
, primarily due to a decrease in lease revenues of
$6.2 million
. Lease revenues decreased by
$10.9 million
as a result of a decrease in the average exchange rate of the U.S. dollar in relation to foreign currencies (primarily the euro) between the years. This decrease was partially offset by an increase of
$4.3 million
as a result of scheduled rent increases.
Net-Leased Properties Acquired in the CPA
®
:16 Merger
Net-leased properties acquired in the CPA
®
:16 Merger (
Note 3
) consists of
302
net-leased properties that were held during all periods presented.
2016
vs.
2015
— For the year ended
December 31, 2016
as compared to
2015
, property level contribution from net-leased properties acquired in the CPA
®
:16 Merger increased by
$1.9 million
, primarily due to a decrease in depreciation and amortization expense of
$5.4 million
, partially offset by a decrease in lease revenues of
$3.5 million
. The decrease in depreciation and amortization was primarily due to the acceleration of amortization of in-place lease intangibles for leases terminated during 2015. Lease revenues decreased due to a termination payment of
$3.0 million
recorded during 2015 that was amortized into lease revenues over the remaining life of the shortened lease. In addition, during the year ended December 31, 2016, we recorded an allowance for credit losses of
$7.1 million
on a direct financing lease due to a decline in the estimated amount of future payments we will receive from the tenant, including the possible early termination of the direct financing lease (
Note 6
), which was included in property expenses. During the year ended December 31, 2015, we recorded an allowance for credit losses of
$8.7 million
on this property.
2015
vs.
2014
— For the year ended
December 31, 2015
as compared to
2014
, property level contribution from net-leased properties acquired in the CPA
®
:16 Merger decreased by
$2.2 million
, primarily due to an increase in property expenses of
$7.0 million
and an increase in depreciation and amortization expense of
$4.3 million
, partially offset by an increase in lease revenues of
$9.0 million
. During the year ended December 31, 2015, we recorded an allowance for credit losses of
$8.7 million
on a direct financing lease, as described above, which was included in property expenses. Depreciation and amortization expense and lease revenues represent 12 months of activity for the year ended December 31, 2015 as compared to 11 months of activity for the year ended December 31, 2014. The additional month of depreciation and amortization expense resulted in an increase of
$8.0 million
, partially offset by a decrease of
$4.7 million
as a result of a decrease in the average exchange rate of the U.S. dollar in relation to foreign currencies (primarily the euro) between the years. The additional month of lease revenues resulted in an increase of
$22.5 million
, partially offset by a decrease of
$13.5 million
as a result of the fluctuations in foreign currency described above.
|
W. P. Carey 2016 10-K
–
50
|
|
Recently Acquired Net-Leased Properties
Recently acquired net-leased properties are those that we acquired or placed into service subsequent to December 31, 2013, excluding those acquired in the CPA
®
:16 Merger. Since January 1, 2014, we acquired
22
investments, comprised of
272
properties, and placed
one
property into service.
2016
vs.
2015
— For the year ended
December 31, 2016
as compared to
2015
, property level contribution from recently acquired net-leased properties increased by
$30.3 million
, primarily due to an increase in lease revenues of
$39.2 million
, partially offset by an increase in depreciation and amortization expense of
$8.2 million
. Lease revenues increased by
$24.7 million
as a result of the
66
properties we acquired during the year ended December 31, 2016 and by
$15.7 million
as a result of the
98
properties we acquired or placed into service during the year ended December 31, 2015. Depreciation and amortization expense increased by
$7.1 million
primarily as a result of a full year of activity for the
98
properties we acquired or placed into service during the year ended December 31, 2015.
2015
vs.
2014
— For the year ended
December 31, 2015
as compared to
2014
, property level contribution from recently acquired net-leased properties increased by
$39.4 million
, primarily due to an increase in lease revenues of
$87.4 million
, partially offset by an increase in depreciation and amortization expense of
$43.1 million
. Lease revenues increased by
$33.5 million
as a result of the
98
properties we acquired or placed into service during the year ended December 31, 2015, and by
$53.9 million
as a result of the
109
properties we acquired during the year ended December 31, 2014. Depreciation and amortization expense increased by
$14.2 million
as a result of the
98
properties we acquired or placed into service during the year ended December 31, 2015 and by
$28.9 million
primarily as a result of a full year of activity for the
109
properties we acquired during the year ended December 31, 2014.
Properties Sold or Held for Sale
Properties sold or held for sale discussed in this section represent only those properties that did not qualify for classification as discontinued operations. In addition to the impact on property level contribution related to properties we sold or classified as held for sale during the periods presented, we recognized gains and losses on sale of real estate, lease termination income, impairment charges, and a loss on extinguishment of debt. The impact of these transactions is described in further detail below. We discuss properties sold or held-for sale that did qualify for classification as discontinued operations under Other Revenues and Expenses, and Income from Discontinued Operations, Net of Tax, below and in
Note 17
.
During the year ended December 31, 2016, we sold
30
properties (one of which was held for sale at December 31, 2015) and a parcel of vacant land. We also disposed of three properties (one of which was held for sale at December 31, 2015) with an aggregate carrying value of $56.7 million, either through transferring ownership to the mortgage lender or foreclosure, in satisfaction of mortgage loans encumbering the properties totaling $92.4 million (
Note 17
).
In the fourth quarter of 2015, we executed a lease amendment with a tenant in a domestic office building. The amendment extended the lease term an additional 15 years to January 31, 2037 and provided a one-time rent payment of
$25.0 million
, which was paid to us on December 18, 2015. The lease amendment also provided an option to terminate the lease effective February 29, 2016, with additional lease termination fees of
$22.2 million
to be paid to us on or five days before February 29, 2016 upon exercise of the option. The tenant exercised the option on January 1, 2016. The aggregate of the additional rent payment of
$25.0 million
and the lease termination fees of
$22.2 million
were amortized to lease termination income from the lease amendment date on December 4, 2015 through the end of the non-cancelable lease term on February 29, 2016, resulting in
$15.0 million
recognized during the year ended December 31, 2015 and
$32.2 million
recognized during the year ended December 31, 2016 within Lease termination income and other in the consolidated financial statements. In connection with the lease amendment, we defeased the mortgage loan encumbering the property with a principal balance of
$36.5 million
, and recognized a loss on extinguishment of debt of
$5.3 million
, which was included in Other income and (expenses) in the consolidated financial statements for the year ended December 31, 2015. In addition, during the fourth quarter of 2015, we entered into an agreement to sell the property to a third party, and the buyer placed a deposit of
$12.7 million
for the purchase of the property that was held in escrow. At December 31, 2015, this property was classified as held for sale (
Note 5
). During the three months ended March 31, 2016, we sold the property for proceeds of
$44.4 million
, net of selling costs, and recognized a loss on the sale of
$10.7 million
.
During the year ended December 31, 2015, we sold 14 properties, four of which were held for sale at December 31, 2014.
|
W. P. Carey 2016 10-K
–
51
|
|
During the year ended December 31, 2014, we sold 13 properties, including a property subject to a direct financing lease that we acquired in the CPA
®
:16 Merger and a parcel of land that was conveyed to the local government.
Operating Properties
Operating properties consist of our investments in two hotels acquired in the CPA
®
:16 Merger for all periods presented.
For the years ended
December 31, 2016
,
2015
, and
2014
, property level contribution from operating properties was substantially the same.
Other Revenues and Expenses
Lease Termination Income and Other
2016
— For the year ended
December 31, 2016
, lease termination income and other was
$35.7 million
, primarily consisting of the
$32.2 million
of lease termination income related to a domestic property that was sold during the three months ended March 31, 2016, as discussed above (
Note 17
).
2015
— For the year ended
December 31, 2015
, lease termination income and other was
$25.1 million
, primarily consisting of:
|
•
|
$15.0 million of lease termination income related to the domestic property that was sold during the three months ended March 31, 2016, as described above (
Note 17
);
|
|
•
|
$2.7 million in lease termination income related to a tenant paying us at the end of the lease term for costs associated with repairs the tenant was required to make under the terms of the lease;
|
|
•
|
$2.4 million of other income in connection with the termination by the buyer of a purchase and sale agreement on one of our properties; and
|
|
•
|
$2.7 million of lease termination income due to the early termination of two leases during the first quarter of 2015.
|
2014
— For the year ended
December 31, 2014
, lease termination income and other was
$17.8 million
, primarily consisting of lease termination income from the early termination of three leases.
Impairment Charges
Where the undiscounted cash flows for an asset are less than the asset’s carrying value when considering and evaluating the various alternative courses of action that may occur, we recognize an impairment charge to reduce the carrying value of the asset to its estimated fair value. Further, when we classify an asset as held for sale, we carry the asset at the lower of its current carrying value or its fair value, less estimated cost to sell. Our impairment charges are more fully described in
Note 9
.
2016
— For the year ended December 31, 2016, we recognized impairment charges totaling
$59.3 million
to reduce the carrying values of certain assets to their estimated fair values, consisting of the following:
|
•
|
$41.0 million
recognized on a portfolio of
14
properties that were sold during 2016 (
Note 17
);
|
|
•
|
$11.4 million
, inclusive of an amount attributable to a noncontrolling interest of
$1.2 million
, recognized on four vacant properties, one of which was sold in 2016 and two of which were disposed of in January 2017 (
Note 20
); and
|
|
•
|
$7.0 million
recognized on a property that was classified as held for sale as of December 31, 2016 and sold in January 2017 (
Note 20
).
|
|
W. P. Carey 2016 10-K
–
52
|
|
2015
— For the year ended December 31, 2015, we recognized impairment charges totaling
$29.9 million
to reduce the carrying values of certain assets to their estimated fair values, consisting of the following:
|
•
|
$8.7 million recognized on a property due to the expected expiration of its related lease; this property was disposed of in January 2017 (
Note 20
);
|
|
•
|
$6.9 million recognized on a property that was demolished in accordance with a plan to redevelop the property (
Note 5
);
|
|
•
|
$6.9 million, inclusive of an amount attributable to a noncontrolling interest of $1.0 million, recognized on two properties and a parcel of vacant land that are expected to be sold; one of these properties was disposed of in January 2017 (
Note 20
);
|
|
•
|
$4.1 million
recognized on three properties that were disposed of during 2015 or 2016 (
Note 17
); and
|
|
•
|
$3.3 million recognized on five properties as a result of other-than-temporary declines in the estimated fair values of the buildings’ residual values.
|
2014
— For the year ended December 31, 2014, we recognized impairment charges totaling
$23.1 million
to reduce the carrying values of certain assets to their estimated fair values, consisting of the following:
|
•
|
$14.0 million recognized on a property as a result of the tenant not renewing its lease; this property was disposed of during 2016 (
Note 17
);
|
|
•
|
$8.5 million recognized on 13 properties that were sold; and
|
|
•
|
$0.6 million recognized on two properties as a result of other-than-temporary declines in the estimated fair values of the buildings’ residual values.
|
See Equity in earnings of equity method investments in the Managed REITs and real estate below for an additional impairment charge incurred.
General and Administrative
As discussed in
Note 4
, certain personnel costs (i.e., those not related to our senior management, our legal transactions team, our broker-dealer, or our investments team) and overhead costs are charged to the CPA
®
REITs and our Owned Real Estate Segment based on the trailing 12-month reported revenues of the Managed Programs and us, with the remainder borne by our Investment Management segment. Personnel costs related to our senior management, our legal transactions team, and our investments team are allocated to our Owned Real Estate Segment based on the trailing 12-month investment volume. We allocate personnel costs (excluding our senior management, our broker-dealer, and our investments team) and overhead costs to the CWI REITs, the Managed BDCs, and CESH I based on the time incurred by our personnel.
2016
vs.
2015
— For the year ended
December 31, 2016
as compared to
2015
, general and administrative expenses in our Owned Real Estate segment, which excludes restructuring and other compensation expenses as described below, decreased by
$13.1 million
, primarily due to an overall decline in compensation expense and professional fees as a result of the reduction in headcount, including the RIF, and other cost savings initiatives implemented during 2016. The allocation of personnel and overhead costs to our Owned Real Estate segment also declined as a result of a change in the mix of investment volume on which a portion of the allocation is based. Also contributing to the decrease were commissions to investment officers related to our owned real estate acquisitions, which decreased by
$3.4 million
during 2016 as compared to 2015, as a result of lower acquisition volume in 2016.
2015
vs.
2014
— For the year ended
December 31, 2015
as compared to
2014
, general and administrative expenses in our Owned Real Estate segment increased by
$8.9 million
, primarily due to an increase of $5.5 million in general and administrative expenses related to a shift in expenses allocable to our Owned Real Estate segment as a result of the CPA
®
:16 Merger, in accordance with the allocation formula outlined above. In addition, commissions to investment officers related to our real estate acquisitions increased by $3.4 million due to higher acquisition volume in our owned portfolio during 2015.
Stock-based Compensation Expense
For a description of our equity plans and awards, please see
Note 15
.
2016
vs.
2015
— For the year ended
December 31, 2016
as compared to
2015
, stock-based compensation expense allocated to the Owned Real Estate segment decreased by
$2.6 million
, primarily due to the reduction in restricted share units, or RSUs, and performance share units, or PSUs, outstanding as a result of the RIF (
Note 13
), as well as a reduced allocation of costs resulting
|
W. P. Carey 2016 10-K
–
53
|
|
from lower investment volume in our Owned Real Estate segment as compared to the investment volume for the Managed Programs.
2015
vs.
2014
— For the year ended
December 31, 2015
as compared to
2014
, stock-based compensation expense allocated to the Owned Real Estate segment decreased by
$4.8 million
, primarily due to the higher value of RSUs and PSUs that vested in 2014 as compared to the RSUs and PSUs granted in 2015.
Restructuring and Other Compensation
2016
— For the year ended
December 31, 2016
, we recorded total restructuring and other compensation expenses of
$11.9 million
, of which
$4.4 million
was allocated to our Owned Real Estate segment. Included in the total was
$5.1 million
of severance related to our employment agreement with our former chief executive officer and
$6.8 million
related to severance, stock-based compensation, and other costs incurred as part of the employee terminations and RIF during the year (
Note 13
).
Merger, Property Acquisition, and Other Expenses
Merger, property acquisition, and other expenses consist primarily of acquisition-related costs incurred on investments that are accounted for as business combinations, which are required to be expensed under current accounting guidance, as well as costs incurred related to the formal strategic review that we completed in May 2016 and merger-related expenses incurred in connection with the CPA
®
:16 Merger.
2016
— For the year ended
December 31, 2016
, Merger, property acquisition, and other expenses were
$3.0 million
, which consisted of advisory expenses and professional fees within our Owned Real Estate segment in connection with our formal strategic review.
2015
— For the year ended
December 31, 2015
, Merger, property acquisition, and other expenses included a reversal of $25.0 million of liabilities for German real estate transfer taxes that were previously recorded in connection with both the CPA
®
:15 Merger in September 2012 and the restructuring of a German investment, Hellweg Die Profi-Baumärkte GmbH & Co. KG, or Hellweg 2, in October 2013 (
Note 7
). Based on the German tax authority’s revocation of its previous position on the application of a ruling in Federal German tax court, the obligation to pay the transfer taxes in connection with these transactions was no longer deemed probable of occurring. This benefit was partially offset by property acquisition expenses of $11.5 million and advisory expenses and professional fees of $3.6 million incurred related to our formal strategic review.
2014
— For the year ended
December 31, 2014
, Merger, property acquisition, and other expenses were
$34.5 million
, which consisted of merger-related expenses of $30.5 million and property acquisition expenses of $4.0 million. Merger-related expenses during 2014 represent costs incurred in connection with the CPA
®
:16 Merger, which was completed on January 31, 2014.
Interest Expense
2016
vs.
2015
— For the year ended
December 31, 2016
as compared to
2015
, interest expense decreased by
$10.9 million
, primarily due to an overall decrease in our weighted-average interest rate. Our weighted-average interest rate was
3.9%
and
4.1%
during the years ended December 31, 2016 and 2015, respectively. The weighted-average interest rate of our debt decreased primarily as a result of paying off certain non-recourse mortgage loans with our Revolver, which bears interest at a lower rate than our mortgage loans (
Note 11
).
2015
vs.
2014
— For the year ended
December 31, 2015
as compared to
2014
, interest expense increased by
$16.2 million
as a result of an increase in average outstanding borrowings, partially offset by an overall decrease in our weighted-average interest rate and the impact of the weakening of foreign currencies (primarily the euro) in relation to the U.S. dollar. Average outstanding indebtedness increased to $4.6 billion during 2015 as compared to $3.7 billion during 2014. Our weighted-average interest rate decreased to 4.1% during 2015 as compared to 4.6% during 2014. The decrease in the average exchange rate of the U.S. dollar in relation to foreign currencies between the years resulted in an $8.2 million decrease in interest expense in 2015 as compared to 2014. During 2014, interest expense included $8.0 million related to the amortization of a mortgage loan premium related to an international mortgage loan that matured in December 2014.
|
W. P. Carey 2016 10-K
–
54
|
|
Equity in Earnings of Equity Method Investments in the Managed REITs and Real Estate
Equity in earnings of equity method investments in the Managed REITs and real estate is recognized in accordance with the investment agreement for each of our equity method investments. In addition, we are entitled to receive distributions of Available Cash (
Note 4
) from the operating partnerships of each of the Managed REITs. The net income of our unconsolidated investments fluctuates based on the timing of transactions, such as new leases and property sales, as well as the level of impairment charges. The following table presents the details of our Equity in earnings of equity method investments in the Managed REITs and real estate (in thousands):
|
Years Ended December 31,
|
|||||||||||
|
2016
|
2015
|
2014
|
|||||||||
|
Equity in earnings of equity method investments in the Managed REITs:
|
|||||||||||
|
Equity in earnings of equity method investments in the Managed REITs
(a) (b)
|
$
|
4,675
|
|
$
|
692
|
|
$
|
1,694
|
|
||
|
Other-than-temporary impairment charges on the Special Member Interest in CPA
®
:16 – Global’s operating partnership, net of related deferred revenue earned
(a)
|
—
|
|
—
|
|
(28
|
)
|
|||||
|
Distributions of Available Cash:
(c)
|
|||||||||||
|
CPA
®
:16 – Global
|
—
|
|
—
|
|
4,751
|
|
|||||
|
CPA
®
:17 – Global
|
24,765
|
|
24,668
|
|
20,427
|
|
|||||
|
CPA
®
:18 – Global
|
7,586
|
|
6,317
|
|
1,778
|
|
|||||
|
CWI 1
|
9,445
|
|
7,120
|
|
4,096
|
|
|||||
|
CWI 2
|
3,325
|
|
301
|
|
—
|
|
|||||
|
Equity in earnings of equity method investments in the Managed REITs
|
49,796
|
|
39,098
|
|
32,718
|
|
|||||
|
Equity in earnings of equity method investments in real estate:
|
|||||||||||
|
Equity investments acquired in the CPA
®
:16 Merger
(a) (d)
|
9,866
|
|
9,509
|
|
8,306
|
|
|||||
|
Existing equity investments
(e)
|
1,787
|
|
3,090
|
|
1,300
|
|
|||||
|
Recently acquired equity investment
(f)
|
1,275
|
|
1,275
|
|
1,018
|
|
|||||
|
Equity investments sold
|
—
|
|
—
|
|
82
|
|
|||||
|
Equity investments consolidated after the CPA
®
:16 Merger
(g)
|
—
|
|
—
|
|
692
|
|
|||||
|
Total equity in earnings of equity method investments in real estate
|
12,928
|
|
13,874
|
|
11,398
|
|
|||||
|
Total equity in earnings of equity method investments in the Managed REITs and real estate
|
$
|
62,724
|
|
$
|
52,972
|
|
$
|
44,116
|
|
||
__________
|
(a)
|
In May 2011, we acquired a special member interest, or the Special Member Interest, in CPA
®
:16 – Global’s operating partnership, which we recorded as an equity investment at fair value with an equal amount recorded as deferred revenue (
Note 3
). On January 31, 2014, we acquired all the remaining interests in CPA
®
:16 – Global through the CPA
®
:16 Merger, and as a result, we now consolidate the operating partnership. See Gain on Change in Control of Interests below for discussion on the gain recognized.
|
|
(b)
|
Increase for 2016 as compared to 2015 was primarily due to an increase of
$3.9 million
from our investment in shares of common stock of CPA
®
:17 – Global, which recognized significant gains on the sale of real estate during 2016.
|
|
(c)
|
We are entitled to receive distributions of our share of earnings up to 10% of the Available Cash from the operating partnerships of each of the Managed REITs, as defined in their respective operating partnership agreements (
Note 4
). Distributions of Available Cash received and earned from the Managed REITs increased primarily as a result of new investments that they entered into during 2016, 2015, and 2014. We ceased receiving such distributions from CPA
®
:16 – Global following the CPA
®
:16 Merger in January 2014 (
Note 3
).
|
|
(d)
|
We acquired our interests or additional interests in these investments in the CPA
®
:16 Merger in January 2014 (
Note 3
).
|
|
(e)
|
Represents equity investments we held prior to January 1,
2014
. Equity income on a jointly owned German investment increased by $2.1 million during the year ended December 31, 2015 as compared to 2014, representing our share of the bankruptcy proceeds received (
Note 7
).
|
|
(f)
|
Represents the equity investment we acquired after December 31,
2013
. During the year ended December 31, 2014, we received a preferred equity position in Beach House JV, LLC as part of a sale of a property. The preferred equity, redeemable on March 13, 2019, provides us with a preferred rate of return of 8.5% (
Note 7
).
|
|
(g)
|
We acquired additional interests in these investments in the CPA
®
:16 Merger. Subsequent to the CPA
®
:16 Merger, we consolidate these majority owned or wholly owned investments.
|
|
W. P. Carey 2016 10-K
–
55
|
|
Other Income and (Expenses)
Other income and (expenses) primarily consists of gains and losses on foreign currency transactions, derivative instruments, and extinguishment of debt. We make intercompany loans to a number of our foreign subsidiaries, most of which do not have the U.S. dollar as their functional currency. Remeasurement of foreign currency intercompany transactions that are scheduled for settlement, consisting primarily of accrued interest and short-term loans, are included in the determination of net income. We also recognize gains or losses on foreign currency transactions when we repatriate cash from our foreign investments. In addition, we have certain derivative instruments, including common stock warrants and foreign currency contracts, that are not designated as hedges for accounting purposes, for which realized and unrealized gains and losses are included in earnings. The timing and amount of such gains or losses cannot always be estimated and are subject to fluctuation.
2016
— For the year ended
December 31, 2016
, net other income was
$3.7 million
. During the year, we recognized realized gains of
$9.4 million
related to foreign currency forward contracts and foreign currency collars and unrealized gains of
$3.7 million
recognized primarily on interest rate swaps that did not qualify for hedge accounting. In addition, we recognized a gain of
$0.7 million
in our Owned Real Estate segment on the deconsolidation of an affiliate, CESH I, once it had raised a sufficient level of funds in its private placement (
Note 2
). These gains were partially offset by net realized and unrealized losses of
$6.2 million
recognized on foreign currency transactions as a result of changes in foreign currency exchange rates and a net loss on extinguishment of debt of
$4.1 million
related to the payoff of mortgage loans (
Note 11
).
2015
— For the year ended
December 31, 2015
, net other income was
$2.0 million
. During the year, we recognized realized gains of $8.0 million related to foreign currency forward contracts, unrealized gains of $4.0 million recognized on interest rate swaps that did not qualify for hedge accounting, and interest income of $1.7 million recognized on our deposits. These gains were partially offset by net realized and unrealized losses of $6.3 million recognized on foreign currency transactions as a result of changes in foreign currency exchange rates and a net loss on extinguishment of debt of $5.6 million primarily related to the disposition of a property and defeasance of a loan encumbering a property classified as held for sale.
2014
— For the year ended
December 31, 2014
, net other expenses were
$14.5 million
. During the year, we recognized net realized and unrealized losses of $9.0 million on foreign currency transactions as a result of changes in foreign currency exchange rates. In addition, we recognized a net loss on extinguishment of debt of $6.9 million in connection with the prepayment of several non-recourse mortgage loans. These losses were partially offset by unrealized gains of $3.7 million on the interest rate swaps we acquired from CPA
®
:15 in the CPA
®
:15 Merger that did not qualify for hedge accounting.
Gain on Change in Control of Interests
2014
— In connection with the CPA
®
:16 Merger, we recognized a gain on change in control of interests of $75.7 million related to the difference between the carrying value and the preliminary estimated fair value of our previously held equity interest in shares of CPA
®
:16 – Global’s common stock (
Note 3
) during 2014.
The CPA
®
:16 Merger also resulted in our acquisition of the remaining interests in nine investments in which we already had a joint interest and accounted for under the equity method. Due to the change in control of the nine jointly owned investments that occurred, we recorded a gain on change in control of interests of $30.2 million related to the difference between our carrying values and the preliminary estimated fair values of our previously held equity interests on January 31, 2014. Subsequent to the CPA
®
:16 Merger, we consolidate these wholly owned investments (
Note 3
). During the year ended December 31, 2014, one of these investments was sold.
Benefit from (Provision for) Income Taxes
2016
vs.
2015
— For the year ended
December 31, 2016
, we recorded a benefit from income taxes of
$3.4 million
, compared to a provision for income taxes of
$17.9 million
recognized during the year ended
December 31, 2015
. During 2016, we recorded
$17.2 million
of deferred tax benefits associated with basis differences on certain foreign properties, primarily resulting from the impairment charges recorded in the period on international properties (
Note 9
). In addition, current federal, foreign, and state franchise taxes decreased by
$5.9 million
due to decreases in taxable income on our domestic TRSs and foreign properties.
2015
vs.
2014
— For the year ended
December 31, 2015
, we recorded a provision for income taxes of
$17.9 million
, compared to a benefit from income taxes of
$0.9 million
recognized during the year ended
December 31, 2014
. Current income taxes increased by $10.3 million primarily due to increases in taxable income on foreign properties resulting from the reversal of prior deductions for German real estate transfer taxes and taxable income generated by foreign investments acquired during the fourth quarter of 2014. In addition, during 2014, we reversed a reserve of $3.3 million for unrecognized tax benefits due to
|
W. P. Carey 2016 10-K
–
56
|
|
expirations of the statutes of limitations. Deferred income taxes increased by $5.3 million due to changes in basis differences on certain foreign properties.
Income from Discontinued Operations, Net of Tax
The results of operations for properties that have been classified as held for sale or that have been sold prior to January 1, 2014 and the properties that were acquired as held for sale in the CPA
®
:16 Merger, and with which we have no continuing involvement, are reflected in the consolidated financial statements as discontinued operations. During 2014, we sold nine properties that were classified as held for sale prior to January 1, 2014. In connection with the CPA
®
:16 Merger, we acquired ten properties that were classified as held for sale from CPA
®
:16 – Global, all of which were sold during the year ended December 31, 2014. Results of operations for these properties are included within discontinued operations in the consolidated financial statements for all periods presented.
2014
— For the year ended December 31, 2014, income from discontinued operations, net of tax was
$33.3 million
, primarily due to a net gain on the sale of 19 properties of $27.7 million and income generated from the operations of these properties of $6.9 million in the aggregate. The income was partially offset by a net loss on extinguishment of debt of $1.2 million recognized in connection with the repayment of several mortgage loans on six of the disposed properties.
Gain on Sale of Real Estate, Net of Tax
Gain on sale of real estate, net of tax consists of gain on the sale of properties that were disposed of and that did not qualify for classification as discontinued operations (
Note 17
). Properties that were sold in 2014 that were not classified as held for sale at December 31, 2013 or upon acquisition in the CPA
®
:16 Merger did not qualify for classification as discontinued operations.
2016
— During the year ended
December 31, 2016
, we sold
30
properties and a parcel of vacant land for net proceeds of
$542.4 million
and recognized a net gain on these sales, net of tax totaling
$42.6 million
, inclusive of amounts attributable to noncontrolling interests of
$0.9 million
. In 2016, we transferred ownership of a vacant international property and the related non-recourse mortgage loan, which had a carrying value of
$39.8 million
and an outstanding balance of
$60.9 million
, respectively, on the date of transfer, to the mortgage lender, resulting in a net gain of
$16.4 million
. In addition, a vacant domestic property with an asset carrying value of
$13.7 million
, which was encumbered by a
$24.3 million
mortgage loan (net of
$2.6 million
of cash held in escrow that was retained by the mortgage lender), was foreclosed upon by the mortgage lender, resulting in a net gain of
$11.6 million
. We also transferred ownership of an international property and the related non-recourse mortgage loan to the mortgage lender. This property was held for sale at December 31, 2015 (
Note 5
). At the date of the transfer, the property had an asset carrying value of
$3.2 million
and the related non-recourse mortgage loan had an outstanding balance of
$4.5 million
, resulting in a net gain of
$0.6 million
.
2015
— During the year ended
December 31, 2015
, we sold 13 properties and recognized a net gain on these sales, net of tax totaling $5.9 million. In addition, during July 2015, a vacant domestic property was foreclosed upon and sold, and we recognized a gain of $0.6 million in connection with that disposition.
2014
— For the year ended
December 31, 2014
, loss on sale of real estate, net of tax was
$1.6 million
, primarily due to a $6.7 million gain recognized on a property in France that was foreclosed upon and sold, partially offset by a total of $5.1 million of net losses recognized on 13 properties that were sold. During the year ended December 31, 2014, we sold 16 properties, three of which were foreclosed upon, that did not qualify for classification as discontinued operations.
Net Income Attributable to Noncontrolling Interests
2016
vs.
2015
— For the year ended
December 31, 2016
as compared to
2015
, net income attributable to noncontrolling interests decreased by
$3.9 million
, primarily due to the noncontrolling interest holder’s portion of the reversal of reserves for German real estate transfer tax liabilities during 2015 discussed above, partially offset by income attributable to noncontrolling interests of
$1.5 million
recognized during 2016 related to the self-storage property that we sold during the year.
2015
vs.
2014
— For the year ended
December 31, 2015
as compared to
2014
, net income attributable to noncontrolling interests increased by
$5.4 million
, primarily due to the noncontrolling interest holder’s portion of the reversal of reserves for German real estate transfer tax liabilities during 2015 discussed above.
|
W. P. Carey 2016 10-K
–
57
|
|
Investment Management
We earn revenue as the advisor to the Managed Programs. For the periods presented, we acted as advisor to the following affiliated Managed Programs: CPA
®
:16 – Global (through January 31, 2014), CPA
®
:17 – Global, CPA
®
:18 – Global, CWI 1, CWI 2 (since February 9, 2015), CCIF (since February 27, 2015), and CESH I (since June 3, 2016).
The following tables present other operating data that management finds useful in evaluating results of operations (dollars in millions):
|
As of December 31,
|
|||||||||||
|
2016
|
2015
|
2014
|
|||||||||
|
Total properties — Managed REITs and CESH I
(a)
|
606
|
|
602
|
|
519
|
|
|||||
|
Assets under management — Managed Programs
(b)
|
$
|
12,874.8
|
|
$
|
11,045.3
|
|
$
|
9,231.8
|
|
||
|
Cumulative funds raised — CPA
®
:18 – Global offering
(c) (d)
|
1,243.5
|
|
1,243.5
|
|
1,143.1
|
|
|||||
|
Cumulative funds raised — CWI 1 offerings
(c) (e)
|
1,153.2
|
|
1,153.2
|
|
1,153.2
|
|
|||||
|
Cumulative funds raised — CWI 2 offering
(c) (f)
|
616.3
|
|
247.0
|
|
—
|
|
|||||
|
Cumulative funds raised — CCIF offering
(g)
|
125.1
|
|
2.0
|
|
—
|
|
|||||
|
Cumulative funds raised — CESH I offering
(h)
|
112.8
|
|
—
|
|
—
|
|
|||||
|
For the Years Ended December 31,
|
|||||||||||
|
2016
|
2015
|
2014
|
|||||||||
|
Financings structured — Managed REITs
|
$
|
1,362.8
|
|
$
|
1,196.9
|
|
$
|
968.0
|
|
||
|
Investments structured — Managed REITs and CESH I
(i)
|
1,558.9
|
|
2,533.9
|
|
1,880.1
|
|
|||||
|
Funds raised — CPA
®
:18 – Global offering
(c) (d)
|
—
|
|
100.4
|
|
905.8
|
|
|||||
|
Funds raised — CWI 1 offerings
(c) (e)
|
—
|
|
—
|
|
577.4
|
|
|||||
|
Funds raised — CWI 2 offering
(c) (f)
|
369.3
|
|
247.0
|
|
—
|
|
|||||
|
Funds raised — CCIF offering
(g)
|
123.1
|
|
2.0
|
|
—
|
|
|||||
|
Funds raised — CESH I offering
(h)
|
112.8
|
|
—
|
|
—
|
|
|||||
__________
|
(a)
|
Includes properties owned by CPA
®
:17 – Global and CPA
®
:18 – Global for all periods. Includes hotels owned by CWI 1 for all periods. Includes hotels owned by CWI 2 at December 31, 2016 and 2015. Includes properties owned by CESH I at December 31, 2016.
|
|
(b)
|
Represents the estimated fair value of the real estate assets owned by the Managed REITs, which was calculated by us as the advisor to the Managed REITs based in part upon third-party appraisals, plus cash and cash equivalents, less distributions payable. Amounts as of December 31, 2016 and 2015 include the fair value of the investment assets, plus cash, owned by CCIF. Amount as of December 31, 2016 also includes the fair value of the investment assets, plus cash, owned by CESH I.
|
|
(c)
|
Excludes reinvested distributions through each entity’s distribution reinvestment plan.
|
|
(d)
|
Reflects funds raised from CPA
®
:18 – Global’s initial public offering, which commenced in May 2013 and closed in April 2015.
|
|
(e)
|
Reflects funds raised in CWI 1’s initial public offering, which closed in September 2013, and CWI 1’s follow-on offering, which commenced in December 2013 and closed in December 2014.
|
|
(f)
|
Reflects funds raised from CWI 2’s initial public offering, which commenced in February 2015.
|
|
(g)
|
We began to raise funds on behalf of the CCIF Feeder Funds in the fourth quarter of 2015. Amount represents funding from the CCIF Feeder Funds to CCIF.
|
|
(h)
|
Reflects funds raised from CESH I’s private placement, which commenced in July 2016 (
Note 4
).
|
|
(i)
|
Includes acquisition-related costs.
|
|
W. P. Carey 2016 10-K
–
58
|
|
Below is a summary of comparative results of our Investment Management segment (in thousands):
|
Years Ended December 31,
|
|||||||||||||||||||||||
|
2016
|
2015
|
Change
|
2015
|
2014
|
Change
|
||||||||||||||||||
|
Revenues
|
|||||||||||||||||||||||
|
Reimbursable costs from affiliates
|
$
|
66,433
|
|
$
|
55,837
|
|
$
|
10,596
|
|
$
|
55,837
|
|
$
|
130,212
|
|
$
|
(74,375
|
)
|
|||||
|
Asset management revenue
|
61,971
|
|
49,984
|
|
11,987
|
|
49,984
|
|
38,063
|
|
11,921
|
|
|||||||||||
|
Structuring revenue
|
47,328
|
|
92,117
|
|
(44,789
|
)
|
92,117
|
|
71,256
|
|
20,861
|
|
|||||||||||
|
Dealer manager fees
|
8,002
|
|
4,794
|
|
3,208
|
|
4,794
|
|
23,532
|
|
(18,738
|
)
|
|||||||||||
|
Other advisory revenue
|
2,435
|
|
203
|
|
2,232
|
|
203
|
|
—
|
|
203
|
|
|||||||||||
|
186,169
|
|
202,935
|
|
(16,766
|
)
|
202,935
|
|
263,063
|
|
(60,128
|
)
|
||||||||||||
|
Operating Expenses
|
|||||||||||||||||||||||
|
Reimbursable costs from affiliates
|
66,433
|
|
55,837
|
|
10,596
|
|
55,837
|
|
130,212
|
|
(74,375
|
)
|
|||||||||||
|
General and administrative
|
47,761
|
|
55,496
|
|
(7,735
|
)
|
55,496
|
|
52,791
|
|
2,705
|
|
|||||||||||
|
Subadvisor fees
|
14,141
|
|
11,303
|
|
2,838
|
|
11,303
|
|
5,501
|
|
5,802
|
|
|||||||||||
|
Dealer manager fees and expenses
|
12,808
|
|
11,403
|
|
1,405
|
|
11,403
|
|
21,760
|
|
(10,357
|
)
|
|||||||||||
|
Stock-based compensation expense
|
12,791
|
|
13,753
|
|
(962
|
)
|
13,753
|
|
18,416
|
|
(4,663
|
)
|
|||||||||||
|
Restructuring and other compensation
|
7,512
|
|
—
|
|
7,512
|
|
—
|
|
—
|
|
—
|
|
|||||||||||
|
Depreciation and amortization
|
4,236
|
|
4,079
|
|
157
|
|
4,079
|
|
4,024
|
|
55
|
|
|||||||||||
|
Property acquisition and other expenses
|
2,384
|
|
2,144
|
|
240
|
|
2,144
|
|
—
|
|
2,144
|
|
|||||||||||
|
168,066
|
|
154,015
|
|
14,051
|
|
154,015
|
|
232,704
|
|
(78,689
|
)
|
||||||||||||
|
Other Income and Expenses
|
|||||||||||||||||||||||
|
Other income and (expenses)
|
2,002
|
|
161
|
|
1,841
|
|
161
|
|
275
|
|
(114
|
)
|
|||||||||||
|
Equity in earnings (losses) of equity method investment in CCIF
|
1,995
|
|
(1,952
|
)
|
3,947
|
|
(1,952
|
)
|
—
|
|
(1,952
|
)
|
|||||||||||
|
3,997
|
|
(1,791
|
)
|
5,788
|
|
(1,791
|
)
|
275
|
|
(2,066
|
)
|
||||||||||||
|
Income from continuing operations before income taxes
|
22,100
|
|
47,129
|
|
(25,029
|
)
|
47,129
|
|
30,634
|
|
16,495
|
|
|||||||||||
|
Provision for income taxes
|
(6,706
|
)
|
(19,673
|
)
|
12,967
|
|
(19,673
|
)
|
(18,525
|
)
|
(1,148
|
)
|
|||||||||||
|
Net Income from Investment Management
|
15,394
|
|
27,456
|
|
(12,062
|
)
|
27,456
|
|
12,109
|
|
15,347
|
|
|||||||||||
|
Net income attributable to noncontrolling interests
|
—
|
|
(2,008
|
)
|
2,008
|
|
(2,008
|
)
|
(812
|
)
|
(1,196
|
)
|
|||||||||||
|
Net loss attributable to redeemable noncontrolling interest
|
—
|
|
—
|
|
—
|
|
—
|
|
142
|
|
(142
|
)
|
|||||||||||
|
Net Income from Investment Management Attributable to W. P. Carey
|
$
|
15,394
|
|
$
|
25,448
|
|
$
|
(10,054
|
)
|
$
|
25,448
|
|
$
|
11,439
|
|
$
|
14,009
|
|
|||||
Reimbursable Costs from Affiliates
Reimbursable costs from affiliates represent costs incurred by us on behalf of the Managed Programs, consisting primarily of broker-dealer commissions and marketing and personnel costs, which are reimbursed by the Managed Programs and are reflected as a component of both revenues and expenses.
2016
vs.
2015
— For the year ended
December 31, 2016
as compared to
2015
, reimbursable costs increased by
$10.6 million
, primarily due to an increase of
$12.8 million
of commissions paid to broker-dealers related to CWI 2’s initial public offering, which began in February 2015; an increase of
$8.0 million
of commissions paid to broker-dealers related to CESH I’s private placement, which began in July 2016; and
$4.8 million
of commissions paid to broker-dealers related to the sale of two of the CCIF Feeder Funds’ shares, which began in the fourth quarter of 2015. These increases were partially offset by the cessation of commissions paid to broker-dealers related to the CPA
®
:18 – Global initial public offering, which closed in April 2015, and totaled
$13.1 million
in that year; and a decrease of
$2.7 million
in personnel costs reimbursed to us by the Managed Programs.
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|
|
2015
vs.
2014
— For the year ended
December 31, 2015
as compared to
2014
, reimbursable costs decreased by
$74.4 million
, primarily due to decreases of $53.2 million in commissions paid to broker-dealers related to the CPA
®
:18 – Global initial public offering, which closed in April 2015. In addition, commissions paid to broker-dealers related to CWI 1’s follow-on offering, which closed in December 2014, were $46.4 million during 2014. These decreases were partially offset by $16.3 million of commissions paid to broker-dealers during 2015 related to CWI 2’s initial public offering, which began in February 2015, and increases in personnel costs reimbursed by the Managed REITs of $4.4 million during 2015 as compared to 2014, primarily due to additional headcount.
Asset Management Revenue
We earn asset management revenue from the Managed REITs based on the value of their real estate-related and lodging-related assets under management. We also earn asset management revenue from CCIF based on the average of its gross assets at fair value and from CESH I based on its gross assets at fair value. This asset management revenue may increase or decrease depending upon (i) increases in the Managed Programs’ asset bases as a result of new investments; (ii) decreases in the Managed Programs’ asset bases as a result of sales of investments; (iii) increases or decreases in the appraised value of the real estate-related and lodging-related assets in the investment portfolios of the Managed REITs and CESH I; and (iv) increases or decreases in the fair value of CCIF’s investment portfolio.
2016
vs.
2015
— For the year ended
December 31, 2016
as compared to
2015
, asset management revenue increased by
$12.0 million
as a result of the growth in assets under management due to investments acquired during 2016. Asset management revenue increased by
$3.4 million
from CWI 2,
$3.1 million
from CCIF,
$2.5 million
from CPA
®
:18 – Global,
$2.4 million
from CWI 1, and
$0.5 million
from CPA
®
:17 – Global.
2015
vs.
2014
— For the year ended
December 31, 2015
as compared to
2014
, asset management revenue increased by
$11.9 million
as a result of the growth in assets under management due to investments acquired during 2015. Asset management revenue increased by $5.0 million from CPA
®
:18 – Global, $4.5 million from CWI 1, and $2.6 million from CPA
®
:17 – Global. Additionally, asset management revenue from CWI 2 was $1.0 million during 2015 as a result of new investments that it entered into since the commencement of its offering in February 2015. Asset management revenue from CCIF was $0.4 million during 2015. These increases were partially offset by a decrease of $1.4 million as a result of the cessation of asset management revenue earned from CPA
®
:16 – Global after the CPA
®
:16 Merger on January 31, 2014.
Structuring Revenue
We earn structuring revenue when we structure investments and debt placement transactions for the Managed REITs and CESH I. Structuring revenue is dependent on investment activity, which is subject to significant period-to-period variation.
2016
vs.
2015
— For the year ended
December 31, 2016
as compared to
2015
, structuring revenue decreased by
$44.8 million
. Structuring revenue from CPA
®
:18 – Global, CWI 1, and CPA
®
:17 – Global decreased by
$42.2 million
,
$14.3 million
, and
$4.5 million
, respectively, as a result of lower investment volume in 2016 as compared to 2015, partially offset by an increase of
$15.4 million
in structuring revenue from CWI 2, which completed
six
investments during 2016. We also recognized
$0.8 million
of structuring revenue during 2016 from CESH I, which completed
three
investments during the year.
2015
vs.
2014
— For the year ended
December 31, 2015
as compared to
2014
, structuring revenue increased by
$20.9 million
, primarily due to increases of $7.6 million and $5.3 million in structuring revenue earned from CPA
®
:18 – Global and CPA
®
:17 – Global, respectively, as a result of higher investment volume in 2015 as compared to 2014. We also recognized $8.1 million of structuring revenue during 2015 from CWI 2, which completed its first investment on April 1, 2015.
Dealer Manager Fees
As discussed in
Note 4
, we earn a dealer manager fee, depending on the class of common stock sold, of $0.30 or $0.26 per share sold, for the class A common stock and class T common stock, respectively, in connection with CWI 2’s initial public offering, which began in February 2015. We also earned a $0.30 dealer manager fee per share sold in connection with CWI 1’s follow-on offering, which began in December 2013 and terminated in December 2014. In addition, we received dealer manager fees, depending on the class of common stock sold, of $0.30 or $0.21 per share sold, for the class A common stock and class C common stock, respectively, in connection with CPA
®
:18 – Global’s initial public offering, which commenced in May 2013 and closed in April 2015. We receive dealer manager fees of 2.75% - 3.0% based on the selling price of each share sold in connection with the offerings of the CCIF Feeder Funds, which began in the fourth quarter of 2015. We also receive dealer manager fees of up to 3.0% of gross offering proceeds based on the selling price of each limited partnership unit sold in
|
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–
60
|
|
connection with CESH I’s private placement. We may re-allow a portion of the dealer manager fees to selected dealers in the offerings. Dealer manager fees that were not re-allowed were classified as Dealer manager fees from affiliates in the consolidated financial statements. Dealer manager fees earned are generally offset by costs incurred in connection with the offerings, which are included in Dealer manager fees and expenses in the consolidated financial statements.
2016
vs.
2015
— For the year ended
December 31, 2016
as compared to
2015
, dealer manager fees increased by
$3.2 million
, primarily due to an increase of
$1.8 million
in fees earned in connection with the sale of shares of the CCIF Feeder Funds,
$1.5 million
in fees earned in 2016 in connection with the sale of limited partnership units of CESH I in its private placement, and an increase of
$1.2 million
in fees earned in connection with the sale of CWI 2 shares in its initial public offering. These increases were partially offset by the cessation of fees earned in connection with the sale of CPA
®
:18 – Global shares in its initial public offering due to the closing of the offering in April 2015, which totaled
$1.3 million
in that year.
2015
vs.
2014
— For the year ended
December 31, 2015
as compared to
2014
, dealer manager fees decreased by
$18.7 million
, substantially due to a decrease of $12.8 million in fees earned in connection with the sale of CPA
®
:18 – Global shares in its initial public offering, primarily resulting from the cessation of sales of its class A shares in June 2014 as well as the closing of the offering in April 2015. In addition, dealer manager fees earned in connection with CWI 1’s follow-on offering, which closed in December 2014, were $9.4 million during the year ended December 31, 2014. These decreases were partially offset by $3.4 million of commissions paid to broker-dealers related to CWI 2’s initial public offering during the year ended December 31, 2015.
Other Advisory Revenue
Under the limited partnership agreement we have with CESH I, we pay all organization and offering costs on behalf of CESH I, and instead of being reimbursed by CESH I on a dollar-for-dollar basis for those costs, we receive limited partnership units of CESH I equal to
2.5%
of its gross offering proceeds.
2016
— For the year ended
December 31, 2016
, other advisory revenue was
$2.4 million
, reflecting the limited partnership units of CESH I we received following the deconsolidation of CESH I in August 2016 (
Note 2
) in connection with CESH I’s private placement, which commenced in July 2016.
General and Administrative
As discussed in
Note 4
, certain personnel costs (i.e., those not related to our senior management, our legal transactions team, our broker-dealer, or our investments team) and overhead costs are charged to the CPA
®
REITs and our Owned Real Estate Segment based on the trailing 12-month reported revenues of the Managed Programs and us, with the remainder borne by our Investment Management segment. Personnel costs related to our senior management, our legal transactions team, and our investments team are allocated to our Owned Real Estate Segment based on the trailing 12-month investment volume. We allocate personnel costs (excluding our senior management, our broker-dealer, and our investments team) and overhead costs to the CWI REITs, the Managed BDCs, and CESH I based on the time incurred by our personnel.
2016
vs.
2015
— For the year ended
December 31, 2016
as compared to
2015
, general and administrative expenses in our Investment Management segment, which excludes restructuring and other compensation expenses as described below, decreased by
$7.7 million
, primarily due to an overall decline in compensation expense and professional fees as a result of a reduction in headcount, including the RIF, and other cost savings initiatives implemented during 2016. Also contributing to the decrease were lower commissions to investment officers, which decreased by
$5.2 million
, resulting from lower investment volume on behalf of the Managed Programs in 2016 as compared to 2015.
2015
vs.
2014
— For the year ended
December 31, 2015
as compared to
2014
, general and administrative expenses in our Investment Management segment increased by
$2.7 million
, primarily due to an increase in compensation expense of $6.0 million resulting from additional headcount attributable to the increased activities of the Managed Programs. This increase was partially offset by a decrease of $2.8 million in other general and administrative expenses allocable to the Investment Management segment resulting from the CPA
®
:16 Merger.
Subadvisor Fees
As discussed in
Note 4
, we earn investment management revenue from CWI 1, CWI 2, and CPA
®
:18 – Global. Pursuant to the terms of the subadvisory agreements we have with the third-party subadvisors in connection with both CWI 1 and CWI 2, we pay a subadvisory fee equal to 20% of the amount of fees paid to us by CWI 1 and 25% of the amount of fees paid to us by
|
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–
61
|
|
CWI 2, including but not limited to: acquisition fees, asset management fees, loan refinancing fees, property management fees, and subordinated disposition fees, each as defined in the advisory agreements we have with each of CWI 1 and CWI 2. We also pay to each subadvisor 20% and 25% of the net proceeds resulting from any sale, financing, or recapitalization or sale of securities of CWI 1 and CWI 2, respectively, by us, the advisor. In addition, in connection with the multi-family properties acquired on behalf of CPA
®
:18 – Global, we entered into agreements with third-party advisors for the acquisition and day-to-day management of the properties, for which we pay
30%
of the initial acquisition fees and
100%
of asset management fees paid to us by CPA
®
:18 – Global.
2016
vs.
2015
— For the year ended
December 31, 2016
as compared to
2015
, subadvisor fees increased by
$2.8 million
, primarily due to an increase of
$5.5 million
as a result of an increase in fees earned from CWI 2, which completed
six
investments during 2016, and an increase of
$1.5 million
as a result of an increase in fees earned from CCIF. These increases were partially offset by a decrease of
$2.4 million
as a result of a decrease in fees earned from CWI 1 due its lower investment volume, and a decrease of
$1.8 million
as a result of a decrease in fees earned from CPA
®
:18 – Global due to lower multi-family property investment volume in 2016 as compared to 2015.
2015
vs.
2014
— For the year ended
December 31, 2015
as compared to
2014
, subadvisor fees increased by
$5.8 million
, primarily as a result of $2.7 million of fees incurred related to CPA
®
:18 – Global’s acquisitions of several multi-family properties during 2015 and $2.5 million of fees incurred related to CWI 2’s acquisitions and operations, which commenced in April 2015.
Dealer Manager Fees and Expenses
Dealer manager fees earned in the offerings that we manage for the Managed Programs are generally offset by costs incurred in connection with the offerings, which are included in Dealer manager fees and expenses in the consolidated financial statements.
2016
vs.
2015
— For the year ended
December 31, 2016
as compared to
2015
, dealer manager fees and expenses increased by
$1.4 million
, primarily due to an increase of
$2.9 million
in expenses paid in connection with the sale of shares of the CCIF Feeder Funds and an increase of
$2.2 million
in expenses paid during 2016 in connection with the sale of limited partnership units of CESH I in its private placement. These increases were partially offset by expenses of
$2.8 million
that were paid during 2015 in connection with the sale of CPA
®
:18 – Global shares in its initial public offering, which closed in April 2015, and a decrease of
$0.9 million
in expenses paid in connection with the CWI 2 initial public offering, which began to admit stockholders in May 2015.
2015
vs.
2014
— For the year ended
December 31, 2015
as compared to
2014
, dealer manager fees and expenses decreased by
$10.4 million
, primarily due to a decrease of $11.7 million in expenses paid in connection with the sale of CPA
®
:18 – Global shares in its initial public offering as a result of a corresponding decrease in funds raised, substantially due to the cessation of sales of its class A shares in June 2014, as well as the closing of its offering in April 2015. In addition, expenses paid in connection with the sale of CWI 1 shares in its follow-on offering, which closed in December 2014, totaled $7.1 million during 2014. These decreases were partially offset by $8.3 million in expenses paid in connection with the CWI 2 initial public offering, which began to admit stockholders in May 2015.
Stock-based Compensation Expense
For a description of our equity plans and awards, please see
Note 15
.
2016
vs.
2015
— For the year ended
December 31, 2016
as compared to
2015
, stock-based compensation expense allocated to the Investment Management segment decreased by
$1.0 million
, primarily due to a reduction in RSUs and PSUs outstanding as a result of the RIF (
Note 13
).
2015
vs.
2014
— For the year ended
December 31, 2015
as compared to
2014
, stock-based compensation expense allocated to the Investment Management segment decreased by
$4.7 million
, primarily due to the higher value of RSUs and PSUs that vested in 2014 as compared to the RSUs and PSUs granted in February 2015.
Restructuring and Other Compensation
2016
— For the year ended
December 31, 2016
, we recorded total restructuring and other compensation expenses of
$11.9 million
, of which
$7.5 million
was allocated to our Investment Management segment. Included in the total was
$5.1 million
of
|
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–
62
|
|
severance related to our employment agreement with our former chief executive officer and
$6.8 million
related to severance, stock-based compensation, and other costs incurred as part of the RIF during the year (
Note 13
).
Property Acquisition and Other Expenses
2016
— For the year ended
December 31, 2016
, we incurred advisory expenses and professional fees of
$2.4 million
within our Investment Management segment in connection with the formal strategic review that we completed in May 2016.
2015
— For the year ended
December 31, 2015
, we incurred advisory expenses and professional fees of
$2.1 million
within our Investment Management in connection with our formal strategic review.
Other Income and (Expenses)
2016
— For the year ended
December 31, 2016
, we recognized a gain of
$1.2 million
in our Investment Management segment on the deconsolidation of CESH I (
Note 2
).
Equity in Earnings (Losses) of Equity Method Investment in CCIF
In December 2014, we acquired a $25.0 million interest in CCIF (
Note 7
).
2016
vs.
2015
— For the year ended
December 31, 2016
, we recognized equity in earnings of equity method investment in CCIF of
$2.0 million
, compared to equity in losses of equity method investment in CCIF of
$2.0 million
for the year ended
December 31, 2015
. Equity in earnings recognized during 2016 reflected an increase in the fair value of investments owned by CCIF. Equity in losses recognized during 2015 reflected a decrease in the fair value of investments owned by CCIF.
Provision for
Income Taxes
2016
vs.
2015
— For the year ended
December 31, 2016
as compared to
2015
, provision for income taxes decreased by
$13.0 million
, primarily due to a decrease in pre-tax income recognized by the TRSs in our Investment Management segment, for the reasons described above.
2015
vs.
2014
— For the year ended
December 31, 2015
as compared to
2014
, provision for income taxes increased by
$1.1 million
. Higher pre-tax income recognized by the TRSs in our Investment Management segment resulted in a $5.9 million increase in provision for income taxes. This increase was partially offset by $4.8 million of income taxes recognized during the year ended December 31, 2014 as a result of the recognition of taxable income associated with accelerated vesting of shares previously issued by CPA
®
:16 – Global for asset management and performance fees in connection with the CPA
®
:16 Merger.
Liquidity and Capital Resources
Sources and Uses of Cash During the Year
We use the cash flow generated from our investments primarily to meet our operating expenses, service debt, and fund distributions to stockholders. Our cash flows fluctuate periodically due to a number of factors, which may include, among other things: the timing of our equity and debt offerings; the timing of purchases and sales of real estate; the timing of the receipt of proceeds from, and the repayment of, mortgage loans and receipt of lease revenues; the receipt of the annual installment of deferred acquisition revenue and interest thereon from the CPA
®
REITs; the receipt of the asset management fees in either shares of the common stock or limited partnership units of the Managed Programs or cash; the timing and characterization of distributions from equity investments in the Managed Programs and real estate; the receipt of distributions of Available Cash from the Managed REITs; and changes in foreign currency exchange rates. Despite these fluctuations, we believe that we will generate sufficient cash from operations to meet our normal recurring short-term and long-term liquidity needs. We may also use existing cash resources, unused capacity under our Amended Credit Facility, proceeds from dispositions of properties, proceeds of mortgage loans, net contributions from noncontrolling interests, and the issuance of additional debt or equity securities, such as sales of our stock through our ATM program, in order to meet these needs. We assess our ability to access capital on an ongoing basis. Our sources and uses of cash during the period are described below.
|
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–
63
|
|
2016
Operating Activities
— Net cash provided by operating activities increased by
$40.5 million
during 2016 as compared to 2015, primarily due to the lease termination income received in connection with the sale of a property during 2016, an increase in operating cash flow generated from properties we acquired or placed into service since January 1, 2015, and an increase in distributions of Available Cash received from the Managed REITs. These increases were partially offset by a decrease in structuring revenue received in cash from the Managed Programs as a result of their lower investment volume during 2016.
Investing Activities
— Our investing activities are generally comprised of real estate-related transactions (purchases and sales) and capitalized property-related costs.
During 2016, we sold 30 properties and a parcel of vacant land for net proceeds of
$542.4 million
. We used
$531.7 million
to acquire three investments and
$56.6 million
primarily to fund expansions on our existing properties. We used
$257.5 million
to fund short-term loans to the Managed Programs (
Note 4
), of which
$37.1 million
was repaid during 2016. We used
$7.9 million
to invest in capital expenditures for owned real estate. We also received
$6.5 million
in distributions from equity investments in the Managed Programs and real estate in excess of cumulative equity income.
Financing Activities
— During 2016, gross borrowings under our Senior Unsecured Credit Facility were
$1.2 billion
and repayments were
$954.0 million
. We received
$348.9 million
in net proceeds from the issuance of the 4.25% Senior Notes in September 2016, which we used primarily to pay down the outstanding balance on our Revolver at that time (
Note 11
). In connection with the issuances of those notes, we incurred financing costs totaling
$3.6 million
. Also in 2016, we paid distributions to stockholders totaling
$416.7 million
related to the fourth quarter of 2015 and the first, second, and third quarters of 2016; and also paid distributions of
$17.0 million
to affiliates who hold noncontrolling interests in various entities with us. We also made prepaid and scheduled non-recourse mortgage loan principal payments of
$321.7 million
and
$161.1 million
, respectively. We received
$84.1 million
in net proceeds from the issuance of shares under our ATM program (
Note 14
). We recognized windfall tax benefits of
$6.7 million
in connection with the exercise of employee stock options and the vesting of PSUs and RSUs, which reduced our tax liability to various taxing authorities.
2015
Operating Activities
— Net cash provided by operating activities increased by $78.2 million during 2015 as compared to 2014, primarily due to operating cash flow generated from properties we acquired during 2014 and 2015, including the properties we acquired in the CPA
®
:16 Merger in January 2014, as well as increases in structuring revenue and asset management revenue received in cash from the Managed REITs.
Investing Activities
— Our investing activities are generally comprised of real estate-related transactions (purchases and sales) and capitalized property-related costs.
During 2015, we used $674.8 million to acquire nine investments and $28.0 million primarily to fund a build-to-suit transaction. We sold 13 properties for net proceeds of $35.6 million. Net funds that were invested in and released from lender-held investment accounts totaled $26.6 million. We used $185.4 million to fund loans to the Managed Programs (
Note 4
), all of which were repaid during 2015. We received $10.4 million from the repayment of a note receivable from a third party. We also received $8.2 million in distributions from equity investments in the Managed Programs and real estate in excess of cumulative equity income and made $16.2 million in contributions to jointly owned investments to repay the related non-recourse mortgage loans.
Financing Activities
— During 2015, gross borrowings under our Senior Unsecured Credit Facility were $1.0 billion and repayments were $1.3 billion. We received $1.0 billion in net proceeds from the issuances of the 2.0% Senior Notes and 4.0% Senior Notes in January 2015, which we used primarily to pay off the outstanding balance on our Revolver at that time (
Note 11
). In connection with the issuances of the aforementioned notes, and the exercise of the existing accordion feature under the Senior Unsecured Credit Facility at that time (
Note 11
), we incurred financing costs totaling $10.9 million. During 2015, we also made scheduled and prepaid mortgage loan principal payments of $90.3 million and $91.6 million, respectively, and drew down $22.7 million on a construction loan in relation to a build-to-suit transaction. Also in 2015, we paid distributions to stockholders of $403.6 million, related to the fourth quarter of 2014 and the first, second, and third quarters of 2015; and also paid distributions of $14.7 million to affiliates who hold noncontrolling interests in various entities with us. We recognized windfall tax benefits of $12.5 million in connection with the exercise of employee stock options and the vesting of PSUs and RSUs, which reduced our tax liability to various taxing authorities.
|
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–
64
|
|
Summary of Financing
The table below summarizes our non-recourse debt, our Senior Unsecured Notes, and our Senior Unsecured Credit Facility (dollars in thousands):
|
December 31,
|
|||||||
|
2016
|
2015
|
||||||
|
Carrying Value
|
|||||||
|
Fixed rate:
|
|||||||
|
Senior Unsecured Notes
(a)
|
$
|
1,807,200
|
|
$
|
1,476,084
|
|
|
|
Non-recourse mortgage loans
(a)
|
1,406,222
|
|
1,942,528
|
|
|||
|
3,213,422
|
|
3,418,612
|
|
||||
|
Variable rate:
|
|||||||
|
Revolver
|
676,715
|
|
485,021
|
|
|||
|
Term Loan Facility
(a)
|
249,978
|
|
249,683
|
|
|||
|
Non-recourse debt
(a)
:
|
|||||||
|
Amount subject to interest rate swaps and cap
|
158,765
|
|
283,441
|
|
|||
|
Floating interest rate mortgage loans
|
141,934
|
|
43,452
|
|
|||
|
1,227,392
|
|
1,061,597
|
|
||||
|
$
|
4,440,814
|
|
$
|
4,480,209
|
|
||
|
Percent of Total Debt
|
|||||||
|
Fixed rate
|
72
|
%
|
76
|
%
|
|||
|
Variable rate
|
28
|
%
|
24
|
%
|
|||
|
|
100
|
%
|
100
|
%
|
|||
|
Weighted-Average Interest Rate at End of Year
|
|||||||
|
Fixed rate
|
4.5
|
%
|
4.8
|
%
|
|||
|
Variable rate
(b)
|
1.9
|
%
|
2.1
|
%
|
|||
____________
|
(a)
|
In accordance with ASU 2015-03, we reclassified deferred financing costs from Other assets, net to Non-recourse debt, net, Senior Unsecured Notes, net, and Senior Unsecured Credit Facility - Term Loan, net as of December 31, 2015 (
Note 2
). Aggregate debt balance includes unamortized deferred financing costs totaling
$13.4 million
and
$12.6 million
as of
December 31, 2016
and
2015
, respectively.
|
|
(b)
|
The impact of our derivative instruments is reflected in the weighted-average interest rates.
|
Cash Resources
At
December 31, 2016
, our cash resources consisted of the following:
|
•
|
cash and cash equivalents totaling
$155.5 million
. Of this amount,
$48.5 million
, at then-current exchange rates, was held in foreign subsidiaries, and we could be subject to restrictions or significant costs should we decide to repatriate these amounts;
|
|
•
|
our Revolver, with unused capacity of
$823.3 million
, excluding amounts reserved for outstanding letters of credit; and
|
|
•
|
unleveraged properties that had an aggregate carrying value of
$3.2 billion
at
December 31, 2016
, although there can be no assurance that we would be able to obtain financing for these properties.
|
We also have the ability to access the capital markets, in the form of additional debt and/or equity offerings, such as the
$350.0 million
of 4.25% Senior Notes issued in September 2016 (
Note 11
), the €500.0 million of 2.25% Senior Notes issued in January 2017 (
Note 20
), and our ATM program, if necessary. During
2016
, we issued
1,249,836
shares of our common stock under the ATM program at a weighted-average price of
$68.52
per share, for net proceeds of
$84.4 million
(
Note 14
). In addition, we paid
$0.3 million
of professional fees during 2016 related to the ATM program. As of
December 31, 2016
,
$314.4 million
remained available for issuance under our ATM offering program.
|
W. P. Carey 2016 10-K
–
65
|
|
Senior Unsecured Credit Facility
Our Senior Unsecured Credit Facility is more fully described in
Note 11
. A summary of our Senior Unsecured Credit Facility is provided below (in thousands):
|
December 31, 2016
|
December 31, 2015
|
||||||||||||||
|
Outstanding Balance
|
Maximum Available
|
Outstanding Balance
|
Maximum Available
|
||||||||||||
|
Revolver
|
$
|
676,715
|
|
$
|
1,500,000
|
|
$
|
485,021
|
|
$
|
1,500,000
|
|
|||
|
Term Loan Facility
(a)
|
250,000
|
|
250,000
|
|
250,000
|
|
250,000
|
|
|||||||
__________
|
(a)
|
Outstanding balance excludes unamortized deferred financing costs of less than
$0.1 million
and
$0.3 million
at
December 31, 2016
and
2015
, respectively.
|
Our cash resources can be used for working capital needs and other commitments and may be used for future investments.
