WPC 10-Q Quarterly Report Sept. 30, 2014 | Alphaminr
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10-Q 1 wpc2014q310-q.htm 10-Q WPC 2014 Q3 10-Q



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014
or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from__________ to __________
Commission File Number: 001-13779

W. P. CAREY INC.
(Exact name of registrant as specified in its charter)
Maryland
45-4549771
(State of incorporation)
(I.R.S. Employer Identification No.)
50 Rockefeller Plaza
New York, New York
10020
(Address of principal executive offices)
(Zip Code)
Investor Relations (212) 492-8920
(212) 492-1100
(Registrant’s telephone numbers, including area code)

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 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.
Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
Registrant has 104,015,348 shares of common stock, $ 0.001 par value, outstanding at October 31, 2014 .



INDEX
Page No.


Forward-Looking Statements

This Quarterly Report on Form 10-Q, or the Report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, in Item 2 of Part I 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. It is important to note that our actual results could be materially different from those projected in such forward-looking statements. 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 which 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 in our Annual Report on Form 10-K for the year ended December 31, 2013 as filed with the SEC on March 4, 2014, or the 2013 Annual Report. 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 I, Item 1. Financial Statements (Unaudited).



W. P. Carey 9/30/2014 10-Q – 1


PART I
Item 1. Financial Statements.

W. P. CAREY INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share and per share amounts)
September 30, 2014
December 31, 2013
Assets
Investments in real estate:
Real estate, at cost (inclusive of $203,173 and $78,782, respectively, attributable to variable interest entities, or VIEs)
$
4,572,313

$
2,516,325

Operating real estate, at cost (inclusive of $38,714 and $0, respectively, attributable to VIEs)
84,594

6,024

Accumulated depreciation (inclusive of $23,272 and $18,238, respectively, attributable to VIEs)
(243,639
)
(168,958
)
Net investments in properties
4,413,268

2,353,391

Net investments in direct financing leases (inclusive of $62,975 and $18,089, respectively, attributable to VIEs)
838,475

363,420

Assets held for sale
—

86,823

Equity investments in real estate and the Managed REITs
218,103

530,020

Net investments in real estate
5,469,846

3,333,654

Cash and cash equivalents (inclusive of $2,130 and $37, respectively, attributable to VIEs)
530,276

117,519

Due from affiliates
26,075

32,034

Goodwill
702,791

350,208

In-place lease intangible assets, net (inclusive of $21,915 and $3,385, respectively, attributable to VIEs)
935,008

467,127

Above-market rent intangible assets, net (inclusive of $14,252 and $2,544, respectively, attributable to VIEs)
545,462

241,975

Other assets, net (inclusive of $20,945 and $4,246, respectively, attributable to VIEs)
291,991

136,433

Total assets
$
8,501,449

$
4,678,950

Liabilities and Equity


Liabilities:


Non-recourse debt (inclusive of $131,215 and $29,042, respectively, attributable to VIEs)
$
2,702,133

$
1,492,410

Senior unsecured credit facility and unsecured term loan
618,945

575,000

Senior unsecured notes
498,300

—

Below-market rent and other intangible liabilities, net (inclusive of $9,555 and $3,481, respectively, attributable to VIEs)
178,070

128,202

Accounts payable, accrued expenses and other liabilities (inclusive of $6,069 and $2,988, respectively, attributable to VIEs)
294,364

166,385

Deferred income taxes (inclusive of $670 and $0, respectively, attributable to VIEs)
96,372

39,040

Distributions payable
98,996

67,746

Total liabilities
4,487,180

2,468,783

Redeemable noncontrolling interest
6,346

7,436

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; 105,058,582 and 69,299,949 shares issued,
respectively; and 104,014,166 and 68,266,570 shares outstanding, respectively
105

69

Additional paid-in capital
4,313,896

2,256,503

Distributions in excess of accumulated earnings
(399,116
)
(318,577
)
Deferred compensation obligation
30,624

11,354

Accumulated other comprehensive (loss) income
(21,271
)
15,336

Less: treasury stock at cost, 1,044,416 and 1,033,379 shares, respectively
(60,948
)
(60,270
)
Total W. P. Carey stockholders’ equity
3,863,290

1,904,415

Noncontrolling interests
144,633

298,316

Total equity
4,007,923

2,202,731

Total liabilities and equity
$
8,501,449

$
4,678,950

See Notes to Consolidated Financial Statements.


W. P. Carey 9/30/2014 10-Q – 2


W. P. CAREY INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except share and per share amounts)
Three Months Ended September 30,
Nine Months Ended September 30,
2014
2013
2014
2013
Revenues
Real estate revenues:
Lease revenues
$
149,243

$
75,702

$
420,563

$
222,145

Operating property revenues
8,338

248

21,580

706

Reimbursable tenant costs
6,271

3,624

18,034

9,781

Lease termination income and other
360

236

15,841

1,319

164,212

79,810

476,018

233,951

Revenues from the Managed REITs:
Reimbursable costs
14,722

23,259

96,379

50,694

Asset management revenue
9,088

10,961

27,910

31,330

Structuring revenue
5,487

14,775

40,492

27,539

Dealer manager fees
2,436

3,787

17,062

7,329

31,733

52,782

181,843

116,892

195,945

132,592

657,861

350,843

Operating Expenses
Depreciation and amortization
59,524

30,534

175,642

89,681

Reimbursable tenant and affiliate costs
20,993

26,883

114,413

60,475

General and administrative
20,261

15,739

62,066

47,336

Property expenses, excluding reimbursable tenant costs
10,391

1,824

30,021

5,871

Stock-based compensation expense
7,979

7,852

22,979

25,430

Impairment charges
4,225

—

6,291

—

Dealer manager fees and expenses
3,847

4,296

15,557

9,421

Merger and property acquisition expenses
618

3,630

31,369

6,879

Subadvisor fees
381

867

2,850

2,537

128,219

91,625

461,188

247,630

Other Income and Expenses
Net income from equity investments in real estate and the Managed REITs
11,610

9,180

35,324

52,377

Gain on change in control of interests
—

—

104,645

—

Interest expense
(46,534
)
(26,262
)
(133,342
)
(77,596
)
Other income and (expenses)
(4,080
)
2,778

(10,403
)
6,627

(39,004
)
(14,304
)
(3,776
)
(18,592
)
Income from continuing operations before income taxes and gain (loss) on sale of real estate
28,722

26,663

192,897

84,621

Provision for income taxes
(901
)
(5,391
)
(11,175
)
(3,050
)
Income from continuing operations before gain (loss) on sale of real estate
27,821

21,272

181,722

81,571

Income from discontinued operations, net of tax
235

378

33,063

2,066

Gain (loss) on sale of real estate, net of tax
260

—

(3,482
)
(332
)
Net Income
28,316

21,650

211,303

83,305

Net income attributable to noncontrolling interests
(993
)
(2,912
)
(4,914
)
(7,312
)
Net loss (income) attributable to redeemable noncontrolling interest
14

(232
)
(137
)
(139
)
Net Income Attributable to W. P. Carey
$
27,337

$
18,506

$
206,252

$
75,854

Basic Earnings Per Share
Income from continuing operations attributable to W. P. Carey
$
0.27

$
0.27

$
1.78

$
1.08

Income (loss) from discontinued operations attributable to W. P. Carey
—

—

0.34

0.02

Net Income Attributable to W. P. Carey
$
0.27

$
0.27

$
2.12

$
1.10

Diluted Earnings Per Share
Income from continuing operations attributable to W. P. Carey
$
0.27

$
0.27

$
1.76

$
1.06

Income (loss) from discontinued operations attributable to W. P. Carey
—

—

0.34

0.02

Net Income Attributable to W. P. Carey
$
0.27

$
0.27

$
2.10

$
1.08

Weighted-Average Shares Outstanding

Basic
100,282,082

68,397,176

96,690,675

68,719,264

Diluted
101,130,448

69,400,825

97,728,981

69,846,320

Amounts Attributable to W. P. Carey
Income from continuing operations, net of tax
$
27,107

$
18,541

$
173,016

$
74,809

Income (loss) from discontinued operations, net of tax
230

(35
)
33,236

1,045

Net Income
$
27,337

$
18,506

$
206,252

$
75,854

Distributions Declared Per Share
$
0.940

$
0.860

$
2.735

$
2.520


See Notes to Consolidated Financial Statements.


W. P. Carey 9/30/2014 10-Q – 3


W. P. CAREY INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (UNAUDITED)
(in thousands)
Three Months Ended September 30,
Nine Months Ended September 30,
2014
2013
2014
2013
Net Income
$
28,316

$
21,650

$
211,303

$
83,305

Other Comprehensive (Loss) Income
Foreign currency translation adjustments
(55,096
)
17,675

(52,140
)
13,017

Realized and unrealized gain (loss) on derivative instruments
16,151

(4,013
)
11,587

1,242

Change in unrealized loss on marketable securities
(12
)
—

—

—

(38,957
)
13,662

(40,553
)
14,259

Comprehensive (Loss) Income
(10,641
)
35,312

170,750

97,564

Amounts Attributable to Noncontrolling Interests


Net income
(993
)
(2,912
)
(4,914
)
(7,312
)
Foreign currency translation adjustments
3,504

(2,031
)
3,951

(984
)
Comprehensive loss (income) attributable to noncontrolling interests
2,511

(4,943
)
(963
)
(8,296
)
Amounts Attributable to Redeemable Noncontrolling Interest


Net loss (income)
14

(232
)
(137
)
(139
)
Foreign currency translation adjustments
(32
)
(21
)
(5
)
—

Comprehensive income attributable to redeemable noncontrolling interest
(18
)
(253
)
(142
)
(139
)
Comprehensive (Loss) Income Attributable to W. P. Carey
$
(8,148
)
$
30,116

$
169,645

$
89,129

See Notes to Consolidated Financial Statements.


W. P. Carey 9/30/2014 10-Q – 4


W. P. CAREY INC.
CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
Nine Months Ended September 30, 2014 and Year Ended December 31, 2013
(in thousands, except share and per share amounts)
W. P. Carey Stockholders
Distributions
Accumulated
Additional
in Excess of
Deferred
Other
Total
$0.001 Par Value
Paid-in
Accumulated
Compensation
Comprehensive
Treasury
W. P. Carey
Noncontrolling
Shares
Amount
Capital
Earnings
Obligation
Income (Loss)
Stock
Stockholders
Interests
Total
Balance at January 1, 2013
68,485,525

$
69

$
2,175,820

$
(172,182
)
$
8,358

$
(4,649
)
$
(20,270
)
$
1,987,146

$
270,177

$
2,257,323

Reclassification of Estate Shareholders’ shares from temporary equity to permanent equity
40,000

40,000

40,000

Exercise of stock options and employee purchase under the employee share purchase plan
55,423

2,312

2,312

2,312

Grants issued in connection with services rendered
295,304

—

—

Shares issued under share incentive plans
47,289

(9,183
)
(9,183
)
(9,183
)
Contributions from noncontrolling interests
—

65,145

65,145

Windfall tax benefits - share incentive plans
12,817

12,817

12,817

Amortization of stock-based compensation expense
34,737

2,459

37,196

37,196

Distributions to noncontrolling interests
—

(71,820
)
(71,820
)
Distributions declared ($3.39 per share)
(245,271
)
537

(244,734
)
(244,734
)
Purchase of treasury stock from related party
(616,971
)
(40,000
)
(40,000
)
(40,000
)
Foreign currency translation
—

(5
)
(5
)
Net income
98,876

98,876

32,936

131,812

Other comprehensive income (loss):
Foreign currency translation adjustments
19,965

19,965

1,883

21,848

Realized and unrealized gain on derivative instruments
20

20

20

Balance at December 31, 2013
68,266,570

69

2,256,503

(318,577
)
11,354

15,336

(60,270
)
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
—

379

379

Exercise of stock options and employee purchase under the employee share purchase plan
24,725

1,220

1,220

1,220

Grants issued in connection with services rendered
368,347

(15,736
)
(15,736
)
(15,736
)
Shares issued under share incentive plans
35,683

(849
)
(849
)
(849
)
Deferral of vested shares
(15,428
)
15,428

—

—

Windfall tax benefits - share incentive plans
5,449

5,449

5,449

Amortization of stock-based compensation expense
22,979



22,979

22,979

Redemption value adjustment
306

306

306

Distributions to noncontrolling interests
—

(15,270
)
(15,270
)
Distributions declared ($2.735 per share)
3,179

(286,791
)
3,842

(279,770
)
(279,770
)
Purchase of treasury stock from related party
(11,037
)
(678
)
(678
)
(678
)
Foreign currency translation
—

50

50

Net income
206,252

206,252

4,914

211,166

Other comprehensive income (loss):




Foreign currency translation adjustments
(48,194
)
(48,194
)
(3,951
)
(52,145
)
Realized and unrealized gain on derivative instruments
11,587

11,587

11,587

Balance at September 30, 2014
104,014,166


$
105


$
4,313,896


$
(399,116
)

$
30,624


$
(21,271
)

$
(60,948
)

$
3,863,290


$
144,633


$
4,007,923

See Notes to Consolidated Financial Statements.


W. P. Carey 9/30/2014 10-Q – 5


W. P. CAREY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
Nine Months Ended September 30,
2014

2013
Cash Flows — Operating Activities
Net income
$
211,303

$
83,305

Adjustments to net income:
Depreciation and amortization, including intangible assets and deferred financing costs
184,808

102,679

Gain on change in control of interests
(104,645
)
—

Straight-line rent and amortization of rent-related intangibles
35,229

15,684

Management income received in shares of Managed REITs and other
(27,933
)
(26,709
)
Gain on sale of real estate
(24,188
)
(290
)
Stock-based compensation expense
22,979

25,430

Impairment charges
6,291

6,366

Unrealized loss (gain) on foreign currency transactions, derivative instruments and other
3,128

(5,608
)
Income from equity investments in real estate and the Managed REITs in excess of distributions received
(1,915
)
(22,138
)
Amortization of deferred revenue
(786
)
(7,077
)
Realized (gain) loss on extinguishment of debt and other
(410
)
36

Changes in assets and liabilities:
Payments for withholding taxes upon delivery of equity-based awards and exercises of stock options
(16,585
)
(11,484
)
Decrease in income taxes, net
(14,207
)
(13,673
)
Increase in structuring revenue receivable
(13,398
)
(3,967
)
Deferred acquisition revenue received
12,693

13,496

Increase in prepaid taxes
(1,196
)
(9,257
)
Net changes in other operating assets and liabilities
5,986

(466
)
Net Cash Provided by Operating Activities
277,154

146,327

Cash Flows — Investing Activities
Proceeds from sale of real estate and equity investments
281,164

56,495

Purchases of real estate
(246,593
)
(249,289
)
Cash acquired in connection with the CPA ® :16 Merger
65,429

—

Change in investing restricted cash
(29,219
)
27,673

Capital expenditures
(27,714
)
(10,164
)
Proceeds from repayment of short-term loan to affiliate
11,000

—

Funding of short-term loan to affiliate
(11,000
)
(15,000
)
Distributions received from equity investments in real estate and the Managed REITs in excess of equity income
10,057

32,982

Purchase of securities for the defeasance of debt
(7,664
)
—

Other investing activities, net
2,427

(5
)
Cash paid to stockholders of CPA ® :16 – Global in the CPA ® :16 Merger
(1,338
)
—

Capital contributions to equity investments
(468
)
(1,945
)
Net Cash Provided by (Used in) Investing Activities
46,081

(159,253
)
Cash Flows — Financing Activities
Repayments of senior credit facility
(1,395,000
)
(348,000
)
Proceeds from senior credit facility and unsecured term loan
1,285,286

585,000

Proceeds from issuance of senior unsecured notes
498,195

—

Proceeds from issuance of shares in public offering
282,586

—

Distributions paid
(248,918
)
(160,953
)
Prepayments of mortgage principal
(216,065
)
—

Scheduled payments of mortgage principal
(96,797
)
(160,763
)
Distributions paid to noncontrolling interests
(16,194
)
(20,427
)
Proceeds from mortgage financing
12,330

113,000

Payment of financing costs and mortgage deposits, net of deposits refunded
(12,187
)
(2,202
)
Windfall tax benefit associated with stock-based compensation awards
5,449

11,614

Proceeds from exercise of stock options and employee purchase under the employee purchase plan
1,220

1,970

Purchase of treasury stock from related party
(679
)
(40,000
)
Change in financing restricted cash
(589
)
(1,054
)
Contributions from noncontrolling interests
502

2,830

Net Cash Provided by (Used in) Financing Activities
99,139

(18,985
)
Change in Cash and Cash Equivalents During the Period
Effect of exchange rate changes on cash
(9,617
)
1,627

Net increase (decrease) in cash and cash equivalents
412,757

(30,284
)
Cash and cash equivalents, beginning of period
117,519

123,904

Cash and cash equivalents, end of period
$
530,276

$
93,620


(Continued)


W. P. Carey 9/30/2014 10-Q – 6


W. P. CAREY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(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
348,448

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
)
2,059,840

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
348,876

In-place lease intangible assets
553,723

Above-market rent intangible assets
395,824

Other assets
82,032

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
1,994,411

Cash acquired on acquisition of subsidiaries
$
65,429


See Notes to Consolidated Financial Statements.



W. P. Carey 9/30/2014 10-Q – 7


W. P. CAREY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1. Business and Organization
W. P. Carey Inc., or W. P. Carey, is, together with its consolidated subsidiaries and predecessors, a real estate investment trust, or 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 requires each tenant to pay substantially all of the costs associated with operating and maintaining the property. Through our taxable REIT subsidiaries, or TRSs, we also earn revenue as the advisor to publicly-owned, non-listed REITs under the Corporate Property Associates, or CPA ® , brand name, which invest in similar properties. At September 30, 2014 , 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 Corporate Property Associates 16 – Global Incorporated, or CPA ® :16 – Global, until its merger with us on January 31, 2014. We refer to CPA ® :16 – Global, CPA ® :17 – Global, and CPA ® :18 – Global as the CPA ® REITs. We are also the advisor to Carey Watermark Investors Incorporated, or CWI, a publicly-owned, non-listed REIT that invests in lodging and lodging-related properties, which is referred to as, together with CPA ® REITs, the Managed REITs.

Originally founded in 1973, we reorganized as a REIT in September 2012 in connection with our merger with Corporate Property Associates 15 Incorporated, or CPA ® :15. We refer to that merger as the CPA ® :15 Merger. Our shares of common stock are listed on the New York Stock Exchange under the symbol “WPC.”

On January 31, 2014, CPA ® :16 – Global merged with and into us based on a merger agreement, dated as of July 25, 2013, which we refer to as the CPA ® :16 Merger ( Note 3 ). 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 ( Note 13 ).

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, or U.S., federal income taxation 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 Real Estate Ownership segment under the REIT structure, while the activities conducted by our Investment Management segment subsidiaries have been organized under TRSs.

Reportable Segments
Real Estate Ownership — We own and invest in commercial properties principally in the U.S., the European Union and Asia that are then leased to companies, primarily on a triple-net lease basis. We have also invested in several operating properties, such as lodging and self-storage 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 our investments in the shares of the Managed REITs ( 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 September 30, 2014 , our owned portfolio was comprised of our full or partial ownership interests in 688 properties, substantially all of which were net leased to 215 tenants, with an occupancy rate of 98.1% , and totaled approximately 80.8 million square feet. Collectively, at September 30, 2014 , CPA ® :17 – Global and CPA ® :18 – Global owned all or a portion of 384 properties, including certain properties in which we have an ownership interest. Substantially all of these properties, totaling approximately 40.9 million square feet, were net leased to 150 tenants, with an average occupancy rate of approximately 99.9% . CPA ® :17 – Global, CPA ® :18 – Global, and CWI also had interests in 105 operating properties for an aggregate of approximately 11.0 million square feet at September 30, 2014 .

Investment Management — Through our TRSs, we structure and negotiate investments and debt placement transactions for the Managed REITs, for which we earn structuring revenue, and manage their portfolios of real estate investments, for which we earn asset-based management revenue. We 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 in connection with providing liquidity events for the Managed REITs’ stockholders. We are currently considering alternatives for expanding our investment management operations by raising funds in addition to the existing Managed REITs, although there can be no assurance that we will pursue any of these initiatives. These new funds could invest primarily in assets other than net-lease real estate and could include funds raised through publicly traded vehicles, either in the U.S. or internationally.



W. P. Carey 9/30/2014 10-Q – 8
Notes to Consolidated Financial Statements (Unaudited)

Note 2. Basis of Presentation

Basis of Presentation

Our interim consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not necessarily include all information and footnotes necessary for a fair statement of our consolidated financial position, results of operations, and cash flows in accordance with accounting principles generally accepted in the U.S., or GAAP.

In the opinion of management, the unaudited financial information for the interim periods presented in this Report reflects all normal and recurring adjustments necessary for a fair statement of financial position, results of operations, and cash flows. Our interim consolidated financial statements should be read in conjunction with our audited consolidated financial statements and accompanying notes for the year ended December 31, 2013 , which are included in the 2013 Annual Report, as certain disclosures that would substantially duplicate those contained in the audited consolidated financial statements have not been included in this Report. Operating results for interim periods are not necessarily indicative of operating results for an entire year.

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.

The unaudited consolidated financial statements included in this Report have been retrospectively adjusted to reflect the disposition (or planned disposition) of certain properties as discontinued operations for all periods presented.

Basis of Consolidation

Our consolidated financial statements reflect all of our accounts, including those of our controlled subsidiaries and our tenancy-in-common interests as described below. The portion of equity in a consolidated subsidiary that is not attributable, directly or indirectly, to us is presented as noncontrolling interests. All significant intercompany accounts and transactions have been eliminated.

At September 30, 2014 , we had six investments in tenancy-in-common interests in various domestic and international properties, five of which we consolidate because we own 100% of these investments after acquiring the remaining interests in these investments from CPA ® :16 – Global in the CPA ® :16 Merger, and account for the remaining jointly-owned investment using the equity method of accounting. Consolidation of the remaining 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 these investments.

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 can cause us to consider an entity a VIE. In connection with the CPA ® :16 Merger, we acquired 12 VIEs. We consider these entities VIEs because the leases have certain features such as fixed price purchase or renewal options.

Additionally, we own interests in single-tenant, net-leased properties leased to companies through noncontrolling interests in partnerships and limited liability companies that we do not control but over which we exercise significant influence. We account for these investments under the equity method of accounting. At times, the carrying value of our equity investments may fall below zero for certain investments. We intend to fund our share of the 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 September 30, 2014 , none of our equity investments had carrying values below zero.

In June 2014, we filed a registration statement with the SEC to sell up to $1.0 billion of common stock of Carey Watermark Investors 2 Incorporated, or CWI 2, in an initial public offering plus up to an additional $400.0 million of its common stock under a dividend reinvestment plan. As of the date of this Report, the registration statement has not been declared effective by the SEC and there can be no assurance as to whether or when such offering would be commenced. Through September 30,


W. P. Carey 9/30/2014 10-Q – 9
Notes to Consolidated Financial Statements (Unaudited)

2014 , the financial activity of CWI 2, which has no significant assets, liabilities, or operations, was included in our consolidated financial statements.

In September 2014, we filed registration statements with the SEC to sell up to 50,000,000 shares and 21,000,000 shares of beneficial interest of Carey Credit Income Fund 2015 A and Carey Credit Income Fund 2015 T, respectively, in initial public offerings. As of the date of this Report, the registration statements have not been declared effective by the SEC and there can be no assurance as to whether or when such offerings would be commenced. Through September 30, 2014 , the financial activities of Carey Credit Income Fund 2015 A and Carey Credit Income Fund 2015 T, which have no significant assets, liabilities, or operations, were included in our consolidated financial statements.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation.

Recent Accounting Requirements

The following Accounting Standards Updates, or ASUs, promulgated by the Financial Accounting Standards Board are applicable to us:

ASU 2014-12, Compensation — Stock Compensation (Topic 718). ASU 2014-12 provides guidance on share-based payment awards, in which a performance target that affects vesting and that could be achieved after the requisite vesting period be treated as a performance condition. ASU 2014-12 is effective for periods beginning after December 15, 2015 and early adoption is permitted. We are currently evaluating the impact of ASU 2014-12 on our consolidated financial statements.

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, but will apply to reimbursed tenant costs and revenues generated from our operating properties and our Investment Management business. Additionally, this guidance modifies disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. ASU 2014-09 is effective beginning in 2017, and early adoption is not permitted. In adopting ASU 2014-09, companies may use either a full retrospective or a modified retrospective approach. We are currently evaluating the impact of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which we will adopt the standard in 2017.

ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360) . ASU 2014-08 changes the requirements for reporting discontinued operations. A discontinued operation may include a component of an entity or a group of components of an entity, or a business. Under this new guidance, a disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a “strategic shift that has or will have a major effect on an entity’s operations and financial results.” The new guidance also requires disclosures including pre-tax profit or loss and significant gains or losses arising from dispositions that represent an “individually significant component of an entity,” but do not meet the criteria to be reported as discontinued operations under ASU 2014-08. In the ordinary course of business we sell properties, which, under prior accounting guidance, we generally reported as discontinued operations; however, under ASU 2014-08, such property dispositions typically would not meet the criteria to be reported as discontinued operations. We elected to early adopt ASU 2014-08 prospectively for all dispositions after December 31, 2013. Consequently, individually significant properties that were sold or classified as held-for-sale during 2014 were not reclassified to discontinued operations in the consolidated financial statements, but have been disclosed in Note 15 to the consolidated financial statements. By contrast, and as required by the new guidance, the results for the current and prior year period reflect as discontinued operations in the consolidated financial statements all dispositions and assets classified as held-for-sale through December 31, 2013 that were deemed under the prior accounting guidance to be discontinued operations, as well as those assets classified as held-for-sale as part of the CPA ® :16 Merger. This ASU did not have a significant impact on our financial position or results of operations for any of the periods presented.

ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit when a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. ASU 2013-11 requires an entity to present an unrecognized tax benefit relating to a net operating loss carryforward, a similar tax loss or a tax credit carryforward as a reduction to a deferred tax asset, except in certain situations. To the extent the net operating loss carryforward, similar tax loss or tax credit carryforward is not available as of the reporting date under the governing tax law to settle any additional income taxes that would result from the disallowance of the tax position, or the governing tax law does not require the entity to use and


W. P. Carey 9/30/2014 10-Q – 10
Notes to Consolidated Financial Statements (Unaudited)

the entity does not intend to use the deferred tax asset for such purpose, the unrecognized tax benefit should be presented as a liability and should not net with a deferred tax asset. ASU 2013-11 became effective for us at the beginning of 2014. The adoption of ASU 2013-11 did not have a material impact on our financial condition or results of operations.

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 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 ( Note 11 ). 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 $ 0.3 billion 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 September 30, 2014 were $ 184.3 million and $ 62.5 million (inclusive of $ 2.2 million attributable to noncontrolling interests), respectively, for the nine months ended September 30, 2014 , and $68.3 million and $27.3 million (inclusive of $ 0.4 million attributable to noncontrolling interests), respectively, for the three months ended September 30, 2014 .

During the nine months ended September 30, 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 15 ). The results of operations for 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 ( Note 6 ). The results of operations for this property have been included in Income from continuing operations before income taxes in the consolidated financial statements.
Preliminary 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 of $ 30.4 million related to the CPA ® :16 Merger were expensed as incurred and classified within Merger and property acquisition expenses in the consolidated financial statements for the nine months ended September 30, 2014 . Costs of $5.0 million were incurred and classified within Merger and property acquisition expenses in the consolidated financial statements for the year ended December 31, 2013. In addition, CPA ® :16 – Global incurred a total of $10.6 million of merger expenses between 2013 and 2014.


W. P. Carey 9/30/2014 10-Q – 11
Notes to Consolidated Financial Statements (Unaudited)

The purchase price was allocated to the assets acquired and liabilities assumed, based upon their preliminary fair values at January 31, 2014. The fair values of the lease intangibles acquired were measured in a manner consistent with our purchase price allocation policy described in the 2013 Annual Report. During the second quarter of 2014, we identified certain measurement period adjustments that impacted the provisional accounting, which increased the total consideration by $1.9 million , and also increased total identifiable net assets by $2.3 million , and increased amounts attributable to noncontrolling interests by $0.3 million , resulting in a $0.1 million decrease in goodwill. The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed in the acquisition, based on the current best estimate of management. We are in the process of finalizing our assessment of the fair value of the assets acquired and liabilities assumed. Investments in real estate, net investments in direct financing leases, equity investments in real estate, non-recourse debt, and amounts attributable to noncontrolling interests were based on preliminary valuation data and estimates. Accordingly, the fair value of these assets and liabilities and the impact to goodwill are subject to change.

(In thousands)
Initially Reported at March 31, 2014
Measurement Period Adjustments
As Revised at September 30, 2014
Total Consideration
Fair value of W. P. Carey shares of common stock issued
$
1,815,521

$
—

$
1,815,521

Cash consideration for fractional shares
1,338

—

1,338

Merger Consideration
1,816,859

—

1,816,859

Fair value of our equity interest in CPA ® :16 – Global prior to the
CPA ® :16 Merger
347,164

1,284

348,448

Fair value of our equity interest in jointly-owned investments with CPA ® :16 – Global prior to the CPA ® :16 Merger
172,720

—

172,720

Fair value of noncontrolling interests acquired
(278,829
)
642

(278,187
)
$
2,057,914

$
1,926

$
2,059,840

Assets Acquired at Fair Value

Net investments in properties
$
1,969,274

$
901

$
1,970,175

Net investments in direct financing leases
538,607

(382
)
538,225

Equity investments in real estate
74,367


74,367

Assets held for sale
132,951

464

133,415

In-place lease intangible assets
553,479

244

553,723

Above-market rent intangible assets
395,663

161

395,824

Cash and cash equivalents
65,429

—

65,429

Other assets, net
82,032

—

82,032

3,811,802

1,388

3,813,190

Liabilities Assumed at Fair Value

Non-recourse debt and line of credit
(1,768,288
)
—

(1,768,288
)
Below-market rent and other intangible liabilities
(57,209
)
(360
)
(57,569
)
Accounts payable, accrued expenses and other liabilities
(118,389
)
—

(118,389
)
Deferred tax liability
(59,629
)
1,282

(58,347
)
(2,003,515
)
922

(2,002,593
)
Total identifiable net assets
1,808,287

2,310

1,810,597

Amounts attributable to noncontrolling interests
(99,345
)
(288
)
(99,633
)
Goodwill
348,972

(96
)
348,876

$
2,057,914

$
1,926

$
2,059,840



W. P. Carey 9/30/2014 10-Q – 12
Notes to Consolidated Financial Statements (Unaudited)

Goodwill
The $348.9 million of preliminary estimated goodwill recorded in connection with the CPA ® :16 Merger was primarily attributable to the $428.5 million premium we agreed to pay for CPA ® :16 – Global’s common stock. At the time we entered into the merger agreement in July 2013, the consideration of $11.25 per common share of CPA ® :16 – Global represented a premium of $2.55 per share over the December 31, 2012 estimated net asset value per share, or NAV, of CPA ® :16 – Global, its most recently published NAV, which was $8.70 . 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 acquired during the time between the December 31, 2012 NAV and the date of the CPA ® :16 Merger.
The fair value of the 30,729,878 shares of our common stock issued in the CPA ® :16 Merger as part of the consideration paid for CPA ® :16 – Global of $1.8 billion was derived from the closing market price of our common stock on the acquisition date. As required by GAAP, the fair value related to the assets acquired and liabilities assumed, as well as the shares exchanged, has been computed as of the date we gained control of CPA ® :16 – Global, which was the closing date of the CPA ® :16 Merger, in a manner consistent with the methodology described above.
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 the second quarter of 2014, we identified certain measurement period adjustments that impacted the provisional accounting, which increased the estimated fair value of our previously-held equity interest in shares of CPA ® :16 – Global’s common stock by $1.3 million , resulting in an increase of $1.3 million in Gain on change in control of interests. In accordance with Accounting Standard Codification, or ASC, 805-10-25, we did not record the measurement period adjustments during the three months ended June 30, 2014. Rather, such amounts will be reflected in all future financial statements that include 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 , which was the difference between our carrying values and the preliminary 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. During the nine months ended September 30, 2014 , one of these investments was sold and is included in Income from discontinued operations, net of tax in the consolidated financial statements.
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 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 approximately $278.2 million , respectively. During the second quarter of 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.



W. P. Carey 9/30/2014 10-Q – 13
Notes to Consolidated Financial Statements (Unaudited)

The preliminary fair values of our previously-held equity interests and our noncontrolling interests are based on the estimated fair market values of the underlying real estate and related mortgage debt, both of which were determined by management relying in part on a third party. Real estate valuation requires significant judgment. We determined the significant inputs to be Level 3 with ranges for the entire portfolio as follows:
•
Discount rates applied to the estimated net operating income of each property ranged from approximately 4.75% to 15.25% ;
•
Discount rates applied to the estimated residual value of each property ranged from approximately 4.75% to 14.00% ;
•
Residual capitalization rates applied to the properties ranged from approximately 5.00% to 12.50% ;
•
The fair market value of the property level debt was determined based upon available market data for comparable liabilities and by applying selected discount rates to the stream of future debt payments; and
•
Discount rates applied to the property level debt cash flows ranged from approximately 1.80% to 8.75% .
Other than for two investments, no illiquidity adjustments to the equity interests or noncontrolling interests were deemed necessary as the investments were generally held with affiliates and did not allow for unilateral sale or financing by any of the affiliated parties. With respect to the two investments, a discount of 5% was applied in deriving the value of such interest, reflecting the terms of the third-party jointly-owned investments in which the real estate interest is held. The discount and/or capitalization rates utilized in the appraisals also reflect the illiquidity of real estate assets. Lastly, there were no control premiums contemplated as the investments were in individual, or a portfolio of, underlying real estate and debt, as opposed to a business operation.

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 three and nine months ended September 30, 2014 and 2013 . 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):
Three Months Ended September 30,
Nine Months Ended September 30,
2014
2013
2014
2013
Pro forma total revenues
$
195,945

$
205,367

$
682,977

$
567,452

Pro forma net income from continuing operations, net of tax
$
28,086

$
28,446

$
106,495

$
142,146

Pro forma net income attributable to noncontrolling interests
(993
)
(2,689
)
(3,909
)
(5,225
)
Pro forma net loss (income) attributable to redeemable noncontrolling interest
14

(726
)
(137
)
876

Pro forma net income from continuing operations, net of tax attributable to W. P. Carey
$
27,107

$
25,031

$
102,449

$
137,797





Pro forma earnings per share: (a)




Basic
$
0.27

$
0.25

$
1.02

$
1.38

Diluted
$
0.26

$
0.25

$
1.01

$
1.36

Pro forma weighted-average shares: (b)
Basic
100,282,082

99,337,927

100,080,000

99,449,142

Diluted
101,130,448

100,341,575

101,118,305

100,576,198

___________
(a)
The pro forma income attributable to W. P. Carey for the nine months ended September 30, 2013 reflects the following income and expenses recognized related to the CPA ® :16 Merger as if the CPA ® :16 Merger had taken place on January 1, 2013: (i) combined merger expenses through September 30, 2014 ; (ii) an aggregate gain on change in control of interests of $104.6 million ; and (iii) an income tax expense of $ 4.8 million from a permanent difference upon recognition of deferred


W. P. Carey 9/30/2014 10-Q – 14
Notes to Consolidated Financial Statements (Unaudited)

revenue 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.
(b)
The pro forma weighted-average shares outstanding for the three and nine months ended September 30, 2014 and 2013 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.

Note 4. Agreements and Transactions with Related Parties
Advisory Agreements with the Managed REITs
We have advisory agreements with each of the Managed REITs, pursuant to which we earn fees and are entitled to receive cash distributions. The following tables present a summary of revenue earned and/or cash received from the Managed REITs for the periods indicated, included in the consolidated financial statements (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2014
2013
2014
2013
Reimbursable costs from affiliates (a)
$
14,722

$
23,259

$
96,379

$
50,714

Asset management revenue (a)
9,064

10,939

27,840

31,262

Distributions of Available Cash
7,893

7,323

23,574

23,891

Structuring revenue
5,487

14,775

40,492

27,539

Dealer manager fees
2,436

3,787

17,062

7,329

Interest income on deferred acquisition fees and loans to affiliates
172

141

515

620

Deferred revenue earned
—

2,123

786

6,369

$
39,774

$
62,347

$
206,648

$
147,724

Three Months Ended September 30,
Nine Months Ended September 30,
2014
2013
2014
2013
CPA ® :16 – Global (b)
$
—

$
13,060

$
7,999

$
39,688

CPA ® :17 – Global (c)
16,555

21,027

49,032

50,082

CPA ® :18 – Global (c)
8,836

3,171

107,668

3,171

CWI (d)
14,383

25,089

41,949

54,783

$
39,774

$
62,347

$
206,648

$
147,724

___________
(a)
Excludes amounts received from third parties.
(b)
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 their advisory agreement was waived upon the completion of the CPA ® :16 Merger. The amount shown for the nine months ended September 30, 2014 reflects transactions through January 31, 2014.
(c)
The current form of the advisory agreement is scheduled to expire on December 31, 2014, unless renewed pursuant to its terms.
(d)
The current form of the advisory agreement is scheduled to expire on September 30, 2015, unless renewed pursuant to its terms.

The following table presents a summary of amounts Due from affiliates (in thousands):
September 30, 2014
December 31, 2013
Deferred acquisition fees receivable
$
19,585

$
19,684

Reimbursable costs
2,084

334

Accounts receivable
1,862

3,716

Organization and offering costs
1,785

2,700

Current acquisition fees receivable
759

4,149

Asset management fee receivable
—

1,451

$
26,075

$
32,034




W. P. Carey 9/30/2014 10-Q – 15
Notes to Consolidated Financial Statements (Unaudited)

Asset Management Revenue
We earn asset management revenue from each Managed REIT, which is based on average invested assets and is calculated according to the respective advisory agreement. For CPA ® :16 – Global, prior to the CPA ® :16 Merger, we earned asset management revenue of 0.5% of average invested assets. For CPA ® :17 – Global and CPA ® :18 – Global, we earn asset management revenue ranging from 0.5% to 1.75% and 0.5% to 1.5% , respectively, depending on the type of investment and based on the average market value or average equity value, as applicable. For CWI, we earn asset management revenue of 0.5% of the average market value of lodging-related investments.
Under the terms of the advisory agreements, we may elect to receive cash or shares of stock for asset management revenue due from each Managed REIT. In 2014 and 2013, we elected to receive all asset management revenue from CPA ® :17 – Global, CPA ® :18 – Global, and CWI in their respective shares. For 2013, we initially elected to receive asset management revenue from CPA ® :16 – Global in its shares until we agreed to receive those fees in cash commencing August 1, 2013 at the request of a Special Committee of the Board of Directors of CPA ® :16 – Global.
Structuring Revenue
Under the terms of the advisory agreements, we earn revenue in connection with structuring and negotiating investments and related financing for the Managed REITs, which we call acquisition revenue. We may receive acquisition revenue of 4.5% of the total aggregate cost of long-term net-lease investments made by each CPA ® REIT. A portion of this revenue (generally 2.5% ) is paid when the transaction is completed, while the remainder (generally 2% ) is paid in annual installments over three years , provided the relevant CPA ® REIT meets its performance criterion. For certain types of non-long term net-lease investments acquired on behalf of CPA ® :17 – Global, initial acquisition revenue may range from 0% to 1.75% of the equity invested plus the related acquisition revenue, with no deferred acquisition revenue being earned. For CWI, we earn initial acquisition revenue of 2.5% of the total investment cost of the properties acquired and loans originated by CWI not to exceed 6% of the aggregate contract purchase price of all investments and loans, with no deferred acquisition revenue being earned. For CWI, we may also be entitled to fees for structuring loan refinancing transactions of up to 1% of the principal amount. This loan refinancing revenue, together with the acquisition revenue, is referred to as structuring revenue.

Unpaid transaction fees, including accrued interest, are included in Due from affiliates in the consolidated financial statements. Unpaid transaction fees bear interest at annual rates ranging from 2% to 5% .

Reimbursable Costs from Affiliates and Dealer Manager Fees
The Managed REITs reimburse us for certain costs we incur on their behalf, primarily broker-dealer commissions, marketing costs, an annual distribution and shareholder servicing fee, or Shareholder Servicing Fee, and certain personnel and overhead costs. Personnel and overhead costs are charged to the CPA ® REITs based on the average of the trailing 12-month reported revenues of the CPA ® REITs, CWI, and us. We began to allocate personnel and overhead costs to CWI on January 1, 2014 based on the time incurred by our personnel. For 2014, we agreed to receive personnel cost reimbursements from CWI in shares of its common stock.

During CWI’s initial public offering, which was terminated in September 2013, we earned a selling commission of $ 0.70 per share sold and a dealer manager fee of $ 0.30 per share sold. We currently earn a selling commission of $ 0.70 per share sold and a dealer manager fee of $ 0.30 per share sold for CWI’s follow-on offering, which began in December 2013. We also earned a selling commission of $ 0.65 per share sold and a dealer manager fee of $ 0.35 per share sold during CPA ® :17 – Global’s follow-on offering, which was terminated in January 2013.

For CPA ® :18 – Global’s initial public offering, we receive selling commissions, depending on the class of common stock sold, of $ 0.70 or $ 0.14 per share sold, and a dealer manager fee of $ 0.30 or $ 0.21 per share sold, for its class A common stock and class C common stock, respectively. CPA ® :18 – Global completed sales of its class A common stock during July 2014. We also receive a Shareholder Servicing Fee paid in connection with investor purchases of shares of class C common stock. The amount of the Shareholder Servicing Fee is 1% of the purchase price per share (or, once reported, the amount of the estimated NAV per share) for the shares of class C common stock sold in the offering. The Shareholder Servicing Fee is accrued daily and is payable quarterly in arrears. CPA ® :18 – Global will cease paying the Shareholder Servicing Fee on the date at which, in the aggregate, underwriting compensation from all sources, including the Shareholder Servicing Fee, any organizational and offering fee paid for underwriting, and underwriting compensation paid by us, equals 10% of the gross proceeds from the initial public offering.



W. P. Carey 9/30/2014 10-Q – 16
Notes to Consolidated Financial Statements (Unaudited)

We re-allow all of the selling commissions and may re-allow a portion of the dealer manager fees to selected dealers in the offerings for CWI and CPA ® :18 – Global. Dealer manager fees that are not re-allowed and Shareholder Servicing Fees are classified as Dealer manager fees in the consolidated financial statements.

Pursuant to its advisory agreement, CWI is obligated to reimburse us for all organization costs and a portion of offering costs incurred in connection with its initial and follow-on public offerings up to a maximum amount (excluding selling commissions and the dealer manager fee) of 2% and 4% , respectively, of the gross proceeds of its offering and distribution reinvestment plan. Through September 30, 2014 , we incurred organization and offering costs on behalf of CWI of approximately $ 12.3 million , which CWI is obligated to reimburse us, and $ 12.3 million had been reimbursed as of September 30, 2014 .

Pursuant to its advisory agreement, CPA ® :18 – Global is obligated to reimburse us for all organization costs and a portion of offering costs incurred in connection with its initial public offering. CPA ® :18 – Global is obligated to reimburse us up to 1.5% of the gross proceeds within 60 days after the end of the quarter in which the offering terminates. Through September 30, 2014 , we incurred organization and offering costs on behalf of CPA ® :18 – Global of approximately $ 7.7 million , and based on current fundraising projections, the entire amount is expected to be reimbursed by CPA ® :18 – Global. As of September 30, 2014 , $ 7.4 million had been reimbursed.
Distributions of Available Cash and Deferred Revenue Earned
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. 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 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 Income from equity investments in real estate and the Managed REITs within the Real Estate Ownership segment.

Other Transactions with Affiliates
Transactions with the Estate of Wm. Polk Carey
On March 28, 2013, we received an irrevocable notice from the Estate of Wm. Polk Carey, our chairman and founder who passed away on January 2, 2012, to exercise its final sale option under a Share Purchase Agreement that we entered into in July 2012. On April 4, 2013, we repurchased 616,971 shares of our common stock for $ 40.0 million from the Estate at a price of $ 64.83 per share at which time it was recorded as Treasury stock on our consolidated balance sheet.
The following table presents a reconciliation of our Redeemable securities – related party (in thousands):
Nine Months Ended September 30,
2014
2013
Beginning balance
$
—

$
40,000

Redemption of securities
—

(40,000
)
Ending balance
$
—

$
—

Loans to Managed REITs

During 2013 and 2014, our board of directors approved unsecured loans from us to CWI and CPA ® :18 – Global of up to $ 75.0 million and up to $ 100.0 million , respectively, each 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 sufficient available funds to complete, with any loans to be made solely at our Management’s discretion. On June 25, 2014, in order to facilitate an acquisition by CWI, we made an $11.0 million loan to CWI, with an annual interest rate of London Interbank Offered Rate, or LIBOR, plus 1.1% and a scheduled maturity date of June 30, 2015 . The loan, including accrued interest, was repaid in full prior to maturity on July 22, 2014. On August 20, 2013, in order to facilitate an acquisition by CPA ® :18 – Global, we made a $15.0 million loan to CPA ® :18 – Global, which was repaid in full prior to maturity on October 4, 2013 .


W. P. Carey 9/30/2014 10-Q – 17
Notes to Consolidated Financial Statements (Unaudited)

Treasury Stock

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 Merger Consideration in exchange for their shares of CPA ® :16 – Global common stock in the CPA ® :16 Merger ( 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

We own interests in entities ranging from 3% to 90% , as well as jointly-controlled tenancy-in-common interests in properties, with the remaining interests generally held by affiliates, and own common stock in each of the Managed REITs. We consolidate certain of these investments and account for the remainder under the equity method of accounting.

Note 5. Net Investments in Properties
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):
September 30, 2014
December 31, 2013
Land
$
1,090,425

$
534,697

Buildings
3,460,094

1,972,107

Real estate under construction
21,794

9,521

Less: Accumulated depreciation
(239,941
)
(168,076
)
$
4,332,372

$
2,348,249

During the nine months ended September 30, 2014 , the U.S. dollar strengthened against the euro, as the end-of-period rate for the U.S. dollar in relation to the euro at September 30, 2014 decreased by 7.9% to $1.2687 from $1.3768 at December 31, 2013 . The impact of this strengthening was an $81.3 million decrease in the carrying value of Real estate from December 31, 2013 to September 30, 2014 ( Note 11 ).

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 nine months ended September 30, 2014 . In connection with restructuring three leases, we reclassified properties with an aggregate carrying value of $ 13.7 million from Net investments in direct financing leases to Real estate during the nine months ended September 30, 2014 ( Note 6 ).

Acquisitions of Real Estate

During the nine months ended September 30, 2014 , we entered into the following investments, which were deemed to be business combinations because we assumed the existing leases on the properties, at a total cost of $ 252.0 million , including land of $ 26.9 million , buildings of $ 188.3 million , and net lease intangibles of $ 36.8 million ( Note 8 ):

•
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/distribution facility in University Park, Illinois on May 15, 2014;
•
an investment of $ 116.9 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 $ 14.6 million . In connection with this business combination, we recorded goodwill of $ 11.7 million ( Note 8 ). Dollar amounts are based on the exchange rate of the Norwegian krone on the date of acquisition; and
•
an investment of $ 46.0 million for an office building in Westborough, Massachusetts on August 22, 2014.



W. P. Carey 9/30/2014 10-Q – 18
Notes to Consolidated Financial Statements (Unaudited)

The purchase price for our investment in Norway was allocated to the assets acquired and liabilities assumed based upon their preliminary estimated fair values, which are based on the best estimates of management at the date of acquisition. We are in the process of finalizing our assessment of the fair value of the assets acquired and liabilities assumed.

In connection with these transactions, we expensed acquisition-related costs totaling $ 0.8 million , which are included in Merger and property acquisition expenses in the consolidated financial statements.

Operating Real Estate
Operating real estate, which consists of our investments in two hotels acquired in the CPA ® :16 Merger and two self-storage properties, at cost, is summarized as follows (in thousands):
September 30, 2014
December 31, 2013
Land
$
7,027

$
1,097

Buildings
77,567

4,927

Less: Accumulated depreciation
(3,698
)
(882
)
$
80,896

$
5,142


Assets Held for Sale

Below is a summary of our properties held for sale (in thousands):
September 30, 2014
December 31, 2013
Real estate, net
$
—

$
62,466

Above-market rent intangible assets, net
—

13,872

In-place lease intangible assets, net
—

12,293

Below-market rent and other intangible liabilities, net
—

(1,808
)
Assets held for sale
$
—

$
86,823


At December 31, 2013 , we had nine properties classified as Assets held for sale, all of which were sold during the nine months ended September 30, 2014 . In connection with the CPA ® :16 Merger in January 2014, we acquired ten properties that were classified as Assets held for sale with a total fair value of $133.4 million , all of which were sold during the nine months ended September 30, 2014 . In accordance with our adoption of ASU 2014-08 ( Note 2 ), the results of operations for these properties are reflected in the consolidated financial statements as discontinued operations ( Note 15 ).

During the nine months ended September 30, 2014 , we reclassified one property with a carrying value of $1.3 million to Assets held for sale, which was then subsequently sold. In accordance with our adoption of ASU 2014-08 ( Note 2 ), the results of operations for this property are included within continuing operations in the consolidated financial statements.



W. P. Carey 9/30/2014 10-Q – 19
Notes to Consolidated Financial Statements (Unaudited)

Note 6. Finance Receivables
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.
Net Investments in Direct Financing Leases
Net investments in direct financing leases is summarized as follows (in thousands):
September 30, 2014
December 31, 2013
Minimum lease payments receivable
$
953,074

$
466,182

Unguaranteed residual value
840,096

363,903

1,793,170

830,085

Less: unearned income
(954,695
)
(466,665
)
$
838,475

$
363,420

Interest income from direct financing leases, which was i ncluded in Lease revenues in the consolidated financial statements, was $20.8 million and $9.2 million for the three months ended September 30, 2014 and 2013 , respectively, and $59.3 million and $28.1 million for the nine months ended September 30, 2014 and 2013 , respectively. I n 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 nine months ended September 30, 2014 ( Note 15 ). During the nine months ended September 30, 2014 , the U.S. dollar strengthened against the euro, as the end-of-period rate for the U.S. dollar in relation to the euro at September 30, 2014 decreased by 7.9% to $1.2687 from $1.3768 at December 31, 2013 . The impact of this strengthening was a $32.6 million decrease in the carrying value of Net investments in direct financing leases from December 31, 2013 to September 30, 2014 . During the nine months ended September 30, 2014 , we reclassified properties with a carrying value of $13.7 million from Net investments in direct financing leases to Real estate ( Note 5 ), in connection with the restructuring of the underlying leases. We also recognized impairment charges totaling $ 0.8 million on six 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 ).

