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, a REIT that provides long-term financing via sale-leaseback and build-to-suit transactions for companies worldwide and manages a global investment portfolio. We invest primarily in commercial properties domestically and internationally. We earn revenue principally by leasing the properties we own to single corporate tenants, on a triple-net lease basis, which generally requires each tenant to pay the costs associated with operating and maintaining the property.
Originally founded in 1973, we reorganized as a REIT in September 2012 in connection with our merger with Corporate Property Associates 15 Incorporated. We refer to that merger as the CPA
®
:15 Merger. On January 31, 2014, Corporate Property Associates 16 – Global Incorporated, or CPA
®
:16 – Global, merged with and into us, which we refer to as the CPA
®
:16 Merger. Our shares of common stock are listed on the New York Stock Exchange under the symbol “WPC.”
We have elected to be taxed as a REIT under Section 856 through 860 of the Internal Revenue Code. As a REIT, we are not generally subject to United States federal income taxation other than from our taxable REIT subsidiaries, or TRSs, as long as we satisfy certain requirements, principally relating to the nature of our income and the level of our distributions, as well as other factors. We also own real property in jurisdictions outside the United States through foreign subsidiaries and are subject to income taxes on our pre-tax income earned from properties in such countries. We hold all of our real estate assets attributable to our Owned Real Estate segment under the REIT structure, while the activities conducted by our Investment Management segment subsidiaries have been organized under TRSs.
Through our TRSs, we also earn revenue as the advisor to publicly owned, non-listed REITs, which are sponsored by us under the Corporate Property Associates, or CPA
®
,
brand name and invest in similar properties. At
June 30, 2017
, 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 refer to CPA
®
:17 – Global and CPA
®
:18 – Global together as the CPA
®
REITs.
At
June 30, 2017
, we were also the advisor to Carey Watermark Investors Incorporated, or CWI 1, and Carey Watermark Investors 2 Incorporated, or CWI 2, two publicly owned, non-listed REITs that invest in lodging and lodging-related properties. We refer to CWI 1 and CWI 2 together as the CWI REITs and, together with the CPA
®
REITs, as the Managed REITs (
Note 3
).
At
June 30, 2017
, we also served as the advisor to Carey Credit Income Fund, or CCIF, and its feeder funds, or the CCIF Feeder Funds, each of which is a business development company, or BDC (
Note 3
). We refer to CCIF and the CCIF Feeder Funds collectively as the Managed BDCs.
At
June 30, 2017
, we were also the advisor to Carey European Student Housing Fund I, L.P., or CESH I, a limited partnership formed for the purpose of developing, owning, and operating student housing properties and similar investments in Europe. We refer to the Managed REITs, Managed BDCs, and CESH I collectively as the Managed Programs.
On June 15, 2017, our board of directors, or the Board, approved a plan to exit all non-traded retail fundraising activities carried out by our wholly-owned broker-dealer subsidiary, Carey Financial LLC, or Carey Financial, as of June 30, 2017. We currently expect to continue to manage all existing Managed Programs through the end of their natural life cycles (
Note 3
).
Reportable Segments
As a result of our Board’s decision to exit all non-traded retail fundraising activities, described above, we have revised how we view and present a component of our two reportable segments. As such, effective for the second quarter of 2017, we include equity income generated through our (i) ownership of shares and limited partnership units of the Managed REITs and CESH I and (ii) special member interests in the operating partnerships of the Managed REITs in our Investment Management segment. Previously, these items were recognized within our Owned Real Estate segment. We also include our equity investments in the Managed REITs and CESH I in our Investment Management segment. Both (i) equity in earnings of our equity method investment in CCIF and (ii) our equity investment in CCIF continue to be included in our Investment Management segment. Results of operations and assets by segment for prior periods have been reclassified to conform to the current period presentation.
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W. P. Carey 6/30/2017 10-Q
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8
|
Notes to Consolidated Financial Statements (Unaudited)
Owned Real Estate
— We own and invest in commercial properties principally in North America, Europe, Australia, and Asia that are then leased to companies, primarily on a triple-net lease basis. We also own
two
hotels, which are considered operating properties. We earn lease revenues from our wholly-owned and co-owned real estate investments that we control. In addition, we generate equity income through co-owned real estate investments that we do not control (
Note 7
). At
June 30, 2017
, our owned portfolio was comprised of our full or partial ownership interests in
895
properties, totaling approximately
86.6 million
square feet, substantially all of which were net leased to
214
tenants, with an occupancy rate of
99.3%
.
Investment Management
— Through our TRSs, we structure and negotiate investments and debt placement transactions for the Managed REITs and CESH I, for which we earn structuring revenue, and manage their portfolios of real estate investments, for which we earn asset management revenue. We also earn asset management revenue from CCIF based on the average of its gross assets at fair value. We may earn disposition revenue when we negotiate and structure the sale of properties on behalf of the Managed REITs, and we may also earn incentive revenue and receive other compensation through our advisory agreements with certain of the Managed Programs, including in connection with providing liquidity events for the Managed REITs’ stockholders.
In addition, we generate equity income through our ownership of shares and limited partnership units of the Managed Programs (
Note 7
). Through our special member interests in the operating partnerships of the Managed REITs, we also participate in their cash flows (
Note 3
). Our Board’s decision to exit all non-traded retail fundraising activities through Carey Financial as of June 30, 2017, as discussed above, will not affect the continuation of these current revenue streams. At
June 30, 2017
, the CPA
®
REITs collectively owned all or a portion of
461
properties (including certain properties in which we have an ownership interest), totaling approximately
54.1 million
square feet, substantially all of which were net leased to
210
tenants, with an occupancy rate of approximately
99.8%
. The Managed REITs and CESH I also had interests in
164
operating properties, totaling approximately
19.7 million
square feet in the aggregate.
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 generally accepted accounting principles in the United States, 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, 2016
, which are included in the
2016
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.
Basis of Consolidation
Our consolidated financial statements reflect all of our accounts, including those of our controlled subsidiaries and our tenancy-in-common interest as described below. The portions of equity in consolidated subsidiaries that are not attributable, directly or indirectly, to us are presented as noncontrolling interests. All significant intercompany accounts and transactions have been eliminated.
When we obtain an economic interest in an entity, we evaluate the entity to determine if it should be deemed a variable interest entity, or VIE, and, if so, whether we are the primary beneficiary and are therefore required to consolidate the entity. We apply accounting guidance for consolidation of VIEs to certain entities in which the equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. Fixed price purchase and renewal options within a lease, as well as certain decision-making rights within a loan or joint-venture agreement, can cause us to consider an entity a VIE. Limited partnerships
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W. P. Carey 6/30/2017 10-Q
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9
|
Notes to Consolidated Financial Statements (Unaudited)
and other similar entities that operate as a partnership will be considered a VIE unless the limited partners hold substantive kick-out rights or participation rights. Significant judgment is required to determine whether a VIE should be consolidated. We review the contractual arrangements provided for in the partnership agreement or other related contracts to determine whether the entity is considered a VIE, and to establish whether we have any variable interests in the VIE. We then compare our variable interests, if any, to those of the other variable interest holders to determine which party is the primary beneficiary of the VIE based on whether the entity (i) has the power to direct the activities that most significantly impact the economic performance of the VIE and (ii) has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. The liabilities of these VIEs are non-recourse to us and can only be satisfied from each VIE’s respective assets.