Cash Requirements
During the next 12 months, we expect that our cash requirements will include payments to acquire new investments, funding capital commitments such as build-to-suit projects, paying distributions to our stockholders and to our affiliates that hold noncontrolling interests in entities we control, making scheduled interest payments on the Senior Unsecured Notes, scheduled mortgage loan principal payments, including mortgage balloon payments on our consolidated mortgage loan obligations, and prepayments of our consolidated mortgage loan obligations, as well as other normal recurring operating expenses. In January 2017, we repaid or extinguished
six
non-recourse mortgage loans with an aggregate principal balance of approximately
$305.4 million
, including mortgage loans totaling
$243.8 million
, inclusive of amounts attributable to a noncontrolling interest of
$89.0 million
, encumbering the Hellweg 2 portfolio (
Note 20
).
We expect to fund future investments, build-to-suit commitments, any capital expenditures on existing properties, scheduled debt maturities on non-recourse mortgage loans, and any loans to certain of the Managed Programs (
Note 4
) through cash generated from operations, cash received from dispositions of properties, the use of our cash reserves or unused amounts on our Revolver, and/or additional equity or debt offerings. On January 19, 2017, we completed a public offering of
€500.0 million
of 2.25% Senior Notes, at a price of
99.448%
of par value (
Note 20
). On February 22, 2017, we entered into our Amended Credit Facility and increased the capacity of our unsecured line of credit to
$1.85 billion
, which is comprised of a
$1.5 billion
revolving line of credit, a
€236.3 million
term loan, and a
$100.0 million
delayed draw term loan. The revolving line of credit will mature in
four
years, the term loan will mature in
five
years, and the delayed draw term loan will also mature in
five
years (
Note 20
).
Our liquidity would be adversely affected by unanticipated costs and greater-than-anticipated operating expenses. To the extent that our working capital reserve is insufficient to satisfy our cash requirements, additional funds may be provided from cash from operations and from equity distributions in excess of equity income in real estate to meet our normal recurring short-term and long-term liquidity needs. We may also use existing cash resources, the proceeds of mortgage loans, unused capacity on our Revolver, net contributions from noncontrolling interests, and the issuance of additional debt or equity securities, such as through our ATM program, to meet these needs.
|
W. P. Carey 2016 10-K
–
66
|
|
Off-Balance Sheet Arrangements and Contractual Obligations
The table below summarizes our debt, off-balance sheet arrangements, and other contractual obligations (primarily our capital commitments and lease obligations) at
December 31, 2016
and the effect that these arrangements and obligations are expected to have on our liquidity and cash flow in the specified future periods (in thousands):
|
Total
|
Less than
1 year
|
1-3 years
|
3-5 years
|
More than
5 years
|
|||||||||||||||
|
Senior Unsecured Notes — principal
(a)
(b)
|
$
|
1,827,050
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
1,827,050
|
|
||||
|
Non-recourse debt — principal
(a)
|
1,708,452
|
|
518,480
|
|
363,242
|
|
374,028
|
|
452,702
|
|
|||||||||
|
Senior Unsecured Credit Facility — principal
(c)
|
926,715
|
|
250,000
|
|
676,715
|
|
—
|
|
—
|
|
|||||||||
|
Interest on borrowings
(d)
|
815,021
|
|
149,627
|
|
237,102
|
|
201,668
|
|
226,624
|
|
|||||||||
|
Operating and other lease commitments
(e)
|
165,895
|
|
8,341
|
|
16,539
|
|
12,396
|
|
128,619
|
|
|||||||||
|
Capital commitments and tenant
expansion allowances
(f)
|
154,161
|
|
71,590
|
|
30,646
|
|
48,412
|
|
3,513
|
|
|||||||||
|
Restructuring and other compensation commitments
(g)
|
3,309
|
|
2,900
|
|
409
|
|
—
|
|
—
|
|
|||||||||
|
|
$
|
5,600,603
|
|
$
|
1,000,938
|
|
$
|
1,324,653
|
|
$
|
636,504
|
|
$
|
2,638,508
|
|
||||
___________
|
(a)
|
Excludes unamortized deferred financing costs totaling
$13.4 million
, the unamortized discount on the Senior Unsecured Notes of
$7.8 million
, and the unamortized fair market value adjustment of
$0.2 million
resulting from the assumption of property-level debt in connection with the CPA
®
:15 Merger and CPA
®
:16 Merger (
Note 11
).
|
|
(b)
|
Our Senior Unsecured Notes are scheduled to mature from 2023 through 2026.
|
|
(c)
|
Our Revolver was scheduled to mature on January 31, 2018 and our Term Loan Facility was scheduled to mature on January 31, 2017. However, on January 26, 2017, we exercised our option to extend the maturity of our Term Loan Facility by an additional year to January 31, 2018. In addition, on February 22, 2017, we entered into our Amended Credit Facility to increase the capacity of our unsecured line of credit to
$1.85 billion
, and, as amended, the revolving credit agreement will mature in four years and the term loan will mature in five years (
Note 20
).
|
|
(d)
|
Interest on unhedged variable-rate debt obligations was calculated using the applicable annual variable interest rates and balances outstanding at
December 31, 2016
.
|
|
(e)
|
Operating and other lease commitments consist primarily of rental obligations under ground leases and the future minimum rents payable on the leases for our principal offices. Pursuant to their respective advisory agreements with us, we are reimbursed by the Managed Programs for their share of overhead costs, which includes a portion of those future minimum rent amounts. Our operating lease commitments are presented net of
$8.2 million
, based on the allocation percentages as of
December 31, 2016
, which we estimate the Managed Programs will reimburse us for in full.
|
|
(f)
|
Capital commitments include (i)
$135.2 million
related to build-to-suit expansions and (ii)
$19.0 million
related to unfunded tenant improvements, including certain discretionary commitments.
|
|
(g)
|
Represents severance-related obligations to our former chief executive officer and other employees (
Note 13
).
|
Amounts in the table above that relate to our foreign operations are based on the exchange rate of the local currencies at
December 31, 2016
, which consisted primarily of the euro. At
December 31, 2016
, we had no material capital lease obligations for which we were the lessee, either individually or in the aggregate.
|
W. P. Carey 2016 10-K
–
67
|
|
Equity Method Investments
We have interests in unconsolidated investments that own single-tenant properties net leased to companies. Generally, the underlying investments are jointly owned with our affiliates. Summarized financial information for these investments and our ownership interest in the investments at
December 31, 2016
is presented below. Summarized financial information provided represents the total amounts attributable to the investments and does not represent our proportionate share (dollars in thousands):
|
Ownership Interest at
|
Total Third-
|
|||||||||||
|
Lessee
|
December 31, 2016
|
Total Assets
|
Party Debt
|
Maturity Date
|
||||||||
|
Wanbishi Archives Co. Ltd
(a)
|
3%
|
$
|
33,940
|
|
$
|
22,159
|
|
12/2017
|
||||
|
The New York Times Company
|
45%
|
250,770
|
|
102,985
|
|
3/2020
|
||||||
|
C1000 Logistiek Vastgoed B. V.
(b)
|
15%
|
135,252
|
|
68,377
|
|
3/2020
|
||||||
|
Frontier Spinning Mills, Inc.
|
40%
|
37,397
|
|
—
|
|
N/A
|
||||||
|
Actebis Peacock GmbH
(b)
|
30%
|
30,379
|
|
—
|
|
N/A
|
||||||
|
Waldaschaff Automotive GmbH and Wagon Automotive Nagold GmbH
(b)
|
33%
|
29,197
|
|
—
|
|
N/A
|
||||||
|
|
$
|
516,935
|
|
$
|
193,521
|
|
||||||
___________
|
(a)
|
Dollar amounts shown are based on the exchange rate of the Japanese yen at
December 31, 2016
.
|
|
(b)
|
Dollar amounts shown are based on the exchange rate of the euro at
December 31, 2016
.
|
Environmental Obligations
In connection with the purchase of many of our properties, we required the sellers to perform environmental reviews. We believe, based on the results of these reviews, that our properties were in substantial compliance with federal, state, and foreign environmental statutes at the time the properties were acquired. However, portions of certain properties have been subject to some degree of contamination, principally in connection with leakage from underground storage tanks, surface spills, or other on-site activities. In most instances where contamination has been identified, tenants are actively engaged in the remediation process and addressing identified conditions. Sellers are generally subject to environmental statutes and regulations regarding the discharge of hazardous materials and any related remediation obligations, and we frequently require sellers to address them before closing or obtain contractual protection (e.g. indemnities, cash reserves, letters of credit, or other instruments) from sellers when we acquire a property. In addition, our leases generally require tenants to indemnify us from all liabilities and losses related to the leased properties and the provisions of such indemnifications specifically address environmental matters. The leases generally include provisions that allow for periodic environmental assessments, paid for by the tenant, and allow us to extend leases until such time as a tenant has satisfied its environmental obligations. Certain of our leases allow us to require financial assurances from tenants, such as performance bonds or letters of credit, if the costs of remediating environmental conditions are, in our estimation, in excess of specified amounts. With respect to our operating properties, which are not subject to net-lease arrangements, there is no tenant to provide for indemnification, so we may be liable for costs associated with environmental contamination in the event any such circumstances arise. However, we believe that the ultimate resolution of environmental matters should not have a material adverse effect on our financial condition, liquidity, or results of operations.
Critical Accounting Estimates
Our significant accounting policies are described in
Note 2
. Many of these accounting policies require judgment and the use of estimates and assumptions when applying these policies in the preparation of our consolidated financial statements. On a quarterly basis, we evaluate these estimates and judgments based on historical experience as well as other factors that we believe to be reasonable under the circumstances. These estimates are subject to change in the future if underlying assumptions or factors change. Certain accounting policies, while significant, may not require the use of estimates. Those accounting policies that require significant estimation and/or judgment are described under Critical Accounting Policies and Estimates in
Note 2
. The proposed accounting changes that may potentially impact our business are described under Recent Accounting Pronouncements in
Note 2
.
|
W. P. Carey 2016 10-K
–
68
|
|
Supplemental Financial Measures
In the real estate industry, analysts and investors employ certain non-GAAP supplemental financial measures in order to facilitate meaningful comparisons between periods and among peer companies. Additionally, in the formulation of our goals and in the evaluation of the effectiveness of our strategies, we use Funds from Operations, or FFO, and AFFO, which are non-GAAP measures defined by our management. We believe that these measures are useful to investors to consider because they may assist them to better understand and measure the performance of our business over time and against similar companies. A description of FFO and AFFO and reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are provided below.
Adjusted Funds from Operations
Due to certain unique operating characteristics of real estate companies, as discussed below, the National Association of Real Estate Investment Trusts, Inc., or NAREIT, an industry trade group, has promulgated a non-GAAP measure known as FFO, which we believe to be an appropriate supplemental measure, when used in addition to and in conjunction with results presented in accordance with GAAP, to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplemental non-GAAP measure. FFO is not equivalent to nor a substitute for net income or loss as determined under GAAP.
We define FFO, a non-GAAP measure, consistent with the standards established by the White Paper on FFO approved by the Board of Governors of NAREIT, as revised in February 2004. The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding gains or losses from sales of property, impairment charges on real estate, and depreciation and amortization from real estate assets; and after adjustments for unconsolidated partnerships and jointly owned investments. Adjustments for unconsolidated partnerships and jointly owned investments are calculated to reflect FFO. Our FFO calculation complies with NAREIT’s policy described above.
We modify the NAREIT computation of FFO to include other adjustments to GAAP net income to adjust for certain non-cash charges such as amortization of real estate-related intangibles, deferred income tax benefits and expenses, straight-line rents, stock compensation, gains or losses from extinguishment of debt and deconsolidation of subsidiaries, and unrealized foreign currency exchange gains and losses. Our assessment of our operations is focused on long-term sustainability and not on such non-cash items, which may cause short-term fluctuations in net income but have no impact on cash flows. Additionally, we exclude non-core income and expenses such as certain lease termination income, restructuring and other compensation-related expenses resulting from a reduction in headcount and employee severance arrangements, and merger, property acquisition, and other expenses which includes costs recorded related to the CPA
®
:16 Merger, the restructuring of the Hellweg 2 investment, the reversal of liabilities for German real estate transfer taxes that were previously recorded in connection with the CPA
®
:15 Merger, and expenses related to our formal strategic review. We also exclude realized gains/losses on foreign exchange transactions (other than those realized on the settlement of foreign currency derivatives), which are not considered fundamental attributes of our business plan and do not affect our overall long-term operating performance. We refer to our modified definition of FFO as AFFO. We exclude these items from GAAP net income to arrive at AFFO as they are not the primary drivers in our decision-making process and excluding those items provides investors a view of our portfolio performance over time and make it more comparable to other REITs which are currently not engaged in acquisitions, mergers, and restructuring which are not part of our normal business operations. We use AFFO as one measure of our operating performance when we formulate corporate goals, evaluate the effectiveness of our strategies, and determine executive compensation.
We believe that AFFO is a useful supplemental measure for investors to consider as we believe it will help them to better assess the sustainability of our operating performance without the potentially distorting impact of these short-term fluctuations. However, there are limits on the usefulness of AFFO to investors. For example, impairment charges and unrealized foreign currency losses that we exclude may become actual realized losses upon the ultimate disposition of the properties in the form of lower cash proceeds or other considerations. We use our FFO and AFFO measures as supplemental financial measures of operating performance. We do not use our FFO and AFFO measures as, nor should they be considered to be, alternatives to net earnings computed under GAAP or as alternatives to cash from operating activities computed under GAAP or as indicators of our ability to fund our cash needs.
|
W. P. Carey 2016 10-K
–
69
|
|
Consolidated FFO and AFFO were as follows (in thousands):
|
Years Ended December 31,
|
|||||||||||
|
2016
|
2015
|
2014
|
|||||||||
|
Net income attributable to W. P. Carey
|
$
|
267,747
|
|
$
|
172,258
|
|
$
|
239,826
|
|
||
|
Adjustments:
|
|||||||||||
|
Depreciation and amortization of real property
|
270,822
|
|
274,358
|
|
232,692
|
|
|||||
|
Gain on sale of real estate, net
|
(71,318
|
)
|
(6,487
|
)
|
(34,079
|
)
|
|||||
|
Impairment charges
|
59,303
|
|
29,906
|
|
23,067
|
|
|||||
|
Proportionate share of adjustments for noncontrolling interests to arrive at FFO
|
(11,725
|
)
|
(11,510
|
)
|
(11,808
|
)
|
|||||
|
Proportionate share of adjustments to equity in net income of partially owned entities to arrive at FFO
|
5,053
|
|
5,142
|
|
5,381
|
|
|||||
|
Total adjustments
|
252,135
|
|
291,409
|
|
215,253
|
|
|||||
|
FFO attributable to W. P. Carey — as defined by NAREIT
|
519,882
|
|
463,667
|
|
455,079
|
|
|||||
|
Adjustments:
|
|||||||||||
|
Straight-line and other rent adjustments
(a)
|
(39,215
|
)
|
(25,397
|
)
|
(17,116
|
)
|
|||||
|
Above- and below-market rent intangible lease amortization, net
(b)
|
36,504
|
|
43,964
|
|
59,050
|
|
|||||
|
Tax (benefit) expense — deferred
|
(24,955
|
)
|
1,617
|
|
(22,582
|
)
|
|||||
|
Stock-based compensation
|
18,015
|
|
21,626
|
|
31,075
|
|
|||||
|
Restructuring and other compensation
(c)
|
11,925
|
|
—
|
|
—
|
|
|||||
|
Allowance for credit losses
|
7,064
|
|
8,748
|
|
—
|
|
|||||
|
Merger, property acquisition, and other expenses
(d) (e) (f)
|
5,377
|
|
(7,764
|
)
|
48,333
|
|
|||||
|
Loss on extinguishment of debt
|
4,109
|
|
5,645
|
|
9,835
|
|
|||||
|
Realized losses (gains) on foreign currency and other
(g)
|
3,671
|
|
818
|
|
(95
|
)
|
|||||
|
Amortization of deferred financing costs
(h)
|
3,197
|
|
2,655
|
|
9,442
|
|
|||||
|
Other amortization and non-cash items
(h) (i) (j)
|
(2,111
|
)
|
960
|
|
4,978
|
|
|||||
|
Gain on change in control of interests
(k)
|
—
|
|
—
|
|
(105,947
|
)
|
|||||
|
Other, net
(l)
|
—
|
|
—
|
|
5,369
|
|
|||||
|
Proportionate share of adjustments to equity in net income of partially owned entities to arrive at AFFO
|
3,551
|
|
8,593
|
|
6,051
|
|
|||||
|
Proportionate share of adjustments for noncontrolling interests to arrive at AFFO
(m)
|
683
|
|
6,070
|
|
(3,006
|
)
|
|||||
|
Total adjustments
|
27,815
|
|
67,535
|
|
25,387
|
|
|||||
|
AFFO attributable to W. P. Carey
|
$
|
547,697
|
|
$
|
531,202
|
|
$
|
480,466
|
|
||
|
Summary
|
|||||||||||
|
FFO attributable to W. P. Carey — as defined by NAREIT
|
$
|
519,882
|
|
$
|
463,667
|
|
$
|
455,079
|
|
||
|
AFFO attributable to W. P. Carey
|
$
|
547,697
|
|
$
|
531,202
|
|
$
|
480,466
|
|
||
|
W. P. Carey 2016 10-K
–
70
|
|
FFO and AFFO from Owned Real Estate were as follows (in thousands):
|
Years Ended December 31,
|
|||||||||||
|
2016
|
2015
|
2014
|
|||||||||
|
Net income from Owned Real Estate attributable to W. P. Carey
|
$
|
252,353
|
|
$
|
146,810
|
|
$
|
228,387
|
|
||
|
Adjustments:
|
|||||||||||
|
Depreciation and amortization of real property
|
270,822
|
|
274,358
|
|
232,692
|
|
|||||
|
Gain on sale of real estate, net
|
(71,318
|
)
|
(6,487
|
)
|
(34,079
|
)
|
|||||
|
Impairment charges
|
59,303
|
|
29,906
|
|
23,067
|
|
|||||
|
Proportionate share of adjustments for noncontrolling interests to arrive at FFO
|
(11,725
|
)
|
(11,510
|
)
|
(11,808
|
)
|
|||||
|
Proportionate share of adjustments to equity in net income of partially owned entities to arrive at FFO
|
5,053
|
|
5,142
|
|
5,381
|
|
|||||
|
Total adjustments
|
252,135
|
|
291,409
|
|
215,253
|
|
|||||
|
FFO attributable to W. P. Carey — as defined by NAREIT — Owned Real Estate
|
504,488
|
|
438,219
|
|
443,640
|
|
|||||
|
Adjustments:
|
|||||||||||
|
Straight-line and other rent adjustments
(a)
|
(39,215
|
)
|
(25,397
|
)
|
(17,116
|
)
|
|||||
|
Above- and below-market rent intangible lease amortization, net
(b)
|
36,504
|
|
43,964
|
|
59,050
|
|
|||||
|
Tax benefit — deferred
|
(17,439
|
)
|
(2,017
|
)
|
(10,953
|
)
|
|||||
|
Allowance for credit losses
|
7,064
|
|
8,748
|
|
—
|
|
|||||
|
Stock-based compensation
|
5,224
|
|
7,873
|
|
12,659
|
|
|||||
|
Restructuring and other compensation
(c)
|
4,413
|
|
—
|
|
—
|
|
|||||
|
Loss on extinguishment of debt
|
4,109
|
|
5,645
|
|
9,306
|
|
|||||
|
Realized losses (gains) on foreign currency and other
(g)
|
3,654
|
|
757
|
|
(117
|
)
|
|||||
|
Amortization of deferred financing costs
(h)
|
3,197
|
|
2,655
|
|
9,290
|
|
|||||
|
Merger, property acquisition, and other expenses
(d) (e) (f)
|
2,993
|
|
(9,908
|
)
|
34,465
|
|
|||||
|
Other amortization and non-cash items
(h) (i) (j)
|
(1,889
|
)
|
519
|
|
4,415
|
|
|||||
|
Gain on change in control of interests
(k)
|
—
|
|
—
|
|
(105,947
|
)
|
|||||
|
Other, net
(l)
|
—
|
|
—
|
|
5,369
|
|
|||||
|
Proportionate share of adjustments to equity in net income of partially owned entities to arrive at AFFO
|
4,868
|
|
5,645
|
|
6,051
|
|
|||||
|
Proportionate share of adjustments for noncontrolling interests to arrive at AFFO
(m)
|
683
|
|
6,070
|
|
(3,006
|
)
|
|||||
|
Total adjustments
|
14,166
|
|
44,554
|
|
3,466
|
|
|||||
|
AFFO attributable to W. P. Carey — Owned Real Estate
|
$
|
518,654
|
|
$
|
482,773
|
|
$
|
447,106
|
|
||
|
Summary
|
|||||||||||
|
FFO attributable to W. P. Carey — as defined by NAREIT — Owned Real Estate
|
$
|
504,488
|
|
$
|
438,219
|
|
$
|
443,640
|
|
||
|
AFFO attributable to W. P. Carey — Owned Real Estate
|
$
|
518,654
|
|
$
|
482,773
|
|
$
|
447,106
|
|
||
|
W. P. Carey 2016 10-K
–
71
|
|
FFO and AFFO from Investment Management were as follows (in thousands):
|
Years Ended December 31,
|
|||||||||||
|
2016
|
2015
|
2014
|
|||||||||
|
Net income from Investment Management attributable to W. P. Carey
|
$
|
15,394
|
|
$
|
25,448
|
|
$
|
11,439
|
|
||
|
FFO attributable to W. P. Carey — as defined by NAREIT — Investment Management
|
15,394
|
|
25,448
|
|
11,439
|
|
|||||
|
Adjustments:
|
|||||||||||
|
Stock-based compensation
|
12,791
|
|
13,753
|
|
18,416
|
|
|||||
|
Tax (benefit) expense — deferred
|
(7,516
|
)
|
3,634
|
|
(11,629
|
)
|
|||||
|
Restructuring and other compensation
(c)
|
7,512
|
|
—
|
|
—
|
|
|||||
|
Merger, property acquisition, and other expenses
(d) (e) (f)
|
2,384
|
|
2,144
|
|
13,868
|
|
|||||
|
Other amortization and non-cash items
(i)
|
(222
|
)
|
441
|
|
563
|
|
|||||
|
Realized losses on derivatives and other
(g)
|
17
|
|
61
|
|
22
|
|
|||||
|
Loss on extinguishment of debt
|
—
|
|
—
|
|
529
|
|
|||||
|
Amortization of deferred financing costs
(h)
|
—
|
|
—
|
|
152
|
|
|||||
|
Proportionate share of adjustments to equity in net income of partially owned entities to arrive at AFFO
|
(1,317
|
)
|
2,948
|
|
—
|
|
|||||
|
Total adjustments
|
13,649
|
|
22,981
|
|
21,921
|
|
|||||
|
AFFO attributable to W. P. Carey — Investment Management
|
$
|
29,043
|
|
$
|
48,429
|
|
$
|
33,360
|
|
||
|
Summary
|
|||||||||||
|
FFO attributable to W. P. Carey — as defined by NAREIT — Investment Management
|
$
|
15,394
|
|
$
|
25,448
|
|
$
|
11,439
|
|
||
|
AFFO attributable to W. P. Carey — Investment Management
|
$
|
29,043
|
|
$
|
48,429
|
|
$
|
33,360
|
|
||
__________
|
(a)
|
Amount for the year ended December 31, 2016 includes an adjustment to exclude
$27.2 million
of the
$32.2 million
of lease termination income recognized in connection with a domestic property that was sold during the period, as such amount was determined to be non-core income (
Note 17
). Amount for the year ended December 31, 2016 also reflects an adjustment to include
$1.8 million
of lease termination income received in December 2015 that represented core income for the year ended December 31, 2016. Amount for the year ended December 31, 2015 includes an adjustment of $15.0 million related to lease termination income recognized from the tenant in the aforementioned domestic property, which has been determined to be non-core income (
Note 17
).
|
|
(b)
|
Amount for the year ended December 31, 2016 includes an adjustment of
$15.6 million
related to the acceleration of a below-market lease from a tenant of a domestic property that was sold during the year.
|
|
(c)
|
Amount represents restructuring and other compensation-related expenses resulting from a reduction in headcount, including the RIF, and employee severance arrangements (
Note 13
).
|
|
(d)
|
Amount for the year ended December 31, 2015 includes a reversal of $25.0 million of liabilities for German real estate transfer taxes, of which $7.9 million was previously recorded as merger expenses in connection with the CPA
®
:15 Merger in September 2012 and $17.1 million was previously recorded in connection with the restructuring of a German investment, Hellweg 2, in October 2013 (
Note 7
). At the time of the restructuring, we owned an equity interest in the Hellweg 2 investment, which we jointly owned with CPA
®
:16 – Global. In connection with the CPA
®
:16 Merger, we acquired CPA
®
:16 – Global’s controlling interest in the investment. Therefore, the reversal related to the Hellweg 2 investment has been recorded in Merger, property acquisition, and other expenses in the consolidated financial statements for the year ended December 31, 2015, since we now consolidate the Hellweg 2 investment.
|
|
(e)
|
Amount for the year ended December 31, 2014 includes reported merger costs as well as income tax expense incurred in connection with the CPA
®
:16 Merger. Income tax expense incurred in connection with the CPA
®
:16 Merger represents the current portion of income tax expense including the permanent difference incurred upon recognition of deferred revenue associated with the accelerated vesting of shares previously issued to us by CPA
®
:16 – Global for asset management and performance fees.
|
|
(f)
|
Amounts for the years ended December 31, 2016 and 2015 include expenses related to our formal strategic review, which concluded in May 2016.
|
|
(g)
|
Effective January 1, 2015, we no longer adjust for realized gains or losses on foreign currency derivatives. For the year ended December 31, 2014, realized gains on foreign exchange derivatives were $0.3 million.
|
|
W. P. Carey 2016 10-K
–
72
|
|
|
(h)
|
Effective July 1, 2016, the amortization of debt premiums and discounts, which was previously included in Other amortization and non-cash items, is included in Amortization of deferred financing costs. Prior periods are retrospectively adjusted to reflect this change. Amortization of debt premiums and discounts for the years ended December 31, 2015 and 2014 was
$3.0 million
and
$5.4 million
, respectively.
|
|
(i)
|
Represents primarily unrealized gains and losses from foreign exchange and derivatives.
|
|
(j)
|
Amount for the year ended December 31, 2016 includes an adjustment of
$0.6 million
to exclude a portion of a gain recognized on the deconsolidation of CESH I (
Note 2
).
|
|
(k)
|
Gain on change in control of interests for the year ended December 31, 2014 represents a gain of $75.7 million recognized on our previously held interest in shares of CPA
®
:16 – Global common stock and a gain of $30.2 million recognized on the purchase of the remaining interests in nine investments from CPA
®
:16 – Global (
Note 3
).
|
|
(l)
|
Other, net for the year ended December 31, 2014 primarily consists of proceeds from the bankruptcy settlement claim with U.S. Aluminum of Canada, a former CPA
®
:16 – Global tenant that was acquired as part of the CPA
®
:16 Merger on January 31, 2014.
|
|
(m)
|
Amount for the year ended December 31, 2015 includes CPA
®
:17 – Global’s $6.3 million share of the reversal of liabilities for German real estate transfer taxes, as described above.
|
While we believe that FFO and AFFO are important supplemental measures, they should not be considered as alternatives to net income as an indication of a company’s operating performance. These non-GAAP measures should be used in conjunction with net income as defined by GAAP. FFO and AFFO, or similarly titled measures disclosed by other REITs, may not be comparable to our FFO and AFFO measures.
|
W. P. Carey 2016 10-K
–
73
|
|
Market Risk
Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, and equity prices. The primary risks that we are exposed to are interest rate risk and foreign currency exchange risk. We are also exposed to further market risk as a result of tenant concentrations in certain industries and/or geographic regions, since adverse market factors can affect the ability of tenants in a particular industry/region to meet their respective lease obligations. In order to manage this risk, we view our collective tenant roster as a portfolio, and we attempt to diversify such portfolio so that we are not overexposed to a particular industry or geographic region.
Generally, we do not use derivative instruments to hedge credit/market risks or for speculative purposes. However, from time to time, we may enter into foreign currency forward contracts and collars to hedge our foreign currency cash flow exposures.
Interest Rate Risk
The values of our real estate, related fixed-rate debt obligations, and our note receivable investment are subject to fluctuations based on changes in interest rates. The value of our real estate is also subject to fluctuations based on local and regional economic conditions and changes in the creditworthiness of lessees, which may affect our ability to refinance property-level mortgage debt when balloon payments are scheduled, if we do not choose to repay the debt when due. Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political conditions, and other factors beyond our control. An increase in interest rates would likely cause the fair value of our owned and managed assets to decrease, which would create lower revenues from managed assets and lower investment performance for the Managed REITs. Increases in interest rates may also have an impact on the credit profile of certain tenants.
We are exposed to the impact of interest rate changes primarily through our borrowing activities. To limit this exposure, we historically attempted to obtain non-recourse mortgage financing on a long-term, fixed-rate basis. However, from time to time, we or our joint investment partners have obtained, and may in the future obtain, variable-rate non-recourse mortgage loans and, as a result, we have entered into, and may continue to enter into, interest rate swap agreements or interest rate cap agreements with lenders. Interest rate swap agreements effectively convert the variable-rate debt service obligations of a loan to a fixed rate, while interest rate cap agreements limit the underlying interest rate from exceeding a specified strike rate. Interest rate swaps are agreements in which one party exchanges a stream of interest payments for a counterparty’s stream of cash flows over a specific period, and interest rate caps limit the effective borrowing rate of variable-rate debt obligations while allowing participants to share in downward shifts in interest rates. These interest rate swaps and caps are derivative instruments that, where applicable, are designated as cash flow hedges on the forecasted interest payments on the debt obligation. The face amount on which the swaps or caps are based is not exchanged. Our objective in using these derivatives is to limit our exposure to interest rate movements. At
December 31, 2016
, we estimated that the total fair value of our interest rate swaps and cap, which are included in Other assets, net and Accounts payable, accrued expenses and other liabilities in the consolidated financial statements, was in a net
liability
position of
$2.8 million
(
Note 10
).
At
December 31, 2016
, a significant portion (approximately
75.9%
) of our long-term debt either bore interest at fixed rates, was swapped or capped to a fixed rate, or bore interest at fixed rates that were scheduled to convert to then-prevailing market fixed rates at certain future points during their term. The annual interest rates on our fixed-rate debt at
December 31, 2016
ranged from
2.0%
to
7.8%
. The contractual annual interest rates on our variable-rate debt at
December 31, 2016
ranged from
0.9%
to
6.9%
. Our debt obligations are more fully described under
Liquidity and Capital Resources — Summary of Financing
in Item 7 above. The following table presents principal cash flows based upon expected maturity dates of our debt obligations outstanding at
December 31, 2016
(in thousands):
|
2017
|
2018
|
2019
|
2020
|
2021
|
Thereafter
|
Total
|
Fair value
|
||||||||||||||||||||||||
|
Fixed-rate debt
(a)
|
$
|
466,370
|
|
$
|
134,239
|
|
$
|
86,384
|
|
$
|
174,052
|
|
$
|
117,547
|
|
$
|
2,255,072
|
|
$
|
3,233,664
|
|
$
|
3,244,597
|
|
|||||||
|
Variable-rate debt
(a) (b)
|
$
|
302,110
|
|
$
|
806,152
|
|
$
|
13,182
|
|
$
|
42,992
|
|
$
|
39,438
|
|
$
|
24,679
|
|
$
|
1,228,553
|
|
$
|
1,222,289
|
|
|||||||
__________
|
(a)
|
Amounts are based on the exchange rate at
December 31, 2016
, as applicable.
|
|
(b)
|
Includes
$250.0 million
outstanding under our Term Loan Facility at December 31, 2016, which was scheduled to mature on January 31, 2017. However, on January 26, 2017, we exercised our option to extend our Term Loan Facility by an additional year to January 31, 2018, and on February 22, 2017, we entered into our Amended Credit Facility to increase the capacity of our unsecured line of credit to
$1.85 billion
. The term loan, as amended, will mature in five years (
Note 20
).
|
|
W. P. Carey 2016 10-K
–
74
|
|
The estimated fair value of our fixed-rate debt and our variable-rate debt that currently bears interest at fixed rates or has effectively been converted to a fixed rate through the use of interest rate swaps, or that has been subject to interest rate caps, is affected by changes in interest rates. Annual interest expense on our unhedged variable-rate debt that does not bear interest at fixed rates at
December 31, 2016
would increase or decrease by
$10.7 million
for each respective 1% change in annual interest rates. As more fully described under
Liquidity and Capital Resources — Summary of Financing
in Item 7 above, a portion of the debt classified as variable-rate debt in the tables above bore interest at fixed rates at
December 31, 2016
but has interest rate reset features that will change the fixed interest rates to then-prevailing market fixed rates at certain points during their term. This debt is generally not subject to short-term fluctuations in interest rates.
Foreign Currency Exchange Rate Risk
We own international investments, primarily in Europe, Australia, Asia, and Canada and as a result are subject to risk from the effects of exchange rate movements in various foreign currencies, primarily the euro, the British pound sterling, the Australian dollar, and the Canadian dollar, which may affect future costs and cash flows. We manage foreign currency exchange rate movements by generally placing our debt service obligation to the lender and the tenant’s rental obligation to us in the same currency. This reduces our overall exposure to the net cash flow from that investment. In addition, we may use currency hedging to further reduce the exposure to our equity cash flow. We are generally a net receiver of these currencies (we receive more cash than we pay out), and therefore our foreign operations benefit from a weaker U.S. dollar and are adversely affected by a stronger U.S. dollar, relative to the foreign currency. As part of our investment strategy, we make intercompany loans to a number of our foreign subsidiaries, most of which do not have the U.S. dollar as their functional currency. Remeasurement of foreign currency intercompany transactions that are scheduled for settlement, consisting primarily of accrued interest and short-term loans, are included in the determination of net income. For the year ended
December 31, 2016
, we recognized net foreign currency transaction
losses
(included in Other income and (expenses) in the consolidated financial statements) of
$6.6 million
, primarily due to the strengthening of the U.S. dollar relative to the British pound sterling and the euro during the year. The end-of-period rate for the U.S. dollar in relation to the British pound sterling at
December 31, 2016
decreased
by
17.0%
to
$1.2312
from
$1.4833
at
December 31, 2015
. The end-of-period rate for the U.S. dollar in relation to the euro at
December 31, 2016
decreased
by
3.2%
to
$1.0541
from
$1.0887
at
December 31, 2015
.
The Brexit referendum adversely impacted global markets, including certain currencies, and resulted in a sharp decline in the value of the British pound sterling and, to a lesser extent, the euro, as compared to the U.S. dollar. In addition, in October 2016, the Prime Minister of the United Kingdom announced that the formal withdrawal process would be triggered in the first quarter of 2017. As a result, the end-of-period rate for the U.S. dollar in relation to the British pound sterling at December 31, 2016 decreased by
5.0%
to
$1.2312
from
$1.2962
at September 30, 2016. Volatility in exchange rates is expected to continue as the United Kingdom negotiates its possible exit from the European Union. As of
December 31, 2016
,
4.8%
and
23.5%
of our total ABR was from the United Kingdom and other European Union countries, respectively. We currently hedge a portion of our British pound sterling exposure and our euro exposure through the approximately next
five
years, thereby significantly reducing our currency risk.
Any impact from Brexit on us will depend, in part, on the outcome of the related tariff, trade, regulatory, and other negotiations. Although it is unknown what the result of those negotiations will be, it is possible that new terms may adversely affect our operations and financial results.
We enter into foreign currency forward contracts and collars to hedge certain of our foreign currency cash flow exposures. A foreign currency forward contract is a commitment to deliver a certain amount of foreign currency at a certain price on a specific date in the future. A foreign currency collar consists of a written call option and a purchased put option to sell the foreign currency at a range of predetermined exchange rates. By entering into forward contracts and holding them to maturity, we are locked into a future currency exchange rate for the term of the contract. A foreign currency collar guarantees that the exchange rate of the currency will not fluctuate beyond the range of the options’ strike prices. The estimated fair value of our foreign currency forward contracts and collars, which are included in Other assets, net in the consolidated financial statements, was in an
asset
position of
$54.4 million
at
December 31, 2016
. We have obtained, and may in the future obtain, non-recourse mortgage financing in local currencies. We have also issued euro-denominated Senior Unsecured Notes (
Note 11
,
Note 20
) and have borrowed under our Senior Unsecured Credit Facility and Amended Credit Facility (
Note 20
) in foreign currencies, including the euro and the British pound sterling. To the extent that currency fluctuations increase or decrease rental revenues, as translated to U.S. dollars, the change in debt service, as translated to U.S. dollars, will partially offset the effect of fluctuations in revenue and, to some extent, mitigate the risk from changes in foreign currency exchange rates.
|
W. P. Carey 2016 10-K
–
75
|
|
Scheduled future minimum rents, exclusive of renewals, under non-cancelable operating leases, for our consolidated foreign operations as of
December 31, 2016
, during each of the next five calendar years and thereafter, are as follows (in thousands):
|
Lease Revenues
(a)
|
2017
|
2018
|
2019
|
2020
|
2021
|
Thereafter
|
Total
|
|||||||||||||||||||||
|
Euro
(b)
|
$
|
155,267
|
|
$
|
155,797
|
|
$
|
152,677
|
|
$
|
149,805
|
|
$
|
145,654
|
|
$
|
1,122,916
|
|
$
|
1,882,116
|
|
|||||||
|
British pound sterling
(c)
|
31,782
|
|
31,956
|
|
32,211
|
|
32,550
|
|
32,821
|
|
261,672
|
|
422,992
|
|
||||||||||||||
|
Australian dollar
(d)
|
11,155
|
|
11,155
|
|
11,155
|
|
11,186
|
|
11,155
|
|
143,241
|
|
199,047
|
|
||||||||||||||
|
Other foreign currencies
(e)
|
16,065
|
|
16,274
|
|
16,734
|
|
15,109
|
|
15,316
|
|
156,211
|
|
235,709
|
|
||||||||||||||
|
$
|
214,269
|
|
$
|
215,182
|
|
$
|
212,777
|
|
$
|
208,650
|
|
$
|
204,946
|
|
$
|
1,684,040
|
|
$
|
2,739,864
|
|
||||||||
Scheduled debt service payments (principal and interest) for mortgage notes payable for our consolidated foreign operations as of
December 31, 2016
, during each of the next five calendar years and thereafter, are as follows (in thousands):
|
Debt service
(a) (f)
|
2017
|
2018
|
2019
|
2020
|
2021
|
Thereafter
|
Total
|
|||||||||||||||||||||
|
Euro
(b)
|
$
|
358,232
|
|
$
|
426,304
|
|
$
|
21,746
|
|
$
|
60,539
|
|
$
|
44,950
|
|
$
|
572,196
|
|
$
|
1,483,967
|
|
|||||||
|
British pound sterling
(c)
|
773
|
|
773
|
|
773
|
|
773
|
|
773
|
|
10,660
|
|
14,525
|
|
||||||||||||||
|
Other foreign currencies
(e)
|
8,852
|
|
8,594
|
|
—
|
|
—
|
|
—
|
|
—
|
|
17,446
|
|
||||||||||||||
|
$
|
367,857
|
|
$
|
435,671
|
|
$
|
22,519
|
|
$
|
61,312
|
|
$
|
45,723
|
|
$
|
582,856
|
|
$
|
1,515,938
|
|
||||||||
__________
|
(a)
|
Amounts are based on the applicable exchange rates at
December 31, 2016
. Contractual rents and debt obligations are denominated in the functional currency of the country of each property.
|
|
(b)
|
We estimate that, for a 1% increase or decrease in the exchange rate between the euro and the U.S. dollar, there would be a corresponding change in the projected estimated cash flow at
December 31, 2016
of
$4.0 million
. Amounts included the equivalent of
$286.7 million
borrowed in euros under our Revolver, which was scheduled to mature on January 31, 2018 (
Note 11
). However, in February 2017, we entered into our Amended Credit Facility and, as amended, the revolving line of credit will mature in four years (
Note 20
). Amounts also included the equivalent of
$527.1 million
of 2.0% Senior Notes outstanding maturing in January 2023 (
Note 11
).
|
|
(c)
|
We estimate that, for a 1% increase or decrease in the exchange rate between the British pound sterling and the U.S. dollar, there would be a corresponding change in the projected estimated cash flow at
December 31, 2016
of
$4.1 million
.
|
|
(d)
|
We estimate that, for a 1% increase or decrease in the exchange rate between the Australian dollar and the U.S. dollar, there would be a corresponding change in the projected estimated cash flow at
December 31, 2016
of
$2.0 million
. There is no related mortgage loan on this investment.
|
|
(e)
|
Other foreign currencies consist of the Canadian dollar, the Malaysian ringgit, the Swedish krona, the Norwegian krone, and the Thai baht.
|
|
(f)
|
Interest on unhedged variable-rate debt obligations was calculated using the applicable annual interest rates and balances outstanding at
December 31, 2016
.
|
As a result of scheduled balloon payments on certain of our international non-recourse mortgage loans, primarily denominated in euros, projected debt service obligations exceed projected lease revenues in 2017. In 2017, balloon payments totaling
$329.4 million
are due on
nine
non-recourse mortgage loans that are collateralized by properties that we own. We currently anticipate that, by their respective due dates, we will have refinanced or repaid these loans using our cash resources, including unused capacity on our Revolver and proceeds from dispositions of properties. In January 2017, we repaid or extinguished
four
international non-recourse mortgage loans with an aggregate principal balance of
$294.3 million
, including mortgage loans totaling
$243.8 million
, inclusive of amounts attributable to a noncontrolling interest of
$89.0 million
, encumbering the Hellweg 2 portfolio (
Note 20
).
Projected debt service obligations exceed projected lease revenues in 2018, primarily due to amounts totaling
$286.7 million
borrowed in euros under our Revolver, which was scheduled to mature on January 31, 2018. However, in February 2017, we entered into our Amended Credit Facility and, as amended, the revolving line of credit will mature in four years (
Note 20
).
|
W. P. Carey 2016 10-K
–
76
|
|
Concentration of Credit Risk
Concentrations of credit risk arise when a number of tenants are engaged in similar business activities or have similar economic risks or conditions that could cause them to default on their lease obligations to us. We regularly monitor our portfolio to assess potential concentrations of credit risk. While we believe our portfolio is reasonably well diversified, it does contain concentrations in certain areas.
For the year ended
December 31, 2016
, our consolidated portfolio had the following significant characteristics in excess of 10%, based on the percentage of our consolidated total revenues:
|
•
|
69%
related to domestic properties; and
|
|
•
|
31%
related to international properties.
|
At
December 31, 2016
, our net-lease portfolio, which excludes our two operating properties, had the following significant property and lease characteristics in excess of 10% in certain areas, based on the percentage of our ABR as of that date:
|
•
|
66%
related to domestic properties;
|
|
•
|
34%
related to international properties;
|
|
•
|
30%
related to industrial facilities,
25%
related to office facilities,
16%
related to retail facilities, and
14%
related to warehouse facilities; and
|
|
•
|
17%
related to the retail stores industry and
10%
related to the consumer services industry.
|
|
W. P. Carey 2016 10-K
–
77
|
|
|
TABLE OF CONTENTS
|
Page No.
|
Financial statement schedules other than those listed above are omitted because the required information is given in the financial statements, including the notes thereto, or because the conditions requiring their filing do not exist.
|
W. P. Carey 2016 10-K
–
78
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of W. P. Carey Inc.
In our opinion, the consolidated financial statements listed in the accompanying index appearing under Item 8 present fairly, in all material respects, the financial position of W. P. Carey Inc. and its subsidiaries (the “Company”) at December 31, 2016 and December 31, 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in the index appearing under Item 8 present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in
Internal Control — Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedules, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedules, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
The Company adopted accounting standards update (“ASU”) No. 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity”, which changed the criteria for reporting discontinued operations in 2014.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
New York, New York
February 24, 2017
|
W. P. Carey 2016 10-K
–
79
|
|
W. P. CAREY INC.
(in thousands, except share and per share amounts)
|
December 31,
|
|||||||
|
2016
|
2015
|
||||||
|
Assets
|
|||||||
|
Investments in real estate:
|
|||||||
|
Real estate, at cost
|
$
|
5,204,126
|
|
$
|
5,309,925
|
|
|
|
Operating real estate
|
81,711
|
|
82,749
|
|
|||
|
Accumulated depreciation
|
(484,437
|
)
|
(381,529
|
)
|
|||
|
Net investments in properties
|
4,801,400
|
|
5,011,145
|
|
|||
|
Net investments in direct financing leases
|
684,059
|
|
756,353
|
|
|||
|
Assets held for sale
|
26,247
|
|
59,046
|
|
|||
|
Net investments in real estate
|
5,511,706
|
|
5,826,544
|
|
|||
|
Equity investments in the Managed Programs and real estate
|
298,893
|
|
275,473
|
|
|||
|
Cash and cash equivalents
|
155,482
|
|
157,227
|
|
|||
|
Due from affiliates
|
299,610
|
|
62,218
|
|
|||
|
In-place lease and tenant relationship intangible assets, net
|
826,113
|
|
902,848
|
|
|||
|
Goodwill
|
635,920
|
|
681,809
|
|
|||
|
Above-market rent intangible assets, net
|
421,456
|
|
475,072
|
|
|||
|
Other assets, net
|
304,774
|
|
360,898
|
|
|||
|
Total assets
|
$
|
8,453,954
|
|
$
|
8,742,089
|
|
|
|
Liabilities and Equity
|
|||||||
|
Liabilities:
|
|||||||
|
Senior Unsecured Notes, net
|
$
|
1,807,200
|
|
$
|
1,476,084
|
|
|
|
Non-recourse debt, net
|
1,706,921
|
|
2,269,421
|
|
|||
|
Senior Unsecured Credit Facility - Revolver
|
676,715
|
|
485,021
|
|
|||
|
Senior Unsecured Credit Facility - Term Loan, net
|
249,978
|
|
249,683
|
|
|||
|
Accounts payable, accrued expenses and other liabilities
|
266,917
|
|
342,374
|
|
|||
|
Below-market rent and other intangible liabilities, net
|
122,203
|
|
154,315
|
|
|||
|
Deferred income taxes
|
90,825
|
|
86,104
|
|
|||
|
Distributions payable
|
107,090
|
|
102,715
|
|
|||
|
Total liabilities
|
5,027,849
|
|
5,165,717
|
|
|||
|
Redeemable noncontrolling interest
|
965
|
|
14,944
|
|
|||
|
Commitments and contingencies (
Note 12
)
|
|
|
|
|
|||
|
Equity:
|
|||||||
|
W. P. Carey stockholders’ equity:
|
|||||||
|
Preferred stock, $0.001 par value, 50,000,000 shares authorized; none issued
|
—
|
|
—
|
|
|||
|
Common stock, $0.001 par value, 450,000,000 shares authorized; 106,294,162 and 104,448,777 shares, respectively, issued and outstanding
|
106
|
|
104
|
|
|||
|
Additional paid-in capital
|
4,399,651
|
|
4,282,042
|
|
|||
|
Distributions in excess of accumulated earnings
|
(893,827
|
)
|
(738,652
|
)
|
|||
|
Deferred compensation obligation
|
50,222
|
|
56,040
|
|
|||
|
Accumulated other comprehensive loss
|
(254,485
|
)
|
(172,291
|
)
|
|||
|
Total W. P. Carey stockholders’ equity
|
3,301,667
|
|
3,427,243
|
|
|||
|
Noncontrolling interests
|
123,473
|
|
134,185
|
|
|||
|
Total equity
|
3,425,140
|
|
3,561,428
|
|
|||
|
Total liabilities and equity
|
$
|
8,453,954
|
|
$
|
8,742,089
|
|
|
See Notes to Consolidated Financial Statements.
|
W. P. Carey 2016 10-K
–
80
|
|
W. P. CAREY INC.
(in thousands, except share and per share amounts)
|
Years Ended December 31,
|
|||||||||||
|
2016
|
2015
|
2014
|
|||||||||
|
Revenues
|
|||||||||||
|
Owned Real Estate:
|
|||||||||||
|
Lease revenues
|
$
|
663,463
|
|
$
|
656,956
|
|
$
|
573,829
|
|
||
|
Lease termination income and other
|
35,696
|
|
25,145
|
|
17,767
|
|
|||||
|
Operating property revenues
|
30,767
|
|
30,515
|
|
28,925
|
|
|||||
|
Reimbursable tenant costs
|
25,438
|
|
22,832
|
|
24,862
|
|
|||||
|
755,364
|
|
735,448
|
|
645,383
|
|
||||||
|
Investment Management:
|
|||||||||||
|
Reimbursable costs from affiliates
|
66,433
|
|
55,837
|
|
130,212
|
|
|||||
|
Asset management revenue
|
61,971
|
|
49,984
|
|
38,063
|
|
|||||
|
Structuring revenue
|
47,328
|
|
92,117
|
|
71,256
|
|
|||||
|
Dealer manager fees
|
8,002
|
|
4,794
|
|
23,532
|
|
|||||
|
Other advisory revenue
|
2,435
|
|
203
|
|
—
|
|
|||||
|
186,169
|
|
202,935
|
|
263,063
|
|
||||||
|
941,533
|
|
938,383
|
|
908,446
|
|
||||||
|
Operating Expenses
|
|||||||||||
|
Depreciation and amortization
|
276,510
|
|
280,315
|
|
237,123
|
|
|||||
|
Reimbursable tenant and affiliate costs
|
91,871
|
|
78,669
|
|
155,074
|
|
|||||
|
General and administrative
|
82,352
|
|
103,172
|
|
91,588
|
|
|||||
|
Impairment charges
|
59,303
|
|
29,906
|
|
23,067
|
|
|||||
|
Property expenses, excluding reimbursable tenant costs
|
49,431
|
|
52,199
|
|
37,725
|
|
|||||
|
Stock-based compensation expense
|
18,015
|
|
21,626
|
|
31,075
|
|
|||||
|
Subadvisor fees
|
14,141
|
|
11,303
|
|
5,501
|
|
|||||
|
Dealer manager fees and expenses
|
12,808
|
|
11,403
|
|
21,760
|
|
|||||
|
Restructuring and other compensation
|
11,925
|
|
—
|
|
—
|
|
|||||
|
Merger, property acquisition, and other expenses
|
5,377
|
|
(7,764
|
)
|
34,465
|
|
|||||
|
621,733
|
|
580,829
|
|
637,378
|
|
||||||
|
Other Income and Expenses
|
|||||||||||
|
Interest expense
|
(183,409
|
)
|
(194,326
|
)
|
(178,122
|
)
|
|||||
|
Equity in earnings of equity method investments in the Managed Programs and real estate
|
64,719
|
|
51,020
|
|
44,116
|
|
|||||
|
Other income and (expenses)
|
5,667
|
|
2,113
|
|
(14,230
|
)
|
|||||
|
Gain on change in control of interests
|
—
|
|
—
|
|
105,947
|
|
|||||
|
(113,023
|
)
|
(141,193
|
)
|
(42,289
|
)
|
||||||
|
Income from continuing operations before income taxes and gain on sale of real estate
|
206,777
|
|
216,361
|
|
228,779
|
|
|||||
|
Provision for income taxes
|
(3,288
|
)
|
(37,621
|
)
|
(17,609
|
)
|
|||||
|
Income from continuing operations before gain on sale of real estate
|
203,489
|
|
178,740
|
|
211,170
|
|
|||||
|
Income from discontinued operations, net of tax
|
—
|
|
—
|
|
33,318
|
|
|||||
|
Gain on sale of real estate, net of tax
|
71,318
|
|
6,487
|
|
1,581
|
|
|||||
|
Net Income
|
274,807
|
|
185,227
|
|
246,069
|
|
|||||
|
Net income attributable to noncontrolling interests
|
(7,060
|
)
|
(12,969
|
)
|
(6,385
|
)
|
|||||
|
Net loss attributable to redeemable noncontrolling interest
|
—
|
|
—
|
|
142
|
|
|||||
|
Net Income Attributable to W. P. Carey
|
$
|
267,747
|
|
$
|
172,258
|
|
$
|
239,826
|
|
||
|
Basic Earnings Per Share
|
|||||||||||
|
Income from continuing operations attributable to W. P. Carey
|
$
|
2.50
|
|
$
|
1.62
|
|
$
|
2.08
|
|
||
|
Income from discontinued operations attributable to W. P. Carey
|
—
|
|
—
|
|
0.34
|
|
|||||
|
Net Income Attributable to W. P. Carey
|
$
|
2.50
|
|
$
|
1.62
|
|
$
|
2.42
|
|
||
|
Diluted Earnings Per Share
|
|||||||||||
|
Income from continuing operations attributable to W. P. Carey
|
$
|
2.49
|
|
$
|
1.61
|
|
$
|
2.06
|
|
||
|
Income from discontinued operations attributable to W. P. Carey
|
—
|
|
—
|
|
0.33
|
|
|||||
|
Net Income Attributable to W. P. Carey
|
$
|
2.49
|
|
$
|
1.61
|
|
$
|
2.39
|
|
||
|
Weighted-Average Shares Outstanding
|
|||||||||||
|
Basic
|
106,743,012
|
|
105,675,692
|
|
98,764,164
|
|
|||||
|
Diluted
|
107,073,203
|
|
106,507,652
|
|
99,827,356
|
|
|||||
|
Amounts Attributable to W. P. Carey
|
|||||||||||
|
Income from continuing operations, net of tax
|
$
|
267,747
|
|
$
|
172,258
|
|
$
|
206,329
|
|
||
|
Income from discontinued operations, net of tax
|
—
|
|
—
|
|
33,497
|
|
|||||
|
Net Income
|
$
|
267,747
|
|
$
|
172,258
|
|
$
|
239,826
|
|
||
See Notes to Consolidated Financial Statements.
|
W. P. Carey 2016 10-K
–
81
|
|
W. P. CAREY INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
|
|
Years Ended December 31,
|
||||||||||
|
|
2016
|
2015
|
2014
|
||||||||
|
Net Income
|
$
|
274,807
|
|
$
|
185,227
|
|
$
|
246,069
|
|
||
|
Other Comprehensive Loss
|
|||||||||||
|
Foreign currency translation adjustments
|
(92,434
|
)
|
(125,447
|
)
|
(117,938
|
)
|
|||||
|
Realized and unrealized gain on derivative instruments
|
9,278
|
|
24,053
|
|
21,085
|
|
|||||
|
Change in unrealized (loss) gain on marketable securities
|
(126
|
)
|
15
|
|
(10
|
)
|
|||||
|
(83,282
|
)
|
(101,379
|
)
|
(96,863
|
)
|
||||||
|
Comprehensive Income
|
191,525
|
|
83,848
|
|
149,206
|
|
|||||
|
Amounts Attributable to Noncontrolling Interests
|
|||||||||||
|
Net income
|
(7,060
|
)
|
(12,969
|
)
|
(6,385
|
)
|
|||||
|
Foreign currency translation adjustments
|
1,081
|
|
4,647
|
|
5,977
|
|
|||||
|
Realized and unrealized loss on derivative instruments
|
7
|
|
—
|
|
—
|
|
|||||
|
Comprehensive income attributable to noncontrolling interests
|
(5,972
|
)
|
(8,322
|
)
|
(408
|
)
|
|||||
|
Amounts Attributable to Redeemable Noncontrolling Interest
|
|||||||||||
|
Net loss
|
—
|
|
—
|
|
142
|
|
|||||
|
Foreign currency translation adjustments
|
—
|
|
—
|
|
(9
|
)
|
|||||
|
Comprehensive loss attributable to redeemable noncontrolling interest
|
—
|
|
—
|
|
133
|
|
|||||
|
Comprehensive Income Attributable to W. P. Carey
|
$
|
185,553
|
|
$
|
75,526
|
|
$
|
148,931
|
|
||
See Notes to Consolidated Financial Statements.
|
W. P. Carey 2016 10-K
–
82
|
|
W. P. CAREY INC.
CONSOLIDATED STATEMENTS OF EQUITY
Years Ended
December 31, 2016
,
2015
, and
2014
(in thousands, except share and per share amounts)
|
W. P. Carey Stockholders
|
||||||||||||||||||||||||||||||||||
|
Distributions
|
Accumulated
|
|||||||||||||||||||||||||||||||||
|
Common Stock
|
Additional
|
in Excess of
|
Deferred
|
Other
|
Total
|
|||||||||||||||||||||||||||||
|
$0.001 Par Value
|
Paid-in
|
Accumulated
|
Compensation
|
Comprehensive
|
W. P. Carey
|
Noncontrolling
|
||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Capital
|
Earnings
|
Obligation
|
(Loss) Income
|
Stockholders
|
Interests
|
Total
|
||||||||||||||||||||||||||
|
Balance at January 1, 2016
|
104,448,777
|
|
$
|
104
|
|
$
|
4,282,042
|
|
$
|
(738,652
|
)
|
$
|
56,040
|
|
$
|
(172,291
|
)
|
$
|
3,427,243
|
|
$
|
134,185
|
|
$
|
3,561,428
|
|
||||||||
|
Shares issued under “at-the-market” offering, net
|
1,249,836
|
|
2
|
|
83,764
|
|
83,766
|
|
83,766
|
|
||||||||||||||||||||||||
|
Shares issued to a third party in connection with the redemption of a redeemable noncontrolling interest
|
217,011
|
|
—
|
|
13,418
|
|
13,418
|
|
13,418
|
|
||||||||||||||||||||||||
|
Contributions from noncontrolling interests (
Note 2
)
|
—
|
|
14,530
|
|
14,530
|
|
||||||||||||||||||||||||||||
|
Shares issued upon delivery of vested restricted share awards
|
337,179
|
|
—
|
|
(14,599
|
)
|
(14,599
|
)
|
(14,599
|
)
|
||||||||||||||||||||||||
|
Shares issued upon exercise of stock options and purchases under employee share purchase plan
|
41,359
|
|
—
|
|
(1,210
|
)
|
(1,210
|
)
|
(1,210
|
)
|
||||||||||||||||||||||||
|
Delivery of deferred vested shares, net
|
6,506
|
|
(6,506
|
)
|
—
|
|
—
|
|
||||||||||||||||||||||||||
|
Deconsolidation of affiliate (
Note 2
)
|
—
|
|
(14,184
|
)
|
(14,184
|
)
|
||||||||||||||||||||||||||||
|
Windfall tax benefits - share incentive plans
|
6,711
|
|
6,711
|
|
6,711
|
|
||||||||||||||||||||||||||||
|
Amortization of stock-based compensation expense
|
21,222
|
|
21,222
|
|
21,222
|
|
||||||||||||||||||||||||||||
|
Redemption value adjustment
|
561
|
|
561
|
|
561
|
|
||||||||||||||||||||||||||||
|
Distributions to noncontrolling interests
|
—
|
|
(17,030
|
)
|
(17,030
|
)
|
||||||||||||||||||||||||||||
|
Distributions declared ($3.9292 per share)
|
1,236
|
|
(422,922
|
)
|
688
|
|
(420,998
|
)
|
(420,998
|
)
|
||||||||||||||||||||||||
|
Net income
|
267,747
|
|
267,747
|
|
7,060
|
|
274,807
|
|
||||||||||||||||||||||||||
|
Other comprehensive loss:
|
|
|
|
|
||||||||||||||||||||||||||||||
|
Foreign currency translation adjustments
|
(91,353
|
)
|
(91,353
|
)
|
(1,081
|
)
|
(92,434
|
)
|
||||||||||||||||||||||||||
|
Realized and unrealized gain on derivative instruments
|
9,285
|
|
9,285
|
|
(7
|
)
|
9,278
|
|
||||||||||||||||||||||||||
|
Change in unrealized loss on marketable securities
|
(126
|
)
|
(126
|
)
|
(126
|
)
|
||||||||||||||||||||||||||||
|
Balance at December 31, 2016
|
106,294,162
|
|
$
|
106
|
|
$
|
4,399,651
|
|
$
|
(893,827
|
)
|
$
|
50,222
|
|
$
|
(254,485
|
)
|
$
|
3,301,667
|
|
$
|
123,473
|
|
$
|
3,425,140
|
|
||||||||
|
Balance at January 1, 2015
|
104,040,653
|
|
$
|
104
|
|
$
|
4,293,450
|
|
$
|
(497,730
|
)
|
$
|
30,624
|
|
$
|
(75,559
|
)
|
$
|
3,750,889
|
|
$
|
139,846
|
|
$
|
3,890,735
|
|
||||||||
|
Contributions from noncontrolling interests
|
—
|
|
730
|
|
730
|
|
||||||||||||||||||||||||||||
|
Shares issued upon delivery of vested restricted share awards
|
331,252
|
|
—
|
|
(15,493
|
)
|
(15,493
|
)
|
(15,493
|
)
|
||||||||||||||||||||||||
|
Shares issued upon exercise of stock options and purchases under employee share purchase plan
|
76,872
|
|
—
|
|
(2,735
|
)
|
(2,735
|
)
|
(2,735
|
)
|
||||||||||||||||||||||||
|
Deferral of vested shares, net
|
(20,740
|
)
|
20,740
|
|
—
|
|
—
|
|
||||||||||||||||||||||||||
|
Windfall tax benefits - share incentive plans
|
12,522
|
|
12,522
|
|
12,522
|
|
||||||||||||||||||||||||||||
|
Amortization of stock-based compensation expense
|
21,626
|
|
21,626
|
|
21,626
|
|
||||||||||||||||||||||||||||
|
Redemption value adjustment
|
(8,873
|
)
|
(8,873
|
)
|
(8,873
|
)
|
||||||||||||||||||||||||||||
|
Distributions to noncontrolling interests
|
—
|
|
(14,713
|
)
|
(14,713
|
)
|
||||||||||||||||||||||||||||
|
Distributions declared ($3.8261 per share)
|
2,285
|
|
(413,180
|
)
|
4,676
|
|
(406,219
|
)
|
(406,219
|
)
|
||||||||||||||||||||||||
|
Net income
|
172,258
|
|
172,258
|
|
12,969
|
|
185,227
|
|
||||||||||||||||||||||||||
|
Other comprehensive loss:
|
||||||||||||||||||||||||||||||||||
|
Foreign currency translation adjustments
|
(120,800
|
)
|
(120,800
|
)
|
(4,647
|
)
|
(125,447
|
)
|
||||||||||||||||||||||||||
|
Realized and unrealized gain on derivative instruments
|
24,053
|
|
24,053
|
|
24,053
|
|
||||||||||||||||||||||||||||
|
Change in unrealized gain on marketable securities
|
15
|
|
15
|
|
15
|
|
||||||||||||||||||||||||||||
|
Balance at December 31, 2015
|
104,448,777
|
|
$
|
104
|
|
$
|
4,282,042
|
|
$
|
(738,652
|
)
|
$
|
56,040
|
|
$
|
(172,291
|
)
|
$
|
3,427,243
|
|
$
|
134,185
|
|
$
|
3,561,428
|
|
||||||||
(Continued)
|
W. P. Carey 2016 10-K
–
83
|
|
W. P. CAREY INC.
CONSOLIDATED STATEMENTS OF EQUITY
(Continued)
Years Ended
December 31, 2016
,
2015
, and
2014
(in thousands, except share and per share amounts)
|
W. P. Carey Stockholders
|
||||||||||||||||||||||||||||||||||
|
Distributions
|
Accumulated
|
|||||||||||||||||||||||||||||||||
|
Common Stock
|
Additional
|
in Excess of
|
Deferred
|
Other
|
Total
|
|||||||||||||||||||||||||||||
|
$0.001 Par Value
|
Paid-in
|
Accumulated
|
Compensation
|
Comprehensive
|
W. P. Carey
|
Noncontrolling
|
||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Capital
|
Earnings
|
Obligation
|
(Loss) Income
|
Stockholders
|
Interests
|
Total
|
||||||||||||||||||||||||||
|
Balance at January 1, 2014
|
68,266,570
|
|
$
|
68
|
|
$
|
2,228,031
|
|
$
|
(350,374
|
)
|
$
|
11,354
|
|
$
|
15,336
|
|
$
|
1,904,415
|
|
$
|
298,316
|
|
$
|
2,202,731
|
|
||||||||
|
Shares issued to stockholders of CPA
®
:16 – Global in connection with the CPA
®
:16 Merger
|
30,729,878
|
|
31
|
|
1,815,490
|
|
1,815,521
|
|
1,815,521
|
|
||||||||||||||||||||||||
|
Shares issued in public offering
|
4,600,000
|
|
5
|
|
282,157
|
|
282,162
|
|
282,162
|
|
||||||||||||||||||||||||
|
Purchase of the remaining interests in less-than-wholly owned investments that we already consolidate in connection with the CPA
®
:16 Merger
|
(41,374
|
)
|
(41,374
|
)
|
(239,562
|
)
|
(280,936
|
)
|
||||||||||||||||||||||||||
|
Purchase of noncontrolling interests in connection with the CPA
®
:16 Merger
|
—
|
|
99,757
|
|
99,757
|
|
||||||||||||||||||||||||||||
|
Contributions from noncontrolling interests
|
—
|
|
570
|
|
570
|
|
||||||||||||||||||||||||||||
|
Shares issued upon delivery of vested restricted share awards
|
368,347
|
|
—
|
|
(15,737
|
)
|
(15,737
|
)
|
(15,737
|
)
|
||||||||||||||||||||||||
|
Shares issued upon exercise of stock options and purchases under employee share purchase plan
|
86,895
|
|
—
|
|
462
|
|
462
|
|
462
|
|
||||||||||||||||||||||||
|
Deferral of vested shares, net
|
(15,428
|
)
|
15,428
|
|
—
|
|
—
|
|
||||||||||||||||||||||||||
|
Windfall tax benefits - share incentive plans
|
5,641
|
|
5,641
|
|
5,641
|
|
||||||||||||||||||||||||||||
|
Amortization of stock-based compensation expense
|
31,075
|
|
31,075
|
|
31,075
|
|
||||||||||||||||||||||||||||
|
Redemption value adjustment
|
306
|
|
306
|
|
306
|
|
||||||||||||||||||||||||||||
|
Distributions to noncontrolling interests
|
—
|
|
(19,719
|
)
|
(19,719
|
)
|
||||||||||||||||||||||||||||
|
Distributions declared ($3.6850 per share)
|
3,178
|
|
(386,855
|
)
|
3,842
|
|
(379,835
|
)
|
(379,835
|
)
|
||||||||||||||||||||||||
|
Repurchase of shares
|
(11,037
|
)
|
—
|
|
(351
|
)
|
(327
|
)
|
(678
|
)
|
(678
|
)
|
||||||||||||||||||||||
|
Foreign currency translation
|
—
|
|
76
|
|
76
|
|
||||||||||||||||||||||||||||
|
Net income
|
239,826
|
|
239,826
|
|
6,385
|
|
246,211
|
|
||||||||||||||||||||||||||
|
Other comprehensive loss:
|
||||||||||||||||||||||||||||||||||
|
Foreign currency translation adjustments
|
(111,970
|
)
|
(111,970
|
)
|
(5,977
|
)
|
(117,947
|
)
|
||||||||||||||||||||||||||
|
Realized and unrealized gain on derivative instruments
|
21,085
|
|
21,085
|
|
21,085
|
|
||||||||||||||||||||||||||||
|
Change in unrealized loss on marketable securities
|
(10
|
)
|
(10
|
)
|
(10
|
)
|
||||||||||||||||||||||||||||
|
Balance at December 31, 2014
|
104,040,653
|
|
$
|
104
|
|
$
|
4,293,450
|
|
$
|
(497,730
|
)
|
$
|
30,624
|
|
$
|
(75,559
|
)
|
$
|
3,750,889
|
|
$
|
139,846
|
|
$
|
3,890,735
|
|
||||||||
See Notes to Consolidated Financial Statements.