At September 30, 2014 and December 31, 2013 , Other assets, net included $ 1.7 million and $ 0.1 million , respectively, of accounts receivable related to amounts billed under these direct financing leases.

Notes Receivable

At September 30, 2014 , our notes receivable, which were included in Other assets, net in the consolidated financial statements, consisted of the following:

•
A note we acquired in the CPA ® :16 Merger with a carrying value of $ 11.1 million on the date of acquisition, representing the expected future payments under a sales type lease; and
•
A B-note we acquired in the CPA ® :16 Merger with a carrying value of $ 9.9 million on the date of acquisition. This note has a fixed annual interest rate of 6.3% and a maturity date of February 11, 2015 .

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. At both September 30, 2014 and December 31, 2013, none of the balances of our finance receivables were past due and we had not established any allowances for credit losses. Other than the lease restructurings discussed above, there


W. P. Carey 9/30/2014 10-Q – 20
Notes to Consolidated Financial Statements (Unaudited)

were no modifications of finance receivables during the nine months ended September 30, 2014 or the year ended December 31, 2013 . 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. The credit quality evaluation of our finance receivables was last updated in the third quarter of 2014. 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 is as follows (dollars in thousands):
Number of Tenants at
Net Investments in Direct Financing Leases at
Internal Credit Quality Indicator
September 30, 2014
December 31, 2013
September 30, 2014
December 31, 2013
1
3
3
$
79,388

$
42,812

2
3
3
27,496

27,869

3
21
8
594,344

284,968

4
7
1
137,247

7,771

5
—
—
—

—

$
838,475

$
363,420


A summary of our notes receivable by internal credit quality rating is as follows (dollars in thousands):
Number of Obligors at
Notes Receivable at
Internal Credit Quality Indicator
September 30, 2014
December 31, 2013
September 30, 2014
December 31, 2013
1
—
—
$
—

$
—

2
1
—
10,026

—

3
1
—
10,957

—

4
—
—
—

—

5
—
—
—

—

$
20,983

$
—




W. P. Carey 9/30/2014 10-Q – 21
Notes to Consolidated Financial Statements (Unaudited)

Note 7. Equity Investments in Real Estate and the Managed REITs
We own interests in certain unconsolidated real estate investments with the Managed REITs and also own interests in the Managed REITs. 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).
The following table presents net income from equity investments in real estate and the Managed REITs, 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):
Three Months Ended September 30,
Nine Months Ended September 30,
2014
2013
2014
2013
Proportionate share of earnings from equity investments in the Managed REITs
$
381

$
3,542

$
1,930

$
7,086

Amortization of basis differences on equity investments in the Managed REITs
(140
)
(958
)
(648
)
(3,418
)
Other-than-temporary impairment charges on the Special Member Interest in CPA ® :16 – Global’s operating partnership
—

(6,554
)
(735
)
(12,082
)
Distributions of Available Cash ( Note 4 )
7,893

7,323

23,574

23,891

Deferred revenue earned ( Note 4 )
—

2,123

786

6,369

Total equity earnings from the Managed REITs
8,134

5,476

24,907

21,846

Equity earnings from other equity investments
3,507

4,625

11,124

34,557

Amortization of basis differences on other equity investments
(31
)
(921
)
(707
)
(4,026
)
Net income from equity investments in real estate and the Managed REITs
$
11,610

$
9,180

$
35,324

$
52,377

Managed REITs
We own interests in the Managed REITs 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 REITs.
The following table sets forth certain information about our investments in the Managed REITs (dollars in thousands):
% of Outstanding Shares Owned at
Carrying Amount of Investment at
Fund
September 30, 2014
December 31, 2013
September 30, 2014 (a) (b)
December 31, 2013 (b)
CPA ® :16 – Global (c)
100.000
%
18.533
%
$
—

$
282,520

CPA ® :16 – Global operating partnership (d)
100.000
%
0.015
%
—

813

CPA ® :17 – Global (e)
2.482
%
1.910
%
74,768

57,753

CPA ® :17 – Global operating partnership (f)
0.009
%
0.009
%
—

—

CPA ® :18 – Global
0.157
%
0.127
%
1,870

320

CPA ® :18 – Global operating partnership (g)
0.034
%
0.034
%
209

209

CWI
1.105
%
0.538
%
9,667

3,369

CWI operating partnership (h)
0.015
%
0.015
%
—

—

$
86,514

$
344,984

___________
(a)
Includes asset management fees receivable, for which 232,966 shares, 25,044 class A shares, and 63,542 shares of common stock of CPA ® :17 – Global, CPA ® :18 – Global, and CWI, respectively, were issued during the fourth quarter of 2014.
(b)
At September 30, 2014 and December 31, 2013 , the aggregate unamortized basis differences on our equity investments in the Management REITs were $17.4 million and $80.5 million , respectively.


W. P. Carey 9/30/2014 10-Q – 22
Notes to Consolidated Financial Statements (Unaudited)

(c)
On January 31, 2014, we acquired all the remaining interests in CPA ® :16 – Global, which merged into one of our subsidiaries with our subsidiary as the surviving entity, in the CPA ® :16 Merger ( Note 3 ). We received distributions of $6.4 million and $ 18.9 million from this affiliate during January 2014 and the nine months ended September 30, 2013 , respectively.
(d)
During January 2014 and the nine months ended September 30, 2013 , we recognized other-than-temporary impairment charges of $0.7 million and $ 12.1 million , respectively, on this investment to reduce the carrying value of our interest in the investment to its estimated fair value ( Note 9 ). In addition, we received distributions of $4.8 million and $ 11.2 million from this investment during January 2014 and the nine months ended September 30, 2013 , respectively. On January 31, 2014, we acquired the remaining interests in CPA ® :16 – Global’s operating partnership and now consolidate this entity.
(e)
We received distributions of $ 3.3 million and $ 2.1 million from this affiliate during the nine months ended September 30, 2014 and 2013 , respectively.
(f)
We received distributions of $ 15.4 million and $ 12.7 million from this affiliate during the nine months ended September 30, 2014 and 2013 , respectively.
(g)
We received distributions of $ 1.2 million from this affiliate, which commenced operations in May 2013, during the nine months ended September 30, 2014 .
(h)
We received distributions of $ 2.2 million from this affiliate during the nine months ended September 30, 2014 .

The following tables present estimated combined summarized financial information for the Managed REITs. Certain prior year amounts have been retrospectively adjusted to reflect the impact of discontinued operations. Amounts provided are expected total amounts attributable to the Managed REITs and do not represent our proportionate share (in thousands):
September 30, 2014
December 31, 2013
Real estate, net
$
5,407,623

$
7,218,177

Other assets
2,186,173

2,128,862

Total assets
7,593,796

9,347,039

Debt
(3,109,373
)
(4,237,044
)
Accounts payable, accrued expenses and other liabilities
(444,320
)
(571,097
)
Total liabilities
(3,553,693
)
(4,808,141
)
Noncontrolling interests
(158,711
)
(192,492
)
Stockholders’ equity
$
3,881,392

$
4,346,406


Three Months Ended September 30,
Nine Months Ended September 30,
2014
2013
2014
2013
Revenues
$
210,031

$
211,102

$
602,153

$
573,969

Expenses
(204,097
)
(198,286
)
(594,186
)
(528,847
)
Income from continuing operations
$
5,934

$
12,816

$
7,967

$
45,122

Net income attributable to the Managed REITs (a) (b)
$
5,934

$
18,303

$
7,967

$
45,389

___________
(a)
Inclusive of impairment charges recognized by the Managed REITs totaling $0.1 million during each of the three and nine months ended September 30, 2014 , and $ 0.5 million and $22.2 million during the three and nine months ended September 30, 2013 , respectively. These impairment charges reduced our income earned from these investments by less than $0.1 million during each of the three and nine months ended September 30, 2014 , and by approximately $ 0.1 million and $4.1 million during the three and nine months ended September 30, 2013 , respectively.
(b)
Amounts included net gains on sale of real estate recorded by the Managed REITs totaling $ 0.8 million and $13.3 million for the three and nine months ended September 30, 2014 , respectively, and net gains (losses) on sale of real estate of $2.4 million and $(2.9) million during the three and nine months ended September 30, 2013 , 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


W. P. Carey 9/30/2014 10-Q – 23
Notes to Consolidated Financial Statements (Unaudited)

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 REITs, and their respective carrying values (dollars in thousands):
Ownership Interest at
Carrying Value at
Lessee
Co-owner(s)
September 30, 2014
September 30, 2014
December 31, 2013
Same Store Equity Investments (a) (b)
C1000 Logistiek Vastgoed B.V. (c)
CPA ® :17 – Global
15%
$
12,278

$
13,673

Waldaschaff Automotive GmbH and Wagon Automotive Nagold GmbH
CPA ® :17 – Global
33%
7,090

7,267

Wanbishi Archives Co. Ltd.
CPA ® :17 – Global
3%
367

395

19,735

21,335

Equity Investments Consolidated After the CPA ® :16 Merger (d)
Schuler A.G. (a)
CPA ® :16 – Global
100%
—

65,798

Hellweg Die Profi-Baumärkte GmbH
& Co. KG (Hellweg 2) (a) (e)
CPA ® :16 – Global/ CPA ® :17 – Global
63%
—

27,923

Advanced Micro Devices
CPA ® :16 – Global
100%
—

22,392

The Upper Deck Company
CPA ® :16 – Global
100%
—

7,518

Del Monte Corporation
CPA ® :16 – Global
100%
—

7,145

Builders FirstSource, Inc.
CPA ® :16 – Global
100%
—

4,968

PetSmart, Inc.
CPA ® :16 – Global
100%
—

3,877

Consolidated Systems, Inc.
CPA ® :16 – Global
100%
—

3,176

SaarOTEC (a)
CPA ® :16 – Global
100%
—

(639
)
—

142,158

Equity Investments Acquired in the CPA ® :16 Merger
The New York Times Company (f)
CPA ® :16 – Global/
CPA ® :17 – Global
45%
74,704

21,543

Frontier Spinning Mills, Inc.
CPA ® :17 – Global
40%
15,578

—

Actebis Peacock GmbH (a)
CPA ® :17 – Global
30%
6,467

—







96,749


21,543

Recently Acquired Equity Investment
Beach House JV, LLC (g)
Third Party
N/A (g)
15,105

—

$
131,589

$
185,036

___________
(a)
The carrying value of this investment is affected by the impact of fluctuations in the exchange rate of the foreign currency.
(b)
Represents equity investments we acquired prior to January 1, 2013.
(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. For this investment, the co-obligor is CPA ® :17 – Global and the amount due under the arrangement was approximately $ 86.8 million at September 30, 2014 . Of this amount, $ 13.0 million represents the amount we agreed to pay and is included within the carrying value of the investment at September 30, 2014 .
(d)
We acquired the remaining interests in these investments from CPA ® :16 – Global in the CPA ® :16 Merger. Subsequent to the CPA ® :16 Merger, we consolidate these wholly-owned or majority-owned investments ( Note 3 ).
(e)
We acquired an additional 25% interest in this investment in the CPA ® :16 Merger. The remaining interest in this investment is owned by CPA ® :17 – Global.
(f)
We acquired an additional 27% interest in this investment in the CPA ® :16 Merger. The remaining interest in this investment is owned by CPA ® :17 – Global.
(g)
During the nine months ended September 30, 2014 , we received a preferred equity position in Beach House JV, LLC, as part of the sale of the Soho House investment. The preferred equity interest, which is redeemable on March 13, 2019,


W. P. Carey 9/30/2014 10-Q – 24
Notes to Consolidated Financial Statements (Unaudited)

provides us with a preferred rate of return of 8.5% . The rights under these preferred units allow us to have significant influence over the entity. Accordingly, we account for this investment using the equity method of accounting. We own 100 redeemable preferred units and zero common units of Beach House JV LLC. During the nine months ended September 30, 2014 , we recognized $0.7 million of income related to this investment, which is included in Net income from equity investments in real estate and the Managed REITs in the consolidated financial statements.

We received aggregate distributions of $ 9.0 million and $ 10.4 million from our other unconsolidated real estate investments for the nine months ended September 30, 2014 and 2013 , respectively. At September 30, 2014 and December 31, 2013 , the aggregate unamortized basis differences on our unconsolidated real estate investments were $ 5.8 million and $ 16.6 million , respectively.

Note 8. Goodwill and Other Intangibles

In connection with our acquisitions of properties, we have recorded net lease 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 134 years . In-place lease and above-market rent are included in In-place lease intangible assets, net and Above-market rent intangible assets, net, respectively, in the consolidated financial statements. Tenant relationship, below-market ground lease (as lessee), trade name, management contracts, and software license 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 the nine months ended September 30, 2014 , including primarily the properties we acquired through the CPA ® :16 Merger, we recorded net lease intangibles comprised as follows (life in years, dollars in thousands):
Weighted-Average Life
Amount
Amortizable Intangible Assets

In-place lease
12.3
$
596,298

Above-market rent
12.3
395,824

Below-market ground lease
62.7
14,397

$
1,006,519

Amortizable Intangible Liabilities
Below-market rent
17.9
$
(56,665
)
Above-market ground lease
31.5
(6,712
)
$
(63,377
)



W. P. Carey 9/30/2014 10-Q – 25
Notes to Consolidated Financial Statements (Unaudited)

In connection with the CPA ® :16 Merger, we recorded preliminary goodwill of $349.0 million as a result of the Merger Consideration exceeding the fair value of the assets acquired and liabilities assumed ( Note 3 ). During the second quarter of 2014, we identified certain measurement period adjustments that impacted the provisional accounting, which decreased the total fair value of our equity interest in CPA ® :16 – Global and noncontrolling interests acquired by $ 0.1 million . The goodwill was attributed to our Real Estate Ownership reporting unit as it relates to the real estate assets we acquired in the CPA ® :16 Merger. The following table presents a reconciliation of our goodwill (in thousands):
Real Estate Ownership
Investment Management
Total
Balance at January 1, 2014
$
286,601

$
63,607

$
350,208

Acquisition of CPA ® :16 – Global
348,876

—

348,876

Other adjustments accounted for as business combinations (a)
14,137

—

14,137

Allocation of goodwill to the cost basis of properties sold or classified as held-for-sale
(2,743
)
—

(2,743
)
Foreign currency translation adjustments and other
(7,687
)
—

(7,687
)
Balance at September 30, 2014
$
639,184

$
63,607

$
702,791

___________
(a)
Amount includes a deferred tax liability offset of $ 11.7 million recorded in connection with an acquisition of an investment in Norway ( Note 5 ).

Intangible assets, intangible liabilities, and goodwill are summarized as follows (in thousands):
September 30, 2014
December 31, 2013
Gross Carrying Amount
Accumulated Amortization
Net Carrying Amount
Gross Carrying Amount
Accumulated Amortization
Net Carrying Amount
Amortizable Intangible Assets
Management contracts
$
32,765

$
(32,765
)
$
—

$
32,765

$
(32,395
)
$
370

Internal-use software development costs
13,987

(12
)
13,975

3,255

—

3,255

46,752

(32,777
)
13,975

36,020

(32,395
)
3,625

Lease Intangibles:
In-place lease
1,101,405

(166,397
)
935,008

551,737

(84,610
)
467,127

Above-market rent
646,587

(101,125
)
545,462

292,132

(50,157
)
241,975

Below-market ground lease
18,346

(336
)
18,010

4,386

(22
)
4,364

Tenant relationship
6,230

(1,778
)
4,452

6,247

(1,656
)
4,591

1,772,568

(269,636
)
1,502,932

854,502

(136,445
)
718,057

Unamortizable Goodwill and Indefinite-Lived Intangible Assets
Goodwill
702,791

—

702,791

350,208

—

350,208

Trade name
3,975

—

3,975

3,975

—

3,975

706,766

—

706,766

354,183

—

354,183

Total intangible assets
$
2,526,086

$
(302,413
)
$
2,223,673

$
1,244,705

$
(168,840
)
$
1,075,865

Amortizable Intangible Liabilities
Below-market rent
$
(169,785
)
$
20,860

$
(148,925
)
$
(116,939
)
$
11,832

$
(105,107
)
Above-market ground lease
(13,419
)
985

(12,434
)
(6,896
)
512

(6,384
)
(183,204
)
21,845

(161,359
)
(123,835
)
12,344

(111,491
)
Unamortizable Intangible Liabilities
Below-market purchase option
(16,711
)
—

(16,711
)
(16,711
)
—

(16,711
)
Total intangible liabilities
$
(199,915
)
$
21,845

$
(178,070
)
$
(140,546
)
$
12,344

$
(128,202
)



W. P. Carey 9/30/2014 10-Q – 26
Notes to Consolidated Financial Statements (Unaudited)

Net amortization of intangibles, including the effect of foreign currency translation, was $42.5 million and $21.7 million for the three months ended September 30, 2014 and 2013 , respectively, and $131.9 million and $64.0 million for the nine months ended September 30, 2014 and 2013 , respectively. Amortization of below-market rent and above-market rent intangibles is recorded as an adjustment to Lease revenues; amortization of management contracts, 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.
Based on the intangible assets and liabilities recorded at September 30, 2014 , scheduled annual net amortization of intangibles for the remainder of 2014 , each of the next four calendar years following December 31, 2014 , and thereafter is as follows (in thousands):
Years Ending December 31,
Net Decrease in
Lease Revenues
Increase to Amortization/
Property Expenses
Net
2014 (remainder)
$
14,146

$
27,749

$
41,895

2015
55,529

110,442

165,971

2016
53,738

106,295

160,033

2017
50,318

102,432

152,750

2018
46,703

99,396

146,099

Thereafter
176,103

512,697

688,800

Total
$
396,537

$
959,011

$
1,355,548


Note 9. Fair Value Measurements
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, and foreign currency forward contracts; 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 interest rate caps, interest rate swaps, stock warrants, and foreign currency forward contracts ( Note 10 ). The interest rate caps, interest rate swaps and foreign currency forward contracts 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 internal 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 and foreign currency forward contracts ( Note 10 ). These derivative instruments were measured at fair value using readily observable market inputs, such as quotations on interest rates. These derivative instruments 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.



W. P. Carey 9/30/2014 10-Q – 27
Notes to Consolidated Financial Statements (Unaudited)

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 13 ). We determined the valuation of the redeemable noncontrolling interest using widely accepted valuation techniques, including expected discounted cash flows of the investment as well as the income capitalization approach, which considers prevailing market capitalization rates. We classified this liability as Level 3. At September 30, 2014 , unobservable inputs for WPCI include a discount for lack of marketability, a discount rate, and earnings before interest, taxes, depreciation, and amortization multiples with weighted-average ranges of 20% - 30% , 22% - 26% , and 3 x - 5 x, respectively. Significant increases or decreases in any one of these inputs in isolation would result in significant changes in the fair value measurement.

We did not have any transfers into or out of Level 1, Level 2, and Level 3 measurements during either the nine months ended September 30, 2014 or 2013 . In connection with the CPA ® :16 Merger, we acquired stock warrants, which had previously been granted by Hellweg 2 to CPA ® :16 – Global, and which were classified as Level 3 at September 30, 2014 ( Note 10 ).

Our other financial instruments had the following carrying values and fair values as of the dates shown (dollars in thousands):
September 30, 2014
December 31, 2013
Level
Carrying Value
Fair Value
Carrying Value
Fair Value
Non-recourse debt (a)
3
$
2,702,133

$
2,720,181

$
1,492,410

$
1,477,497

Senior unsecured notes (b)
2
498,300

518,523

—

—

Senior unsecured credit facility (c) (d)
2
618,945

618,945

275,000

275,000

Notes receivable (a) (e)
3
20,983

19,988

—

—

Deferred acquisition fees receivable (f)
3
19,585

22,188

19,684

20,733

Unsecured term loan (c)
2
—

—

300,000

300,000

__________
(a)
We determined the estimated fair value of these financial instruments using a discounted cash flow model with rates that take into account the credit of the tenant/obligor, where applicable, and interest rate risk. We also considered the value of the underlying collateral taking into account the quality of the collateral, the credit quality of the tenant/obligor, the time until maturity and the current market interest rate.
(b)
We determined the estimated fair value of the Senior Unsecured Notes using quoted market prices in an open market with limited trading volume ( Note 11 ).
(c)
As described in Note 11 , the Prior Senior Credit Facility and the Unsecured Term Loan were repaid and terminated in January 2014. We determined the estimated fair value of these financial instruments using a discounted cash flow model with rates that take into account the market-based credit spread and our credit rating.
(d)
In October 2014, we utilized $225.8 million of the net proceeds from a public offering ( Note 13 ) to pay down a portion of the amount outstanding under the Revolver ( Note 17 ).
(e)
We acquired these notes in the CPA ® :16 Merger ( Note 6 ).
(f)
We determined the estimated fair value of our deferred acquisition fees receivable based on an estimate of discounted cash flows using two significant unobservable inputs, which are the leverage adjusted unsecured spread and an illiquidity adjustment with a weighted-average ra nge of 109 - 355 basis points and 50 - 100 basis points , respectively at September 30, 2014 . Significant increases or decreases to these inputs in isolation would result in a significant change in the fair value measurement.
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 September 30, 2014 and December 31, 2013 .



W. P. Carey 9/30/2014 10-Q – 28
Notes to Consolidated Financial Statements (Unaudited)

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 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 impaired. 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 or broker quotes. 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 accounting. 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.
The following table presents information about our other assets that were measured on a fair value basis (in thousands):
Three Months Ended September 30, 2014
Three Months Ended September 30, 2013
Fair Value
Measurements
Total Impairment
Charges
Fair Value
Measurements
Total Impairment
Charges
Impairment Charges from Continuing Operations
Real estate
$
6,665

$
3,472

$
—

$
—

Net investments in direct financing leases
3,157

753

—

—

Equity investments in real estate
—

—

4,350

6,554

4,225

6,554

Impairment Charges from Discontinued Operations
Real estate
—

—

9,468

1,416

—

1,416

$
4,225

$
7,970

Nine Months Ended September 30, 2014
Nine Months Ended September 30, 2013
Fair Value
Measurements
Total Impairment
Charges
Fair Value
Measurements
Total Impairment
Charges
Impairment Charges from Continuing Operations
Real estate
$
6,665

$
5,538

$
—

$
—

Net investments in direct financing leases
3,157

753

—

—

Equity investments in real estate
—

735

4,350

12,082



7,026



12,082

Impairment Charges from Discontinued Operations
Real estate
—

—

16,376

4,903

Operating real estate
—

—

3,709

1,071

—

5,974



$
7,026



$
18,056




W. P. Carey 9/30/2014 10-Q – 29
Notes to Consolidated Financial Statements (Unaudited)

Significant impairment charges, and their related triggering events and fair value measurements, recognized during the three and nine months ended September 30, 2014 and 2013 were as follows:

Real Estate

During the three and nine months ended September 30, 2014 , we recognized impairment charges totaling $3.5 million and $5.5 million , respectively, on three properties in order to reduce the carrying values of the properties to their estimated fair values, which approximated their estimated selling prices.

Net Investments in Direct Financing Leases

During each of the three and nine months ended September 30, 2014 , we recognized impairment charges totaling $ 0.8 million on six 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 nine months ended September 30, 2014 and 2013 , we recognized other-than-temporary impairment charges of $0.7 million and $ 12.1 million , respectively, 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 fair value was obtained 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.

Properties Sold
During the three and nine months ended September 30, 2013 , we recognized impairment charges on properties sold, including one of our hotels, totaling $1.4 million and $6.0 million , respectively, to reduce the carrying values of the properties to their estimated selling prices less costs to sell. These impairment charges, which are included in discontinued operations, were the result of reducing these properties’ carrying values to their estimated fair values ( Note 15 ), which approximated their estimated selling prices, in connection with anticipated sales. The fair value measurement related to these impairment charges was determined in part by third-party sources, subject to our corroboration for reasonableness.

Note 10. Risk Management and Use of Derivative Financial Instruments

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 the Senior Unsecured Credit Facility ( Note 11 ), at September 30, 2014 . 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 we hold in the Managed REITs due to changes in interest rates or other market factors. We own investments in the European Union and in Asia and are subject to the risks associated with changing foreign currency exchange rates.