At
June 30, 2017
, we considered
29
entities VIEs,
22
of which we consolidated as we are considered the primary beneficiary. The following table presents a summary of selected financial data of the consolidated VIEs included in the consolidated balance sheets (in thousands):
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June 30, 2017
|
|
December 31, 2016
|
|
Real estate
|
$
|
858,901
|
|
|
$
|
842,829
|
|
|
Operating real estate
|
43,474
|
|
|
43,319
|
|
|
Net investments in direct financing leases
|
39,237
|
|
|
60,294
|
|
|
In-place lease and other intangible assets
|
259,506
|
|
|
245,480
|
|
|
Above-market rent intangible assets
|
101,065
|
|
|
98,043
|
|
|
Accumulated depreciation and amortization
|
(215,370
|
)
|
|
(184,710
|
)
|
|
Total assets
|
1,128,986
|
|
|
1,150,093
|
|
|
|
|
|
|
|
Non-recourse mortgages, net
|
$
|
165,421
|
|
|
$
|
406,574
|
|
|
Total liabilities
|
242,037
|
|
|
548,659
|
|
At both
June 30, 2017
and
December 31, 2016
, our
seven
unconsolidated VIEs included our interests in
six
unconsolidated real estate investments and
one
unconsolidated entity among our interests in the Managed Programs, all of which we account for under the equity method of accounting. We do not consolidate these entities because we are not the primary beneficiary and the nature of our involvement in the activities of these entities allows us to exercise significant influence on, but does not give us power over, decisions that significantly affect the economic performance of these entities. As of
June 30, 2017
and
December 31, 2016
, the net carrying amount of our investments in these entities was
$152.7 million
and
$152.9 million
, respectively, and our maximum exposure to loss in these entities was limited to our investments.
At
June 30, 2017
, we had an investment in a tenancy-in-common interest in various underlying international properties. Consolidation of this investment is not required as such interest does not qualify as a VIE and does not meet the control requirement for consolidation. Accordingly, we account for this investment using the equity method of accounting. We use the equity method of accounting because the shared decision-making involved in a tenancy-in-common interest investment provides us with significant influence on the operating and financial decisions of this investment.
At times, the carrying value of our equity investments may fall below zero for certain investments. We intend to fund our share of the jointly owned investments’ future operating deficits should the need arise. However, we have no legal obligation to pay for any of the liabilities of such investments, nor do we have any legal obligation to fund operating deficits. At
June 30, 2017
, none of our equity investments had carrying values below zero.
On April 20, 2016, we formed a limited partnership, CESH I, for the purpose of developing, owning, and operating student housing properties and similar investments in Europe. CESH I commenced fundraising in July 2016 through a private placement with an initial offering of
$100.0 million
and a maximum offering of
$150.0 million
. Prior to August 30, 2016, which is the date that we had collected
$14.2 million
of net proceeds on behalf of CESH I from limited partnership units issued in the private placement (primarily to independent investors), we had included CESH I’s financial results and balances in our consolidated financial statements. On August 31, 2016, we determined that CESH I had sufficient equity to finance its operations and that we were no longer considered the primary beneficiary. As a result, we deconsolidated CESH I and began to account for our interest in it at fair value by electing the equity method fair value option available under GAAP. The deconsolidation did not have a material impact on our financial position or results of operations. Following the deconsolidation, we continue to serve as the advisor to CESH I (
Note 3
).
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W. P. Carey 6/30/2017 10-Q
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10
|
Notes to Consolidated Financial Statements (Unaudited)
Out-of-Period Adjustments
During the second quarter of 2016, we identified and recorded out-of-period adjustments related to adjustments to prior period income tax returns. We concluded that these adjustments were not material to our consolidated financial statements for any of the current or prior periods presented. The net adjustment is reflected as a
$3.0 million
reduction of our Benefit from income taxes in the consolidated statements of income for the three and
six months ended June 30, 2016
.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation.
In the second quarter of 2017, we reclassified in-place lease intangible assets, net, below-market ground lease intangible assets, net (previously included in Other assets, net), and above-market rent intangible assets, net to be included within Net investments in real estate in our consolidated balance sheets. The accumulated amortization on these assets is now included in Accumulated depreciation and amortization in our consolidated balance sheets. Prior period balances have been reclassified to conform to the current period presentation.
As a result of our Board’s decision to exit all non-traded retail fundraising activities as of June 30, 2017 (
Note 1
), we have revised how we view and present a component of our two reportable segments. As such, effective for the second quarter of 2017, we include (i) equity in earnings of equity method investments in the Managed REITs and CESH I and (ii) equity investments in the Managed REITs and CESH I in our Investment Management segment. Results of operations and assets by segment for prior periods have been reclassified to conform to the current period presentation.
In connection with our adoption of Accounting Standards Update, or ASU,
2016-09, Improvements to Employee Share-Based Payment Accounting
, as described below, we retrospectively reclassified Payments for withholding taxes upon delivery of equity-based awards and exercises of stock options from Net cash provided by operating activities to Net cash used in financing activities within our consolidated statements of cash flows.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board, or FASB, issued
ASU 2014-09
,
Revenue from Contracts with Customers (Topic 606).
ASU 2014-09 is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. ASU 2014-09 does not apply to our lease revenues, which constitute a majority of our revenues, but will apply to reimbursed tenant costs, revenues generated from our operating properties, and our Investment Management business. We will adopt this guidance for our annual and interim periods beginning January 1, 2018 using one of two methods: retrospective restatement for each reporting period presented at the time of adoption, or retrospectively with the cumulative effect of initially applying this guidance recognized at the date of initial application. We have not decided which method of adoption we will use. We are evaluating the impact of the new standard and have not yet determined if it will have a material impact on our business or our consolidated financial statements.
In February 2016, the FASB issued
ASU 2016-02, Leases (Topic 842).
ASU 2016-02 outlines a new model for accounting by lessees, whereby their rights and obligations under substantially all leases, existing and new, would be capitalized and recorded on the balance sheet. For lessors, however, the accounting remains largely unchanged from the current model, with the distinction between operating and financing leases retained, but updated to align with certain changes to the lessee model and the new revenue recognition standard. The new standard also replaces existing sale-leaseback guidance with a new model applicable to both lessees and lessors. Additionally, the new standard requires extensive quantitative and qualitative disclosures. ASU 2016-02 is effective for GAAP public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application will be permitted for all entities. The new standard must be adopted using a modified retrospective transition of the new guidance and provides for certain practical expedients. Transition will require application of the new model at the beginning of the earliest comparative period presented. The ASU is expected to impact our consolidated financial statements as we have certain operating office and land lease arrangements for which we are the lessee. We are evaluating the impact of the new standard and have not yet determined if it will have a material impact on our business or our consolidated financial statements.
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W. P. Carey 6/30/2017 10-Q
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11
|
Notes to Consolidated Financial Statements (Unaudited)
In March 2016, the FASB issued
ASU 2016-09, Improvements to Employee Share-Based Payment Accounting.
ASU 2016-09 amends Accounting Standards Codification Topic 718, Compensation-Stock Based Compensation to simplify various aspects of how share-based payments are accounted for and presented in the financial statements including (i) reflecting income tax effects of share-based payments through the income statement, (ii) allowing statutory tax withholding requirements at the employees’ maximum individual tax rate without requiring awards to be classified as liabilities, and (iii) permitting an entity to make an accounting policy election for the impact of forfeitures on the recognition of expense. ASU 2016-09 is effective for public business entities for annual reporting periods beginning after December 15, 2016, and interim periods within that reporting period, with early adoption permitted.