|
W. P. Carey 2016 10-K
–
84
|
|
W. P. CAREY INC.
(in thousands)
|
Years Ended December 31,
|
|||||||||||
|
2016
|
|
2015
|
2014
|
||||||||
|
Cash Flows — Operating Activities
|
|||||||||||
|
Net income
|
$
|
274,807
|
|
$
|
185,227
|
|
$
|
246,069
|
|
||
|
Adjustments to net income:
|
|||||||||||
|
Depreciation and amortization, including intangible assets and deferred financing costs
|
279,693
|
|
287,835
|
|
248,549
|
|
|||||
|
Gain on sale of real estate
|
(71,318
|
)
|
(6,487
|
)
|
(29,250
|
)
|
|||||
|
Equity in earnings of equity method investments in the Managed Programs and real estate
|
(64,719
|
)
|
(51,020
|
)
|
(44,116
|
)
|
|||||
|
Distributions of earnings from equity investments
|
64,650
|
|
51,435
|
|
42,809
|
|
|||||
|
Impairment charges
|
59,303
|
|
29,906
|
|
23,067
|
|
|||||
|
Management income received in shares of Managed REITs and other
|
(31,786
|
)
|
(23,266
|
)
|
(39,866
|
)
|
|||||
|
Deferred income taxes
|
(21,444
|
)
|
1,476
|
|
(18,565
|
)
|
|||||
|
Stock-based compensation expense
|
21,222
|
|
21,626
|
|
31,075
|
|
|||||
|
Straight-line rent, amortization of rent-related intangibles, and deferred rental revenue
|
(14,514
|
)
|
16,071
|
|
44,843
|
|
|||||
|
Allowance for credit losses
|
7,064
|
|
8,748
|
|
—
|
|
|||||
|
Realized and unrealized (gains) losses on foreign currency transactions, derivatives, extinguishment of debt, and other
|
(1,314
|
)
|
(1,978
|
)
|
3,012
|
|
|||||
|
Gain on change in control of interests
|
—
|
|
—
|
|
(105,947
|
)
|
|||||
|
Amortization of deferred other revenue
|
—
|
|
—
|
|
(786
|
)
|
|||||
|
Changes in assets and liabilities:
|
|||||||||||
|
Deferred acquisition revenue received
|
20,695
|
|
23,469
|
|
15,724
|
|
|||||
|
Payments for withholding taxes upon delivery of equity-based awards and exercises of stock options
|
(16,291
|
)
|
(18,742
|
)
|
(17,165
|
)
|
|||||
|
Increase in structuring revenue receivable
|
(8,951
|
)
|
(29,327
|
)
|
(23,713
|
)
|
|||||
|
Net changes in other operating assets and liabilities
|
20,674
|
|
(17,696
|
)
|
23,352
|
|
|||||
|
Net Cash Provided by Operating Activities
|
517,771
|
|
477,277
|
|
399,092
|
|
|||||
|
Cash Flows — Investing Activities
|
|||||||||||
|
Proceeds from sales of real estate
|
542,422
|
|
35,557
|
|
285,742
|
|
|||||
|
Purchases of real estate
|
(531,694
|
)
|
(674,808
|
)
|
(898,162
|
)
|
|||||
|
Funding of short-term loans to affiliates
|
(257,500
|
)
|
(185,447
|
)
|
(11,000
|
)
|
|||||
|
Funding for real estate construction and expansion
|
(56,557
|
)
|
(28,040
|
)
|
(20,647
|
)
|
|||||
|
Proceeds from repayment of short-term loans to affiliates
|
37,053
|
|
185,447
|
|
11,000
|
|
|||||
|
Deconsolidation of affiliate (
Note 2
)
|
(15,408
|
)
|
—
|
|
—
|
|
|||||
|
Change in investing restricted cash
|
15,188
|
|
26,610
|
|
(23,731
|
)
|
|||||
|
Investment in assets of affiliate (
Note 2
)
|
(14,861
|
)
|
—
|
|
—
|
|
|||||
|
Proceeds from limited partnership units issued by affiliate (
Note 2
)
|
14,184
|
|
—
|
|
—
|
|
|||||
|
Capital expenditures on owned real estate
|
(7,884
|
)
|
(4,415
|
)
|
(5,757
|
)
|
|||||
|
Return of capital from equity investments
|
6,498
|
|
8,200
|
|
13,101
|
|
|||||
|
Value added taxes paid in connection with acquisition and construction of real estate
|
(4,550
|
)
|
(10,401
|
)
|
(7,036
|
)
|
|||||
|
Other investing activities, net
|
3,019
|
|
2,224
|
|
1,652
|
|
|||||
|
Value added taxes refunded in connection with acquisition of real estate
|
1,038
|
|
9,997
|
|
—
|
|
|||||
|
Capital expenditures on corporate assets
|
(1,016
|
)
|
(4,321
|
)
|
(18,262
|
)
|
|||||
|
Proceeds from repayments of note receivable
|
409
|
|
10,441
|
|
1,915
|
|
|||||
|
Capital contributions to equity investments in real estate
|
(147
|
)
|
(16,229
|
)
|
(25,468
|
)
|
|||||
|
Cash acquired in connection with the CPA
®
:16 Merger
|
—
|
|
—
|
|
65,429
|
|
|||||
|
Purchase of securities
|
—
|
|
—
|
|
(7,664
|
)
|
|||||
|
Cash paid to stockholders of CPA
®
:16 – Global in the CPA
®
:16 Merger
|
—
|
|
—
|
|
(1,338
|
)
|
|||||
|
Net Cash Used in Investing Activities
|
(269,806
|
)
|
(645,185
|
)
|
(640,226
|
)
|
|||||
|
Cash Flows — Financing Activities
|
|||||||||||
|
Proceeds from Senior Unsecured Credit Facility
|
1,154,157
|
|
1,044,767
|
|
1,757,151
|
|
|||||
|
Repayments of Senior Unsecured Credit Facility
|
(954,006
|
)
|
(1,330,122
|
)
|
(1,415,000
|
)
|
|||||
|
Distributions paid
|
(416,655
|
)
|
(403,555
|
)
|
(347,902
|
)
|
|||||
|
Proceeds from issuance of Senior Unsecured Notes
|
348,887
|
|
1,022,303
|
|
498,195
|
|
|||||
|
Prepayments of mortgage principal
|
(321,705
|
)
|
(91,560
|
)
|
(220,786
|
)
|
|||||
|
Scheduled payments of mortgage principal
|
(161,104
|
)
|
(90,328
|
)
|
(205,024
|
)
|
|||||
|
Proceeds from shares issued under “at-the-market” offering, net of selling costs
|
84,063
|
|
—
|
|
—
|
|
|||||
|
Proceeds from mortgage financing
|
33,935
|
|
22,667
|
|
20,354
|
|
|||||
|
Distributions paid to noncontrolling interests
|
(17,030
|
)
|
(14,713
|
)
|
(20,646
|
)
|
|||||
|
Windfall tax benefit associated with stock-based compensation awards
|
6,711
|
|
12,522
|
|
5,641
|
|
|||||
|
Payment of financing costs
|
(3,619
|
)
|
(10,878
|
)
|
(12,321
|
)
|
|||||
|
Change in financing restricted cash
|
2,734
|
|
(9,811
|
)
|
(588
|
)
|
|||||
|
Proceeds from exercise of stock options and employee purchases under the employee share purchase plan
|
482
|
|
515
|
|
1,890
|
|
|||||
|
Contributions from noncontrolling interests
|
346
|
|
730
|
|
693
|
|
|||||
|
Proceeds from issuance of shares in public offering
|
—
|
|
—
|
|
282,162
|
|
|||||
|
Repurchase of shares
|
—
|
|
—
|
|
(679
|
)
|
|||||
|
Net Cash (Used in) Provided by Financing Activities
|
(242,804
|
)
|
152,537
|
|
343,140
|
|
|||||
|
Change in Cash and Cash Equivalents During the Year
|
|||||||||||
|
Effect of exchange rate changes on cash
|
(6,906
|
)
|
(26,085
|
)
|
(20,842
|
)
|
|||||
|
Net (decrease) increase in cash and cash equivalents
|
(1,745
|
)
|
(41,456
|
)
|
81,164
|
|
|||||
|
Cash and cash equivalents, beginning of year
|
157,227
|
|
198,683
|
|
117,519
|
|
|||||
|
Cash and cash equivalents, end of year
|
$
|
155,482
|
|
$
|
157,227
|
|
$
|
198,683
|
|
||
See Notes to Consolidated Financial Statements.
|
W. P. Carey 2016 10-K
–
85
|
|
W. P. CAREY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
Supplemental Non-Cash Investing and Financing Activities:
2014
—
On January 31, 2014, CPA
®
:16 – Global merged with and into us in the CPA
®
:16 Merger (
Note 3
). The following table summarizes estimated fair values of the assets acquired and liabilities assumed in the CPA
®
:16 Merger (in thousands):
|
Total Consideration
|
|
|
|
|
Fair value of W. P. Carey shares of common shares issued
|
$
|
1,815,521
|
|
|
Cash consideration for fractional shares
|
1,338
|
|
|
|
Fair value of our equity interest in CPA
®
:16 – Global prior to the CPA
®
:16 Merger
|
349,749
|
|
|
|
Fair value of our equity interest in jointly owned investments with CPA
®
:16 – Global prior to the CPA
®
:16 Merger
|
172,720
|
|
|
|
Fair value of noncontrolling interests acquired
|
(278,187
|
)
|
|
|
2,061,141
|
|
||
|
Assets Acquired at Fair Value
|
|||
|
Net investments in real estate
|
1,970,175
|
|
|
|
Net investments in direct financing leases
|
538,225
|
|
|
|
Equity investments in real estate
|
74,367
|
|
|
|
Assets held for sale
|
133,415
|
|
|
|
Goodwill
|
346,642
|
|
|
|
In-place lease intangible assets
|
553,723
|
|
|
|
Above-market rent intangible assets
|
395,824
|
|
|
|
Other assets
|
85,567
|
|
|
|
Liabilities Assumed at Fair Value
|
|||
|
Non-recourse debt and line of credit
|
(1,768,288
|
)
|
|
|
Accounts payable, accrued expenses and other liabilities
|
(118,389
|
)
|
|
|
Below-market rent and other intangible liabilities
|
(57,569
|
)
|
|
|
Deferred tax liability
|
(58,347
|
)
|
|
|
Amounts attributable to noncontrolling interests
|
(99,633
|
)
|
|
|
Net assets acquired excluding cash
|
1,995,712
|
|
|
|
Cash acquired on acquisition of subsidiaries
|
$
|
65,429
|
|
See Notes to Consolidated Financial Statements.
|
W. P. Carey 2016 10-K
–
86
|
|
W. P. CAREY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
W. P. Carey Inc., or W. P. Carey, is, together with its consolidated subsidiaries, a REIT that provides long-term financing via sale-leaseback and build-to-suit transactions for companies worldwide and manages a global investment portfolio. We invest primarily in commercial properties domestically and internationally. We earn revenue principally by leasing the properties we own to single corporate tenants, primarily on a triple-net lease basis, which generally requires each tenant to pay substantially all of the costs associated with operating and maintaining the property.
Originally founded in 1973, we reorganized as a REIT in September 2012 in connection with our merger with Corporate Property Associates 15 Incorporated. We refer to that merger as the CPA
®
:15 Merger. On January 31, 2014, Corporate Property Associates 16 – Global Incorporated, or CPA
®
:16 – Global, merged with and into us (
Note 3
), which we refer to as the CPA
®
:16 Merger. Our shares of common stock are listed on the New York Stock Exchange under the symbol “WPC.”
We have elected to be taxed as a REIT under Section 856 through 860 of the Internal Revenue Code. As a REIT, we are not generally subject to United States federal income taxation other than from our taxable REIT subsidiaries, or TRSs, as long as we satisfy certain requirements, principally relating to the nature of our income and the level of our distributions, as well as other factors. We hold all of our real estate assets attributable to our Owned Real Estate segment under the REIT structure, while the activities conducted by our Investment Management segment subsidiaries have been organized under TRSs.
Through our TRSs, we also earn revenue as the advisor to publicly owned, non-listed REITs, which are sponsored by us under the Corporate Property Associates, or CPA
®
,
brand name that invest in similar properties. At
December 31, 2016
, we were the advisor to Corporate Property Associates 17 – Global Incorporated, or CPA
®
:17 – Global, and Corporate Property Associates 18 – Global Incorporated, or CPA
®
:18 – Global. We were also the advisor to CPA
®
:16 – Global until its merger with us. We refer to CPA
®
:16 – Global, CPA
®
:17 – Global, and CPA
®
:18 – Global together as the CPA
®
REITs.
At
December 31, 2016
, we were also the advisor to Carey Watermark Investors Incorporated, or CWI 1, and Carey Watermark Investors 2 Incorporated, or CWI 2, two publicly owned, non-listed REITs that invest in lodging and lodging-related properties. We refer to CWI 1 and CWI 2 together as the CWI REITs and, together with the CPA
®
REITs, as the Managed REITs (
Note 4
).
At
December 31, 2016
, we also served as the advisor to Carey Credit Income Fund, or CCIF, a business development company, or BDC, and feeder funds of CCIF, or the CCIF Feeder Funds, which are also BDCs (
Note 4
). In May 2016, one of the CCIF Feeder Funds, Carey Credit Income Fund 2018 T, filed a registration statement on Form N-2 with the SEC to sell up to
102,564,103
shares of its beneficial interest in an initial public offering, with the proceeds to be invested in shares of CCIF. The registration statement was declared effective by the SEC in October 2016 but fundraising has not yet commenced. We refer to CCIF and the CCIF Feeder Funds collectively as the Managed BDCs. At
December 31, 2016
, we were also the advisor to Carey European Student Housing Fund I, L.P., or CESH I, a limited partnership formed for the purpose of developing, owning, and operating student housing properties and similar investments in Europe. We refer to the Managed REITs, Managed BDCs, and CESH I collectively as the Managed Programs.
On May 4, 2016, we filed a registration statement with the SEC for Corporate Property Associates 19 – Global Incorporated, or CPA
®
:19 – Global, a diversified non-traded REIT, for a capital raise of up to
$2.0 billion
, which included
$500.0 million
of shares allocated to CPA
®
:19 – Global’s distribution reinvestment plan. We have decided to delay the introduction of CPA
®
:19 – Global due to regulatory uncertainty surrounding the adoption of the Fiduciary Rule and the resulting impact on the market with regard to product choices, pricing, and timing, which is currently in a state of flux. As a result, there can be no assurances as to whether or when CPA
®
:19 – Global’s offering will commence. Through
December 31, 2016
, the financial activity of CPA
®
:19 – Global, which has no significant assets, liabilities, or operations, was included in our consolidated financial statements.
Reportable Segments
Owned Real Estate
— We own and invest in commercial properties principally in North America, Europe, Australia, and Asia that are then leased to companies, primarily on a triple-net lease basis. We also own
two
hotels, which are considered operating properties. We earn lease revenues from our wholly owned and co-owned real estate investments that we control. In addition, we generate equity income through co-owned real estate investments that we do not control and through our ownership of shares and limited partnership units of the Managed Programs (
Note 7
). Through our special member interests in the operating partnerships of the Managed REITs, we also participate in their cash flows (
Note 4
). At
December 31, 2016
, our owned
|
W. P. Carey 2016 10-K
–
87
|
|
Notes to Consolidated Financial Statements
portfolio was comprised of our full or partial ownership interests in
903
properties, totaling approximately
87.9 million
square feet (unaudited), substantially all of which were net leased to
217
tenants, with an occupancy rate of
99.1%
.
Investment Management
— Through our TRSs, we structure and negotiate investments and debt placement transactions for the Managed REITs and CESH I, for which we earn structuring revenue, and manage their portfolios of real estate investments, for which we earn asset management revenue. We also earn asset management revenue from CCIF based on the average of its gross assets at fair value. We may earn disposition revenue when we negotiate and structure the sale of properties on behalf of the Managed REITs, and we may also earn incentive revenue and receive other compensation through our advisory agreements with certain of the Managed Programs, including in connection with providing liquidity events for the Managed REITs’ stockholders. At
December 31, 2016
, CPA
®
:17 – Global and CPA
®
:18 – Global collectively owned all or a portion of
446
properties, including certain properties in which we have an ownership interest. Substantially all of these properties, totaling approximately
52.0 million
square feet (unaudited), were net leased to
216
tenants, with an average occupancy rate of approximately
99.8%
. The Managed REITs and CESH I also had interests in
160
operating properties, totaling approximately
20.0 million
square feet (unaudited), in the aggregate. We continue to explore alternatives for expanding our investment management operations beyond advising the existing Managed Programs. Any such expansion could involve the purchase of properties or other investments as principal with the intention of transferring such investments to a newly created fund. These new funds could invest primarily in assets other than net-lease real estate and could include funds raised through private placements, such as CESH I, or publicly traded vehicles, either in the United States or internationally.
Critical Accounting Policies and Estimates
Accounting for Acquisitions
In accordance with the guidance for business combinations, we determine whether a transaction or other event is a business combination, which requires that the assets acquired and liabilities assumed constitute a business. Each business combination is then accounted for by applying the acquisition method. If the assets acquired are not a business, we account for the transaction or other event as an asset acquisition. Under both methods, we recognize the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired entity. In addition, for transactions that are business combinations, we evaluate the existence of goodwill or a gain from a bargain purchase. We capitalize acquisition-related costs and fees associated with asset acquisitions. We immediately expense acquisition-related costs and fees associated with business combinations.
Purchase Price Allocation of Tangible Assets
—
When we acquire properties with leases classified as operating leases, we allocate the purchase price to the tangible and intangible assets and liabilities acquired based on their estimated fair values. The tangible assets consist of land, buildings, and site improvements. The intangible assets include the above- and below-market value of leases and the in-place leases, which includes a value for tenant relationships. Land is typically valued utilizing the sales comparison (or market) approach. Buildings are valued, as if vacant, using the cost and/or income approach. Site improvements are valued using the cost approach. The fair value of real estate is determined (i) primarily by reference to portfolio appraisals, which determines their values on a property level, by applying a discounted cash flow analysis to the estimated net operating income for each property in the portfolio during the remaining anticipated lease term, and (ii) by the estimated residual value, which is based on a hypothetical sale of the property upon expiration of a lease factoring in the re-tenanting of such property at estimated current market rental rates, applying a selected capitalization rate, and deducting estimated costs of sale.
Assumptions used in the model are property-specific where this information is available; however, when certain necessary information is not available, we use available regional and property-type information. Assumptions and estimates include the following:
|
•
|
a discount rate or internal rate of return;
|
|
•
|
the marketing period necessary to put a lease in place;
|
|
•
|
carrying costs during the marketing period;
|
|
•
|
leasing commissions and tenant improvement allowances;
|
|
•
|
market rents and growth factors of these rents; and
|
|
•
|
a market lease term and a capitalization rate to be applied to an estimate of market rent at the end of the market lease term.
|
|
W. P. Carey 2016 10-K
–
88
|
|
Notes to Consolidated Financial Statements
The discount rates and residual capitalization rates used to value the properties are selected based on several factors, including:
|
•
|
the creditworthiness of the lessees;
|
|
•
|
industry surveys;
|
|
•
|
property type;
|
|
•
|
property location and age;
|
|
•
|
current lease rates relative to market lease rates; and
|
|
•
|
anticipated lease duration.
|
In the case where a tenant has a purchase option deemed to be favorable to the tenant, or the tenant has long-term renewal options at rental rates below estimated market rental rates, we include the value of the exercise of such purchase option or long-term renewal options in the determination of residual value.
The remaining economic life of leased assets is estimated by relying in part upon third-party appraisals of the leased assets, industry standards, and based on our experience. Different estimates of remaining economic life will affect the depreciation expense that is recorded.
Purchase Price Allocation of Intangible Assets and Liabilities
—
We record above- and below-market lease intangible assets and liabilities for acquired properties based on the present value (using a discount rate reflecting the risks associated with the leases acquired including consideration of the credit of the lessee) of the difference between (i) the contractual rents to be paid pursuant to the leases negotiated and in place at the time of acquisition of the properties and (ii) our estimate of fair market lease rates for the property or equivalent property, both of which are measured over the estimated lease term, which includes renewal options that have rental rates below estimated market rental rates. We discount the difference between the estimated market rent and contractual rent to a present value using an interest rate reflecting our current assessment of the risk associated with the lease acquired, which includes a consideration of the credit of the lessee. Estimates of market rent are generally determined by us relying in part upon a third-party appraisal obtained in connection with the property acquisition and can include estimates of market rent increase factors, which are generally provided in the appraisal or by local real estate brokers. We measure the fair value of below-market purchase option liabilities we acquire as the excess of the present value of the fair value of the real estate over the present value of the tenant’s exercise price at the option date.
We evaluate the specific characteristics of each tenant’s lease and any pre-existing relationship with each tenant in determining the value of in-place lease intangibles. To determine the value of in-place lease intangibles, we consider the following:
|
•
|
estimated market rent;
|
|
•
|
estimated carrying costs of the property during a hypothetical expected lease-up period; and
|
|
•
|
current market conditions and costs to execute similar leases, including tenant improvement allowances and rent concessions.
|
Estimated carrying costs of the property include real estate taxes, insurance, other property operating costs, and estimates of lost rentals at market rates during the market participants’ expected lease-up periods, based on assessments of specific market conditions.
We determine these values using our estimates or by relying in part upon third-party appraisals conducted by independent appraisal firms.
We amortize the above-market lease intangible as a reduction of lease revenue over the remaining contractual lease term. We amortize the below-market lease intangible as an increase to lease revenue over the initial term and any renewal periods in the respective leases. We include the value of below-market leases in Below-market rent and other intangible liabilities in the consolidated financial statements. We include the amortization of above- and below-market ground lease intangibles in Property expenses in the consolidated financial statements.
The value of any in-place lease is estimated to be equal to the acquirer’s avoidance of costs as a result of having tenants in place, that would be necessary to lease the property for a lease term equal to the remaining primary in-place lease term and the value of investment grade tenancy. The cost avoidance is derived first by determining the in-place lease term on the subject lease. Then, based on our review of the market, the cost to be borne by a property owner to replicate a market lease to the remaining in-place term is estimated. These costs consist of: (i) rent lost during downtime (i.e., assumed periods of vacancy), (ii) estimated expenses that would be incurred by the property owner during periods of vacancy, (iii) rent concessions (i.e. free rent), (iv) leasing commissions, and (v) tenant improvements allowances given to tenants. We determine these values using our
|
W. P. Carey 2016 10-K
–
89
|
|
Notes to Consolidated Financial Statements
estimates or by relying in part upon third-party appraisals. We amortize the value of in-place lease intangibles to expense over the remaining initial term of each lease. The amortization period for intangibles does not exceed the remaining depreciable life of the building.
If a lease is terminated, we charge the unamortized portion of above- and below-market lease values to rental income and in-place lease values to amortization expense.
Purchase Price Allocation of Debt
—
When we acquire leveraged properties, the fair value of the related debt instruments is determined using a discounted cash flow model with rates that take into account the credit of the tenants, where applicable, and interest rate risk. Such resulting premium or discount is amortized over the remaining term of the obligation. We also consider the value of the underlying collateral, taking into account the quality of the collateral, the credit quality of the tenant, the time until maturity and the current interest rate.
Purchase Price Allocation of Goodwill
—
In the case of a business combination, after identifying all tangible and intangible assets and liabilities, the excess consideration paid over the fair value of the assets and liabilities acquired and assumed, respectively, represents goodwill. We allocate goodwill to the respective reporting units in which such goodwill arises. Goodwill acquired in the CPA
®
:15 Merger and the CPA
®
:16 Merger was attributed to the Owned Real Estate segment which comprises
one
reporting unit. In the event we dispose of a property that constitutes a business under GAAP from a reporting unit with goodwill, we allocate a portion of the reporting unit’s goodwill to that business in determining the gain or loss on the disposal of the business. The amount of goodwill allocated to the business is based on the relative fair value of the business to the fair value of the reporting unit. As part of purchase accounting, we record any deferred tax assets and/or liabilities resulting from the difference between the tax basis and GAAP basis of the investment in the taxing jurisdiction. Such deferred tax amount will be included in purchase accounting and may impact the amount of goodwill recorded depending on the fair value of all of the other assets and liabilities and the amounts paid.
Impairments
We periodically assess whether there are any indicators that the value of our long-lived real estate and related intangible assets, may be impaired or that their carrying value may not be recoverable. These impairment indicators include, but are not limited to, the vacancy of a property that is not subject to a lease, an upcoming lease expiration, a tenant with credit difficulty, the termination of a lease by a tenant, or a likely disposition of the property. We may incur impairment charges on long-lived assets, including real estate, related intangible assets, direct financing leases, assets held for sale, and equity investments in real estate. We may also incur impairment charges on marketable securities and goodwill. Our policies and estimates for evaluating whether these assets are impaired are presented below.
Real Estate
—
For real estate assets held for investment and related intangible assets in which an impairment indicator is identified, we follow a two-step process to determine whether an asset is impaired and to determine the amount of the charge. First, we compare the carrying value of the property’s asset group to the estimated future net undiscounted cash flow that we expect the property’s asset group will generate, including any estimated proceeds from the eventual sale of the property’s asset group. The undiscounted cash flow analysis requires us to make our best estimate of market rents, residual values, and holding periods. We estimate market rents and residual values using market information from outside sources such as third-party market research, external appraisals, broker quotes, or recent comparable sales. In cases where the available market information is not deemed appropriate, we perform a future net cash flow analysis discounted for inherent risk associated with each asset to determine an estimated fair value.
As our investment objective is to hold properties on a long-term basis, holding periods used in the undiscounted cash flow analysis are generally ten years, but may be less if our intent is to hold a property for less than ten years. Depending on the assumptions made and estimates used, the future cash flow projected in the evaluation of long-lived assets and associated intangible assets can vary within a range of outcomes. We consider the likelihood of possible outcomes in determining our estimate of future cash flows and, if warranted, we apply a probability-weighted method to the different possible scenarios. If the future net undiscounted cash flow of the property’s asset group is less than the carrying value, the carrying value of the property’s asset group is considered not recoverable. We then measure the impairment loss as the excess of the carrying value of the property’s asset group over its estimated fair value. The estimated fair value of the property’s asset group is primarily determined using market information from outside sources such as broker quotes or recent comparable sales. In cases where the available market information is not deemed appropriate, we perform a future net cash flow analysis discounted for inherent risk associated with each asset to determine an estimated fair value.
|
W. P. Carey 2016 10-K
–
90
|
|
Notes to Consolidated Financial Statements
Assets Held for Sale
—
We classify real estate assets that are subject to operating leases or direct financing leases as held for sale when we have entered into a contract to sell the property, all material due diligence requirements have been satisfied, and we believe it is probable that the disposition will occur within one year. When we classify an asset as held for sale, we compare the asset’s fair value less estimated cost to sell to its carrying value, and if the fair value less estimated cost to sell is less than the property’s carrying value, we reduce the carrying value to the fair value less estimated cost to sell. We base the fair value on the contract and the estimated cost to sell on information provided by brokers and legal counsel. We then compare the asset’s fair value (less estimated cost to sell) to its carrying value, and if the fair value, less estimated cost to sell, is less than the property’s carrying value, we reduce the carrying value to the fair value, less estimated cost to sell. We will continue to review the property for subsequent changes in the fair value, and may recognize an additional impairment charge, if warranted.
Direct Financing Leases
—
We review our direct financing leases at least annually to determine whether there has been an other-than-temporary decline in the current estimate of residual value of the property. The residual value is our estimate of what we could realize upon the sale of the property at the end of the lease term, based on market information and third-party estimates, where available. If this review indicates that a decline in residual value has occurred that is other-than-temporary, we recognize an impairment charge equal to the difference between the fair value and carrying amount of the residual value.
We also assess the carrying amount for recoverability and if, as a result of the decreased expected cash flows, we determine that our carrying value is not fully recoverable, we record an allowance for credit losses to reflect the change in the estimate of the future cash flows that includes rent. Accordingly, the net investment balance is written down to fair value. When we enter into a contract to sell the real estate assets that are recorded as direct financing leases, we evaluate whether we believe it is probable that the disposition will occur. If we determine that the disposition is probable, we will classify the net investment as held for sale and write down the net investment to its fair value if the fair value is less than the carrying value.
Equity Investments in the Managed Programs and Real Estate
—
We evaluate our equity investments in the Managed Programs and real estate on a periodic basis to determine if there are any indicators that the value of our equity investment may be impaired and whether or not that impairment is other-than-temporary. To the extent an impairment has occurred and is determined to be other-than-temporary, we measure the charge as the excess of the carrying value of our investment over its estimated fair value, which is determined by calculating our share of the estimated fair market value of the underlying net assets based on the terms of the applicable partnership or joint venture agreement. For our equity investments in real estate, we calculate the estimated fair value of the underlying investment’s real estate or net investment in direct financing lease as described in Real Estate and Direct Financing Leases above. The fair value of the underlying investment’s debt, if any, is calculated based on market interest rates and other market information. The fair value of the underlying investment’s other financial assets and liabilities (excluding net investment in direct financing leases) have fair values that generally approximate their carrying values. For certain investments in the Managed REITs, we calculate the estimated fair value of our investment using the most recently published net asset value per share of each Managed REIT multiplied by the number of shares owned.
Goodwill
—
We evaluate goodwill for possible impairment at least annually or upon the occurrence of a triggering event using a two-step process. A triggering event is an event or circumstance that would more likely than not reduce the fair value of a reporting unit below its carrying amount, including sales of properties defined as businesses for which the relative size of the sold property is significant to the reporting unit, that could impact our goodwill impairment calculations. To identify any impairment, we first compare the estimated fair value of each of our reporting units with their respective carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, we do not consider goodwill to be impaired and no further analysis is required. If the carrying amount of the reporting unit exceeds its estimated fair value, we then perform the second step to determine and measure the amount of the potential impairment charge.
We calculate the estimated fair value of the Investment Management reporting unit by applying a price-to-EBITDA multiple to earnings. For the Owned Real Estate reporting unit, we calculate its estimated fair value by applying an AFFO multiple. For both reporting units, the multiples are based on comparable companies. The selection of the comparable companies to be used in our evaluation process could have a significant impact on the fair value of our reporting units and possible impairments. The testing did not indicate any goodwill impairment as each of the reporting units with goodwill had fair value that was substantially in excess of the carrying value.
For the second step, if it were required, we compare the implied fair value of the goodwill for each reporting unit with its respective carrying amount and record an impairment charge equal to the excess of the carrying amount over the implied fair value. We would determine the implied fair value of the goodwill by allocating the estimated fair value of the reporting unit to its assets and liabilities. The excess of the estimated fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of the goodwill.
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|
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Notes to Consolidated Financial Statements
The goodwill recorded in our Investment Management and Owned Real Estate reporting units is evaluated during the fourth quarter of every year. In connection with the CPA
®
:16 Merger and the CPA
®
:15 Merger, we recorded goodwill in our Owned Real Estate reporting unit. In addition, in connection with the acquisition of certain international properties, we have recorded goodwill in our Owned Real Estate reporting unit related to deferred foreign income taxes. Prior to the CPA
®
:15 Merger, there was no goodwill recorded in our Owned Real Estate reporting unit.
Other Accounting Policies
Basis of Consolidation
—
Our consolidated financial statements reflect all of our accounts, including those of our controlled subsidiaries and our tenancy-in-common interest as described below. The portions of equity in consolidated subsidiaries that are not attributable, directly or indirectly, to us are presented as noncontrolling interests. All significant intercompany accounts and transactions have been eliminated.
On January 1, 2016, we adopted the Financial Accounting Standards Board’s, or FASB’s, Accounting Standards Update, or ASU, 2015-02,
Consolidation (Topic 810): Amendments to the Consolidation Analysis
, as described in the Recent Accounting Pronouncements section below, which amends the current consolidation guidance, including introducing a separate consolidation analysis specific to limited partnerships and other similar entities. When we obtain an economic interest in an entity, we evaluate the entity to determine if it should be deemed a variable interest entity, or VIE, and, if so, whether we are the primary beneficiary and are therefore required to consolidate the entity. We apply accounting guidance for consolidation of VIEs to certain entities in which the equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. Fixed price purchase and renewal options within a lease, as well as certain decision-making rights within a loan or joint-venture agreement, can cause us to consider an entity a VIE. Limited partnerships and other similar entities that operate as a partnership will be considered a VIE unless the limited partners hold substantive kick-out rights or participation rights. Significant judgment is required to determine whether a VIE should be consolidated. We review the contractual arrangements provided for in the partnership agreement or other related contracts to determine whether the entity is considered a VIE, and to establish whether we have any variable interests in the VIE. We then compare our variable interests, if any, to those of the other variable interest holders to determine which party is the primary beneficiary of the VIE based on whether the entity (i) has the power to direct the activities that most significantly impact the economic performance of the VIE and (ii) has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. We performed this analysis on all of our subsidiary entities following the guidance in ASU 2015-02 to determine whether they qualify as VIEs and whether they should be consolidated or accounted for as equity investments in an unconsolidated venture. As a result of this change in guidance, we determined that
13
entities that were previously classified as voting interest entities should now be classified as VIEs as of January 1, 2016 and therefore included in our VIE disclosures. However, there was no change in determining whether or not we consolidate these entities as we continue not to be the primary beneficiary. We elected to retrospectively adopt ASU 2015-02, which resulted in changes to our VIE disclosures. There were no other changes to our consolidated balance sheets or results of operations for the periods presented. The liabilities of these VIEs are non-recourse to us and can only be satisfied from each VIE’s respective assets.
At
December 31, 2016
, we considered
32
entities VIEs,
25
of which we consolidated as we are considered the primary beneficiary. The following table presents a summary of selected financial data of the consolidated VIEs included in the consolidated balance sheets (in thousands):
|
December 31,
|
|||||||
|
2016
|
2015
|
||||||
|
Net investments in properties
|
$
|
786,379
|
|
$
|
890,454
|
|
|
|
Net investments in direct financing leases
|
60,294
|
|
61,454
|
|
|||
|
In-place lease and tenant relationship intangible assets, net
|
182,177
|
|
214,924
|
|
|||
|
Above-market rent intangible assets, net
|
71,852
|
|
80,901
|
|
|||
|
Total assets
|
1,150,093
|
|
1,297,276
|
|
|||
|
Non-recourse debt, net
|
$
|
406,574
|
|
$
|
439,285
|
|
|
|
Total liabilities
|
548,659
|
|
590,596
|
|
|||
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|
|
Notes to Consolidated Financial Statements
At both
December 31, 2016
and
2015
, our
seven
unconsolidated VIEs included our interests in
six
unconsolidated real estate investments and
one
unconsolidated entity among our interests in the Managed Programs, all of which we account for under the equity method of accounting. We do not consolidate these entities because we are not the primary beneficiary and the nature of our involvement in the activities of these entities allows us to exercise significant influence on, but does not give us power over, decisions that significantly affect the economic performance of these entities. As of
December 31, 2016
and
2015
, the net carrying amount of our investments in these entities was
$152.9 million
and
$154.8 million
, respectively, and our maximum exposure to loss in these entities was limited to our investments.
At
December 31, 2016
, we had an investment in a tenancy-in-common interest in various underlying international properties. Consolidation of this investment is not required as such interest does not qualify as a VIE and does not meet the control requirement for consolidation. Accordingly, we account for this investment using the equity method of accounting. We use the equity method of accounting because the shared decision-making involved in a tenancy-in-common interest investment provides us with significant influence on the operating and financial decisions of this investment. We also had certain investments in other wholly owned tenancy-in-common interests, which we now consolidate after we obtained the remaining interests in the CPA
®
:16 Merger.
In connection with the CPA
®
:16 Merger, we acquired
19
VIEs. In accordance with ASU 2015-02, we determined that
seven
of these entities, which were previously classified as voting interest entities, should now be classified as VIEs as of January 1, 2016 and therefore included in our VIE disclosures.
At times, the carrying value of our equity investments may fall below zero for certain investments. We intend to fund our share of the jointly owned investments’ future operating deficits should the need arise. However, we have no legal obligation to pay for any of the liabilities of such investments nor do we have any legal obligation to fund operating deficits. At
December 31, 2016
, none of our equity investments had a carrying value below zero.
On April 20, 2016, we formed a limited partnership, CESH I, for the purpose of developing, owning, and operating student housing properties and similar investments in Europe. CESH I commenced fundraising in July 2016 through a private placement with an initial offering of
$100.0 million
and a maximum offering of
$150.0 million
. Through August 30, 2016, the financial results and balances of CESH I were included in our consolidated financial statements, and we had collected
$14.2 million
of net proceeds on behalf of CESH I from limited partnership units issued in the private placement primarily to independent investors. On August 31, 2016, we determined that CESH I had sufficient equity to finance its operations and that we were no longer considered the primary beneficiary, and as a result we deconsolidated CESH I and began to account for our interest in it at fair value by electing the equity method fair value option available under U.S. GAAP. As of August 31, 2016, CESH I had assets totaling
$30.3 million
on our consolidated balance sheet, including
$15.4 million
in Cash and cash equivalents and
$14.9 million
in Other assets, net. In connection with the deconsolidation, we recorded offsetting amounts of
$14.2 million
for the year ended December 31, 2016 in Contributions from noncontrolling interests and Deconsolidation of affiliate in the consolidated statements of equity, and in Proceeds from limited partnership units issued by affiliate and Deconsolidation of affiliate in the consolidated statements of cash flows. We recognized a gain on deconsolidation of
$1.9 million
, which is included in Other income and (expenses) in the consolidated statements of income for the year ended December 31, 2016. The deconsolidation did not have a material impact on our financial position or results of operations. Following the deconsolidation, we continue to serve as the advisor to CESH I (
Note 4
).
As of December 31, 2016, CPA
®
:19 – Global had not yet commenced fundraising through its registered public offering. Therefore, we included the financial activity of CPA
®
:19 – Global in our consolidated financial statements and eliminated all intercompany accounts and transactions in consolidation. For the year ended December 31, 2016, the consolidated results of operations from CPA
®
:19 – Global were insignificant. All assets and liabilities of CPA
®
:19 – Global were insignificant as of December 31, 2016. We have decided to delay the introduction of CPA
®
:19 – Global due to regulatory uncertainty surrounding the adoption of the Fiduciary Rule and the resulting impact on the market with regard to product choices, pricing, and timing, which is currently in a state of flux. As a result, there can be no assurances as to whether or when CPA
®
:19 – Global’s offering will commence.
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|
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Notes to Consolidated Financial Statements
Out-of-Period Adjustments
During the second quarter of 2016, we identified and recorded out-of-period adjustments related to adjustments to prior period income tax returns. We concluded that these adjustments were not material to our consolidated financial statements for any of the current or prior periods presented. The net adjustment is reflected as a
$3.0 million
increase in our Provision for income taxes in the consolidated statements of income for the year ended December 31, 2016, with a net increase to Accounts payable, accrued expenses and other liabilities and Accumulated other comprehensive loss in the consolidated balance sheet as of December 31, 2016.
Reclassifications
—
Certain prior period amounts have been reclassified to conform to the current period presentation.
On January 1, 2016, we adopted
ASU 2015-03, Interest-Imputation of Interest
(Subtopic 835-30)
as described in the Recent Accounting Pronouncements section below. ASU 2015-03 changes the presentation of debt issuance costs, which were previously recognized as an asset and requires that they be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. As a result of adopting this guidance, we reclassified
$12.6 million
of deferred financing costs, net from Other assets, net to Non-recourse debt, net, Senior Unsecured Notes, net, and Senior Unsecured Credit Facility - Term Loan, net as of December 31, 2015.
Real Estate and Operating Real Estate
—
We carry land, buildings, and personal property at cost less accumulated depreciation. We capitalize improvements and significant renovations that extend the useful life of the properties, while we expense replacements, maintenance, and repairs that do not improve or extend the lives of the respective assets as incurred.
Assets Held for Sale
—
We classify those assets as held for sale when we have entered into a contract to sell the property, all material due diligence requirements have been satisfied, and we believe it is probable that the disposition will occur within one year. Assets held for sale are recorded at the lower of carrying value or estimated fair value, less estimated costs to sell. For the year ended December 31, 2014, the results of operations and the related gain or loss on sale of properties held for sale as of December 31, 2013 and sold during 2014, and properties we acquired in the CPA
®
:16 Merger that were held for sale and sold during 2014, were included in income from discontinued operations. Prior to January 1, 2014, the results of operations and the related gain or loss on sale of properties that have been sold or that were classified as held for sale and in which we will have no significant continuing involvement are included in discontinued operations (
Note 17
).
In the unlikely event that we decide not to sell a property previously classified as held for sale, we reclassify the property as held and used. We measure and record a property that is reclassified as held and used at the lower of (i) its carrying amount before the property was classified as held for sale, adjusted for any depreciation expense that would have been recognized had the property been continuously classified as held and used or (ii) the estimated fair value at the date of the subsequent decision not to sell.
We recognize gains and losses on the sale of properties when, among other criteria, we no longer have continuing involvement, the parties are bound by the terms of the contract, all consideration has been exchanged, and all conditions precedent to closing have been performed. At the time the sale is consummated, a gain or loss is recognized as the difference between the sale price, less any selling costs, and the carrying value of the property.
Notes Receivable
—
For investments in mortgage notes and loan participations, the loans are initially reflected at acquisition cost, which consists of the outstanding balance, net of the acquisition discount or premium. We amortize any discount or premium as an adjustment to increase or decrease, respectively, the yield realized on these loans over the life of the loan. As such, differences between carrying value and principal balances outstanding do not represent embedded losses or gains as we generally plan to hold such loans to maturity. Our notes receivable are included in Other assets, net in the consolidated financial statements.
Cash and Cash Equivalents
—
We consider all short-term, highly liquid investments that are both readily convertible to cash and have a maturity of three months or less at the time of purchase to be cash equivalents. Items classified as cash equivalents include commercial paper and money market funds. Our cash and cash equivalents are held in the custody of several financial institutions, and these balances, at times, exceed federally insurable limits. We seek to mitigate this risk by depositing funds only with major financial institutions.
Internal-Use Software Development Costs
—
We expense costs associated with the assessment stage of software development projects. Upon completion of the preliminary project assessment stage, we capitalize internal and external costs associated with the application development stage, including the costs associated with software that allows for the conversion of our old data to
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|
|
Notes to Consolidated Financial Statements
our new system. We expense the personnel-related costs of training and data conversion. We also expense costs associated with the post-implementation and operation stage, including maintenance and specified upgrades; however, we capitalize internal and external costs associated with significant upgrades to existing systems that result in additional functionality. Capitalized costs are amortized on a straight-line basis over the software’s estimated useful life, which is
three
to
seven years
. Periodically, we reassess the useful life considering technology, obsolescence, and other factors.
Other Assets and Liabilities
—
We include prepaid expenses, deferred rental income, tenant receivables, deferred charges, escrow balances held by lenders, restricted cash balances, marketable securities, derivative assets, other intangible assets, corporate fixed assets, and notes receivable in Other assets, net. We include derivative liabilities, amounts held on behalf of tenants, and deferred revenue in Accounts payable, accrued expenses and other liabilities. Deferred charges are costs incurred in connection with obtaining or amending our credit facility that are amortized over the terms of the debt and included in Interest expense in the consolidated financial statements. Deferred rental income is the aggregate cumulative difference for operating leases between scheduled rents that vary during the lease term, and rent recognized on a straight-line basis.
Allowance for Doubtful Accounts
—
We consider rents due under leases and payments under notes receivable to be past-due or delinquent when a contractually required rent, principal payment, or interest payment is not remitted in accordance with the provisions of the underlying agreement. We evaluate each account individually and set up an allowance when, based upon current information and events, it is probable that we will be unable to collect all amounts due according to the existing contractual terms, and the amount can be reasonably estimated.
Revenue Recognition, Real Estate Leased to Others
—
We lease real estate to others primarily on a triple-net leased basis, whereby the tenant is generally responsible for operating expenses relating to the property, including property taxes, insurance, maintenance, repairs, and improvements. For the years ended
December 31, 2016
,
2015
, and
2014
, our tenants, pursuant to their lease obligations, have made direct payment to the taxing authorities of real estate taxes of approximately
$56.0 million
,
$57.7 million
, and
$59.8 million
, respectively.
Substantially all of our leases provide for either scheduled rent increases, periodic rent adjustments based on formulas indexed to changes in the Consumer Price Index, or CPI, or similar indices, or percentage rents. CPI-based adjustments are contingent on future events and are therefore not included as minimum rent in straight-line rent calculations. We recognize rents from percentage rents as reported by the lessees, which is after the level of sales requiring a rental payment to us is reached. Percentage rents were insignificant for the periods presented.
For our operating leases, we record real estate at cost less accumulated depreciation; we recognize future minimum rental revenue on a straight-line basis over the non-cancelable lease term of the related leases and charge expenses to operations as incurred (
Note 5
). We record leases accounted for under the direct financing method as a net investment in leases (
Note 6
). The net investment is equal to the cost of the leased assets. The difference between the cost and the gross investment, which includes the residual value of the leased asset and the future minimum rents, is unearned income. We defer and amortize unearned income to income over the lease term so as to produce a constant periodic rate of return on our net investment in the lease.
Revenue Recognition, Investment Management Operations
—
We earn structuring revenue and asset management revenue in connection with providing services to the Managed Programs. We earn structuring revenue for services we provide in connection with the analysis, negotiation, and structuring of transactions, including acquisitions and dispositions and the placement of mortgage financing obtained by the Managed REITs and CESH I. We earn asset management revenue from property management, leasing, and advisory services performed. Receipt of the incentive revenue portion of the asset management revenue or performance revenue, however, was subordinated to the achievement of specified cumulative return requirements by the stockholders of those CPA
®
REITs. At our option, the performance revenue could be collected in cash or shares of the CPA
®
REIT (
Note 4
). In addition, we earn subordinated incentive and disposition revenue related to the disposition of properties. We may also earn termination revenue in connection with the termination of the advisory agreements for the Managed REITs.
We recognize all revenue as earned. We earn structuring revenue upon the consummation of a transaction and asset management revenue when services are performed. We recognize revenue subject to subordination only when the performance criteria of the Managed REIT is achieved and contractual limitations are not exceeded.
We may earn termination revenue if a liquidity event is consummated by any of the Managed REITs. As a condition of the CPA
®
:16 Merger, we waived the subordinated disposition and termination fees that we would have been entitled to receive from CPA
®
:16 – Global upon its liquidation pursuant to the terms of our advisory agreement with CPA
®
:16 – Global (
Note 4
).
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|
|
Notes to Consolidated Financial Statements
We are also reimbursed for certain costs incurred in providing services, including broker-dealer commissions paid and annual distribution and shareholder servicing fees incurred on behalf of the Managed Programs, marketing costs, and the cost of personnel provided for the administration of the Managed Programs. We record reimbursement income as the expenses are incurred, subject to limitations on a Managed Program’s ability to incur offering costs or limitations imposed by the advisory agreements.
Asset Retirement Obligations —
Asset retirement obligations relate to the legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development, and/or normal operation of a long-lived asset. The fair value of a liability for an asset retirement obligation is recorded in the period in which it is incurred and the cost of such liability is recorded as an increase in the carrying amount of the related long-lived asset by the same amount. The liability is accreted each period and the capitalized cost is depreciated over the estimated remaining life of the related long-lived asset. Revisions to estimated retirement obligations result in adjustments to the related capitalized asset and corresponding liability.
In order to determine the fair value of the asset retirement obligations, we make certain estimates and assumptions including, among other things, projected cash flows, the borrowing interest rate, and an assessment of market conditions that could significantly impact the estimated fair value. These estimates and assumptions are subjective.
Depreciation
—
We compute depreciation of building and related improvements using the straight-line method over the estimated remaining useful lives of the properties (not to exceed
40 years
) and furniture, fixtures, and equipment (generally up to
seven years
). We compute depreciation of tenant improvements using the straight-line method over the lesser of the remaining term of the lease or the estimated useful life.
Stock-Based Compensation
—
We have granted stock options, restricted share awards, or RSAs, restricted share units, or RSUs, and performance share units, or PSUs, to certain employees and independent directors. Grants were awarded in the name of the recipient subject to certain restrictions of transferability and a risk of forfeiture. Stock-based compensation expense for all equity-classified stock-based compensation awards is based on the grant date fair value estimated in accordance with current accounting guidance for share-based payments. We recognize these compensation costs for only those shares expected to vest on a straight-line or graded-vesting basis, as appropriate, over the requisite service period of the award. We include stock-based compensation within Additional paid-in capital in the consolidated statements of equity.
Foreign Currency
Translation and Transaction Gains and Losses
—
We have interests in real estate investments primarily in the European Union, the United Kingdom, and Australia for which the functional currency is the euro, the British pound sterling, and the Australian dollar, respectively. We perform the translation from the euro, the British pound sterling, or the Australian dollar to the U.S. dollar for assets and liabilities using current exchange rates in effect at the balance sheet date and for revenue and expense accounts using a weighted-average exchange rate during the year. We report the gains and losses resulting from such translation as a component of other comprehensive loss in equity. These translation gains and losses are released to net income when we have substantially exited from all investments in the related currency.
A transaction gain or loss (measured from the transaction date or the most recent intervening balance sheet date, whichever is later), realized upon settlement of a foreign currency transaction generally will be included in net income for the period in which the transaction is settled. Also, foreign currency intercompany transactions that are scheduled for settlement, consisting primarily of accrued interest and the translation to the reporting currency of short-term subordinated intercompany debt with scheduled principal payments, are included in the determination of net income.
Intercompany foreign currency transactions of a long term nature (that is, settlement is not planned or anticipated in the foreseeable future), in which the entities to the transactions are consolidated or accounted for by the equity method in our consolidated financial statements, are not included in net income but are reported as a component of other comprehensive loss in equity.
Net realized gains or (losses) are recognized on foreign currency transactions in connection with the transfer of cash from foreign operations of subsidiaries to the parent company. For the years ended
December 31, 2016
,
2015
, and
2014
, we recognized net realized losses on such transactions of
$3.7 million
,
$0.8 million
, and
$0.4 million
, respectively.
Derivative Instruments
—
We measure derivative instruments at fair value and record them as assets or liabilities, depending on our rights or obligations under the applicable derivative contract. Derivatives that are not designated as hedges must be adjusted to fair value through earnings. For a derivative designated and that qualified as a cash flow hedge, the effective portion of the change in fair value of the derivative is recognized in
Other comprehensive loss
until the hedged item is recognized in earnings.
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|
|
Notes to Consolidated Financial Statements
The ineffective portion of a derivative’s change in fair value is immediately recognized in earnings. For a derivative designated and that qualified as a net investment hedge, the effective portion of the change in the fair value and/or the net settlement of the derivative are reported in
Other comprehensive loss
as part of the cumulative foreign currency translation adjustment. The ineffective portion of the change in fair value of the derivative is recognized directly in earnings. Amounts are reclassified out of
Other comprehensive loss
into earnings when the hedged investment is either sold or substantially liquidated.
We use the portfolio exception in Accounting Standards Codification, 820-10-35-18D,
Application to Financial Assets and Financial Liabilities with Offsetting Positions in Market Risk or Counterparty Credit Risk
, with respect to measuring counterparty credit risk for all of our derivative transactions subject to master netting arrangements.
Income Taxes
—
We have elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code. In order to maintain our qualification as a REIT, we are required, among other things, to distribute at least 90% of our REIT net taxable income to our stockholders and meet certain tests regarding the nature of our income and assets. As a REIT, we are not subject to federal income taxes on our income and gains that we distribute to our stockholders as long as we satisfy certain requirements, principally relating to the nature of our income and the level of our distributions, as well as other factors. We believe that we have operated, and we intend to continue to operate, in a manner that allows us to continue to qualify as a REIT.
We conduct business in various states and municipalities within North America, Europe, Australia, and Asia and, as a result, we or one or more of our subsidiaries file income tax returns in the United States federal jurisdiction and various state and certain foreign jurisdictions. As a result, we are subject to certain foreign, state, and local taxes and a provision for such taxes is included in the consolidated financial statements.
We elect to treat certain of our corporate subsidiaries as TRSs. In general, a TRS may perform additional services for our tenants and generally may engage in any real estate or non-real estate-related business (except for the operation or management of health care facilities or lodging facilities or providing to any person, under a franchise, license or otherwise, rights to any brand name under which any lodging facility or health care facility is operated). A TRS is subject to corporate federal income tax.
Significant judgment is required in determining our tax provision and in evaluating our tax positions. We establish tax reserves based on a benefit recognition model, which we believe could result in a greater amount of benefit (and a lower amount of reserve) being initially recognized in certain circumstances. Provided that the tax position is deemed more likely than not of being sustained, we recognize the largest amount of tax benefit that is greater than 50% likely of being ultimately realized upon settlement. We derecognize the tax position when it is no longer more likely than not of being sustained.
Our earnings and profits, which determine the taxability of distributions to stockholders, differ from net income reported for financial reporting purposes due primarily to differences in depreciation, including hotel properties, and timing differences of rent recognition and certain expense deductions, for federal income tax purposes. Deferred income taxes relate primarily to our TRSs and foreign properties and are accounted for using the asset and liability method. Under this method, deferred income taxes are recognized for temporary differences between the financial reporting bases of assets and liabilities of our TRSs and their respective tax bases and for their operating loss and tax credit carryforwards based on enacted tax rates expected to be in effect when such amounts are realized or settled. However, deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based on consideration of available evidence, including tax planning strategies and other factors (
Note 16
).
We recognize deferred income taxes in certain of our subsidiaries taxable in the United States or in foreign jurisdictions. Deferred income taxes are generally the result of temporary differences (items that are treated differently for tax purposes than for U.S. GAAP purposes as described in
Note 16
). In addition, deferred tax assets arise from unutilized tax net operating losses, generated in prior years. Deferred income taxes are computed under the asset and liability method. The asset and liability method requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between tax bases and financial bases of assets and liabilities. We provide a valuation allowance against our deferred income tax assets when we believe that it is more likely than not that all or some portion of the deferred income tax asset may not be realized. Whenever a change in circumstances causes a change in the estimated realizability of the related deferred income tax asset, the resulting increase or decrease in the valuation allowance is included in deferred income tax expense (benefit).
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|
|
Notes to Consolidated Financial Statements
We derive most of our REIT income from our real estate operations under our Owned Real Estate segment. As such, our domestic real estate operations are generally not subject to federal tax, and accordingly, no provision has been made for U.S. federal income taxes in the consolidated financial statements for these operations. These operations may be subject to certain state, local, and foreign taxes, as applicable. We conduct our Investment Management operations primarily through TRSs. These operations are subject to federal, state, local, and foreign taxes, as applicable. Our financial statements are prepared on a consolidated basis including these TRSs and include a provision for current and deferred taxes on these operations.
Earnings Per Share
—
Basic earnings per share is calculated by dividing net income available to common stockholders, as adjusted for unallocated earnings attributable to the unvested RSUs and RSAs by the weighted-average number of shares of common stock outstanding during the year. Diluted earnings per share reflects potentially dilutive securities (options and PSUs) using the treasury stock method, except when the effect would be anti-dilutive.
Use of Estimates
—
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in our consolidated financial statements and the accompanying notes. Actual results could differ from those estimates.
Recent Accounting Pronouncements
In May 2014, the FASB issued
ASU 2014-09
,
Revenue from Contracts with Customers (Topic 606).
ASU 2014-09 is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. ASU 2014-09 does not apply to our lease revenues, which constitute a majority of our revenues, but will apply to reimbursed tenant costs and revenues generated from our operating properties and our Investment Management business. We will adopt this guidance for our annual and interim periods beginning January 1, 2018 using one of two methods: retrospective restatement for each reporting period presented at the time of adoption, or retrospectively with the cumulative effect of initially applying this guidance recognized at the date of initial application. We have not decided which method of adoption we will use. We are evaluating the impact of the new standard and have not yet determined if it will have a material impact on our business or our consolidated financial statements.
In February 2015, the FASB issued
ASU 2015-02, Consolidation (Topic 810).
ASU 2015-02 amends the current consolidation guidance, including modification of the guidance for evaluating whether limited partnerships and similar legal entities are VIEs or voting interest entities. The guidance does not amend the existing disclosure requirements for VIEs or voting interest model entities. The guidance, however, modified the requirements to qualify under the voting interest model. Under the revised guidance, ASU 2015-02 requires an entity to classify a limited liability company or a limited partnership as a VIE unless the partnership provides partners with either substantive kick-out rights over the managing member or substantive participating rights over the entity or VIE. Please refer to the discussion in the Basis of Consolidation section above.
In April 2015, the FASB issued
ASU 2015-03, Interest-Imputation of Interest (Subtopic 835-30)
. ASU 2015-03 changes the presentation of debt issuance costs, which were previously recognized as an asset, and requires that they be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. ASU 2015-03 does not affect the recognition and measurement guidance for debt issuance costs. ASU 2015-03 is effective for periods beginning after December 15, 2015, and retrospective application is required. We adopted ASU 2015-03 on January 1, 2016 and have disclosed the reclassification of our debt issuance costs in the Reclassifications section above.
In February 2016, the FASB issued
ASU 2016-02, Leases (Topic 842).
ASU 2016-02 outlines a new model for accounting by lessees, whereby their rights and obligations under substantially all leases, existing and new, would be capitalized and recorded on the balance sheet. For lessors, however, the accounting remains largely unchanged from the current model, with the distinction between operating and financing leases retained, but updated to align with certain changes to the lessee model and the new revenue recognition standard. The new standard also replaces existing sale-leaseback guidance with a new model applicable to both lessees and lessors. Additionally, the new standard requires extensive quantitative and qualitative disclosures. ASU 2016-02 is effective for U.S. GAAP public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years; for all other entities, the final lease standard will be effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early application will be permitted for all entities. The new standard must be adopted using a modified retrospective transition of the new guidance and provides for certain practical expedients. Transition will require application of the new model at the beginning of the earliest comparative period presented. The ASU is expected to impact our consolidated financial statements as we have certain operating office and land lease arrangements for which we are the lessee. We are evaluating the impact of the new standard and have not yet determined if it will have a material impact on our business or our consolidated financial statements.
|
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|
|
Notes to Consolidated Financial Statements
In March 2016, the FASB issued
ASU 2016-05, Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships.
ASU 2016-05 clarifies that a change in counterparty to a derivative contract, in and of itself, does not require the dedesignation of a hedging relationship. ASU 2016-05 is effective for fiscal years beginning after December 15, 2016, including interim periods within those years. Early adoption is permitted and entities have the option of adopting this guidance on a prospective basis to new derivative contracts or on a modified retrospective basis. We elected to early adopt ASU 2016-05 on January 1, 2016 on a prospective basis, and there was no impact on our consolidated financial statements.
In March 2016, the FASB issued
ASU 2016-07, Investments – Equity Method and Joint Ventures (Topic 323).
ASU 2016-07 simplifies the transition to the equity method of accounting. ASU 2016-07 eliminates the requirement to apply the equity method of accounting retrospectively when a reporting entity obtains significant influence over a previously held investment. Instead the equity method of accounting will be applied prospectively from the date significant influence is obtained. The new standard should be applied prospectively for investments that qualify for the equity method of accounting in interim and annual periods beginning after December 15, 2016. Early adoption is permitted, and we elected to early adopt this standard as of January 1, 2016. The adoption of this standard had no impact on our consolidated financial statements.
In March 2016, the FASB issued
ASU 2016-09, Improvements to Employee Share-Based Payment Accounting.