W. P. Carey 9/30/2014 10-Q – 30
Notes to Consolidated Financial Statements (Unaudited)

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, and do not plan to enter, into financial instruments for trading or speculative purposes. The primary risks related to our use of derivative instruments include default by a counterparty to a hedging arrangement 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 counterparties that are 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) income until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value 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
September 30, 2014
December 31, 2013
September 30, 2014
December 31, 2013
Interest rate caps
Other assets, net
$
6

$
2

$
—

$
—

Interest rate swaps
Other assets, net
987

1,618

—

—

Foreign currency forward contracts
Other assets, net
3,629

—

—

—

Foreign currency forward contracts (a)
Accounts payable, accrued expenses and other liabilities
—

—

(451
)
(7,083
)
Interest rate swaps (a)
Accounts payable, accrued expenses and other liabilities
—

—

(5,097
)
(2,734
)
Derivatives Not Designated as Hedging Instruments
Stock warrants (b)
Other assets, net
3,753

2,160

—

—

Interest rate swaps (c)
Accounts payable, accrued expenses and other liabilities
—

—

(9,033
)
(11,995
)
Total derivatives
$
8,375

$
3,780

$
(14,581
)
$
(21,812
)
__________
(a)
In connection with the CPA ® :16 Merger, we acquired interest rate swaps and a cap, which were in a net liability position, and foreign currency forward contracts, which were in a net asset position, that had fair values of $ 2.0 million and $ 1.2 million , respectively, at September 30, 2014 .
(b)
In connection with the CPA ® :16 Merger, we acquired warrants from CPA ® :16 – Global, which had previously been granted by Hellweg 2 to CPA ® :16 – Global, that had a fair value of $ 1.3 million at September 30, 2014 . These warrants give us participation rights to any distributions made by Hellweg 2 and entitle us to a cash distribution that equals a certain percentage of the liquidity event price of Hellweg 2, should a liquidity event occur.
(c)
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 September 30, 2014 and December 31, 2013 , no cash collateral had been posted nor received for any of our derivative positions.



W. P. Carey 9/30/2014 10-Q – 31
Notes to Consolidated Financial Statements (Unaudited)

The following tables present the impact of our derivative instruments in the consolidated financial statements (in thousands):
Amount of Gain (Loss) Recognized in Other Comprehensive (Loss) Income on Derivatives (Effective Portion) (a)
Three Months Ended September 30,
Nine Months Ended September 30,
Derivatives in Cash Flow Hedging Relationships
2014
2013
2014
2013
Interest rate swaps
$
689

$
16

$
(928
)
$
3,669

Interest rate caps
14

(23
)
(7
)
(13
)
Foreign currency forward contracts
15,372

(4,058
)
12,256

(2,885
)
Total
$
16,075

$
(4,065
)
$
11,321

$
771

__________
(a)
Excludes net gains recognized on unconsolidated jointly-owned investments, which are included in Net income from equity investments in real estate and the Managed REITs in the consolidated financial statements, of $0.1 million for each of the three months ended September 30, 2014 and 2013 , and $0.3 million and $0.5 million for the nine months ended September 30, 2014 and 2013 , respectively.
Amount of (Loss) Gain Reclassified from Other Comprehensive (Loss) Income on Derivatives (Effective Portion) (a)
Derivatives in Cash Flow Hedging Relationships
Location of Gain (Loss) Recognized in Income
Three Months Ended September 30,
Nine Months Ended September 30,
2014
2013 (b)
2014
2013 (b)
Interest rate swaps and caps
Interest expense
$
(661
)
$
(436
)
$
(2,024
)
$
(1,311
)
Foreign currency forward contracts
Other income and (expenses)
337

(206
)
(487
)
(182
)
Total
$
(324
)
$
(642
)
$
(2,511
)
$
(1,493
)
__________
(a)
Excludes net losses recognized on unconsolidated jointly-owned investments of $0.1 million and $0.1 million for the three months ended September 30, 2014 and 2013 , respectively, and $0.4 million and $0.5 million for the nine months ended September 30, 2014 and 2013 , respectively.
(b)
The amounts included in this column for the periods presented herein have been revised to reverse the signs that were incorrectly presented when originally filed. In addition, the corresponding amounts for the years ended December 31, 2013 and 2012 will be similarly revised in the Form 10-K for the year ended December 31, 2014 when filed.

Amounts reported in Other comprehensive (loss) income related to interest rate swaps will be reclassified to Interest expense as interest payments are made on our variable-rate debt. Amounts reported in Other comprehensive (loss) income related to foreign currency derivative contracts will be reclassified to Other income and (expenses) when the hedged foreign currency contracts are settled. At September 30, 2014 , we estimate that an additional $ 2.4 million and $ 1.5 million will be reclassified as interest expense and other expenses, respectively, during the next 12 months.
Amount of Gain Recognized in Income on Derivatives
Derivatives Not in Cash Flow Hedging Relationships
Location of Gain (Loss) Recognized in Income
Three Months Ended September 30,
Nine Months Ended September 30,
2014
2013
2014
2013
Interest rate swaps
Interest expense
$
1,007

$
801

$
1,992

$
4,211

Stock warrants
Other income and (expenses)
268

80

134

360

Total
$
1,275

$
881

$
2,126

$
4,571


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 Caps

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, may 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 the loan to a fixed rate, are agreements in which one party exchanges a stream of interest payments for a


W. P. Carey 9/30/2014 10-Q – 32
Notes to Consolidated Financial Statements (Unaudited)

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 we had outstanding on our consolidated subsidiaries at September 30, 2014 are summarized as follows (currency in thousands):
Number of Instruments

Face
Amount

Fair Value at
September 30, 2014 (a)
Interest Rate Derivatives


Designated as Cash Flow Hedging Instruments
Interest rate swaps
14
$
130,298

$
(2,957
)
Interest rate swaps
2
€
8,225

(1,153
)
Interest rate caps (b)
2
€
107,554

6

Not Designated as Cash Flow Hedging Instruments

Interest rate swaps (c)
3
€
108,048

(9,033
)
$
(13,137
)
__________
(a)
Fair value amounts are based on the exchange rate of the euro at September 30, 2014 , as applicable.
(b)
The applicable interest rates of the related debt were 1.2% and 1.1% , which were below the strike prices of the caps of 3.0% and 2.0% , respectively, at September 30, 2014 .
(c)
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.
Foreign Currency Contracts
We are exposed to foreign currency exchange rate movements, primarily in the euro and, to a lesser extent, the British pound sterling 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 of the 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. 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. 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.
The following table presents the foreign currency derivative contracts we had outstanding at September 30, 2014 , which were designated as cash flow hedges (currency in thousands):
Number of Instruments
Face
Amount
Fair Value at
September 30, 2014 (a)
Foreign Currency Derivatives
Foreign currency forward contracts
72
€
163,500

$
3,589

Foreign currency forward contracts
17
£
9,100

(411
)
$
3,178

__________
(a)
Fair value amounts are based on the applicable exchange rate of the foreign currency at September 30, 2014 .

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 collateral received, if any. No collateral was received as of September 30, 2014 . At September 30, 2014 , our total credit exposure was $3.7 million and the maximum exposure to any single counterparty was $ 1.8 million .



W. P. Carey 9/30/2014 10-Q – 33
Notes to Consolidated Financial Statements (Unaudited)

Some of the agreements we have with our derivative counterparties contain certain credit contingent provisions that could result in a declaration of default against us regarding our derivative obligations if we either default or are capable of being declared in default on certain of our indebtedness. At September 30, 2014 , we had not been declared in default on any of our derivative obligations. The estimated fair value of our derivatives that were in a net liability position was $ 15.7 million at September 30, 2014 , which included accrued interest and any adjustment for nonperformance risk. If we had breached any of these provisions at September 30, 2014 , we could have been required to settle our obligations under these agreements at their aggregate termination value of $ 16.1 million .

Net Investment Hedge

During the nine months ended September 30, 2014 , we borrowed an aggregate of € 178.5 million under the Revolver to prepay several non-recourse mortgage loans denominated in euro ( Note 11 ). This borrowing is designated as and effective as an economic hedge of our net investments in these euro-denominated entities. Variability in the exchange rate of the euro with respect to the U.S. dollar impacts our financial results as the financial results of our euro-denominated subsidiaries are translated to U.S. dollars each period, with the effect of changes in the euro to U.S. dollar exchange rate being recorded in Other comprehensive (loss) income as part of the cumulative foreign currency translation adjustment. As a result, the borrowing in euro under the Revolver is recorded at cost in the consolidated financial statements and all changes in the value related to changes in the spot rate will be reported in the same manner as a translation adjustment, which is recorded in Other comprehensive (loss) income as part of the cumulative foreign currency translation adjustment.

Note 11. Debt
Senior Unsecured Credit Facility

At December 31, 2013 , we had a senior credit facility that provided for a $ 450.0 million unsecured revolving credit facility and a $ 175.0 million term loan facility, which we refer to collectively as the Prior Senior Credit Facility. On January 31, 2014, we entered into the Second Amended and Restated Credit Agreement in order to increase the maximum aggregate principal amount from $ 625.0 million to $ 1.25 billion , which we refer to as the Senior Unsecured Credit Facility, and on that date drew down $ 765.0 million to repay the Prior Senior Credit Facility, the Unsecured Term Loan discussed below and CPA ® :16 – Global’s line of credit, which had an outstanding balance of $ 170.0 million on the same date, which was the date of the closing of the CPA ® :16 Merger. Because we had obtained investment grade ratings in January 2014, all of the guarantors were released from their guarantees under the Senior Unsecured Credit Facility in February 2014. In addition, as a result of the investment grade ratings, certain provisions that restricted the amount we could draw under the Senior Unsecured Credit Facility were no longer applicable. In connection with entering into the Senior Unsecured Credit Facility and the simultaneous repayment of the outstanding balances of the facilities described above and the Unsecured Term Loan, we incurred financing costs totaling $ 7.9 million included in Other assets, net in the consolidated financial statements, which are being amortized to Interest expense over the remaining terms of the facilities, and recognized a loss on extinguishment of debt of $ 2.1 million included in Other income and (expenses) in the consolidated financial statements.

The Senior Unsecured Credit Facility is comprised of a $ 1.0 billion unsecured revolving credit facility, or the Revolver, and a $ 250.0 million term loan facility, or the Term Loan Facility. The Revolver matures in 2018 but may be extended by one year at our option, subject to the conditions provided in the Second Amended and Restated Credit Agreement. The Term Loan Facility matures in 2016 but we have two options to extend the maturity by another year. At our election, the principal amount available under the Senior Unsecured Credit Facility may be increased by up to an additional $ 500.0 million , and may be allocated as an increase to the Revolver and/or the Term Loan Facility, or if the Term Loan Facility has been terminated, an add-on term loan, in each case subject to the conditions to increase provided in the Second Amended and Restated Credit Agreement. The Senior Unsecured Credit Facility also permits (i) up to $ 500.0 million under the Revolver to be borrowed in certain currencies other than the U.S. dollar, (ii) swing line loans of up to $ 50.0 million under the Revolver, and (iii) the issuance of letters of credit under the 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.

Borrowings under the Senior Unsecured Credit Facility bear interest, at our election, at a rate equal to either: (i) the Eurocurrency Rate (as defined in the Second Amended and Restated Credit Agreement), or (ii) the Base Rate (as defined in the Second Amended and Restated Credit Agreement), in each case, plus the Applicable Rate (as defined in the Second Amended and Restated Credit Agreement). Since we obtained investment grade ratings as of January 31, 2014, for borrowings under the Revolver, the Applicable Rate on Eurocurrency Rate loans and letters of credit ranges from 0.925% to 1.70% and the Applicable Rate on Base Rate loans ranges from 0.00% to 0.70% . For borrowings under the Term Loan Facility, the Applicable Rate on Eurocurrency Rate loans and letters of credit ranges from 1.00% to 1.95% and the Applicable Rate on Base Rate loans ranges from 0.00% to 0.95% . Swing line loans under the Senior Unsecured Credit Facility will bear interest at the Base Rate plus the Applicable Rate then in effect. In addition, we pay a quarterly facility fee ranging from 0.125% to 0.30% on the Revolver. At September 30, 2014 , the outstanding balance under the Senior Unsecured Credit Facility was $ 618.9 million ,


W. P. Carey 9/30/2014 10-Q – 34
Notes to Consolidated Financial Statements (Unaudited)

including the $ 250.0 million drawn under the Term Loan Facility, $ 110.0 million borrowed under the Revolver in U.S. dollars, $ 226.4 million borrowed under the Revolver in euro, and $ 32.5 million borrowed under the Revolver in British pounds. In addition, as of September 30, 2014 , our lenders had issued letters of credit totaling $1.0 million on our behalf in connection with certain contractual obligations, which reduce amounts that may be drawn under the Revolver. At September 30, 2014 , our Revolver had unused capacity of $ 631.1 million , excluding amounts reserved for outstanding letters of credit. Based on our credit rating of BBB/Baa2 during the nine months ended September 30, 2014 , we incurred interest at LIBOR plus 1.10% on the Revolver and LIBOR plus 1.25% on the Term Loan Facility. We also incurred a facility fee of 0.20% on the Revolver during the nine months ended September 30, 2014 . As discussed in Note 13 and Note 17 , in October 2014, we utilized $225.8 million of the net proceeds from our public offering to pay down a portion of the amount outstanding under the Revolver.

The Senior Unsecured Credit Facility includes customary financial maintenance covenants, including a maximum leverage ratio, maximum secured debt ratio, minimum equity value ratio, minimum fixed charge coverage ratio, and minimum unsecured interest coverage ratio. 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 Second Amended and Restated Credit Agreement.

We are required to ensure that the total Restricted Payments (as defined in the Second Amended and Restated 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 Second Amended and Restated 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 Second Amended and Restated 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 Second Amended and Restated Credit Agreement, with grace periods in some cases.

The Second Amended and Restated 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 Second Amended and Restated Credit Agreement. We were in compliance with all of these covenants at September 30, 2014 .

Senior Unsecured Notes

In March 2014, we issued $ 500.0 million in corporate bonds, or the Senior Unsecured Notes, at a price of 99.639% of par value or a $ 1.8 million discount with a yield to maturity of 4.645% in a registered public offering. These notes have a ten-year term and mature on April 1, 2024 with an annual interest rate of 4.60% . The interest is paid semi-annually on April 1 and October 1, starting on October 1, 2014. The Senior Unsecured Notes can be redeemed at par within three months of maturity, or we can call the notes at any time for the principal, accrued interest and a make-whole amount based upon a rate of the ten-year U.S. Treasury yield plus 30 basis points. The Senior Unsecured Notes were rated Baa2 by Moody’s Investors Services and BBB- by Standard and Poor’s Ratings Services. In connection with this transaction, we incurred financing costs totaling $ 4.2 million included in Other assets, net in the consolidated financial statements , that are being amortized to Interest expense over the term of the Senior Unsecured Notes. The proceeds from the issuance were used to pay down in part the then-outstanding balance under our Revolver.

The Senior Unsecured Notes require us to maintain certain ratios and benchmarks at the end of each quarter as defined in the terms in the prospectus supplement filed with the SEC on March 13, 2014. We were in compliance with all of these covenants at September 30, 2014 .

Unsecured Term Loan

In July 2013, we entered into a credit agreement with the lenders of our Prior Senior Credit Facility for an unsecured term loan of up to $ 300.0 million , or the Unsecured Term Loan, which we drew down in full on that date. On January 31, 2014, the Unsecured Term Loan was repaid in full using a portion of the amounts drawn down under the Senior Unsecured Credit Facility on that date.


W. P. Carey 9/30/2014 10-Q – 35
Notes to Consolidated Financial Statements (Unaudited)


Non-Recourse Debt
Non-recourse debt consists of mortgage notes payable, which are collateralized by the assignment of real estate properties with an aggregate carrying value of $ 3.5 billion and $ 1.9 billion at September 30, 2014 and December 31, 2013 , respectively. At September 30, 2014 , our mortgage notes payable bore interest at fixed annual rates ranging from 3.2% to 7.8% and variable contractual annual rates ranging from 1.1% to 7.6% , with maturity dates ranging from 2014 to 2038 .

In November 2013, a tenant in one of our properties filed for bankruptcy and in March 2014, we stopped making payments on the non-recourse mortgage obligation encumbering the property. In October 2014, the property was foreclosed upon. At September 30, 2014 , both the outstanding balance of the non-recourse mortgage and the carrying value of the property were $3.7 million .

Financing Activity During the Nine Months Ended September 30, 2014 — In connection with the CPA ® :16 Merger ( Note 3 ), we assumed property level debt comprised of 18 variable-rate and 97 fixed-rate non-recourse mortgage loans with fair values totaling $ 161.9 million and $ 1.4 billion , respectively, on the acquisition date and recorded an aggregate net fair market value adjustment of $ 9.8 million at that date. The fair market value adjustment will be amortized to interest expense over the remaining lives of the related loans. These fixed-rate and variable-rate mortgages had weighted-average annual interest rates of 5.79% and 3.63% , respectively, on the acquisition date ( Note 10 ).
D uring the nine months ended September 30, 2014 , in connection with our long-term plan to become a primarily unsecured borrower, we prepaid 20 non-recourse mortgage loans with an aggregate outstanding principal balance of $216.1 million , with a weighted-average remaining term of 1.4 years on the date of the prepayments and weighted-average interest rate of 5.3% . In connection with these prepayments, we incurred a net loss on extinguishment of debt of $ 8.3 million , of which $7.0 million is included in Other income and (expenses) and $1.3 million is included in Income from discontinued operations, net of tax in the consolidated financial statements. During the nine months ended September 30, 2014 , we also paid $7.2 million for the defeasance of a mortgage loan.
During the nine months ended September 30, 2014 , we drew down $12.3 million on a construction loan in relation to a build-to-suit transaction.

Foreign Currency Exchange Rate Impact

During the nine months ended September 30, 2014 , the U.S. dollar strengthened against the euro, as the end-of-period rate for the U.S. dollar in relation to the euro at September 30, 2014 decreased by 7.9% to $1.2687 from $1.3768 at December 31, 2013 . The impact of this strengthening was an aggregate decrease of $79.2 million in the carrying values of our Non-recourse debt and Senior Unsecured Credit Facility from December 31, 2013 to September 30, 2014 .

Scheduled Debt Principal Payments
Scheduled debt principal payments during the remainder of 2014 , each of the next four calendar years following December 31, 2014 , and thereafter are as follows (in thousands):
Years Ending December 31,
Total (a)
2014 (remainder)
$
130,334

2015
205,428

2016 (b)
623,740

2017
769,545

2018 (c)
656,476

Thereafter through 2038 (d)
1,429,879

3,815,402

Unamortized premium, net (e)
3,976

Total
$
3,819,378

__________
(a)
Certain amounts are based on the applicable foreign currency exchange rate at September 30, 2014 .


W. P. Carey 9/30/2014 10-Q – 36
Notes to Consolidated Financial Statements (Unaudited)

(b)
Includes $ 250.0 million outstanding under our Term Loan Facility at September 30, 2014 , which is scheduled to mature on January 31, 2016 unless extended pursuant to its terms.
(c)
Includes $ 368.9 million outstanding under our Revolver at September 30, 2014 , which is scheduled to mature on January 31, 2018 unless extended pursuant to its terms.
(d)
Includes $500.0 million of outstanding Senior Unsecured Notes, which are scheduled to mature on April 1, 2024.
(e)
Represents the unamortized premium of $ 5.7 million in the aggregate resulting from the assumption of property-level debt in connection with the CPA ® :15 Merger and CPA ® :16 Merger, partially offset by a $ 1.7 million unamortized discount on the Senior Unsecured Notes.

Note 12. Commitments and Contingencies

On December 31, 2013, Mr. Ira Gaines and entities affiliated with him commenced a purported class action (Ira Gaines, et al. v. Corporate Property Associates 16 – Global Incorporated, Index. No. 650001/2014, N.Y. Sup. Ct., N.Y. County) against us, WPC REIT Merger Sub Inc., CPA ® :16 – Global, and the directors of CPA ® :16 – Global. On April 11, 2014, the defendants filed a motion to dismiss the complaint, as amended, and on October 15, 2014, the judge granted the defendants’ motion to dismiss the amended complaint in its entirety.
Various other 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.

Note 13. Stock-Based Compensation and Equity

We maintain several stock-based compensation plans, which are more fully described in the 2013 Annual Report. There have been no significant changes to the terms and conditions of any of our stock-based compensation plans or arrangements during the nine months ended September 30, 2014 .

The total compensation expense (net of forfeitures) for awards issued under these plans was $ 8.0 million and $ 7.9 million for the three months ended September 30, 2014 and 2013 , respectively, and $ 23.0 million and $ 25.4 million for the nine months ended September 30, 2014 and 2013 , respectively, which is included in Stock-based compensation expense in the consolidated financial statements. The tax benefit recognized by us related to these awards were $17.3 million and $16.0 million for the nine months ended September 30, 2014 and 2013 , respectively. There was no such tax benefit recognized by us during either the three months ended September 30, 2014 or 2013 .

Restricted and Conditional Awards
Nonvested restricted stock awards, or RSAs, restricted share units, or RSUs, and performance share units, or PSUs, at September 30, 2014 and changes during the nine months ended September 30, 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 (a)
179,621

60.71

89,653

76.05

Vested (b)
(264,726
)
43.35

(881,388
)
15.04

Forfeited
(667
)
68.05

—

—

Adjustment (c)
—

—

448,811

55.91

Nonvested at September 30, 2014 (d)
433,836

$
52.71

877,796

$
32.06

__________
(a)
The grant date fair value of RSAs and RSUs reflect our stock price on the date of grant. The grant date fair value of PSUs were determined utilizing a Monte Carlo sim ulation 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 nine months ended September 30, 2014 , we used a risk-free interest rate of 0.65% and an expected volatility rate of 25.89% (the plan defined peer index assumes 21.77% ) and assumed a dividend yield of zero .
(b)
The total fair value of shares vested during the nine months ended September 30, 2014 was $ 24.7 million . Employees have the option to take immediate delivery of the shares upon vesting or defer receipt to a future date, pursuant to previously-


W. P. Carey 9/30/2014 10-Q – 37
Notes to Consolidated Financial Statements (Unaudited)

made deferral elections. At September 30, 2014 , we had an obligation to issue 889,863 shares of our common stock underlying such deferred shares, which is recorded within W. P. Carey stockholders’ equity as a Deferred compensation obligation of $ 30.6 million .
(c)
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. In connection with the payment of the PSUs granted in 2011, which were paid out in February 2014, we adjusted the shares during the three months ended March 31, 2014 to reflect the actual number of shares issued. During the three months ended June 30, 2014 and September 30, 2014 , we also adjusted the number of PSUs expected to vest based on updated forecasted performance targets. There was no impact on our consolidated financial statements related to these adjustments, as the initial fair value of our PSUs factored in the variability associated with the performance features of these awards.
(d)
At September 30, 2014 , total unrecognized compensation expense related to these awards was approximately $ 31.4 million , with an aggregate weighted-average remaining term of 1.67 years.
During the nine months ended September 30, 2014 , 93,745 stock options were exercised with an aggregate intrinsic value of $ 3.2 million . At September 30, 2014 , there were 525,035 stock options outstanding, of which 453,324 were exercisable.

Public 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 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 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. As described in Note 17 , in October 2014, we utilized $225.8 million of the net proceeds from the Offering to pay down a portion of the amount outstanding under the Revolver.

Earnings Per Share
Under current authoritative guidance for determining earnings per share, all unvested 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 unvested RSUs and RSAs contain rights to receive non-forfeitable distribution equivalents, 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 unvested RSUs and RSAs from the numerator and such unvested shares in the denominator. The following table summarizes basic and diluted earnings (in thousands, except share amounts):
Three Months Ended September 30,
Nine Months Ended September 30,
2014
2013
2014
2013
Net income attributable to W. P. Carey
$
27,337

$
18,506

$
206,252

$
75,854

Allocation of distribution equivalents paid on unvested RSUs and RSAs in excess of income
(113
)
(139
)
(849
)
(570
)
Net income – basic
27,224

18,367

205,403

75,284

Income (loss) effect of dilutive securities, net of taxes
(8
)
128

74

77

Net income – diluted
$
27,216

$
18,495

$
205,477

$
75,361

Weighted-average shares outstanding – basic
100,282,082

68,397,176

96,690,675

68,719,264

Effect of dilutive securities
848,366

1,003,649

1,038,306

1,127,056

Weighted-average shares outstanding – diluted
101,130,448

69,400,825

97,728,981

69,846,320

Securities totaling 105,920 shares associated with the Redeemable noncontrolling interest were excluded from the earnings per share computation above as their effect would have been anti-dilutive for the three months ended September 30, 2013 . There were no such anti-dilutive securities for the three months ended September 30, 2014 and nine months ended September 30, 2014 and 2013 .


W. P. Carey 9/30/2014 10-Q – 38
Notes to Consolidated Financial Statements (Unaudited)


Redeemable Noncontrolling Interest
We account for the noncontrolling interest in WPCI held by a third party as a redeemable noncontrolling interest, as we have an obligation to repurchase the interest at fair value, subject to certain conditions pursuant to a put option held by the third party . This obligation is required to be settled in shares of our common stock. The third-party interest is reflected at estimated redemption value for all periods presented. 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 are required to purchase the third party’s 7.7% interest in WPCI. Pursuant to the terms of the related put agreement, the purchase price is to be 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 . We cannot currently estimate when the redemption will occur and the amount of $6.3 million recorded represents our best estimate of the fair value of that interest.