We adopted ASU 2016-09 as of January 1, 2017 and elected to account for forfeitures as they occur, rather than to account for them based on an estimate of expected forfeitures. This election was adopted using a modified retrospective transition method, with a cumulative effect adjustment to retained earnings. The related financial statement impact of this adjustment is not material. Depending on several factors, such as the market price of our common stock, employee stock option exercise behavior, and corporate income tax rates, the excess tax benefits associated with the exercise of stock options and the vesting and delivery of restricted share awards, or RSAs, restricted share units, or RSUs, and performance share units, or PSUs, could generate a significant income tax benefit in a particular interim period, potentially creating volatility in Net income attributable to W. P. Carey and basic and diluted earnings per share between interim periods. Under the former accounting guidance, windfall tax benefits related to stock-based compensation were recognized within Additional paid-in capital in our consolidated financial statements. Under ASU 2016-09, these amounts are reflected as a reduction to Provision for income taxes. For reference, windfall tax benefits related to stock-based compensation recorded in Additional paid-in capital for the years ended December 31, 2016 and 2015 were
$6.7 million
and
$12.5 million
, respectively. Windfall tax benefits related to stock-based compensation recorded as a deferred tax benefit for the three and
six months ended June 30, 2017
were
$0.8 million
and
$3.0 million
, respectively.
In June 2016, the FASB issued
ASU 2016-13, Financial Instruments — Credit Losses.
ASU 2016-13 introduces a new model for estimating credit losses based on current expected credit losses for certain types of financial instruments, including loans receivable, held-to-maturity debt securities, and net investments in direct financing leases, amongst other financial instruments. ASU 2016-13 also modifies the impairment model for available-for-sale debt securities and expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for losses. ASU 2016-13 will be effective for public business entities in fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early application of the guidance permitted. We are in the process of evaluating the impact of adopting ASU 2016-13 on our consolidated financial statements.
In August 2016, the FASB issued
ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
. ASU 2016-15 intends to reduce diversity in practice for certain cash flow classifications, including, but not limited to (i) debt prepayment or debt extinguishment costs, (ii) contingent consideration payments made after a business combination, (iii) proceeds from the settlement of insurance claims, and (iv) distributions received from equity method investees. ASU 2016-15 will be effective for public business entities in fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early application of the guidance permitted. We are in the process of evaluating the impact of adopting ASU 2016-15 on our consolidated financial statements and will adopt the standard for the fiscal year beginning January 1, 2018.
In October 2016, the FASB issued
ASU 2016-17, Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control.
ASU 2016-17 changes how a reporting entity that is a decision maker should consider indirect interests in a VIE held through an entity under common control. If a decision maker must evaluate whether it is the primary beneficiary of a VIE, it will only need to consider its proportionate indirect interest in the VIE held through a common control party. ASU 2016-17 amends ASU 2015-02, which we adopted on January 1, 2016, and which currently directs the decision maker to treat the common control party’s interest in the VIE as if the decision maker held the interest itself. ASU 2016-17 is effective for public business entities in fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. We adopted ASU 2016-17 as of January 1, 2017 on a prospective basis. The adoption of this standard did not have a material impact on our consolidated financial statements.
In November 2016, the FASB issued
ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash
. ASU 2016-18 intends to reduce diversity in practice for the classification and presentation of changes in restricted cash on the statement of cash flows. ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 will be effective
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W. P. Carey 6/30/2017 10-Q
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12
|
Notes to Consolidated Financial Statements (Unaudited)
for public business entities in fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. We are in the process of evaluating the impact of adopting ASU 2016-18 on our consolidated financial statements and will adopt the standard for the fiscal year beginning January 1, 2018.
In January 2017, the FASB issued
ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business
. ASU 2017-01 intends to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Under the current implementation guidance in Topic 805, there are three elements of a business: inputs, processes, and outputs. While an integrated set of assets and activities, collectively referred to as a “set,” that is a business usually has outputs, outputs are not required to be present. ASU 2017-01 provides a screen to determine when a set is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. ASU 2017-01 will be effective for public business entities in fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. We elected to early adopt ASU 2017-01 on January 1, 2017 on a prospective basis. While our acquisitions have historically been classified as either business combinations or asset acquisitions, certain acquisitions that were classified as business combinations by us likely would have been considered asset acquisitions under the new standard. As a result, transaction costs are more likely to be capitalized since we expect most of our future acquisitions to be classified as asset acquisitions under this new standard. In addition, goodwill that was previously allocated to businesses that were sold or held for sale will no longer be allocated and written off upon sale if future sales were deemed to be sales of assets and not businesses.
In January 2017, the FASB issued
ASU 2017-04, Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
. ASU 2017-04 removes step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. ASU 2017-04 will be effective for public business entities in fiscal years beginning after December 15, 2019, including interim periods within those fiscal years in which a goodwill impairment test is performed, with early adoption permitted. We adopted ASU 2017-04 as of April 1, 2017 on a prospective basis. The adoption of this standard did not have a material impact on our consolidated financial statements.
In February 2017, the FASB issued
ASU 2017-05, Other Income — Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20)
. ASU 2017-05 clarifies that a financial asset is within the scope of Subtopic 610-20 if it meets the definition of an in substance nonfinancial asset. The amendments define the term “in substance nonfinancial asset,” in part, as a financial asset promised to a counterparty in a contract if substantially all of the fair value of the assets (recognized and unrecognized) that are promised to the counterparty in the contract is concentrated in nonfinancial assets. If substantially all of the fair value of the assets that are promised to the counterparty in a contract is concentrated in nonfinancial assets, then all of the financial assets promised to the counterparty are in substance nonfinancial assets within the scope of Subtopic 610-20. This amendment also clarifies that nonfinancial assets within the scope of Subtopic 610-20 may include nonfinancial assets transferred within a legal entity to a counterparty. For example, a parent company may transfer control of nonfinancial assets by transferring ownership interests in a consolidated subsidiary. ASU 2017-05 is effective for periods beginning after December 15, 2017, with early application permitted for fiscal years beginning after December 15, 2016. We are currently evaluating the impact of ASU 2017-05 on our consolidated financial statements.
In May 2017, the FASB issued
ASU 2017-09, Compensation — Stock Compensation (Topic 718): Scope of Modification Accounting
. ASU 2017-09 clarifies when to account for a change to the terms and conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, vesting conditions, or classification of the award (as equity or liability) changes as a result of the change in terms or conditions. ASU 2017-09 will be effective in fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. We are in the process of evaluating the impact of adopting ASU 2017-09 on our consolidated financial statements.
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W. P. Carey 6/30/2017 10-Q
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13
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Notes to Consolidated Financial Statements (Unaudited)
Note 3. Agreements and Transactions with Related Parties
Advisory Agreements with the Managed Programs
We have advisory agreements with each of the Managed Programs, pursuant to which we earn fees and are entitled to receive reimbursement for fund management expenses, as well as cash distributions. The advisory agreements also entitle us to fees for serving as the dealer manager of the offerings of the Managed Programs. However, as previously noted, as of June 30, 2017, we are exiting all non-traded retail fundraising activities, and as a result, we will no longer receive dealer-manager fees once those fundraising activities are completed in July 2017. We currently expect to continue to manage all existing Managed Programs through the end of their natural life cycles (
Note 1
). The advisory agreements with each of the Managed REITs have terms of one year, may be renewed for successive one-year periods, and are currently scheduled to expire on December 31, 2017, unless otherwise renewed. The advisory agreement with CCIF is subject to renewal on or before January 26, 2018. The advisory agreement with CESH I, which commenced June 3, 2016, will continue until terminated pursuant to its terms.