ASU 2016-09 amends Accounting Standards Codification Topic 718, Compensation-Stock Based Compensation to simplify various aspects of how share-based payments are accounted for and presented in the financial statements including (i) reflecting income tax effects of share-based payments through the income statement, (ii) allowing statutory tax withholding requirements at the employees’ maximum individual tax rate without requiring awards to be classified as liabilities and (iii) permitting an entity to make an accounting policy election for the impact of forfeitures on the recognition of expense. ASU 2016-09 is effective for public business entities for annual reporting periods beginning after December 15, 2016, and interim periods within that reporting period, with early adoption permitted.
We adopted ASU 2016-09 as of January 1, 2017 and elected to account for forfeitures as they occur, rather than to account for them based on an estimate of expected forfeitures. This election is to be adopted using a modified retrospective transition method, with a cumulative effect adjustment to retained earnings. The related financial statement impact of this adjustment is not expected to be material. Depending on several factors, such as the market price of our common stock, employee stock option exercise behavior, and corporate income tax rates, the excess tax benefits associated with the exercise of stock options and the vesting and delivery of RSAs, RSUs, and PSUs could generate a significant income tax benefit in a particular interim period, potentially creating volatility in Net income attributable to W. P. Carey and basic and diluted earnings per share between interim periods. We do not expect that the impact will be material to Net income attributable to W. P. Carey and basic and diluted earnings per share on an annual basis. Under the current accounting guidance, windfall tax benefits related to stock-based compensation were approximately
$6.7 million
and
$12.5 million
during the years ended December 31, 2016 and 2015, respectively, and were recognized within Additional paid-in capital in our consolidated financial statements. If ASU 2016-09 had been adopted as of January 1, 2015, these amounts would have been reflected as a reduction to Provision for income taxes in those respective periods.
In June 2016, the FASB issued
ASU 2016-13, Financial Instruments – Credit Losses.
ASU 2016-13 introduces a new model for estimating credit losses based on current expected credit losses for certain types of financial instruments, including loans receivable, held-to-maturity debt securities, and net investments in direct financing leases, amongst other financial instruments. ASU 2016-13 also modifies the impairment model for available-for-sale debt securities and expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for losses. ASU 2016-13 will be effective for public business entities in fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early application of the guidance permitted. We are in the process of evaluating the impact of adopting ASU 2016-13 on our consolidated financial statements.
In August 2016, the FASB issued
ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
. ASU 2016-15 intends to reduce diversity in practice for certain cash flow classifications, including, but not limited to (i) debt prepayment or debt extinguishment costs, (ii) contingent consideration payments made after a business combination, (iii) proceeds from the settlement of insurance claims, and (iv) distributions received from equity method investees. ASU 2016-15 will be effective for public business entities in fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early application of the guidance permitted. We are in the process of evaluating the impact of adopting ASU 2016-15 on our consolidated financial statements.
|
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|
|
Notes to Consolidated Financial Statements
In October 2016, the FASB issued
ASU 2016-17, Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control.
ASU 2016-17 changes how a reporting entity that is a decision maker should consider indirect interests in a VIE held through an entity under common control. If a decision maker must evaluate whether it is the primary beneficiary of a VIE, it will only need to consider its proportionate indirect interest in the VIE held through a common control party. ASU 2016-17 amends ASU 2015-02, which we adopted on January 1, 2016, and which currently directs the decision maker to treat the common control party’s interest in the VIE as if the decision maker held the interest itself. ASU 2016-17 will be effective for public business entities in fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, with early adoption permitted. The adoption of this standard is not expected to have a material impact on our consolidated financial statements.
In November 2016, the FASB issued
ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash
. ASU 2016-18 intends to reduce diversity in practice for the classification and presentation of changes in restricted cash on the statement of cash flows. ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 will be effective for public business entities in fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. We are in the process of evaluating the impact of adopting ASU 2016-18 on our consolidated financial statements.
In January 2017, the FASB issued
ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business
. ASU 2017-01 intends to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Under the current implementation guidance in Topic 805, there are three elements of a business: inputs, processes, and outputs. While an integrated set of assets and activities, collectively referred to as a “set,” that is a business usually has outputs, outputs are not required to be present. ASU 2017-01 provides a screen to determine when a set is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. ASU 2017-01 will be effective for public business entities in fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. We elected to early adopt ASU 2017-01 on January 1, 2017 on a prospective basis. While our acquisitions have historically been classified as either business combinations or asset acquisitions, certain acquisitions that were classified as business combinations by us likely would have been considered asset acquisitions under the new standard. As a result, future transaction costs are more likely to be capitalized since we expect most of our future acquisitions to be classified as asset acquisitions under this new standard. In addition, goodwill that was previously allocated to businesses that were sold or held for sale will no longer be allocated and written off upon sale if future sales were deemed to be sales of assets and not businesses.
In January 2017, the FASB issued
ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
. ASU 2017-04 removes step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. ASU 2017-04 will be effective for public business entities in fiscal years beginning after December 15, 2019, including interim periods within those fiscal years in which a goodwill impairment test is performed, with early adoption permitted. We are in the process of evaluating the impact of adopting ASU 2017-04 on our consolidated financial statements.
Note 3.
Merger with CPA
®
:16 – Global
On July 25, 2013, we and CPA
®
:16 – Global entered into a definitive agreement pursuant to which CPA
®
:16 – Global would merge with and into one of our wholly owned subsidiaries, subject to the approval of our stockholders and the stockholders of CPA
®
:16 – Global. On January 24, 2014, our stockholders and the stockholders of CPA
®
:16 – Global each approved the CPA
®
:16 Merger, and the CPA
®
:16 Merger closed on January 31, 2014.
In the CPA
®
:16 Merger, CPA
®
:16 – Global stockholders received
0.1830
shares of our common stock in exchange for each share of CPA
®
:16 – Global stock owned, pursuant to an exchange ratio based upon a value of
$11.25
per share of CPA
®
:16 – Global and the volume weighted-average trading price of our common stock for the five consecutive trading days ending on the third trading day preceding the closing of the transaction on January 31, 2014. CPA
®
:16 – Global stockholders received cash in lieu of any fractional shares in the CPA
®
:16 Merger. We paid total merger consideration of approximately
$1.8 billion
, including the issuance of
30,729,878
shares of our common stock with a fair value of
$1.8 billion
based on the closing price of
|
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|
|
Notes to Consolidated Financial Statements
our common stock on January 31, 2014, of
$59.08
per share, to the stockholders of CPA
®
:16 – Global in exchange for the
168,041,772
shares of CPA
®
:16 – Global common stock that we and our affiliates did not previously own, and cash of
$1.3 million
paid in lieu of issuing any fractional shares, or collectively, the Merger Consideration. As a condition of the CPA
®
:16 Merger, we waived the subordinated disposition and termination fees that we would have been entitled to receive from CPA
®
:16 – Global upon its liquidation pursuant to the terms of our advisory agreement with CPA
®
:16 – Global (
Note 4
).
Immediately prior to the CPA
®
:16 Merger, CPA
®
:16 – Global’s portfolio was comprised of the consolidated full or partial interests in
325
leased properties, substantially all of which were triple-net leased with an average remaining life of
10.4
years and an estimated contractual minimum annualized base rent, or ABR, totaling
$300.1 million
, and
two
hotel properties. The related property-level debt was comprised of
92
fixed-rate and
18
variable-rate non-recourse mortgage loans with an aggregate fair value of approximately
$1.8 billion
and a weighted-average annual interest rate of
5.6%
at that date. Additionally, CPA
®
:16 – Global had a line of credit with an outstanding balance of
$170.0 million
on the date of the closing of the CPA
®
:16 Merger. In addition, CPA
®
:16 – Global had equity interests in
18
unconsolidated investments,
11
of which were consolidated by us prior to the CPA
®
:16 Merger,
five
of which were consolidated by us subsequent to the CPA
®
:16 Merger, and
two
of which were jointly owned with CPA
®
:17 – Global. These investments owned
140
properties, substantially all of which were triple-net leased with an average remaining life of
8.6
years and an estimated ABR totaling
$63.9 million
, as of January 31, 2014. The debt related to these equity investments was comprised of
17
fixed-rate and
five
variable-rate non-recourse mortgage loans with an aggregate fair value of approximately
$291.2 million
and a weighted-average annual interest rate of
4.8%
on January 31, 2014. The lease revenues and income from continuing operations from the properties acquired from the date of the CPA
®
:16 Merger through December 31, 2014 were
$251.5 million
and
$91.1 million
(inclusive of
$2.4 million
attributable to noncontrolling interests), respectively.
During 2014, we sold all
ten
of the properties that were classified as held for sale upon acquisition in connection with the CPA
®
:16 Merger (
Note 17
). The results of operations for all
ten
of these properties have been included in Income from discontinued operations, net of tax in the consolidated financial statements. In addition, we sold one property subject to a direct financing lease that we acquired in the CPA
®
:16 Merger. The results of operations for this property have been included in Income from continuing operations before income taxes and gain on sale of real estate in the consolidated financial statements.
Purchase Price Allocation
We accounted for the CPA
®
:16 Merger as a business combination under the acquisition method of accounting. After consideration of all applicable factors pursuant to the business combination accounting rules, we were considered the “accounting acquirer” due to various factors, including the fact that our stockholders held the largest portion of the voting rights in us upon completion of the CPA
®
:16 Merger. Costs related to the CPA
®
:16 Merger of
$30.5 million
and
$5.0 million
were expensed as incurred for the years ended December 31, 2014 and 2013, respectively, and classified within Merger, property acquisition, and other expenses in the consolidated financial statements. In addition, CPA
®
:16 – Global incurred a total of
$10.6 million
of merger expenses prior to January 31, 2014.
Goodwill
The
$346.6 million
of goodwill recorded in connection with the CPA
®
:16 Merger was primarily attributable to the premium we agreed to pay for CPA
®
:16 – Global’s common stock at the time we entered into the merger agreement in July 2013. Management believes the premium is supported by several factors of the combined entity, including the fact that (i) it is among the largest publicly traded commercial net-lease REITs with greater operating and financial flexibility and better access to capital markets and with a lower cost of capital than CPA
®
:16 – Global had on a stand-alone basis; (ii) the CPA
®
:16 Merger eliminated costs associated with the advisory structure that CPA
®
:16 – Global had previously; and (iii) the combined portfolio has greater tenant and geographic diversification and an improved overall weighted-average debt maturity and interest rate. The aforementioned amount of goodwill attributable to the premium was partially offset by an increase in the fair value of the net assets through the date of the CPA
®
:16 Merger.
Goodwill acquired in the CPA
®
:16 Merger is not deductible for income tax purposes.
Equity Investments and Noncontrolling Interests
During the first quarter of 2014, we recognized a gain on change in control of interests of approximately
$73.1 million
, which was the difference between the carrying value of approximately
$274.1 million
and the preliminary estimated fair value of approximately
$347.2 million
of our previously held equity interest in
38,229,294
shares of CPA
®
:16 – Global’s common stock. During 2014, we identified certain measurement period adjustments that impacted the provisional accounting, which increased
|
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–
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|
|
Notes to Consolidated Financial Statements
the estimated fair value of our previously held equity interest in shares of CPA
®
:16 – Global’s common stock by
$2.6 million
, resulting in an increase of
$2.6 million
in Gain on change in control of interests. In accordance with Accounting Standards Codification, or ASC, 805-10-25, we did not record the measurement period adjustments during the periods they occurred. Rather, such amounts are reflected in the financial statements for the three months ended March 31, 2014.
The CPA
®
:16 Merger also resulted in our acquisition of the remaining interests in
nine
investments in which we already had a joint interest and accounted for under the equity method. Upon acquiring the remaining interests in these investments, we owned
100%
of these investments and thus accounted for the acquisitions of these interests utilizing the purchase method of accounting. Due to the change in control of the
nine
jointly owned investments that occurred, we recorded a gain on change in control of interests of approximately
$30.2 million
during the first quarter of 2014, which was the difference between our carrying values and the estimated fair values of our previously held equity interests on the acquisition date of approximately
$142.5 million
and approximately
$172.7 million
, respectively. Subsequent to the CPA
®
:16 Merger, we consolidate these wholly owned investments.
In connection with the CPA
®
:16 Merger, we also acquired the remaining interests in
12
less-than-wholly owned investments that we already consolidate and recorded an adjustment to additional paid-in-capital of approximately
$42.0 million
during the first quarter of 2014 related to the difference between our carrying values and the preliminary estimated fair values of our previously held noncontrolling interests on the acquisition date of approximately
$236.8 million
and
$278.2 million
, respectively. During 2014, we identified certain measurement period adjustments that impacted the provisional accounting, which increased the fair value of our previously held noncontrolling interests on the acquisition date by
$0.6 million
, resulting in a reduction of
$0.6 million
to additional paid-in capital.
Pro Forma Financial Information (Unaudited)
The following unaudited consolidated pro forma financial information has been presented as if the CPA
®
:16 Merger had occurred on January 1, 2013 for the year ended December 31, 2014. The pro forma financial information is not necessarily indicative of what the actual results would have been had the CPA
®
:16 Merger occurred on that date, nor does it purport to represent the results of operations for future periods.
(in thousands, except share and per share amounts)
|
Year Ended December 31, 2014
|
|||
|
Pro forma total revenues
|
$
|
931,309
|
|
|
Pro forma net income from continuing operations, net of tax
|
$
|
139,698
|
|
|
Pro forma net income attributable to noncontrolling interests
|
(5,380
|
)
|
|
|
Pro forma net loss attributable to redeemable noncontrolling interest
|
142
|
|
|
|
Pro forma net income from continuing operations, net of tax attributable to W. P. Carey
|
$
|
134,460
|
|
|
Pro forma earnings per share:
|
|||
|
Basic
|
$
|
1.32
|
|
|
Diluted
|
$
|
1.31
|
|
|
Pro forma weighted-average shares outstanding:
(a)
|
|||
|
Basic
|
101,296,847
|
|
|
|
Diluted
|
102,360,038
|
|
|
__________
|
(a)
|
The pro forma weighted-average shares outstanding for the year ended December 31, 2014 were determined as if the
30,729,878
shares of our common stock issued to CPA
®
:16 – Global stockholders in the CPA
®
:16 Merger were issued on January 1, 2013.
|
|
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|
|
Notes to Consolidated Financial Statements
Advisory Agreements with the Managed Programs
We have advisory agreements with each of the Managed Programs, pursuant to which we earn fees and are entitled to receive reimbursement for fund management expenses, as well as cash distributions. We also earn fees for serving as the dealer-manager of the offerings of the Managed Programs. The advisory agreements with each of the Managed REITs have terms of one year, may be renewed for successive one-year periods, and are currently scheduled to expire on December 31, 2017, unless otherwise renewed. The advisory agreement with CCIF is subject to renewal on or before January 26, 2018. The advisory agreement with CESH I, which commenced June 3, 2016, will continue until terminated pursuant to its terms.
The following tables present a summary of revenue earned and/or cash received from the Managed Programs for the periods indicated, included in the consolidated financial statements. Asset management revenue excludes amounts received from third parties (in thousands):
|
|
Years Ended December 31,
|
||||||||||
|
|
2016
|
2015
|
2014
|
||||||||
|
Reimbursable costs from affiliates
|
$
|
66,433
|
|
$
|
55,837
|
|
$
|
130,212
|
|
||
|
Asset management revenue
|
61,879
|
|
49,892
|
|
37,970
|
|
|||||
|
Structuring revenue
|
47,328
|
|
92,117
|
|
71,256
|
|
|||||
|
Distributions of Available Cash
|
45,121
|
|
38,406
|
|
31,052
|
|
|||||
|
Dealer manager fees
|
8,002
|
|
4,794
|
|
23,532
|
|
|||||
|
Other advisory revenue
|
2,435
|
|
203
|
|
—
|
|
|||||
|
Interest income on deferred acquisition fees and loans to affiliates
|
740
|
|
1,639
|
|
684
|
|
|||||
|
Deferred revenue earned
|
—
|
|
—
|
|
786
|
|
|||||
|
$
|
231,938
|
|
$
|
242,888
|
|
$
|
295,492
|
|
|||
|
Years Ended December 31,
|
|||||||||||
|
2016
|
2015
|
2014
|
|||||||||
|
CPA
®
:16 – Global
|
$
|
—
|
|
$
|
—
|
|
$
|
7,999
|
|
||
|
CPA
®
:17 – Global
|
74,852
|
|
81,740
|
|
68,710
|
|
|||||
|
CPA
®
:18 – Global
|
31,330
|
|
85,431
|
|
129,642
|
|
|||||
|
CWI 1
|
34,085
|
|
44,712
|
|
89,141
|
|
|||||
|
CWI 2
|
67,524
|
|
30,340
|
|
—
|
|
|||||
|
CCIF
|
11,164
|
|
665
|
|
—
|
|
|||||
|
CESH I
|
12,983
|
|
—
|
|
—
|
|
|||||
|
|
$
|
231,938
|
|
$
|
242,888
|
|
$
|
295,492
|
|
||
|
W. P. Carey 2016 10-K
–
103
|
|
Notes to Consolidated Financial Statements
The following table presents a summary of amounts included in Due from affiliates in the consolidated financial statements (in thousands):
|
December 31,
|
|||||||
|
2016
|
2015
|
||||||
|
Short-term loans to affiliates
|
$
|
237,613
|
|
$
|
—
|
|
|
|
Deferred acquisition fees receivable
|
21,967
|
|
33,386
|
|
|||
|
Distribution and shareholder servicing fees
|
19,341
|
|
11,801
|
|
|||
|
Current acquisition fees receivable
|
8,024
|
|
4,909
|
|
|||
|
Accounts receivable
|
5,005
|
|
3,910
|
|
|||
|
Reimbursable costs
|
4,427
|
|
5,579
|
|
|||
|
Asset management fees receivable
|
2,449
|
|
2,172
|
|
|||
|
Organization and offering costs
|
784
|
|
461
|
|
|||
|
$
|
299,610
|
|
$
|
62,218
|
|
||
Asset Management Revenue
Under the advisory agreements with the Managed Programs, we earn asset management revenue for managing their investment portfolios. The following table presents a summary of our asset management fee arrangements with the Managed Programs:
|
Managed Program
|
Rate
|
Payable
|
Description
|
|||
|
CPA
®
:16 – Global
|
0.5%
|
2014 in cash; 2015 and 2016 N/A
|
Rate is based on adjusted invested assets
|
|||
|
CPA
®
:17 – Global
|
0.5% - 1.75%
|
2014 in shares of its common stock; 2015 and 2016 50% in cash and 50% in shares of its common stock
|
Rate depends on the type of investment and is based on the average market or average equity value, as applicable
|
|||
|
CPA
®
:18 – Global
|
0.5% - 1.5%
|
2014, 2015, and 2016 in shares of its class A common stock
|
Rate depends on the type of investment and is based on the average market or average equity value, as applicable
|
|||
|
CWI 1
|
0.5%
|
2014 in shares of its common stock; 2015 and 2016 in cash
|
Rate is based on the average market value of the investment; we are required to pay 20% of the asset management revenue we receive to the subadvisor
|
|||
|
CWI 2
|
0.55%
|
2014 N/A; 2015 and 2016 in shares of its class A common stock
|
Rate is based on the average market value of the investment; we are required to pay 25% of the asset management revenue we receive to the subadvisor
|
|||
|
CCIF
|
1.75% - 2.00%
|
2014 N/A; 2015 and 2016 in cash
|
Based on the average of gross assets at fair value; we are required to pay 50% of the asset management revenue we receive to the subadvisor
|
|||
|
CESH I
|
1.0%
|
In cash
|
Based on gross assets at fair value
|
|||
Incentive Fees
We are entitled to receive a quarterly incentive fee on income from CCIF equal to 100% of quarterly net investment income, before incentive fee payments, in excess of
1.875%
of CCIF’s average adjusted capital up to a limit of
2.344%
, plus
20%
of net investment income, before incentive fee payments, in excess of
2.344%
of average adjusted capital. We are also entitled to receive from CCIF an incentive fee on realized capital gains of
20%
, net of (i) all realized capital losses and unrealized depreciation on a cumulative basis, and (ii) the aggregate amount, if any, of previously paid incentive fees on capital gains since inception.
Upon completion of the CPA
®
:16 Merger on January 31, 2014, the advisory agreement with CPA
®
:16 – Global terminated. Pursuant to the terms of the merger agreement, the incentive or termination fee that we would have been entitled to receive from CPA
®
:16 – Global pursuant to the terms of its advisory agreement was waived upon the completion of the CPA
®
:16 Merger.
|
W. P. Carey 2016 10-K
–
104
|
|
Notes to Consolidated Financial Statements
Structuring Revenue
Under the terms of the advisory agreements with the Managed REITs and CESH I, we earn revenue for structuring and negotiating investments and related financing. We do not earn any structuring revenue from the Managed BDCs. The following table presents a summary of our structuring fee arrangements with the Managed REITs and CESH I:
|
Managed Program
|
Rate
|
Payable
|
Description
|
|||
|
CPA
®
:17 – Global
|
1% - 1.75%, 4.5%
|
In cash; for non net-lease investments, 1% - 1.75% upon completion; for net-lease investments, 2.5% upon completion, with 2% deferred and payable in three interest-bearing annual installments
|
Based on the total aggregate cost of the net-lease investments made; also based on the total aggregate cost of the non net-lease investments or commitments made; total limited to 6% of the contract prices in aggregate
|
|||
|
CPA
®
:18 – Global
|
4.5%
|
In cash; for all investments, other than readily marketable real estate securities for which we will not receive any acquisition fees, 2.5% upon completion, with 2% deferred and payable in three interest-bearing annual installments
|
Based on the total aggregate cost of the investments or commitments made; total limited to 6% of the contract prices in aggregate
|
|||
|
CWI REITs
|
2.5%
|
In cash upon completion
|
Based on the total aggregate cost of the lodging investments or commitments made; loan refinancing transactions up to 1% of the principal amount; we are required to pay 20% and 25% to the subadvisors of CWI 1 and CWI 2, respectively; total for each CWI REIT limited to 6% of the contract prices in aggregate
|
|||
|
CESH I
|
2.0%
|
In cash upon completion
|
Based on the total aggregate cost of investments or commitments made, including the acquisition, development, construction, or re-development of the investments
|
|||
Reimbursable Costs from Affiliates
The Managed Programs reimburse us for certain costs that we incur on their behalf, which consist primarily of broker-dealer commissions, marketing costs, an annual distribution and shareholder servicing fee, or Shareholder Servicing Fee, and certain personnel and overhead costs, as applicable. The following tables present summaries of such fee arrangements:
Broker-Dealer Selling Commissions
|
Managed Program
|
Rate
|
Payable
|
Description
|
|||
|
CPA
®
:18 – Global and CWI 2 Class A Shares, and CWI 1 Common Stock
|
$0.70
|
In cash upon share settlement; 100% re-allowed to broker-dealers
|
Per share sold; offerings for CPA
®
:18 – Global Class A shares closed in April 2015 and for CWI 1 Common Stock in December 2014
|
|||
|
CWI 2 Class T Shares
|
$0.19
|
In cash upon share settlement; 100% re-allowed to broker-dealers
|
Per share sold
|
|||
|
CPA
®
:18 – Global Class C Shares
|
$0.14
|
In cash upon share settlement; 100% re-allowed to broker-dealers
|
Per share sold; this offering closed in April 2015
|
|||
|
CCIF Feeder Funds
|
0% - 3%
|
In cash upon share settlement; 100% re-allowed to broker-dealers
|
Based on the selling price of each share sold
|
|||
|
CESH I
|
Up to 7.0% of gross offering proceeds
|
In cash upon limited partnership unit settlement; 100% re-allowed to broker-dealers
|
Based on the selling price of each limited partnership unit sold
|
|||
|
W. P. Carey 2016 10-K
–
105
|
|
Notes to Consolidated Financial Statements
Dealer Manager Fees
|
Managed Program
|
Rate
|
Payable
|
Description
|
|||
|
CPA
®
:18 – Global and CWI 2 Class A Shares, and CWI 1 Common Stock
|
$0.30
|
Per share sold
|
In cash upon share settlement; a portion may be re-allowed to broker-dealers; offerings for CPA
®
:18 – Global Class A shares closed in April 2015 and for CWI Common Stock in December 2014
|
|||
|
CPA
®
:18 – Global Class C Shares
|
$0.21
|
Per share sold
|
In cash upon share settlement; a portion may be re-allowed to broker-dealers; this offering closed in April 2015
|
|||
|
CWI 2 Class T Shares
|
$0.26
|
Per share sold
|
In cash upon share settlement; a portion may be re-allowed to broker-dealers
|
|||
|
CCIF Feeder Funds
|
2.75% - 3.0%
|
Based on the selling price of each share sold
|
In cash upon share settlement; a portion may be re-allowed to broker-dealers
|
|||
|
CESH I
|
Up to 3.0% of gross offering proceeds
|
Per limited partnership unit sold
|
In cash upon limited partnership unit settlement; a portion may be re-allowed to broker-dealers
|
|||
Annual Distribution and Shareholder Servicing Fee
|
Managed Program
|
Rate
|
Payable
|
Description
|
|||
|
CPA
®
:18 – Global Class C Shares
|
1.0%
|
Accrued daily and payable quarterly in arrears in cash; a portion may be re-allowed to selected dealers
|
Based on the purchase price per share sold or, once it was reported, the net asset value per share; cease paying when underwriting compensation from all sources equals 10% of gross offering proceeds
|
|||
|
CWI 2 Class T Shares
|
1.0%
|
Accrued daily and payable quarterly in arrears in cash; a portion may be re-allowed to selected dealers
|
Based on the purchase price per share sold or, once it was reported, the net asset value per share; cease paying on the earlier of six years or when underwriting compensation from all sources equals 10% of gross offering proceeds
|
|||
|
Carey Credit Income Fund 2016 T and Carey Credit Income Fund 2018 T (two of the CCIF Feeder Funds)
|
0.9%
|
Accrued daily and payable quarterly in arrears in cash; a portion may be re-allowed to selected dealers
|
Based on the weighted-average net price of shares sold in the public offering; commences in the first quarter after the close of the public offering; cease paying on the earlier of when underwriting compensation from all sources equals 10% of gross offering proceeds or the date at which a liquidity event occurs
|
|||
|
W. P. Carey 2016 10-K
–
106
|
|
Notes to Consolidated Financial Statements
Personnel and Overhead Costs
|
Managed Program
|
Payable
|
Description
|
||
|
CPA
®
:17 – Global and CPA
®
:18 – Global
|
In cash
|
Personnel and overhead costs, excluding those related to our legal transactions group, our senior management, and our investments team, are charged to the CPA
®
REITs based on the average of the trailing 12-month aggregate reported revenues of the Managed Programs and us, and are capped at 2.2% and 2.4% of each CPA
®
REIT’s pro rata lease revenues for 2016 and 2015, respectively; for the legal transactions group, costs are charged according to a fee schedule
|
||
|
CWI 1
|
2014 in shares of its common stock; 2015 and 2016 in cash
|
Actual expenses incurred; allocated between the CWI REITs based on the percentage of their total pro rata hotel revenues for the most recently completed quarter
|
||
|
CWI 2
|
2014 N/A; 2015 and 2016 in cash
|
Actual expenses incurred; allocated between the CWI REITs based on the percentage of their total pro rata hotel revenues for the most recently completed quarter
|
||
|
CCIF and CCIF Feeder Funds
|
2014 N/A; 2015 and 2016 in cash
|
Actual expenses incurred, excluding those related to our investment management team and senior management team
|
||
|
CESH I
|
2014 and 2015 N/A; 2016 in cash
|
Actual expenses incurred
|
||
Organization and Offering Costs
|
Managed Program
|
Payable
|
Description
|
||
|
CPA
®
:18 – Global and CWI 2
|
In cash; within 60 days after the end of the quarter in which the offering terminates
|
Actual costs incurred from 1.5% through 4.0% of the gross offering proceeds, depending on the amount raised; offering for CPA
®
:18 – Global closed in April 2015
|
||
|
CWI 1
|
In cash; within 60 days after the end of the quarter in which the offering terminates
|
Actual costs incurred up to 4.0% of the gross offering proceeds; offering closed in December 2014
|
||
|
CCIF and CCIF Feeder Funds
|
In cash; payable monthly
|
Up to 1.5% of the gross offering proceeds; we are required to pay 50% of the organization and offering costs we receive to the subadvisor
|
||
|
CESH I
|
N/A
|
In lieu of reimbursing us for organization and offering costs, CESH I will pay us limited partnership units, as described below under Other Advisory Revenue
|
||
For CCIF, total reimbursements to us for personnel and overhead costs and organization and offering costs may not exceed
18%
of total Front End Fees, as defined in its Declaration of Trust, so that total funds available for investment may not be lower than
82%
of total gross proceeds.
Other Advisory Revenue
Under the limited partnership agreement we have with CESH I, we pay all organization and offering costs on behalf of CESH I, and instead of being reimbursed by CESH I on a dollar-for-dollar basis for those costs, we receive limited partnership units of CESH I equal to
2.5%
of its gross offering proceeds. This revenue is included in Other advisory revenue in the consolidated statements of income and totaled
$2.4 million
for the year ended December 31, 2016, representing activity following the deconsolidation of CESH I on August 31, 2016 (
Note 2
).
|
W. P. Carey 2016 10-K
–
107
|
|
Notes to Consolidated Financial Statements
Expense Support and Conditional Reimbursements
Under the expense support and conditional reimbursement agreement we have with each of the CCIF Feeder Funds, we and the CCIF subadvisor are obligated to reimburse the CCIF Feeder Fund
50%
of the excess of the cumulative distributions paid to the CCIF Feeder Funds’ shareholders over the available operating funds on a monthly basis. Following any month in which the available operating funds exceed the cumulative distributions paid to its shareholders, the excess operating funds are used to reimburse us and the CCIF subadvisor for any expense payment we made within three years prior to the last business day of such month that have not been previously reimbursed by the CCIF Feeder Fund, up to the lesser of (i)
1.75%
of each CCIF Feeder Fund’s average net assets or (ii) the percentage of each CCIF Feeder Fund’s average net assets attributable to its common shares represented by other operating expenses during the fiscal year in which such expense support payment from us and the CCIF’s subadvisor was made, provided that the effective rate of distributions per share at the time of reimbursement is not less than such rate at the time of expense payment.
Distributions of Available Cash and Deferred Revenue Earned
We are entitled to receive distributions of up to
10%
of the Available Cash (as defined in the respective advisory agreements) from the operating partnerships of each of the Managed REITs, as described in their respective operating partnership agreements, payable quarterly in arrears.
In May 2011, we acquired a special member interest, or the Special Member Interest, in CPA
®
:16 – Global’s operating partnership. We initially recorded this Special Member Interest at its fair value, and amortized it into earnings as deferred revenue through the date of the CPA
®
:16 Merger. Cash distributions of our proportionate share of earnings from the Managed REITs’ operating partnerships, as well as deferred revenue earned from our Special Member Interest in CPA
®
:16 – Global’s operating partnership, are recorded as Equity in earnings of equity method investments in the Managed Programs and real estate within the Owned Real Estate segment.
Other Transactions with Affiliates
Loans to Affiliates
During 2015 and 2014, our board of directors approved unsecured loans from us to CPA
®
:17 – Global of up to
$75.0 million
, CPA
®
:18 – Global of up to
$100.0 million
, CWI 1 and CWI 2 of up to
$110.0 million
in the aggregate, and CCIF of up to
$50.0 million
, at our sole discretion, with each loan at a rate equal to the rate at which we are able to borrow funds under our senior credit facility (
Note 11
), for the purpose of facilitating acquisitions approved by their respective investment committees that they would not otherwise have had sufficient available funds to complete. In April 2016, our board of directors approved unsecured loans from us to CESH I of up to
$35.0 million
, under the same terms and for the same purpose.
During 2015 and 2014, various loans aggregating
$185.4 million
and
$11.0 million
, respectively, were made to the Managed Programs, all of which were repaid during the same year. All of the loans were made at an interest rate equal to the London Interbank Offered Rate, or LIBOR, as of the issue date, plus
1.1%
. During 2015, we arranged credit agreements for each of CPA
®
:17 – Global, CWI 1, and CCIF, and our board of directors terminated its previous authorizations to provide loans to CPA
®
:17 – Global and CWI 1. In January 2016, our board of directors terminated its previous authorizations to provide loans to CPA
®
:18 – Global and CCIF. However, in July 2016, our board of directors approved unsecured loans from us to CPA
®
:18 – Global of up to
$50.0 million
, at our sole discretion, with a rate equal to the rate at which we are able to borrow funds under our senior credit facility (
Note 11
), for the purpose of facilitating investments approved by CPA
®
:18 – Global’s investment committee.
On January 20, 2016, we made a
$20.0 million
loan to CWI 2, which was repaid in full on February 20, 2016.
In May 2016, we made a total of
$17.1 million
in loans to CESH I, at an annual interest rate of LIBOR plus
1.1%
, which were repaid in full in September 2016, subsequent to the commencement of CESH I’s private placement (
Note 2
).
On October 31, 2016, we made a
$27.5 million
loan to CPA
®
:18 – Global at an annual interest rate of LIBOR plus
1.1%
with a scheduled maturity date of October 31, 2017 for the purpose of facilitating an investment approved by CPA
®
:18 – Global’s investment committee.
In December 2016, our board of directors approved an increase in unsecured loans from us to CWI 2 from up to
$110.0 million
to up to
$250.0 million
. On December 29, 2016, we made a
$210.0 million
loan to CWI 2 at an annual interest rate of LIBOR
|
W. P. Carey 2016 10-K
–
108
|
|
Notes to Consolidated Financial Statements
plus
1.1%
with a scheduled maturity date of December 29, 2017 for the purpose of facilitating an investment approved by CWI 2’s investment committee. In January and February 2017, CWI 2 repaid this loan in full to us (
Note 20
). Short-term loans to affiliates outstanding to us at
December 31, 2016
includes accrued interest of
$0.1 million
.
Share Repurchases
In February 2014, we repurchased
11,037
shares of our common stock for
$0.7 million
in cash from the former independent directors of CPA
®
:16 – Global at a price per share equal to the volume weighted-average trading price of our stock utilized in the CPA
®
:16 Merger. These shares were issued to them as their portion of the Merger Consideration in exchange for their shares of CPA
®
:16 – Global common stock (
Note 3
) and were repurchased by agreement in order to satisfy the independence requirements set forth in the organizational documents of the remaining CPA
®
REITs, for which these individuals also serve as independent directors.
Other
On February 2, 2016, an entity in which we, one of our employees, and third parties owned
38.3%
,
0.5%
, and
61.2%
, respectively, and which we consolidated, sold a self-storage property (
Note 17
). In connection with the sale, we made a distribution of
$0.1 million
to the employee, representing the employee’s share of the net proceeds from the sale.
At
December 31, 2016
, we owned interests ranging from
3%
to
90%
in jointly owned investments in real estate, including a jointly controlled tenancy-in-common interest in several properties, with the remaining interests generally held by affiliates. In addition, we owned stock of each of the Managed REITs and CCIF, and limited partnership units of CESH I. We consolidate certain of these investments and account for the remainder either (i) under the equity method of accounting or (ii) at fair value by electing the equity method fair value option available under U.S. GAAP (
Note 7
).
Real Estate
Real estate, which consists of land and buildings leased to others, at cost, and which are subject to operating leases, and real estate under construction, is summarized as follows (in thousands):
|
December 31,
|
|||||||
|
2016
|
2015
|
||||||
|
Land
|
$
|
1,128,933
|
|
$
|
1,160,567
|
|
|
|
Buildings
|
4,053,334
|
|
4,147,644
|
|
|||
|
Real estate under construction
|
21,859
|
|
1,714
|
|
|||
|
Less: Accumulated depreciation
|
(472,294
|
)
|
(372,735
|
)
|
|||
|
$
|
4,731,832
|
|
$
|
4,937,190
|
|
||
During
2016
, the U.S. dollar
strengthened
against the British pound sterling, as the end-of-period rate for the U.S. dollar in relation to the British pound sterling at
December 31, 2016
decreased
by
17.0%
to
$1.2312
from
$1.4833
at
December 31, 2015
. Additionally, during the same period the U.S. dollar
strengthened
against the euro, as the end-of-period rate for the U.S. dollar in relation to the euro
decreased
by
3.2%
to
$1.0541
from
$1.0887
. As a result of these fluctuations in foreign exchange rates, the carrying value of our real estate decreased by
$89.8 million
from
December 31, 2015
to
December 31, 2016
.
Depreciation expense, including the effect of foreign currency translation, on our real estate was
$142.7 million
,
$137.3 million
, and
$113.0 million
for the years ended
December 31, 2016
,
2015
, and
2014
, respectively.
|
W. P. Carey 2016 10-K
–
109
|
|
Notes to Consolidated Financial Statements
Acquisitions of Real Estate During 2016
– We entered into the following investments, which were deemed to be real estate asset acquisitions because we acquired the sellers’ properties and simultaneously entered into new leases in connection with the acquisitions, at a total cost of
$530.3 million
, including land of
$140.2 million
, buildings of
$259.8 million
, and net lease intangibles of
$130.3 million
(
Note 8
) (including acquisition-related costs of
$4.0 million
in the aggregate, which were capitalized to land, building, and intangibles):
|
•
|
an investment of
$167.7 million
for
three
private school campuses in Coconut Creek, Florida on April 1, 2016 and in Windermere, Florida and Houston, Texas on May 31, 2016. We also committed to fund an additional
$128.1 million
of build-to-suit financing over the next four years in order to fund expansions of the existing facilities;
|
|
•
|
an investment of
$218.2 million
for
43
manufacturing facilities in various locations in the United States and
six
manufacturing facilities in various locations in Canada on April 5 and 14, 2016; on October 4, 2016, we acquired a manufacturing facility in San Antonio, Texas from the tenant for
$3.8 million
(which we consider to be part of the original investment) and simultaneously disposed of a manufacturing facility in Mascouche, Canada, which was acquired as part of the original investment, for the same amount (
Note 17
); and
|
|
•
|
an investment of
$140.7 million
for
13
manufacturing facilities and
one
office facility in various locations in Canada, Mexico, and the United States on November 8, 2016 and December 1, 2016. In addition, we recorded an estimated deferred tax liability of
$29.4 million
, with a corresponding increase to the asset value, since we assumed the tax basis of the acquired entities as part of the acquisition of the shares of these entities.
|
In addition, we entered into the following investments, which were deemed to be real estate asset acquisitions, at a total cost of
$1.9 million
:
|
•
|
an investment of
$1.1 million
for a parcel of land adjacent to a property owned by us in McCalla, Alabama on October 20, 2016. We also committed to fund
$21.5 million
of build-to-suit financing for the construction of an industrial facility on the land. Construction commenced during 2016 and is expected to be completed during 2017; and
|
|
•
|
an investment of
$0.8 million
for a parcel of land adjacent to a property owned by us in Rio Rancho, New Mexico on December 9, 2016. We will reimburse the tenant in the property for the costs of constructing a parking lot up to
$0.7 million
.
|
We reclassified
31
properties with an aggregate carrying value of
$9.7 million
from Net investments in direct financing leases to Real estate, at cost during the year ended December 31, 2016, in connection with the extensions of the underlying leases (
Note 6
).
Dollar amounts are based on the exchange rates of the foreign currencies on the dates of activity, as applicable.
Acquisitions of Real Estate During 2015
– We entered into the following investments, which were deemed to be business combinations because we assumed the existing leases on the properties, for which the sellers were not the lessees, at a total cost of
$561.6 million
, including land of
$89.5 million
, buildings of
$382.6 million
, and net lease intangibles of
$89.5 million
:
|
•
|
an investment of
$345.9 million
for
73
auto dealership properties in various locations in the United Kingdom on January 28, 2015;
|
|
•
|
an investment of
$42.4 million
for a logistics facility in Rotterdam, the Netherlands on February 11, 2015;
|
|
•
|
an investment of
$23.2 million
for a retail facility in Bad Fischau, Austria on April 10, 2015;
|
|
•
|
an investment of
$26.3 million
for a logistics facility in Oskarshamn, Sweden on June 17, 2015;
|
|
•
|
an investment of
$41.2 million
for three truck and bus service facilities in Gersthofen and Senden, Germany on August 12, 2015 and Leopoldsdorf, Austria on August 24, 2015;
|
|
•
|
an investment of
$51.7 million
for
six
hotel properties in Iowa, Louisiana, Missouri, New Jersey, North Carolina, and Texas on October 15, 2015; and
|
|
•
|
an investment of
$30.9 million
for an office building in Irvine, California on December 22, 2015.
|
In connection with these transactions, we also expensed acquisition-related costs totaling
$11.1 million
, which are included in Merger, property acquisition, and other expenses in the consolidated financial statements.
|
W. P. Carey 2016 10-K
–
110
|
|
Notes to Consolidated Financial Statements
We also entered into the following investments, which were deemed to be real estate asset acquisitions because we acquired the sellers’ properties and simultaneously entered into new leases in connection with the acquisitions, at a total cost of
$116.0 million
, including land of
$8.6 million
, buildings of
$68.1 million
(including acquisition-related costs of
$3.9 million
, which were capitalized), and net lease intangibles of
$39.4 million
:
|
•
|
an investment of
$53.5 million
for an office building in Sunderland, United Kingdom on August 6, 2015; and
|
|
•
|
an investment of
$62.5 million
for
ten
auto dealership properties in Almere, Amsterdam, Eindhoven, Houten, Nieuwegein, Utrecht, Veghel, and Zwaag, Netherlands on November 11, 2015.
|
Dollar amounts are based on the exchange rates of the foreign currencies on the dates of activity, as applicable.
Acquisitions of Real Estate During 2014
– We entered into the following investments, which were deemed to be business combinations because we assumed the existing leases on the properties, for which the sellers were not the lessees, at a total cost of
$366.9 million
, including land of
$33.1 million
, buildings of
$278.1 million
, and net lease intangibles of
$55.7 million
:
|
•
|
an investment of
$41.9 million
for an office building in Chandler, Arizona on March 26, 2014;
|
|
•
|
an investment of
$47.2 million
for a warehouse facility in University Park, Illinois on May 15, 2014;
|
|
•
|
an investment of
$117.7 million
for an office building in Stavanger, Norway on August 6, 2014. Because we acquired stock in a subsidiary of the seller to complete the acquisition, we assumed the tax basis of the entity that we purchased and recorded an estimated deferred tax liability of
$14.7 million
. In connection with this business combination, we recorded goodwill of
$11.1 million
(
Note 8
);
|
|
•
|
an investment of
$46.0 million
for an office building in Westborough, Massachusetts on August 22, 2014;
|
|
•
|
an investment of
$56.0 million
for an office building in Andover, Massachusetts on October 7, 2014;
|
|
•
|
an investment of
$29.1 million
for an office building in Newport, United Kingdom on October 13, 2014; and
|
|
•
|
an investment of
$29.0 million
for a light-industrial/distribution center in Opole, Poland on December 12, 2014.
|
In connection with these transactions, we also expensed acquisition-related costs totaling
$3.3 million
, which are included in Merger, property acquisition, and other expenses in the consolidated financial statements. Dollar amounts are based on the exchange rates of the foreign currencies on the dates of acquisition, as applicable.
We also entered into the following investments, which were deemed to be real estate asset acquisitions because we acquired the sellers’ properties and simultaneously entered into new leases in connection with the acquisitions, at a total cost of
$536.7 million
, including land of
$83.9 million
, buildings of
$366.6 million
(including acquisition-related costs of
$17.8 million
, which were capitalized), net lease intangibles of
$82.9 million
, and a property classified as a net investment in direct financing lease of
$3.3 million
(
Note 6
):
|
•
|
an investment of
$138.3 million
for
10
industrial and
21
agricultural properties in various locations in Australia on October 28, 2014. We also committed to fund a tenant expansion allowance of
$14.8 million
;
|
|
•
|
an investment of
$19.8 million
for a manufacturing facility in Lewisburg, Ohio on November 4, 2014; and
|
|
•
|
an investment of
$378.5 million
for
70
office buildings in various locations in Spain on December 19, 2014.
|
Dollar amounts are based on the exchange rates of the foreign currencies on the dates of activity, as applicable.
As discussed in
Note 3
, we acquired
225
properties subject to existing operating leases in the CPA
®
:16 Merger, which increased the carrying value of our real estate by
$2.0 billion
during the year ended December 31, 2014. We reclassified properties with an aggregate carrying value of
$13.7 million
from Net investments in direct financing leases to Real estate, at cost during the year ended December 31, 2014, in connection with the extensions of the underlying leases (
Note 6
).
Real Estate Under Construction
During
2016
, we capitalized real estate under construction totaling
$58.7 million
, including accrual activity of
$2.1 million
, primarily related to construction projects on our properties. Of this total,
$16.9 million
related to an expansion of one of the three private school campuses that we acquired during
2016
, as described above. As of
December 31, 2016
, we had
three
construction projects in progress. As of
December 31, 2015
, we had an outstanding commitment related to a tenant expansion allowance, for which construction had not yet commenced, and no other open construction projects. Aggregate unfunded commitments totaled approximately
$135.2 million
and
$12.2 million
as of
December 31, 2016
and
2015
, respectively.
|
W. P. Carey 2016 10-K
–
111
|
|
Notes to Consolidated Financial Statements
In December 2015, we entered into a build-to-suit transaction for the redevelopment of a property in Doraville, Georgia. We demolished the property (
Note 9
) and commenced construction of an industrial facility, which was completed in October 2016. The building was placed into service at a cost totaling
$13.8 million
and we have no further funding commitment as of
December 31, 2016
. In addition, we placed into service amounts totaling
$24.7 million
related to partially-completed build-to-suit projects or other expansion projects during the year ended December 31, 2016.
On December 4, 2013, we entered into a build-to-suit transaction for the construction of an office building in Mönchengladbach, Germany for a total projected cost of up to
$65.0 million
, including acquisition expenses, which was based on the exchange rate of the euro on that date. During the years ended December 31, 2015 and 2014, we funded approximately
$28.0 million
and
$20.6 million
, respectively. The building was placed in service in September 2015 at a cost totaling
$53.2 million
and we have no further funding commitment as of
December 31, 2016
.
Dispositions of Real Estate
During
2016
, we sold
28
properties and a parcel of vacant land, excluding the disposition of
two
properties that were classified as held for sale as of December 31, 2015, transferred ownership of another property to the related mortgage lender, and disposed of another property through foreclosure (
Note 17
). As a result, the carrying value of our real estate decreased by
$411.2 million
from
December 31, 2015
to
December 31, 2016
.
Future Dispositions of Real Estate
During
2016
,
two
tenants each exercised an option to repurchase the properties they are leasing in accordance with their lease agreements during 2017 for an aggregate of
$21.6 million
. At
December 31, 2016
, the properties had an aggregate asset carrying value of
$16.3 million
. There is no accounting impact during 2016 related to the exercise of these options.
Scheduled Future Minimum Rents
Scheduled future minimum rents, exclusive of renewals, expenses paid by tenants, percentage of sales rents, and future CPI-based adjustments, under non-cancelable operating leases at
December 31, 2016
are as follows (in thousands):
|
Years Ending December 31,
|
Total
|
|||
|
2017
|
$
|
585,799
|
|
|
|
2018
|
575,925
|
|
||
|
2019
|
565,614
|
|
||
|
2020
|
533,916
|
|
||
|
2021
|
506,875
|
|
||
|
Thereafter
|
3,401,847
|
|
||
|
Total
|
$
|
6,169,976
|
|
|
|
W. P. Carey 2016 10-K
–
112
|
|
Notes to Consolidated Financial Statements
Operating Real Estate
At
December 31, 2016
, Operating real estate consisted of our investments in
two
hotels. At
December 31, 2015
, Operating real estate consisted of our investments in
two
hotels and
one
self-storage property. During the year ended
December 31, 2016
, we sold our remaining self-storage property, and as a result, the carrying value of our Operating real estate decreased by
$2.3 million
from
December 31, 2015
to
December 31, 2016
(
Note 17
). Below is a summary of our Operating real estate (in thousands):
|
December 31,
|
|||||||
|
2016
|
2015
|
||||||
|
Land
|
$
|
6,041
|
|
$
|
6,578
|
|
|
|
Buildings
|
75,670
|
|
76,171
|
|
|||
|
Less: Accumulated depreciation
|
(12,143
|
)
|
(8,794
|
)
|
|||
|
$
|
69,568
|
|
$
|
73,955
|
|
||
Depreciation expense on our operating real estate was
$4.2 million
,
$4.2 million
, and
$3.8 million
for the years ended
December 31, 2016
,
2015
, and
2014
, respectively.
We capitalized or reclassified from real estate under construction
$2.2 million
of building improvements related to our operating properties during the year ended December 31, 2016.
Assets Held for Sale
Below is a summary of our properties held for sale (in thousands):
|
December 31,
|
|||||||
|
2016
|
2015
|
||||||
|
Net investments in direct financing leases
|
$
|
26,247
|
|
$
|
—
|
|
|
|
Real estate, net
|
—
|
|
59,046
|
|
|||
|
Assets held for sale
|
$
|
26,247
|
|
$
|
59,046
|
|
|
At
December 31, 2016
, we had
one
property classified as Assets held for sale with a carrying value of
$26.2 million
. In addition, there was a deferred tax liability of
$2.5 million
related to this property as of
December 31, 2016
, which is included in Deferred income taxes in the consolidated balance sheets. The property was disposed of subsequent to
December 31, 2016
(
Note 20
). At
December 31, 2015
, we had
two
properties classified as Assets held for sale, both of which were sold during the year ended
December 31, 2016
(
Note 17
).
Assets representing rights to receive money on demand or at fixed or determinable dates are referred to as finance receivables. Our finance receivables portfolio consists of our Net investments in direct financing leases, notes receivable, and deferred acquisition fees. Operating leases are not included in finance receivables as such amounts are not recognized as an asset in the consolidated financial statements.
|
W. P. Carey 2016 10-K
–
113
|
|
Notes to Consolidated Financial Statements
Net Investments in Direct Financing Leases
Net investments in direct financing leases is summarized as follows (in thousands):
|
December 31,
|
|||||||
|
2016
|
2015
|
||||||
|
Minimum lease payments receivable
|
$
|
619,014
|
|
$
|
797,736
|
|
|
|
Unguaranteed residual value
|
639,002
|
|
700,143
|
|
|||
|
1,258,016
|
|
1,497,879
|
|
||||
|
Less: unearned income
|
(573,957
|
)
|
(741,526
|
)
|
|||
|
$
|
684,059
|
|
$
|
756,353
|
|
||
2016
—
Interest income from direct financing leases, which was included in Lease revenues in the consolidated financial statements, was
$71.2 million
for the year ended December 31, 2016. During the year ended
December 31, 2016
, the U.S. dollar
strengthened
against both the euro and British pound sterling, resulting in a
$18.3 million
decrease
in the carrying value of Net investments in direct financing leases from
December 31, 2015
to
December 31, 2016
. During the year ended December 31, 2016, we reclassified
31
properties with a carrying value of
$9.7 million
from Net investments in direct financing leases to Real estate, at cost, in connection with the extensions of the underlying leases. During the year ended December 31, 2016, we reclassified a property from Net investments in direct financing leases to Assets held for sale based on the fair value of the property less costs to sell of
$26.2 million
(
Note 5
) and recognized an impairment charge of
$7.0 million
on the property (
Note 9
).
2015
—
Interest income from direct financing leases, which was included in Lease revenues in the consolidated financial statements, was
$74.4 million
for the year ended December 31, 2015. We also recognized impairment charges totaling
$3.3 million
on
five
properties accounted for as Net investments in direct financing leases in connection with an other-than-temporary decline in the estimated fair values of the properties’ residual values (
Note 9
).
2014
—
Interest income from direct financing leases, which was included in Lease revenues in the consolidated financial statements, was
$78.8 million
for the year ended December 31, 2014. In connection with the CPA
®
:16 Merger in January 2014, we acquired
98
properties subject to direct financing leases with a total fair value of
$538.2 million
(
Note 3
), of which
one
was sold during the year ended December 31, 2014 (
Note 17
). In connection with our acquisition of an investment in Australia, we acquired
one
property subject to a direct financing lease for
$3.3 million
. During the year ended December 31, 2014, we reclassified properties with a carrying value of
$13.7 million
from Net investments in direct financing leases to Real estate in connection with the extensions of the underlying leases. We also recognized impairment charges totaling
$1.3 million
on
eight
properties accounted for as Net investments in direct financing leases in connection with an other-than-temporary decline in the estimated fair values of the properties’ residual values (
Note 9
).
Scheduled Future Minimum Rents
Scheduled future minimum rents, exclusive of renewals, expenses paid by tenants, percentage of sales rents, and future CPI-based adjustments, under non-cancelable direct financing leases at
December 31, 2016
are as follows (in thousands):
|
Years Ending December 31,
|
Total
|
|||
|
2017
|
$
|
65,781
|
|
|
|
2018
|
65,893
|
|
||
|
2019
|
64,138
|
|
||
|
2020
|
63,438
|
|
||
|
2021
|
60,232
|
|
||
|
Thereafter
|
299,532
|
|
||
|
Total
|
$
|
619,014
|
|
|
|
W. P. Carey 2016 10-K
–
114
|
|
Notes to Consolidated Financial Statements
Notes Receivable
Earnings from our notes receivable are included in Lease termination income and other in the consolidated financial statements.
At
December 31, 2016
and
2015
, we had a note receivable with an outstanding balance of
$10.4 million
and
$10.7 million
, respectively, representing the expected future payments under a sales type lease, which was included in Other assets, net in the consolidated financial statements.
At December 31, 2014, we had a B-note with an outstanding balance of
$10.0 million
. In February 2015, the B-note was repaid in full to us for
$10.0 million
.
Deferred Acquisition Fees Receivable
As described in
Note 4
, we earn revenue in connection with structuring and negotiating investments and related mortgage financing for the CPA
®
REITs. A portion of this revenue is due in equal annual installments over three years, provided the CPA
®
REITs meet their respective performance criteria. Unpaid deferred installments, including accrued interest, from the CPA
®
REITs were included in Due from affiliates in the consolidated financial statements.
Credit Quality of Finance Receivables
We generally seek investments in facilities that we believe are critical to a tenant’s business and that we believe have a low risk of tenant default.
As of
December 31, 2016
and
2015
, we had allowances for credit losses of
$13.3 million
and
$8.7 million
, respectively, on a single direct financing lease, including the impact of foreign currency translation. During the years ended
December 31, 2016
and
2015
, we increased the allowance by
$7.1 million
and
$8.7 million
, respectively, which was recorded in Property expenses, excluding reimbursable tenant costs in the consolidated financial statements, due to a decline in the estimated amount of future payments we will receive from the tenant, including the possible early termination of the direct financing lease. At both
December 31, 2016
and
2015
, none of the balances of our finance receivables were past due. Other than the lease extensions noted under Net Investment in Direct Financing Leases above and the allowance for credit losses discussed above, there were no modifications of finance receivables during the
years ended
December 31, 2016
or
2015
. We evaluate the credit quality of our finance receivables utilizing an internal
five
-point credit rating scale, with
one
representing the highest credit quality and
five
representing the lowest. A credit quality of one through three indicates a range of investment grade to stable. A credit quality of four through five indicates a range of inclusion on the watch list to risk of default.
The credit quality evaluation of our finance receivables was last updated in the fourth quarter of 2016.
We believe the credit quality of our deferred acquisition fees receivable falls under category
one
, as the CPA
®
REITs are expected to have the available cash to make such payments.
A summary of our finance receivables by internal credit quality rating, excluding our deferred acquisition fees receivable, is as follows (dollars in thousands):
|
Number of Tenants / Obligors at December 31,
|
Carrying Value at December 31,
|
|||||||||||
|
Internal Credit Quality Indicator
|
2016
|
2015
|
2016
|
2015
|
||||||||
|
1 - 3
|
27
|
28
|
$
|
621,955
|
|
$
|
657,034
|
|
||||
|
4
|
5
|
6
|
70,811
|
|
110,002
|
|
||||||
|
5
|
1
|
—
|
1,644
|
|
—
|
|
||||||
|
$
|
694,410
|
|
$
|
767,036
|
|
|||||||
We own interests in certain unconsolidated real estate investments with the Managed Programs and also own interests in the Managed Programs. We account for our interests in these investments under the equity method of accounting (i.e., at cost, increased or decreased by our share of earnings or losses, less distributions, plus contributions and other adjustments required by equity method accounting, such as basis differences) or at fair value by electing the equity method fair value option available under U.S. GAAP.
|
W. P. Carey 2016 10-K
–
115
|
|
Notes to Consolidated Financial Statements
The following table presents Equity in earnings of equity method investments in the Managed Programs and real estate, which represents our proportionate share of the income or losses of these investments, as well as certain adjustments related to other-than-temporary impairment charges and amortization of basis differences related to purchase accounting adjustments (in thousands):
|
Years Ended December 31,
|
|||||||||||
|
2016
|
2015
|
2014
|
|||||||||
|
Distributions of Available Cash (
Note 4
)
|
$
|
45,121
|
|
$
|
38,406
|
|
$
|
31,052
|
|
||
|
Proportionate share of equity in earnings (losses) of equity method investments in the Managed Programs
|
7,698
|
|
(454
|
)
|
2,425
|
|
|||||
|
Amortization of basis differences on equity method investments in the Managed Programs
|
(1,028
|
)
|
(806
|
)
|
(810
|
)
|
|||||
|
Deferred revenue earned (
Note 4
)
|
—
|
|
—
|
|
786
|
|
|||||
|
Other-than-temporary impairment charges on the Special Member Interest in CPA
®
:16 – Global’s operating partnership
|
—
|
|
—
|
|
(735
|
)
|
|||||
|
Total equity in earnings of equity method investments in the Managed Programs
|
51,791
|
|
37,146
|
|
32,718
|
|
|||||
|
Equity in earnings of equity method investments in real estate
|
16,503
|
|
17,559
|
|
14,828
|
|
|||||
|
Amortization of basis differences on equity method investments in real estate
|
(3,575
|
)
|
(3,685
|
)
|
(3,430
|
)
|
|||||
|
Equity in earnings of equity method investments in the Managed Programs and real estate
|
$
|
64,719
|
|
$
|
51,020
|
|
$
|
44,116
|
|
||
Managed Programs
We own interests in the Managed Programs and account for these interests under the equity method because, as their advisor and through our ownership of their common stock, we do not exert control over, but we do have the ability to exercise significant influence on, the Managed Programs. Operating results of the Managed REITs and CESH I are included in the Owned Real Estate segment and operating results of CCIF are included in the Investment Management segment.
The following table sets forth certain information about our investments in the Managed Programs (dollars in thousands):
|
% of Outstanding Shares Owned at
|
Carrying Amount of Investment at
|
|||||||||||||
|
December 31,
|
December 31,
|
|||||||||||||
|
Fund
|
2016
|
2015
|
2016
|
2015
|
||||||||||
|
CPA
®
:17 – Global
|
3.456
|
%
|
3.087
|
%
|
$
|
99,584
|
|
$
|
87,912
|
|
||||
|
CPA
®
:17 – Global operating partnership
|
0.009
|
%
|
0.009
|
%
|
—
|
|
—
|
|
||||||
|
CPA
®
:18 – Global
|
1.616
|
%
|
0.735
|
%
|
17,955
|
|
9,279
|
|
||||||
|
CPA
®
:18 – Global operating partnership
|
0.034
|
%
|
0.034
|
%
|
209
|
|
209
|
|
||||||
|
CWI 1
|
1.109
|
%
|
1.131
|
%
|
11,449
|
|
12,619
|
|
||||||
|
CWI 1 operating partnership
|
0.015
|
%
|
0.015
|
%
|
—
|
|
—
|
|
||||||
|
CWI 2
|
0.773
|
%
|
0.379
|
%
|
5,091
|
|
949
|
|
||||||
|
CWI 2 operating partnership
|
0.015
|
%
|
0.015
|
%
|
300
|
|
300
|
|
||||||
|
CCIF
|
13.322
|
%
|
47.882
|
%
|
23,528
|
|
22,214
|
|
||||||
|
CESH I
(a)
|
2.431
|
%
|
—
|
%
|
2,701
|
|
—
|
|
||||||
|
$
|
160,817
|
|
$
|
133,482
|
|
|||||||||
__________
|
(a)
|
Investment is accounted for at fair value.
|
CPA
®
:17 – Global
— The c
arrying value of our investment in CPA
®
:17 – Global at
December 31, 2016
includes asset management fees receivable, for which
109,825
shares of CPA
®
:17 – Global common stock were issued during the
first
quarter of
2017
. We received distributions from this investment during the
years ended December 31, 2016
,
2015
, and
2014
of
$7.3 million
,
$5.9 million
, and
$4.6 million
, respectively. We received distributions from our investment in the CPA
®
:17 – Global
|
W. P. Carey 2016 10-K
–
116
|
|
Notes to Consolidated Financial Statements
operating partnership during the
years ended December 31, 2016
,
2015
, and
2014
of
$24.8 million
,
$24.7 million
, and
$20.4 million
, respectively.
CPA
®
:18 – Global
— The c
arrying value of our investment in CPA
®
:18 – Global at
December 31, 2016
includes asset management fees receivable, for which
109,639
shares of CPA
®
:18 – Global class A common stock were issued during the
first
quarter of
2017
. We received distributions from this investment during the
years ended December 31, 2016
,
2015
, and
2014
of
$0.9 million
,
$0.2 million
, and less than
$0.1 million
, respectively. We received distributions from our investment in the CPA
®
:18 – Global operating partnership during the
years ended December 31, 2016
,
2015
, and
2014
of
$7.6 million
,
$6.3 million
, and
$1.8 million
, respectively.
CWI 1
—
We received distributions from this investment during the
years ended December 31, 2016
,
2015
, and
2014
of
$0.9 million
,
$0.8 million
, and
$0.3 million
, respectively. We received distributions from our investment in the CWI 1 operating partnership during the
years ended December 31, 2016
,
2015
, and
2014
of
$9.4 million
,
$7.1 million
, and
$4.1 million
, respectively.
CWI 2
—
On May 30, 2014, we purchased
22,222
shares of CWI 2’s class A common stock, par value
$0.001
per share, for an aggregate purchase price of
$0.2 million
and consolidated this investment. On May 15, 2015, upon CWI 2 reaching its minimum offering proceeds and admitting new stockholders, we deconsolidated our investment and began to account for our interest in CWI 2 under the equity method of accounting. We received distributions from this investment during the year ended
December 31, 2016
of
$0.1 million
. We did not receive distributions from this investment during the years ended December 31, 2015 and 2014. The carrying value of our investment in CWI 2 at
December 31, 2016
includes asset management fees receivable, for which
46,439
shares of class A common stock of CWI 2 were issued during the
first
quarter of
2017
. On March 27, 2015, we purchased a
0.015%
special general partnership interest in the CWI 2 operating partnership for
$0.3 million
. This special general partnership interest entitles us to receive distributions of our proportionate share of earnings up to
10%
of the Available Cash from CWI 2’s operating partnership (
Note 4
). We received distributions from this investment during the
years ended December 31, 2016
and
2015
of
$3.3 million
and
$0.3 million
, respectively.
CCIF
— W
e received distributions from our investment in CCIF during the years ended
December 31, 2016
and
2015
of
$0.7 million
and
$0.8 million
, respectively.
CESH I
—
Under the limited partnership agreement we have with CESH I, we pay all organization and offering costs on behalf of CESH I, and instead of being reimbursed by CESH I on a dollar-for-dollar basis for those costs, we receive limited partnership units of CESH I equal to
2.5%
of its gross offering proceeds (
Note 4
). We have elected to account for our investment in CESH I at fair value by selecting the equity method fair value option available under U.S. GAAP. We record our investment in CESH I on a one quarter lag; therefore, the balance of our equity method investment in CESH I recorded as of
December 31, 2016
is based on the estimated fair value of our equity method investment in CESH I as of September 30,
2016
. We did not receive distributions from this investment during the year ended
December 31, 2016
.
At
December 31, 2016
and
2015
, the aggregate unamortized basis differences on our equity investments in the Managed Programs were
$31.7 million
and
$27.4 million
, respectively.