The following table presents a reconciliation of redeemable noncontrolling interest (in thousands):
Nine Months Ended September 30,
2014
2013
Beginning balance
$
7,436

$
7,531

Redemption value adjustment
(306
)
—

Net income
137

139

Distributions
(926
)
(354
)
Change in other comprehensive income
5

—

Ending balance
$
6,346

$
7,316


Transfers to Noncontrolling Interests

The following table presents a reconciliation of the effect of transfers in noncontrolling interest (in thousands):
Nine Months Ended September 30,
2014
2013
Net income attributable to W. P. Carey
$
206,252

$
75,854

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 (a)
(41,374
)
—

Net transfers to noncontrolling interest
(41,374
)
—

Change from net income attributable to W. P. Carey and transfers to noncontrolling interest
$
164,878

$
75,854

__________
(a)
During the second quarter of 2014, we identified certain measurement period adjustments that impacted the provisional accounting of the CPA ® :16 Merger, 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.



W. P. Carey 9/30/2014 10-Q – 39
Notes to Consolidated Financial Statements (Unaudited)

Reclassifications Out of Accumulated Other Comprehensive (Loss) Income

The following tables present a reconciliation of changes in Accumulated other comprehensive (loss) income by component for the periods presented (in thousands):
Three Months Ended September 30, 2014
Gains and Losses on Derivative Instruments
Foreign Currency Translation Adjustments
Gains and Losses on Marketable Securities
Total
Beginning balance
$
(12,052
)
$
26,224

$
43

$
14,215

Other comprehensive income (loss) before reclassifications
15,725

(55,096
)
(12
)
(39,383
)
Amounts reclassified from accumulated other comprehensive income (loss) to:
Interest expense
661

—

—

661

Other income and (expenses)
(337
)
—

—

(337
)
Net income from equity investments in real estate and the Managed REITs
102

—

—

102

Total
426

—

—

426

Net current period other comprehensive income (loss)
16,151

(55,096
)
(12
)
(38,957
)
Net current period other comprehensive loss attributable to noncontrolling interests and redeemable noncontrolling interest
—

3,471

—

3,471

Ending balance
$
4,099

$
(25,401
)
$
31

$
(21,271
)
Three Months Ended September 30, 2013
Gains and Losses on Derivative Instruments
Foreign Currency Translation Adjustments
Gains and Losses on Marketable Securities
Total
Beginning balance
$
(2,253
)
$
(762
)
$
31

$
(2,984
)
Other comprehensive (loss) income before reclassifications
(4,711
)
17,675

—

12,964

Amounts reclassified from accumulated other comprehensive income (loss) to:
Interest expense
436

—

—

436

Other income and (expenses)
206

—

—

206

Net income from equity investments in real estate and the Managed REITs
56

—

—

56

Total
698

—

—

698

Net current period other comprehensive (loss) income
(4,013
)
17,675

—

13,662

Net current period other comprehensive (income) loss attributable to noncontrolling interests and redeemable noncontrolling interest
—

(2,052
)
—

(2,052
)
Ending balance
$
(6,266
)
$
14,861

$
31

$
8,626



W. P. Carey 9/30/2014 10-Q – 40
Notes to Consolidated Financial Statements (Unaudited)

Nine Months Ended September 30, 2014
Gains and Losses on Derivative Instruments
Foreign Currency Translation Adjustments
Gains and Losses on Marketable Securities
Total
Beginning balance
$
(7,488
)
$
22,793

$
31

$
15,336

Other comprehensive income (loss) before reclassifications
8,696

(52,140
)
—

(43,444
)
Amounts reclassified from accumulated other comprehensive income (loss) to:
Interest expense
2,024

—

—

2,024

Other income and (expenses)
487

—

—

487

Net income from equity investments in real estate and the Managed REITs
380

—

—

380

Total
2,891

—

—

2,891

Net current period other comprehensive income (loss)
11,587

(52,140
)
—

(40,553
)
Net current period other comprehensive loss attributable to noncontrolling interests and redeemable noncontrolling interest
—

3,946

—

3,946

Ending balance
$
4,099

$
(25,401
)
$
31

$
(21,271
)
Nine Months Ended September 30, 2013
Gains and Losses on Derivative Instruments
Foreign Currency Translation Adjustments
Gains and Losses on Marketable Securities
Total
Beginning balance
$
(7,508
)
$
2,828

$
31

$
(4,649
)
Other comprehensive (loss) income before reclassifications
(727
)
13,017

—

12,290

Amounts reclassified from accumulated other comprehensive income (loss) to:
Interest expense
1,311

—

—

1,311

Other income and (expenses)
182

—

—

182

Net income from equity investments in real estate and the Managed REITs
476

—

—

476

Total
1,969

—

—

1,969

Net current period other comprehensive income
1,242

13,017

—

14,259

Net current period other comprehensive (income) loss attributable to noncontrolling interests and redeemable noncontrolling interest
—

(984
)
—

(984
)
Ending balance
$
(6,266
)
$
14,861

$
31

$
8,626


Distributions Declared

During the third quarter of 2014, we declared a quarterly distribution of $0.94 per share, which was paid on October 15, 2014 to stockholders of record on September 30, 2014 .



W. P. Carey 9/30/2014 10-Q – 41
Notes to Consolidated Financial Statements (Unaudited)

Note 14. Income Taxes

A reconciliation of the provision for income taxes with the amount computed by applying the statutory federal income tax rate to income before provision for income taxes for the periods presented is as follows (in thousands, except percentages):
Nine Months Ended September 30,
2014
2013
Income from continuing operations before income taxes, net of amounts attributable to noncontrolling interests
$
184,191

$
77,859

Pre-tax income attributable to pass-through subsidiaries
(177,077
)
(88,155
)
Pre-tax income (loss) attributable to taxable subsidiaries
7,114

(10,296
)
Federal provision at statutory tax rate (35%)
2,490

35.0
%
(3,604
)
35.0
%
State and local taxes, net of federal benefit
775

10.9
%
(1,122
)
10.9
%
Recognition of deferred revenue as a result of the CPA ® :16 Merger (a)
4,848

68.1
%
—

—
%
Amortization of intangible assets
—

—
%
23

(0.2
)%
Interest
1,739

24.4
%
—

—
%
Other
904

12.7
%
(209
)
2.0
%
Tax provision — taxable subsidiaries
10,756

151.1
%
(4,912
)
47.7
%
Deferred foreign tax benefit (b)
(6,767
)
(145
)
Current foreign taxes
5,553

7,889

Other state and local taxes
1,633

218

Total provision (benefit)
$
11,175

$
3,050

__________
(a)
Represents income tax expense from a permanent difference upon recognition of deferred revenue associated with accelerated vesting of shares previously issued by CPA ® :16 – Global for asset management and performance fees.
(b)
Represents deferred tax benefit associated with basis differences on certain foreign properties acquired.

In connection with an acquisition of an investment in Norway, we recorded a deferred tax liability of $ 14.6 million , which is included in Deferred income taxes in the consolidated financial statements, during the nine months ended September 30, 2014 ( Note 5 ). Dollar amounts are based on the exchange rate of the Norwegian krone on the date of acquisition.

At September 30, 2014 , we had unrecognized tax benefits of $1.6 million 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.

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 2008 through 2014 remain open to adjustment in the major tax jurisdictions. On October 22, 2014, the U.S. Internal Revenue Service, or IRS, issued a Notice of Proposed Adjustment for the return filed by our subsidiary, Carey Asset Management, for the 2011 tax year. We are reviewing the proposed adjustment and currently expect to file a protest, which may take the matter to an IRS appeals conference.



W. P. Carey 9/30/2014 10-Q – 42
Notes to Consolidated Financial Statements (Unaudited)

Note 15. Property Dispositions and Discontinued Operations
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 and, for those properties sold or classified as held-for-sale prior to January 1, 2014, the current and prior period results of operations of the property have been reclassified as discontinued operations under current accounting guidance ( Note 2 ). All property dispositions are recorded within our Real Estate Ownership segment.

Property Dispositions Included in Continuing Operations

The results of operations for properties that have been classified as held-for-sale or have been sold after December 31, 2013 and properties that were classified as direct financing leases, and with which we have no continuing involvement, excluding the properties that were classified as held-for-sale in the CPA ® :16 Merger, are included within continuing operations in the consolidated financial statements. Total revenues from these properties were $0.8 million for the three months ended September 30, 2013 , and $6.3 million and $2.6 million for the nine months ended September 30, 2014 and 2013 , respectively. There were no such revenues during the three months ended September 30, 2014 . Net income from the operations of these properties were $0.2 million and $0.3 million for the three months ended September 30, 2014 and 2013 , respectively, and $1.7 million and $1.1 million for the nine months ended September 30, 2014 and 2013 , respectively.

2014 — During the nine months ended September 30, 2014 , we sold five properties for a total of $ 40.6 million , net of selling costs, and we recognized a net loss on these sales of $3.8 million . 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. The amount paid by the tenant was recorded as lease termination income, partially offsetting the $8.4 million loss on the sale of the property.

In addition, during September 2014, we conveyed a parcel of land to a local government for $0.4 million and recognized a gain of $0.3 million . During February 2014, a domestic vacant property was foreclosed upon and sold for $4.6 million . The proceeds from the sale were used to partially repay a non-recourse mortgage loan encumbering this property and another property with an outstanding balance of $ 6.0 million at the time of the sale. In connection with the sale, we recognized a gain on the sale of $ 0.1 million .

During the nine months ended September 30, 2014 , in connection with those sales of properties accounted for as businesses we allocated goodwill totaling $2.7 million to the cost basis of the properties, for our Real Estate Ownership segment, based on the relative fair values at the time of the sales ( Note 8 ).

2013 — During the nine months ended September 30, 2013 , we sold our investment in a direct financing lease. The results of operations for this investment is included within continuing operations in the consolidated financial statements for the nine months ended September 30, 2013 .



W. P. Carey 9/30/2014 10-Q – 43
Notes to Consolidated Financial Statements (Unaudited)

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, are reflected in the consolidated financial statements as discontinued operations, net of tax and are summarized as follows (in thousands):

Three Months Ended September 30,
Nine Months Ended September 30,

2014
2013
2014
2013
Revenues
$
377

$
6,946

$
8,586


$
25,094

Expenses
(142
)
(5,391
)
(1,928
)

(17,382
)
(Loss) gain on extinguishment of debt
—

—

(1,267
)

98

Gain on sale of real estate
—

239

27,672


622

Impairment charges
—

(1,416
)
—


(6,366
)
Income from discontinued operations
$
235

$
378

$
33,063


$
2,066

2014 — At December 31, 2013 , we had nine properties classified as held-for-sale, all of which were sold during the nine months ended September 30, 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 , excluding impairment charges totaling $ 3.1 million previously recognized during 2013 . 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 nine months ended September 30, 2014 , we allocated goodwill totaling $ 7.0 million to the cost basis of the properties, for our Real Estate Ownership 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 Assets held for sale with a total fair value of $ 133.0 million . We sold all of these properties during the nine months ended September 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 .

2013 — During the nine months ended September 30, 2013 , we sold seven domestic properties, including three properties that were previously classified as Assets held for sale in the consolidated financial statements, for a total of $22.7 million , net of selling costs, and recognized a net gain on these sales of $0.6 million , excluding impairment charges totaling $3.9 million and $0.2 million previously recognized during 2013 and 2012, respectively. We used a portion of the proceeds to repay the related mortgage loan obligation of $5.7 million and recognized a gain on extinguishment of debt of $0.1 million . In connection with those sales of properties accounted for as businesses for the nine months ended September 30, 2013 , we allocated goodwill totaling $1.2 million to the cost basis of the properties, for our Real Estate Ownership segment, based on the relative fair value at the time of sale ( Note 8 ).
During the nine months ended September 30, 2013, a jointly-owned investment in which we and an affiliate own 44% and 56% , respectively, and which we consolidate, entered into a contract to sell a domestic property, which we acquired in the CPA ® :15 Merger, for $16.4 million . In addition, during the nine months ended September 30, 2013, we entered into a contract to sell our only hotel at that time for $3.8 million . In connection with the potential sale of the hotel, we recognized impairment charges totaling $1.1 million during the second quarter of 2013 in order to write down the carrying value of the asset to its estimated fair value, which approximated the estimated selling price less selling costs. We completed the sales of the jointly-owned investment in June 2014 and the hotel in October 2013.

We sold or classified as held-for-sale 20 add itional properties during the fourth quarter of 2013. The results of operations for these properties are included in Income from discontinued operations, net of tax in the consolidated financial statements for the nine months ended September 30, 2013 .



W. P. Carey 9/30/2014 10-Q – 44
Notes to Consolidated Financial Statements (Unaudited)

Note 16. Segment Reporting
We evaluate our results from operations by our two major business segments — Real Estate Ownership and Investment Management ( Note 1 ). The following tables present a summary of comparative results and assets for these business segments (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2014
2013
2014
2013
Real Estate Ownership
Revenues
$
164,212

$
79,810

$
476,018

$
233,951

Operating expenses (a)
(94,227
)
(45,298
)
(294,572
)
(127,790
)
Interest expense
(46,534
)
(26,262
)
(133,342
)
(77,596
)
Other income and expenses, excluding interest expense
7,370

11,713

129,573

58,231

Provision for income taxes
(1,872
)
(3,689
)
(944
)
(7,260
)
Gain (loss) on sale of real estate, net of tax
260

—

(3,482
)
(332
)
Net income attributable to noncontrolling interests
(757
)
(2,957
)
(4,470
)
(7,776
)
Net income (loss) attributable to noncontrolling interests of discontinued operations
5

413

(173
)
1,021

Income from continuing operations attributable to W. P. Carey
$
28,457

$
13,730

$
168,608

$
72,449

Investment Management
Revenues (b)
$
31,733

$
52,782

$
181,843

$
116,892

Operating expenses (b) (c)
(33,992
)
(46,327
)
(166,616
)
(119,840
)
Other income and expenses, excluding interest expense
160

245

(7
)
773

Benefit from (provision for) income taxes
971

(1,702
)
(10,231
)
4,210

Net (income) loss attributable to noncontrolling interests
(236
)
45

(444
)
464

Net loss (income) attributable to redeemable noncontrolling interests
14

(232
)
(137
)
(139
)
(Loss) income from continuing operations attributable to W. P. Carey
$
(1,350
)
$
4,811

$
4,408

$
2,360

Total Company




Revenues (b)
$
195,945

$
132,592

$
657,861

$
350,843

Operating expenses (b) (c)
(128,219
)
(91,625
)
(461,188
)
(247,630
)
Interest expense
(46,534
)
(26,262
)
(133,342
)
(77,596
)
Other income and expenses, excluding interest expense
7,530

11,958

129,566

59,004

Provision for income taxes
(901
)
(5,391
)
(11,175
)
(3,050
)
Gain (loss) on sale of real estate, net of tax
260

—

(3,482
)
(332
)
Net income attributable to noncontrolling interests
(993
)
(2,912
)
(4,914
)
(7,312
)
Net income (loss) attributable to noncontrolling interests of discontinued operations
5

413

(173
)
1,021

Net loss (income) attributable to redeemable noncontrolling interests
14

(232
)
(137
)
(139
)
Income from continuing operations attributable to W. P. Carey
$
27,107

$
18,541

$
173,016

$
74,809

Total Long-Lived Assets at (d)
Total Assets at
September 30, 2014
December 31, 2013
September 30, 2014
December 31, 2013
Real Estate Ownership
$
5,469,846

$
3,333,654

$
8,146,004

$
4,537,853

Investment Management
—

—

355,445

141,097

Total Company
$
5,469,846

$
3,333,654

$
8,501,449

$
4,678,950

__________
(a)
Includes expenses incurred of $ 30.4 million related to the CPA ® :16 Merger for the nine months ended September 30, 2014 .
(b)
Included in revenues and operating expenses are reimbursable costs from affiliates totaling $14.7 million and $23.3 million for the three months ended September 30, 2014 and 2013 , respectively, and $96.4 million and $50.7 million for the nine months ended September 30, 2014 and 2013 , respectively.
(c)
Includes Stock-based compensation expense of $8.0 million and $7.9 million for the three months ended September 30, 2014 and 2013 , respectively, of which $7.7 million and $7.6 million , respectively, were included in the Investment Management segment; and $23.0 million and $25.4 million for the nine months ended September 30, 2014 and 2013 , respectively, of which $22.3 million and $24.1 million , respectively, were included in the Investment Management segment.


W. P. Carey 9/30/2014 10-Q – 45
Notes to Consolidated Financial Statements (Unaudited)

(d)
Consists of Net investments in real estate.

Our portfolio is comprised of domestic and international investments. At September 30, 2014 , our international investments within our Real Estate Ownership segment were comprised of investments in France, Japan, Poland, Germany, Spain, Belgium, Finland, the Netherlands, Thailand, Canada, Malaysia, Hungary, Mexico, Sweden, Norway, and the United Kingdom. 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 or total long-lived assets at September 30, 2014 . The following tables present the geographic information (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2014
2013
2014
2013
Domestic
Revenues
$
107,799

$
54,953

$
314,911

$
162,784

Income from continuing operations (a)
15,146

14,087

160,238

71,411

Net income attributable to noncontrolling interests
(543
)
(3,209
)
(2,781
)
(8,019
)
Net income attributable to W. P. Carey
13,731

12,954

184,678

66,397

Germany
Revenues
$
19,663

$
5,132

$
54,767

$
14,957

Income from continuing operations (a)
6,341

5,197

(656
)
12,492

Net income attributable to noncontrolling interests
(88
)
(460
)
(1,760
)
(1,934
)
Net income attributable to W. P. Carey
7,089

3,683

(720
)
8,967

Other International
Revenues
$
36,750

$
19,725

$
106,340

$
56,210

Income from continuing operations (a)
9,334

679

18,095

2,893

Net (income) loss attributable to noncontrolling interests
(126
)
712

71

2,177

Net income attributable to W. P. Carey
7,867

(2,942
)
17,886

(1,870
)
Total
Revenues
$
164,212

$
79,810

$
476,018

$
233,951

Income from continuing operations (a)
30,821

19,963

177,677

86,796

Net income attributable to noncontrolling interests
(757
)
(2,957
)
(4,470
)
(7,776
)
Net income attributable to W. P. Carey
28,687

13,695

201,844

73,494


September 30, 2014
December 31, 2013
Domestic
Long-lived assets (b)
$
3,772,632

$
2,172,549

Non-recourse debt
1,633,872

874,035

Germany
Long-lived assets (b)
$
622,164

$
314,423

Non-recourse debt
336,396

76,222

Other International
Long-lived assets (b)
$
1,075,050

$
846,682

Non-recourse debt
731,865

542,153

Total
Long-lived assets (b)
$
5,469,846

$
3,333,654

Non-recourse debt
2,702,133

1,492,410

__________
(a)
Amount represents income from continuing operations before income taxes and gain (loss) on sale of real estate, net of tax.
(b)
Consists of Net investments in real estate.



W. P. Carey 9/30/2014 10-Q – 46
Notes to Consolidated Financial Statements (Unaudited)

Note 17. Subsequent Events
In October 2014, we utilized $225.8 million of the net proceeds from the Offering ( Note 13 ) to pay down a portion of the amount outstanding under the Revolver.

In October 2014, we entered into three investments for an aggregate cost of approximately $225.6 million . Dollar amount is based on the exchange rate of the foreign currency on the date of acquisition, as applicable. It is not practicable to disclose the preliminary purchase price allocation for these transactions given the short period of time between the acquisition dates and the filing of this Report.


W. P. Carey 9/30/2014 10-Q – 47


Item 2 . Management’s Discussion and Analysis of Financial Condition and Results of Operations.
MD&A 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. MD&A 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. Our MD&A should be read in conjunction with the 2013 Annual Report.

Business Overview
As described in more detail in Item 1 in the 2013 Annual Report, we provide long-term financing via sale-leaseback and build-to-suit transactions for companies worldwide and, as of September 30, 2014 , manage a global investment portfolio of 1,043 properties, including 688 net-leased properties and four operating properties within our owned real estate portfolio. Our business operates in two segments – Real Estate Ownership and Investment Management.

Significant Developments

Real Estate Ownership

Investment Transactions

During the nine months ended September 30, 2014 , we acquired three domestic investments for $ 135.5 million and one investment in Europe for $117.2 million ( Note 5 ), inclusive of acquisition-related costs. 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. As part of our capital recycling program, we sold 22 domestic properties, two international properties, and a parcel of land during the nine months ended September 30, 2014 for total proceeds of $ 298.7 million ( Note 15 ).

Public Offering

In September 2014, we completed our Offering of 4,600,000 shares of our common stock, $0.001 par value per share, at a price of $64.00 per share and received net proceeds of $282.2 million ( Note 13 ).

Financing Transactions

During the nine months ended September 30, 2014 , in connection with our long-term plan to become a primarily unsecured borrower, we prepaid 20 non-recourse mortgage loans with an aggregate outstanding principal balance of $ 216.1 million ( Note 11 ) . I n October 2014, we utilized $225.8 million of the net proceeds from the Offering to pay down a portion of the amount outstanding under the Revolver ( Note 17 ).

Distributions

Our cash distributions totaled $2.775 per share during the nine months ended September 30, 2014 , comprised of three quarterly cash distributions of $0.870, $0.895 and $0.900 per share paid on January 15, 2014, April 15, 2014, and July 15, 2014, totaling $2.665 per share, and a special cash distribution of $0.110 per share paid on January 15, 2014. In addition, during the third quarter of 2014 , our Board of Directors declared a quarterly distribution of $0.940 per s hare, or $3.76 on an annualized basis, which was paid on October 15, 2014 to stockholders of record on September 30, 2014 .



W. P. Carey 9/30/2014 10-Q – 48


Investment Management

During the nine months ended September 30, 2014 , we managed three funds: CPA ® :17 – Global, CPA ® :18 – Global, and CWI. We also managed CPA ® :16 – Global until the CPA ® :16 Merger on January 31, 2014 ( Note 3 ).

Investment Transactions

•
On July 25, 2013, CPA ® :16 – Global, which commenced operations in 2003, entered into a definitive merger agreement with us, and we completed the CPA ® :16 Merger on January 31, 2014 ( Note 3 ).
•
During the nine months ended September 30, 2014 , we structured investmen ts in seven properties for a total of $144.9 million , a follow-on equity investment of $20.4 million and an $8.4 million foreign debenture for an aggregate of $173.7 million , inclusive of acquisition-related costs, on behalf of CPA ® :17 – Global. One of these investments is jointly-owned with CPA ® :18 – Global. Approximately $125.3 million was invested in Europe and $ 48.4 million was invested in the U.S. Of the seven properties acquired, three are industrial facilities, three are office facilities, and one is a retail facility.
•
During the nine months ended September 30, 2014 , we structured investments in 30 properties for a total of $471.4 million and in a note receivable of $29.4 million for an aggregate of $500.8 million , inclusive of acquisition-related costs, on behalf of CPA ® :18 – Global. One of these investments is jointly-owned with CPA ® :17 – Global. Approximately $283.8 million was invested in the U.S. and $217.0 million was invested in Europe. Of the 30 properties acquired, 15 are industrial facilities, seven are self-storage facilities, five are office facilities, and three are warehouse/distribution facilities.
•
During the nine months ended September 30, 2014 , we structured investments in five domestic hotels for a total of $422.8 million , inclusive of acquisition-related costs, on behalf of CWI.

Financin g Transactions

•
During the nine months ended September 30, 2014 , we arranged mortgage financing totaling $81.9 million for CPA ® :17 – Global, $290.2 million for CPA ® :18 – Global, and $266.5 million for CWI.

Investor Capital Inflows

•
CPA ® :18 – Global commenced its initial public offering in May 2013 and through September 30, 2014 had raised approximately $ 1.1 billion , of which $853.3 million was raised during the nine months ended September 30, 2014 .
•
CWI completed fundraising in its initial public offering in September 2013 and commenced its follow-on offering in December 2013. From inception through September 30, 2014 , CWI raised a total of $790.2 million , of which $ 214.4 million was raised during the nine months ended September 30, 2014 .
•
In May 2014, the board of directors of CPA ® :18 – Global approved the discontinuation of sales of shares of its class A common stock as of June 30, 2014 in order to moderate the pace of its fundraising. In order to facilitate the final sales of its class A shares as of June 30, 2014 and the continued sale of its class C shares, the board of directors of CPA ® :18 – Global also approved the reallocation to its initial public offering of up to $250.0 million of the shares that were initially allocated to sales of its stock through its dividend reinvestment plan.
•
In June 2014, we filed a registration statement with the SEC to sell up to $1.0 billion of common stock of CWI 2, a new non-traded lodging REIT, in an initial public offering plus up to an additional $400.0 million of its common stock under a dividend reinvestment plan. As of the date of this Report, the registration statement has not been declared effective by the SEC and there can be no assurance as to whether or when any such offering would be commenced.
•
In September 2014, we filed registration statements with the SEC to sell up to 50,000,000 and 21,000,000 shares of common stock of Carey Credit Income Fund 2015 A and Carey Credit Income Fund 2015 T, respectively, both non-traded business development companies. As of the date of this Report, the registration statements have not been declared effective by the SEC and there can be no assurance as to whether or when any such offerings would be commenced.