The following tables present a summary of revenue earned and/or cash received from the Managed Programs for the periods indicated, included in the consolidated financial statements. Asset management revenue excludes amounts received from third parties (in thousands):
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Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Asset management revenue
|
$
|
17,966
|
|
|
$
|
14,990
|
|
|
$
|
35,333
|
|
|
$
|
29,580
|
|
|
Structuring revenue
|
14,330
|
|
|
5,968
|
|
|
18,164
|
|
|
18,689
|
|
|
Reimbursable costs from affiliates
|
13,479
|
|
|
12,094
|
|
|
39,179
|
|
|
31,832
|
|
|
Distributions of Available Cash
|
10,728
|
|
|
10,161
|
|
|
22,521
|
|
|
21,142
|
|
|
Dealer manager fees
|
1,000
|
|
|
1,372
|
|
|
4,325
|
|
|
3,544
|
|
|
Other advisory revenue
|
706
|
|
|
—
|
|
|
797
|
|
|
—
|
|
|
Interest income on deferred acquisition fees and loans to affiliates
|
432
|
|
|
168
|
|
|
1,017
|
|
|
362
|
|
|
|
$
|
58,641
|
|
|
$
|
44,753
|
|
|
$
|
121,336
|
|
|
$
|
105,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
CPA
®
:17 – Global
|
$
|
23,191
|
|
|
$
|
17,012
|
|
|
$
|
40,262
|
|
|
$
|
35,204
|
|
|
CPA
®
:18 – Global
|
6,116
|
|
|
9,051
|
|
|
14,319
|
|
|
17,592
|
|
|
CWI 1
|
7,254
|
|
|
7,233
|
|
|
14,111
|
|
|
18,682
|
|
|
CWI 2
|
9,098
|
|
|
8,775
|
|
|
33,563
|
|
|
29,309
|
|
|
CCIF
|
6,049
|
|
|
2,682
|
|
|
10,990
|
|
|
4,362
|
|
|
CESH I
|
6,933
|
|
|
—
|
|
|
8,091
|
|
|
—
|
|
|
|
$
|
58,641
|
|
|
$
|
44,753
|
|
|
$
|
121,336
|
|
|
$
|
105,149
|
|
|
|
|
|
|
|
|
W. P. Carey 6/30/2017 10-Q
–
14
|
Notes to Consolidated Financial Statements (Unaudited)
The following table presents a summary of amounts included in Due from affiliates in the consolidated financial statements (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
|
Short-term loans to affiliates, including accrued interest
|
$
|
72,040
|
|
|
$
|
237,613
|
|
|
Distribution and shareholder servicing fees
|
28,515
|
|
|
19,341
|
|
|
Deferred acquisition fees receivable, including accrued interest
|
16,417
|
|
|
21,967
|
|
|
Accounts receivable
|
4,847
|
|
|
5,005
|
|
|
Reimbursable costs
|
4,502
|
|
|
4,427
|
|
|
Current acquisition fees receivable
|
1,580
|
|
|
8,024
|
|
|
Asset management fees receivable
|
864
|
|
|
2,449
|
|
|
Organization and offering costs
|
572
|
|
|
784
|
|
|
|
$
|
129,337
|
|
|
$
|
299,610
|
|
Asset Management Revenue
Under the advisory agreements with the Managed Programs, we earn asset management revenue for managing their investment portfolios. The following table presents a summary of our asset management fee arrangements with the Managed Programs:
|
|
|
|
|
|
|
|
|
|
|
Managed Program
|
|
Rate
|
|
Payable
|
|
Description
|
|
CPA
®
:17 – Global
|
|
0.5% – 1.75%
|
|
2016 50% in cash and 50% in shares of its common stock; 2017 in shares of its common stock
|
|
Rate depends on the type of investment and is based on the average market or average equity value, as applicable
|
|
CPA
®
:18 – Global
|
|
0.5% – 1.5%
|
|
In shares of its class A common stock
|
|
Rate depends on the type of investment and is based on the average market or average equity value, as applicable
|
|
CWI 1
|
|
0.5%
|
|
2016 in cash; 2017 in shares of its common stock
|
|
Rate is based on the average market value of the investment; we are required to pay 20% of the asset management revenue we receive to the subadvisor
|
|
CWI 2
|
|
0.55%
|
|
In shares of its class A common stock
|
|
Rate is based on the average market value of the investment; we are required to pay 25% of the asset management revenue we receive to the subadvisor
|
|
CCIF
|
|
1.75% – 2.00%
|
|
In cash
|
|
Based on the average of gross assets at fair value; we are required to pay 50% of the asset management revenue we receive to the subadvisor
|
|
CESH I
|
|
1.0%
|
|
In cash
|
|
Based on gross assets at fair value
|
Incentive Fees
We are entitled to receive a quarterly incentive fee on income from CCIF equal to 100% of quarterly net investment income, before incentive fee payments, in excess of
1.875%
of CCIF’s average adjusted capital up to a limit of
2.344%
, plus
20%
of net investment income, before incentive fee payments, in excess of
2.344%
of average adjusted capital. We are also entitled to receive from CCIF an incentive fee on realized capital gains of
20%
, net of (i) all realized capital losses and unrealized depreciation on a cumulative basis, and (ii) the aggregate amount, if any, of previously paid incentive fees on capital gains since inception.
|
|
|
|
|
|
|
W. P. Carey 6/30/2017 10-Q
–
15
|
Notes to Consolidated Financial Statements (Unaudited)
Structuring Revenue
Under the terms of the advisory agreements with the Managed REITs and CESH I, we earn revenue for structuring and negotiating investments and related financing. We do not earn any structuring revenue from the Managed BDCs. The following table presents a summary of our structuring fee arrangements with the Managed REITs and CESH I:
|
|
|
|
|
|
|
|
|
|
|
Managed Program
|
|
Rate
|
|
Payable
|
|
Description
|
|
CPA
®
:17 – Global
|
|
1% – 1.75%, 4.5%
|
|
In cash; for non net-lease investments, 1% - 1.75% upon completion; for net-lease investments, 2.5% upon completion, with 2% deferred and payable in three interest-bearing annual installments
|
|
Based on the total aggregate cost of the net-lease investments made; also based on the total aggregate cost of the non net-lease investments or commitments made; total limited to 6% of the contract prices in aggregate
|
|
CPA
®
:18 – Global
|
|
4.5%
|
|
In cash; for all investments, other than readily marketable real estate securities for which we will not receive any acquisition fees, 2.5% upon completion, with 2% deferred and payable in three interest-bearing annual installments
|
|
Based on the total aggregate cost of the investments or commitments made; total limited to 6% of the contract prices in aggregate
|
|
CWI REITs
|
|
2.5%
|
|
In cash upon completion
|
|
Based on the total aggregate cost of the lodging investments or commitments made; loan refinancing transactions up to 1% of the principal amount; we are required to pay 20% and 25% to the subadvisors of CWI 1 and CWI 2, respectively; total for each CWI REIT limited to 6% of the contract prices in aggregate
|
|
CESH I
|
|
2.0%
|
|
In cash upon completion
|
|
Based on the total aggregate cost of investments or commitments made, including the acquisition, development, construction, or re-development of the investments
|
|
|
|
|
|
|
|
W. P. Carey 6/30/2017 10-Q
–
16
|
Notes to Consolidated Financial Statements (Unaudited)
Reimbursable Costs from Affiliates
The Managed Programs reimburse us for certain costs that we incur on their behalf, which consist primarily of broker-dealer commissions, marketing costs, an annual distribution and shareholder servicing fee, and certain personnel and overhead costs, as applicable. The following tables present summaries of such fee arrangements:
Broker-Dealer Selling Commissions
|
|
|
|
|
|
|
|
|
|
|
Managed Program
|
|
Rate
|
|
Payable
|
|
Description
|
|
CWI 2 Class A Shares
|
|
January 1, 2016 through March 31, 2017: $0.70
April 27, 2017 through June 30, 2017: $0.84
(a)
|
|
In cash upon share settlement; 100% re-allowed to broker-dealers
|
|
Per share sold
|
|
CWI 2 Class T Shares
|
|
January 1, 2016 through March 31, 2017: $0.19
April 27, 2017 through June 30, 2017: $0.23
(a)
|
|
In cash upon share settlement; 100% re-allowed to broker-dealers
|
|
Per share sold
|
|
CCIF Feeder Funds
|
|
0% – 3%
|
|
In cash upon share settlement; 100% re-allowed to broker-dealers
|
|
Based on the selling price of each share sold; CCIF 2016 T’s offering closed on April 28, 2017
|
|
CESH I
|
|
Up to 7.0% of gross offering proceeds
(a)
|
|
In cash upon limited partnership unit settlement; 100% re-allowed to broker-dealers
|
|
Based on the selling price of each limited partnership unit sold
|
__________
|
|
|
|
(a)
|
In connection with the end of active fundraising by Carey Financial on June 30, 2017, CWI 2 and CESH I facilitated the orderly processing of sales through July 31, 2017 and closed their respective offerings on that date.