The following tables present estimated combined summarized financial information for the Managed Programs. Amounts provided are expected total amounts attributable to the Managed Programs and do not represent our proportionate share (in thousands):
|
December 31,
|
|||||||
|
2016
|
2015
|
||||||
|
Real estate, net
|
$
|
8,464,447
|
|
$
|
7,274,549
|
|
|
|
Other assets
|
2,737,441
|
|
2,492,789
|
|
|||
|
Total assets
|
11,201,888
|
|
9,767,338
|
|
|||
|
Debt
|
(5,128,640
|
)
|
(4,535,506
|
)
|
|||
|
Accounts payable, accrued expenses and other liabilities
|
(943,090
|
)
|
(652,139
|
)
|
|||
|
Total liabilities
|
(6,071,730
|
)
|
(5,187,645
|
)
|
|||
|
Noncontrolling interests
|
(263,783
|
)
|
(287,051
|
)
|
|||
|
Stockholders’ equity
|
$
|
4,866,375
|
|
$
|
4,292,642
|
|
|
|
W. P. Carey 2016 10-K
–
117
|
|
Notes to Consolidated Financial Statements
|
Years Ended December 31,
|
|||||||||||
|
2016
|
2015
|
2014
|
|||||||||
|
Revenues
|
$
|
1,465,803
|
|
$
|
1,157,432
|
|
$
|
825,405
|
|
||
|
Expenses
|
(1,265,819
|
)
|
(1,129,294
|
)
|
(816,630
|
)
|
|||||
|
Income from continuing operations
|
$
|
199,984
|
|
$
|
28,138
|
|
$
|
8,775
|
|
||
|
Net income (loss) attributable to the Managed Programs
(a) (b)
|
$
|
145,936
|
|
$
|
(15,740
|
)
|
$
|
(12,695
|
)
|
||
__________
|
(a)
|
Inclusive of impairment charges recognized by the Managed Programs totaling
$31.4 million
,
$7.2 million
, and
$1.3 million
during the
years ended December 31,
2016
,
2015
, and
2014
, respectively. These impairment charges reduced our income earned from these investments by
$1.0 million
,
$0.1 million
, and less than
$0.1 million
during the
years ended December 31,
2016
,
2015
, and
2014
, respectively.
|
|
(b)
|
Amounts included net gains on sale of real estate recorded by the Managed Programs totaling
$132.8 million
,
$8.9 million
, and
$13.3 million
for the
years ended December 31,
2016
,
2015
, and
2014
, respectively. These net gains on sale of real estate increased our income earned from these investments by
$4.6 million
,
$0.1 million
, and
$0.4 million
during the
years ended December 31,
2016
,
2015
, and
2014
, respectively.
|
Interests in Other Unconsolidated Real Estate Investments
We own equity interests in single-tenant net-leased properties that are generally leased to companies through noncontrolling interests (i) in partnerships and limited liability companies that we do not control but over which we exercise significant influence or (ii) as tenants-in-common subject to common control. Generally, the underlying investments are jointly owned with affiliates. We account for these investments under the equity method of accounting. Earnings for each investment are recognized in accordance with each respective investment agreement. Investments in unconsolidated investments are required to be evaluated periodically. We periodically compare an investment’s carrying value to its estimated fair value and recognize an impairment charge to the extent that the carrying value exceeds fair value and such decline is determined to be other than temporary.
The following table sets forth our ownership interests in our equity investments in real estate, excluding the Managed Programs, and their respective carrying values (dollars in thousands):
|
Carrying Value at December 31,
|
||||||||||||
|
Lessee
|
Co-owner
|
Ownership Interest
|
2016
|
2015
|
||||||||
|
The New York Times Company
|
CPA
®
:17 – Global
|
45%
|
$
|
69,668
|
|
$
|
70,976
|
|
||||
|
Frontier Spinning Mills, Inc.
|
CPA
®
:17 – Global
|
40%
|
24,138
|
|
24,288
|
|
||||||
|
Beach House JV, LLC
(a)
|
Third Party
|
N/A
|
15,105
|
|
15,318
|
|
||||||
|
Actebis Peacock GmbH
(b)
|
CPA
®
:17 – Global
|
30%
|
11,205
|
|
12,186
|
|
||||||
|
Waldaschaff Automotive GmbH and Wagon Automotive Nagold GmbH
(b)
|
CPA
®
:17 – Global
|
33%
|
8,887
|
|
9,507
|
|
||||||
|
C1000 Logistiek Vastgoed B.V.
(b) (c)
|
CPA
®
:17 – Global
|
15%
|
8,739
|
|
9,381
|
|
||||||
|
Wanbishi Archives Co. Ltd.
(d)
|
CPA
®
:17 – Global
|
3%
|
334
|
|
335
|
|
||||||
|
$
|
138,076
|
|
$
|
141,991
|
|
|||||||
__________
|
(a)
|
This investment is in the form of a preferred equity interest.
|
|
(b)
|
The carrying value of this investment is affected by fluctuations in the exchange rate of the euro.
|
|
(c)
|
This investment represents a tenancy-in-common interest, whereby the property is encumbered by the debt for which we are jointly and severally liable. The co-obligor is CPA
®
:17 – Global and the amount due under the arrangement was approximately
$68.4 million
at
December 31, 2016
. Of this amount,
$10.3 million
represents the amount we agreed to pay and is included within the carrying value of the investment at
December 31, 2016
.
|
|
(d)
|
The carrying value of this investment is affected by fluctuations in the exchange rate of the yen.
|
|
W. P. Carey 2016 10-K
–
118
|
|
Notes to Consolidated Financial Statements
The following tables present estimated combined summarized financial information of our equity investments, excluding the Managed Programs. Amounts provided are the total amounts attributable to the investments and do not represent our proportionate share (in thousands):
|
|
December 31,
|
||||||
|
|
2016
|
2015
|
|||||
|
Real estate, net
|
$
|
460,198
|
|
$
|
464,730
|
|
|
|
Other assets
|
56,737
|
|
64,989
|
|
|||
|
Total assets
|
516,935
|
|
529,719
|
|
|||
|
Debt
|
(193,521
|
)
|
(201,611
|
)
|
|||
|
Accounts payable, accrued expenses and other liabilities
|
(10,354
|
)
|
(9,749
|
)
|
|||
|
Total liabilities
|
(203,875
|
)
|
(211,360
|
)
|
|||
|
Stockholders’ equity
|
$
|
313,060
|
|
$
|
318,359
|
|
|
|
|
Years Ended December 31,
|
||||||||||
|
|
2016
|
2015
|
2014
|
||||||||
|
Revenues
|
$
|
56,791
|
|
$
|
61,887
|
|
$
|
64,294
|
|
||
|
Expenses
|
(17,933
|
)
|
(21,124
|
)
|
(27,801
|
)
|
|||||
|
Income from continuing operations
|
$
|
38,858
|
|
$
|
40,763
|
|
$
|
36,493
|
|
||
|
Net income attributable to the jointly owned investments
|
$
|
38,858
|
|
$
|
40,763
|
|
$
|
36,493
|
|
||
We received aggregate distributions of
$16.1 million
,
$13.3 million
, and
$12.5 million
from our other unconsolidated real estate investments for the
years ended
December 31, 2016
,
2015
, and
2014
, respectively. At both
December 31, 2016
and
2015
, the aggregate unamortized basis differences on our unconsolidated real estate investments were
$6.7 million
.
Hellweg 2 Restructuring
In 2007, Corporate Property Associates 14 Incorporated, or CPA
®
:14, CPA
®
:15, and CPA
®
:16 – Global, acquired a
33%
,
40%
, and
27%
interest, respectively, in an entity, or Purchaser, for purposes of acquiring a
25%
interest in a property holding company, or PropCo, that owns
37
do-it-yourself stores located in Germany. This is referred to as the Hellweg 2 transaction. The remaining
75%
interest in PropCo was owned by a third party, or the Partner. In November 2010, CPA
®
:14, CPA
®
:15, and CPA
®
:16 – Global obtained a
70%
additional interest in PropCo from the Partner, resulting in Purchaser owning approximately
95%
of PropCo. In 2011, CPA
®
:17 – Global acquired CPA
®
:14’s interests, and in 2012, through the CPA
®
:15 Merger, we acquired CPA
®
:15’s interests. We had previously accounted for our investment under the equity method of accounting. In January 2014 in connection with the CPA
®
:16 Merger, we acquired CPA
®
:16 – Global’s interests in the investment. Subsequent to the acquisition, we consolidate this investment.
In October 2013, the Partner’s remaining
5%
equity interest in PropCo was acquired by CPA
®
:17 – Global, which resulted in PropCo recording a German real estate transfer tax of
$22.1 million
, of which our share was approximately
$8.4 million
and was reflected within Equity in earnings of equity method investments in the Managed Programs and real estate in our consolidated financial statements for the year ended December 31, 2013. In connection with the CPA
®
:16 Merger, we acquired CPA
®
:16 – Global’s controlling interest in the Hellweg 2 investment. During the fourth quarter of 2015, the German tax authority revoked its previous position on the application of a ruling in a Federal German tax court. Based on this change in position, the obligation to pay the German real estate transfer taxes recorded in connection with the Hellweg 2 restructuring, as well as those recorded in connection with the CPA
®
:15 Merger, were no longer deemed probable of occurring. As a result, we reversed liabilities totaling
$25.0 million
, including
$17.1 million
recorded in connection with the Hellweg 2 restructuring and
$7.9 million
recorded in connection with the CPA
®
:15 Merger, which is reflected in Merger, property acquisition, and other expenses in the consolidated financial statements for the year ended December 31, 2015.
Waldaschaff Automotive GmbH and Wagon Automotive Nagold GmbH
In the second quarter of 2015, we recognized equity income of approximately
$2.1 million
, representing our share of the bankruptcy proceeds received by this jointly owned investment. The proceeds were used to repay the mortgage loan encumbering the two properties owned by the jointly owned investment in the amount of
$14.3 million
, of which our share was
$4.7 million
, in the third quarter of 2015.
|
W. P. Carey 2016 10-K
–
119
|
|
Notes to Consolidated Financial Statements
Note 8.
Goodwill and Other Intangibles
We have recorded net lease and internal-use software development intangibles that are being amortized over periods ranging from
one
year to
40 years
. In addition, we have several ground lease intangibles that are being amortized over periods of up to
99 years
. In-place lease and tenant relationship intangibles are included in In-place lease and tenant relationship intangible assets, net in the consolidated financial statements. Above-market rent intangibles are included in Above-market rent intangible assets, net in the consolidated financial statements. Below-market ground lease (as lessee), trade name, management contracts, and internal-use software development intangibles are included in Other assets, net in the consolidated financial statements. Below-market rent, above-market ground lease (as lessee), and below-market purchase option intangibles are included in Below-market rent and other intangible liabilities, net in the consolidated financial statements.
In connection with our investment activity during
2016
, we recorded net lease intangibles comprised as follows (life in years, dollars in thousands):
|
Weighted-Average Life
|
Amount
|
||||
|
Finite-Lived Intangible Assets
|
|||||
|
In-place lease
(a)
|
21.2
|
$
|
124,742
|
|
|
|
Above-market rent
|
20.0
|
35,576
|
|
||
|
$
|
160,318
|
|
|||
|
Finite-Lived Intangible Liabilities
|
|||||
|
Below-market rent
|
20.1
|
$
|
(604
|
)
|
|
__________
|
(a)
|
Includes intangible assets totaling
$29.8 million
related to a deferred tax liability that we recorded in connection with an acquisition completed in 2016. We recorded a corresponding increase to the asset value of the acquisition, since we assumed the tax basis of the acquired entities as part of the acquisition of the shares of these entities.
|
|
W. P. Carey 2016 10-K
–
120
|
|
Notes to Consolidated Financial Statements
In connection with the CPA
®
:16 Merger and the CPA
®
:15 Merger, we recorded goodwill as a result of the merger considerations exceeding the fair values of the assets acquired and liabilities assumed (
Note 3
). The goodwill was attributed to our Owned Real Estate reporting unit as it relates to the real estate assets we acquired in the CPA
®
:16 Merger and CPA
®
:15 Merger. The following table presents a reconciliation of our goodwill (in thousands):
|
Owned Real Estate
|
Investment Management
|
Total
|
|||||||||
|
Balance at January 1, 2014
|
$
|
286,601
|
|
$
|
63,607
|
|
$
|
350,208
|
|
||
|
Acquisition of CPA
®
:16 – Global
|
346,642
|
|
—
|
|
346,642
|
|
|||||
|
Foreign currency translation adjustments and other
|
(14,258
|
)
|
—
|
|
(14,258
|
)
|
|||||
|
Other business combinations
(a)
|
13,585
|
|
—
|
|
13,585
|
|
|||||
|
Allocation of goodwill to the cost basis of properties sold or classified as held for sale
(b)
|
(3,762
|
)
|
—
|
|
(3,762
|
)
|
|||||
|
Balance at December 31, 2014
|
628,808
|
|
63,607
|
|
692,415
|
|
|||||
|
Foreign currency translation adjustments
|
(10,548
|
)
|
—
|
|
(10,548
|
)
|
|||||
|
Allocation of goodwill to the cost basis of properties sold or classified as held for sale
(b)
|
(1,762
|
)
|
—
|
|
(1,762
|
)
|
|||||
|
Other business combinations
|
1,704
|
|
—
|
|
1,704
|
|
|||||
|
Balance at December 31, 2015
|
618,202
|
|
63,607
|
|
681,809
|
|
|||||
|
Allocation of goodwill to the cost basis of properties sold or classified as held for sale
(b)
|
(34,405
|
)
|
—
|
|
(34,405
|
)
|
|||||
|
Impairment charges (
Note 9
)
|
(10,191
|
)
|
—
|
|
(10,191
|
)
|
|||||
|
Foreign currency translation adjustments
|
(1,293
|
)
|
—
|
|
(1,293
|
)
|
|||||
|
Balance at December 31, 2016
|
$
|
572,313
|
|
$
|
63,607
|
|
$
|
635,920
|
|
||
__________
|
(a)
|
Primarily relates to acquisition of an investment in Norway (
Note 5
).
|
|
(b)
|
Goodwill is allocated to the cost basis of the properties based on the relative fair value of goodwill at the time the properties are sold or classified as held for sale.
|
Current accounting guidance requires that we test for the recoverability of goodwill at the reporting unit level. The test for recoverability must be conducted at least annually, or more frequently if events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable. We performed our annual test for impairment during the fourth quarter of
2016
for goodwill recorded in both segments, and no impairment was indicated.
|
W. P. Carey 2016 10-K
–
121
|
|
Notes to Consolidated Financial Statements
Intangible assets, intangible liabilities, and goodwill are summarized as follows (in thousands):
|
December 31,
|
|||||||||||||||||||||||
|
2016
|
2015
|
||||||||||||||||||||||
|
Gross Carrying Amount
|
Accumulated Amortization
|
Net Carrying Amount
|
Gross Carrying Amount
|
Accumulated Amortization
|
Net Carrying Amount
|
||||||||||||||||||
|
Finite-Lived Intangible Assets
|
|||||||||||||||||||||||
|
Internal-use software development costs
|
$
|
18,568
|
|
$
|
(5,068
|
)
|
$
|
13,500
|
|
$
|
18,188
|
|
$
|
(2,038
|
)
|
$
|
16,150
|
|
|||||
|
Management contracts
|
—
|
|
—
|
|
—
|
|
32,765
|
|
(32,765
|
)
|
—
|
|
|||||||||||
|
18,568
|
|
(5,068
|
)
|
13,500
|
|
50,953
|
|
(34,803
|
)
|
16,150
|
|
||||||||||||
|
Lease Intangibles:
|
|||||||||||||||||||||||
|
In-place lease and tenant relationship
|
1,148,232
|
|
(322,119
|
)
|
826,113
|
|
1,205,585
|
|
(302,737
|
)
|
902,848
|
|
|||||||||||
|
Above-market rent
|
632,383
|
|
(210,927
|
)
|
421,456
|
|
649,035
|
|
(173,963
|
)
|
475,072
|
|
|||||||||||
|
Below-market ground lease
|
23,140
|
|
(1,381
|
)
|
21,759
|
|
25,403
|
|
(889
|
)
|
24,514
|
|
|||||||||||
|
1,803,755
|
|
(534,427
|
)
|
1,269,328
|
|
1,880,023
|
|
(477,589
|
)
|
1,402,434
|
|
||||||||||||
|
Indefinite-Lived Goodwill and Intangible Assets
|
|||||||||||||||||||||||
|
Goodwill
|
635,920
|
|
—
|
|
635,920
|
|
681,809
|
|
—
|
|
681,809
|
|
|||||||||||
|
Trade name
|
3,975
|
|
—
|
|
3,975
|
|
3,975
|
|
—
|
|
3,975
|
|
|||||||||||
|
Below-market ground lease
|
866
|
|
—
|
|
866
|
|
895
|
|
—
|
|
895
|
|
|||||||||||
|
640,761
|
|
—
|
|
640,761
|
|
686,679
|
|
—
|
|
686,679
|
|
||||||||||||
|
Total intangible assets
|
$
|
2,463,084
|
|
$
|
(539,495
|
)
|
$
|
1,923,589
|
|
$
|
2,617,655
|
|
$
|
(512,392
|
)
|
$
|
2,105,263
|
|
|||||
|
Finite-Lived Intangible Liabilities
|
|||||||||||||||||||||||
|
Below-market rent
|
$
|
(133,137
|
)
|
$
|
38,231
|
|
$
|
(94,906
|
)
|
$
|
(171,199
|
)
|
$
|
44,873
|
|
$
|
(126,326
|
)
|
|||||
|
Above-market ground lease
|
(12,948
|
)
|
2,362
|
|
(10,586
|
)
|
(13,052
|
)
|
1,774
|
|
(11,278
|
)
|
|||||||||||
|
(146,085
|
)
|
40,593
|
|
(105,492
|
)
|
(184,251
|
)
|
46,647
|
|
(137,604
|
)
|
||||||||||||
|
Indefinite-Lived Intangible Liabilities
|
|||||||||||||||||||||||
|
Below-market purchase option
|
(16,711
|
)
|
—
|
|
(16,711
|
)
|
(16,711
|
)
|
—
|
|
(16,711
|
)
|
|||||||||||
|
Total intangible liabilities
|
$
|
(162,796
|
)
|
$
|
40,593
|
|
$
|
(122,203
|
)
|
$
|
(200,962
|
)
|
$
|
46,647
|
|
$
|
(154,315
|
)
|
|||||
Net amortization of intangibles, including the effect of foreign currency translation, was
$163.8 million
,
$180.8 million
, and
$174.0 million
for the years ended
December 31, 2016
,
2015
, and
2014
, respectively. Amortization of below-market rent and above-market rent intangibles is recorded as an adjustment to Lease revenues; amortization of management contracts, internal-use software development, and in-place lease and tenant relationship intangibles is included in Depreciation and amortization; and amortization of above-market ground lease and below-market ground lease intangibles is included in Property expenses, excluding reimbursable tenant costs.
|
W. P. Carey 2016 10-K
–
122
|
|
Notes to Consolidated Financial Statements
Based on the intangible assets and liabilities recorded at
December 31, 2016
, scheduled annual net amortization of intangibles for each of the next five calendar years and thereafter is as follows (in thousands):
|
Years Ending December 31,
|
Net Decrease in
Lease Revenues
|
Increase to Amortization/
Property Expenses
|
Total
|
|||||||||
|
2017
|
$
|
49,925
|
|
$
|
98,909
|
|
$
|
148,834
|
|
|||
|
2018
|
47,663
|
|
95,452
|
|
143,115
|
|
||||||
|
2019
|
44,630
|
|
91,543
|
|
136,173
|
|
||||||
|
2020
|
36,950
|
|
83,386
|
|
120,336
|
|
||||||
|
2021
|
32,459
|
|
76,529
|
|
108,988
|
|
||||||
|
Thereafter
|
114,923
|
|
404,967
|
|
519,890
|
|
||||||
|
Total
|
$
|
326,550
|
|
$
|
850,786
|
|
$
|
1,177,336
|
|
|||
The fair value of an asset is defined as the exit price, which is the amount that would either be received when an asset is sold or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance establishes a three-tier fair value hierarchy based on the inputs used in measuring fair value. These tiers are: Level 1, for which quoted market prices for identical instruments are available in active markets, such as money market funds, equity securities, and U.S. Treasury securities; Level 2, for which there are inputs other than quoted prices included within Level 1 that are observable for the instrument, such as certain derivative instruments including interest rate caps, interest rate swaps, foreign currency forward contracts, and foreign currency collars; and Level 3, for securities that do not fall into Level 1 or Level 2 and for which little or no market data exists, therefore requiring us to develop our own assumptions.
Items Measured at Fair Value on a Recurring Basis
The methods and assumptions described below were used to estimate the fair value of each class of financial instrument. For significant Level 3 items, we have also provided the unobservable inputs along with their weighted-average ranges.
Money Market Funds
— Our money market funds, which are included in Cash and cash equivalents in the consolidated financial statements, are comprised of government securities and U.S. Treasury bills. These funds were classified as Level 1 as we used quoted prices from active markets to determine their fair values.
Derivative Assets
— Our derivative assets, which are included in Other assets, net in the consolidated financial statements, are comprised of an interest rate cap, interest rate swaps, stock warrants, foreign currency forward contracts, and foreign currency collars (
Note 10
). The interest rate cap, interest rate swaps, foreign currency forward contracts, and foreign currency forward collars were measured at fair value using readily observable market inputs, such as quotations on interest rates, and were classified as Level 2 as these instruments are custom, over-the-counter contracts with various bank counterparties that are not traded in an active market. The stock warrants were measured at fair value using valuation models that incorporate market inputs and our own assumptions about future cash flows. We classified these assets as Level 3 because these assets are not traded in an active market.
Derivative Liabilities
— Our derivative liabilities, which are included in Accounts payable, accrued expenses and other liabilities in the consolidated financial statements, are comprised of interest rate swaps (
Note 10
). These derivative instruments were measured at fair value using readily observable market inputs, such as quotations on interest rates, and were classified as Level 2 because they are custom, over-the-counter contracts with various bank counterparties that are not traded in an active market.
Redeemable Noncontrolling Interest
— We account for the noncontrolling interest in W. P. Carey International, LLC, or WPCI, held by a third party as a redeemable noncontrolling interest (
Note 14
). We determined the valuation of redeemable noncontrolling interest using widely accepted valuation techniques, including comparable transaction analysis, comparable public company analysis, and discounted cash flow analysis. We classified this liability as Level 3.
Equity Investment in CESH I
—
We have elected to account for our investment in CESH I at fair value by selecting the equity method fair value option available under U.S. GAAP (
Note 7
). The fair value of our equity investment in CESH I approximated its carrying value as of
December 31, 2016
.
|
W. P. Carey 2016 10-K
–
123
|
|
Notes to Consolidated Financial Statements
We did not have any transfers into or out of Level 1, Level 2, and Level 3 category of measurements during either the
years ended
December 31, 2016
or
2015
.
Our other financial instruments had the following carrying values and fair values as of the dates shown (dollars in thousands):
|
December 31, 2016
|
December 31, 2015
|
||||||||||||||||
|
Level
|
Carrying Value
|
Fair Value
|
Carrying Value
|
Fair Value
|
|||||||||||||
|
Senior Unsecured Notes, net
(a) (b) (c)
|
2
|
$
|
1,807,200
|
|
$
|
1,828,829
|
|
$
|
1,476,084
|
|
$
|
1,459,544
|
|
||||
|
Non-recourse debt, net
(a) (b) (d)
|
3
|
1,706,921
|
|
1,711,364
|
|
2,269,421
|
|
2,293,542
|
|
||||||||
|
Note receivable
(d)
|
3
|
10,351
|
|
10,046
|
|
10,689
|
|
10,610
|
|
||||||||
__________
|
(a)
|
In accordance with ASU 2015-03, we reclassified deferred financing costs from Other assets, net to Non-recourse debt, net and Senior Unsecured Notes, net as of December 31, 2015 (
Note 2
). The carrying value of Non-recourse debt, net includes unamortized deferred financing costs of
$1.3 million
and
$1.8 million
at
December 31, 2016
and
2015
, respectively. The carrying value of Senior Unsecured Notes, net includes unamortized deferred financing costs of
$12.1 million
and
$10.5 million
at
December 31, 2016
and
2015
, respectively.
|
|
(b)
|
The carrying value of Non-recourse debt, net includes unamortized discount of
$0.2 million
at
December 31, 2016
and unamortized premium of
$3.8 million
at
December 31, 2015
. The carrying value of Senior Unsecured Notes, net includes unamortized discount of
$7.8 million
at both
December 31, 2016
and
2015
.
|
|
(c)
|
We determined the estimated fair value of the Senior Unsecured Notes (
Note 11
) using quoted market prices in an open market with limited trading volume where available. In cases where there was no trading volume, we determined the estimated fair value using a discounted cash flow model using a rate that reflects the average yield of similar market participants.
|
|
(d)
|
We determined the estimated fair value of these financial instruments using a discounted cash flow model that estimates the present value of the future loan payments by discounting such payments at current estimated market interest rates. The estimated market interest rates take into account interest rate risk and the value of the underlying collateral, which includes quality of the collateral, the credit quality of the tenant/obligor, and the time until maturity.
|
We estimated that our other financial assets and liabilities (excluding net investments in direct financing leases) had fair values that approximated their carrying values at both
December 31, 2016
and
2015
.
Items Measured at Fair Value on a Non-Recurring Basis (Including Impairment Charges)
We periodically assess whether there are any indicators that the value of our real estate investments may be impaired or that their carrying value may not be recoverable. For investments in real estate held for use for which an impairment indicator is identified, we follow a two-step process to determine whether the investment is impaired and to determine the amount of the charge. First, we compare the carrying value of the property’s asset group to the future undiscounted net cash flows that we expect the property’s asset group will generate, including any estimated proceeds from the eventual sale of the property’s asset group. If this amount is less than the carrying value, the property’s asset group is considered to be not recoverable. We then measure the impairment charge as the excess of the carrying value of the property’s asset group over the estimated fair value of the property’s asset group, which is primarily determined using market information such as recent comparable sales, broker quotes, or third-party appraisals. If relevant market information is not available or is not deemed appropriate, we perform a future net cash flow analysis, discounted for inherent risk associated with each investment. We determined that the significant inputs used to value these investments fall within Level 3 for fair value reporting. As a result of our assessments, we calculated impairment charges based on market conditions and assumptions that existed at the time. The valuation of real estate is subject to significant judgment and actual results may differ materially if market conditions or the underlying assumptions change.
|
W. P. Carey 2016 10-K
–
124
|
|
Notes to Consolidated Financial Statements
The following table presents information about assets for which we recorded an impairment charge and that were measured at fair value on a non-recurring basis (in thousands):
|
|
Year Ended December 31, 2016
|
Year Ended December 31, 2015
|
Year Ended December 31, 2014
|
||||||||||||||||||||
|
|
Fair Value
Measurements
|
Total Impairment
Charges
|
Fair Value
Measurements |
Total Impairment
Charges |
Fair Value
Measurements |
Total Impairment
Charges |
|||||||||||||||||
|
Impairment Charges in
Continuing Operations
|
|||||||||||||||||||||||
|
Real estate
|
$
|
155,839
|
|
$
|
52,316
|
|
$
|
63,027
|
|
$
|
26,597
|
|
$
|
26,503
|
|
$
|
21,738
|
|
|||||
|
Net investments in direct financing leases
|
23,775
|
|
6,987
|
|
65,132
|
|
3,309
|
|
39,158
|
|
1,329
|
|
|||||||||||
|
Equity investments in real estate
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
735
|
|
|||||||||||
|
$
|
59,303
|
|
$
|
29,906
|
|
$
|
23,802
|
|
|||||||||||||||
Impairment charges, and their related triggering events and fair value measurements, recognized during
2016
,
2015
, and
2014
were as follows:
Real Estate
2016 —
During the year ended December 31, 2016, we recognized impairment charges totaling
$52.3 million
, inclusive of an amount attributable to a noncontrolling interest of
$1.2 million
, on
18
properties, including a portfolio of
14
properties, in order to reduce the carrying values of the properties to their estimated fair values. The fair value measurements for substantially all of these properties approximated their estimated selling prices, less estimated costs to sell. We recognized impairment charges on the portfolio of
14
properties totaling
$41.0 million
, including
$10.2 million
allocated to goodwill. We disposed of
15
of these properties during 2016 (
Note 17
) and
two
of these properties in January 2017 (
Note 20
).
2015 —
During the year ended December 31, 2015, we recognized impairment charges totaling
$26.6 million
, inclusive of an amount attributable to a noncontrolling interest of
$1.0 million
, on
seven
properties and a parcel of vacant land in order to reduce the carrying values of the properties to their estimated fair values. The fair value measurements for
five
of the properties and the parcel of vacant land approximated their estimated selling prices, and we recognized impairment charges totaling
$10.9 million
on these properties. We disposed of
two
of these properties during 2015,
one
of these properties during 2016, and
one
of these properties in January 2017 (
Note 20
).
We reduced the estimated holding period for another property due to the expected expiration of its related lease within one year after December 31, 2015 and recognized an impairment charge of
$8.7 million
on the property. The fair value measurement related to the impairment charge was determined by estimating discounted cash flows using three significant unobservable inputs, which are the cash flow discount rate, the residual discount rate, and the residual capitalization rate equal to
9.25%
,
9.75%
, and
8.5%
, respectively. We disposed of this property in January 2017 (
Note 20
).
The building located on another property was demolished in connection with the redevelopment of the property, which commenced in December 2015 and was completed in October 2016 (
Note 5
), and the fair value of the building was reduced to zero. We recognized an impairment charge of
$6.9 million
on this property.
2014 —
During the year ended December 31, 2014, we recognized impairment charges totaling
$7.8 million
on
13
properties in order to reduce the carrying values of the properties to their estimated fair values, which approximated their estimated selling prices.
Additionally, we recognized an impairment charge of
$14.0 million
on a property during the year ended December 31, 2014 as result of the tenant vacating the property. The fair value measurements relating to the
$14.0 million
impairment charge were determined by a direct cap approach and market approach and utilizing the average of these two approaches, as the property has potential utility as both a commercial net lease building (direct cap approach) and a redeveloped residential structure (market approach). The fair value under the market approach was determined by comparing the property to similar properties that have been sold or offered for sale, with adjustments made for differences in date of sale, age, condition, size, location, land/building ratio, local tax policies, and other physical characteristics and circumstances influencing the sale. The fair value under the direct cap approach was determined by estimating future net operating income of the leased up asset utilizing comparable market rents that have been leased or offered for lease, capitalizing the resulting net operating income utilizing a residual capitalization rate of
8.0%
, offset by the leasing capital required to secure a tenant and the market vacancy assumptions.
|
W. P. Carey 2016 10-K
–
125
|
|
Notes to Consolidated Financial Statements
Net Investments in Direct Financing Leases
2016 —
During the year ended December 31, 2016, we recognized an impairment charge of
$7.0 million
on
one
property accounted for as Net investments in direct financing leases in order to reduce the carrying value of the property to its estimated fair value. The fair value measurement for the property approximated its estimated selling price, less estimated costs to sell. The property was classified as held for sale as of December 31, 2016. We sold this property in January 2017 (
Note 20
).
The fair value measurements related to the impairment charges recognized on our Net investments in direct financing leases during 2015 and 2014 were determined by estimating market rents at the time the leases expire, taking into account the following factors related to the properties and their locations: (i) estimated rent growth in property location; (ii) the quality of the property relative to other properties nearby; and (iii) the number of vacant properties nearby.
2015 —
During the year ended December 31, 2015, we recognized impairment charges totaling
$3.3 million
on
five
properties accounted for as Net investments in direct financing leases in connection with an other-than-temporary decline in the estimated fair values of the buildings’ residual values.
2014 —
During the year ended December 31, 2014, we recognized impairment charges totaling
$1.3 million
on
eight
properties accounted for as Net investments in direct financing leases in connection with an other-than-temporary decline in the estimated fair values of the buildings’ residual values.
Equity Investments in Real Estate
During the year ended December 31, 2014, we recognized an other-than-temporary impairment charge of
$0.7 million
on the Special Member Interest in CPA
®
:16 – Global’s operating partnership to reduce its carrying value to its estimated fair value, which had declined. The estimated fair value was computed by estimating discounted cash flows using two significant unobservable inputs, which are the discount rate and the estimated general and administrative costs as a percentage of assets under management with a weighted-average range of
12.75%
-
15.75%
and
35
-
45
basis points, r
espectively. The valuation was also dependent upon the estimated date of a liquidity event for CPA
®
:16 – Global because cash flows attributable to this investment would cease upon such event.
Risk Management
In the normal course of our ongoing business operations, we encounter economic risk. There are four main components of economic risk that impact us: interest rate risk, credit risk, market risk, and foreign currency risk. We are primarily subject to interest rate risk on our interest-bearing liabilities, including our Senior Unsecured Credit Facility and Senior Unsecured Notes (
Note 11
). Credit risk is the risk of default on our operations and our tenants’ inability or unwillingness to make contractually required payments. Market risk includes changes in the value of our properties and related loans, as well as changes in the value of our other securities and the shares or limited partnership units we hold in the Managed Programs due to changes in interest rates or other market factors. We own investments in North America, Europe, Australia, and Asia and are subject to risks associated with fluctuating foreign currency exchange rates.
|
W. P. Carey 2016 10-K
–
126
|
|
Notes to Consolidated Financial Statements
Derivative Financial Instruments
When we use derivative instruments, it is generally to reduce our exposure to fluctuations in interest rates and foreign currency exchange rate movements. We have not entered into, and do not plan to enter into, financial instruments for trading or speculative purposes. In addition to entering into derivative instruments on our own behalf, we may also be a party to derivative instruments that are embedded in other contracts and we may be granted common stock warrants by lessees when structuring lease transactions, which are considered to be derivative instruments. The primary risks related to our use of derivative instruments include a counterparty to a hedging arrangement defaulting on its obligation and a downgrade in the credit quality of a counterparty to such an extent that our ability to sell or assign our side of the hedging transaction is impaired. While we seek to mitigate these risks by entering into hedging arrangements with large financial institutions that we deem to be creditworthy, it is possible that our hedging transactions, which are intended to limit losses, could adversely affect our earnings. Furthermore, if we terminate a hedging arrangement, we may be obligated to pay certain costs, such as transaction or breakage fees. We have established policies and procedures for risk assessment and the approval, reporting, and monitoring of derivative financial instrument activities.
We measure derivative instruments at fair value and record them as assets or liabilities, depending on our rights or obligations under the applicable derivative contract. Derivatives that are not designated as hedges must be adjusted to fair value through earnings. For a derivative designated, and that qualified, as a cash flow hedge, the effective portion of the change in fair value of the derivative is recognized in
Other comprehensive loss
until the hedged item is recognized in earnings. For a derivative designated, and that qualified, as a net investment hedge, the effective portion of the change in the fair value and/or the net settlement of the derivative is reported in
Other comprehensive loss
as part of the cumulative foreign currency translation adjustment. Amounts are reclassified out of
Other comprehensive loss
into earnings when the hedged investment is either sold or substantially liquidated. The ineffective portion of the change in fair value of any derivative is immediately recognized in earnings.
The following table sets forth certain information regarding our derivative instruments (in thousands):
|
Derivatives Designated as Hedging Instruments
|
Balance Sheet Location
|
Asset Derivatives Fair Value at
|
Liability Derivatives Fair Value at
|
|||||||||||||||
|
December 31, 2016
|
December 31, 2015
|
December 31, 2016
|
December 31, 2015
|
|||||||||||||||
|
Foreign currency forward contracts
|
Other assets, net
|
$
|
37,040
|
|
$
|
38,975
|
|
$
|
—
|
|
$
|
—
|
|
|||||
|
Foreign currency collars
|
Other assets, net
|
17,382
|
|
7,718
|
|
—
|
|
—
|
|
|||||||||
|
Interest rate swaps
|
Other assets, net
|
190
|
|
—
|
|
—
|
|
—
|
|
|||||||||
|
Interest rate cap
|
Other assets, net
|
45
|
|
—
|
|
—
|
|
—
|
|
|||||||||
|
Interest rate swaps
|
Accounts payable, accrued expenses and other liabilities
|
—
|
|
—
|
|
(2,996
|
)
|
(4,762
|
)
|
|||||||||
|
Derivatives Not Designated as Hedging Instruments
|
||||||||||||||||||
|
Stock warrants
|
Other assets, net
|
3,752
|
|
3,618
|
|
—
|
|
—
|
|
|||||||||
|
Interest rate swaps
(a)
|
Other assets, net
|
9
|
|
9
|
|
—
|
|
—
|
|
|||||||||
|
Interest rate swaps
(a)
|
Accounts payable, accrued expenses and other liabilities
|
—
|
|
—
|
|
—
|
|
(2,612
|
)
|
|||||||||
|
Total derivatives
|
$
|
58,418
|
|
$
|
50,320
|
|
$
|
(2,996
|
)
|
$
|
(7,374
|
)
|
||||||
__________
|
(a)
|
These interest rate swaps do not qualify for hedge accounting; however, they do protect against fluctuations in interest rates related to the underlying variable-rate debt.
|
All derivative transactions with an individual counterparty are governed by a master International Swap and Derivatives Association agreement, which can be considered as a master netting arrangement; however, we report all our derivative instruments on a gross basis on our consolidated financial statements. At both
December 31, 2016
and
2015
,
no
cash collateral had been posted nor received for any of our derivative positions.
|
W. P. Carey 2016 10-K
–
127
|
|
Notes to Consolidated Financial Statements
The following tables present the impact of our derivative instruments in the consolidated financial statements (in thousands):
|
Amount of Gain (Loss) Recognized on Derivatives in
Other Comprehensive Loss (Effective Portion)
(a)
|
||||||||||||
|
Years Ended December 31,
|
||||||||||||
|
Derivatives in Cash Flow Hedging Relationships
|
2016
|
2015
|
2014
|
|||||||||
|
Foreign currency collars
|
$
|
9,679
|
|
$
|
7,769
|
|
$
|
—
|
|
|||
|
Foreign currency forward contracts
|
(1,948
|
)
|
15,949
|
|
23,167
|
|
||||||
|
Interest rate swaps
|
1,291
|
|
(284
|
)
|
(2,628
|
)
|
||||||
|
Interest rate caps
|
21
|
|
64
|
|
290
|
|
||||||
|
Derivatives in Net Investment Hedging Relationships
(b)
|
||||||||||||
|
Foreign currency forward contracts
|
(462
|
)
|
5,819
|
|
2,566
|
|
||||||
|
Total
|
$
|
8,581
|
|
$
|
29,317
|
|
$
|
23,395
|
|
|||
|
Amount of Gain (Loss) on Derivatives Reclassified from
Other Comprehensive Loss (Effective Portion)
(c)
|
||||||||||||||
|
Derivatives in Cash Flow Hedging Relationships
|
Location of Gain (Loss) Recognized in Income
|
Years Ended December 31,
|
||||||||||||
|
2016
|
2015
|
2014
|
||||||||||||
|
Foreign currency forward contracts
|
Other income and (expenses)
|
$
|
7,442
|
|
$
|
7,272
|
|
$
|
(103
|
)
|
||||
|
Interest rate swaps and caps
|
Interest expense
|
(2,106
|
)
|
(2,291
|
)
|
(2,691
|
)
|
|||||||
|
Foreign currency collars
|
Other income and (expenses)
|
1,968
|
|
357
|
|
—
|
|
|||||||
|
Total
|
$
|
7,304
|
|
$
|
5,338
|
|
$
|
(2,794
|
)
|
|||||
__________
|
(a)
|
Excludes net gains of
$0.2 million
,
$0.6 million
, and
$0.3 million
recognized on unconsolidated jointly owned investments for the
years ended December 31, 2016
,
2015
, and
2014
, respectively.
|
|
(b)
|
The effective portion of the change in fair value and the settlement of these contracts are reported in the foreign currency translation adjustment section of
Other comprehensive loss
until the underlying investment is sold, at which time we reclassify the gain or loss to earnings.
|
|
(c)
|
Excludes net gains recognized on unconsolidated jointly owned investments of
$0.4 million
for the year ended
December 31, 2014
. There were
no
such gains or losses recognized for the years ended
December 31, 2016
or
2015
.
|
Amounts reported in
Other comprehensive loss
related to interest rate swaps will be reclassified to Interest expense as interest is incurred on our variable-rate debt. Amounts reported in
Other comprehensive loss
related to foreign currency derivative contracts will be reclassified to Other income and (expenses) when the hedged foreign currency contracts are settled. As of
December 31, 2016
, we estimate that an additional
$0.8 million
and
$14.4 million
will be reclassified as interest expense and other income, respectively, during the next 12 months.
|
Amount of Gain (Loss) on Derivatives Recognized in Income
|
||||||||||||||
|
Derivatives Not in Cash Flow Hedging Relationships
|
Location of Gain (Loss) Recognized in Income
|
Years Ended December 31,
|
||||||||||||
|
2016
|
2015
|
2014
|
||||||||||||
|
Interest rate swaps
|
Other income and (expenses)
|
$
|
2,682
|
|
$
|
4,164
|
|
$
|
3,186
|
|
||||
|
Foreign currency collars
|
Other income and (expenses)
|
824
|
|
514
|
|
—
|
|
|||||||
|
Stock warrants
|
Other income and (expenses)
|
134
|
|
(134
|
)
|
134
|
|
|||||||
|
Foreign currency forward contracts
|
Other income and (expenses)
|
—
|
|
(296
|
)
|
—
|
|
|||||||
|
Derivatives in Cash Flow Hedging Relationships
|
||||||||||||||
|
Interest rate swaps
(a)
|
Interest expense
|
657
|
|
649
|
|
761
|
|
|||||||
|
Foreign currency forward contracts
|
Other income and (expenses)
|
40
|
|
45
|
|
—
|
|
|||||||
|
Foreign currency collars
|
Other income and (expenses)
|
(7
|
)
|
23
|
|
—
|
|
|||||||
|
Total
|
$
|
4,330
|
|
$
|
4,965
|
|
$
|
4,081
|
|
|||||
__________
|
W. P. Carey 2016 10-K
–
128
|
|
Notes to Consolidated Financial Statements
|
(a)
|
Relates to the ineffective portion of the hedging relationship.
|
See below for information on our purposes for entering into derivative instruments and for information on derivative instruments owned by unconsolidated investments, which are excluded from the tables above.
Interest Rate Swaps and Cap
We are exposed to the impact of interest rate changes primarily through our borrowing activities. To limit this exposure, we attempt to obtain mortgage financing on a long-term, fixed-rate basis. However, from time to time, we or our investment partners may obtain variable-rate, non-recourse mortgage loans and, as a result, we have entered into, and may continue to enter into, interest rate swap agreements or interest rate cap agreements with counterparties. Interest rate swaps, which effectively convert the variable-rate debt service obligations of a loan to a fixed rate, are agreements in which one party exchanges a stream of interest payments for a counterparty’s stream of cash flow over a specific period. The notional, or face, amount on which the swaps are based is not exchanged. Interest rate caps limit the effective borrowing rate of variable-rate debt obligations while allowing participants to share in downward shifts in interest rates. Our objective in using these derivatives is to limit our exposure to interest rate movements.
The interest rate swaps and caps that our consolidated subsidiaries had outstanding at
December 31, 2016
are summarized as follows (currency in thousands):
|
Number of Instruments
|
|
Notional
Amount
|
|
Fair Value at
December 31, 2016 (a) |
||||||
|
Interest Rate Derivatives
|
|
|
||||||||
|
Designated as Cash Flow Hedging Instruments
|
||||||||||
|
Interest rate swaps
|
13
|
118,145
|
|
USD
|
$
|
(2,474
|
)
|
|||
|
Interest rate swap
|
1
|
5,900
|
|
EUR
|
(332
|
)
|
||||
|
Interest rate cap
|
1
|
30,867
|
|
EUR
|
45
|
|
||||
|
Not Designated as Cash Flow Hedging Instruments
|
||||||||||
|
Interest rate swap
(b)
|
1
|
2,993
|
|
USD
|
9
|
|
||||
|
$
|
(2,752
|
)
|
||||||||
__________
|
(a)
|
Fair value amounts are based on the exchange rate of the euro at
December 31, 2016
, as applicable.
|
|
(b)
|
This interest rate swap does not qualify for hedge accounting; however, it does protect against fluctuations in interest rates related to the underlying variable-rate debt.
|
Foreign Currency Contracts and Collars
We are exposed to foreign currency exchange rate movements, primarily in the euro and, to a lesser extent, the British pound sterling, the Australian dollar, and certain other currencies. We manage foreign currency exchange rate movements by generally placing our debt service obligation on an investment in the same currency as the tenant’s rental obligation to us. This reduces our overall exposure to the net cash flow from that investment. However, we are subject to foreign currency exchange rate movements to the extent that there is a difference in the timing and amount of the rental obligation and the debt service. Realized and unrealized gains and losses recognized in earnings related to foreign currency transactions are included in Other income and (expenses) in the consolidated financial statements.
In order to hedge certain of our foreign currency cash flow exposures, we enter into foreign currency forward contracts and collars. A foreign currency forward contract is a commitment to deliver a certain amount of currency at a certain price on a specific date in the future. A foreign currency collar consists of a written call option and a purchased put option to sell the foreign currency at a range of predetermined exchange rates. By entering into forward contracts and holding them to maturity, we are locked into a future currency exchange rate for the term of the contract. A foreign currency collar guarantees that the exchange rate of the currency will not fluctuate beyond the range of the options’ strike prices. Our foreign currency forward contracts and foreign currency collars have maturities of
77
months or less.
|
W. P. Carey 2016 10-K
–
129
|
|
Notes to Consolidated Financial Statements
The following table presents the foreign currency derivative contracts we had outstanding at
December 31, 2016
, which were designated as cash flow hedges (currency in thousands):
|
Number of Instruments
|
Notional
Amount |
Fair Value at
December 31, 2016
|
||||||||
|
Foreign Currency Derivatives
|
||||||||||
|
Designated as Cash Flow Hedging Instruments
|
||||||||||
|
Foreign currency forward contracts
|
36
|
98,839
|
|
EUR
|
$
|
26,540
|
|
|||
|
Foreign currency collars
|
20
|
43,000
|
|
GBP
|
11,095
|
|
||||
|
Foreign currency collars
|
20
|
80,150
|
|
EUR
|
6,287
|
|
||||
|
Foreign currency forward contracts
|
12
|
15,256
|
|
AUD
|
1,602
|
|
||||
|
Foreign currency forward contracts
|
8
|
4,280
|
|
GBP
|
1,393
|
|
||||
|
Designated as Net Investment Hedging Instruments
|
||||||||||
|
Foreign currency forward contracts
|
4
|
79,658
|
|
AUD
|
7,505
|
|
||||
|
$
|
54,422
|
|
||||||||
Credit Risk-Related Contingent Features
We measure our credit exposure on a counterparty basis as the net positive aggregate estimated fair value of our derivatives, net of any collateral received.
No
collateral was received as of
December 31, 2016
. At
December 31, 2016
, our total credit exposure and the maximum exposure to any single counterparty was
$54.5 million
and
$29.5 million
, respectively.
Some of the agreements we have with our derivative counterparties contain cross-default provisions that could trigger a declaration of default on our derivative obligations if we default, or are capable of being declared in default, on certain of our indebtedness. At
December 31, 2016
, we had not been declared in default on any of our derivative obligations. The estimated fair value of our derivatives in a net liability position was
$3.3 million
and
$8.2 million
at
December 31, 2016
and
2015
, respectively, which included accrued interest and any nonperformance risk adjustments. If we had breached any of these provisions at
December 31, 2016
or
2015
, we could have been required to settle our obligations under these agreements at their aggregate termination value of
$3.3 million
and
$8.3 million
, respectively.
Net Investment Hedges
At
December 31, 2016
and
2015
, the amounts borrowed in euro outstanding under our Revolver (
Note 11
) were
€272.0 million
and
€361.0 million
, respectively. Additionally, we have issued euro-denominated senior notes with a principal amount of
€500.0 million
(
Note 11
), which we refer to as the
2.0%
Senior Notes. These borrowings are designated as, and are effective as, economic hedges of our net investments in foreign entities. Variability in the exchange rates of the foreign currencies with respect to the U.S. dollar impacts our financial results as the financial results of our foreign subsidiaries are translated to U.S. dollars each period, with the effect of changes in the foreign currencies to U.S. dollar exchange rates being recorded in
Other comprehensive loss
as part of the cumulative foreign currency translation adjustment. As a result, the borrowings in euro under our Revolver and
2.0%
Senior Notes are recorded at cost in the consolidated financial statements and all changes in the value related to changes in the spot rates will be reported in the same manner as a translation adjustment, which is recorded in
Other comprehensive loss
as part of the cumulative foreign currency translation adjustment.
At
December 31, 2016
, we also had foreign currency forward contracts that were designated as net investment hedges, as discussed in
“Derivative Financial Instruments” above.
|
W. P. Carey 2016 10-K
–
130
|
|
Notes to Consolidated Financial Statements
Senior Unsecured Credit Facility
As of
December 31, 2016
, we had a senior credit facility that provided for a
$1.5 billion
unsecured revolving credit facility, or our Revolver, and a
$250.0 million
term loan facility, or our Term Loan Facility, which we refer to collectively as the Senior Unsecured Credit Facility. The Senior Unsecured Credit Facility also contained a
$500.0 million
accordion feature that, if exercised, subject to lender commitments, would have allowed us to increase our maximum borrowing capacity under our Revolver from
$1.5 billion
to
$2.0 billion
and under the Senior Unsecured Credit Facility in the aggregate to
$2.25 billion
. At
December 31, 2016
, the Senior Unsecured Credit Facility also permitted (i) up to
$750.0 million
under our Revolver to be borrowed in certain currencies other than the U.S. dollar, (ii) swing line loans up to
$50.0 million
under our Revolver, and (iii) the issuance of letters of credit under our Revolver in an aggregate amount not to exceed
$50.0 million
. The Senior Unsecured Credit Facility is being used for working capital needs, to refinance our existing indebtedness, for new investments, and for other general corporate purposes.
We exercised a prior accordion feature for the Senior Unsecured Credit Facility on January 15, 2015, which allowed us to increase the maximum borrowing capacity of our Revolver from
$1.0 billion
to
$1.5 billion
. In connection with the exercise of this accordion feature, we incurred financing costs totaling
$3.1 million
, which are being amortized to Interest expense in the consolidated financial statements over the remaining terms of the facility.
At
December 31, 2016
, our Revolver had unused capacity of
$823.3 million
, excluding amounts reserved for outstanding letters of credit. As of
December 31, 2016
, our lenders had issued letters of credit totaling
$0.6 million
on our behalf in connection with certain contractual obligations, which reduce amounts that may be drawn under our Revolver by the same amount. We also incur a facility fee of
0.20%
of the total commitment on our Revolver. On January 29, 2016, we exercised our option to extend our Term Loan Facility by an additional year to January 31, 2017. On January 26, 2017, we exercised our second and final option to extend our Term Loan Facility by an additional year to January 31, 2018 (
Note 20
). At
December 31, 2016
, we also had an option to extend the maturity date of the Revolver by another year, subject to the conditions provided in the Second Amended and Restated Credit Agreement dated January 31, 2014, as amended, or the Credit Agreement. On February 22, 2017, we amended and restated our Senior Unsecured Credit Facility. We increased the capacity of our unsecured line of credit under our Amended Credit Facility to
$1.85 billion
, and extended the maturity dates of our revolving line of credit by
four
years and our term loan by
five
years (
Note 20
).
The following table presents a summary of our Senior Unsecured Credit Facility (dollars in millions):
|
Interest Rate at December 31, 2016
(a)
|
Principal Outstanding Balance at
December 31,
|
|||||||||||
|
Senior Unsecured Credit Facility
|
Maturity Date
|
2016
|
2015
|
|||||||||
|
Revolver:
|
||||||||||||
|
Revolver - borrowing in U.S. dollars
(b)
|
LIBOR + 1.10%
|
1/31/2018
|
$
|
390.0
|
|
$
|
92.0
|
|
||||
|
Revolver - borrowing in euros
(b) (c)
|
EURIBOR + 1.10%
|
1/31/2018
|
286.7
|
|
393.0
|
|
||||||
|
676.7
|
|
485.0
|
|
|||||||||
|
Term Loan Facility
(b) (d)
|
LIBOR + 1.25%
|
1/31/2017
|
250.0
|
|
250.0
|
|
||||||
|
$
|
926.7
|
|
$
|
735.0
|
|
|||||||
__________
|
(a)
|
Interest rate at
December 31, 2016
is based on our credit rating of
BBB/Baa2
.
|
|
(b)
|
Our Term Loan Facility was scheduled to mature on January 31, 2017. However, on January 26, 2017, we exercised our option to extend the maturity of our Term Loan Facility by an additional year to January 31, 2018 (
Note 20
). In addition, on February 22, 2017, we entered into our Amended Credit Facility and increased the capacity of our unsecured line of credit to
$1.85 billion
, and extended the maturity dates of our revolving line of credit by
four
years and our term loan by
five
years (
Note 20
).
|
|
(c)
|
EURIBOR means Euro Interbank Offered Rate.
|
|
(d)
|
Balance excludes unamortized deferred financing costs of less than
$0.1 million
and
$0.3 million
at
December 31, 2016
and
2015
, respectively (
Note 2
).
|
|
W. P. Carey 2016 10-K
–
131
|
|
Notes to Consolidated Financial Statements
Senior Unsecured Notes
As of
December 31, 2016
, the senior unsecured notes set forth in the table below had an outstanding aggregate principal balance of
$1.8 billion
. We refer to these notes and our
€500.0 million
of 2.25% Senior Notes, as described below and in
Note 20
, collectively as the Senior Unsecured Notes.
On
September 12, 2016
, we issued
$350.0 million
of
4.25%
Senior Notes, at a price of
99.682%
of par value, in a registered public offering. These
4.25%
Senior Notes have a
ten
-year term and are scheduled to mature on
October 1, 2026
.
Interest on the Senior Unsecured Notes is payable annually in arrears for our euro-denominated notes and semi-annually for U.S. dollar-denominated notes. The Senior Unsecured Notes can be redeemed at par within three months of their respective maturities, or we can call the notes at any time for the principal, accrued interest, and a make-whole amount based upon the applicable government bond yield plus 30 to 35 basis points. The following table presents a summary of our Senior Unsecured Notes (currency in millions):
|
Principal Amount
|
Price of Par Value
|
Original Issue Discount
|
Effective Interest Rate
|
Coupon Rate
|
Maturity Date
|
Principal Outstanding Balance at December 31,
|
|||||||||||||||||||||||
|
Senior Unsecured Notes, net
(a)
|
Issue Date
|
2016
|
2015
|
||||||||||||||||||||||||||
|
2.0% Senior Notes
|
1/21/2015
|
€
|
500.0
|
|
99.220
|
%
|
$
|
4.6
|
|
2.107
|
%
|
2.0
|
%
|
1/20/2023
|
$
|
527.1
|
|
$
|
544.4
|
|
|||||||||
|
4.6% Senior Notes
|
3/14/2014
|
$
|
500.0
|
|
99.639
|
%
|
$
|
1.8
|
|
4.645
|
%
|
4.6
|
%
|
4/1/2024
|
500.0
|
|
500.0
|
|
|||||||||||
|
4.0% Senior Notes
|
1/26/2015
|
$
|
450.0
|
|
99.372
|
%
|
$
|
2.8
|
|
4.077
|
%
|
4.0
|
%
|
2/1/2025
|
450.0
|
|
450.0
|
|
|||||||||||
|
4.25% Senior Notes
|
9/12/2016
|
$
|
350.0
|
|
99.682
|
%
|
$
|
1.1
|
|
4.290
|
%
|
4.3
|
%
|
10/1/2026
|
350.0
|
|
—
|
|
|||||||||||
|
$
|
1,827.1
|
|
$
|
1,494.4
|
|
||||||||||||||||||||||||
__________
|
(a)
|
Aggregate balance excludes unamortized deferred financing costs totaling
$12.1 million
and
$10.5 million
(
Note 2
) at
December 31, 2016
and
2015
, respectively, and unamortized discount totaling
$7.8 million
at both
December 31, 2016
and
2015
.
|
Proceeds from the issuances of these notes were used primarily to partially pay down the amounts then outstanding under our Revolver. In connection with these offerings, we incurred financing costs totaling
$3.1 million
,
$7.8 million
, and
$4.2 million
during the
years ended December 31,
2016
,
2015
, and
2014
respectively, which are included in Senior Unsecured Notes, net in the consolidated financial statements in accordance with our adoption of ASU 2015-03 (
Note 2
), and are being amortized to Interest expense over the respective terms of the Senior Unsecured Notes.
On
January 19, 2017
, we completed a public offering of
€500.0 million
of
2.25%
Senior Notes, at a price of
99.448%
of par value, issued by our wholly owned subsidiary, WPC Eurobond B.V., which are guaranteed by us. These
2.25%
Senior Notes have a
7.5
-year term and are scheduled to mature on
July 19, 2024
(
Note 20
).
Covenants
The Senior Unsecured Credit Facility and the Senior Unsecured Notes include customary financial maintenance covenants that require us to maintain certain ratios and benchmarks at the end of each quarter. The Senior Unsecured Credit Facility also contains various customary affirmative and negative covenants applicable to us and our subsidiaries, subject to materiality and other qualifications, baskets, and exceptions as outlined in the Credit Agreement.
We are required to ensure that the total Restricted Payments (as defined in the Credit Agreement) in an aggregate amount in any fiscal year does not exceed the greater of (i)
95%
of Adjusted Funds from Operations (as defined in the Credit Agreement) and (ii) the amount of Restricted Payments required in order for us to maintain our REIT status. Restricted Payments include quarterly dividends and the total amount of shares repurchased by us, if any, in excess of
$100.0 million
per year.
Obligations under the Senior Unsecured Credit Facility may be declared immediately due and payable upon the occurrence of certain events of default as defined in the Credit Agreement, including failure to pay any principal when due and payable, failure to pay interest within five business days after becoming due, failure to comply with any covenant, representation or condition of any loan document, any change of control, cross-defaults, and certain other events as set forth in the Credit Agreement, with grace periods in some cases.
|
W. P. Carey 2016 10-K
–
132
|
|
Notes to Consolidated Financial Statements
The Credit Agreement stipulates several financial covenants that require us to maintain certain ratios and benchmarks at the end of each quarter as defined in the Credit Agreement. In connection with entering into our Amended Credit Facility on February 22, 2017 (
Note 20
), we obtained a waiver from our lenders stating that we were not required to certify that we were in compliance with these financial covenants under the Credit Agreement. However, as of
December 31, 2016
, we were in compliance with the financial covenants contained within the Amended Credit Facility agreement.
Non-Recourse Debt
Non-recourse debt consists of mortgage notes payable, which are collateralized by the assignment of real estate properties. For a list of our encumbered properties, please see
Schedule III — Real Estate and Accumulated Depreciation
. At
December 31, 2016
, our mortgage notes payable bore interest at fixed annual rates ranging from
2.0%
to
7.8%
and variable contractual annual rates ranging from
0.9%
to
6.9%
, with maturity dates ranging from January
2017
to June
2027
.
During the year ended
December 31, 2016
, we prepaid non-recourse mortgage loans totaling
$321.7 million
, including a mortgage loan of
$50.8 million
encumbering a property that was sold in August 2016 (
Note 17
). In connection with these payments, we recognized a loss on extinguishment of debt of
$4.1 million
during the year ended
December 31, 2016
, which was included in Other income and (expenses) in the consolidated financial statements. In addition, we made a balloon payment of
$31.9 million
at maturity on a non-recourse mortgage loan encumbering a portfolio of international properties and a balloon payment of
$18.5 million
at maturity on another non-recourse mortgage loan during 2016. See
Note 20
, Subsequent Events.
On July 29, 2016, a jointly owned investment with CPA
®
:17 – Global, which we consolidate, refinanced a non-recourse mortgage loan that had an outstanding balance of
$33.8 million
with new financing of
$34.6 million
, inclusive of the amount attributable to a noncontrolling interest of
$17.0 million
. The previous loan had an interest rate of
5.9%
and a maturity date of July 31, 2016. The new loan has a rate of EURIBOR plus a
3.3%
margin and a term of
five
years.
Interest Paid
For the years ended
December 31, 2016
,
2015
, and
2014
, interest paid was
$182.2 million
,
$174.5 million
, and
$156.3 million
, respectively.
Foreign Currency Exchange Rate Impact
During the year ended
December 31, 2016
, the U.S. dollar
strengthened
against the euro and British pound sterling, resulting in an aggregate
decrease
of
$45.2 million
in the aggregate carrying values of our Non-recourse debt, Senior Unsecured Credit Facility - Revolver, and Senior Unsecured Notes, net from
December 31, 2015
to
December 31, 2016
.
Scheduled Debt Principal Payments
Scheduled debt principal payments during each of the next five calendar years following
December 31, 2016
and thereafter through 2027 are as follows (in thousands):
|
Years Ending December 31,
|
Total
(a)
|
|||
|
2017
|
$
|
768,480
|
|
|
|
2018
|
940,391
|
|
||
|
2019
|
99,566
|
|
||
|
2020
|
217,044
|
|
||
|
2021
|
156,985
|
|
||
|
Thereafter through 2027
|
2,279,751
|
|
||
|
Total principal payments
|
4,462,217
|
|
||
|
Deferred financing costs
(b)
|
(13,403
|
)
|
||
|
Unamortized discount, net
(c)
|
(8,000
|
)
|
||
|
Total
|
$
|
4,440,814
|
|
|
__________
|
(a)
|
Certain amounts are based on the applicable foreign currency exchange rate at
December 31, 2016
.
|
|
(b)
|
In accordance with ASU 2015-03, we reclassified deferred financing costs from Other assets, net to Non-recourse debt, net, Senior Unsecured Notes, net, and Senior Unsecured Credit Facility - Term Loan, net as of December 31, 2015 (
Note 2
).
|
|
W. P. Carey 2016 10-K
–
133
|
|
Notes to Consolidated Financial Statements
|
(c)
|
Represents the unamortized discount on the Senior Unsecured Notes totaling
$7.8 million
and the unamortized discount of
$0.2 million
in the aggregate resulting from the assumption of property-level debt in connection with the CPA
®
:15 Merger and CPA
®
:16 Merger.
|
Various claims and lawsuits arising in the normal course of business are pending against us. The results of these proceedings are not expected to have a material adverse effect on our consolidated financial position or results of operations.
In connection with the resignation of our then-chief executive officer, Trevor P. Bond, we and Mr. Bond entered into a letter agreement, dated February 10, 2016. Under the terms of the agreement, subject to certain conditions, Mr. Bond is entitled to receive the severance benefits provided for in his employment agreement and, subject to satisfaction of applicable performance conditions and proration, vesting of his outstanding unvested PSUs in accordance with their terms. In addition, the portion of his previously granted RSUs that were scheduled to vest on February 15, 2016, which would have been forfeited upon separation pursuant to their terms, were allowed to vest on that date. In connection with the separation agreement, we recorded
$5.1 million
of severance-related expenses during the year ended December 31, 2016, which are included in Restructuring and other compensation in the consolidated financial statements.
In February 2016, we entered into an agreement with Catherine D. Rice, our former chief financial officer, in connection with the termination of her employment, which provides for the continued vesting of her outstanding RSUs and PSUs pursuant to their terms as though her employment had continued through their respective vesting dates. In connection with the modification of these award terms, we recorded incremental stock-based compensation expense of
$2.4 million
during the year ended December 31, 2016, which is included in Restructuring and other compensation in the consolidated financial statements.
In March 2016, as part of a cost savings initiative, we undertook a reduction in force, or RIF, and realigned and consolidated certain positions within the company, resulting in employee headcount reductions. As a result of these reductions in headcount and the separations described above, during the year ended December 31, 2016, we recorded
$8.2 million
of severance and benefits,
$3.2 million
of stock-based compensation, and
$0.5 million
of other related costs, which are all included in Restructuring and other compensation in the consolidated financial statements.
As of December 31, 2016, the accrued liability for these severance obligations was
$3.3 million
and is included within Accounts payable, accrued expenses and other liabilities in the consolidated financial statements.