W. P. Carey 9/30/2014 10-Q – 49


Proposed Regulatory Changes

Changes have been proposed to the rules of the Financial Industry Regulatory Authority, Inc., or FINRA, applicable to securities of unlisted REITs, like the Managed REITs, and direct participation programs. The rule changes propose, among other things, that: (i) FINRA members, such as our broker dealer subsidiary, Carey Financial, LLC, include in customer account statements NAVs of the unlisted entity that have been developed using a methodology reasonably designed to ensure the NAV’s reliability; and (ii) NAVs disclosed from and after 150 days following the second anniversary of the admission of shareholders of the unlisted entity's public offering be based on an appraised valuation developed by, or with the material assistance of, a third-party expert and updated on at least an annual basis, which is consistent with our current practice regarding our Managed REITs. The rule changes also propose that account statements include additional disclosure regarding the sources of distributions to shareholders of unlisted entities.

An amended version of the proposed rules was approved by the SEC in October 2014. FINRA has not yet published an official effective date for these rules; however, we currently anticipate that the rule changes will become effective in April 2016. It is not practicable at this time to determine whether these rules will adversely affect market demand for shares of unlisted REITs. We will continue to assess the potential impact of the rule changes on our Investment Management business.

Financial Highlights
Our results for the three and nine months ended September 30, 2014 included the following significant items:

•
Total lease revenue and total property level contribution increased by $68.3 million and $40.6 million , respectively, for the three months ended September 30, 2014 , and by $183.8 million and $102.4 million , respectively, for the nine months ended September 30, 2014 , as compared to the same periods in 2013 , respectively, due to revenue generated from the properties acquired in the CPA ® :16 Merger on January 31, 2014;
•
Recognized a net Gain on change in control of interests of $104.6 million in connection with the CPA ® :16 Merger during the nine months ended September 30, 2014 ( Note 3 );
•
Received an aggregate of $12.9 million in lease termination income in connection with the early termination of two leases during the second quarter of 2014;
•
A decrease in Asset management revenue of $4.4 million and $ 12.0 million for the three and nine months ended September 30, 2014 , respectively, as compared to the same periods in 2013 due to the cessation of asset management fees from CPA ® :16 – Global upon completion of the CPA ® :16 Merger on January 31, 2014;
•
Costs incurred in connection with the CPA ® :16 Merger of $ 30.4 million during the nine months ended September 30, 2014 ;
•
Recognized a provision for income taxes of $4.8 million during the nine months ended September 30, 2014 from a permanent difference upon recognition of deferred revenue 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; and
•
Issuance of 30,729,878 shares on January 31, 2014 to stockholders of CPA ® :16 – Global as Merger Consideration in connection with the CPA ® :16 Merger.


W. P. Carey 9/30/2014 10-Q – 50



(In thousands, except shares)
Three Months Ended September 30,
Nine Months Ended September 30,
2014
2013
2014
2013
Real estate revenues (excluding reimbursable tenant costs)
$
157,941

$
76,186

$
457,984

$
224,170

Investment management revenues (excluding reimbursable costs from affiliates)
17,011

29,523

85,464

66,198

Total revenues (excluding reimbursable costs)
174,952

105,709

543,448

290,368

Net income attributable to W. P. Carey
27,337

18,506

206,252

75,854

Cash distributions paid
90,606

58,030

248,918

160,953

Net cash provided by operating activities
277,154

146,327

Net cash provided by (used in) investing activities
46,081

(159,253
)
Net cash provided by (used in) financing activities
99,139

(18,985
)
Supplemental financial measure:
Adjusted funds from operations (AFFO) (a)
114,367

71,145

354,861

216,038

Diluted weighted-average shares outstanding (b)
101,130,448

69,400,825

97,728,981

69,846,320

___________
(a)
We consider the performance metrics listed above, including Adjusted funds from operations, previously referred to as Funds from operations – as adjusted, or 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 results of operations and capital resources. We evaluate our results of operations with a primary focus on the ability to generate cash flow necessary to meet our objective of funding distributions to stockholders. See Supplemental Financial Measures below for our definition of this non-GAAP measure and a reconciliation to its most directly comparable GAAP measure.
(b)
Amount for the three and nine months ended September 30, 2014 , for one day includes the 4,600,000 shares that we issued in the Offering on September 30, 2014.

Consolidated Results

Total revenues and Net income attributable to W. P. Carey increased significantly during the three and nine months ended September 30, 2014 as compared to the same periods in 2013 . The growth in revenues and net income within our Real Estate Ownership segment was generated substantially from the properties we acquired in the CPA ® :16 Merger on January 31, 2014 ( Note 3 ). Additionally, revenues and Net income within our Investment Management segment increased during the nine months ended September 30, 2014 as a result of a significant increase in structuring revenue due to higher investment volume in the current year period as compared to the same period in the prior year.

Net cash provided by operating activities increased during the nine months ended September 30, 2014 as compared to the same period in 2013 , primarily due to operating cash flow generated from the properties we acquired in the CPA ® :16 Merger.

AFFO increased during the three and nine months ended September 30, 2014 as compared to the same periods in 2013 , primarily due to income generated from the properties we acquired in the CPA ® :16 Merger, partially offset by the cessation of asset management revenue received from CPA ® :16 – Global after the CPA ® :16 Merger was completed.



W. P. Carey 9/30/2014 10-Q – 51


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 outside of the U.S. 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
September 30, 2014
December 31, 2013
Number of net-leased properties (a)
688

418

Number of operating properties (b)
4

2

Number of tenants (net-leased properties)
215

128

Total square footage (net-leased properties, in thousands)
80,800

39,500

Occupancy (net-leased properties)
98.1
%
98.9
%
Weighted-average lease term (net-leased properties, in years)
8.5

8.1

Number of countries
17

10

Total assets (consolidated basis, in thousands)
$
8,501,449

$
4,678,950

Net investments in real estate (consolidated basis, in thousands)
5,469,846

3,333,654


Nine Months Ended September 30,
2014
2013
Financing obtained (in millions, pro rata amount equals to consolidated amount) (c)
$
1,750.0

$
113.0

Acquisition volume (in millions, pro rata amount equals to consolidated amount) (d)
252.7

248.5

Average U.S. dollar/euro exchange rate (e)
1.3566

1.3173

Increase in the U.S. CPI (f)
2.1
%
2.0
%
Increase in the Germany CPI (f)
0.5
%
1.0
%
Increase in the France CPI (f)
0.1
%
0.5
%
Increase in the Finland CPI (f)
1.0
%
1.3
%
__________
(a)
Amounts represent net-leased properties as of September 30, 2014 , which reflects 335 properties acquired from CPA ® :16 – Global in the CPA ® :16 Merger in January 2014 with a total fair value of approximately $1.8 billion ( Note 3 ), 11 of which were sold during the nine months ended September 30, 2014 .
(b)
Operating properties include two self-storage properties with an average occupancy of 93.6% at September 30, 2014 and also include two hotel properties acquired from CPA ® :16 – Global in the CPA ® :16 Merger with an average occupancy of 84.5% for the nine months ended September 30, 2014 .
(c)
The amount for the nine months ended September 30, 2014 represents the $500.0 million Senior Unsecured Notes and the $1.25 billion Senior Unsecured Credit Facility ( Note 11 ), of which $618.9 million was outstanding at September 30, 2014 .
(d)
The amount for the nine months ended September 30, 2014 includes acquisition-related costs, which were expensed in the consolidated financial statements.
(e)
The average conversion rate for the U.S. dollar in relation to the euro increased during the nine months ended September 30, 2014 as compared to the same period in 2013 , resulting in a positive impact on earnings in 2014 from our euro-denominated investments.
(f)
Many of our lease agreements and those of the CPA ® REITs include contractual increases indexed to changes in the U.S. Consumer Price Index, or CPI, or similar indices in jurisdiction in which the property is located.



W. P. Carey 9/30/2014 10-Q – 52


Net-Leased Portfolio

The tables below represent information about our net-leased portfolio on a pro rata basis and, accordingly, exclude all operating properties at September 30, 2014 . 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
ABR
Percent
Hellweg Die Profi-Baumärkte GmbH & Co. KG (a)
$
39,364

6.2
%
U-Haul Moving Partners Inc. and Mercury Partners, LP
31,853

5.0
%
Carrefour France SAS (a)
31,392

4.9
%
OBI Group (a)
17,264

2.7
%
Marcourt Investments Inc. (Marriott Corporation)
16,100

2.5
%
True Value Company
14,775

2.3
%
UTI Holdings, Inc.
14,621

2.3
%
Advanced Micro Devices, Inc.
12,769

2.0
%
The New York Times Company
11,726

1.9
%
Dick’s Sporting Goods, Inc.
11,722

1.8
%
Total
$
201,586

31.6
%
__________
(a)
ABR amounts are subject to fluctuations in foreign currency exchange rates.



W. P. Carey 9/30/2014 10-Q – 53


Portfolio Diversification by Geography
(in thousands, except percentages)
Region
ABR
Percent
Square
Footage
Percent
U.S.
East
New Jersey
$
24,949

3.9
%
1,694

2.1
%
North Carolina
18,639

2.9
%
4,435

5.5
%
Pennsylvania
17,936

2.8
%
2,526

3.1
%
New York
17,553

2.8
%
1,178

1.5
%
Massachusetts
11,556

1.8
%
1,154

1.4
%
Virginia
7,780

1.2
%
1,089

1.3
%
Other (a)
23,376

3.7
%
4,758

5.9
%
Total East
121,789

19.1
%
16,834

20.8
%
West
California
55,171

8.7
%
3,547

4.4
%
Arizona
25,068

3.9
%
2,940

3.6
%
Colorado
10,401

1.6
%
1,340

1.7
%
Utah
6,854

1.1
%
960

1.2
%
Other (a)
20,007

3.2
%
2,339

2.9
%
Total West
117,501

18.5
%
11,126

13.8
%
South
Texas
46,990

7.4
%
6,782

8.4
%
Georgia
26,351

4.1
%
3,556

4.4
%
Florida
17,786

2.8
%
1,855

2.3
%
Tennessee
15,372

2.4
%
1,803

2.2
%
Other (a)
8,433

1.3
%
1,767

2.2
%
Total South
114,932

18.0
%
15,763

19.5
%
Midwest
Illinois
25,812

4.1
%
3,741

4.6
%
Michigan
11,875

1.9
%
1,402

1.7
%
Indiana
9,072

1.4
%
1,418

1.8
%
Ohio
6,624

1.0
%
1,457

1.8
%
Other (a)
27,412

4.3
%
4,922

6.1
%
Total Midwest
80,795

12.7
%
12,940

16.0
%
U.S. Total
435,017

68.3
%
56,663

70.1
%
International
Germany
64,180

10.1
%
7,009

8.7
%
France
49,653

7.8
%
8,462

10.5
%
Finland
31,375

4.9
%
2,133

2.6
%
Poland
17,264

2.7
%
1,827

2.3
%
United Kingdom
11,331

1.8
%
892

1.1
%
Norway
6,513

1.0
%
276

0.3
%
Other (b)
21,618

3.4
%
3,514

4.4
%
International Total
201,934

31.7
%
24,113

29.9
%
Total
$
636,951

100.0
%
80,776

100.0
%



W. P. Carey 9/30/2014 10-Q – 54


Portfolio Diversification by Property Type
(in thousands, except percentages)
Property Type
ABR
Percent
Square
Footage
Percent
Office
$
182,818

28.7
%
10,867

13.4
%
Industrial
159,157

25.0
%
30,314

37.5
%
Warehouse/Distribution
123,963

19.5
%
24,860

30.8
%
Retail
85,738

13.4
%
7,718

9.6
%
Self-Storage
31,853

5.0
%
3,535

4.4
%
Other (c)
53,422

8.4
%
3,482

4.3
%
$
636,951

100.0
%
80,776

100.0
%
________
(a)
Other properties in the East include assets in Connecticut, South Carolina, Kentucky, Maryland, New Hampshire, Vermont, and West Virginia. Other properties in the West include assets in Washington, New Mexico, Nevada, Oregon, Wyoming, and Alaska. Other properties in the South include assets in Alabama, Louisiana, Arkansas, Mississippi, and Oklahoma. Other properties in the Midwest include assets in Missouri, Minnesota, Kansas, Wisconsin, Nebraska, and Iowa.
(b)
Includes assets in the Netherlands, Hungary, Spain, Belgium, Sweden, Canada, Mexico, Thailand, Malaysia, and Japan.
(c)
Includes ABR from tenants with the following property types: hospitality, education, sports, theater, residential, and unoccupied land.



W. P. Carey 9/30/2014 10-Q – 55


Portfolio Diversification by Tenant Industry
(in thousands, except percentages)
Industry Type
ABR
Percent
Square
Footage
Percent
Retail Trade
$
136,263

21.4
%
19,945

24.7
%
Business and Commercial Services
57,857

9.1
%
5,418

6.7
%
Healthcare, Education, and Childcare
42,553

6.7
%
3,232

4.0
%
Electronics
40,331

6.3
%
3,103

3.8
%
Chemicals, Plastics, Rubber, and Glass
39,269

6.2
%
6,881

8.5
%
Automobile
34,258

5.4
%
5,851

7.2
%
Media: Printing and Publishing
23,551

3.7
%
1,990

2.5
%
Beverages, Food, and Tobacco
22,852

3.6
%
4,143

5.1
%
Machinery
22,088

3.4
%
3,315

4.1
%
Buildings and Real Estate
20,704

3.3
%
2,298

2.8
%
Telecommunications
17,661

2.8
%
1,227

1.5
%
Transportation - Cargo
17,131

2.7
%
2,065

2.6
%
Hotels and Gaming
16,100

2.5
%
1,036

1.3
%
Insurance
15,911

2.5
%
972

1.2
%
Construction and Building
15,572

2.4
%
4,589

5.7
%
Leisure, Amusement, and Entertainment
14,735

2.3
%
768

1.0
%
Federal, State, and Local Government
14,669

2.3
%
577

0.7
%
Aerospace and Defense
14,127

2.2
%
1,572

1.9
%
Transportation - Personal
11,360

1.8
%
1,263

1.6
%
Grocery
11,327

1.8
%
1,185

1.5
%
Consumer and Durable Goods
11,091

1.7
%
2,381

2.9
%
Oil and Gas
8,998

1.4
%
368

0.5
%
Consumer Non-Durable Goods
8,055

1.3
%
1,532

1.9
%
Textiles, Leather, and Apparel
7,112

1.1
%
1,773

2.2
%
Other (a)
13,376

2.1
%
3,292

4.1
%
$
636,951

100.0
%
80,776

100.0
%
__________
(a)
Includes ABR from tenants in the following industries: banking; mining, metals, and primary metal industries; and forest products and paper.



W. P. Carey 9/30/2014 10-Q – 56


Lease Expirations
(in thousands, except percentages and number of leases)
Year of Lease Expiration (a)
Number of Leases Expiring
ABR
Percent
Square
Footage
Percent
Remaining 2014 (b)
7

$
4,829

0.8
%
555

0.7
%
2015
16

20,229

3.2
%
1,999

2.4
%
2016
24

23,420

3.7
%
2,867

3.5
%
2017
22

20,432

3.2
%
3,250

4.0
%
2018
31

71,749

11.3
%
8,382

10.4
%
2019
26

45,511

7.1
%
4,336

5.4
%
2020
24

34,838

5.5
%
3,578

4.4
%
2021
78

45,382

7.1
%
7,330

9.1
%
2022
38

62,603

9.8
%
8,700

10.8
%
2023
15

47,181

7.4
%
5,669

7.0
%
2024
40

78,613

12.3
%
10,725

13.3
%
2025
16

20,614

3.2
%
2,470

3.0
%
2026
21

17,611

2.8
%
2,484

3.1
%
2027
16

35,816

5.6
%
5,380

6.7
%
Thereafter
34

108,123

17.0
%
11,534

14.3
%
Vacant
—

—

—
%
1,517

1.9
%
408

$
636,951

100.0
%
80,776

100.0
%
__________
(a)
Assumes tenant does not exercise renewal option.
(b)
Month-to-month properties are counted in 2014 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, we report our net investment and our net income or loss from that investment. Under the pro rata consolidation method, we generally present our proportionate share, based on our economic ownership of these jointly-owned investments, of the assets, liabilities, revenues, and expenses of those investments.

ABR — ABR represents contractual minimum annualized base rent for our net-leased properties. ABR is not applicable to operating properties.

Results of Operations
We have two reportable segments – Real Estate Ownership 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 Real Estate Ownership segment as well as assets owned by the Managed REITs, 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 REITs is affected, among other things, by the Managed REITs’ ability to raise capital and our ability to identify and enter into appropriate investments and financing.



W. P. Carey 9/30/2014 10-Q – 57


Real Estate Ownership

The following table presents the comparative results of our Real Estate Ownership segment (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2014
2013
Change
2014
2013
Change
Revenues
Lease revenues
$
149,243

$
75,702

$
73,541

$
420,563

$
222,145

$
198,418

Operating property revenues
8,338

248

8,090

21,580

706

20,874

Reimbursable tenant costs
6,271

3,624

2,647

18,034

9,781

8,253

Lease termination income and other
360

236

124

15,841


1,319


14,522

164,212

79,810

84,402

476,018

233,951

242,067

Operating Expenses
Depreciation and amortization:
Leased properties
57,527

29,383

28,144

169,634

86,400

83,234

Operating properties
1,092


45

1,047

2,833

132


2,701

58,619

29,428

29,191

172,467

86,532

85,935

Property expenses:
Reimbursable tenant costs
6,271

3,624

2,647

18,034

9,781

8,253

Operating property expenses
5,881

130

5,751

15,387

416

14,971

Leased properties
3,714

1,230

2,484

13,182

4,491

8,691

Property management fees
796


464

332

1,452

964


488

16,662

5,448

11,214

48,055

15,652

32,403

General and administrative
13,844

6,533

7,311

35,691


17,384


18,307

Stock-based compensation expense
259

259

—

699

1,343

(644
)
Impairment charges
4,225

—

4,225

6,291

—

6,291

Merger and property acquisition expenses
618

3,630

(3,012
)
31,369

6,879

24,490

94,227

45,298

48,929

294,572

127,790

166,782

Segment Net Operating Income
69,985

34,512

35,473

181,446

106,161

75,285

Other Income and Expenses
Net income from equity investments in real estate and the Managed REITs
11,610

9,180

2,430

35,324

52,377

(17,053
)
Gain on change in control of interests
—

—

—

104,645

—

104,645

Interest expense
(46,534
)
(26,262
)
(20,272
)
(133,342
)
(77,596
)
(55,746
)
Other income and (expenses)
(4,240
)
2,533

(6,773
)
(10,396
)
5,854

(16,250
)
(39,164
)
(14,549
)
(24,615
)
(3,769
)
(19,365
)
15,596

Income from continuing operations before income taxes
30,821

19,963

10,858

177,677

86,796

90,881

Provision for income taxes
(1,872
)
(3,689
)
1,817

(944
)
(7,260
)
6,316

Income from continuing operations before gain (loss) on sale of real estate
28,949

16,274

12,675

176,733

79,536

97,197

Income from discontinued operations, net of tax
235

378

(143
)
33,063

2,066

30,997

Gain (loss) on sale of real estate, net of tax
260

—

260

(3,482
)
(332
)
(3,150
)
Net Income from Real Estate Ownership
29,444

16,652

12,792

206,314

81,270

125,044

Net income attributable to noncontrolling interests
(757
)
(2,957
)
2,200

(4,470
)
(7,776
)
3,306

Net Income from Real Estate Ownership Attributable to W. P. Carey
$
28,687

$
13,695

$
14,992

$
201,844

$
73,494

$
128,350




W. P. Carey 9/30/2014 10-Q – 58


Lease Composition and Leasing Activities

As of September 30, 2014 , 94% of our net leases, based on ABR, have rent increases, of which 70% have adjustments based on CPI or similar indices and 24% 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 1.8% . We own international investments and, therefore, lease revenues from these investments are also subject to fluctuations in exchange rate movements in foreign currencies.

The following discussion presents a summary of new rents on second generation leases and renewed leases for the periods presented and, therefore, does not include new acquisitions for our portfolio during the years presented or properties acquired in the CPA ® :16 Merger.

During the three months ended September 30, 2014 , we signed eight leases totaling approximately 0.1 million square feet of leased space. The eight leases were lease renewals, extensions, or expansions with existing tenants. The average new rent for this leased space is $16.88 per square foot and the average former rent was $18.37 per square foot, reflecting current market conditions. We also provided tenant improvement allowances on seven of these leases totaling $0.2 million .

During the three months ended September 30, 2013 , we signed three leases totaling approximately 0.1 million square feet of leased space. Of these leases, one was with a new tenant and two were lease renewals or extensions with existing tenants. The average new rent for this leased space is $8.07 per square foot and the average former rent was $7.77 per square foot, reflecting market conditions at that time. There were no tenant improvement allowances or concessions provided to these tenants.

During the nine months ended September 30, 2014 , we signed 19 leases totaling approximately 0.8 million square feet of leased space. Of these leases, one was with a new tenant and 18 were lease renewals, extensions, or expansions with existing tenants. The average new rent for this leased space is $ 9.87 per square foot and the average former rent was $ 11.22 per square foot, reflecting current market conditions . We provided tenant improvement allowances totaling $2.5 million on 11 of these leases.

During the nine months ended September 30, 2013 , we signed 11 leases totaling approximately 0.4 million square feet of leased space. Of these leases, three were with new tenants and eight were lease renewals or extensions with existing tenants. The average new rent for this leased space is $7.48 per square foot and the average former rent was $9.41 per square foot, reflecting market conditions at that time. We provided a tenant improvement allowance of $0.4 million on one of these leases. In addition, in January 2013 we entered into a lease extension regarding a 0.4 million square feet building and committed to an expansion of 0.1 million square feet at an expected cost of $6.4 million. The expansion was completed in September 2013.



W. P. Carey 9/30/2014 10-Q – 59


Property Level Contribution

Property level contribution includes lease and operating property revenues, less property expenses, depreciation and amortization. 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. The following table presents the property level contribution for our consolidated leased and operating properties as well as a reconciliation to Segment net operating income (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2014
2013
Change
2014
2013
Change
Same Store Leased Properties
Lease revenues
$
71,786

$
71,035

$
751

$
213,544

$
211,633

$
1,911

Property expenses
(1,383
)
(1,255
)
(128
)
(6,049
)
(4,332
)
(1,717
)
Depreciation and amortization
(26,637
)
(26,654
)
17

(80,941
)
(79,985
)
(956
)
Property level contribution
43,766

43,126

640

126,554

127,316

(762
)
Leased Properties Acquired in the CPA ® :16 Merger
Lease revenues
68,342

—

68,342

183,765

—

183,765

Property expenses
(1,892
)
—

(1,892
)
(5,583
)
—

(5,583
)
Depreciation and amortization
(25,832
)
—

(25,832
)
(75,773
)
—

(75,773
)
Property level contribution
40,618

—

40,618

102,409

—

102,409

Recently Acquired Leased Properties
Lease revenues
9,103

4,045

5,058

21,719

8,314

13,405

Property expenses
(546
)
30

(576
)
(1,613
)
(146
)
(1,467
)
Depreciation and amortization
(5,012
)
(2,450
)
(2,562
)
(12,367
)
(5,569
)
(6,798
)
Property level contribution
3,545

1,625

1,920

7,739

2,599

5,140

Properties Sold
Lease revenues
12

622

(610
)
1,535

2,198

(663
)
Property expenses
107

(5
)
112

63

(13
)
76

Depreciation and amortization
(46
)
(279
)
233

(553
)
(846
)
293

Property level contribution
73

338

(265
)
1,045

1,339

(294
)
Operating Properties
Revenues
8,338

248

8,090

21,580

706

20,874

Property expenses
(5,881
)
(130
)
(5,751
)
(15,387
)
(416
)
(14,971
)
Depreciation and amortization
(1,092
)
(45
)
(1,047
)
(2,833
)
(132
)
(2,701
)
Property level contribution
1,365

73

1,292

3,360

158

3,202

Total Property Level Contribution
Lease revenues
149,243

75,702

73,541

420,563

222,145

198,418

Property expenses
(3,714
)
(1,230
)
(2,484
)
(13,182
)
(4,491
)
(8,691
)
Operating property revenues
8,338

248

8,090

21,580

706

20,874

Operating property expenses
(5,881
)
(130
)
(5,751
)
(15,387
)
(416
)
(14,971
)
Depreciation and amortization
(58,619
)
(29,428
)
(29,191
)
(172,467
)
(86,532
)
(85,935
)
Property Level Contribution
89,367

45,162

44,205

241,107

131,412

109,695

Add: Lease termination income and other
360

236

124

15,841

1,319

14,522

Less other expenses:
Property management fees
(796
)
(464
)
(332
)
(1,452
)
(964
)
(488
)
General and administrative
(13,844
)
(6,533
)
(7,311
)
(35,691
)
(17,384
)
(18,307
)
Merger and property acquisition expenses
(618
)
(3,630
)
3,012

(31,369
)
(6,879
)
(24,490
)
Stock-based compensation expense
(259
)
(259
)
—

(699
)
(1,343
)
644

Impairment charges
(4,225
)
—

(4,225
)
(6,291
)
—

(6,291
)
Segment Net Operating Income
$
69,985

$
34,512

$
35,473

$
181,446

$
106,161

$
75,285




W. P. Carey 9/30/2014 10-Q – 60


Same Store Leased Properties

Same store leased properties are those that we acquired prior to January 1, 2013 and that were not sold during the periods presented. At September 30, 2014 , there were 336 same store leased properties.