|
Dealer Manager Fees
|
|
|
|
|
|
|
|
|
|
|
Managed Program
|
|
Rate
|
|
Payable
|
|
Description
|
|
CWI 2 Class A Shares
|
|
January 1, 2016 through March 31, 2017: $0.30
April 27, 2017 through June 30, 2017: $0.36
(a)
|
|
Per share sold
|
|
In cash upon share settlement; a portion may be re-allowed to broker-dealers
|
|
CWI 2 Class T Shares
|
|
January 1, 2016 through March 31, 2017: $0.26
April 27, 2017 through June 30, 2017: $0.31
(a)
|
|
Per share sold
|
|
In cash upon share settlement; a portion may be re-allowed to broker-dealers
|
|
CCIF Feeder Funds
|
|
2.50% – 3.0%
|
|
Based on the selling price of each share sold
|
|
In cash upon share settlement; a portion may be re-allowed to broker-dealers; CCIF 2016 T’s offering closed on April 28, 2017
|
|
CESH I
|
|
Up to 3.0% of gross offering proceeds
(a)
|
|
Per limited partnership unit sold
|
|
In cash upon limited partnership unit settlement; a portion may be re-allowed to broker-dealers
|
__________
|
|
|
|
(a)
|
In connection with the end of active fundraising by Carey Financial on June 30, 2017, CWI 2 and CESH I facilitated the orderly processing of sales through July 31, 2017 and closed their respective offerings on that date.
|
|
|
|
|
|
|
|
W. P. Carey 6/30/2017 10-Q
–
17
|
Notes to Consolidated Financial Statements (Unaudited)
Annual Distribution and Shareholder Servicing Fee
|
|
|
|
|
|
|
|
|
|
|
Managed Program
|
|
Rate
|
|
Payable
|
|
Description
|
|
CPA
®
:18 – Global Class C Shares
(a)
|
|
1.0%
|
|
Accrued daily and payable quarterly in arrears in cash; a portion may be re-allowed to selected dealers
|
|
Based on the purchase price per share sold or, once it was reported, the net asset value per share, or NAV; cease paying when underwriting compensation from all sources equals 10% of gross offering proceeds
|
|
CWI 2 Class T Shares
(a)
|
|
1.0%
|
|
Accrued daily and payable quarterly in arrears in cash; a portion may be re-allowed to selected dealers
|
|
Based on the purchase price per share sold or, once it was reported, the NAV; cease paying on the earlier of six years or when underwriting compensation from all sources equals 10% of gross offering proceeds
|
|
Carey Credit Income Fund 2016 T (one of the CCIF Feeder Funds)
|
|
0.9%
|
|
Payable quarterly in arrears in cash; 100% is re-allowed to selected dealers
|
|
Based on the weighted-average net price of shares sold in the public offering; quarterly cash payments will begin to accrue in July 2017 and payment will commence in the fourth quarter of 2017; cease paying on the earlier of when underwriting compensation from all sources equals, including this fee, 10% of gross offering proceeds or the date at which a liquidity event occurs
|
__________
|
|
|
|
(a)
|
Beginning with the payment for the third quarter of 2017, the fee will be paid directly to selected dealers.
|
Personnel and Overhead Costs
|
|
|
|
|
|
|
|
|
Managed Program
|
|
Payable
|
|
Description
|
|
CPA
®
:17 – Global and CPA
®
:18 – Global
|
|
In cash
|
|
Personnel and overhead costs, excluding those related to our legal transactions group, our senior management, and our investments team, are charged to the CPA
®
REITs based on the average of the trailing 12-month aggregate reported revenues of the Managed Programs and us, and are capped at 2.0% and 2.2% of each CPA
®
REIT’s pro rata lease revenues for 2017 and 2016, respectively; for the legal transactions group, costs are charged according to a fee schedule
|
|
CWI 1
|
|
In cash
|
|
Actual expenses incurred, excluding those related to our senior management; allocated between the CWI REITs based on the percentage of their total pro rata hotel revenues for the most recently completed quarter
|
|
CWI 2
|
|
In cash
|
|
Actual expenses incurred, excluding those related to our senior management; allocated between the CWI REITs based on the percentage of their total pro rata hotel revenues for the most recently completed quarter
|
|
CCIF and CCIF Feeder Funds
|
|
In cash
|
|
Actual expenses incurred, excluding those related to their investment management team and senior management team
|
|
CESH I
|
|
In cash
|
|
Actual expenses incurred
|
|
|
|
|
|
|
|
W. P. Carey 6/30/2017 10-Q
–
18
|
Notes to Consolidated Financial Statements (Unaudited)
Organization and Offering Costs
|
|
|
|
|
|
|
|
|
Managed Program
|
|
Payable
|
|
Description
|
|
CWI 2
(a)
|
|
In cash; within 60 days after the end of the quarter in which the offering terminates
|
|
Actual costs incurred up to 1.5% of the gross offering proceeds
|
|
CCIF and CCIF Feeder Funds
|
|
In cash; payable monthly
|
|
Up to 1.5% of the gross offering proceeds; we are required to pay 50% of the organization and offering costs we receive to the subadvisor
|
|
CESH I
(a)
|
|
N/A
|
|
In lieu of reimbursing us for organization and offering costs, CESH I will pay us limited partnership units, as described below under Other Advisory Revenue
|
__________
|
|
|
|
(a)
|
In connection with the end of active fundraising by Carey Financial on June 30, 2017, CWI 2 and CESH I facilitated the orderly processing of sales through July 31, 2017 and closed their respective offerings on that date.
|
For CCIF, total reimbursements to us for personnel and overhead costs and organization and offering costs may not exceed
18%
of total Front End Fees, as defined in its Declaration of Trust, so that total funds available for investment may not be lower than
82%
of total gross proceeds.
Other Advisory Revenue
Under the limited partnership agreement we have with CESH I, we pay all organization and offering costs on behalf of CESH I, and instead of being reimbursed by CESH I on a dollar-for-dollar basis for those costs, we receive limited partnership units of CESH I equal to
2.5%
of its gross offering proceeds. This revenue, which commenced in the third quarter of 2016, is included in Other advisory revenue in the consolidated statements of income and totaled
$0.6 million
for both the
three and six months ended June 30,
2017
.