Common Stock
Distributions paid to stockholders consist of ordinary income, capital gains, return of capital or a combination thereof for income tax purposes. The following table presents distributions per share, declared and paid during the years ended
December 31, 2016
,
2015
, and
2014
, reported for federal tax purposes and serves as a designation of capital gain distributions, if applicable, pursuant to Internal Revenue Code Section 857(b)(3)(C) and Treasury Regulation § 1.857-6(e) (dollars per share):
|
|
Distributions Paid
|
||||||||||
|
During the Years Ended December 31,
|
|||||||||||
|
|
2016
|
2015
|
2014
|
||||||||
|
Ordinary income
|
$
|
3.3075
|
|
$
|
3.5497
|
|
$
|
3.6566
|
|
||
|
Return of capital
|
0.5963
|
|
0.2618
|
|
0.0584
|
|
|||||
|
Total distributions paid
|
$
|
3.9038
|
|
$
|
3.8115
|
|
$
|
3.7150
|
|
||
During the
fourth
quarter of
2016
, we declared a quarterly distribution of
$0.9900
per share, which was paid on January 13,
2017
to stockholders of record on December 30, 2016, in the amount of
$107.1 million
.
|
W. P. Carey 2016 10-K
–
134
|
|
Notes to Consolidated Financial Statements
Earnings Per Share
Under current authoritative guidance for determining earnings per share, all nonvested share-based payment awards that contain non-forfeitable rights to distributions are considered to be participating securities and therefore are included in the computation of earnings per share under the two-class method. The two-class method is an earnings allocation formula that determines earnings per share for each class of common shares and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. Our nonvested RSUs and RSAs contain rights to receive non-forfeitable distribution equivalents or distributions, respectively, and therefore we apply the two-class method of computing earnings per share. The calculation of earnings per share below excludes the income attributable to the nonvested RSUs and RSAs from the numerator and such nonvested shares in the denominator. The following table summarizes basic and diluted earnings (in thousands, except share amounts):
|
|
Years Ended December 31,
|
||||||||||
|
|
2016
|
2015
|
2014
|
||||||||
|
Net income attributable to W. P. Carey
|
$
|
267,747
|
|
$
|
172,258
|
|
$
|
239,826
|
|
||
|
Allocation of distribution equivalents paid on nonvested RSUs and RSAs in excess of income
|
(886
|
)
|
(579
|
)
|
(1,007
|
)
|
|||||
|
Net income – basic
|
266,861
|
|
171,679
|
|
238,819
|
|
|||||
|
Income effect of dilutive securities, net of taxes
|
—
|
|
—
|
|
(77
|
)
|
|||||
|
Net income – diluted
|
$
|
266,861
|
|
$
|
171,679
|
|
$
|
238,742
|
|
||
|
Weighted-average shares outstanding – basic
|
106,743,012
|
|
105,675,692
|
|
98,764,164
|
|
|||||
|
Effect of dilutive securities
|
330,191
|
|
831,960
|
|
1,063,192
|
|
|||||
|
Weighted-average shares outstanding – diluted
|
107,073,203
|
|
106,507,652
|
|
99,827,356
|
|
|||||
For the years ended
December 31, 2016
,
2015
, and
2014
, there were
no
potentially dilutive securities excluded from the computation of diluted earnings per share.
At-The-Market Equity Offering Program
On June 3, 2015, we filed a prospectus supplement with the SEC pursuant to which we may offer and sell shares of our common stock, up to an aggregate gross sales price of
$400.0 million
, through an “at-the-market” or ATM, offering program with a consortium of banks acting as sales agents. During the year ended
December 31, 2016
, we issued
1,249,836
shares of our common stock under the ATM program at a weighted-average price of
$68.52
per share for net proceeds of
$84.4 million
. In addition, we paid
$0.3 million
of professional fees during 2016 related to the ATM program. As of
December 31, 2016
,
$314.4 million
remained available for issuance under our ATM program.
Equity Offering
In September 2014, we completed a public offering of
4,600,000
shares of our common stock,
$0.001
par value per share, at a price of
$64.00
per share, or the Equity Offering, which includes the full exercise of the underwriters’ option to purchase an additional
600,000
shares of our common stock. The net proceeds of
$282.2 million
from the Equity Offering were intended to repay certain indebtedness, including amounts outstanding under our Senior Unsecured Credit Facility, to fund potential future acquisitions and for general corporate purposes. We utilized
$225.8 million
of the net proceeds from the Equity Offering to pay down a portion of the amount then outstanding under our Revolver.
Noncontrolling Interests
Redeemable Noncontrolling Interest
W
e account for the noncontrolling interest in WPCI held by a third party as a redeemable noncontrolling interest, because, pursuant to a put option held by the third party, we had an obligation to redeem the interest at fair value, subject to certain conditions. This obligation was required to be settled in shares of our common stock. On October 1, 2013, we received a notice from the holder of the noncontrolling interest in WPCI regarding the exercise of the put option, pursuant to which we were required to purchase the third party’s
7.7%
interest in WPCI. Pursuant to the terms of the related put agreement, the value of
|
W. P. Carey 2016 10-K
–
135
|
|
Notes to Consolidated Financial Statements
that interest was determined based on a third-party valuation as of October 31, 2013, which is the end of the month that the put option was exercised. In March 2016, we issued
217,011
shares of our common stock to the holder of the redeemable noncontrolling interest, which had a value of
$13.4 million
at the date of issuance pursuant to a formula set forth in the put agreement. Through the date of this Report, the third party has not formally transferred his interests in WPCI to us pursuant to the put agreement because of a dispute regarding any amounts that may still be owed to him.
The following table presents a reconciliation of redeemable noncontrolling interest (in thousands):
|
Years Ended December 31,
|
|||||||||||
|
2016
|
2015
|
2014
|
|||||||||
|
Beginning balance
|
$
|
14,944
|
|
$
|
6,071
|
|
$
|
7,436
|
|
||
|
Distributions
|
(13,418
|
)
|
—
|
|
(926
|
)
|
|||||
|
Redemption value adjustment
|
(561
|
)
|
8,873
|
|
(306
|
)
|
|||||
|
Net income
|
—
|
|
—
|
|
(142
|
)
|
|||||
|
Change in other comprehensive income
|
—
|
|
—
|
|
9
|
|
|||||
|
Ending balance
|
$
|
965
|
|
$
|
14,944
|
|
$
|
6,071
|
|
||
Transfers to Noncontrolling Interests
The following table presents a reconciliation of the effect of transfers in noncontrolling interest (in thousands):
|
Years Ended December 31,
|
|||||||||||
|
2016
|
2015
|
2014
|
|||||||||
|
Net income attributable to W. P. Carey
|
$
|
267,747
|
|
$
|
172,258
|
|
$
|
239,826
|
|
||
|
Transfers to noncontrolling interest
|
|||||||||||
|
Decrease in W. P. Carey’s additional paid-in capital for purchases of less-than-wholly owned investments in connection with the CPA
®
:16 Merger
|
—
|
|
—
|
|
(41,374
|
)
|
|||||
|
Net transfers to noncontrolling interest
|
—
|
|
—
|
|
(41,374
|
)
|
|||||
|
Change from net income attributable to W. P. Carey and transfers to noncontrolling interest
|
$
|
267,747
|
|
$
|
172,258
|
|
$
|
198,452
|
|
||
|
W. P. Carey 2016 10-K
–
136
|
|
Notes to Consolidated Financial Statements
Reclassifications Out of Accumulated Other Comprehensive Income (Loss)
The following tables present a reconciliation of changes in Accumulated other comprehensive income (loss) by component for the periods presented (in thousands):
|
Gains and Losses on Derivative Instruments
|
Foreign Currency Translation Adjustments
|
Gains and Losses on Marketable Securities
|
Total
|
||||||||||||
|
Balance at January 1, 2014
|
$
|
(7,488
|
)
|
$
|
22,793
|
|
$
|
31
|
|
$
|
15,336
|
|
|||
|
Other comprehensive loss before reclassifications
|
17,911
|
|
(117,938
|
)
|
(10
|
)
|
(100,037
|
)
|
|||||||
|
Amounts reclassified from accumulated other comprehensive income (loss) to:
|
|||||||||||||||
|
Interest expense
|
2,691
|
|
—
|
|
—
|
|
2,691
|
|
|||||||
|
Other income and (expenses)
|
103
|
|
—
|
|
—
|
|
103
|
|
|||||||
|
Equity in earnings of equity method investments in the Managed Programs and real estate
|
380
|
|
—
|
|
—
|
|
380
|
|
|||||||
|
Total
|
3,174
|
|
—
|
|
—
|
|
3,174
|
|
|||||||
|
Net current period other comprehensive loss
|
21,085
|
|
(117,938
|
)
|
(10
|
)
|
(96,863
|
)
|
|||||||
|
Net current period other comprehensive loss attributable to noncontrolling interests and redeemable noncontrolling interest
|
—
|
|
5,968
|
|
—
|
|
5,968
|
|
|||||||
|
Balance at December 31, 2014
|
13,597
|
|
(89,177
|
)
|
21
|
|
(75,559
|
)
|
|||||||
|
Other comprehensive loss before reclassifications
|
29,391
|
|
(125,447
|
)
|
15
|
|
(96,041
|
)
|
|||||||
|
Amounts reclassified from accumulated other comprehensive loss to:
|
|||||||||||||||
|
Interest expense
|
2,291
|
|
—
|
|
—
|
|
2,291
|
|
|||||||
|
Other income and (expenses)
|
(7,629
|
)
|
—
|
|
—
|
|
(7,629
|
)
|
|||||||
|
Total
|
(5,338
|
)
|
—
|
|
—
|
|
(5,338
|
)
|
|||||||
|
Net current period other comprehensive loss
|
24,053
|
|
(125,447
|
)
|
15
|
|
(101,379
|
)
|
|||||||
|
Net current period other comprehensive loss attributable to noncontrolling interests
|
—
|
|
4,647
|
|
—
|
|
4,647
|
|
|||||||
|
Balance at December 31, 2015
|
37,650
|
|
(209,977
|
)
|
36
|
|
(172,291
|
)
|
|||||||
|
Other comprehensive loss before reclassifications
|
16,582
|
|
(92,434
|
)
|
(126
|
)
|
(75,978
|
)
|
|||||||
|
Amounts reclassified from accumulated other comprehensive loss to:
|
|||||||||||||||
|
Interest expense
|
2,106
|
|
—
|
|
—
|
|
2,106
|
|
|||||||
|
Other income and (expenses)
|
(9,410
|
)
|
—
|
|
—
|
|
(9,410
|
)
|
|||||||
|
Total
|
(7,304
|
)
|
—
|
|
—
|
|
(7,304
|
)
|
|||||||
|
Net current period other comprehensive loss
|
9,278
|
|
(92,434
|
)
|
(126
|
)
|
(83,282
|
)
|
|||||||
|
Net current period other comprehensive loss attributable to noncontrolling interests
|
7
|
|
1,081
|
|
—
|
|
1,088
|
|
|||||||
|
Balance at December 31, 2016
|
$
|
46,935
|
|
$
|
(301,330
|
)
|
$
|
(90
|
)
|
$
|
(254,485
|
)
|
|||
|
W. P. Carey 2016 10-K
–
137
|
|
Notes to Consolidated Financial Statements
Stock-Based Compensation
At
December 31, 2016
, we maintained several stock-based compensation plans as described below. The total compensation expense (net of forfeitures) for awards issued under these plans was
$21.2 million
,
$21.6 million
, and
$31.1 million
for the years ended
December 31, 2016
,
2015
, and
2014
, respectively, of which
$3.2 million
was included in Restructuring and other compensation in the consolidated financial statements for the year ended December 31, 2016. The remaining amounts for the years ended
December 31, 2016
,
2015
, and
2014
were included in Stock-based compensation expense in the consolidated financial statements. The tax benefit recognized by us related to these awards totaled
$6.7 million
,
$12.5 million
, and
$17.3 million
for the years ended
December 31, 2016
,
2015
, and
2014
, respectively.
2009 Incentive Plan
We maintain the W. P. Carey Inc. 2009 Share Incentive Plan, or the 2009 Incentive Plan, which as amended currently authorizes the issuance of up to
5,900,000
shares of our common stock. At
December 31, 2016
, there were
1,873,145
shares available for issuance under the 2009 Share Incentive Plan. The 2009 Incentive Plan provides for the grant of (i) stock options, (ii) RSUs, (iii) PSUs, and (iv) dividend equivalent rights. The vesting of grants under both plans is accelerated upon a change in our control and under certain other conditions.
In December 2007, the Compensation Committee approved the long-term incentive plan, or LTIP, and terminated further contributions to the Partnership Equity Unit Plan described below. During the years ended
December 31, 2016
,
2015
, and
2014
, we awarded RSUs totaling
262,824
,
173,741
, and
172,460
, respectively, and PSUs totaling
200,005
,
75,277
, and
89,653
, respectively, to key employees. PSUs are reflected at 100% of target but may settle at up to three times the target amount shown or less. PSUs awarded during each of the years ended
December 31, 2015
and
2014
include
10,000
PSUs awarded for which the undetermined terms and conditions of the grant were finalized in subsequent years.
2009 Non-Employee Directors Incentive Plan
We maintain the W. P. Carey, Inc. 2009 Non-Employee Directors’ Incentive Plan, or the 2009 Directors’ Plan, which authorizes the issuance of
325,000
shares of our common stock in the aggregate. At the discretion of our board of directors, the awards may be in the form of RSUs, share options, or RSAs, or any combination of the permitted awards.
In July 2014, we issued
16,159
RSAs with a total value of
$1.0 million
to our directors. In July 2015, we issued
16,152
RSAs with a total value of
$1.0 million
to our directors. These RSAs are scheduled to vest one year from the date of grant. In July 2016, we issued
13,860
RSAs with a total value of
$1.0 million
to our directors. At
December 31, 2016
, there were
185,693
shares that remained available for issuance under this plan.
Employee Share Purchase Plan
We sponsor an employee share purchase plan, or ESPP, pursuant to which eligible employees may contribute up to
10%
of compensation, subject to certain limits, to purchase our common stock. During the years ended
December 31, 2016
and
2015
, employees were entitled to purchase stock through the ESPP semi-annually at a price equal to
90%
of the fair market value at certain plan defined dates. During the year ended
December 31, 2014
, employees were entitled to purchase stock through the ESPP semi-annually at a price equal to
85%
of the fair market value at certain plan defined dates. Compensation expense under this plan for the years ended
December 31, 2016
,
2015
, and
2014
was
$0.1 million
, less than
$0.1 million
, and
$0.3 million
, respectively.
|
W. P. Carey 2016 10-K
–
138
|
|
Notes to Consolidated Financial Statements
Restricted and Conditional Awards
Nonvested RSAs, RSUs, and PSUs at
December 31, 2016
and changes during the years ended
December 31, 2016
,
2015
, and
2014
were as follows:
|
RSA and RSU Awards
|
PSU Awards
|
||||||||||||
|
Shares
|
Weighted-Average
Grant Date
Fair Value
|
Shares
|
Weighted-Average
Grant Date Fair Value |
||||||||||
|
Nonvested at January 1, 2014
|
519,608
|
|
$
|
45.19
|
|
1,220,720
|
|
$
|
28.28
|
|
|||
|
Granted
|
188,619
|
|
61.08
|
|
89,653
|
|
76.05
|
|
|||||
|
Vested
(a)
|
(264,724
|
)
|
43.35
|
|
(881,388
|
)
|
51.00
|
|
|||||
|
Forfeited
|
(1,001
|
)
|
59.45
|
|
(78
|
)
|
54.31
|
|
|||||
|
Adjustment
(b)
|
—
|
|
—
|
|
448,734
|
|
55.91
|
|
|||||
|
Nonvested at December 31, 2014
|
442,502
|
|
53.03
|
|
877,641
|
|
32.06
|
|
|||||
|
Granted
|
189,893
|
|
69.92
|
|
75,277
|
|
83.68
|
|
|||||
|
Vested
(a)
|
(264,628
|
)
|
49.69
|
|
(792,465
|
)
|
56.77
|
|
|||||
|
Forfeited
|
(10,996
|
)
|
66.46
|
|
—
|
|
—
|
|
|||||
|
Adjustment
(b)
|
—
|
|
—
|
|
179,905
|
|
49.70
|
|
|||||
|
Nonvested at December 31, 2015
|
356,771
|
|
64.09
|
|
340,358
|
|
52.26
|
|
|||||
|
Granted
(c)
|
277,836
|
|
58.27
|
|
200,005
|
|
73.18
|
|
|||||
|
Vested
(a)
|
(217,617
|
)
|
61.32
|
|
(180,723
|
)
|
80.21
|
|
|||||
|
Forfeited
|
(60,125
|
)
|
61.81
|
|
(51,657
|
)
|
75.49
|
|
|||||
|
Adjustment
(b)
|
—
|
|
—
|
|
2,035
|
|
72.22
|
|
|||||
|
Nonvested at December 31, 2016
(d)
|
356,865
|
|
$
|
61.63
|
|
310,018
|
|
$
|
73.80
|
|
|||
|
(a)
|
The total fair value of shares vested during the years ended
December 31, 2016
,
2015
, and
2014
was
$27.8 million
,
$58.1 million
, and
$56.4 million
, respectively. Employees have the option to take immediate delivery of the shares upon vesting or defer receipt to a future date, pursuant to previously made deferral elections. At
December 31, 2016
and
2015
, we had an obligation to issue
1,217,274
and
1,395,907
shares, respectively, of our common stock underlying such deferred awards, which is recorded within W. P. Carey stockholders’ equity as a Deferred compensation obligation of
$50.2 million
and
$56.0 million
, respectively.
|
|
(b)
|
Vesting and payment of the PSUs is conditioned upon certain company and market performance goals being met during the relevant
three
-year performance period. The ultimate number of PSUs to be vested will depend on the extent to which the performance goals are met and can range from
zero
to
three
times the original awards. As a result, we recorded adjustments to reflect the number of shares expected to be issued when the PSUs vest.
|
|
(c)
|
The grant date fair values of RSAs and RSUs reflect our stock price on the date of grant on a one-for-one basis. The grant date fair value of PSUs was determined utilizing a Monte Carlo simulation model to generate a range of possible future stock prices for both us and the plan defined peer index over the
three
-year performance period. To estimate the fair value of PSUs granted during the year ended
December 31, 2016
, we used risk-free interest rates ranging from
0.9%
-
1.1%
and expected volatility rates ranging from
18.2%
-
19.1%
(the plan defined peer index assumes a range of
15.0%
-
15.6%
) and assumed a dividend yield of
zero
.
|
|
(d)
|
At
December 31, 2016
, total unrecognized compensation expense related to these awards was approximately
$19.6 million
, with an aggregate weighted-average remaining term of less than
2 years
.
|
At the end of each reporting period, we evaluate the ultimate number of PSUs we expect to vest based upon the extent to which we have met and expect to meet the performance goals and where appropriate, revise our estimate and associated expense. We do not adjust the associated expense for revision on PSUs expected to vest based on market performance. Upon vesting, the RSUs and PSUs may be converted into shares of our common stock. Both the RSUs and PSUs carry dividend equivalent rights. Dividend equivalent rights on RSUs are paid in cash on a quarterly basis whereas dividend equivalent rights on PSUs accrue during the performance period and may be converted into additional shares of common stock at the conclusion of the performance period to the extent the PSUs vest. Dividend equivalent rights are accounted for as a reduction to retained earnings to the extent that the awards are expected to vest. For awards that are not expected to vest or do not ultimately vest, dividend equivalent rights are accounted for as additional compensation expense.
|
W. P. Carey 2016 10-K
–
139
|
|
Notes to Consolidated Financial Statements
Stock Options
Option activity and changes for all periods presented were as follows:
|
|
Year Ended December 31, 2016
|
|||||||||||
|
Shares
|
Weighted-Average
Exercise Price
|
Weighted-Average
Remaining
Contractual
Term (in Years)
|
Aggregate
Intrinsic Value
|
|||||||||
|
Outstanding – beginning of year
|
258,787
|
|
$
|
31.10
|
|
|||||||
|
Exercised
|
(113,002
|
)
|
28.34
|
|
||||||||
|
Canceled / Expired
|
(752
|
)
|
28.42
|
|
||||||||
|
Outstanding – end of year
|
145,033
|
|
$
|
33.27
|
|
0.30
|
$
|
3,745,163
|
|
|||
|
Vested and expected to vest – end of year
|
145,033
|
|
$
|
33.27
|
|
0.30
|
$
|
3,745,163
|
|
|||
|
Exercisable – end of year
|
145,033
|
|
$
|
33.27
|
|
0.30
|
$
|
3,745,163
|
|
|||
|
Years Ended December 31,
|
|||||||||||||||||
|
2015
|
2014
|
||||||||||||||||
|
Shares
|
Weighted-Average
Exercise Price
|
Weighted-Average
Remaining
Contractual
Term (in Years)
|
Shares
|
Weighted-Average
Exercise Price
|
Weighted-Average
Remaining
Contractual
Term (in Years)
|
||||||||||||
|
Outstanding – beginning of year
|
475,765
|
|
$
|
29.95
|
|
619,601
|
|
$
|
30.30
|
|
|||||||
|
Exercised
|
(213,479
|
)
|
28.57
|
|
(140,718
|
)
|
31.41
|
|
|||||||||
|
Canceled / Expired
|
(3,499
|
)
|
28.71
|
|
(3,118
|
)
|
32.99
|
|
|||||||||
|
Outstanding – end of year
|
258,787
|
|
$
|
31.10
|
|
1.06
|
475,765
|
|
$
|
29.95
|
|
1.75
|
|||||
|
Exercisable – end of year
|
236,112
|
|
$
|
30.99
|
|
421,656
|
|
$
|
29.75
|
|
|||||||
Options granted under the 1997 Incentive Plan generally have a
ten
-year term and generally vested in
four
equal annual installments. We have not issued option awards since 2007. Our options will be fully expired in
December 2017
. The total intrinsic value of options exercised during the years ended
December 31, 2016
,
2015
, and
2014
was
$3.7 million
,
$7.4 million
, and
$4.9 million
, respectively. The tax benefit recognized by us related to these awards totaled
$1.6 million
during the year ended
December 31, 2016
.
At
December 31, 2016
, all of our options were fully vested and exercisable, and all related compensation expense has been previously recognized.
We have the ability and intent to issue shares upon stock option exercises. Historically, we have issued authorized but unissued common stock to satisfy such exercises. Cash received from stock option exercises and purchases under the ESPP during the years ended
December 31, 2016
,
2015
, and
2014
was
$0.5 million
,
$0.5 million
, and
$1.9 million
, respectively.
|
W. P. Carey 2016 10-K
–
140
|
|
Notes to Consolidated Financial Statements
Other Compensation
Profit-Sharing Plan
We sponsor a qualified profit-sharing plan and trust that generally permits all employees, as defined by the plan, to make pre-tax contributions into the plan. We are under no obligation to contribute to the plan and the amount of any contribution is determined by and at the discretion of our board of directors. In December 2016, 2015, and 2014, our board of directors determined that the contribution to the plan for each of those respective years would be
10%
of an eligible participant’s compensation, up to the legal maximum allowable in each of those years of
$26,500
for 2016 and 2015, and
$26,000
for 2014. For the years ended
December 31, 2016
,
2015
, and
2014
, amounts expensed for contributions to the trust were
$3.9 million
,
$4.1 million
, and
$3.5 million
, respectively, which were included in General and administrative expenses in the consolidated financial statements. The profit-sharing plan is a deferred compensation plan and is therefore considered to be outside the scope of current accounting guidance for stock-based compensation.
Other
During each of the periods presented, we had employment contracts with certain senior executives. These contracts also provided for severance payments in the event of termination under certain conditions (
Note 13
). No such agreements were outstanding as of
December 31, 2016
. During the years ended
December 31, 2016
,
2015
, and
2014
, we recognized severance costs totaling approximately
$0.5 million
,
$0.8 million
, and
$1.0 million
, respectively, related to several former employees who did not have employment contracts. Such costs are included in General and administrative expenses in the accompanying consolidated financial statements, and exclude severance-related costs that are included in Restructuring and other compensation in the consolidated financial statements (
Note 13
).
Income Tax Provision
The components of our provision for income taxes attributable to continuing operations for the periods presented are as follows (in thousands):
|
|
Years Ended December 31,
|
||||||||||
|
|
2016
|
|
2015
|
|
2014
|
||||||
|
Federal
|
|
|
|
|
|
|
|
|
|||
|
Current
|
$
|
6,412
|
|
|
$
|
10,551
|
|
|
$
|
19,545
|
|
|
Deferred
|
(1,608
|
)
|
|
1,901
|
|
|
(7,609
|
)
|
|||
|
|
4,804
|
|
|
12,452
|
|
|
11,936
|
|
|||
|
State and Local
|
|
|
|
|
|
|
|
|
|||
|
Current
|
7,014
|
|
|
9,075
|
|
|
13,422
|
|
|||
|
Deferred
|
(2,026
|
)
|
|
1,158
|
|
|
(4,693
|
)
|
|||
|
|
4,988
|
|
|
10,233
|
|
|
8,729
|
|
|||
|
Foreign
|
|
|
|
|
|
|
|
|
|||
|
Current
|
10,727
|
|
|
16,656
|
|
|
6,869
|
|
|||
|
Deferred
|
(17,231
|
)
|
|
(1,720
|
)
|
|
(9,925
|
)
|
|||
|
|
(6,504
|
)
|
|
14,936
|
|
|
(3,056
|
)
|
|||
|
Total Provision
|
$
|
3,288
|
|
|
$
|
37,621
|
|
|
$
|
17,609
|
|
|
W. P. Carey 2016 10-K
–
141
|
|
Notes to Consolidated Financial Statements
A reconciliation of effective income tax for the periods presented is as follows (in thousands):
|
Years Ended December 31,
|
|||||||
|
2016
|
2015
|
||||||
|
Pre-tax (loss) income attributable to taxable subsidiaries
(a)
|
$
|
(15,374
|
)
|
$
|
72,343
|
|
|
|
Federal (benefit) provision at statutory tax rate (35%)
|
$
|
(5,380
|
)
|
$
|
25,244
|
|
|
|
Change in valuation allowance
|
6,477
|
|
9,074
|
|
|||
|
Non-taxable income
|
(5,399
|
)
|
(5,475
|
)
|
|||
|
Non-deductible expense
|
3,111
|
|
6,982
|
|
|||
|
State and local taxes, net of federal benefit
|
2,749
|
|
6,151
|
|
|||
|
Rate differential
|
892
|
|
(10,589
|
)
|
|||
|
Other
|
838
|
|
6,234
|
|
|||
|
Total provision
|
$
|
3,288
|
|
$
|
37,621
|
|
|
|
|
Year Ended December 31,
|
||
|
|
2014
|
||
|
Pre-tax income attributable to taxable subsidiaries
|
$
|
21,131
|
|
|
Federal provision at statutory tax rate (35%)
|
$
|
7,396
|
|
|
Recognition of taxable income as a result of the CPA
®
:16 Merger
(b)
|
4,833
|
|
|
|
State and local taxes, net of federal benefit
|
2,296
|
|
|
|
Interest
|
2,111
|
|
|
|
Dividend income from Managed REITs
|
939
|
|
|
|
Other
|
893
|
|
|
|
Tax provision — taxable subsidiaries
|
18,468
|
|
|
|
Deferred foreign tax benefit
(c)
|
(9,925
|
)
|
|
|
Current foreign taxes
|
6,869
|
|
|
|
Other state and local taxes
|
2,197
|
|
|
|
Total provision
|
$
|
17,609
|
|
__________
|
(a)
|
Pre-tax loss attributable to taxable subsidiaries for 2016 was primarily driven by the impairment charges we recognized on international properties during the year (
Note 9
).
|
|
(b)
|
Represents income tax expense due to a permanent difference from the recognition of deferred revenue as a result of the accelerated vesting of shares previously issued by CPA
®
:16 – Global for asset management and performance fees and the payment of deferred acquisition fees in connection with the CPA
®
:16 Merger.
|
|
(c)
|
Represents deferred tax benefit associated with basis differences on certain foreign properties acquired.
|
|
W. P. Carey 2016 10-K
–
142
|
|
Notes to Consolidated Financial Statements
Deferred Income Taxes
Deferred income taxes at
December 31, 2016
and
2015
consist of the following (in thousands):
|
|
At December 31,
|
||||||
|
|
2016
|
2015
|
|||||
|
Deferred Tax Assets
|
|
|
|
|
|||
|
Unearned and deferred compensation
|
$
|
33,100
|
|
$
|
35,525
|
|
|
|
Net operating loss and other tax credit carryforwards
|
31,381
|
|
19,553
|
|
|||
|
Basis differences — foreign investments
|
28,324
|
|
6,975
|
|
|||
|
Other
|
5,560
|
|
3,788
|
|
|||
|
Total deferred tax assets
|
98,365
|
|
65,841
|
|
|||
|
Valuation allowance
|
(27,350
|
)
|
(29,746
|
)
|
|||
|
Net deferred tax assets
|
71,015
|
|
36,095
|
|
|||
|
Deferred Tax Liabilities
|
|
|
|
|
|||
|
Basis differences — foreign investments
|
(123,269
|
)
|
(81,058
|
)
|
|||
|
Basis differences — equity investees
|
(17,282
|
)
|
(19,925
|
)
|
|||
|
Deferred revenue
|
(7,318
|
)
|
(8,654
|
)
|
|||
|
Total deferred tax liabilities
|
(147,869
|
)
|
(109,637
|
)
|
|||
|
Net Deferred Tax Liability
|
$
|
(76,854
|
)
|
$
|
(73,542
|
)
|
|
Our deferred tax assets and liabilities are primarily the result of temporary differences related to the following:
|
•
|
Basis differences between tax and U.S. GAAP for certain international real estate investments. For income tax purposes, in certain acquisitions, we assume the seller’s basis, or the carry-over basis, in the acquired assets. The carry-over basis is typically lower than the purchase price, or the U.S. GAAP basis, resulting in a deferred tax liability with an offsetting increase to goodwill or the acquired tangible or intangible assets;
|
|
•
|
Timing differences generated by differences in the U.S. GAAP basis and the tax basis of assets such as those related to capitalized acquisition costs, straight-line rent, prepaid rents, and intangible assets, as well as unearned and deferred compensation;
|
|
•
|
Basis differences in equity investments represents fees earned in shares recognized under U.S. GAAP into income and deferred for U.S. taxes based upon a share vesting schedule; and
|
|
•
|
Tax net operating losses in certain subsidiaries, including those domiciled in foreign jurisdictions, that may be realized in future periods if the respective subsidiary generates sufficient taxable income.
|
During the second quarter of 2016, we identified and recorded out-of-period adjustments related to adjustments to prior period income tax returns. This adjustment is reflected as a
$3.0 million
increase in our Provision for income taxes in the consolidated statements of income for the year ended December 31, 2016 (
Note 2
), and is included in current income tax expense for the year ended December 31, 2016.
As of
December 31, 2016
and
2015
, our taxable subsidiaries have recorded gross deferred tax assets of
$31.4 million
and
$19.6 million
, respectively, in connection with U.S. federal, state and local, and foreign net operating loss and other tax credit carryforwards. The utilization of net operating losses may be subject to certain limitations under the tax laws of the relevant jurisdiction. If not utilized, our federal and state and local net operating losses will begin to expire in
2034
and our foreign net operating losses will begin to expire in
2017
. As of
December 31, 2016
and
2015
, we recorded a valuation allowance of
$27.4 million
and
$29.7 million
, respectively, related to these net operating loss carryforwards and basis difference in U.S. and foreign jurisdictions.
The net deferred tax liability in the table above is comprised of deferred tax asset balances, net of certain deferred tax liabilities and valuation allowances, of
$14.0 million
and
$12.6 million
at
December 31, 2016
and
2015
, respectively, which are included in Other assets, net in the consolidated balance sheets, and other deferred tax liability balances of
$90.8 million
and
$86.1 million
at
December 31, 2016
and
2015
, respectively, which are included in Deferred income taxes in the consolidated balance sheets.
|
W. P. Carey 2016 10-K
–
143
|
|
Notes to Consolidated Financial Statements
Our taxable subsidiaries recognize tax positions in the financial statements only when it is more likely than not that the position will be sustained on examination by the relevant taxing authority based on the technical merits of the position. A position that meets this standard is measured at the largest amount of benefit that will more likely than not be realized on settlement. A liability is established for differences between positions taken in a tax return and amounts recognized in the financial statements.
The following table presents a reconciliation of the beginning and ending amount of unrecognized tax benefits (in thousands):
|
|
Years Ended December 31,
|
||||||
|
|
2016
|
2015
|
|||||
|
Beginning balance
|
$
|
4,304
|
|
$
|
2,055
|
|
|
|
Addition based on tax positions related to prior years
|
1,264
|
|
1,447
|
|
|||
|
Addition based on tax positions related to the current year
|
137
|
|
1,510
|
|
|||
|
Decrease due to lapse in statute of limitations
|
(97
|
)
|
(572
|
)
|
|||
|
Foreign currency translation adjustments
|
(22
|
)
|
(136
|
)
|
|||
|
Ending balance
|
$
|
5,586
|
|
$
|
4,304
|
|
|
At
December 31, 2016
and
2015
, we had unrecognized tax benefits as presented in the table above that, if recognized, would have a favorable impact on our effective income tax rate in future periods. We recognize interest and penalties related to uncertain tax positions in income tax expense. At
December 31, 2016
, we had approximately
$1.1 million
of accrued interest related to uncertain tax positions.
Income Taxes Paid
Income taxes paid were
$19.3 million
,
$49.2 million
, and
$25.2 million
for the years ended
December 31, 2016
,
2015
, and
2014
, respectively. Income taxes that would have been paid before the windfall tax benefit associated with stock-based compensation awards were
$26.0 million
,
$61.7 million
, and
$30.9 million
for the years ended
December 31, 2016
,
2015
, and
2014
, respectively.
Owned Real Estate Operations
Effective February 15, 2012, we elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code. As a REIT, we are not subject to federal income taxes on our income and gains that we distribute to our stockholders as long as we satisfy certain requirements, principally relating to the nature of our income and the level of our distributions, as well as other factors. We believe that we have operated, and we intend to continue to operate, in a manner that allows us to continue to qualify as a REIT. As a REIT, we expect to derive most of our REIT income from our real estate operations under our Owned Real Estate segment.
Investment Management Operations
We conduct our investment management services in our Investment Management segment through TRSs. A TRS is a subsidiary of a REIT that is subject to corporate federal, state, local, and foreign taxes, as applicable. Our use of TRSs enables us to engage in certain businesses while complying with the REIT qualification requirements and also allows us to retain income generated by these businesses for reinvestment without the requirement to distribute those earnings. We conduct business in North America, Europe, Australia, and Asia, and as a result, we or one or more of our subsidiaries file income tax returns in the United States federal jurisdiction and various state and certain foreign jurisdictions. Certain of our inter-company transactions that have been eliminated in consolidation for financial accounting purposes are also subject to taxation. Periodically, shares in the Managed REITs that are payable to our TRSs in consideration of services rendered are distributed from TRSs to us.
Tax authorities in the relevant jurisdictions may select our tax returns for audit and propose adjustments before the expiration of the statute of limitations. Our tax returns filed for tax years
2012
through
2016
remain open to adjustment in the major tax jurisdictions.
|
W. P. Carey 2016 10-K
–
144
|
|
Notes to Consolidated Financial Statements
From time to time, we may decide to sell a property. We have an active capital recycling program, with a goal of extending the average lease term through reinvestment, improving portfolio credit quality through dispositions and acquisitions of assets, increasing the asset criticality factor in our portfolio, and/or executing strategic dispositions of assets. We may make a decision to dispose of a property when it is vacant as a result of tenants vacating space, tenants electing not to renew their leases, tenant insolvency, or lease rejection in the bankruptcy process. In such cases, we assess whether we can obtain the highest value from the property by selling it, as opposed to re-leasing it. We may also sell a property when we receive an unsolicited offer or negotiate a price for an investment that is consistent with our strategy for that investment. When it is appropriate to do so, we classify the property as an asset held for sale on our consolidated balance sheet. For those properties sold or classified as held for sale prior to January 1, 2014, or that we acquired as held for sale in the CPA
®
:16 Merger and sold during 2014, we classify current and prior period results of operations of the property as discontinued operations in accordance with our adoption of ASU 2014-08. All property dispositions are recorded within our Owned Real Estate segment.
Property Dispositions Included in Continuing Operations
The results of operations for properties that have been sold or classified as held for sale that did not qualify for discontinued operations are included within continuing operations in the consolidated financial statements and are summarized as follows (in thousands):
|
Years Ended December 31,
|
|||||||||||
|
2016
|
2015
|
2014
|
|||||||||
|
Revenues
|
$
|
96,625
|
|
$
|
107,494
|
|
$
|
98,959
|
|
||
|
Expenses
|
(44,681
|
)
|
(62,606
|
)
|
(81,260
|
)
|
|||||
|
Gain on sale of real estate
|
71,122
|
|
6,487
|
|
1,334
|
|
|||||
|
Impairment charges
|
(50,769
|
)
|
(4,071
|
)
|
(22,491
|
)
|
|||||
|
Loss on extinguishment of debt
|
(4,498
|
)
|
(3,156
|
)
|
(167
|
)
|
|||||
|
Benefit from (provision for) income taxes
|
12,493
|
|
(7,187
|
)
|
(3,973
|
)
|
|||||
|
Income from continuing operations from properties sold or classified as held for sale, net of income taxes
(a)
|
$
|
80,292
|
|
$
|
36,961
|
|
$
|
(7,598
|
)
|
||
__________
|
(a)
|
Amounts included net (income) loss attributable to noncontrolling interests of
$(1.5) million
,
$(2.0) million
, and
$0.3 million
, respectively, for the years ended December 31, 2016, 2015, and 2014, respectively.
|
2016 —
During the year ended December 31, 2016, we sold
30
properties and a parcel of vacant land for total proceeds of
$542.4 million
, net of selling costs, and recognized a net gain on these sales of
$42.6 million
, inclusive of amounts attributable to noncontrolling interests of
$0.9 million
. During the year ended December 31, 2016, we recognized impairment charges totaling
$41.0 million
on a portfolio of
14
of these properties (
Note 9
). In 2016, we transferred ownership of a vacant international property and the related non-recourse mortgage loan, which had a carrying value of
$39.8 million
and an outstanding balance of
$60.9 million
, respectively, on the date of transfer, to the mortgage lender, resulting in a net gain of
$16.4 million
. In addition, a vacant domestic property with an asset carrying value of
$13.7 million
, which was encumbered by a
$24.3 million
mortgage loan (net of
$2.6 million
of cash held in escrow that was retained by the mortgage lender), was foreclosed upon by the mortgage lender, resulting in a net gain of
$11.6 million
. We also transferred ownership of an international property and the related non-recourse mortgage loan to the mortgage lender. The property was held for sale at December 31, 2015 (
Note 5
). At the date of the transfer, the property had an asset carrying value of
$3.2 million
and the related non-recourse mortgage loan had an outstanding balance of
$4.5 million
, resulting in a net gain of
$0.6 million
.
During the year ended December 31, 2016, we entered into a contract to sell an international property, which was classified as held for sale as of December 31, 2016 (
Note 5
), and which was previously included in Net investments in direct financing leases in our consolidated financial statements. In connection with this potential sale, we recognized an impairment charge of
$7.0 million
during the year ended December 31, 2016 to reduce the carrying value of the property to its estimated selling price (
Note 9
). This property was sold in January 2017 (
Note 20
).
|
W. P. Carey 2016 10-K
–
145
|
|
Notes to Consolidated Financial Statements
In connection with those sales that constituted businesses, during the year ended December 31, 2016 we allocated goodwill totaling
$34.4 million
to the cost basis of the properties for our Owned Real Estate segment based on the relative fair value at the time of the sale (
Note 8
).
In the fourth quarter of 2015, we executed a lease amendment with a tenant in a domestic office building. The amendment extended the lease term an additional 15 years to January 31, 2037 and provided a one-time rent payment of
$25.0 million
, which was paid to us on December 18, 2015. The lease amendment also provided an option to terminate the lease effective February 29, 2016, with additional lease termination fees of
$22.2 million
to be paid to us on or five days before February 29, 2016 upon exercise of the option. The tenant exercised the option on January 1, 2016. The aggregate of the additional rent payment of
$25.0 million
and the lease termination fees of
$22.2 million
were amortized to lease termination income from the lease amendment date on December 4, 2015 through the end of the non-cancelable lease term on February 29, 2016, resulting in
$15.0 million
recognized during the year ended December 31, 2015 and
$32.2 million
recognized during the three months ended March 31, 2016 within Lease termination income and other in the consolidated financial statements. In connection with the lease amendment, we defeased the mortgage loan encumbering the property with a principal balance of
$36.5 million
and recognized a loss on extinguishment of debt of
$5.3 million
, which was included in Other income and (expenses) in the consolidated financial statements for the year ended December 31, 2015. In addition, during the fourth quarter of 2015, we entered into an agreement to sell the property to a third party and the buyer placed a deposit of
$12.7 million
for the purchase of the property that was held in escrow. At December 31, 2015, this property was classified as held for sale (
Note 5
). During the three months ended March 31, 2016, we sold the property for proceeds of
$44.4 million
, net of selling costs, and recognized a loss on the sale of
$10.7 million
.
2015 —
During the year ended December 31, 2015, we sold
13
properties for total proceeds of
$35.7 million
, net of selling costs, and we recognized a net gain on these sales of
$5.9 million
. We recognized impairment charges (
Note 9
) on these properties totaling
$6.0 million
, of which
$2.7 million
and
$3.3 million
were recognized during 2015 and 2014, respectively, and a gain on extinguishment of debt of
$2.1 million
in 2015. In addition, during July 2015, a vacant domestic property was foreclosed upon and sold for
$1.4 million
. We recognized a gain on sale of
$0.6 million
in connection with that disposition. In connection with those sales that constituted businesses, during the year ended December 31, 2015 we allocated goodwill totaling
$1.7 million
to the cost basis of the properties for our Owned Real Estate segment, based on the relative fair value at the time of the sale (
Note 8
).
2014 —
During the year ended December 31, 2014, we sold
13
properties for total proceeds of
$45.6 million
, net of selling costs, and we recognized a net loss on these sales of
$5.1 million
, excluding impairment charges totaling
$1.8 million
, of which
$1.7 million
and
$0.1 million
were recognized in 2014 and 2013, respectively. These sales included a manufacturing facility for which the contractual minimum sale price of
$5.8 million
was not met. The third-party purchaser paid
$1.4 million
, with the difference of
$4.4 million
being paid by the vacating tenant. We also recorded a receivable of
$5.5 million
from the tenant representing the present value of the termination fee from the tenant, which will be paid over
5.7
years. The total amount paid and to be paid was recorded as lease termination income, which was partially offset by the
$8.4 million
loss recognized on the sale of the property.
During the year ended December 31, 2014,
two
domestic properties were foreclosed upon and sold for a total of
$8.3 million
. The proceeds from the sales were used to repay mortgage loans encumbering these properties. At the time of the sales, the properties had a total carrying value of
$8.3 million
and the related mortgage loans on the properties had a total outstanding balance of
$8.5 million
. We recognized a net loss on the sales of
$0.1 million
, excluding an impairment charge of
$3.5 million
recognized in 2014.
In December 2014, we transferred ownership of a property in France and the related non-recourse mortgage loan to a third-party property manager for net proceeds of
€1
. As of the date of transfer, the property had a carrying value of
$14.5 million
and the related non-recourse mortgage loan had an outstanding balance of
$19.4 million
. In connection with the transfer, we recognized a net gain on sale of
$6.7 million
.
During the year ended December 31, 2014, we entered into contracts to sell
four
properties for a total of
$10.0 million
. In connection with these potential sales, we recognized an impairment charge of
$1.3 million
during the year ended December 31, 2014 to reduce the carrying values of the properties to their estimated selling prices. At December 31, 2014, these properties were classified as held for sale (
Note 5
). We completed the sale of these properties during the year ended December 31, 2015.
In connection with those sales that constituted businesses during the year ended December 31, 2014, we allocated goodwill totaling
$2.7 million
to the cost basis of the properties, for our Owned Real Estate segment, based on the relative fair value at the time of the sale (
Note 8
).
|
W. P. Carey 2016 10-K
–
146
|
|
Notes to Consolidated Financial Statements
Property Dispositions Included in Discontinued Operations
The results of operations for properties that have been classified as held for sale or have been sold prior to January 1, 2014, and the properties that were acquired as held for sale in the CPA
®
:16 Merger and sold during 2014, are reflected in the consolidated financial statements as discontinued operations, net of tax and are summarized as follows (in thousands):
|
|
Years Ended December 31,
|
||||||||||
|
|
2016
|
2015
|
2014
|
||||||||
|
Revenues
|
$
|
—
|
|
$
|
—
|
|
$
|
8,931
|
|
||
|
Expenses
|
—
|
|
—
|
|
(2,039
|
)
|
|||||
|
Loss on extinguishment of debt
|
—
|
|
—
|
|
(1,244
|
)
|
|||||
|
Gain on sale of real estate
|
—
|
|
—
|
|
27,670
|
|
|||||
|
Income from discontinued operations
|
$
|
—
|
|
$
|
—
|
|
$
|
33,318
|
|
||
2014 —
At December 31, 2013, we had
nine
properties classified as held for sale, all of which were sold during the year ended December 31, 2014. The properties were sold for a total of
$116.4 million
, net of selling costs, and we recognized a net gain on these sales of
$28.0 million
. We used a portion of the proceeds to repay a related mortgage loan obligation of
$11.4 million
and recognized a loss on extinguishment of debt of
$0.1 million
.
In connection with those sales of properties accounted for as businesses for the year ended December 31, 2014, we allocated goodwill totaling
$7.0 million
to the cost basis of the properties, for our Owned Real Estate segment based on the relative fair value at the time of the sale.
In connection with the CPA
®
:16 Merger in January 2014, we acquired
ten
properties, including
five
properties held by one jointly owned investment, that were classified as held for sale with a total fair value of
$133.4 million
. We sold all of these properties during the six months ended June 30, 2014 for a total of
$123.4 million
, net of selling costs, including seller financing of
$15.0 million
, and recognized a net loss on these sales of
$0.3 million
. We used a portion of the proceeds to repay the related mortgage loan obligations totaling
$18.9 million
and recognized a loss on extinguishment of debt of
$1.2 million
. We did not allocate any goodwill to these properties since they qualified as held for sale at the time of acquisition and were not considered to have been integrated into the relevant reporting unit.
|
W. P. Carey 2016 10-K
–
147
|
|
Notes to Consolidated Financial Statements
We evaluate our results from operations by our
two
major business segments — Owned Real Estate and Investment Management (
Note 1
). The following tables present a summary of comparative results and assets for these business segments (in thousands):
Owned Real Estate
|
Years Ended December 31,
|
|||||||||||
|
2016
|
2015
|
2014
|
|||||||||
|
Revenues
|
|||||||||||
|
Lease revenues
|
$
|
663,463
|
|
$
|
656,956
|
|
$
|
573,829
|
|
||
|
Lease termination income and other
|
35,696
|
|
25,145
|
|
17,767
|
|
|||||
|
Operating property revenues
|
30,767
|
|
30,515
|
|
28,925
|
|
|||||
|
Reimbursable tenant costs
|
25,438
|
|
22,832
|
|
24,862
|
|
|||||
|
755,364
|
|
735,448
|
|
645,383
|
|
||||||
|
Operating Expenses
|
|||||||||||
|
Depreciation and amortization
|
272,274
|
|
276,236
|
|
233,099
|
|
|||||
|
Impairment charges
|
59,303
|
|
29,906
|
|
23,067
|
|
|||||
|
Property expenses, excluding reimbursable tenant costs
|
49,431
|
|
52,199
|
|
37,725
|
|
|||||
|
General and administrative
|
34,591
|
|
47,676
|
|
38,797
|
|
|||||
|
Reimbursable tenant costs
|
25,438
|
|
22,832
|
|
24,862
|
|
|||||
|
Stock-based compensation expense
|
5,224
|
|
7,873
|
|
12,659
|
|
|||||
|
Restructuring and other compensation
|
4,413
|
|
—
|
|
—
|
|
|||||
|
Property acquisition and other expenses
|
2,993
|
|
(9,908
|
)
|
34,465
|
|
|||||
|
453,667
|
|
426,814
|
|
404,674
|
|
||||||
|
Other Income and Expenses
|
|||||||||||
|
Interest expense
|
(183,409
|
)
|
(194,326
|
)
|
(178,122
|
)
|
|||||
|
Equity in earnings of equity method investments in the Managed REITs and real estate
|
62,724
|
|
52,972
|
|
44,116
|
|
|||||
|
Other income and (expenses)
|
3,665
|
|
1,952
|
|
(14,505
|
)
|
|||||
|
Gain on change in control of interests
|
—
|
|
—
|
|
105,947
|
|
|||||
|
(117,020
|
)
|
(139,402
|
)
|
(42,564
|
)
|
||||||
|
Income from continuing operations before income taxes and gain on sale of real estate
|
184,677
|
|
169,232
|
|
198,145
|
|
|||||
|
Benefit from (provision for) income taxes
|
3,418
|
|
(17,948
|
)
|
916
|
|
|||||
|
Income from continuing operations before gain on sale of real estate
|
188,095
|
|
151,284
|
|
199,061
|
|
|||||
|
Income from discontinued operations, net of tax
|
—
|
|
—
|
|
33,318
|
|
|||||
|
Gain on sale of real estate, net of tax
|
71,318
|
|
6,487
|
|
1,581
|
|
|||||
|
Net Income from Owned Real Estate
|
259,413
|
|
157,771
|
|
233,960
|
|
|||||
|
Net income attributable to noncontrolling interests
|
(7,060
|
)
|
(10,961
|
)
|
(5,573
|
)
|
|||||
|
Net Income from Owned Real Estate Attributable to W. P. Carey
|
$
|
252,353
|
|
$
|
146,810
|
|
$
|
228,387
|
|
||
|
W. P. Carey 2016 10-K
–
148
|
|
Notes to Consolidated Financial Statements
Investment Management
|
Years Ended December 31,
|
|||||||||||
|
2016
|
2015
|
2014
|
|||||||||
|
Revenues
|
|||||||||||
|
Reimbursable costs from affiliates
|
$
|
66,433
|
|
$
|
55,837
|
|
$
|
130,212
|
|
||
|
Asset management revenue
|
61,971
|
|
49,984
|
|
38,063
|
|
|||||
|
Structuring revenue
|
47,328
|
|
92,117
|
|
71,256
|
|
|||||
|
Dealer manager fees
|
8,002
|
|
4,794
|
|
23,532
|
|
|||||
|
Other advisory revenue
|
2,435
|
|
203
|
|
—
|
|
|||||
|
186,169
|
|
202,935
|
|
263,063
|
|
||||||
|
Operating Expenses
|
|||||||||||
|
Reimbursable costs from affiliates
|
66,433
|
|
55,837
|
|
130,212
|
|
|||||
|
General and administrative
|
47,761
|
|
55,496
|
|
52,791
|
|
|||||
|
Subadvisor fees
|
14,141
|
|
11,303
|
|
5,501
|
|
|||||
|
Dealer manager fees and expenses
|
12,808
|
|
11,403
|
|
21,760
|
|
|||||
|
Stock-based compensation expense
|
12,791
|
|
13,753
|
|
18,416
|
|
|||||
|
Restructuring and other compensation
|
7,512
|
|
—
|
|
—
|
|
|||||
|
Depreciation and amortization
|
4,236
|
|
4,079
|
|
4,024
|
|
|||||
|
Property acquisition and other expenses
|
2,384
|
|
2,144
|
|
—
|
|
|||||
|
168,066
|
|
154,015
|
|
232,704
|
|
||||||
|
Other Income and Expenses
|
|||||||||||
|
Other income and (expenses)
|
2,002
|
|
161
|
|
275
|
|
|||||
|
Equity in earnings (losses) of equity method investment in CCIF
|
1,995
|
|
(1,952
|
)
|
—
|
|
|||||
|
3,997
|
|
(1,791
|
)
|
275
|
|
||||||
|
Income from continuing operations before income taxes
|
22,100
|
|
47,129
|
|
30,634
|
|
|||||
|
Provision for income taxes
|
(6,706
|
)
|
(19,673
|
)
|
(18,525
|
)
|
|||||
|
Net Income from Investment Management
|
15,394
|
|
27,456
|
|
12,109
|
|
|||||
|
Net income attributable to noncontrolling interests
|
—
|
|
(2,008
|
)
|
(812
|
)
|
|||||
|
Net loss attributable to redeemable noncontrolling interest
|
—
|
|
—
|
|
142
|
|
|||||
|
Net Income from Investment Management Attributable to W. P. Carey
|
$
|
15,394
|
|
$
|
25,448
|
|
$
|
11,439
|
|
||
Total Company
|
Years Ended December 31,
|
|||||||||||
|
2016
|
2015
|
2014
|
|||||||||
|
Revenues
|
$
|
941,533
|
|
$
|
938,383
|
|
$
|
908,446
|
|
||
|
Operating expenses
|
621,733
|
|
580,829
|
|
637,378
|
|
|||||
|
Other income and (expenses)
|
(113,023
|
)
|
(141,193
|
)
|
(42,289
|
)
|
|||||
|
Provision for income taxes
|
(3,288
|
)
|
(37,621
|
)
|
(17,609
|
)
|
|||||
|
Income from discontinued operations, net of tax
|
—
|
|
—
|
|
33,318
|
|
|||||
|
Gain on sale of real estate, net of tax
|
71,318
|
|
6,487
|
|
1,581
|
|
|||||
|
Net income attributable to noncontrolling interests
|
(7,060
|
)
|
(12,969
|
)
|
(6,385
|
)
|
|||||
|
Net loss attributable to redeemable noncontrolling interest
|
—
|
|
—
|
|
142
|
|
|||||
|
Net income attributable to W. P. Carey
|
$
|
267,747
|
|
$
|
172,258
|
|
$
|
239,826
|
|
||
|
W. P. Carey 2016 10-K
–
149
|
|
Notes to Consolidated Financial Statements
|
Total Long-Lived Assets
(a)
at December 31,
|
Total Assets at December 31,
|
||||||||||||||
|
2016
|
2015
|
2016
|
2015
(b)
|
||||||||||||
|
Owned Real Estate
|
$
|
5,787,071
|
|
$
|
6,079,803
|
|
$
|
8,242,263
|
|
$
|
8,537,544
|
|
|||
|
Investment Management
|
23,528
|
|
22,214
|
|
211,691
|
|
204,545
|
|
|||||||
|
Total Company
|
$
|
5,810,599
|
|
$
|
6,102,017
|
|
$
|
8,453,954
|
|
$
|
8,742,089
|
|
|||
__________
|
(a)
|
Consists of Net investments in real estate and Equity investments in the Managed Programs and real estate. Total long-lived assets for our Investment Management segment consists of our equity investment in CCIF (
Note 7
).
|
|
(b)
|
In accordance with ASU 2015-03, we reclassified deferred financing costs from Other assets, net to Non-recourse debt, net, Senior Unsecured Notes, net, and Senior Unsecured Credit Facility - Term Loan, net as of December 31, 2015 (
Note 2
).
|
|
W. P. Carey 2016 10-K
–
150
|
|
Notes to Consolidated Financial Statements
Our portfolio is comprised of domestic and international investments. At
December 31, 2016
, our international investments within our Owned Real Estate segment were comprised of investments in Germany, the United Kingdom, Spain, Finland, Poland, the Netherlands, France, Norway, Austria, Hungary, Sweden, Belgium, Australia, Thailand, Malaysia, Japan, Canada, and Mexico. There are no investments in foreign jurisdictions within our Investment Management segment. Other than Germany, no country or tenant individually comprised more than 10% of our total lease revenues for the years ended
December 31, 2016
,
2015
, or
2014
. The following tables present the geographic information (in thousands):
|
Years Ended December 31,
|
|||||||||||
|
2016
|
2015
|
2014
|
|||||||||
|
Domestic
|
|||||||||||
|
Revenues
|
$
|
490,134
|
|
$
|
468,703
|
|
$
|
426,578
|
|
||
|
Operating expenses
|
(274,013
|
)
|
(296,265
|
)
|
(284,362
|
)
|
|||||
|
Interest expense
|
(149,615
|
)
|
(153,219
|
)
|
(117,603
|
)
|
|||||
|
Other income and expenses, excluding interest expense
|
59,683
|
|
50,891
|
|
146,156
|
|
|||||
|
Provision for income taxes
|
(4,808
|
)
|
(6,219
|
)
|
(3,238
|
)
|
|||||
|
Gain (loss) on sale of real estate, net of tax
|
56,492
|
|
2,941
|
|
(5,119
|
)
|
|||||
|
Net income attributable to noncontrolling interests
|
(7,591
|
)
|
(5,358
|
)
|
(4,233
|
)
|
|||||
|
Net loss attributable to noncontrolling interests in discontinued operations
|
—
|
|
—
|
|
(179
|
)
|
|||||
|
Income from continuing operations attributable to W. P. Carey
|
$
|
170,282
|
|
$
|
61,474
|
|
$
|
158,000
|
|
||
|
Germany
|
|||||||||||
|
Revenues
|
$
|
68,372
|
|
$
|
65,777
|
|
$
|
72,978
|
|
||
|
Operating (expenses) benefits
(a)
|
(28,473
|
)
|
818
|
|
(40,847
|
)
|
|||||
|
Interest expense
|
(15,681
|
)
|
(15,432
|
)
|
(18,880
|
)
|
|||||
|
Other income and expenses, excluding interest expense
|
649
|
|
4,175
|
|
(10,698
|
)
|
|||||
|
(Provision for) benefit from income taxes
|
(4,083
|
)
|
(4,357
|
)
|
3,163
|
|
|||||
|
Gain on sale of real estate, net of tax
|
—
|
|
21
|
|
—
|
|
|||||
|
Net income attributable to noncontrolling interests
|
252
|
|
(5,537
|
)
|
(1,017
|
)
|
|||||
|
Income from continuing operations attributable to W. P. Carey
|
$
|
21,036
|
|
$
|
45,465
|
|
$
|
4,699
|
|
||
|
Other International
|
|||||||||||
|
Revenues
|
$
|
196,858
|
|
$
|
200,968
|
|
$
|
145,827
|
|
||
|
Operating expenses
|
(151,181
|
)
|
(131,367
|
)
|
(79,465
|
)
|
|||||
|
Interest expense
|
(18,113
|
)
|
(25,675
|
)
|
(41,639
|
)
|
|||||
|
Other income and expenses, excluding interest expense
|
6,057
|
|
(142
|
)
|
100
|
|
|||||
|
Benefit from (provision for) income taxes
|
12,309
|
|
(7,372
|
)
|
991
|
|
|||||
|
Gain on sale of real estate, net of tax
|
14,826
|
|
3,525
|
|
6,700
|
|
|||||
|
Net loss (income) attributable to noncontrolling interests
|
279
|
|
(66
|
)
|
(323
|
)
|
|||||
|
Income from continuing operations attributable to W. P. Carey
|
$
|
61,035
|
|
$
|
39,871
|
|
$
|
32,191
|
|
||
|
Total
|
|||||||||||
|
Revenues
|
$
|
755,364
|
|
|
$
|
735,448
|
|
|
$
|
645,383
|
|
|
Operating expenses
|
(453,667
|
)
|
|
(426,814
|
)
|
|
(404,674
|
)
|
|||
|
Interest expense
|
(183,409
|
)
|
|
(194,326
|
)
|
|
(178,122
|
)
|
|||
|
Other income and expenses, excluding interest expense
|
66,389
|
|
|
54,924
|
|
|
135,558
|
|
|||
|
Benefit from (provision for) income taxes
|
3,418
|
|
|
(17,948
|
)
|
|
916
|
|
|||
|
Gain on sale of real estate, net of tax
|
71,318
|
|
6,487
|
|
1,581
|
|
|||||
|
Net income attributable to noncontrolling interests
|
(7,060
|
)
|
(10,961
|
)
|
(5,573
|
)
|
|||||
|
Net loss attributable to noncontrolling interests in discontinued operations
|
—
|
|
—
|
|
(179
|
)
|
|||||
|
Income from continuing operations attributable to W. P. Carey
|
$
|
252,353
|
|
|
$
|
146,810
|
|
$
|
194,890
|
|
|
|
W. P. Carey 2016 10-K
–
151
|
|
Notes to Consolidated Financial Statements
|
|
December 31,
|
||||||
|
|
2016
|
2015
|
|||||
|
Domestic
|
|||||||
|
Long-lived assets
(b)
|
$
|
3,784,905
|
|
$
|
3,794,232
|
|
|
|
Total assets
(c)
|
5,517,050
|
|
5,435,251
|
|
|||
|
Germany
|
|||||||
|
Long-lived assets
(b)
|
$
|
545,672
|
|
$
|
581,283
|
|
|
|
Total assets
(c)
|
718,397
|
|
790,895
|
|
|||
|
Other International
|
|||||||
|
Long-lived assets
(b)
|
$
|
1,456,494
|
|
$
|
1,704,288
|
|
|
|
Total assets
(c)
|
2,006,816
|
|
2,311,398
|
|
|||
|
Total
|
|||||||
|
Long-lived assets
(b)
|
$
|
5,787,071
|
|
$
|
6,079,803
|
|
|
|
Total assets
(c)
|
8,242,263
|
|
8,537,544
|
|
|||
__________
|
(a)
|
Amount for the year ended December 31, 2015 includes a reversal of
$25.0 million
of liabilities for German real estate transfer taxes (
Note 7
).
|
|
(b)
|
Consists of Net investments in real estate and Equity investments in the Managed Programs and real estate, excluding our equity investment in CCIF (
Note 7
).
|
|
(c)
|
In accordance with ASU 2015-03, we reclassified deferred financing costs from Other assets, net to Non-recourse debt, net, Senior Unsecured Notes, net, and Senior Unsecured Credit Facility - Term Loan, net as of December 31, 2015 (
Note 2
).
|
|
W. P. Carey 2016 10-K
–
152
|
|
Notes to Consolidated Financial Statements
(dollars in thousands, except per share amounts)
|
|
Three Months Ended
|
||||||||||||||
|
|
March 31, 2016
|
June 30, 2016
|
September 30, 2016
|
December 31, 2016
|
|||||||||||
|
Revenues
(a)
|
$
|
270,240
|
|
$
|
217,266
|
|
$
|
225,247
|
|
$
|
228,780
|
|
|||
|
Expenses
|
180,000
|
|
160,697
|
|
136,472
|
|
144,564
|
|
|||||||
|
Net income
(a) (b)
|
60,864
|
|
53,171
|
|
112,302
|
|
48,470
|
|
|||||||
|
Net income attributable to noncontrolling interests
|
(3,425
|
)
|
(1,510
|
)
|
(1,359
|
)
|
(766
|
)
|
|||||||
|
Net income attributable to W. P. Carey
(a) (b)
|
$
|
57,439
|
|
$
|
51,661
|
|
$
|
110,943
|
|
$
|
47,704
|
|
|||
|
Earnings per share attributable to W. P. Carey:
|
|||||||||||||||
|
Basic
|
$
|
0.54
|
|
$
|
0.48
|
|
$
|
1.03
|
|
$
|
0.44
|
|
|||
|
Diluted
|
$
|
0.54
|
|
$
|
0.48
|
|
$
|
1.03
|
|
$
|
0.44
|
|
|||
|
Distributions declared per share
|
$
|
0.9742
|
|
$
|
0.9800
|
|
$
|
0.9850
|
|
$
|
0.9900
|
|
|||
|
|
Three Months Ended
|
||||||||||||||
|
|
March 31, 2015
|
June 30, 2015
|
September 30, 2015
|
December 31, 2015
|
|||||||||||
|
Revenues
(c)
|
$
|
220,388
|
|
$
|
238,079
|
|
$
|
214,666
|
|
$
|
265,250
|
|
|||
|
Expenses
(d)
|
140,479
|
|
130,382
|
|
159,066
|
|
150,902
|
|
|||||||
|
Net income
(c) (d)
|
38,582
|
|
66,923
|
|
23,578
|
|
56,144
|
|
|||||||
|
Net income attributable to noncontrolling interests
|
(2,466
|
)
|
(3,575
|
)
|
(1,833
|
)
|
(5,095
|
)
|
|||||||
|
Net income attributable to W. P. Carey
(c) (d)
|
$
|
36,116
|
|
$
|
63,348
|
|
$
|
21,745
|
|
$
|
51,049
|
|
|||
|
Earnings per share attributable to W. P. Carey:
|
|||||||||||||||
|
Basic
|
$
|
0.34
|
|
$
|
0.60
|
|
$
|
0.20
|
|
$
|
0.48
|
|
|||
|
Diluted
|
$
|
0.34
|
|
$
|
0.59
|
|
$
|
0.20
|
|
$
|
0.48
|
|
|||
|
Distributions declared per share
|
$
|
0.9525
|
|
$
|
0.9540
|
|
$
|
0.9550
|
|
$
|
0.9646
|
|
|||
__________
|
(a)
|
Amount for the three months ended March 31, 2016 includes lease termination income of
$32.2 million
recognized in connection with a domestic property that was sold during the period (
Note 17
).
|
|
(b)
|
Amount for the three months ended September 30, 2016 includes an aggregate gain on sale of real estate of
$49.1 million
recognized on the disposition of
four
properties (
Note 17
).
|
|
(c)
|
Amount for the three months ended December 31, 2015 includes
$15.0 million
of termination income related to a domestic property that was classified as held for sale as of December 31, 2015. The property was subsequently sold during the first quarter of 2016 (
Note 17
).
|
|
(d)
|
Amount for the three months ended December 31, 2015 includes a reversal of
$25.0 million
of liabilities for German real estate transfer taxes (
Note 7
).
|
Issuance of Senior Unsecured Notes
On
January 19, 2017
, we completed a public offering of
€500.0 million
of
2.25%
Senior Notes, at a price of
99.448%
of par value, issued by our wholly owned subsidiary, WPC Eurobond B.V., which are guaranteed by us. These
2.25%
Senior Notes have a
7.5
-year term and are scheduled to mature on
July 19, 2024
.