For the three months ended September 30, 2014 as compared to the same period in 2013 , property level contribution from same store leased properties increased by $0.6 million , primarily due to an increase in lease revenues as a result of scheduled rent increases at certain properties.

For the nine months ended September 30, 2014 as compared to the same period in 2013 , property level contribution from same store leased properties decreased by $0.8 million , primarily due to increases in property expenses and depreciation and amortization expenses of $1.7 million and $1.0 million , respectively, partially offset by an increase in lease revenues of $1.9 million . Property expenses increased primarily due to legal and professional fees incurred on several properties and depreciation and amortization expenses increased primarily due to the reclassification of several properties from direct financing leases to operating leases. Lease revenues increased by $3.8 million as a result of scheduled rent increases at certain properties. This increase was partially offset by a decrease in lease revenues of $2.0 million as a result of the restructuring of leases at several properties.
Leased Properties Acquired in the CPA ® :16 Merger

Leased properties acquired in the CPA ® :16 Merger in January 2014 represent the 333 leased properties we acquired at that time, minus the eleven properties that were sold during the nine months ended September 30, 2014 , which are further discussed in Note 15 .

For the three and nine months ended September 30, 2014 , property level contribution from leased properties acquired in the CPA ® :16 Merger was $40.6 million and $102.4 million , respectively, representing activity for the three months ended September 30, 2014 and eight months of activity since the date of the CPA ® :16 Merger on January 31, 2014, respectively.

Recently Acquired Leased Properties

Recently acquired leased properties are those that we acquired subsequent to December 31, 2012.

For the three and nine months ended September 30, 2014 as compared to the same periods in 2013 , property level contribution from recently acquired leased properties increased by $1.9 million and $5.1 million , respectively, as a result of five investments we acquired after September 30, 2013 and through September 30, 2014 .

Properties Sold

Properties sold represent only those properties that did not qualify for classification as discontinued operations. The results of operations for properties that were classified as held-for-sale at December 31, 2013 or upon acquisition in the CPA ® :16 Merger are included within discontinued operations in the consolidated financial statements.

For the three and nine months ended September 30, 2014 , property level contribution from properties sold was $0.1 million and $1.0 million , respectively. During the nine months ended September 30, 2014 , we sold five 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.

For the three and nine months ended September 30, 2013 , property level contribution from properties sold was $0.3 million and $1.3 million , respectively. During the nine months ended September 30, 2013 , we sold our investment in a property subject to a direct financing lease.

Operating Properties

Operating properties consist of our investments in two hotels acquired in the CPA ® :16 Merger and two self-storage properties owned as of September 30, 2014 .


W. P. Carey 9/30/2014 10-Q – 61


For the three and nine months ended September 30, 2014 as compared to the same periods in 2013 , property level contribution from operating properties increased by $1.3 million and $3.2 million , respectively, primarily as a result of the two hotels we acquired in the CPA ® :16 Merger.

Other Revenues and Expenses

Lease Termination Income and Other

For the nine months ended September 30, 2014 as compared to the same period in 2013 , Lease termination income and other increased by $14.5 million . In connection with the early termination of two leases during the second quarter of 2014, we received an aggregate of $12.9 million in lease termination income.

General and Administrative

As discussed in Note 4 , certain personnel and overhead costs are charged to the CPA ® REITs and our real estate portfolio based on the trailing 12-month reported revenues of the CPA ® REITs, CWI, and us. We began to allocate personnel and overhead costs to CWI on January 1, 2014 based on the time incurred by our personnel.

For the three and nine months ended September 30, 2014 as compared to the same periods in 2013 , general and administrative expenses in the Real Estate Ownership segment increased by $7.3 million and $18.3 million , respectively, primarily due to increases in personnel costs of $6.6 million and $16.1 million , respectively, as a result of higher allocation of personnel and overhead costs to the Real Estate Ownership segment due to the increased segment revenues after the CPA ® :16 Merger. In addition, for the three and nine months ended September 30, 2014 as compared to the same periods in 2013 , general and administrative expenses increased by $0.5 million and $1.6 million , respectively, as a result of higher legal and professional fees.

Impairment Charges

During the three and nine months ended September 30, 2014 , we recognized impairment charges of $1.5 million and $3.5 million , respectively, on a property previously leased to a tenant who filed for bankruptcy and vacated the building. We also recognized impairment charges totaling $1.6 million on eight properties with expiring leases and $1.2 million on two other properties during the third quarter of 2014 . These impairment charges were recognized in order to reduce the carrying values of the properties to their estimated fair values, which approximated their estimated selling prices. Our impairment charges are more fully described in Note 9 .

Where the undiscounted cash flows for an asset, when considering and evaluating the various alternative courses of action that may occur, are less than the asset’s carrying value, we recognize an impairment charge to reduce the carrying value of the asset to its estimated fair value. Further, it is possible that we may sell an asset for a price below its estimated fair value and record a loss on sale.

See Net Income from Equity Investments in Real Estate and the Managed REITs and Income from Discontinued Operations below for additional impairment charges incurred.

Merger and Property Acquisition Expenses

2014 — For the three months ended September 30, 2014 , merger and property acquisition expenses were $0.6 million , primarily consisting of acquisition-related expenses. For the nine months ended September 30, 2014 , merger and property acquisition expenses were $31.4 million , which consisted of merger-related expenses of $30.4 million and other acquisition-related expenses of $0.9 million . Merger-related expenses during 2014 represent costs incurred in connection with the CPA ® :16 Merger. Acquisition expenses consist of acquisition-related costs incurred on the investments we entered into during the nine months ended September 30, 2014 , that were accounted for as business combinations, for which such costs were required to be expensed under current accounting guidance.

2013 — For the three and nine months ended September 30, 2013 , merger and property acquisition expenses were $3.6 million and $6.9 million , respectively, which consisted of merger expenses of $2.5 million and $2.8 million, respectively, and acquisition-related expenses of $1.2 million and $4.1 million, respectively. Merger expenses were primarily costs incurred in connection with the CPA ® :16 Merger. Acquisition expenses were acquisition-related costs incurred on three investments we


W. P. Carey 9/30/2014 10-Q – 62


entered into during 2013 that were accounted for as business combinations and for which such costs were required to be expensed under current accounting guidance.

Net Income from Equity Investments in Real Estate and the Managed REITs
Net income from equity investments in real estate and the Managed REITs is recognized in accordance with each respective investment agreement. 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 Net income from equity investments in real estate and the Managed REITs (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2014
2013
2014
2013
Equity earnings from equity investments in the Managed REITs:
CPA ® :16 – Global (a)
$
—

$
2,638

$
465

$
3,506

Other Managed REITs
241

(53
)
896

162

Other-than-temporary impairment charges on the Special Member Interest in CPA ® :16 – Global’s operating partnership, net of related deferred revenue earned (a)
—

(4,431
)
(28
)
(5,713
)
Distributions of Available Cash (b)
CPA ® :16 – Global
—

3,766

4,751

11,210

CPA ® :17 – Global
6,110

3,557

15,380

12,681

CPA ® :18 – Global
590

—

1,196

—

CWI
1,193

—

2,247

—

Equity income from the Managed REITs
8,134

5,477

24,907

21,846

Equity earnings from other equity investments:
Equity investments acquired in the CPA ® :16 Merger (c)
2,916

1,011

7,968

3,031

Recently acquired equity investment (d)
319

—

700

—

Same store equity investments (e)
241

18

975

312

Equity investments sold (f)
—

232

82

21,147

Equity investments consolidated after the CPA ® :16 Merger (g)
—

2,442

692

6,041

Total equity earnings from other equity investments in real estate
3,476

3,703

10,417

30,531

Total income from equity investments in real estate and the Managed REITs
$
11,610

$
9,180

$
35,324

$
52,377

___________
(a)
In May 2011, we acquired 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 4 ). On January 31, 2014, we acquired all the remaining interests in CPA ® :16 – Global and now consolidate the operating partnership.
(b)
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. Distributions of Available Cash received and earned from the Managed REITs increased primarily as a result of new investments that they entered into during 2014 and 2013.
(c)
We acquired our interests or additional interests in these investments in the CPA ® :16 Merger.
(d)
During the nine months ended September 30, 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%. The rights under these preferred units allow us to have significant influence over the entity. Accordingly, we account for this investment using the equity method of accounting.
(e)
Represents equity investments we held prior to January 1, 2013.
(f)
We sold one equity investment in the second quarter of 2013 and recognized a gain on the sale of $19.5 million. We also sold another equity investment in the fourth quarter of 2013.


W. P. Carey 9/30/2014 10-Q – 63


(g)
We acquired additional interests in these investments from CPA ® :16 – Global in the CPA ® :16 Merger. Subsequent to the CPA ® :16 Merger, we consolidate these majority-owned or wholly-owned investments.

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 $73.1 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 the first quarter of 2014. During the second quarter of 2014, we identified certain measurement period adjustments that impacted the provisional accounting, which increased the fair value of our previously-held equity interest in shares of CPA ® :16 – Global’s common stock by $1.3 million and resulted in an increase to the estimated gain of $1.3 million . In accordance with ASC 805-10-25, we did not record the measurement period adjustments during the three months ended June 30, 2014. Rather, such amounts will be reflected in all future financial statements that include 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. 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 the acquisition date. Subsequent to the CPA ® :16 Merger, we consolidate these wholly-owned investments ( Note 3 ). During the nine months ended September 30, 2014 , one of these investments was sold.

Interest Expense
For the three and nine months ended September 30, 2014 as compared to the same periods in 2013 , interest expense increased by $20.3 million and $55.7 million , respectively, primarily due to $22.9 million and $60.2 million , respectively, attributable to mortgage loans assumed in connection with our acquisition of properties from CPA ® :16 – Global in the CPA ® :16 Merger. In addition, interest expense on our credit facilities and Senior Unsecured Notes increased in the aggregate by $5.4 million and $12.7 million , respectively, as a result of higher average outstanding balances under the credit facilities in the current year periods, including the issuance of the Senior Unsecured Notes in March 2014. These increases were partially offset by decreases in interest expense of $ 3.4 million and $8.3 million , respectively, as a result of prepayments of non-recourse mortgage loans during the nine months ended September 30, 2014 ( Note 11 ).

Other Income and (Expenses)
Other income and (expenses) primarily consists of gains and losses on extinguishment of debt, gains and losses on foreign currency transactions and derivative instruments. We and certain of our foreign consolidated subsidiaries have intercompany debt and/or advances that are not denominated in the functional currency of those subsidiaries. When the intercompany debt or accrued interest thereon is remeasured against the functional currency of the respective subsidiaries, an unrealized gain or loss on foreign currency translation may result. We also recognize gains or losses on foreign currency transactions when we repatriate cash from our foreign investments.
2014 — For the three and nine months ended September 30, 2014 , net other expenses were $4.2 million and $10.4 million , respectively, primarily due to net realized and unrealized losses of $6.2 million and $6.4 million , respectively, recognized 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 $1.1 million and $7.0 million , respectively, in connection with the prepayment of several non-recourse mortgage loans ( Note 11 ). During the first quarter of 2014, we also recognized a loss on extinguishment of debt of $1.5 million in the Real Estate Ownership segment in connection with entering into the Second Amended and Restated Credit Agreement and the repayment of the outstanding balances of the prior facilities, as described in Note 11 . These losses were partially offset by unrealized gains of $1.0 million and $2.2 million , respectively, on the interest rate swaps acquired from CPA ® :15 in the CPA ® :15 Merger that did not qualify for hedge accounting, and interest income of $0.7 million and $1.4 million, respectively, from the two notes receivable we acquired in the CPA ® :16 Merger.

2013 — For the three and nine months ended September 30, 2013 , we recognized other income of $2.5 million and $5.9 million , respectively, due to unrealized gains of $0.8 million and $4.2 million, respectively, recognized on the interest rate swaps acquired from CPA ® :15 in the CPA ® :15 Merger that did not qualify for hedge accounting, as well as net realized gains of $1.6 million and $0.9 million, respectively, on foreign currency transactions as a result of changes in foreign currency exchange rates on notes receivable from international subsidiaries.


W. P. Carey 9/30/2014 10-Q – 64


Provision for Income Taxes

2014 — For the three and nine months ended September 30, 2014 , we recognized a provision for income taxes of $1.9 million and $0.9 million , respectively. The provision for income taxes recognized during the third quarter of 2014 relates to foreign taxes recognized on our international properties and state franchise taxes on our domestic properties. For the nine months ended September 30, 2014 , the provision for income taxes primarily relates to $8.2 million of current federal, foreign and state franchise taxes recognized on our domestic and foreign properties, partially offset by a $6.8 million deferred tax benefit associated with basis differences on certain foreign properties.

2013 — For the three and nine months ended September 30, 2013 , provision for income taxes was $3.7 million and $7.3 million , respectively, primarily due to taxes on our foreign properties, a majority of which were acquired in the CPA ® :15 Merger.

Income from 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 with which we have no continuing involvement, are reflected in the consolidated financial statements as discontinued operations. During the nine months ended September 30, 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 purchased ten properties that were classified as held-for-sale from CPA ® :16 – Global, all of which were sold during the nine months ended September 30, 2014 . Results of operations for these properties are included within discontinued operations in the consolidated financial statements.

2014 — For the three and nine months ended September 30, 2014 , income from discontinued operations was $0.2 million and $ 33.1 million , respectively. The income from discontinued operations for the nine months ended September 30, 2014 was 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 $6.7 million , partially offset by a net loss on extinguishment of debt of $1.3 million recognized in connection with the repayment of several mortgage loans on six of the disposed properties.
2013 — For the three and nine months ended September 30, 2013 , income from discontinued operations was $0.4 million and $ 2.1 million , respectively, primarily due to income generated from the operations of three and seven properties, respectively, of $1.6 million and $7.7 million and a net gain on the sale of these properties of $0.2 million and $0.6 million , resp ectively. The income in these periods was partially offset by impairment charges of $ 1.4 million and $6.4 million , respectively, recorded on properties sold to reduce the carrying values of the properties to their expected selling prices.
Gain (Loss) on Sale of Real Estate, Net of Tax

Gain (loss) on sale of real estate, net of tax includes the gain (loss) on the sale of those properties that did not qualify for classification as discontinued operations ( Note 15 ). 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. Properties that were sold in 2013 that were classified as direct financing leases did not qualify for classification as discontinued operations.

2014 — For the three months ended September 30, 2014 , gain on sale of real estate, net of tax was $0.3 million , and for the nine months ended September 30, 2014 , loss on sale of real estate, net of tax was $3.5 million . During the nine months ended September 30, 2014 , we sold eight properties and conveyed a parcel of land that did not qualify for classification as discontinued operations.

2013 — For the nine months ended September 30, 2013 , loss on sale of real estate, net of tax was $0.3 million . During the nine months ended September 30, 2013 , we sold one property that was classified as a direct financing lease.

Net Income Attributable to Noncontrolling Interests

For the three and nine months ended September 30, 2014 as compared to the same periods in 2013 , net income attributable to noncontrolling interests decreased by $2.2 million and $3.3 million , respectively, as a result of acquiring from CPA ® :16 – Global in the CPA ® :16 Merger the remaining interests in 12 less-than-wholly-owned investments that we had already consolidated.


W. P. Carey 9/30/2014 10-Q – 65


Net Income from Real Estate Ownership Attributable to W. P. Carey
For the three and nine months ended September 30, 2014 as compared to the same periods in 2013 , the resulting net income from Real Estate Ownership attributable to W. P. Carey increased by $15.0 million and $ 128.4 million , respectively.

Investment Management

We earn revenue as the advisor to the Managed REITs. For the periods presented (except as noted), we acted as advisor to the following affiliated, publicly-owned, non-listed Managed REITs: CPA ® :16 – Global (through January 31, 2014), CPA ® :17 – Global, CPA ® :18 – Global (since May 2013), and CWI. We are currently considering alternatives for expanding our investment management operations by raising funds in addition to the existing Managed REITs, although there can be no assurance that we will pursue any of these initiatives. These new funds could invest primarily in assets other than net-lease real estate and include funds raised through publicly-traded vehicles, either in the U.S. or internationally.

The following tables present other operating data that management finds useful in evaluating result of operations (dollars in millions):
September 30, 2014
December 31, 2013
Total properties — Managed REITs (a)
489

789

Assets under management — Managed REITs (b)
$
8,314.4

$
9,728.4

Cumulative funds raised — CPA ® :18 – Global offering (c) (d)
1,090.6

237.3

Cumulative funds raised — CWI offerings (c) (e)
790.2

575.8

For the Nine Months Ended September 30,
2014
2013
Financings structured — Managed REITs
$
638.6

$
704.1

Investments structured — Managed REITs
1,097.2

926.7

Funds raised — CPA ® :18 – Global offering (c) (d)
853.3

20.5

Funds raised — CWI offerings (c) (e)
214.4

418.3

___________
(a)
Includes properties owned by CPA ® :16 – Global, CPA ® :17 – Global, and CPA ® :18 – Global at December 31, 2013 . Total properties at September 30, 2014 excludes properties owned by CPA ® :16 – Global prior to the CPA ® :16 Merger on January 31, 2014. Includes hotels owned by CWI for all periods.
(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.
(c)
Excludes reinvested distributions through each entity’s distribution reinvestment plan.
(d)
Reflects funds raised since the commencement of CPA ® :18 – Global’s initial public offering in May 2013.
(e)
Reflects funds raised in CWI’s initial public offering, which was terminated on September 15, 2013, and CWI’s follow-on offering, which commenced on December 20, 2013.



W. P. Carey 9/30/2014 10-Q – 66


Below is a summary of comparative results of our Investment Management segment (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2014
2013
Change
2014
2013
Change
Revenues
Reimbursable costs
$
14,722

$
23,259

$
(8,537
)
$
96,379

$
50,694

$
45,685

Asset management revenue
9,088

10,961

(1,873
)
27,910

31,330

(3,420
)
Structuring revenue
5,487

14,775

(9,288
)
40,492

27,539

12,953

Dealer manager fees
2,436

3,787

(1,351
)
17,062

7,329

9,733

31,733

52,782

(21,049
)
181,843

116,892

64,951

Operating Expenses
Reimbursable costs from affiliates
14,722

23,259

(8,537
)
96,379

50,694

45,685

General and administrative
6,417

9,206

(2,789
)
26,375

29,952

(3,577
)
Stock-based compensation expense
7,720

7,593

127

22,280

24,087

(1,807
)
Dealer manager fees and expenses
3,847

4,296

(449
)
15,557

9,421

6,136

Depreciation and amortization
905

1,106

(201
)
3,175

3,149

26

Subadvisor fees
381

867

(486
)
2,850

2,537

313

33,992

46,327

(12,335
)
166,616

119,840

46,776

Other Income and Expenses
Other income and (expenses)
160

245

(85
)
(7
)
773

(780
)
160

245

(85
)
(7
)
773

(780
)
(Loss) income from continuing operations before income taxes
(2,099
)
6,700

(8,799
)
15,220

(2,175
)
17,395

Benefit from (provision for) income taxes
971

(1,702
)
2,673

(10,231
)
4,210

(14,441
)
Net (Loss) Income from Investment Management
(1,128
)
4,998

(6,126
)
4,989

2,035

2,954

Net (income) loss attributable to noncontrolling interests
(236
)
45

(281
)
(444
)
464

(908
)
Net loss (income) attributable to redeemable noncontrolling interest
14

(232
)
246

(137
)
(139
)
2

Net (Loss) Income from Investment Management Attributable to W. P. Carey
$
(1,350
)
$
4,811

$
(6,161
)
$
4,408

$
2,360

$
2,048


Reimbursable Costs
Reimbursable costs represent costs incurred by us on behalf of the Managed REITs, consisting primarily of broker-dealer commissions and marketing and personnel costs, which are reimbursed by the Managed REITs and are reflected as a component of both revenues and expenses.
For the three months ended September 30, 2014 as compared to the same period in 2013, reimbursable costs decreased by $8.5 million , primarily due to a decrease of $6.5 million in commissions paid to broker-dealers related to CWI’s follow-on offering as a result of the corresponding decrease in funds raised in the current year period compared to the prior year period.

For the nine months ended September 30, 2014 as compared to the same period in 2013 , reimbursable costs increased $45.7 million , respectively, primarily due to an increase of $52.2 million in commissions paid to broker-dealers related to the CPA ® :18 – Global initial public offering, which commenced in May 2013, partially offset by a decrease of $13.0 million in commissions paid to broker-dealers related to CWI’s follow-on offering due to the corresponding increase and decrease, respectively, in funds raised in the current year period compared to the prior year period.

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. This asset management revenue may increase or decrease depending upon (i) increases in the Managed REITs’ asset bases as a result of new investments; (ii) decreases in the Managed REITs’ asset bases as a result of sales


W. P. Carey 9/30/2014 10-Q – 67


of investments; and (iii) increases or decreases in the appraised value of the real estate-related and lodging-related assets in the Managed REIT investment portfolios.

For the three and nine months ended September 30, 2014 as compared to the same periods in 2013 , asset management revenue decreased by $1.9 million and $3.4 million , respectively. Asset management revenue decreased by $4.4 million and $12.0 million , respectively, as a result of the cessation of asset management revenue earned from CPA ® :16 – Global after the CPA ® :16 Merger on January 31, 2014. This decrease was partially offset by aggregate increases in such revenue of $ 2.6 million and $ 8.5 million , respectively, during the three and nine months ended September 30, 2014 as compared to the same periods in 2013 from CPA ® :17 – Global, CPA ® :18 – Global, and CWI as a result of new investments that these entities entered into during 2013 and 2014 .

Structuring Revenue
We earn structuring revenue when we structure investments and debt placement transactions for the Managed REITs. Structuring revenue is dependent on investment activity, which is subject to significant period-to-period variation.
For the three months ended September 30, 2014 as compared to the same period in 2013, structuring revenue decreased by $9.3 million . Structuring revenue from CPA ® :17 – Global and CWI decreased by $8.4 million and $4.3 million , respectively, as a result of lower investment volume in the current year period as compared to the same period in the prior year. These decreases were partially offset by a $3.5 million increase in structuring revenue from CPA ® :18 – Global as a result of higher investment volume in the current year period as compared to the same period in the prior year.

For the nine months ended September 30, 2014 as compared to the same period in 2013 , structuring revenue increased by $13.0 million , primarily due to an increase of $24.6 million in structuring revenue from CPA ® :18 – Global as a result of higher investment volume in the current year period as compared to the same period in the prior year, partially offset by decreases of $9.5 million and $1.9 million in structuring revenue from CPA ® :17 – Global and CWI, respectively, as a result of lower investment volume in the current year period as compared to the same period in the prior year.

Dealer Manager Fees
As discussed in Note 4 , we earned a dealer manager fee of $0.35 per share sold in connection with CPA ® :17 – Global’s follow-on offering, which commenced on April 7, 2011 and terminated on January 31, 2013. We also earned a $0.30 dealer manager fee per share sold in connection with CWI’s initial and follow-on offerings. In addition, we receive dealer manager fees depending on the class of common stock sold, of $0.30 or $0.21 per share sold, for its class A common stock and class C common stock, respectively, in connection with CPA ® :18 – Global’s public offering. We also receive a Shareholder Servicing Fee paid in connection with investor purchases of shares of class C common stock. The amount of the Shareholder Servicing Fee is 1% of the purchase price per share (or, once reported, the amount of the estimated NAV per share) for the shares of class C common stock of CPA ® :18 – Global sold in the offering. CPA ® :18 – Global terminated sales of its class A common stock as of September 30, 2014 . We re-allow a portion of the dealer manager fees to selected dealers in the offerings. Dealer manager fees that are not re-allowed and Shareholder Servicing Fees are 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.

For the three months ended September 30, 2014 as compared to the same period in 2013, dealer manager fees decreased by $1.4 million , primarily due to a decrease of $1.7 million in fees earned in connection with CWI’s follow-on offering, partially offset by an increase of $0.3 million in fees earned in connection with the sale of CPA ® :18 – Global shares in its initial public offering, which commenced in May 2013, due to the corresponding decrease and increase, respectively, in funds raised in the current year period compared to the prior year period.

For the nine months ended September 30, 2014 as compared to the same period in 2013 , dealer manager fees increased by $9.7 million , primarily due to an increase of $13.1 million in fees earned in connection with the sale of CPA ® :18 – Global shares in its initial public offering, partially offset by a decrease of $3.4 million in fees earned in connection with CWI’s follow-on offering due to the corresponding increase and decrease, respectively, in funds raised in the current year period compared to the prior year period.



W. P. Carey 9/30/2014 10-Q – 68


General and Administrative

As discussed in Note 4 , certain personnel and overhead costs are charged to the CPA ® REITs and our real estate portfolio based on the trailing 12-month reported revenues of the CPA ® REITs, CWI, and us. We also began to allocate personnel and overhead costs to CWI on January 1, 2014 based on the time incurred by our personnel.

For the three months ended September 30, 2014 as compared to the same period in 2013 , general and administrative expenses decreased by $2.8 million , primarily because we allocated $ 5.4 million more personnel and overhead costs to the Real Estate Ownership segment due to its increased revenues after the CPA ® :16 Merger on January 31, 2014. This decrease was partially offset by an increase of $ 1.6 million in compensation expense due to increased headcount and an increase of $ 1.3 million in professional fees.