Expense Support and Conditional Reimbursements
Under the expense support and conditional reimbursement agreement we have with each of the CCIF Feeder Funds, we and the CCIF subadvisor are obligated to reimburse the CCIF Feeder Funds
50%
of the excess of the cumulative distributions paid to the CCIF Feeder Funds’ shareholders over the available operating funds on a monthly basis. Following any month in which the available operating funds exceed the cumulative distributions paid to its shareholders, the excess operating funds are used to reimburse us and the CCIF subadvisor for any expense payment we made within three years prior to the last business day of such month that have not been previously reimbursed by the CCIF Feeder Fund, up to the lesser of (i)
1.75%
of each CCIF Feeder Fund’s average net assets or (ii) the percentage of each CCIF Feeder Fund’s average net assets attributable to its common shares represented by other operating expenses during the fiscal year in which such expense support payment from us and the CCIF’s subadvisor was made, provided that the effective rate of distributions per share at the time of reimbursement is not less than such rate at the time of expense payment.
Distributions of Available Cash
We are entitled to receive distributions of up to
10%
of the Available Cash (as defined in the respective advisory agreements) from the operating partnerships of each of the Managed REITs, as described in their respective operating partnership agreements, payable quarterly in arrears. We are required to pay
20%
and
25%
of such distributions to the subadvisors of CWI 1 and CWI 2, respectively.
Back-End Fees and Interests in the Managed Programs
Under our advisory agreements with certain of the Managed Programs, we may also receive compensation in connection with providing liquidity events for their stockholders. For the Managed REITs, the timing and form of such liquidity events are at the discretion of each REIT’s board of directors, and in certain instances, we have waived these fees in connection with the liquidity events of prior programs that we managed. Therefore, there can be no assurance as to whether or when any of these back-end fees or interests will be realized.
|
|
|
|
|
|
|
W. P. Carey 6/30/2017 10-Q
–
19
|
Notes to Consolidated Financial Statements (Unaudited)
Other Transactions with Affiliates
Loans to Affiliates
From time to time, our Board has approved the making of unsecured loans from us to certain of the Managed Programs, at our sole discretion, with each loan at a rate equal to the rate at which we are able to borrow funds under our senior credit facility (
Note 10
), for the purpose of facilitating acquisitions approved by their respective investment committees that they would not otherwise have had sufficient available funds to complete or, in the case of CWI 1, for the purpose of replacing the existing credit facility that it had with a bank.
The following table sets forth certain information regarding our loans to affiliates (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate at
June 30, 2017
|
|
Maturity Date at June 30, 2017
|
|
Maximum Loan Amount Authorized at June 30, 2017
|
|
Principal Outstanding Balance at
(a)
|
|
Managed Program
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
|
CPA
®
:18 – Global
(b)
|
|
LIBOR + 1.00%
|
|
10/31/2017; 5/15/2018
|
|
$
|
50,000
|
|
|
$
|
34,201
|
|
|
$
|
27,500
|
|
|
CWI 1
(b)
|
|
LIBOR + 1.00%
|
|
3/22/2018
|
|
25,000
|
|
|
22,835
|
|
|
—
|
|
|
CESH I
(b)
|
|
LIBOR + 1.00%
|
|
5/3/2018; 5/9/2018
|
|
35,000
|
|
|
14,461
|
|
|
—
|
|
|
CWI 2
|
|
N/A
|
|
N/A
|
|
250,000
|
|
|
—
|
|
|
210,000
|
|
|
|
|
|
|
|
|
|
|
$
|
71,497
|
|
|
$
|
237,500
|
|
__________
|
|
|
|
(a)
|
Amounts exclude accrued interest of
$0.5 million
and
$0.1 million
at
June 30, 2017
and
December 31, 2016
, respectively.
|
|
|
|
|
(b)
|
LIBOR means London Interbank Offered Rate.
|
Other
On February 2, 2016, an entity in which we, one of our employees, and third parties owned
38.3%
,
0.5%
, and
61.2%
, respectively, and which we consolidated, sold a self-storage property (
Note 15
). In connection with the sale, we made a distribution of
$0.1 million
to the employee, representing the employee’s share of the net proceeds from the sale.
At
June 30, 2017
, we owned interests ranging from
3%
to
90%
in jointly owned investments in real estate, including a jointly controlled tenancy-in-common interest in several properties, with the remaining interests generally held by affiliates. In addition, we owned stock of each of the Managed REITs and CCIF, and limited partnership units of CESH I. We consolidate certain of these investments and account for the remainder either (i) under the equity method of accounting or (ii) at fair value by electing the equity method fair value option available under GAAP (
Note 7
).
Note 4. Real Estate, Operating Real Estate, and Assets Held for Sale
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
|
Land
|
$
|
1,125,825
|
|
|
$
|
1,128,933
|
|
|
Buildings
|
4,144,218
|
|
|
4,053,334
|
|
|
Real estate under construction
|
6,933
|
|
|
21,859
|
|
|
Less: Accumulated depreciation
|
(538,131
|
)
|
|
(472,294
|
)
|
|
|
$
|
4,738,845
|
|
|
$
|
4,731,832
|
|
During the
six months ended June 30,
2017
, the U.S. dollar
weakened
against the euro, as the end-of-period rate for the U.S. dollar in relation to the euro
increased
by
8.3%
to
$1.1412
from
$1.0541
. As a result of this fluctuation in foreign exchange rates, the carrying value of our real estate
increased
by
$107.5 million
from
December 31, 2016
to
June 30, 2017
.
|
|
|
|
|
|
|
W. P. Carey 6/30/2017 10-Q
–
20
|
Notes to Consolidated Financial Statements (Unaudited)
Depreciation expense, including the effect of foreign currency translation, on our real estate was
$35.8 million
and
$37.0 million
for the
three months ended June 30, 2017
and
2016
, respectively, and
$71.2 million
and
$71.9 million
for the
six months ended June 30, 2017
and
2016
, respectively. Accumulated depreciation of real estate is included in Accumulated depreciation and amortization in the consolidated financial statements.
Acquisition of Real Estate
On June 27, 2017, we acquired an industrial facility in Chicago, Illinois, which was deemed to be a real estate asset acquisition, at a total cost of
$6.0 million
, including land of
$2.2 million
, building of
$2.5 million
, and an in-place lease intangible asset of
$1.3 million
(
Note 6
). We also committed to fund an additional
$3.6 million
of building improvements at that facility by June 2018.
Real Estate Under Construction
During the
six months ended June 30,
2017
, we capitalized real estate under construction totaling
$29.8 million
, including net accrual activity of
$6.0 million
, primarily related to construction projects on our properties. As of
June 30, 2017
, we had
two
construction projects in progress (accrued for but not yet funded), and as of
December 31, 2016
, we had
three
construction projects in progress. Aggregate unfunded commitments totaled approximately
$109.2 million
and
$135.2 million
as of
June 30, 2017
and
December 31, 2016
, respectively.
During the
six months ended June 30, 2017
, we capitalized and completed the following construction projects, at a total cost of
$58.7 million
, of which
$35.5 million
was capitalized during 2016:
|
|
|
|
•
|
an expansion project at an industrial facility in Windsor, Connecticut in March 2017 at a cost totaling
$3.3 million
;
|
|
|
|
|
•
|
an expansion project at an educational facility in Coconut Creek, Florida in May 2017 at a cost totaling
$18.2 million
;
|
|
|
|
|
•
|
an expansion project at two industrial facilities in Monarto South, Australia in May 2017 at a cost totaling
$15.9 million
; and
|
|
|
|
|
•
|
a build-to-suit project for an industrial facility in McCalla, Alabama in June 2017 at a cost totaling
$21.3 million
.
|
Dispositions of Real Estate
During the
six months ended June 30,
2017
, we sold
five
properties and a parcel of vacant land, excluding the sale of
one
property that was classified as held for sale as of
December 31, 2016
, and transferred ownership of two properties to the related mortgage lender (
Note 15
). As a result, the carrying value of our real estate decreased by
$46.2 million
from
December 31, 2016
to
June 30, 2017
.