Senior Unsecured Credit Facility
On January 26, 2017, we exercised our option to extend our Term Loan Facility (
Note 11
) by an additional year to January 31, 2018. In connection with the extension, we incurred financing costs of
$0.3 million
.
|
W. P. Carey 2016 10-K
–
153
|
|
Notes to Consolidated Financial Statements
Amended Credit Facility
On February 22, 2017, we amended and restated our Senior Unsecured Credit Facility. We increased the capacity of our unsecured line of credit under our Amended Credit Facility to
$1.85 billion
, which is comprised of a
$1.5 billion
revolving line of credit maturing in
four
years with two six-month extension options, a
€236.3 million
term loan maturing in
five
years, and a
$100.0 million
delayed draw term loan also maturing in
five
years. The delayed draw term loan may be drawn within one year and allows for borrowings in U.S. dollars, euros, or British pounds sterling. We will incur interest at LIBOR, or a LIBOR equivalent, plus
1.00%
on the revolving line of credit, EURIBOR plus
1.10%
on the term loan, and LIBOR, or a LIBOR equivalent, plus
1.10%
on the delayed draw term loan.
Mortgage Loan Repayments
In January 2017, we repaid
five
non-recourse mortgage loans with an aggregate principal balance of approximately
$273.5 million
, including
three
international mortgage loans with an aggregate principal balance of approximately
$262.4 million
(
€245.9 million
). Included in these amounts were mortgage loans totaling
$243.8 million
(
€228.6 million
), inclusive of amounts attributable to a noncontrolling interest of
$89.0 million
(
€83.5 million
), encumbering the Hellweg 2 portfolio.
Dispositions
On January 25, 2017, we sold an international property that was held for sale as of December 31, 2016 (
Note 5
) for gross proceeds of
$24.3 million
(
€22.6 million
). In addition, in January 2017, we transferred ownership of
two
international properties and the related non-recourse mortgage loan to the mortgage lender. At the dates of the transfers, the properties had an aggregate asset carrying value of
$31.3 million
(
€29.6 million
) and the related non-recourse mortgage loan had an outstanding balance of
$31.9 million
(
€30.2 million
).
Repayments of Loans to Affiliate
During January and February 2017, CWI 2 repaid in full the
$210.0 million
loan that was outstanding to us at December 31, 2016.
Management Change
On February 1, 2017, we announced that our board of directors had appointed Ms. ToniAnn Sanzone as our chief financial officer, effective immediately. Ms. Sanzone had been serving as our interim chief financial officer since October 14, 2016.
Issuance of Stock-Based Compensation Awards
During the first quarter of 2017 and through the date of this Report, in connection with our LTIP award program (
Note 15
), we issued
173,995
RSUs,
107,934
PSUs, and
2,656
RSAs to key employees, which will have a dilutive impact on our future earnings per share calculations.
|
W. P. Carey 2016 10-K
–
154
|
|
W. P. CAREY INC.
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31,
2016
,
2015
, and
2014
(in thousands)
|
Description
|
Balance at
Beginning
of Year
|
Other Additions
|
Deductions
|
Balance at
End of Year
|
||||||||||||
|
Year Ended December 31, 2016
|
||||||||||||||||
|
Valuation reserve for deferred tax assets
|
$
|
29,746
|
|
$
|
8,810
|
|
$
|
(11,206
|
)
|
$
|
27,350
|
|
||||
|
Year Ended December 31, 2015
|
||||||||||||||||
|
Valuation reserve for deferred tax assets
|
$
|
20,672
|
|
$
|
10,001
|
|
$
|
(927
|
)
|
$
|
29,746
|
|
||||
|
Year Ended December 31, 2014
|
||||||||||||||||
|
Valuation reserve for deferred tax assets
|
$
|
18,214
|
|
$
|
2,458
|
|
$
|
—
|
|
$
|
20,672
|
|
||||
|
W. P. Carey 2016 10-K
–
155
|
|
W. P. CAREY INC.
SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2016
(in thousands)
|
Initial Cost to Company
|
Cost Capitalized
Subsequent to Acquisition (a) |
Increase
(Decrease) in Net Investments (b) |
Gross Amount at which
Carried at Close of Period (c) |
Accumulated Depreciation
(c)
|
Date of Construction
|
Date Acquired
|
Life on which
Depreciation in Latest Statement of Income is Computed |
|||||||||||||||||||||||||||||||||||
|
Description
|
Encumbrances
|
Land
|
Buildings
|
Land
|
Buildings
|
Total
|
||||||||||||||||||||||||||||||||||||
|
Real Estate Under Operating Leases
|
||||||||||||||||||||||||||||||||||||||||||
|
Industrial facilities in Erlanger, KY
|
$
|
10,794
|
|
$
|
1,526
|
|
$
|
21,427
|
|
$
|
2,966
|
|
$
|
141
|
|
$
|
1,526
|
|
$
|
24,534
|
|
$
|
26,060
|
|
$
|
12,048
|
|
1979; 1987
|
Jan. 1998
|
40 yrs.
|
||||||||||||
|
Industrial facilities in Thurmont, MD and Farmington, NY
|
—
|
|
729
|
|
5,903
|
|
—
|
|
—
|
|
729
|
|
5,903
|
|
6,632
|
|
1,057
|
|
1964; 1983
|
Jan. 1998
|
15 yrs.
|
|||||||||||||||||||||
|
Retail facility in Montgomery, AL
|
—
|
|
855
|
|
6,762
|
|
277
|
|
(6,978
|
)
|
142
|
|
774
|
|
916
|
|
490
|
|
1987
|
Jan. 1998
|
40 yrs.
|
|||||||||||||||||||||
|
Warehouse facilities in Anchorage, AK and Commerce, CA
|
—
|
|
4,905
|
|
11,898
|
|
—
|
|
12
|
|
4,905
|
|
11,910
|
|
16,815
|
|
4,018
|
|
1948; 1975
|
Jan. 1998
|
40 yrs.
|
|||||||||||||||||||||
|
Industrial facility in Toledo, OH
|
—
|
|
224
|
|
2,408
|
|
—
|
|
—
|
|
224
|
|
2,408
|
|
2,632
|
|
1,405
|
|
1966
|
Jan. 1998
|
40 yrs.
|
|||||||||||||||||||||
|
Industrial facility in Goshen, IN
|
—
|
|
239
|
|
940
|
|
—
|
|
—
|
|
239
|
|
940
|
|
1,179
|
|
321
|
|
1973
|
Jan. 1998
|
40 yrs.
|
|||||||||||||||||||||
|
Office facility in Raleigh, NC
|
—
|
|
1,638
|
|
2,844
|
|
187
|
|
(2,554
|
)
|
828
|
|
1,287
|
|
2,115
|
|
737
|
|
1983
|
Jan. 1998
|
20 yrs.
|
|||||||||||||||||||||
|
Office facility in King of Prussia, PA
|
—
|
|
1,219
|
|
6,283
|
|
1,295
|
|
—
|
|
1,219
|
|
7,578
|
|
8,797
|
|
3,445
|
|
1968
|
Jan. 1998
|
40 yrs.
|
|||||||||||||||||||||
|
Industrial facility in Pinconning, MI
|
—
|
|
32
|
|
1,692
|
|
—
|
|
—
|
|
32
|
|
1,692
|
|
1,724
|
|
804
|
|
1948
|
Jan. 1998
|
40 yrs.
|
|||||||||||||||||||||
|
Industrial facilities in San Fernando, CA
|
6,466
|
|
2,052
|
|
5,322
|
|
—
|
|
(1,889
|
)
|
1,494
|
|
3,991
|
|
5,485
|
|
1,913
|
|
1962; 1979
|
Jan. 1998
|
40 yrs.
|
|||||||||||||||||||||
|
Retail facilities in several cities in the following states: Alabama, Florida, Georgia, Illinois, Louisiana, Missouri, New Mexico, North Carolina, South Carolina, Tennessee, and Texas
|
—
|
|
9,382
|
|
—
|
|
238
|
|
12,618
|
|
9,025
|
|
13,213
|
|
22,238
|
|
1,779
|
|
Various
|
Jan. 1998
|
15 yrs.
|
|||||||||||||||||||||
|
Land in Glendora, CA
|
—
|
|
1,135
|
|
—
|
|
—
|
|
17
|
|
1,152
|
|
—
|
|
1,152
|
|
—
|
|
N/A
|
Jan. 1998
|
N/A
|
|||||||||||||||||||||
|
Warehouse facility in Doraville, GA
|
—
|
|
3,288
|
|
9,864
|
|
15,374
|
|
(11,409
|
)
|
3,288
|
|
13,829
|
|
17,117
|
|
58
|
|
2016
|
Jan. 1998
|
40 yrs.
|
|||||||||||||||||||||
|
Office facility in Collierville, TN and warehouse facility in Corpus Christi, TX
|
47,006
|
|
3,490
|
|
72,497
|
|
—
|
|
(15,609
|
)
|
288
|
|
60,090
|
|
60,378
|
|
11,877
|
|
1989; 1999
|
Jan. 1998
|
40 yrs.
|
|||||||||||||||||||||
|
Land in Irving and Houston, TX
|
—
|
|
9,795
|
|
—
|
|
—
|
|
—
|
|
9,795
|
|
—
|
|
9,795
|
|
—
|
|
N/A
|
Jan. 1998
|
N/A
|
|||||||||||||||||||||
|
Industrial facility in Chandler, AZ
|
8,984
|
|
5,035
|
|
18,957
|
|
7,435
|
|
541
|
|
5,035
|
|
26,933
|
|
31,968
|
|
12,102
|
|
1989
|
Jan. 1998
|
40 yrs.
|
|||||||||||||||||||||
|
Office facility in Bridgeton, MO
|
—
|
|
842
|
|
4,762
|
|
2,523
|
|
71
|
|
842
|
|
7,356
|
|
8,198
|
|
2,886
|
|
1972
|
Jan. 1998
|
40 yrs.
|
|||||||||||||||||||||
|
Retail facilities in Drayton Plains, MI and Citrus Heights, CA
|
—
|
|
1,039
|
|
4,788
|
|
236
|
|
193
|
|
1,039
|
|
5,217
|
|
6,256
|
|
1,576
|
|
1972
|
Jan. 1998
|
35 yrs.
|
|||||||||||||||||||||
|
Warehouse facility in Memphis, TN
|
—
|
|
1,882
|
|
3,973
|
|
294
|
|
(3,892
|
)
|
328
|
|
1,929
|
|
2,257
|
|
942
|
|
1969
|
Jan. 1998
|
15 yrs.
|
|||||||||||||||||||||
|
Retail facility in Bellevue, WA
|
—
|
|
4,125
|
|
11,812
|
|
393
|
|
(123
|
)
|
4,371
|
|
11,836
|
|
16,207
|
|
5,495
|
|
1994
|
Apr. 1998
|
40 yrs.
|
|||||||||||||||||||||
|
Warehouse facilities in Houston, TX
|
—
|
|
3,260
|
|
22,574
|
|
1,628
|
|
(26,145
|
)
|
211
|
|
1,106
|
|
1,317
|
|
268
|
|
1982
|
Jun. 1998
|
40 yrs.
|
|||||||||||||||||||||
|
Office facility in Rio Rancho, NM
|
—
|
|
1,190
|
|
9,353
|
|
3,016
|
|
—
|
|
2,287
|
|
11,272
|
|
13,559
|
|
4,888
|
|
1999
|
Jul. 1998
|
40 yrs.
|
|||||||||||||||||||||
|
Office facility in Moorestown, NJ
|
—
|
|
351
|
|
5,981
|
|
1,516
|
|
43
|
|
351
|
|
7,540
|
|
7,891
|
|
3,637
|
|
1964
|
Feb. 1999
|
40 yrs.
|
|||||||||||||||||||||
|
Office facility in Illkirch, France
|
6,993
|
|
—
|
|
18,520
|
|
6
|
|
(4,352
|
)
|
—
|
|
14,174
|
|
14,174
|
|
9,325
|
|
2001
|
Dec. 2001
|
40 yrs.
|
|||||||||||||||||||||
|
Industrial facilities in Lenexa, KS and Winston-Salem, NC
|
—
|
|
1,860
|
|
12,539
|
|
2,875
|
|
(1,135
|
)
|
1,725
|
|
14,414
|
|
16,139
|
|
4,731
|
|
1968; 1980
|
Sep. 2002
|
40 yrs.
|
|||||||||||||||||||||
|
W. P. Carey 2016 10-K
–
156
|
|
SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
December 31, 2016
(in thousands)
|
Initial Cost to Company
|
Cost Capitalized
Subsequent to Acquisition (a) |
Increase
(Decrease) in Net Investments (b) |
Gross Amount at which
Carried at Close of Period (c) |
Accumulated Depreciation
(c)
|
Date of Construction
|
Date Acquired
|
Life on which
Depreciation in Latest Statement of Income is Computed |
||||||||||||||||||||||||||
|
Description
|
Encumbrances
|
Land
|
Buildings
|
Land
|
Buildings
|
Total
|
|||||||||||||||||||||||||||
|
Office facilities in Playa Vista and Venice, CA
|
45,301
|
|
2,032
|
|
10,152
|
|
52,817
|
|
1
|
|
5,889
|
|
59,113
|
|
65,002
|
|
9,967
|
|
1991; 1999
|
Sep. 2004; Sep. 2012
|
40 yrs.
|
||||||||||||
|
Warehouse facility in Greenfield, IN
|
—
|
|
2,807
|
|
10,335
|
|
223
|
|
(8,383
|
)
|
967
|
|
4,015
|
|
4,982
|
|
1,426
|
|
1995
|
Sep. 2004
|
40 yrs.
|
||||||||||||
|
Industrial facility in Scottsdale, AZ
|
—
|
|
586
|
|
46
|
|
—
|
|
—
|
|
586
|
|
46
|
|
632
|
|
14
|
|
1988
|
Sep. 2004
|
40 yrs.
|
||||||||||||
|
Retail facility in Hot Springs, AR
|
—
|
|
850
|
|
2,939
|
|
2
|
|
(2,614
|
)
|
—
|
|
1,177
|
|
1,177
|
|
362
|
|
1985
|
Sep. 2004
|
40 yrs.
|
||||||||||||
|
Warehouse facilities in Apopka, FL
|
—
|
|
362
|
|
10,855
|
|
920
|
|
(155
|
)
|
337
|
|
11,645
|
|
11,982
|
|
3,335
|
|
1969
|
Sep. 2004
|
40 yrs.
|
||||||||||||
|
Land in San Leandro, CA
|
—
|
|
1,532
|
|
—
|
|
—
|
|
—
|
|
1,532
|
|
—
|
|
1,532
|
|
—
|
|
N/A
|
Dec. 2006
|
N/A
|
||||||||||||
|
Fitness facility in Austin, TX
|
2,466
|
|
1,725
|
|
5,168
|
|
—
|
|
—
|
|
1,725
|
|
5,168
|
|
6,893
|
|
1,829
|
|
1995
|
Dec. 2006
|
29 yrs.
|
||||||||||||
|
Retail facility in Wroclaw, Poland
|
6,188
|
|
3,600
|
|
10,306
|
|
—
|
|
(4,373
|
)
|
2,636
|
|
6,897
|
|
9,533
|
|
1,554
|
|
2007
|
Dec. 2007
|
40 yrs.
|
||||||||||||
|
Office facility in Fort Worth, TX
|
31,081
|
|
4,600
|
|
37,580
|
|
—
|
|
—
|
|
4,600
|
|
37,580
|
|
42,180
|
|
6,499
|
|
2003
|
Feb. 2010
|
40 yrs.
|
||||||||||||
|
Warehouse facility in Mallorca, Spain
|
—
|
|
11,109
|
|
12,636
|
|
—
|
|
(2,791
|
)
|
9,785
|
|
11,169
|
|
20,954
|
|
1,835
|
|
2008
|
Jun. 2010
|
40 yrs.
|
||||||||||||
|
Retail facilities in Florence, AL; Snellville, GA; Concord, NC; Rockport, TX; and Virginia Beach, VA
|
21,984
|
|
5,646
|
|
12,367
|
|
—
|
|
—
|
|
5,646
|
|
12,367
|
|
18,013
|
|
1,412
|
|
2005; 2007
|
Sep. 2012
|
40 yrs.
|
||||||||||||
|
Hotels in Irvine, Sacramento, and San Diego, CA; Orlando, FL; Des Plaines, IL; Indianapolis, IN; Louisville, KY; Linthicum Heights, MD; Newark, NJ; Albuquerque, NM; and Spokane, WA
|
135,299
|
|
32,680
|
|
198,999
|
|
—
|
|
—
|
|
32,680
|
|
198,999
|
|
231,679
|
|
23,301
|
|
1989; 1990
|
Sep. 2012
|
34 - 37 yrs.
|
||||||||||||
|
Industrial facilities in Auburn, IN; Clinton Township, MI; and Bluffton, OH
|
7,310
|
|
4,403
|
|
20,298
|
|
—
|
|
(3,870
|
)
|
2,589
|
|
18,242
|
|
20,831
|
|
2,082
|
|
1968; 1975; 1995
|
Sep. 2012; Jan. 2014
|
30 yrs.
|
||||||||||||
|
Land in Irvine, CA
|
1,619
|
|
4,173
|
|
—
|
|
—
|
|
—
|
|
4,173
|
|
—
|
|
4,173
|
|
—
|
|
N/A
|
Sep. 2012
|
N/A
|
||||||||||||
|
Industrial facility in Alpharetta, GA
|
7,014
|
|
2,198
|
|
6,349
|
|
1,248
|
|
—
|
|
2,198
|
|
7,597
|
|
9,795
|
|
921
|
|
1997
|
Sep. 2012
|
30 yrs.
|
||||||||||||
|
Office facility in Clinton, NJ
|
21,952
|
|
2,866
|
|
34,834
|
|
—
|
|
—
|
|
2,866
|
|
34,834
|
|
37,700
|
|
4,943
|
|
1987
|
Sep. 2012
|
30 yrs.
|
||||||||||||
|
Office facilities in St. Petersburg, FL
|
—
|
|
3,280
|
|
24,627
|
|
—
|
|
—
|
|
3,280
|
|
24,627
|
|
27,907
|
|
3,483
|
|
1996; 1999
|
Sep. 2012
|
30 yrs.
|
||||||||||||
|
Movie theater in Baton Rouge, LA
|
—
|
|
4,168
|
|
5,724
|
|
—
|
|
—
|
|
4,168
|
|
5,724
|
|
9,892
|
|
813
|
|
2003
|
Sep. 2012
|
30 yrs.
|
||||||||||||
|
Industrial and office facility in San Diego, CA
|
—
|
|
7,804
|
|
16,729
|
|
1,725
|
|
—
|
|
7,804
|
|
18,454
|
|
26,258
|
|
2,774
|
|
2002
|
Sep. 2012
|
30 yrs.
|
||||||||||||
|
Industrial facility in Richmond, CA
|
—
|
|
895
|
|
1,953
|
|
—
|
|
—
|
|
895
|
|
1,953
|
|
2,848
|
|
277
|
|
1999
|
Sep. 2012
|
30 yrs.
|
||||||||||||
|
Warehouse facilities in Kingman, AZ; Woodland, CA; Jonesboro, GA; Kansas City, MO; Springfield, OR; Fogelsville, PA; and Corsicana, TX
|
56,061
|
|
16,386
|
|
84,668
|
|
—
|
|
—
|
|
16,386
|
|
84,668
|
|
101,054
|
|
11,916
|
|
Various
|
Sep. 2012
|
30 yrs.
|
||||||||||||
|
Industrial facilities in Orlando, FL; Rocky Mount, NC; and Lewisville, TX
|
—
|
|
2,163
|
|
17,715
|
|
—
|
|
—
|
|
2,163
|
|
17,715
|
|
19,878
|
|
2,514
|
|
Various
|
Sep. 2012
|
30 yrs.
|
||||||||||||
|
Industrial facilities in Chattanooga, TN
|
—
|
|
558
|
|
5,923
|
|
—
|
|
—
|
|
558
|
|
5,923
|
|
6,481
|
|
831
|
|
1974; 1989
|
Sep. 2012
|
30 yrs.
|
||||||||||||
|
W. P. Carey 2016 10-K
–
157
|
|
SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
December 31, 2016
(in thousands)
|
Cost Capitalized
Subsequent to Acquisition (a) |
Increase
(Decrease) in Net Investments (b) |
Gross Amount at which
Carried at Close of Period (c) |
Accumulated Depreciation
(c)
|
Date of Construction
|
Date Acquired
|
Life on which
Depreciation in Latest Statement of Income is Computed |
|||||||||||||||||||||||||||
|
Initial Cost to Company
|
|||||||||||||||||||||||||||||||||
|
Description
|
Encumbrances
|
Land
|
Buildings
|
Land
|
Buildings
|
Total
|
|||||||||||||||||||||||||||
|
Industrial facility in Mooresville, NC
|
4,536
|
|
756
|
|
9,775
|
|
—
|
|
—
|
|
756
|
|
9,775
|
|
10,531
|
|
1,368
|
|
1997
|
Sep. 2012
|
30 yrs.
|
||||||||||||
|
Industrial facility in McCalla, AL
|
—
|
|
960
|
|
14,472
|
|
7,466
|
|
—
|
|
2,076
|
|
20,822
|
|
22,898
|
|
3,337
|
|
2004
|
Sep. 2012
|
31 yrs.
|
||||||||||||
|
Office facility in Lower Makefield Township, PA
|
9,052
|
|
1,726
|
|
12,781
|
|
—
|
|
—
|
|
1,726
|
|
12,781
|
|
14,507
|
|
1,784
|
|
2002
|
Sep. 2012
|
30 yrs.
|
||||||||||||
|
Industrial facility in Fort Smith, AZ
|
—
|
|
1,063
|
|
6,159
|
|
—
|
|
—
|
|
1,063
|
|
6,159
|
|
7,222
|
|
853
|
|
1982
|
Sep. 2012
|
30 yrs.
|
||||||||||||
|
Retail facilities in Greenwood, IN and Buffalo, NY
|
8,176
|
|
—
|
|
19,990
|
|
—
|
|
—
|
|
—
|
|
19,990
|
|
19,990
|
|
2,738
|
|
2000; 2003
|
Sep. 2012
|
30 - 31 yrs.
|
||||||||||||
|
Industrial facilities in Bowling Green, KY and Jackson, TN
|
6,004
|
|
1,492
|
|
8,182
|
|
—
|
|
—
|
|
1,492
|
|
8,182
|
|
9,674
|
|
1,130
|
|
1989; 1995
|
Sep. 2012
|
31 yrs.
|
||||||||||||
|
Education facilities in Avondale, AZ; Rancho Cucamonga, CA; Glendale Heights, IL; and Exton, PA
|
30,593
|
|
14,006
|
|
33,683
|
|
—
|
|
(1,961
|
)
|
12,045
|
|
33,683
|
|
45,728
|
|
4,480
|
|
1988; 2004
|
Sep. 2012
|
31 - 32 yrs.
|
||||||||||||
|
Industrial facilities in St. Petersburg, FL; Buffalo Grove, IL; West Lafayette, IN; Excelsior Springs, MO; and North Versailles, PA
|
9,131
|
|
6,559
|
|
19,078
|
|
—
|
|
—
|
|
6,559
|
|
19,078
|
|
25,637
|
|
2,613
|
|
Various
|
Sep. 2012
|
31 yrs.
|
||||||||||||
|
Industrial facilities in Tolleson, AZ; Alsip, IL; and Solvay, NY
|
11,285
|
|
6,080
|
|
23,424
|
|
—
|
|
—
|
|
6,080
|
|
23,424
|
|
29,504
|
|
3,183
|
|
1990; 1994; 2000
|
Sep. 2012
|
31 yrs.
|
||||||||||||
|
Land in Kahl, Germany
|
—
|
|
6,694
|
|
—
|
|
—
|
|
(1,207
|
)
|
5,487
|
|
—
|
|
5,487
|
|
—
|
|
N/A
|
Sep. 2012
|
N/A
|
||||||||||||
|
Fitness facilities in Englewood, CO; Memphis TN; and Bedford, TX
|
7,210
|
|
4,877
|
|
4,258
|
|
5,169
|
|
4,823
|
|
4,877
|
|
14,250
|
|
19,127
|
|
1,462
|
|
1990; 1995; 2001
|
Sep. 2012
|
31 yrs.
|
||||||||||||
|
Office facility in Mons, Belgium
|
7,061
|
|
1,505
|
|
6,026
|
|
653
|
|
(1,504
|
)
|
1,234
|
|
5,446
|
|
6,680
|
|
697
|
|
1982
|
Sep. 2012
|
32 yrs.
|
||||||||||||
|
Warehouse facilities in Oceanside, CA and Concordville, PA
|
3,354
|
|
3,333
|
|
8,270
|
|
—
|
|
—
|
|
3,333
|
|
8,270
|
|
11,603
|
|
1,127
|
|
1989; 1996
|
Sep. 2012
|
31 yrs.
|
||||||||||||
|
Self-storage facilities located throughout the United States
|
—
|
|
74,551
|
|
319,186
|
|
—
|
|
(50
|
)
|
74,501
|
|
319,186
|
|
393,687
|
|
43,024
|
|
Various
|
Sep. 2012
|
31 yrs.
|
||||||||||||
|
Warehouse facility in La Vista, NE
|
20,675
|
|
4,196
|
|
23,148
|
|
—
|
|
—
|
|
4,196
|
|
23,148
|
|
27,344
|
|
2,941
|
|
2005
|
Sep. 2012
|
33 yrs.
|
||||||||||||
|
Office facility in Pleasanton, CA
|
9,584
|
|
3,675
|
|
7,468
|
|
—
|
|
—
|
|
3,675
|
|
7,468
|
|
11,143
|
|
1,004
|
|
2000
|
Sep. 2012
|
31 yrs.
|
||||||||||||
|
Office facility in San Marcos, TX
|
—
|
|
440
|
|
688
|
|
—
|
|
—
|
|
440
|
|
688
|
|
1,128
|
|
92
|
|
2000
|
Sep. 2012
|
31 yrs.
|
||||||||||||
|
Office facilities in Espoo, Finland
|
31,853
|
|
40,555
|
|
15,662
|
|
—
|
|
(24,614
|
)
|
23,499
|
|
8,104
|
|
31,603
|
|
377
|
|
1972; 1975
|
Sep. 2012
|
31 yrs.
|
||||||||||||
|
Office facility in Chicago, IL
|
13,753
|
|
2,169
|
|
19,010
|
|
—
|
|
—
|
|
2,169
|
|
19,010
|
|
21,179
|
|
2,536
|
|
1910
|
Sep. 2012
|
31 yrs.
|
||||||||||||
|
Industrial facility in Louisville, CO
|
7,201
|
|
5,342
|
|
8,786
|
|
1,849
|
|
—
|
|
5,481
|
|
10,496
|
|
15,977
|
|
1,745
|
|
1993
|
Sep. 2012
|
31 yrs.
|
||||||||||||
|
Industrial facilities in Hollywood and Orlando, FL
|
—
|
|
3,639
|
|
1,269
|
|
—
|
|
—
|
|
3,639
|
|
1,269
|
|
4,908
|
|
169
|
|
1996
|
Sep. 2012
|
31 yrs.
|
||||||||||||
|
Warehouse facility in Golden, CO
|
—
|
|
808
|
|
4,304
|
|
77
|
|
—
|
|
808
|
|
4,381
|
|
5,189
|
|
641
|
|
1998
|
Sep. 2012
|
30 yrs.
|
||||||||||||
|
Industrial facility in Texarkana, TX
|
—
|
|
1,755
|
|
4,493
|
|
—
|
|
(2,783
|
)
|
216
|
|
3,249
|
|
3,465
|
|
433
|
|
1997
|
Sep. 2012
|
31 yrs.
|
||||||||||||
|
Industrial facility in Eugene, OR
|
4,360
|
|
2,286
|
|
3,783
|
|
—
|
|
—
|
|
2,286
|
|
3,783
|
|
6,069
|
|
505
|
|
1980
|
Sep. 2012
|
31 yrs.
|
||||||||||||
|
Industrial facility in South Jordan, UT
|
11,940
|
|
2,183
|
|
11,340
|
|
—
|
|
—
|
|
2,183
|
|
11,340
|
|
13,523
|
|
1,513
|
|
1995
|
Sep. 2012
|
31 yrs.
|
||||||||||||
|
Warehouse facility in Ennis, TX
|
2,232
|
|
478
|
|
4,087
|
|
145
|
|
—
|
|
478
|
|
4,232
|
|
4,710
|
|
667
|
|
1989
|
Sep. 2012
|
31 yrs.
|
||||||||||||
|
W. P. Carey 2016 10-K
–
158
|
|
SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
December 31, 2016
(in thousands)
|
Cost Capitalized
Subsequent to Acquisition (a) |
Increase
(Decrease) in Net Investments (b) |
Gross Amount at which
Carried at Close of Period (c) |
Accumulated Depreciation
(c)
|
Date of Construction
|
Date Acquired
|
Life on which
Depreciation in Latest
Statement of
Income
is Computed
|
|||||||||||||||||||||||||||
|
Initial Cost to Company
|
|||||||||||||||||||||||||||||||||
|
Description
|
Encumbrances
|
Land
|
Buildings
|
Land
|
Buildings
|
Total
|
|||||||||||||||||||||||||||
|
Retail facility in Braintree, MA
|
2,958
|
|
2,409
|
|
—
|
|
6,184
|
|
(1,403
|
)
|
1,006
|
|
6,184
|
|
7,190
|
|
588
|
|
1994
|
Sep. 2012
|
30 yrs.
|
||||||||||||
|
Office facility in Paris, France
|
53,713
|
|
23,387
|
|
43,450
|
|
—
|
|
(12,053
|
)
|
19,170
|
|
35,614
|
|
54,784
|
|
4,629
|
|
1975
|
Sep. 2012
|
32 yrs.
|
||||||||||||
|
Retail facilities in Bydgoszcz, Czestochowa, Jablonna, Katowice, Kielce, Lodz, Lubin, Olsztyn, Opole, Plock, Rybnik, Walbrzych, and Warsaw, Poland
|
107,618
|
|
26,564
|
|
72,866
|
|
—
|
|
(17,930
|
)
|
21,774
|
|
59,726
|
|
81,500
|
|
10,663
|
|
Various
|
Sep. 2012
|
23 - 34 yrs.
|
||||||||||||
|
Industrial facility in Laupheim, Germany
|
—
|
|
2,072
|
|
8,339
|
|
—
|
|
(1,877
|
)
|
1,699
|
|
6,835
|
|
8,534
|
|
1,456
|
|
1960
|
Sep. 2012
|
20 yrs.
|
||||||||||||
|
Industrial facilities in Danbury, CT and Bedford, MA
|
9,078
|
|
3,519
|
|
16,329
|
|
—
|
|
—
|
|
3,519
|
|
16,329
|
|
19,848
|
|
2,324
|
|
1965; 1980
|
Sep. 2012
|
29 yrs.
|
||||||||||||
|
Warehouse facilities in Venlo, Netherlands
|
—
|
|
10,154
|
|
18,590
|
|
—
|
|
(5,443
|
)
|
8,231
|
|
15,070
|
|
23,301
|
|
1,631
|
|
1998; 1999
|
Apr. 2013
|
35 yrs.
|
||||||||||||
|
Industrial and office facility in Tampere, Finland
|
—
|
|
2,309
|
|
37,153
|
|
—
|
|
(7,554
|
)
|
1,843
|
|
30,065
|
|
31,908
|
|
3,442
|
|
2012
|
Jun. 2013
|
40 yrs.
|
||||||||||||
|
Office facility in Quincy, MA
|
—
|
|
2,316
|
|
21,537
|
|
—
|
|
—
|
|
2,316
|
|
21,537
|
|
23,853
|
|
2,073
|
|
1989
|
Jun. 2013
|
40 yrs.
|
||||||||||||
|
Office facility in Salford, United Kingdom
|
—
|
|
—
|
|
30,012
|
|
—
|
|
(6,392
|
)
|
—
|
|
23,620
|
|
23,620
|
|
2,022
|
|
1997
|
Sep. 2013
|
40 yrs.
|
||||||||||||
|
Office facility in Lone Tree, CO
|
—
|
|
4,761
|
|
28,864
|
|
2,822
|
|
—
|
|
4,761
|
|
31,686
|
|
36,447
|
|
2,713
|
|
2001
|
Nov. 2013
|
40 yrs.
|
||||||||||||
|
Office facility in Mönchengladbach, Germany
|
27,988
|
|
2,154
|
|
6,917
|
|
44,205
|
|
(3,449
|
)
|
2,024
|
|
47,803
|
|
49,827
|
|
1,631
|
|
2015
|
Dec. 2013
|
40 yrs.
|
||||||||||||
|
Fitness facility in Houston, TX
|
3,172
|
|
2,430
|
|
2,270
|
|
—
|
|
—
|
|
2,430
|
|
2,270
|
|
4,700
|
|
295
|
|
1995
|
Jan. 2014
|
23 yrs.
|
||||||||||||
|
Fitness facility in St. Charles, MO
|
—
|
|
1,966
|
|
1,368
|
|
80
|
|
—
|
|
1,966
|
|
1,448
|
|
3,414
|
|
154
|
|
1987
|
Jan. 2014
|
27 yrs.
|
||||||||||||
|
Fitness facility in Salt Lake City, UT
|
2,814
|
|
856
|
|
2,804
|
|
—
|
|
—
|
|
856
|
|
2,804
|
|
3,660
|
|
316
|
|
1999
|
Jan. 2014
|
26 yrs.
|
||||||||||||
|
Land in Scottsdale, AZ
|
10,316
|
|
22,300
|
|
—
|
|
—
|
|
—
|
|
22,300
|
|
—
|
|
22,300
|
|
—
|
|
N/A
|
Jan. 2014
|
N/A
|
||||||||||||
|
Industrial facility in Aurora, CO
|
2,952
|
|
737
|
|
2,609
|
|
—
|
|
—
|
|
737
|
|
2,609
|
|
3,346
|
|
241
|
|
1985
|
Jan. 2014
|
32 yrs.
|
||||||||||||
|
Warehouse facility in Burlington, NJ
|
—
|
|
3,989
|
|
6,213
|
|
377
|
|
—
|
|
3,989
|
|
6,590
|
|
10,579
|
|
733
|
|
1999
|
Jan. 2014
|
26 yrs.
|
||||||||||||
|
Industrial facility in Albuquerque, NM
|
—
|
|
2,467
|
|
3,476
|
|
606
|
|
—
|
|
2,467
|
|
4,082
|
|
6,549
|
|
429
|
|
1993
|
Jan. 2014
|
27 yrs.
|
||||||||||||
|
Industrial facilities in North Salt Lake, UT and Radford, VA
|
1,350
|
|
10,601
|
|
17,626
|
|
—
|
|
(14,477
|
)
|
4,963
|
|
8,787
|
|
13,750
|
|
979
|
|
1981; 1998
|
Jan. 2014
|
26 yrs.
|
||||||||||||
|
Industrial facilities in Lexington, NC and Murrysville, PA
|
—
|
|
2,185
|
|
12,058
|
|
—
|
|
2,713
|
|
1,608
|
|
15,348
|
|
16,956
|
|
1,613
|
|
1940; 1995
|
Jan. 2014
|
28 yrs.
|
||||||||||||
|
Land in Welcome, NC
|
—
|
|
980
|
|
11,230
|
|
—
|
|
(11,724
|
)
|
486
|
|
—
|
|
486
|
|
—
|
|
N/A
|
Jan. 2014
|
N/A
|
||||||||||||
|
Industrial facilities in Evansville, IN; Lawrence, KS; and Baltimore, MD
|
25,292
|
|
4,005
|
|
44,192
|
|
—
|
|
—
|
|
4,005
|
|
44,192
|
|
48,197
|
|
5,405
|
|
1911; 1967; 1982
|
Jan. 2014
|
24 yrs.
|
||||||||||||
|
Industrial facilities in Colton, CA; Bonner Springs, KS; and Dallas, TX and land in Eagan, MN
|
19,214
|
|
8,451
|
|
25,457
|
|
—
|
|
298
|
|
8,451
|
|
25,755
|
|
34,206
|
|
2,615
|
|
1978; 1979; 1986
|
Jan. 2014
|
17 - 34 yrs.
|
||||||||||||
|
Retail facility in Torrance, CA
|
24,215
|
|
8,412
|
|
12,241
|
|
1,213
|
|
(77
|
)
|
8,335
|
|
13,454
|
|
21,789
|
|
1,573
|
|
1973
|
Jan. 2014
|
25 yrs.
|
||||||||||||
|
Office facility in Houston, TX
|
3,393
|
|
6,578
|
|
424
|
|
223
|
|
—
|
|
6,578
|
|
647
|
|
7,225
|
|
81
|
|
1978
|
Jan. 2014
|
27 yrs.
|
||||||||||||
|
Land in Doncaster, United Kingdom
|
—
|
|
4,257
|
|
4,248
|
|
—
|
|
(7,893
|
)
|
612
|
|
—
|
|
612
|
|
—
|
|
N/A
|
Jan. 2014
|
N/A
|
||||||||||||
|
W. P. Carey 2016 10-K
–
159
|
|
SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
December 31, 2016
(in thousands)
|
Initial Cost to Company
|
Cost Capitalized
Subsequent to
Acquisition
(a)
|
Increase
(Decrease)
in Net
Investments
(b)
|
Gross Amount at which
Carried at Close of Period
(c)
|
Accumulated Depreciation
(c)
|
Date of Construction
|
Date Acquired
|
Life on which
Depreciation in Latest
Statement of
Income
is Computed
|
||||||||||||||||||||||||||
|
Description
|
Encumbrances
|
Land
|
Buildings
|
Land
|
Buildings
|
Total
|
|||||||||||||||||||||||||||
|
Warehouse facility in Norwich, CT
|
10,695
|
|
3,885
|
|
21,342
|
|
—
|
|
2
|
|
3,885
|
|
21,344
|
|
25,229
|
|
2,203
|
|
1960
|
Jan. 2014
|
28 yrs.
|
||||||||||||
|
Warehouse facility in Norwich, CT
|
—
|
|
1,437
|
|
9,669
|
|
—
|
|
—
|
|
1,437
|
|
9,669
|
|
11,106
|
|
998
|
|
2005
|
Jan. 2014
|
28 yrs.
|
||||||||||||
|
Retail facility in Johnstown, PA and warehouse facility in Whitehall, PA
|
—
|
|
7,435
|
|
9,093
|
|
—
|
|
17
|
|
7,435
|
|
9,110
|
|
16,545
|
|
1,151
|
|
1986; 1992
|
Jan. 2014
|
23 yrs.
|
||||||||||||
|
Retail facilities in York, PA
|
8,603
|
|
3,776
|
|
10,092
|
|
—
|
|
—
|
|
3,776
|
|
10,092
|
|
13,868
|
|
949
|
|
1992; 2005
|
Jan. 2014
|
26 - 34 yrs.
|
||||||||||||
|
Industrial facility in Pittsburgh, PA
|
—
|
|
1,151
|
|
10,938
|
|
—
|
|
—
|
|
1,151
|
|
10,938
|
|
12,089
|
|
1,288
|
|
1991
|
Jan. 2014
|
25 yrs.
|
||||||||||||
|
Warehouse facilities in Atlanta, GA and Elkwood, VA
|
—
|
|
5,356
|
|
4,121
|
|
—
|
|
(2,104
|
)
|
4,284
|
|
3,089
|
|
7,373
|
|
324
|
|
1975
|
Jan. 2014
|
28 yrs.
|
||||||||||||
|
Warehouse facility in Harrisburg, NC
|
—
|
|
1,753
|
|
5,840
|
|
—
|
|
(111
|
)
|
1,642
|
|
5,840
|
|
7,482
|
|
653
|
|
2000
|
Jan. 2014
|
26 yrs.
|
||||||||||||
|
Education facility in Nashville, TN
|
5,240
|
|
1,098
|
|
7,043
|
|
2,611
|
|
—
|
|
1,098
|
|
9,654
|
|
10,752
|
|
799
|
|
1988
|
Jan. 2014
|
31 yrs.
|
||||||||||||
|
Industrial facility in Chandler, AZ; industrial, office, and warehouse facility in Englewood, CO; and land in Englewood, CO
|
4,989
|
|
4,306
|
|
7,235
|
|
—
|
|
3
|
|
4,306
|
|
7,238
|
|
11,544
|
|
698
|
|
1978; 1987
|
Jan. 2014
|
30 yrs.
|
||||||||||||
|
Industrial facility in Cynthiana, KY
|
2,358
|
|
1,274
|
|
3,505
|
|
480
|
|
(107
|
)
|
1,274
|
|
3,878
|
|
5,152
|
|
363
|
|
1967
|
Jan. 2014
|
31 yrs.
|
||||||||||||
|
Industrial facility in Columbia, SC
|
—
|
|
2,843
|
|
11,886
|
|
—
|
|
—
|
|
2,843
|
|
11,886
|
|
14,729
|
|
1,534
|
|
1962
|
Jan. 2014
|
23 yrs.
|
||||||||||||
|
Land in Midlothian, VA
|
—
|
|
2,824
|
|
—
|
|
—
|
|
—
|
|
2,824
|
|
—
|
|
2,824
|
|
—
|
|
N/A
|
Jan. 2014
|
N/A
|
||||||||||||
|
Net-lease student housing facility in Laramie, WY
|
15,626
|
|
1,966
|
|
18,896
|
|
—
|
|
—
|
|
1,966
|
|
18,896
|
|
20,862
|
|
2,698
|
|
2007
|
Jan. 2014
|
33 yrs.
|
||||||||||||
|
Office facility in Greenville, SC
|
8,477
|
|
562
|
|
7,916
|
|
—
|
|
43
|
|
562
|
|
7,959
|
|
8,521
|
|
925
|
|
1972
|
Jan. 2014
|
25 yrs.
|
||||||||||||
|
Warehouse facilities in Mendota, IL; Toppenish and Yakima, WA; and Plover, WI
|
—
|
|
1,444
|
|
21,208
|
|
—
|
|
—
|
|
1,444
|
|
21,208
|
|
22,652
|
|
2,758
|
|
1996
|
Jan. 2014
|
23 yrs.
|
||||||||||||
|
Industrial facility in Allen, TX and office facility in Sunnyvale, CA
|
10,243
|
|
9,297
|
|
24,086
|
|
—
|
|
—
|
|
9,297
|
|
24,086
|
|
33,383
|
|
2,271
|
|
1981; 1997
|
Jan. 2014
|
31 yrs.
|
||||||||||||
|
Industrial facilities in Hampton, NH
|
8,843
|
|
8,990
|
|
7,362
|
|
—
|
|
—
|
|
8,990
|
|
7,362
|
|
16,352
|
|
708
|
|
1976
|
Jan. 2014
|
30 yrs.
|
||||||||||||
|
Industrial facilities located throughout France
|
—
|
|
36,306
|
|
5,212
|
|
—
|
|
(9,367
|
)
|
28,115
|
|
4,036
|
|
32,151
|
|
514
|
|
Various
|
Jan. 2014
|
23 yrs.
|
||||||||||||
|
Retail facility in Fairfax, VA
|
4,944
|
|
3,402
|
|
16,353
|
|
—
|
|
—
|
|
3,402
|
|
16,353
|
|
19,755
|
|
1,810
|
|
1998
|
Jan. 2014
|
26 yrs.
|
||||||||||||
|
Retail facility in Lombard, IL
|
4,944
|
|
5,087
|
|
8,578
|
|
—
|
|
—
|
|
5,087
|
|
8,578
|
|
13,665
|
|
950
|
|
1999
|
Jan. 2014
|
26 yrs.
|
||||||||||||
|
Warehouse facility in Plainfield, IN
|
19,958
|
|
1,578
|
|
29,415
|
|
—
|
|
—
|
|
1,578
|
|
29,415
|
|
30,993
|
|
2,828
|
|
1997
|
Jan. 2014
|
30 yrs.
|
||||||||||||
|
Retail facility in Kennesaw, GA
|
3,719
|
|
2,849
|
|
6,180
|
|
—
|
|
—
|
|
2,849
|
|
6,180
|
|
9,029
|
|
684
|
|
1999
|
Jan. 2014
|
26 yrs.
|
||||||||||||
|
Retail facility in Leawood, KS
|
8,782
|
|
1,487
|
|
13,417
|
|
—
|
|
—
|
|
1,487
|
|
13,417
|
|
14,904
|
|
1,485
|
|
1997
|
Jan. 2014
|
26 yrs.
|
||||||||||||
|
Office facility in Tolland, CT
|
7,955
|
|
1,817
|
|
5,709
|
|
—
|
|
11
|
|
1,817
|
|
5,720
|
|
7,537
|
|
608
|
|
1968
|
Jan. 2014
|
28 yrs.
|
||||||||||||
|
Warehouse facilities in Lincolnton, NC and Mauldin, SC
|
9,734
|
|
1,962
|
|
9,247
|
|
—
|
|
—
|
|
1,962
|
|
9,247
|
|
11,209
|
|
960
|
|
1988; 1996
|
Jan. 2014
|
28 yrs.
|
||||||||||||
|
Retail facilities located throughout Germany
|
257,606
|
|
81,109
|
|
153,927
|
|
—
|
|
(53,029
|
)
|
62,809
|
|
119,198
|
|
182,007
|
|
12,254
|
|
Various
|
Jan. 2014
|
Various
|
||||||||||||
|
W. P. Carey 2016 10-K
–
160
|
|
SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
December 31, 2016
(in thousands)
|
Initial Cost to Company
|
Cost Capitalized
Subsequent to
Acquisition
(a)
|
Increase
(Decrease)
in Net
Investments
(b)
|
Gross Amount at which
Carried at Close of Period
(c)
|
Accumulated Depreciation
(c)
|
Date of Construction
|
Date Acquired
|
Life on which
Depreciation in Latest
Statement of
Income
is Computed
|
||||||||||||||||||||||||||
|
Description
|
Encumbrances
|
Land
|
Buildings
|
Land
|
Buildings
|
Total
|
|||||||||||||||||||||||||||
|
Office facility in Southfield, MI
|
—
|
|
1,726
|
|
4,856
|
|
89
|
|
—
|
|
1,726
|
|
4,945
|
|
6,671
|
|
462
|
|
1985
|
Jan. 2014
|
31 yrs.
|
||||||||||||
|
Office facility in The Woodlands, TX
|
19,882
|
|
3,204
|
|
24,997
|
|
—
|
|
—
|
|
3,204
|
|
24,997
|
|
28,201
|
|
2,314
|
|
1997
|
Jan. 2014
|
32 yrs.
|
||||||||||||
|
Industrial facilities in Shah Alam, Malaysia
|
4,447
|
|
—
|
|
10,429
|
|
—
|
|
(2,651
|
)
|
—
|
|
7,778
|
|
7,778
|
|
760
|
|
1992
|
Jan. 2014
|
30 yrs.
|
||||||||||||
|
Warehouse facilities in Lam Luk Ka and Bang Pa-in, Thailand
|
9,717
|
|
13,054
|
|
19,497
|
|
—
|
|
(2,506
|
)
|
12,049
|
|
17,996
|
|
30,045
|
|
1,684
|
|
2003; 2005
|
Jan. 2014
|
31 yrs.
|
||||||||||||
|
Warehouse facilities in Valdosta, GA and Johnson City, TN
|
8,015
|
|
1,080
|
|
14,998
|
|
—
|
|
—
|
|
1,080
|
|
14,998
|
|
16,078
|
|
1,645
|
|
1978; 1998
|
Jan. 2014
|
27 yrs.
|
||||||||||||
|
Industrial facility in Amherst, NY
|
7,959
|
|
674
|
|
7,971
|
|
—
|
|
—
|
|
674
|
|
7,971
|
|
8,645
|
|
1,037
|
|
1984
|
Jan. 2014
|
23 yrs.
|
||||||||||||
|
Industrial and warehouse facilities in Westfield, MA
|
—
|
|
1,922
|
|
9,755
|
|
5,146
|
|
9
|
|
1,922
|
|
14,910
|
|
16,832
|
|
1,126
|
|
1954; 1997
|
Jan. 2014
|
28 yrs.
|
||||||||||||
|
Warehouse facilities in Kottka, Finland
|
—
|
|
—
|
|
8,546
|
|
—
|
|
(1,928
|
)
|
—
|
|
6,618
|
|
6,618
|
|
884
|
|
1999; 2001
|
Jan. 2014
|
21 - 23 yrs.
|
||||||||||||
|
Office facility in Bloomington, MN
|
—
|
|
2,942
|
|
7,155
|
|
—
|
|
—
|
|
2,942
|
|
7,155
|
|
10,097
|
|
736
|
|
1988
|
Jan. 2014
|
28 yrs.
|
||||||||||||
|
Warehouse facility in Gorinchem, Netherlands
|
3,505
|
|
1,143
|
|
5,648
|
|
—
|
|
(1,532
|
)
|
885
|
|
4,374
|
|
5,259
|
|
450
|
|
1995
|
Jan. 2014
|
28 yrs.
|
||||||||||||
|
Retail facility in Cresskill, NJ
|
—
|
|
2,366
|
|
5,482
|
|
—
|
|
19
|
|
2,366
|
|
5,501
|
|
7,867
|
|
515
|
|
1975
|
Jan. 2014
|
31 yrs.
|
||||||||||||
|
Retail facility in Livingston, NJ
|
5,186
|
|
2,932
|
|
2,001
|
|
—
|
|
14
|
|
2,932
|
|
2,015
|
|
4,947
|
|
216
|
|
1966
|
Jan. 2014
|
27 yrs.
|
||||||||||||
|
Retail facility in Maplewood, NJ
|
—
|
|
845
|
|
647
|
|
—
|
|
4
|
|
845
|
|
651
|
|
1,496
|
|
70
|
|
1954
|
Jan. 2014
|
27 yrs.
|
||||||||||||
|
Retail facility in Montclair, NJ
|
—
|
|
1,905
|
|
1,403
|
|
—
|
|
6
|
|
1,905
|
|
1,409
|
|
3,314
|
|
151
|
|
1950
|
Jan. 2014
|
27 yrs.
|
||||||||||||
|
Retail facility in Morristown, NJ
|
—
|
|
3,258
|
|
8,352
|
|
—
|
|
26
|
|
3,258
|
|
8,378
|
|
11,636
|
|
899
|
|
1973
|
Jan. 2014
|
27 yrs.
|
||||||||||||
|
Retail facility in Summit, NJ
|
—
|
|
1,228
|
|
1,465
|
|
—
|
|
8
|
|
1,228
|
|
1,473
|
|
2,701
|
|
158
|
|
1950
|
Jan. 2014
|
27 yrs.
|
||||||||||||
|
Industrial and office facilities in Bunde, Dransfeld, and Wolfach, Germany
|
—
|
|
2,789
|
|
8,750
|
|
—
|
|
(2,564
|
)
|
2,160
|
|
6,815
|
|
8,975
|
|
816
|
|
1898; 1956; 1978
|
Jan. 2014
|
24 yrs.
|
||||||||||||
|
Industrial facilities in Georgetown, TX and Woodland, WA
|
—
|
|
965
|
|
4,113
|
|
—
|
|
—
|
|
965
|
|
4,113
|
|
5,078
|
|
356
|
|
1998; 2001
|
Jan. 2014
|
33 - 35 yrs.
|
||||||||||||
|
Education facilities in Union, NJ; Allentown and Philadelphia, PA; and Grand Prairie, TX
|
—
|
|
5,365
|
|
7,845
|
|
—
|
|
5
|
|
5,365
|
|
7,850
|
|
13,215
|
|
822
|
|
Various
|
Jan. 2014
|
28 yrs.
|
||||||||||||
|
Industrial facility in Ylämylly, Finland
|
6,554
|
|
1,669
|
|
6,034
|
|
—
|
|
(1,738
|
)
|
1,292
|
|
4,673
|
|
5,965
|
|
400
|
|
1999
|
Jan. 2014
|
34 yrs.
|
||||||||||||
|
Industrial facility in Salisbury, NC
|
6,132
|
|
1,499
|
|
8,185
|
|
—
|
|
—
|
|
1,499
|
|
8,185
|
|
9,684
|
|
860
|
|
2000
|
Jan. 2014
|
28 yrs.
|
||||||||||||
|
Industrial facilities in Solon and Twinsburg, OH and office facility in Plymouth, MI
|
3,671
|
|
2,831
|
|
10,565
|
|
—
|
|
—
|
|
2,831
|
|
10,565
|
|
13,396
|
|
1,133
|
|
1970; 1991; 1995
|
Jan. 2014
|
26 - 27 yrs.
|
||||||||||||
|
Industrial facility in Cambridge, Canada
|
—
|
|
1,849
|
|
7,371
|
|
—
|
|
(1,562
|
)
|
1,536
|
|
6,122
|
|
7,658
|
|
571
|
|
2001
|
Jan. 2014
|
31 yrs.
|
||||||||||||
|
Industrial facilities in Peru, IL; Huber Heights, Lima, and Sheffield, OH; and Lebanon, TN
|
11,303
|
|
2,962
|
|
17,832
|
|
—
|
|
—
|
|
2,962
|
|
17,832
|
|
20,794
|
|
1,664
|
|
Various
|
Jan. 2014
|
31 yrs.
|
||||||||||||
|
W. P. Carey 2016 10-K
–
161
|
|
SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
December 31, 2016
(in thousands)
|
Initial Cost to Company
|
Cost Capitalized
Subsequent to
Acquisition
(a)
|
Increase
(Decrease)
in Net
Investments
(b)
|
Gross Amount at which
Carried at Close of Period
(c)
|
Accumulated Depreciation
(c)
|
Date of Construction
|
Date Acquired
|
Life on which
Depreciation in Latest
Statement of
Income
is Computed
|
||||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||||
|
Description
|
Encumbrances
|
Land
|
Buildings
|
Land
|
Buildings
|
Total
|
|||||||||||||||||||||||||||
|
Industrial facility in Ramos Arizpe, Mexico
|
—
|
|
1,059
|
|
2,886
|
|
—
|
|
—
|
|
1,059
|
|
2,886
|
|
3,945
|
|
269
|
|
2000
|
Jan. 2014
|
31 yrs.
|
||||||||||||
|
Industrial facilities in Salt Lake City, UT
|
—
|
|
2,783
|
|
3,773
|
|
—
|
|
—
|
|
2,783
|
|
3,773
|
|
6,556
|
|
352
|
|
1983; 2002
|
Jan. 2014
|
31 - 33 yrs.
|
||||||||||||
|
Net-lease student housing facility in Blairsville, PA
|
11,321
|
|
1,631
|
|
23,163
|
|
—
|
|
—
|
|
1,631
|
|
23,163
|
|
24,794
|
|
3,052
|
|
2005
|
Jan. 2014
|
33 yrs.
|
||||||||||||
|
Industrial facility in Nashville, TN
|
—
|
|
1,078
|
|
5,619
|
|
—
|
|
—
|
|
1,078
|
|
5,619
|
|
6,697
|
|
768
|
|
1962
|
Jan. 2014
|
21 yrs.
|
||||||||||||
|
Office facility in Lafayette, LA
|
1,680
|
|
1,048
|
|
1,507
|
|
—
|
|
—
|
|
1,048
|
|
1,507
|
|
2,555
|
|
162
|
|
1995
|
Jan. 2014
|
27 yrs.
|
||||||||||||
|
Warehouse facilities in Atlanta, Doraville, and Rockmart, GA
|
—
|
|
6,488
|
|
77,192
|
|
—
|
|
—
|
|
6,488
|
|
77,192
|
|
83,680
|
|
7,889
|
|
1959; 1962; 1991
|
Jan. 2014
|
23 - 33 yrs.
|
||||||||||||
|
Warehouse facilities in Flora, MS and Muskogee, OK
|
3,342
|
|
554
|
|
4,353
|
|
—
|
|
—
|
|
554
|
|
4,353
|
|
4,907
|
|
388
|
|
1992; 2002
|
Jan. 2014
|
33 yrs.
|
||||||||||||
|
Industrial facility in Richmond, MO
|
4,511
|
|
2,211
|
|
8,505
|
|
—
|
|
—
|
|
2,211
|
|
8,505
|
|
10,716
|
|
899
|
|
1996
|
Jan. 2014
|
28 yrs.
|
||||||||||||
|
Warehouse facility in Dallas, TX
|
5,860
|
|
468
|
|
8,042
|
|
—
|
|
—
|
|
468
|
|
8,042
|
|
8,510
|
|
994
|
|
1997
|
Jan. 2014
|
24 yrs.
|
||||||||||||
|
Industrial facility in Tuusula, Finland
|
—
|
|
6,173
|
|
10,321
|
|
—
|
|
(3,721
|
)
|
4,781
|
|
7,992
|
|
12,773
|
|
914
|
|
1975
|
Jan. 2014
|
26 yrs.
|
||||||||||||
|
Office facility in Turku, Finland
|
22,030
|
|
5,343
|
|
34,106
|
|
—
|
|
(8,901
|
)
|
4,137
|
|
26,411
|
|
30,548
|
|
2,767
|
|
1981
|
Jan. 2014
|
28 yrs.
|
||||||||||||
|
Industrial facility in Turku, Finland
|
4,046
|
|
1,105
|
|
10,243
|
|
—
|
|
(2,546
|
)
|
855
|
|
7,947
|
|
8,802
|
|
836
|
|
1981
|
Jan. 2014
|
28 yrs.
|
||||||||||||
|
Industrial facility in Baraboo, WI
|
—
|
|
917
|
|
10,663
|
|
—
|
|
—
|
|
917
|
|
10,663
|
|
11,580
|
|
2,375
|
|
1988
|
Jan. 2014
|
13 yrs.
|
||||||||||||
|
Warehouse facility in Phoenix, AZ
|
18,485
|
|
6,747
|
|
21,352
|
|
—
|
|
—
|
|
6,747
|
|
21,352
|
|
28,099
|
|
2,243
|
|
1996
|
Jan. 2014
|
28 yrs.
|
||||||||||||
|
Land in Calgary, Canada
|
—
|
|
3,721
|
|
—
|
|
—
|
|
(631
|
)
|
3,090
|
|
—
|
|
3,090
|
|
—
|
|
N/A
|
Jan. 2014
|
N/A
|
||||||||||||
|
Industrial facilities in Sandersville, GA; Erwin, TN; and Gainesville, TX
|
2,204
|
|
955
|
|
4,779
|
|
—
|
|
—
|
|
955
|
|
4,779
|
|
5,734
|
|
449
|
|
1950; 1986; 1996
|
Jan. 2014
|
31 yrs.
|
||||||||||||
|
Industrial facility in Buffalo Grove, IL
|
6,771
|
|
1,492
|
|
12,233
|
|
—
|
|
—
|
|
1,492
|
|
12,233
|
|
13,725
|
|
1,154
|
|
1996
|
Jan. 2014
|
31 yrs.
|
||||||||||||
|
Warehouse facility in Spanish Fork, UT
|
6,842
|
|
991
|
|
7,901
|
|
—
|
|
—
|
|
991
|
|
7,901
|
|
8,892
|
|
705
|
|
2001
|
Jan. 2014
|
33 yrs.
|
||||||||||||
|
Industrial facilities in West Jordan, UT and Tacoma, WA; office facility in Eugene, OR; and warehouse facility in Perris, CA
|
—
|
|
8,989
|
|
5,435
|
|
—
|
|
8
|
|
8,989
|
|
5,443
|
|
14,432
|
|
565
|
|
Various
|
Jan. 2014
|
28 yrs.
|
||||||||||||
|
Office facility in Carlsbad, CA
|
—
|
|
3,230
|
|
5,492
|
|
—
|
|
—
|
|
3,230
|
|
5,492
|
|
8,722
|
|
679
|
|
1999
|
Jan. 2014
|
24 yrs.
|
||||||||||||
|
Land in Pensacola, FL
|
—
|
|
1,746
|
|
—
|
|
—
|
|
—
|
|
1,746
|
|
—
|
|
1,746
|
|
—
|
|
N/A
|
Jan. 2014
|
N/A
|
||||||||||||
|
Movie theater in Port St. Lucie, FL
|
—
|
|
4,654
|
|
2,576
|
|
—
|
|
—
|
|
4,654
|
|
2,576
|
|
7,230
|
|
275
|
|
2000
|
Jan. 2014
|
27 yrs.
|
||||||||||||
|
Movie theater in Hickory Creek, TX
|
—
|
|
1,693
|
|
3,342
|
|
—
|
|
—
|
|
1,693
|
|
3,342
|
|
5,035
|
|
364
|
|
2000
|
Jan. 2014
|
27 yrs.
|
||||||||||||
|
Industrial facility in Nurieux-Volognat, France
|
—
|
|
121
|
|
5,328
|
|
—
|
|
(1,136
|
)
|
93
|
|
4,220
|
|
4,313
|
|
381
|
|
2000
|
Jan. 2014
|
32 yrs.
|
||||||||||||
|
Warehouse facility in Suwanee, GA
|
14,981
|
|
2,330
|
|
8,406
|
|
—
|
|
—
|
|
2,330
|
|
8,406
|
|
10,736
|
|
725
|
|
1995
|
Jan. 2014
|
34 yrs.
|
||||||||||||
|
Retail facilities in Wichita, KS and Oklahoma City, OK and warehouse facility in Wichita, KS
|
7,057
|
|
1,878
|
|
8,579
|
|
—
|
|
—
|
|
1,878
|
|
8,579
|
|
10,457
|
|
1,068
|
|
1954; 1975; 1984
|
Jan. 2014
|
24 yrs.