For the nine months ended September 30, 2014 as compared to the same period in 2013 , general and administrative expenses decreased by $3.6 million , primarily because we allocated $ 13.7 million more personnel and overhead costs to the Real Estate Ownership segment due to its increased revenues after the CPA ® :16 Merger on January 31, 2014. This decrease was partially offset by (i) an increase of $ 3.0 million in commissions paid to investment officers as a result of higher investment volume in the current year period as compared to the same period in the prior year; (ii) an increase of $ 3.6 million in compensation expense due to increased headcount; (iii) an increase in professional fees of $2.6 million and (iv) an increase in rent expense of $1.3 million as a result of additional office space obtained during the second quarter of 2013.

Stock-Based Compensation Expense

For a description of our equity plans and awards, please see Note 13 .

For the three months ended September 30, 2014 as compared to the same period in 2013 , stock-based compensation expense increased by $0.1 million . For the nine months ended September 30, 2014 as compared to the same period in 2013 , stock-based compensation expense decreased by $1.8 million , primarily due to a $ 2.2 million decrease in the expectation adjustment for the payout of PSUs that were granted during 2014, as compared to the expectation adjustment for the payout of PSUs that were granted during 2012.

Dealer Manager Fees and Expenses

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.

For the three months ended September 30, 2014 as compared to the same period in 2013 , dealer manager fees and expenses decreased by $0.4 million , primarily due to a decrease of $1.0 million in expenses paid in connection with the sale of CWI shares in its follow-on offering as a result of a corresponding decrease in funds raised, partially offset by an increase of $0.5 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 increase in funds raised.

For the nine months ended September 30, 2014 as compared to the same period in 2013 , dealer manager fees and expenses increased by $6.1 million , primarily due an increase of $8.9 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 increase in funds raised, partially offset by a decrease of $2.5 million in expenses paid in connection with the sale of CWI shares in its follow-on offering as a result of a corresponding decrease in funds raised.



W. P. Carey 9/30/2014 10-Q – 69


Subadvisor Fees

As discussed in Note 4 , we earn investment management revenue from CWI. Pursuant to the terms of the subadvisory agreement, we pay a subadvisory fee equal to 20% of the amount of fees paid to us by CWI, 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 agreement. We also pay to the subadvisor 20% of the net proceeds resulting from any sale, financing, or recapitalization or sale of securities by us, the advisor.

For the three months ended September 30, 2014 as compared to the same period in 2013 , subadvisor fees decreased by $0.5 million , primarily due to a decrease in fees earned from CWI as a result of lower acquisition volume in the current year period as compared to the same period in the prior year.

For the nine months ended September 30, 2014 as compared to the same period in 2013 , subadvisor fees increased by $0.3 million , primarily due to an increase in fees earned from CWI as a result of higher acquisition volume in the current year period as compared to the same period in the prior year.

Benefit from (Provision for) Income Taxes

2014 — For the three and nine months ended September 30, 2014 , we recognized a benefit from and provision for income taxes of $1.0 million and $10.2 million , respectively. The benefit from income taxes recognized during the three months ended September 30, 2014 was caused by a net loss incurred for the quarter. The provision for income taxes recognized during the nine months ended September 30, 2014 relates to pre-tax income recognized by our TRSs. In addition to income taxes of $5.4 million , our TRS recognized an additional $4.8 million of income tax expense from a permanent difference upon recognition of deferred revenue 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.

2013 — For the three and nine months ended September 30, 2013 , provision for and benefit from income taxes was $1.7 million and $4.2 million , respectively. The provision for income taxes recognized during the three months ended September 30, 2013 was primarily due to pre-tax income generated by our TRSs during the same period. The benefit from income taxes recognized during the nine months ended December 31, 2013 was primarily due to a pre-tax loss recognized by our TRSs and higher compensation-related deductions during the nine months ended September 30, 2013 .

Net (Loss) Income from Investment Management Attributable to W. P. Carey
For the three months ended September 30, 2014 , the resulting net loss from Investment Management attributable to W. P. Carey member was $1.4 million , compared to net income of $4.8 million recognized in the same period in 2013 . For the nine months ended September 30, 2014 , the resulting net income from Investment Management attributable to W. P. Carey increased by $2.0 million as compared to the same period in 2013 .

Financial Condition

Sources and Uses of Cash During the Period
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 from period to period due to a number of factors, which may include, among other things, 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, our election to receive asset management fees in either shares of the Managed REITs’ common stock or cash, the timing and characterization of distributions from equity investments in real estate and the Managed REITs, 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 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 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.



W. P. Carey 9/30/2014 10-Q – 70


Operating Activities
Net cash provided by operating activities increased by $ 130.8 million during the nine months ended September 30, 2014 as compared to the same period in 2013 , primarily due to operating cash flow generated from the properties we acquired in the CPA ® :16 Merger.
Investing Activities

Our investing activities are generally comprised of real estate-related transactions (purchases and sales) and capitalized property-related costs. In connection with the CPA ® :16 Merger, we paid $ 1.3 million , representing the cash portion of the Merger Consideration, to CPA ® :16 – Global stockholders and acquired $ 65.4 million of cash.

During the nine months ended September 30, 2014 , we sold 24 properties for a net proceeds of $ 281.2 million . We used $246.6 million to acquire four properties. Net funds that were invested in and released from lender-held investment accounts totaled $ 29.2 million . We also used $ 27.7 million primarily to make capital improvements to various properties and to fund a build-to-suit transaction and used $ 7.7 million to purchase marketable securities. In order to facilitate an acquisition by CWI, we made an $11.0 million loan to CWI during the nine months ended September 30, 2014 , which was repaid in full, with interest, prior to maturity on July 22, 2014. We also received $ 10.1 million in distributions from equity investments in real estate and the Managed REITs in excess of cumulative equity income.

Financing Activities

During the nine months ended September 30, 2014 , net borrowings under our senior credit facility increased overall by $ 43.9 million , which was comprised of gross borrowings of $ 1.3 billion and repayments of $ 1.4 billion , inclusive of the repayment of a $170.0 million line of credit facility assumed from the CPA ® :16 Merger. We received $ 498.2 million in net proceeds from the issuance of the Senior Unsecured Notes, which we used to pay off the outstanding balance on the Revolver at that time. In connection with the Second Amended and Restated Credit Agreement and the issuance of the Senior Unsecured Notes, we incurred financing costs totaling $ 12.2 million . During the nine months ended September 30, 2014 , in connection with our long-term plan to become a primarily unsecured borrower, we prepaid 20 non-recourse mortgage loans with an aggregate outstanding principal balance of $ 216.1 million . We also made scheduled mortgage loan principal payments of $ 96.8 million and drew down $12.3 million on a construction loan in relation to a build-to-suit transaction. We received $ 282.6 million from the issuance of shares in the Offering, which we used in part to pay down a portion of the outstanding balance on the Revolver. We paid distributions to stockholders of $ 248.9 million related to the fourth quarter of 2013 and the first and second quarters of 2014 and also paid distributions of $ 16.2 million to affiliates who hold noncontrolling interests in various entities with us. We recognized windfall tax benefits of $ 5.4 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.



W. P. Carey 9/30/2014 10-Q – 71


Summary of Financing
The table below summarizes our non-recourse debt, our Senior Unsecured Credit Facility, and our Senior Unsecured Notes (dollars in thousands):
September 30, 2014
December 31, 2013
Carrying Value
Fixed rate:
Non-recourse mortgages
$
2,242,103

$
1,139,122

Senior Unsecured Notes
498,300

—

2,740,403

1,139,122

Variable rate: (a)
Revolver
368,945

400,000

Term Loan Facility
250,000

175,000

Amount subject to interest rate swap and cap
408,502

321,409

Non-recourse mortgages
37,346

27,600

Amount of fixed rate debt subject to interest rate reset features
14,182

4,279

1,078,975

928,288

$
3,819,378

$
2,067,410

Percent of Total Debt
Fixed rate
72
%
55
%
Variable rate
28
%
45
%
100
%
100
%
Weighted-Average Interest Rate at End of Period
Fixed rate
5.4
%
5.3
%
Variable rate
2.3
%
2.7
%
____________
(a)
As described in Note 17 , in October 2014, we utilized $225.8 million of the net proceeds from the Offering to pay down a portion of the amount outstanding under the Revolver. As described in Note 11 , in January 2014, the Prior Senior Credit Facility and Unsecured Term Loan were repaid and terminated with borrowings under the Senior Unsecured Credit Facility.

Cash Resources
At September 30, 2014 , our cash resources consisted of the following:
•
Cash and cash equivalents totaling $ 530.3 million . Of this amount, $ 180.0 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 $ 631.1 million , excluding amounts reserved for outstanding letters of credit. Our lender has issued letters of credit totaling $ 1.0 million on our behalf in connection with certain contractual obligations, which reduce amounts that may be drawn under the facility; and

•
We also had unleveraged properties that had an aggregate carrying value of $ 1.7 billion at September 30, 2014 , 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 a bond or equity offering, if necessary.


W. P. Carey 9/30/2014 10-Q – 72


Credit Facilities and Unsecured Term Loan
Our credit facilities and Unsecured Term Loan are more fully described in Note 11 . A summary of our credit facilities and Unsecured Term Loan is provided below (in thousands):
September 30, 2014
December 31, 2013
Outstanding Balance
Maximum Available
Outstanding Balance
Maximum Available
Senior Unsecured Credit Facility and Prior Senior Credit Facility:
Revolver
$
368,945

$
1,000,000

$
100,000

$
450,000

Term Loan Facility
250,000

250,000

175,000

175,000

Unsecured Term Loan
—

—

300,000

300,000


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 properties, 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 and scheduled mortgage loan principal payments, including mortgage balloon payments totaling $179.1 million , as well as other normal recurring operating expenses. There are no mortgage balloon payments due on our equity investments during the next 12 months. 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 CWI and CPA ® :18 – Global through cash generated from operations, the use of our cash reserves or unused amounts on our Revolver, and/or equity or debt offerings.

Off-Balance Sheet Arrangements and Contractual Obligations
The table below summarizes our debt, off-balance sheet arrangements, and other contractual obligations at September 30, 2014 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
Non-recourse debt — principal (a)
$
2,696,457

$
254,686

$
1,133,568

$
437,154

$
871,049

Interest on borrowings (b)
821,446

167,918

273,355

157,048

223,125

Senior Unsecured Notes — principal (a) (c)
500,000

—

—

—

500,000

Senior Unsecured Credit Facility — principal (d)
618,945

—

250,000

368,945

—

Operating and other lease commitments (e)
82,993

5,554

11,307

11,516

54,616

Build-to-suit commitments (f)
34,983

34,983

—

—

—

Property improvement commitments
4,728

4,728

—

—

—

$
4,759,552

$
467,869

$
1,668,230

$
974,663

$
1,648,790

___________
(a)
Excludes the unamortized fair market value adjustment of $ 5.7 million resulting from the assumption of property-level debt in connection with the CPA ® :15 Merger and CPA ® :16 Merger, and the unamortized discount on the Senior Unsecured Notes of $ 1.7 million ( Note 11 ).
(b)
Interest on unhedged variable-rate debt obligations was calculated using the applicable annual variable interest rates and balances outstanding at September 30, 2014 .
(c)
Our Senior Unsecured Notes are scheduled to mature on April 1, 2024.
(d)
Our Revolver is scheduled to mature on January 31, 2018 and our Term Loan Facility is scheduled to mature on January 31, 2016. In October 2014, we utilized $225.8 million of the net proceeds from the Offering to pay down a portion of the amount outstanding under the Revolver ( Note 17 ).
(e)
Operating and other lease commitments consist primarily of rental obligations under ground leases and the future minimum rents payable on the lease for our principal offices. We are reimbursed by the Managed REITs for their share of the future


W. P. Carey 9/30/2014 10-Q – 73


minimum rents pursuant to their respective advisory agreements with us. These amounts are generally allocated among the entities based on gross revenues and are adjusted quarterly.
(f)
Represents a build-to-suit transaction we entered into in December 2013 for the construction of an office building located in Germany. Amount is based on the exchange rate of the euro at September 30, 2014 .
Amounts in the table above that relate to our foreign operations are based on the exchange rate of the local currencies at September 30, 2014 , which consisted primarily of the euro. At September 30, 2014 , we had no material capital lease obligations for which we were the lessee, either individually or in the aggregate.

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 FFO and AFFO, supplemental non-GAAP measures, which are uniquely 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 FFO and AFFO to the most directly comparable GAAP measures are provided below.

Adjusted Funds from Operations
Funds from Operations, or FFO, is a non-GAAP measure defined by the National Association of Real Estate Investment Trusts, or NAREIT. NAREIT defines FFO as net income or loss (as computed in accordance with GAAP) excluding: depreciation and amortization expense from real estate assets, impairment charges on real estate, gains or losses from sales of depreciated real estate assets, and extraordinary items; however, FFO related to assets held for sale, sold or otherwise transferred and included in the results of discontinued operations are included. These adjustments also incorporate the pro rata share of unconsolidated subsidiaries. FFO is used by management, investors and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers. Although NAREIT has published this definition of FFO, companies often modify this definition as they seek to provide financial measures that meaningfully reflect their distinctive operations.

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 acquisition expenses and non-core expenses such as merger expenses. Merger expenses are related to the CPA ® :16 Merger. We also exclude realized gains/losses on foreign exchange and 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 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 9/30/2014 10-Q – 74


FFO and AFFO were as follows (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2014
2013
2014
2013
Net income attributable to W. P. Carey
$
27,337

$
18,506

$
206,252

$
75,854

Adjustments:
Depreciation and amortization of real property
58,355

30,483

172,329

90,340

Impairment charges
4,225

1,416

6,291

6,366

Gain on sale of real estate, net
(259
)
(240
)
(29,017
)
(290
)
Proportionate share of adjustments for noncontrolling interests to arrive at FFO
(2,924
)
(4,252
)
(9,002
)
(12,766
)
Proportionate share of adjustments to equity in net income of partially-owned entities to arrive at FFO:
Depreciation and amortization of real property
457

2,365

2,255

8,676

Gain on sale of real estate, net
—

—

—

(19,461
)
Total adjustments
59,854

29,772

142,856

72,865

FFO (as defined by NAREIT)
87,191

48,278

349,108

148,719

Adjustments:
Above- and below-market rent intangible lease amortization, net
14,432

7,330

45,042

21,823

Stock-based compensation
7,979

7,853

22,979

25,431

Other amortization and non-cash charges (a)
5,670

(429
)
8,244

413

Straight-line and other rent adjustments
(1,791
)
(1,930
)
(13,459
)
(6,376
)
Tax benefit – deferred and other non-cash charges
(1,665
)
(4,282
)
(13,841
)
(10,890
)
Loss (gain) on extinguishment of debt
1,122

(143
)
9,835

(210
)
Amortization of deferred financing costs
1,007

1,117

3,031

2,813

Property acquisition expenses (b)
609

1,076

934

3,985

Realized (gains) losses on foreign currency, derivatives, and other
(272
)
60

548

218

Other gains, net
(86
)
(46
)
(65
)
(358
)
Merger expenses (c)
9

2,464

44,302

2,793

Gain on change in control of interests
—

—

(104,645
)
—

Proportionate share of adjustments to equity in net income of partially-owned entities to arrive at AFFO:
AFFO adjustments to equity earnings from equity investments
1,094

10,961

4,965

30,928

Straight-line rent and other rent adjustments
(80
)
(80
)
(280
)
(434
)
Other amortization and non-cash charges
63

114

218

483

Above- and below-market rent intangible lease amortization, net
3

272

21

814

Proportionate share of adjustments for noncontrolling interests to arrive at AFFO
(918
)
(1,470
)
(2,076
)
(4,114
)
Total adjustments
27,176

22,867

5,753

67,319

AFFO
$
114,367

$
71,145

$
354,861

$
216,038

Summary
FFO — as defined by NAREIT
$
87,191

$
48,278

$
349,108

$
148,719

AFFO
$
114,367

$
71,145

$
354,861

$
216,038




W. P. Carey 9/30/2014 10-Q – 75


__________

(a)
Represents primarily unrealized gains and losses from foreign exchange and derivatives, as well as amounts for the amortization of contracts.
(b)
Prior to the second quarter of 2013, this amount was insignificant and therefore not included in the AFFO calculation.
(c)
Amount for the nine months ended September 30, 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 by CPA ® :16 – Global for asset management and performance fees.
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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.
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 to which we are exposed are interest rate risk, foreign currency exchange risk and we are also exposed to further market risk as a result of concentrations of tenants in certain industries and/or geographic regions. 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 in our investment decisions we attempt to diversify our 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 to hedge our foreign currency cash flow exposures.
Interest Rate Risk
The value of our real estate and related fixed-rate debt obligations is 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, all of which may affect our ability to refinance property-level mortgage debt when balloon payments are scheduled. 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 attempt to obtain non-recourse mortgage financing on a long-term, fixed-rate basis. However, from time to time, we or our joint investment partners may obtain variable-rate non-recourse mortgage loans and, as a result, may 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 the 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 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 September 30, 2014 , we estimated that the total fair value of our interest rate swaps and caps, 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 $ 13.1 million ( Note 10 ).
At September 30, 2014 , a significant portion (approximately 72% ) 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 September 30, 2014 ranged


W. P. Carey 9/30/2014 10-Q – 76


from 3.2% to 7.8% . The contractual annual interest rates on our variable-rate debt at September 30, 2014 ranged from 1.1% to 7.6% . Our debt obligations are more fully described under Financial Condition – Summary of Financing , in Item 2 above. The following table presents principal cash outflows for the remainder of 2014, each of the next four calendar years following December 31, 2014, and thereafter, based upon expected maturity dates of our debt obligations outstanding at September 30, 2014 (in thousands):
2014 (remainder)
2015
2016
2017
2018
Thereafter
Total
Fair value
Fixed-rate debt (a)
$
29,750

$
177,225

$
359,093

$
701,847

$
135,331

$
1,330,463

$
2,733,709

$
2,788,991

Variable-rate debt (a)
$
100,584

$
28,203

$
264,647

$
67,698

$
521,145

$
99,416

$
1,081,693

$
1,068,658

___________
(a)
Amounts are based on the exchange rate at September 30, 2014 , as applicable.

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. A decrease or increase in interest rates of 1% would change the estimated fair value of this debt at September 30, 2014 by an aggregate increase of $ 107.0 million or an aggregate decrease of $ 108.0 million , respectively. Annual interest expense on our unhedged variable-rate debt that does not bear interest at fixed-rates at September 30, 2014 would increase or decrease by $ 6.6 million for each respective 1% change in annual interest rates. As more fully described under Financial Condition – Summary of Financing in Item 2 above, a portion of the debt classified as variable-rate debt in the tables above bore interest at fixed rates at September 30, 2014 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 investments in the European Union and in Asia, 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, and certain other currencies, 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. For the nine months ended September 30, 2014 , we recognized net realized and unrealized foreign currency transaction losses of $ 0.2 million and $ 6.2 million , respectively. These losses are included in Other income and (expenses) in the consolidated financial statements and were primarily due to changes in the value of the euro on accrued interest receivable on notes receivable from consolidated subsidiaries.

We enter into foreign currency forward contracts 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. The net estimated fair value of our foreign currency forward contracts, which are included in Accounts payable, accrued expenses and other liabilities in the consolidated financial statements, was in net asset position of $ 3.2 million at September 30, 2014 . We obtain non-recourse mortgage financing in the local currency. 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 9/30/2014 10-Q – 77


Scheduled future minimum rents, exclusive of renewals, under non-cancelable operating leases, for our foreign operations as of September 30, 2014 , for the remainder of 2014 , each of the next four calendar years following December 31, 2014 , and thereafter are as follows (in thousands):
Lease Revenues (a)
2014 (remainder)
2015
2016
2017
2018
Thereafter
Total
Euro (c)
$
46,908

$
181,243

$
175,640

$
165,840

$
151,708

$
1,062,936

$
1,784,275

British pound sterling (d)
2,857

11,062

10,959

11,022

11,142

133,513

180,555

Other foreign currencies (e)
3,721

14,991

15,173

15,368

15,561

155,132

219,946

$
53,486

$
207,296

$
201,772

$
192,230

$
178,411

$
1,351,581

$
2,184,776

Scheduled debt service payments (principal and interest) for mortgage notes payable for our foreign operations as of September 30, 2014 , for the remainder of 2014 , each of the next four calendar years following December 31, 2014 , and thereafter are as follows (in thousands):
Debt service (a) (b)
2014 (remainder)
2015
2016
2017
2018
Thereafter
Total
Euro (c)
$
125,729

$
156,297

$
201,251

$
418,076

$
150,799

$
74,894

$
1,127,046

British pound sterling (d)
583

18,511

1,019

1,019

1,019

17,122

39,273

Other foreign currencies (e)
5,272

3,253

3,234

8,360

10,398

5,302

35,819

$
131,584

$
178,061

$
205,504

$
427,455

$
162,216

$
97,318

$
1,202,138

__________
(a)
Amounts are based on the applicable exchange rates at September 30, 2014 . Contractual rents and debt obligations are denominated in the functional currency of the country of each property.
(b)
Interest on unhedged variable-rate debt obligations was calculated using the applicable annual interest rates and balances outstanding at September 30, 2014 .
(c)
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 property level cash flow at September 30, 2014 of $ 6.6 million .
(d)
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 property level cash flow at September 30, 2014 of $ 1.4 million .
(e)
Other foreign currencies consist of the Norwegian krone, Canadian dollar, the Malaysian ringgit, the Swedish krona, and the Thai baht.
As a result of scheduled balloon payments on our international non-recourse mortgage loans, projected debt service obligations exceed projected lease revenues in 2014 , 2016 , and 2017 . In 2014 , 2016 , and 2017 balloon payments totaling $ 111.1 million , $ 140.2 million , and $400.2 million , respectively, are due on five , seven , and ten non-recourse mortgage loans, respectively, that are collateralized by properties that we own with affiliates. We currently anticipate that, by their respective due dates, we will have repaid or refinanced certain of these loans, but there can be no assurance that we will be able to refinance these loans on favorable terms, if at all. If refinancing has not occurred, we would expect to use our cash resources, including unused capacity on our Revolver, to make these payments, if necessary.

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. As a result of the CPA ® :16 Merger, our portfolio concentrations at September 30, 2014 changed significantly as compared to December 31, 2013 . While we believe our portfolio is reasonably well diversified, it does contain concentrations in excess of 10%, based on the percentage of our ABR as of September 30, 2014 , in certain areas.

The majority of our directly owned real estate properties and related loans are located in the United States ( 67% ) and Germany ( 11% ) representing the significant geographic concentrations greater than 10% of our ABR at September 30, 2014 . No individual tenant accounted for more than 10% of our ABR at September 30, 2014 . At September 30, 2014 , our directly owned real estate properties contain significant concentrations in the following asset types: office ( 26% ), industrial ( 25% ), warehouse/distribution ( 20% ) and retail ( 15% ); and in the following tenant industries: retail ( 22% ) and electronics ( 10% ).



W. P. Carey 9/30/2014 10-Q – 78


There were no significant concentrations, individually or in the aggregate, related to our unconsolidated jointly-owned investments.

Item 4. Controls and Procedures.
Disclosure Controls and Procedures
Our disclosure controls and procedures include our 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 September 30, 2014 , have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were effective as of September 30, 2014 at a reasonable level of assurance.

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 control over financial reporting.



W. P. Carey 9/30/2014 10-Q – 79


PART II

Item 6. 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
1.1

Underwriting Agreement, dated September 24, 2014 among W. P. Carey Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc. and Wells Fargo Securities, LLC, as representatives of the several underwriters listed in Schedule I thereto.
Incorporated by reference to Exhibit 1.1 to Current Report on Form 8-K filed on September 30, 2014.
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
101

The following materials from W. P. Carey Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at September 30, 2014 and December 31, 2013, (ii) Consolidated Statements of Income for the three and nine months ended September 30, 2014 and 2013, (iii) Consolidated Statements of Comprehensive (Loss) Income for the three and nine months ended September 30, 2014 and 2013, (iv) Consolidated Statements of Equity for the nine months ended September 30, 2014 and the year ended December 31, 2013, (v) Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013, and (vi) Notes to Consolidated Financial Statements.
Filed herewith



W. P. Carey 9/30/2014 10-Q – 80


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:
November 5, 2014
By:
/s/ Catherine D. Rice
Catherine D. Rice
Chief Financial Officer
(Principal Financial Officer)
Date:
November 5, 2014
By:
/s/ Hisham A. Kader
Hisham A. Kader
Chief Accounting Officer
(Principal Accounting Officer)



W. P. Carey 9/30/2014 10-Q – 81


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
1.1

Underwriting Agreement, dated September 24, 2014 among W. P. Carey Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc. and Wells Fargo Securities, LLC, as representatives of the several underwriters listed in Schedule I thereto.
Incorporated by reference to Exhibit 1.1 to Current Report on Form 8-K filed on September 30, 2014.
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
101

The following materials from W. P. Carey Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at September 30, 2014 and December 31, 2013, (ii) Consolidated Statements of Income for the three and nine months ended September 30, 2014 and 2013, (iii) Consolidated Statements of Comprehensive (Loss) Income for the three and nine months ended September 30, 2014 and 2013, (iv) Consolidated Statements of Equity for the nine months ended September 30, 2014 and the year ended December 31, 2013, (v) Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013, and (vi) Notes to Consolidated Financial Statements.
Filed herewith


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