Future Dispositions of Real Estate
During the year ended December 31, 2016,
three
tenants exercised options to repurchase the properties they are leasing from us in accordance with their lease agreements for an aggregate of
$29.6 million
. However, in June 2017, we restructured the lease with one of the tenants (which occupies two properties), extending the lease expiration date through June 2022, and as such the tenant will not repurchase the properties during 2017, as originally expected. We currently expect that one of the other repurchases will be completed in the third quarter of 2017, and that the third repurchase will be completed in the fourth quarter of 2019, but there can be no assurance that they will be completed within those timeframes or at all. At
June 30, 2017
, these two properties had an aggregate asset carrying value of
$8.8 million
.
|
|
|
|
|
|
|
W. P. Carey 6/30/2017 10-Q
–
21
|
Notes to Consolidated Financial Statements (Unaudited)
Operating Real Estate
At both
June 30, 2017
and
December 31, 2016
, Operating real estate consisted of our investments in
two
hotels. Below is a summary of our Operating real estate (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
|
Land
|
$
|
6,041
|
|
|
$
|
6,041
|
|
|
Buildings
|
75,861
|
|
|
75,670
|
|
|
Less: Accumulated depreciation
|
(14,278
|
)
|
|
(12,143
|
)
|
|
|
$
|
67,624
|
|
|
$
|
69,568
|
|
Depreciation expense on our operating real estate was
$1.1 million
for both the three months ended
June 30, 2017
and
2016
, respectively, and
$2.1 million
for both the
six months ended June 30, 2017
and
2016
, respectively. Accumulated depreciation of operating real estate is included in Accumulated depreciation and amortization in the consolidated financial statements.
Assets Held for Sale
Below is a summary of our properties held for sale (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
|
Real estate, net
|
$
|
24,275
|
|
|
$
|
—
|
|
|
Intangible assets, net
|
8,195
|
|
|
—
|
|
|
Net investments in direct financing leases
|
—
|
|
|
26,247
|
|
|
Assets held for sale
|
$
|
32,470
|
|
|
$
|
26,247
|
|
At
June 30, 2017
, we had
three
properties classified as Assets held for sale with an aggregate carrying value of
$32.5 million
, including
two
international properties with an aggregate carrying value of
$18.3 million
. Subsequent to June 30, 2017 and through the date of this Report, we sold all of these properties (
Note 17
).
At
December 31, 2016
, we had
one
property classified as Assets held for sale with a carrying value of
$26.2 million
. In addition, there was a deferred tax liability of
$2.5 million
related to this property as of
December 31, 2016
, which is included in Deferred income taxes in the consolidated balance sheets. The property was sold during the
six months ended June 30, 2017
(
Note 15
).
Note 5. 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, note 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
Interest income from direct financing leases, which was included in Lease revenues in the consolidated financial statements, was
$16.3 million
and
$18.0 million
for the three months ended
June 30, 2017
and
2016
, respectively, and
$32.5 million
and
$36.3 million
for the
six months ended June 30, 2017
and
2016
, respectively. During the
six months ended June 30,
2017
, the U.S. dollar
weakened
against the euro, resulting in a
$26.5 million
increase
in the carrying value of Net investments in direct financing leases from
December 31, 2016
to
June 30, 2017
.
Note Receivable
At
June 30, 2017
and
December 31, 2016
, we had a note receivable with an outstanding balance of
$10.2 million
and
$10.4 million
, respectively, representing the expected future payments under a sales type lease, which was included in Other assets, net in the consolidated financial statements. Earnings from our note receivable are included in Lease termination income and other in the consolidated financial statements.
|
|
|
|
|
|
|
W. P. Carey 6/30/2017 10-Q
–
22
|
Notes to Consolidated Financial Statements (Unaudited)
Deferred Acquisition Fees Receivable
As described in
Note 3
, we earn revenue in connection with structuring and negotiating investments and related mortgage financing for the CPA
®
REITs. A portion of this revenue is due in equal annual installments over three years, provided the CPA
®
REITs meet their respective performance criteria. Unpaid deferred installments, including accrued interest, from the CPA
®
REITs were included in Due from affiliates in the consolidated financial statements.
Credit Quality of Finance Receivables
We generally seek investments in facilities that we believe are critical to a tenant’s business and that we believe have a low risk of tenant default.
As of
June 30, 2017
and
December 31, 2016
, we had allowances for credit losses of
$14.0 million
and
$13.3 million
, respectively, on a single direct financing lease, including the impact of foreign currency translation. This allowance was established in the fourth quarter of 2015. During the
six months ended June 30, 2016
, we increased the allowance by
$7.1 million
, which was recorded in Property expenses, excluding reimbursable tenant costs in the consolidated financial statements, due to a decline in the estimated amount of future payments we will receive from the tenant. At both
June 30, 2017
and
December 31, 2016
, none of the balances of our finance receivables were past due. There were no modifications of finance receivables during the
six months ended
June 30, 2017
.
We evaluate the credit quality of our finance receivables utilizing an internal
five
-point credit rating scale, with
one
representing the highest credit quality and
five
representing the lowest. A credit quality of one through three indicates a range of investment grade to stable. A credit quality of four through five indicates a range of inclusion on the watch list to risk of default.
The credit quality evaluation of our finance receivables was last updated in the second quarter of 2017.
We believe the credit quality of our deferred acquisition fees receivable falls under category
one
, as the CPA
®
REITs are expected to have the available cash to make such payments.
A summary of our finance receivables by internal credit quality rating, excluding our deferred acquisition fees receivable, is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Tenants / Obligors at
|
|
Carrying Value at
|
|
Internal Credit Quality Indicator
|
|
June 30, 2017
|
|
December 31, 2016
|
|
June 30, 2017
|
|
December 31, 2016
|
|
1 - 3
|
|
25
|
|
27
|
|
$
|
621,252
|
|
|
$
|
621,955
|
|
|
4
|
|
7
|
|
5
|
|
96,178
|
|
|
70,811
|
|
|
5
|
|
1
|
|
1
|
|
1,733
|
|
|
1,644
|
|
|
|
|
|
|
|
|
$
|
719,163
|
|
|
$
|
694,410
|
|
Note 6.
Goodwill and Other Intangibles
We have recorded net lease and internal-use software development intangibles that are being amortized over periods ranging from
three
years to
40 years
. In addition, we have several ground lease intangibles that are being amortized over periods of up to
99 years
. In-place lease and below-market ground lease (as lessee) intangibles, at cost are included in In-place lease and other intangible assets in the consolidated financial statements. Above-market rent intangibles, at cost are included in Above-market rent intangible assets in the consolidated financial statements. Accumulated amortization of in-place lease, below-market ground lease (as lessee), and above-market rent intangibles is included in Accumulated depreciation and amortization in the consolidated financial statements. Internal-use software development and trade name 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
six months ended June 30, 2017
(
Note 4
), we recorded an in-place lease intangible asset of
$1.3 million
, which has an expected life of
21 years
.