|
||||||||||||
|
W. P. Carey 2016 10-K
–
162
|
|
SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
December 31, 2016
(in thousands)
|
Initial Cost to Company
|
Cost Capitalized
Subsequent to
Acquisition
(a)
|
Increase
(Decrease)
in Net
Investments
(b)
|
Gross Amount at which
Carried at Close of Period
(c)
|
Accumulated Depreciation
(c)
|
Date of Construction
|
Date Acquired
|
Life on which
Depreciation in Latest
Statement of
Income
is Computed
|
||||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||||
|
Description
|
Encumbrances
|
Land
|
Buildings
|
Land
|
Buildings
|
Total
|
|||||||||||||||||||||||||||
|
Industrial facilities in Fort Dodge, IA and Menomonie and Oconomowoc, WI
|
8,350
|
|
1,403
|
|
11,098
|
|
—
|
|
—
|
|
1,403
|
|
11,098
|
|
12,501
|
|
1,990
|
|
1996
|
Jan. 2014
|
16 yrs.
|
||||||||||||
|
Industrial facility in Mesa, AZ
|
4,528
|
|
2,888
|
|
4,282
|
|
—
|
|
—
|
|
2,888
|
|
4,282
|
|
7,170
|
|
458
|
|
1991
|
Jan. 2014
|
27 yrs.
|
||||||||||||
|
Industrial facility in North Amityville, NY
|
7,446
|
|
3,486
|
|
11,413
|
|
—
|
|
—
|
|
3,486
|
|
11,413
|
|
14,899
|
|
1,280
|
|
1981
|
Jan. 2014
|
26 yrs.
|
||||||||||||
|
Warehouse facilities in Greenville, SC
|
—
|
|
567
|
|
10,217
|
|
—
|
|
15
|
|
567
|
|
10,232
|
|
10,799
|
|
1,448
|
|
1960
|
Jan. 2014
|
21 yrs.
|
||||||||||||
|
Industrial facility in Fort Collins, CO
|
—
|
|
821
|
|
7,236
|
|
—
|
|
—
|
|
821
|
|
7,236
|
|
8,057
|
|
643
|
|
1993
|
Jan. 2014
|
33 yrs.
|
||||||||||||
|
Land in Elk Grove Village, IL
|
1,650
|
|
4,037
|
|
—
|
|
—
|
|
—
|
|
4,037
|
|
—
|
|
4,037
|
|
—
|
|
N/A
|
Jan. 2014
|
N/A
|
||||||||||||
|
Office facility in Washington, MI
|
—
|
|
4,085
|
|
7,496
|
|
—
|
|
—
|
|
4,085
|
|
7,496
|
|
11,581
|
|
667
|
|
1990
|
Jan. 2014
|
33 yrs.
|
||||||||||||
|
Office facility in Houston, TX
|
—
|
|
522
|
|
7,448
|
|
227
|
|
—
|
|
522
|
|
7,675
|
|
8,197
|
|
838
|
|
1999
|
Jan. 2014
|
27 yrs.
|
||||||||||||
|
Industrial facilities in Conroe, Odessa, and Weimar, TX and industrial and office facility in Houston, TX
|
6,165
|
|
4,049
|
|
13,021
|
|
—
|
|
133
|
|
4,049
|
|
13,154
|
|
17,203
|
|
2,054
|
|
Various
|
Jan. 2014
|
12 - 22 yrs.
|
||||||||||||
|
Education facility in Sacramento, CA
|
26,898
|
|
—
|
|
13,715
|
|
—
|
|
—
|
|
—
|
|
13,715
|
|
13,715
|
|
1,197
|
|
2005
|
Jan. 2014
|
34 yrs.
|
||||||||||||
|
Industrial facilities in City of Industry, CA; Chelmsford, MA; and Lancaster, TX
|
—
|
|
5,138
|
|
8,387
|
|
—
|
|
43
|
|
5,138
|
|
8,430
|
|
13,568
|
|
887
|
|
1969; 1974; 1984
|
Jan. 2014
|
27 yrs.
|
||||||||||||
|
Office facility in Tinton Falls, NJ
|
—
|
|
1,958
|
|
7,993
|
|
13
|
|
—
|
|
1,958
|
|
8,006
|
|
9,964
|
|
763
|
|
2001
|
Jan. 2014
|
31 yrs.
|
||||||||||||
|
Industrial facility in Woodland, WA
|
—
|
|
707
|
|
1,562
|
|
—
|
|
—
|
|
707
|
|
1,562
|
|
2,269
|
|
129
|
|
2009
|
Jan. 2014
|
35 yrs.
|
||||||||||||
|
Warehouse facilities in Gyál and Herceghalom, Hungary
|
31,993
|
|
14,601
|
|
21,915
|
|
—
|
|
(8,239
|
)
|
11,306
|
|
16,971
|
|
28,277
|
|
2,423
|
|
2002; 2004
|
Jan. 2014
|
21 yrs.
|
||||||||||||
|
Industrial facility in Windsor, CT
|
—
|
|
453
|
|
637
|
|
3,422
|
|
—
|
|
453
|
|
4,059
|
|
4,512
|
|
56
|
|
1999
|
Jan. 2014
|
33 yrs.
|
||||||||||||
|
Industrial facility in Aurora, CO
|
2,743
|
|
574
|
|
3,999
|
|
—
|
|
—
|
|
574
|
|
3,999
|
|
4,573
|
|
297
|
|
2012
|
Jan. 2014
|
40 yrs.
|
||||||||||||
|
Office facility in Chandler, AZ
|
—
|
|
5,318
|
|
27,551
|
|
—
|
|
—
|
|
5,318
|
|
27,551
|
|
32,869
|
|
2,203
|
|
2000
|
Mar. 2014
|
40 yrs.
|
||||||||||||
|
Warehouse facility in University Park, IL
|
—
|
|
7,962
|
|
32,756
|
|
221
|
|
—
|
|
7,962
|
|
32,977
|
|
40,939
|
|
2,486
|
|
2008
|
May 2014
|
40 yrs.
|
||||||||||||
|
Office facility in Stavanger, Norway
|
—
|
|
10,296
|
|
91,744
|
|
—
|
|
(28,513
|
)
|
7,490
|
|
66,037
|
|
73,527
|
|
4,037
|
|
1975
|
Aug. 2014
|
40 yrs.
|
||||||||||||
|
Office facility in Westborough, MA
|
—
|
|
3,409
|
|
37,914
|
|
—
|
|
—
|
|
3,409
|
|
37,914
|
|
41,323
|
|
2,490
|
|
1992
|
Aug. 2014
|
40 yrs.
|
||||||||||||
|
Office facility in Andover, MA
|
—
|
|
3,980
|
|
45,120
|
|
—
|
|
—
|
|
3,980
|
|
45,120
|
|
49,100
|
|
2,684
|
|
2013
|
Oct. 2014
|
40 yrs.
|
||||||||||||
|
Office facility in Newport, United Kingdom
|
—
|
|
—
|
|
22,587
|
|
—
|
|
(5,293
|
)
|
—
|
|
17,294
|
|
17,294
|
|
981
|
|
2014
|
Oct. 2014
|
40 yrs.
|
||||||||||||
|
Industrial facilities located throughout Australia
|
—
|
|
30,455
|
|
94,724
|
|
10,007
|
|
(22,044
|
)
|
24,974
|
|
88,168
|
|
113,142
|
|
11,235
|
|
Various
|
Oct. 2014
|
Various
|
||||||||||||
|
Industrial facility in Lewisburg, OH
|
—
|
|
1,627
|
|
13,721
|
|
—
|
|
—
|
|
1,627
|
|
13,721
|
|
15,348
|
|
834
|
|
2014
|
Nov. 2014
|
40 yrs.
|
||||||||||||
|
Industrial facility in Opole, Poland
|
—
|
|
2,151
|
|
21,438
|
|
—
|
|
(3,591
|
)
|
1,824
|
|
18,174
|
|
19,998
|
|
1,094
|
|
2014
|
Dec. 2014
|
38 yrs.
|
||||||||||||
|
Office facilities located throughout Spain
|
—
|
|
51,778
|
|
257,624
|
|
10
|
|
(42,401
|
)
|
47,382
|
|
219,629
|
|
267,011
|
|
11,612
|
|
Various
|
Dec. 2014
|
Various
|
||||||||||||
|
W. P. Carey 2016 10-K
–
163
|
|
SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
December 31, 2016
(in thousands)
|
Initial Cost to Company
|
Cost Capitalized
Subsequent to
Acquisition
(a)
|
Increase
(Decrease)
in Net
Investments
(b)
|
Gross Amount at which
Carried at Close of Period
(c)
|
Accumulated Depreciation
(c)
|
Date of Construction
|
Date Acquired
|
Life on which
Depreciation in Latest
Statement of
Income
is Computed
|
|||||||||||||||||||||||||||||||||||
|
|
|
|
||||||||||||||||||||||||||||||||||||||||
|
Description
|
Encumbrances
|
Land
|
Buildings
|
Land
|
Buildings
|
Total
|
||||||||||||||||||||||||||||||||||||
|
Retail facilities located throughout the United Kingdom
|
—
|
|
66,319
|
|
230,113
|
|
—
|
|
(55,893
|
)
|
53,814
|
|
186,725
|
|
240,539
|
|
11,936
|
|
Various
|
Jan. 2015
|
20 - 40 yrs.
|
|||||||||||||||||||||
|
Warehouse facility in Rotterdam, Netherlands
|
—
|
|
—
|
|
33,935
|
|
—
|
|
(2,417
|
)
|
—
|
|
31,518
|
|
31,518
|
|
1,594
|
|
2014
|
Feb. 2015
|
40 yrs.
|
|||||||||||||||||||||
|
Retail facility in Bad Fischau, Austria
|
—
|
|
2,855
|
|
18,829
|
|
—
|
|
(472
|
)
|
2,793
|
|
18,419
|
|
21,212
|
|
1,039
|
|
1998
|
Apr. 2015
|
40 yrs.
|
|||||||||||||||||||||
|
Industrial facility in Oskarshamn, Sweden
|
—
|
|
3,090
|
|
18,262
|
|
—
|
|
(1,886
|
)
|
2,817
|
|
16,649
|
|
19,466
|
|
706
|
|
2015
|
Jun. 2015
|
40 yrs.
|
|||||||||||||||||||||
|
Office facility in Sunderland, United Kingdom
|
—
|
|
2,912
|
|
30,140
|
|
—
|
|
(6,940
|
)
|
2,300
|
|
23,812
|
|
26,112
|
|
971
|
|
2007
|
Aug. 2015
|
40 yrs.
|
|||||||||||||||||||||
|
Industrial facilities in Gersthofen and Senden, Germany and Leopoldsdorf, Austria
|
—
|
|
9,449
|
|
15,838
|
|
—
|
|
(1,343
|
)
|
8,947
|
|
14,997
|
|
23,944
|
|
724
|
|
2008; 2010
|
Aug. 2015
|
40 yrs.
|
|||||||||||||||||||||
|
Hotels in Clive, IA; Baton Rouge, LA; St. Louis, MO; Greensboro, NC; Mount Laurel, NJ; and Fort Worth, TX
|
—
|
|
—
|
|
49,190
|
|
—
|
|
—
|
|
—
|
|
49,190
|
|
49,190
|
|
1,760
|
|
1988; 1989; 1990
|
Oct. 2015
|
38 - 40 yrs.
|
|||||||||||||||||||||
|
Retail facilities in Almere, Amsterdam, Eindhoven, Houten, Nieuwegein, Utrecht, Veghel, and Zwaag, Netherlands
|
—
|
|
5,698
|
|
38,130
|
|
79
|
|
(817
|
)
|
5,592
|
|
37,498
|
|
43,090
|
|
1,325
|
|
Various
|
Nov. 2015
|
30 - 40 yrs.
|
|||||||||||||||||||||
|
Office facility in Irvine, CA
|
—
|
|
7,626
|
|
16,137
|
|
—
|
|
—
|
|
7,626
|
|
16,137
|
|
23,763
|
|
435
|
|
1977
|
Dec. 2015
|
40 yrs.
|
|||||||||||||||||||||
|
Education facility in Windermere, FL
|
—
|
|
5,090
|
|
34,721
|
|
—
|
|
—
|
|
5,090
|
|
34,721
|
|
39,811
|
|
1,234
|
|
1998
|
Apr. 2016
|
38 yrs.
|
|||||||||||||||||||||
|
Industrial facilities located throughout the United States
|
—
|
|
66,845
|
|
87,575
|
|
—
|
|
—
|
|
66,845
|
|
87,575
|
|
154,420
|
|
4,891
|
|
Various
|
Apr. 2016
|
Various
|
|||||||||||||||||||||
|
Industrial facilities in North Dumfries, Ottawa, Saint-Eustache, Uxbridge, and Whitchurch-Stouffville, Canada
|
—
|
|
17,155
|
|
10,665
|
|
—
|
|
(3,686
|
)
|
14,292
|
|
9,842
|
|
24,134
|
|
703
|
|
Various
|
Apr. 2016
|
Various
|
|||||||||||||||||||||
|
Education facilities in Coconut Creek, FL and Houston, TX
|
—
|
|
15,550
|
|
83,862
|
|
—
|
|
—
|
|
15,550
|
|
83,862
|
|
99,412
|
|
1,688
|
|
1979; 1984
|
May 2016
|
37 - 40 yrs.
|
|||||||||||||||||||||
|
Office facility in Southfield, MI and warehouse facilities in London, KY and Gallatin, TN
|
—
|
|
3,585
|
|
17,254
|
|
—
|
|
—
|
|
3,585
|
|
17,254
|
|
20,839
|
|
72
|
|
1969; 1987; 2000
|
Nov. 2016
|
35 - 36 yrs.
|
|||||||||||||||||||||
|
Industrial facilities in Brampton, Toronto, and Vaughan, Canada
|
—
|
|
28,759
|
|
13,998
|
|
—
|
|
—
|
|
28,759
|
|
13,998
|
|
42,757
|
|
70
|
|
Various
|
Nov. 2016
|
28 - 35 yrs.
|
|||||||||||||||||||||
|
Industrial facilities in Queretaro and San Juan del Rio, Mexico
|
—
|
|
5,152
|
|
12,614
|
|
—
|
|
13
|
|
5,156
|
|
12,623
|
|
17,779
|
|
30
|
|
Various
|
Dec. 2016
|
28 - 40 yrs.
|
|||||||||||||||||||||
|
$
|
1,586,581
|
|
$
|
1,252,460
|
|
$
|
4,215,721
|
|
$
|
190,568
|
|
$
|
(476,482
|
)
|
$
|
1,128,933
|
|
$
|
4,053,334
|
|
$
|
5,182,267
|
|
$
|
472,294
|
|
||||||||||||||||
|
W. P. Carey 2016 10-K
–
164
|
|
SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
December 31, 2016
(in thousands)
|
Initial Cost to Company
|
Cost Capitalized
Subsequent to
Acquisition
(a)
|
Increase
(Decrease)
in Net
Investments
(b)
|
Gross Amount at
which Carried at
Close of Period
Total
|
Date of Construction
|
Date Acquired
|
|||||||||||||||||||||||
|
Description
|
Encumbrances
|
Land
|
Buildings
|
|||||||||||||||||||||||||
|
Direct Financing Method
|
||||||||||||||||||||||||||||
|
Retail facilities in Jacksonville and Panama City, Florida; Baton Rouge and Hammond, Louisiana; St. Peters, Missouri; and Kannapolis, Morgantown, and Shelby, North Carolina
|
$
|
—
|
|
$
|
—
|
|
$
|
16,416
|
|
$
|
—
|
|
$
|
(13,903
|
)
|
$
|
2,513
|
|
1984; 1985; 1986
|
Jan. 1998
|
||||||||
|
Industrial facilities in Glendora, CA and Romulus, MI
|
—
|
|
454
|
|
13,251
|
|
9
|
|
(3,907
|
)
|
9,807
|
|
1950; 1970
|
Jan. 1998
|
||||||||||||||
|
Industrial facilities in Irving and Houston, TX
|
—
|
|
—
|
|
27,599
|
|
—
|
|
(3,976
|
)
|
23,623
|
|
1978
|
Jan. 1998
|
||||||||||||||
|
Retail facility in Freehold, NJ
|
7,897
|
|
—
|
|
17,067
|
|
—
|
|
(146
|
)
|
16,921
|
|
2004
|
Sep. 2012
|
||||||||||||||
|
Office facilities in Corpus Christi, Odessa, San Marcos, and Waco, TX
|
3,838
|
|
2,089
|
|
14,211
|
|
—
|
|
(455
|
)
|
15,845
|
|
1969; 1996; 2000
|
Sep. 2012
|
||||||||||||||
|
Retail facilities in Arnstadt, Borken, Bünde, Dorsten, Duisburg, Freiberg, Gütersloh, Leimbach-Kaiserro, Monheim, Oberhausen, Osnabrück, Rodewisch, Sankt Augustin, Schmalkalden, Stendal, and Wuppertal Germany
|
—
|
|
28,734
|
|
145,854
|
|
—
|
|
(31,861
|
)
|
142,727
|
|
Various
|
Sep. 2012
|
||||||||||||||
|
Warehouse facility in Brierley Hill, United Kingdom
|
—
|
|
2,147
|
|
12,357
|
|
—
|
|
(2,791
|
)
|
11,713
|
|
1996
|
Sep. 2012
|
||||||||||||||
|
Industrial and warehouse facility in Mesquite, TX
|
6,148
|
|
2,851
|
|
15,899
|
|
—
|
|
(1,468
|
)
|
17,282
|
|
1972
|
Sep. 2012
|
||||||||||||||
|
Industrial facility in Rochester, MN
|
3,645
|
|
881
|
|
17,039
|
|
—
|
|
(1,666
|
)
|
16,254
|
|
1997
|
Sep. 2012
|
||||||||||||||
|
Office facility in Irvine, CA
|
6,287
|
|
—
|
|
17,027
|
|
—
|
|
(823
|
)
|
16,204
|
|
1981
|
Sep. 2012
|
||||||||||||||
|
Industrial facility in Brownwood, TX
|
—
|
|
722
|
|
6,268
|
|
—
|
|
(1
|
)
|
6,989
|
|
1964
|
Sep. 2012
|
||||||||||||||
|
Office facility in Scottsdale, AZ
|
19,926
|
|
—
|
|
43,570
|
|
—
|
|
(494
|
)
|
43,076
|
|
1977
|
Jan. 2014
|
||||||||||||||
|
Retail facilities in El Paso and Fabens, TX
|
—
|
|
4,777
|
|
17,823
|
|
—
|
|
(17
|
)
|
22,583
|
|
Various
|
Jan. 2014
|
||||||||||||||
|
Industrial facility in Dallas, TX
|
—
|
|
3,190
|
|
10,010
|
|
—
|
|
62
|
|
13,262
|
|
1968
|
Jan. 2014
|
||||||||||||||
|
Industrial facility in Eagan, MN
|
6,938
|
|
—
|
|
11,548
|
|
—
|
|
(141
|
)
|
11,407
|
|
1975
|
Jan. 2014
|
||||||||||||||
|
Industrial facilities in Albemarle and Old Fort, NC; Holmesville, OH; and Springfield, TN
|
8,677
|
|
6,542
|
|
20,668
|
|
—
|
|
(1,360
|
)
|
25,850
|
|
Various
|
Jan. 2014
|
||||||||||||||
|
Movie theater in Midlothian, VA
|
—
|
|
—
|
|
16,546
|
|
—
|
|
166
|
|
16,712
|
|
2000
|
Jan. 2014
|
||||||||||||||
|
Industrial facilities located throughout France
|
—
|
|
—
|
|
27,270
|
|
—
|
|
(5,470
|
)
|
21,800
|
|
Various
|
Jan. 2014
|
||||||||||||||
|
Retail facility in Gronau, Germany
|
5,503
|
|
281
|
|
4,401
|
|
—
|
|
(1,056
|
)
|
3,626
|
|
1989
|
Jan. 2014
|
||||||||||||||
|
Industrial and office facility in Marktheidenfeld, Germany
|
—
|
|
1,629
|
|
22,396
|
|
—
|
|
(6,194
|
)
|
17,831
|
|
2002
|
Jan. 2014
|
||||||||||||||
|
Industrial and warehouse facility in Newbridge, United Kingdom
|
9,748
|
|
6,851
|
|
22,868
|
|
—
|
|
(8,140
|
)
|
21,579
|
|
1998
|
Jan. 2014
|
||||||||||||||
|
Education facility in Mooresville, NC
|
3,359
|
|
1,795
|
|
15,955
|
|
—
|
|
2
|
|
17,752
|
|
2002
|
Jan. 2014
|
||||||||||||||
|
Industrial facility in Mount Carmel, IL
|
—
|
|
135
|
|
3,265
|
|
—
|
|
(34
|
)
|
3,366
|
|
1896
|
Jan. 2014
|
||||||||||||||
|
Retail facility in Vantaa, Finland
|
—
|
|
5,291
|
|
15,522
|
|
—
|
|
(4,695
|
)
|
16,118
|
|
2004
|
Jan. 2014
|
||||||||||||||
|
Retail facility in Linköping, Sweden
|
—
|
|
1,484
|
|
9,402
|
|
—
|
|
(3,083
|
)
|
7,803
|
|
2004
|
Jan. 2014
|
||||||||||||||
|
Industrial facility in Calgary, Canada
|
—
|
|
—
|
|
7,076
|
|
—
|
|
(1,195
|
)
|
5,881
|
|
1965
|
Jan. 2014
|
||||||||||||||
|
Industrial facilities in Kearney, MO; Fair Bluff, NC; York, NE; Walbridge, OH; Middlesex Township, PA; Rocky Mount, VA; and Martinsburg, WV
|
9,880
|
|
5,780
|
|
40,860
|
|
—
|
|
(160
|
)
|
46,480
|
|
Various
|
Jan. 2014
|
||||||||||||||
|
Industrial and office facility in Leeds, United Kingdom
|
—
|
|
2,712
|
|
16,501
|
|
—
|
|
(17,569
|
)
|
1,644
|
|
1980
|
Jan. 2014
|
||||||||||||||
|
Movie theater in Pensacola, FL
|
—
|
|
—
|
|
13,034
|
|
—
|
|
(492
|
)
|
12,542
|
|
2001
|
Jan. 2014
|
||||||||||||||
|
Industrial facility in Monheim, Germany
|
—
|
|
2,939
|
|
7,379
|
|
—
|
|
(2,452
|
)
|
7,866
|
|
1992
|
Jan. 2014
|
||||||||||||||
|
W. P. Carey 2016 10-K
–
165
|
|
SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
December 31, 2016
(in thousands)
|
Initial Cost to Company
|
Cost Capitalized
Subsequent to
Acquisition
(a)
|
Increase
(Decrease)
in Net
Investments
(b)
|
Gross Amount at
which Carried at
Close of Period
Total
|
Date of Construction
|
Date Acquired
|
|||||||||||||||||||||||
|
Description
|
Encumbrances
|
Land
|
Buildings
|
|||||||||||||||||||||||||
|
Industrial facility in Göppingen, Germany
|
—
|
|
10,717
|
|
60,120
|
|
—
|
|
(16,978
|
)
|
53,859
|
|
1930
|
Jan. 2014
|
||||||||||||||
|
Warehouse facility in Elk Grove Village, IL
|
3,216
|
|
—
|
|
7,863
|
|
—
|
|
1
|
|
7,864
|
|
1980
|
Jan. 2014
|
||||||||||||||
|
Industrial facility in Sankt Ingbert, Germany
|
—
|
|
2,786
|
|
26,902
|
|
—
|
|
(7,082
|
)
|
22,606
|
|
1960
|
Jan. 2014
|
||||||||||||||
|
Industrial facility in McKees Hill, Australia
|
—
|
|
283
|
|
2,978
|
|
—
|
|
(587
|
)
|
2,674
|
|
1980
|
Oct. 2014
|
||||||||||||||
|
$
|
95,062
|
|
$
|
95,070
|
|
$
|
726,945
|
|
$
|
9
|
|
$
|
(137,965
|
)
|
$
|
684,059
|
|
|||||||||||
|
Initial Cost to Company
|
Costs
Capitalized
Subsequent to
Acquisition (a) |
Increase
(Decrease)
in Net
Investments (b) |
Gross Amount at which Carried
at Close of Period
(c)
|
Life on which
Depreciation
in Latest
Statement of
Income is
Computed |
||||||||||||||||||||||||||||||||||||||||||||||
|
Description
|
Encumbrances
|
Land
|
Buildings
|
Personal Property
|
Land
|
Buildings
|
Personal Property
|
Total
|
Accumulated Depreciation
(c)
|
Date of Construction
|
Date Acquired
|
|||||||||||||||||||||||||||||||||||||||
|
Operating Real Estate – Hotels
|
||||||||||||||||||||||||||||||||||||||||||||||||||
|
Bloomington, MN
|
$
|
—
|
|
$
|
3,810
|
|
$
|
29,126
|
|
$
|
3,622
|
|
$
|
1,834
|
|
$
|
—
|
|
$
|
3,874
|
|
$
|
30,313
|
|
$
|
4,205
|
|
$
|
38,392
|
|
$
|
4,928
|
|
2008
|
Jan. 2014
|
34 yrs.
|
||||||||||||||
|
Memphis, TN
|
26,486
|
|
2,120
|
|
36,594
|
|
3,647
|
|
958
|
|
—
|
|
2,167
|
|
37,304
|
|
3,848
|
|
43,319
|
|
7,215
|
|
1985
|
Jan. 2014
|
22 yrs.
|
|||||||||||||||||||||||||
|
$
|
26,486
|
|
$
|
5,930
|
|
$
|
65,720
|
|
$
|
7,269
|
|
$
|
2,792
|
|
$
|
—
|
|
$
|
6,041
|
|
$
|
67,617
|
|
$
|
8,053
|
|
$
|
81,711
|
|
$
|
12,143
|
|
||||||||||||||||||
__________
|
(a)
|
Consists of the cost of improvements subsequent to acquisition and acquisition costs, including construction costs on build-to-suit transactions, legal fees, appraisal fees, title costs, and other related professional fees. For business combinations, transaction costs are excluded.
|
|
(b)
|
The increase (decrease) in net investment was primarily due to (i) sales of properties, (ii) impairment charges, (iii) changes in foreign currency exchange rates, (iv) allowances for credit loss, and (v) the amortization of unearned income from net investments in direct financing leases, which produces a periodic rate of return that at times may be greater or less than lease payments received.
|
|
(c)
|
A reconciliation of real estate and accumulated depreciation follows:
|
|
W. P. Carey 2016 10-K
–
166
|
|
W. P. CAREY INC.
NOTES TO SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION
(in thousands)
|
Reconciliation of Real Estate Subject to
Operating Leases
|
|||||||||||
|
Years Ended December 31,
|
|||||||||||
|
2016
|
2015
|
2014
|
|||||||||
|
Beginning balance
|
$
|
5,308,211
|
|
$
|
4,976,685
|
|
$
|
2,506,804
|
|
||
|
Dispositions
|
(446,144
|
)
|
(19,597
|
)
|
(137,018
|
)
|
|||||
|
Additions
|
404,161
|
|
548,521
|
|
2,785,863
|
|
|||||
|
Foreign currency translation adjustment
|
(94,738
|
)
|
(181,064
|
)
|
(157,262
|
)
|
|||||
|
Impairment charges
|
(41,660
|
)
|
(25,773
|
)
|
(20,677
|
)
|
|||||
|
Reclassification from real estate under construction
|
28,989
|
|
55,362
|
|
—
|
|
|||||
|
Improvements
|
16,169
|
|
24,014
|
|
18,474
|
|
|||||
|
Reclassification from direct financing lease
|
9,740
|
|
—
|
|
13,663
|
|
|||||
|
Write-off of fully depreciated assets
|
(2,461
|
)
|
(6,443
|
)
|
—
|
|
|||||
|
Reclassification to assets held for sale
|
—
|
|
(63,494
|
)
|
(33,162
|
)
|
|||||
|
Ending balance
|
$
|
5,182,267
|
|
$
|
5,308,211
|
|
$
|
4,976,685
|
|
||
|
Reconciliation of Accumulated Depreciation for
Real Estate Subject to Operating Leases
|
|||||||||||
|
Years Ended December 31,
|
|||||||||||
|
2016
|
2015
|
2014
|
|||||||||
|
Beginning balance
|
$
|
372,735
|
|
$
|
253,627
|
|
$
|
168,076
|
|
||
|
Depreciation expense
|
142,432
|
|
137,144
|
|
112,758
|
|
|||||
|
Dispositions
|
(35,172
|
)
|
(1,566
|
)
|
(20,740
|
)
|
|||||
|
Foreign currency translation adjustment
|
(5,240
|
)
|
(6,159
|
)
|
(5,318
|
)
|
|||||
|
Write-off of fully depreciated assets
|
(2,461
|
)
|
(6,443
|
)
|
—
|
|
|||||
|
Reclassification to assets held for sale
|
—
|
|
(3,868
|
)
|
(1,149
|
)
|
|||||
|
Ending balance
|
$
|
472,294
|
|
$
|
372,735
|
|
$
|
253,627
|
|
||
|
Reconciliation of Operating Real Estate
|
|||||||||||
|
Years Ended December 31,
|
|||||||||||
|
2016
|
2015
|
2014
|
|||||||||
|
Beginning balance
|
$
|
82,749
|
|
$
|
84,885
|
|
$
|
6,024
|
|
||
|
Dispositions
|
(3,188
|
)
|
(2,663
|
)
|
—
|
|
|||||
|
Improvements
|
1,542
|
|
527
|
|
438
|
|
|||||
|
Reclassification from real estate under construction
|
608
|
|
—
|
|
—
|
|
|||||
|
Additions
|
—
|
|
—
|
|
78,423
|
|
|||||
|
Ending balance
|
$
|
81,711
|
|
$
|
82,749
|
|
$
|
84,885
|
|
||
|
Reconciliation of Accumulated Depreciation for
Operating Real Estate
|
|||||||||||
|
Years Ended December 31,
|
|||||||||||
|
2016
|
2015
|
2014
|
|||||||||
|
Beginning balance
|
$
|
8,794
|
|
$
|
4,866
|
|
$
|
882
|
|
||
|
Depreciation expense
|
4,235
|
|
4,275
|
|
3,984
|
|
|||||
|
Dispositions
|
(886
|
)
|
(347
|
)
|
—
|
|
|||||
|
Ending balance
|
$
|
12,143
|
|
$
|
8,794
|
|
$
|
4,866
|
|
||
At
December 31, 2016
, the aggregate cost of real estate that we and our consolidated subsidiaries own for federal income tax purposes was approximately
$6.9 billion
.
|
W. P. Carey 2016 10-K
–
167
|
|
None.
Disclosure Controls and Procedures
Our disclosure controls and procedures include internal controls and other procedures designed to provide reasonable assurance that information required to be disclosed in this and other reports filed under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized, and reported within the required time periods specified in the SEC’s rules and forms; and that such information is accumulated and communicated to management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosures. It should be noted that no system of controls can provide complete assurance of achieving a company’s objectives and that future events may impact the effectiveness of a system of controls.
Our chief executive officer and chief financial officer, after conducting an evaluation, together with members of our management, of the effectiveness of the design and operation of our disclosure controls and procedures as of
December 31, 2016
, have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were effective as of
December 31, 2016
at a reasonable level of assurance.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.
We assessed the effectiveness of our internal control over financial reporting at
December 31, 2016
. In making this assessment, we used criteria set forth in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment, we concluded that, at
December 31, 2016
, our internal control over financial reporting is effective based on those criteria.
The effectiveness of our internal control over financial reporting as of
December 31, 2016
has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report in
Item 8
.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
None.
|
W. P. Carey 2016 10-K
–
168
|
|
This information will be contained in our definitive proxy statement for the
2017
Annual Meeting of Stockholders, to be filed within 120 days following the end of our fiscal year, and is incorporated herein by reference.
This information will be contained in our definitive proxy statement for the
2017
Annual Meeting of Stockholders, to be filed within 120 days following the end of our fiscal year, and is incorporated herein by reference.
This information will be contained in our definitive proxy statement for the
2017
Annual Meeting of Stockholders, to be filed within 120 days following the end of our fiscal year, and is incorporated herein by reference.
This information will be contained in our definitive proxy statement for the
2017
Annual Meeting of Stockholders, to be filed within 120 days following the end of our fiscal year, and is incorporated herein by reference.
This information will be contained in our definitive proxy statement for the
2017
Annual Meeting of Stockholders, to be filed within 120 days following the end of our fiscal year, and is incorporated herein by reference.
|
W. P. Carey 2016 10-K
–
169
|
|
(1) and (2) — Financial statements and schedules: see index to financial statements and schedules included in
Item 8
.
Other Financial Statements:
Corporate Property Associates 16 – Global Incorporated (Incorporated by reference to Exhibit 99.2 of the Annual Report on Form 10-K filed March 3, 2014 by W. P. Carey Inc.)
(3)
Exhibits:
The following exhibits are filed with this Report. Documents other than those designated as being filed herewith are incorporated herein by reference.
|
Exhibit
No. |
|
|
Description
|
|
Method of Filing
|
|
3.1
|
|
|
Articles of Amendment and Restatement
|
|
Incorporated by reference to Exhibit 3.1 to Annual Report on Form 10-K for the year ended December 31, 2012 filed February 26, 2013
|
|
3.2
|
|
Articles Supplementary
|
Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed January 28, 2015
|
||
|
3.3
|
|
|
Third Amended and Restated Bylaws of W. P. Carey Inc.
|
|
Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed January 22, 2016
|
|
4.1
|
|
|
Form of Common Stock Certificate
|
|
Incorporated by reference to Exhibit 4.1 to Annual Report on Form 10-K for the year ended December 31, 2012 filed February 26, 2013
|
|
4.2
|
|
Indenture, dated as of March 14, 2014, by and between W. P. Carey Inc., as issuer and U.S. Bank National Association, as trustee
|
Incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed March 14, 2014
|
||
|
4.3
|
|
First Supplemental Indenture, dated as of March 14, 2014, by and between W. P. Carey Inc., as issuer, and U.S. Bank National Association, as trustee
|
Incorporated by reference to Exhibit 4.2 to Current Report on Form 8-K filed March 14, 2014
|
||
|
4.4
|
|
Form of Global Note Representing $500,000,000 Aggregate Principal Amount of 4.60% Senior Notes due 2024
|
Incorporated by reference to Exhibit 4.3 to Current Report on Form 8-K filed March 14, 2014
|
||
|
4.5
|
|
Second Supplemental Indenture, dated as of January 21, 2015, by and between W. P. Carey Inc., as issuer, and U.S. Bank National Association, as trustee
|
Incorporated by reference to Exhibit 4.2 to Current Report on Form 8-K filed January 21, 2015
|
||
|
4.6
|
|
Form of Note representing €500 Million Aggregate Principal Amount of 2.000% Senior Notes due 2023
|
Incorporated by reference to Exhibit 4.3 to Current Report on Form 8-K filed January 21, 2015
|
||
|
4.7
|
|
Third Supplemental Indenture, dated January 26, 2015, by and between W. P. Carey Inc., as issuer, and U.S. Bank National Association, as trustee
|
Incorporated by reference to Exhibit 4.2 to Current Report on Form 8-K filed January 26, 2015
|
||
|
4.8
|
|
Form of Note representing $450 Million Aggregate Principal Amount of 4.000% Senior Notes due 2025
|
Incorporated by reference to Exhibit 4.3 to Current Report on Form 8-K filed January 26, 2015
|
||
|
W. P. Carey 2016 10-K
–
170
|
|
|
Exhibit
No. |
|
|
Description
|
|
Method of Filing
|
|
4.9
|
|
Fourth Supplemental Indenture, dated as of September 12, 2016, by and between W. P. Carey Inc., as issuer, and U.S. Bank National Association, as trustee
|
Incorporated by reference to Exhibit 4.2 to Current Report on Form 8-K filed September 12, 2016
|
||
|
4.10
|
|
Form of Note representing $350 Million Aggregate Principal Amount of 4.250% Senior Notes due 2026
|
Incorporated by reference to Exhibit 4.3 to Current Report on Form 8-K filed September 12, 2016
|
||
|
4.11
|
|
Indenture, dated as of November 8, 2016, by and among WPC Eurobond B.V., as issuer, W. P. Carey Inc., as guarantor, and U.S. Bank National Association, as trustee
|
Incorporated by reference to Exhibit 4.3 of Automatic shelf registration statement on Form S-3ASR (File No. 333-214510), filed on November 8, 2016
|
||
|
4.12
|
|
Supplemental Indenture, dated as of January 19, 2017, by and among WPC Eurobond B.V., as issuer, W. P. Carey Inc., as guarantor, and U.S. Bank National Association, as trustee.
|
Incorporated by reference to Exhibit 4.3 to Current Report on Form 8-K filed January 19, 2017
|
||
|
4.13
|
|
Form of Note representing €500 Million Aggregate Principal Amount of 2.250% Senior Notes due 2024
|
Incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed January 19, 2017
|
||
|
10.1
|
|
|
W. P. Carey Inc. 1997 Share Incentive Plan, as amended *
|
|
Incorporated by reference to Exhibit 10.2 to Annual Report on Form 10-K for the year ended December 31, 2014 filed March 2, 2015
|
|
10.2
|
|
|
W. P. Carey Inc. (formerly W. P. Carey & Co. LLC) Long-Term Incentive Program as amended and restated effective as of September 28, 2012 *
|
|
Incorporated by reference to Exhibit 10.3 to Annual Report on Form 10-K for the year ended December 31, 2012 filed February 26, 2013
|
|
10.3
|
|
|
W. P. Carey Inc. Amended and Restated Deferred Compensation Plan for Employees *
|
|
Incorporated by reference to Exhibit 10.4 to Annual Report on Form 10-K for the year ended December 31, 2012 filed February 26, 2013
|
|
10.4
|
|
|
Amended and Restated W. P. Carey Inc. 2009 Share Incentive Plan *
|
|
Incorporated by reference to Appendix A of Schedule 14A filed April 30, 2013
|
|
10.5
|
|
|
Form of Share Option Agreement under the 2009 Share Incentive Plan *
|
|
Incorporated by reference to Exhibit 10.2 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 filed August 6, 2009
|
|
10.6
|
|
|
Form of Restricted Share Agreement under the 2009 Share Incentive Plan *
|
|
Incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 filed August 6, 2009
|
|
10.7
|
|
|
Form of Restricted Share Unit Agreement under the 2009 Share Incentive Plan *
|
|
Incorporated by reference to Exhibit 10.8 to Annual Report on Form 10-K for the year ended December 31, 2012 filed February 26, 2013
|
|
10.8
|
|
|
Form of Long-Term Performance Share Unit Award Agreement under the 2009 Share Incentive Plan *
|
|
Incorporated by reference to Exhibit 10.5 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 filed August 7, 2015
|
|
10.9
|
|
|
W. P. Carey Inc. 2009 Non-Employee Directors’ Incentive Plan (the “2009 Directors Plan”) *
|
|
Incorporated by reference to Exhibit 10.2 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 filed August 6, 2013
|
|
W. P. Carey 2016 10-K
–
171
|
|
|
Exhibit
No. |
|
|
Description
|
|
Method of Filing
|
|
10.10
|
|
|
Form of Restricted Share Agreement under the 2009 Directors Plan *
|
|
Incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 filed August 6, 2013
|
|
10.11
|
|
Separation Agreement, dated February 10, 2016, by and between W. P. Carey Inc. and Trevor P. Bond *
|
Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K, filed on February 10, 2016
|
||
|
10.12
|
|
Separation Agreement, dated February 10, 2016, by and between W. P. Carey Inc. and Catherine Rice *
|
Incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, filed on May 5, 2016
|
||
|
10.13
|
|
Transition Agreement, dated as of December 7, 2016, by and between W. P. Carey Inc. and Thomas E. Zacharias *
|
Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K, filed on December 9, 2016
|
||
|
10.14
|
|
|
Amended and Restated Advisory Agreement dated as of January 1, 2015 among Corporate Property Associates 17 – Global Incorporated, CPA:17 Limited Partnership and Carey Asset Management Corp.
|
|
Incorporated by reference to Exhibit 10.12 to Annual Report on Form 10-K for the year ended December 31, 2014 filed March 2, 2015
|
|
10.15
|
|
|
Amended and Restated Asset Management Agreement dated as of May 13, 2015 between Corporate Property Associates 17 – Global Incorporated, CPA:17 Limited Partnership and W. P. Carey & Co. B. V.
|
|
Incorporated by reference to Exhibit 10.3 to Corporate Property Associates 17 - Global Incorporated’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 filed May 15, 2015
|
|
10.16
|
|
Amended and Restated Advisory Agreement, dated as of January 1, 2015 by and among Corporate Property Associates 18 – Global Incorporated, CPA:18 Limited Partnership and Carey Asset Management Corp.
|
|
Incorporated by reference to Exhibit 10.15 to Annual Report on Form 10-K for the year ended December 31, 2014 filed March 2, 2015
|
|
|
10.17
|
|
Amended and Restated Asset Management Agreement dated as of May 13, 2015, by and among, Corporate Property Associates 18 - Global Incorporated, CPA:18 Limited Partnership and W. P. Carey & Co. B.V.
|
Incorporated by reference to Exhibit 10.3 to Corporate Property Associates 18 - Global Incorporated's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 filed May 15, 2015
|
||
|
10.18
|
|
|
Dealer Manager Agreement, dated as of May 7, 2013, by and between Corporate Property Associates 18 – Global Incorporated and Carey Financial, LLC
|
|
Incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q filed by Corporate Property Associates 18 – Global Incorporated on June 20, 2013
|
|
10.19
|
|
|
Amended and Restated Advisory Agreement, dated as of January 1, 2016, by and among Carey Watermark Investors Incorporated, CWI OP, LP, and Carey Lodging Advisors, LLC
|
Incorporated by reference to Exhibit 10.14 to Annual Report on Form 10-K filed February 26, 2016
|
|
|
10.20
|
|
|
Advisory Agreement, dated as of February 9, 2015, by and among Carey Watermark Investors 2 Incorporated, CWI 2 OP, LP and Carey Lodging Advisors, LLC
|
Incorporated by reference to Exhibit 10.25 to Annual Report on Form 10-K for the year ended December 31, 2014 filed on March 2, 2015
|
|
|
10.21
|
|
First Amendment to Advisory Agreement, dated as of June 30, 2015, by and among Carey Watermark Investors 2 Incorporated, CWI 2 OP, LP and Carey Lodging Advisors, LLC
|
Incorporated by reference to Exhibit 10.2 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 filed August 7, 2015
|
||
|
10.22
|
|
Dealer Manager Agreement dated as of April 13, 2015 by and between Carey Watermark Investors 2 Incorporated and Carey Financial, LLC
|
Incorporated by reference to Exhibit 10.9 to Carey Watermark Investors 2 Incorporated Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 filed May 15, 2015
|
||
|
10.23
|
|
Investment Advisory Agreement, dated as of February 27, 2015, between Carey Credit Income Fund and Carey Credit Advisors, LLC
|
Incorporated by reference to Exhibit 99(g)(1) filed with Pre-Effective Amendment No. 3 to Carey Credit Income Fund 2015 T’s registration statement on Form N-2 filed on May 4, 2015
|
||
|
W. P. Carey 2016 10-K
–
172
|
|
|
Exhibit
No. |
|
|
Description
|
|
Method of Filing
|
|
10.24
|
|
Investment Sub-Advisory Agreement, dated as of February 27, 2015, among Carey Credit Advisors, LLC, Guggenheim Partners Investment Management LLC and Carey Credit Income Fund
|
Incorporated by reference to Exhibit 99(g)(2) filed with Pre-Effective Amendment No. 3 to Carey Credit Income Fund 2015 T’s registration statement on Form N-2, filed on May 4, 2015
|
||
|
10.25
|
|
Third Amended and Restated Credit Agreement, dated as of February 22, 2017, by and among W. P. Carey, as Borrower, certain Subsidiaries of W. P. Carey identified therein, from time to time as Guarantors, the Lenders from time to time party thereto, and Bank of America, N.A., as Administrative Agent, and Bank of America, N.A., JPMorgan Chase Bank, N.A. and Wells Fargo Bank, N.A., as Swing Line Lenders and L/C Issuers.
|
Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on February 23, 2017
|
||
|
10.26
|
|
Agency Agreement dated as of January 19, 2017, by and among WPC Eurobond B.V., as issuer, W. P. Carey Inc., as guarantor, Elavon Financial Services DAC, UK Branch, as paying agent and U.S. Bank National Association, as transfer agent, registrar and trustee.
|
Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K, filed on January 19, 2017
|
||
|
12
|
|
Computations of Ratios of Earnings to Fixed Charges for the years ended December 31, 2016, 2015, 2014, 2013, and 2012
|
Filed herewith
|
||
|
18.1
|
|
|
Preferability letter of Independent Registered Public Accounting Firm
|
Incorporated by reference to Exhibit 18.1 to Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 filed November 5, 2013
|
|
|
21.1
|
|
|
List of Registrant Subsidiaries
|
|
Filed herewith
|
|
23.1
|
|
|
Consent of PricewaterhouseCoopers LLP
|
|
Filed herewith
|
|
31.1
|
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
Filed herewith
|
|
31.2
|
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
Filed herewith
|
|
32
|
|
|
Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
Filed herewith
|
|
99.1
|
|
|
Director and Officer Indemnification Policy
|
|
Incorporated by reference to Exhibit 99.1 to Annual Report on Form 10-K for the year ended December 31, 2012 filed February 26, 2013
|
|
99.2
|
|
Financial Statements of Corporate Property Associates 16 – Global Incorporated
|
Incorporated by reference to Exhibit 99.2 to Annual Report on Form 10-K for the year ended December 31, 2013 filed March 3, 2014
|
||
|
W. P. Carey 2016 10-K
–
173
|
|
|
Exhibit
No. |
|
|
Description
|
|
Method of Filing
|
|
101
|
|
The following materials from W. P. Carey Inc.’s Annual Report on Form 10-K for the year ended December 31, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at December 31, 2016 and 2015, (ii) Consolidated Statements of Income for the years ended December 31, 2016, 2015, and 2014, (iii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2016, 2015, and 2014, (iv) Consolidated Statements of Equity for the years ended December 31, 2016, 2015, and 2014, (v) Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015, and 2014, (vi) Notes to Consolidated Financial Statements, (vii) Schedule II — Valuation and Qualifying Accounts, (viii) Schedule III — Real Estate and Accumulated Depreciation, and (ix) Notes to Schedule III — Real Estate and Accumulated Depreciation.
|
Filed herewith
|
||
______________________
*The referenced exhibit is a management contract or compensation plan or arrangement required to be filed as an exhibit pursuant to Item 15 (a)(3) of Form 10-K.
|
W. P. Carey 2016 10-K
–
174
|
|
None.
|
W. P. Carey 2016 10-K
–
175
|
|
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
W. P. Carey Inc.
|
|
|
|
|
||
|
Date:
|
February 24, 2017
|
By:
|
/s/ ToniAnn Sanzone
|
|
|
|
ToniAnn Sanzone
|
|
|
|
|
Chief Financial Officer
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
Signature
|
Title
|
Date
|
||
|
|
|
|
||
|
/s/ Mark J. DeCesaris
|
Director and Chief Executive Officer
|
February 24, 2017
|
||
|
Mark J. DeCesaris
|
(Principal Executive Officer)
|
|
||
|
|
|
|
||
|
/s/ ToniAnn Sanzone
|
Chief Financial Officer
|
February 24, 2017
|
||
|
ToniAnn Sanzone
|
(Principal Financial Officer)
|
|
||
|
|
|
|
||
|
/s/ Arjun Mahalingam
|
Chief Accounting Officer
|
February 24, 2017
|
||
|
Arjun Mahalingam
|
(Principal Accounting Officer)
|
|
||
|
|
|
|
||
|
/s/ Benjamin H. Griswold, IV
|
Chairman of the Board and Director
|
February 24, 2017
|
||
|
Benjamin H. Griswold, IV
|
|
|
||
|
|
|
|
||
|
/s/ Mark A. Alexander
|
Director
|
February 24, 2017
|
||
|
Mark A. Alexander
|
||||
|
/s/ Nathaniel S. Coolidge
|
Director
|
February 24, 2017
|
||
|
Nathaniel S. Coolidge
|
||||
|
/s/ Peter J. Farrell
|
Director
|
February 24, 2017
|
||
|
Peter J. Farrell
|
||||
|
/s/ Axel K.A. Hansing
|
Director
|
February 24, 2017
|
||
|
Axel K.A. Hansing
|
|
|
||
|
|
|
|
||
|
/s/ Jean Hoysradt
|
Director
|
February 24, 2017
|
||
|
Jean Hoysradt
|
|
|
||
|
|
|
|
||
|
/s/ Richard C. Marston
|
Director
|
February 24, 2017
|
||
|
Richard C. Marston
|
|
|
||
|
|
|
|
||
|
/s/ Christopher J. Niehaus
|
Director
|
February 24, 2017
|
||
|
Christopher J. Niehaus
|
||||
|
/s/ Nicolaas J.M. van Ommen
|
Director
|
February 24, 2017
|
||
|
Nicolaas J.M. van Ommen
|
|
|
||
|
|
|
|
||
|
/s/ Mary M. VanDeWeghe
|
Director
|
February 24, 2017
|
||
|
Mary M. VanDeWeghe
|
|
|
||
|
|
|
|
||
|
/s/ Reginald Winssinger
|
Director
|
February 24, 2017
|
||
|
Reginald Winssinger
|
|
|
||
|
W. P. Carey 2016 10-K
–
176
|
|
EXHIBIT INDEX
The following exhibits are filed with this Report. Documents other than those designated as being filed herewith are incorporated herein by reference.
|
Exhibit
No. |
|
|
Description
|
|
Method of Filing
|
|
3.1
|
|
|
Articles of Amendment and Restatement
|
|
Incorporated by reference to Exhibit 3.1 to Annual Report on Form 10-K for the year ended December 31, 2012 filed February 26, 2013
|
|
3.2
|
|
Articles Supplementary
|
Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed January 28, 2015
|
||
|
3.3
|
|
|
Third Amended and Restated Bylaws of W. P. Carey Inc.
|
|
Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed January 22, 2016
|
|
4.1
|
|
|
Form of Common Stock Certificate
|
|
Incorporated by reference to Exhibit 4.1 to Annual Report on Form 10-K for the year ended December 31, 2012 filed February 26, 2013
|
|
4.2
|
|
Indenture, dated as of March 14, 2014, by and between W. P. Carey Inc., as issuer and U.S. Bank National Association, as trustee
|
Incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed March 14, 2014
|
||
|
4.3
|
|
First Supplemental Indenture, dated as of March 14, 2014, by and between W. P. Carey Inc., as issuer, and U.S. Bank National Association, as trustee
|
Incorporated by reference to Exhibit 4.2 to Current Report on Form 8-K filed March 14, 2014
|
||
|
4.4
|
|
Form of Global Note Representing $500,000,000 Aggregate Principal Amount of 4.60% Senior Notes due 2024
|
Incorporated by reference to Exhibit 4.3 to Current Report on Form 8-K filed March 14, 2014
|
||
|
4.5
|
|
Second Supplemental Indenture, dated as of January 21, 2015, by and between W. P. Carey Inc., as issuer, and U.S. Bank National Association, as trustee
|
Incorporated by reference to Exhibit 4.2 to Current Report on Form 8-K filed January 21, 2015
|
||
|
4.6
|
|
Form of Note representing €500 Million Aggregate Principal Amount of 2.000% Senior Notes due 2023
|
Incorporated by reference to Exhibit 4.3 to Current Report on Form 8-K filed January 21, 2015
|
||
|
4.7
|
|
Third Supplemental Indenture, dated January 26, 2015, by and between W. P. Carey Inc., as issuer, and U.S. Bank National Association, as trustee
|
Incorporated by reference to Exhibit 4.2 to Current Report on Form 8-K filed January 26, 2015
|
||
|
4.8
|
|
Form of Note representing $450 Million Aggregate Principal Amount of 4.000% Senior Notes due 2025
|
Incorporated by reference to Exhibit 4.3 to Current Report on Form 8-K filed January 26, 2015
|
||
|
4.9
|
|
Fourth Supplemental Indenture, dated as of September 12, 2016, by and between W. P. Carey Inc., as issuer, and U.S. Bank National Association, as trustee
|
Incorporated by reference to Exhibit 4.2 to Current Report on Form 8-K filed September 12, 2016
|
||
|
4.10
|
|
Form of Note representing $350 Million Aggregate Principal Amount of 4.250% Senior Notes due 2026
|
Incorporated by reference to Exhibit 4.3 to Current Report on Form 8-K filed September 12, 2016
|
||
|
Exhibit
No. |
|
|
Description
|
|
Method of Filing
|
|
4.11
|
|
Indenture, dated as of November 8, 2016, by and among WPC Eurobond B.V., as issuer, W. P. Carey Inc., as guarantor, and U.S. Bank National Association, as trustee
|
Incorporated by reference to Exhibit 4.3 of Automatic shelf registration statement on Form S-3ASR (File No. 333-214510), filed on November 8, 2016
|
||
|
4.12
|
|
Supplemental Indenture, dated as of January 19, 2017, by and among WPC Eurobond B.V., as issuer, W. P. Carey Inc., as guarantor, and U.S. Bank National Association, as trustee.
|
Incorporated by reference to Exhibit 4.3 to Current Report on Form 8-K filed January 19, 2017
|
||
|
4.13
|
|
Form of Note representing €500 Million Aggregate Principal Amount of 2.250% Senior Notes due 2024
|
Incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed January 19, 2017
|
||
|
10.1
|
|
|
W. P. Carey Inc. 1997 Share Incentive Plan, as amended *
|
|
Incorporated by reference to Exhibit 10.2 to Annual Report on Form 10-K for the year ended December 31, 2014 filed March 2, 2015
|
|
10.2
|
|
|
W. P. Carey Inc. (formerly W. P. Carey & Co. LLC) Long-Term Incentive Program as amended and restated effective as of September 28, 2012 *
|
|
Incorporated by reference to Exhibit 10.3 to Annual Report on Form 10-K for the year ended December 31, 2012 filed February 26, 2013
|
|
10.3
|
|
|
W. P. Carey Inc. Amended and Restated Deferred Compensation Plan for Employees *
|
|
Incorporated by reference to Exhibit 10.4 to Annual Report on Form 10-K for the year ended December 31, 2012 filed February 26, 2013
|
|
10.4
|
|
|
Amended and Restated W. P. Carey Inc. 2009 Share Incentive Plan *
|
|
Incorporated by reference to Appendix A of Schedule 14A filed April 30, 2013
|
|
10.5
|
|
|
Form of Share Option Agreement under the 2009 Share Incentive Plan *
|
|
Incorporated by reference to Exhibit 10.2 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 filed August 6, 2009
|
|
10.6
|
|
|
Form of Restricted Share Agreement under the 2009 Share Incentive Plan *
|
|
Incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 filed August 6, 2009
|
|
10.7
|
|
|
Form of Restricted Share Unit Agreement under the 2009 Share Incentive Plan *
|
|
Incorporated by reference to Exhibit 10.8 to Annual Report on Form 10-K for the year ended December 31, 2012 filed February 26, 2013
|
|
10.8
|
|
|
Form of Long-Term Performance Share Unit Award Agreement under the 2009 Share Incentive Plan *
|
|
Incorporated by reference to Exhibit 10.5 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 filed August 7, 2015
|
|
10.9
|
|
|
W. P. Carey Inc. 2009 Non-Employee Directors’ Incentive Plan (the “2009 Directors Plan”) *
|
|
Incorporated by reference to Exhibit 10.2 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 filed August 6, 2013
|
|
10.10
|
|
|
Form of Restricted Share Agreement under the 2009 Directors Plan *
|
|
Incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 filed August 6, 2013
|
|
10.11
|
|
Separation Agreement, dated February 10, 2016, by and between W. P. Carey Inc. and Trevor P. Bond *
|
Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K, filed on February 10, 2016
|
||
|
Exhibit
No. |
|
|
Description
|
|
Method of Filing
|
|
10.12
|
|
Separation Agreement, dated February 10, 2016, by and between W. P. Carey Inc. and Catherine Rice *
|
Incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, filed on May 5, 2016
|
||
|
10.13
|
|
Transition Agreement, dated as of December 7, 2016, by and between W. P. Carey Inc. and Thomas E. Zacharias *
|
Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K, filed on December 9, 2016
|
||
|
10.14
|
|
|
Amended and Restated Advisory Agreement dated as of January 1, 2015 among Corporate Property Associates 17 – Global Incorporated, CPA:17 Limited Partnership and Carey Asset Management Corp.
|
|
Incorporated by reference to Exhibit 10.12 to Annual Report on Form 10-K for the year ended December 31, 2014 filed March 2, 2015
|
|
10.15
|
|
|
Amended and Restated Asset Management Agreement dated as of May 13, 2015 between Corporate Property Associates 17 – Global Incorporated, CPA:17 Limited Partnership and W. P. Carey & Co. B. V.
|
|
Incorporated by reference to Exhibit 10.3 to Corporate Property Associates 17 - Global Incorporated’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 filed May 15, 2015
|
|
10.16
|
|
Amended and Restated Advisory Agreement, dated as of January 1, 2015 by and among Corporate Property Associates 18 – Global Incorporated, CPA:18 Limited Partnership and Carey Asset Management Corp.
|
|
Incorporated by reference to Exhibit 10.15 to Annual Report on Form 10-K for the year ended December 31, 2014 filed March 2, 2015
|
|
|
10.17
|
|
Amended and Restated Asset Management Agreement dated as of May 13, 2015, by and among, Corporate Property Associates 18 - Global Incorporated, CPA:18 Limited Partnership and W. P. Carey & Co. B.V.
|
Incorporated by reference to Exhibit 10.3 to Corporate Property Associates 18 - Global Incorporated's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 filed May 15, 2015
|
||
|
10.18
|
|
|
Dealer Manager Agreement, dated as of May 7, 2013, by and between Corporate Property Associates 18 – Global Incorporated and Carey Financial, LLC
|
|
Incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q filed by Corporate Property Associates 18 – Global Incorporated on June 20, 2013
|
|
10.19
|
|
|
Amended and Restated Advisory Agreement, dated as of January 1, 2016, by and among Carey Watermark Investors Incorporated, CWI OP, LP, and Carey Lodging Advisors, LLC
|
|
Incorporated by reference to Exhibit 10.14 to Annual Report on Form 10-K filed February 26, 2016
|
|
10.20
|
|
|
Advisory Agreement, dated as of February 9, 2015, by and among Carey Watermark Investors 2 Incorporated, CWI 2 OP, LP and Carey Lodging Advisors, LLC
|
|
Incorporated by reference to Exhibit 10.25 to Annual Report on Form 10-K for the year ended December 31, 2014 filed on March 2, 2015
|
|
10.21
|
|
First Amendment to Advisory Agreement, dated as of June 30, 2015, by and among Carey Watermark Investors 2 Incorporated, CWI 2 OP, LP and Carey Lodging Advisors, LLC
|
Incorporated by reference to Exhibit 10.2 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 filed August 7, 2015
|
||
|
10.22
|
|
Dealer Manager Agreement dated as of April 13, 2015 by and between Carey Watermark Investors 2 Incorporated and Carey Financial, LLC
|
Incorporated by reference to Exhibit 10.9 to Carey Watermark Investors 2 Incorporated Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 filed May 15, 2015
|
||
|
10.23
|
|
Investment Advisory Agreement, dated as of February 27, 2015, between Carey Credit Income Fund and Carey Credit Advisors, LLC
|
Incorporated by reference to Exhibit 99(g)(1) filed with Pre-Effective Amendment No. 3 to Carey Credit Income Fund 2015 T’s registration statement on Form N-2 filed on May 4, 2015
|
||
|
10.24
|
|
Investment Sub-Advisory Agreement, dated as of February 27, 2015, among Carey Credit Advisors, LLC, Guggenheim Partners Investment Management LLC and Carey Credit Income Fund
|
Incorporated by reference to Exhibit 99(g)(2) filed with Pre-Effective Amendment No. 3 to Carey Credit Income Fund 2015 T’s registration statement on Form N-2, filed on May 4, 2015
|
||
|
Exhibit
No. |
|
|
Description
|
|
Method of Filing
|
|
10.25
|
|
Third Amended and Restated Credit Agreement, dated as of February 22, 2017, by and among W. P. Carey, as Borrower, certain Subsidiaries of W. P. Carey identified therein, from time to time as Guarantors, the Lenders from time to time party thereto, and Bank of America, N.A., as Administrative Agent, and Bank of America, N.A., JPMorgan Chase Bank, N.A. and Wells Fargo Bank, N.A., as Swing Line Lenders and L/C Issuers.
|
Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on February 23, 2017
|
||
|
10.26
|
|
Agency Agreement dated as of January 19, 2017, by and among WPC Eurobond B.V., as issuer, W. P. Carey Inc., as guarantor, Elavon Financial Services DAC, UK Branch, as paying agent and U.S. Bank National Association, as transfer agent, registrar and trustee.
|
Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K, filed on January 19, 2017
|
||
|
12
|
|
Computations of Ratios of Earnings to Fixed Charges for the years ended December 31, 2016, 2015, 2014, 2013, and 2012
|
Filed herewith
|
||
|
18.1
|
|
|
Preferability letter of Independent Registered Public Accounting Firm
|
Incorporated by reference to Exhibit 18.1 to Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 filed November 5, 2013
|
|
|
21.1
|
|
|
List of Registrant Subsidiaries
|
|
Filed herewith
|
|
23.1
|
|
|
Consent of PricewaterhouseCoopers LLP
|
|
Filed herewith
|
|
31.1
|
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
Filed herewith
|
|
31.2
|
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
Filed herewith
|
|
32
|
|
|
Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
Filed herewith
|
|
99.1
|
|
|
Director and Officer Indemnification Policy
|
|
Incorporated by reference to Exhibit 99.1 to Annual Report on Form 10-K for the year ended December 31, 2012 filed February 26, 2013
|
|
99.2
|
|
Financial Statements of Corporate Property Associates 16 – Global Incorporated
|
Incorporated by reference to Exhibit 99.2 to Annual Report on Form 10-K for the year ended December 31, 2013 filed March 3, 2014
|
||
|
Exhibit
No. |
|
|
Description
|
|
Method of Filing
|
|
101
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The following materials from W. P. Carey Inc.’s Annual Report on Form 10-K for the year ended December 31, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at December 31, 2016 and 2015, (ii) Consolidated Statements of Income for the years ended December 31, 2016, 2015, and 2014, (iii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2016, 2015, and 2014, (iv) Consolidated Statements of Equity for the years ended December 31, 2016, 2015, and 2014, (v) Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015, and 2014, (vi) Notes to Consolidated Financial Statements, (vii) Schedule II — Valuation and Qualifying Accounts, (viii) Schedule III — Real Estate and Accumulated Depreciation, and (ix) Notes to Schedule III — Real Estate and Accumulated Depreciation.
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Filed herewith
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*The referenced exhibit is a management contract or compensation plan or arrangement required to be filed as an exhibit pursuant to Item 15 (a)(3) of Form 10-K.
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Mine Safety DisclosuresPart IIItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 5. Market For Registrant S Common Equity, Related Stockholder MattersItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7. Management S Discussion and Analysis Of Financial Condition and ResultsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataNote 1. Business and OrganizationNote 2. Summary Of Significant Accounting PoliciesNote 3. Merger with Cpa :16 GlobalNote 4. Agreements and Transactions with Related PartiesNote 5. Net Investments in PropertiesNote 6. Finance ReceivablesNote 7. Equity Investments in The Managed Programs and Real EstateNote 8. Goodwill and Other IntangiblesNote 9. Fair Value MeasurementsNote 10. Risk Management and Use Of Derivative Financial InstrumentsNote 11. DebtNote 12. Commitments and ContingenciesNote 13. Restructuring and Other CompensationNote 14. EquityNote 15. Stock-based and Other CompensationNote 16. Income TaxesNote 17. Property Dispositions and Discontinued OperationsNote 18. Segment ReportingNote 19. Selected Quarterly Financial Data (unaudited)Note 20. Subsequent EventsItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9. Changes in and Disagreements with Accountants on Accounting andItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 12. Security Ownership Of Certain Beneficial Owners and ManagementItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 13. Certain Relationships and Related Transactions, and DirectorItem 14. Principal Accounting Fees and ServicesPart IVItem 15. Exhibits and Financial Statement SchedulesItem 16. Form 10-k Summary