Goodwill within our Owned Real Estate segment increased by
$4.9 million
during the
six months ended June 30, 2017
due to foreign currency translation adjustments, from
$572.3 million
as of
December 31, 2016
to
$577.2 million
as of
June 30, 2017
. Goodwill within our Investment Management segment was
$63.6 million
as of
June 30, 2017
, unchanged from
December 31, 2016
. In connection with our Board’s decision to exit all non-traded retail fundraising activities (
Note 1
), we performed a test for impairment during the second quarter of 2017 on goodwill recorded in our Investment Management segment, and no impairment was indicated.
|
|
|
|
|
|
|
W. P. Carey 6/30/2017 10-Q
–
23
|
Notes to Consolidated Financial Statements (Unaudited)
Intangible assets, intangible liabilities, and goodwill are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Finite-Lived Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Internal-use software development costs
|
$
|
18,670
|
|
|
$
|
(6,458
|
)
|
|
$
|
12,212
|
|
|
$
|
18,568
|
|
|
$
|
(5,068
|
)
|
|
$
|
13,500
|
|
|
Trade name
|
3,975
|
|
|
—
|
|
|
3,975
|
|
|
3,975
|
|
|
—
|
|
|
3,975
|
|
|
|
22,645
|
|
|
(6,458
|
)
|
|
16,187
|
|
|
22,543
|
|
|
(5,068
|
)
|
|
17,475
|
|
|
Lease Intangibles:
|
|
|
|
|
|
|
|
|
|
|
|
|
In-place lease
|
1,180,259
|
|
|
(377,760
|
)
|
|
802,499
|
|
|
1,148,232
|
|
|
(322,119
|
)
|
|
826,113
|
|
|
Above-market rent
|
639,654
|
|
|
(242,690
|
)
|
|
396,964
|
|
|
632,383
|
|
|
(210,927
|
)
|
|
421,456
|
|
|
Below-market ground lease
|
18,092
|
|
|
(1,515
|
)
|
|
16,577
|
|
|
23,140
|
|
|
(1,381
|
)
|
|
21,759
|
|
|
|
1,838,005
|
|
|
(621,965
|
)
|
|
1,216,040
|
|
|
1,803,755
|
|
|
(534,427
|
)
|
|
1,269,328
|
|
|
Indefinite-Lived Goodwill and Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
640,761
|
|
|
—
|
|
|
640,761
|
|
|
635,920
|
|
|
—
|
|
|
635,920
|
|
|
Below-market ground lease
|
938
|
|
|
—
|
|
|
938
|
|
|
866
|
|
|
—
|
|
|
866
|
|
|
|
641,699
|
|
|
—
|
|
|
641,699
|
|
|
636,786
|
|
|
—
|
|
|
636,786
|
|
|
Total intangible assets
|
$
|
2,502,349
|
|
|
$
|
(628,423
|
)
|
|
$
|
1,873,926
|
|
|
$
|
2,463,084
|
|
|
$
|
(539,495
|
)
|
|
$
|
1,923,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finite-Lived Intangible Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Below-market rent
|
$
|
(135,238
|
)
|
|
$
|
43,633
|
|
|
$
|
(91,605
|
)
|
|
$
|
(133,137
|
)
|
|
$
|
38,231
|
|
|
$
|
(94,906
|
)
|
|
Above-market ground lease
|
(13,126
|
)
|
|
2,706
|
|
|
(10,420
|
)
|
|
(12,948
|
)
|
|
2,362
|
|
|
(10,586
|
)
|
|
|
(148,364
|
)
|
|
46,339
|
|
|
(102,025
|
)
|
|
(146,085
|
)
|
|
40,593
|
|
|
(105,492
|
)
|
|
Indefinite-Lived Intangible Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Below-market purchase option
|
(16,711
|
)
|
|
—
|
|
|
(16,711
|
)
|
|
(16,711
|
)
|
|
—
|
|
|
(16,711
|
)
|
|
Total intangible liabilities
|
$
|
(165,075
|
)
|
|
$
|
46,339
|
|
|
$
|
(118,736
|
)
|
|
$
|
(162,796
|
)
|
|
$
|
40,593
|
|
|
$
|
(122,203
|
)
|
Net amortization of intangibles, including the effect of foreign currency translation, was
$38.0 million
and
$41.2 million
for the three months ended
June 30, 2017
and
2016
, respectively, and
$75.7 million
and
$87.5 million
for the
six months ended June 30, 2017
and
2016
, respectively. Amortization of below-market rent and above-market rent intangibles is recorded as an adjustment to Lease revenues; amortization of internal-use software development and in-place lease intangibles is included in Depreciation and amortization; and amortization of above-market ground lease and below-market ground lease intangibles is included in Property expenses, excluding reimbursable tenant costs.
Note 7. Equity Investments in the Managed Programs and Real Estate
We own interests in certain unconsolidated real estate investments with the Managed Programs and also own interests in the Managed Programs. We account for our interests in these investments under the equity method of accounting (i.e., at cost, increased or decreased by our share of earnings or losses, less distributions, plus contributions and other adjustments required by equity method accounting, such as basis differences) or at fair value by electing the equity method fair value option available under GAAP.
|
|
|
|
|
|
|
W. P. Carey 6/30/2017 10-Q
–
24
|
Notes to Consolidated Financial Statements (Unaudited)
The following table presents Equity in earnings of equity method investments in the Managed Programs and real estate, which represents our proportionate share of the income or losses of these investments, as well as certain adjustments related to amortization of basis differences related to purchase accounting adjustments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Distributions of Available Cash (
Note 3
)
|
$
|
10,728
|
|
|
$
|
10,161
|
|
|
$
|
22,521
|
|
|
$
|
21,142
|
|
|
Proportionate share of equity in earnings of equity investments in the Managed Programs
|
1,603
|
|
|
3,322
|
|
|
3,802
|
|
|
4,434
|
|
|
Amortization of basis differences on equity method investments in the Managed Programs
|
(324
|
)
|
|
(252
|
)
|
|
(614
|
)
|
|
(491
|
)
|
|
Total equity in earnings of equity method investments in the Managed Programs
|
12,007
|
|
|
13,231
|
|
|
25,709
|
|
|
25,085
|
|
|
Equity in earnings of equity method investments in real estate
|
4,216
|
|
|
4,157
|
|
|
7,160
|
|
|
8,259
|
|
|
Amortization of basis differences on equity method investments in real estate
|
(495
|
)
|
|
(959
|
)
|
|
(1,367
|
)
|
|
(1,904
|
)
|
|
Equity in earnings of equity method investments in the Managed Programs and real estate
|
$
|
15,728
|
|
|
$
|
16,429
|
|
|
$
|
31,502
|
|
|
$
|
31,440
|
|
Managed Programs
We own interests in the Managed Programs and account for these interests under the equity method because, as their advisor and through our ownership of their common stock, we do not exert control over, but we do have the ability to exercise significant influence on, the Managed Programs. Operating results of the Managed Programs are included in the Investment Management segment.
The following table sets forth certain information about our investments in the Managed Programs (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Outstanding Interests Owned at
|
|
Carrying Amount of Investment at
|
|
Fund
|
|
June 30, 2017
|
|
December 31, 2016
|
|
June 30, 2017
|
|
December 31, 2016
|
|
CPA
®
:17 – Global
|
|
3.801
|
%
|
|
3.456
|
%
|
|
$
|
113,738
|
|
|
$
|
99,584
|
|
|
CPA
®
:17 – Global operating partnership
|
|
0.009
|
%
|
|
0.009
|
%
|
|
—
|
|
|
—
|
|
|
CPA
®
:18 – Global
|
|
2.075
|
%
|
|
1.616
|
%
|
|
22,972
|
|
|
17,955
|
|
|
CPA
®
:18 – Global operating partnership
|
|
0.034
|
%
|
|
0.034
|
%
|
|
209
|
|
|
209
|
|
|
CWI 1
|
|
1.509
|
%
|
|
1.109
|
%
|
|
18,235
|
|
|
11,449
|
|
|
CWI 1 operating partnership
|
|
0.015
|
%
|
|
0.015
|
%
|
|
186
|
|
|
—
|
|
|
CWI 2
|
|
0.987
|
%
|
|
0.773
|
%
|
|
8,961
|
|
|
5,091
|
|
|
CWI 2 operating partnership
|
|
0.015
|
%
|
|
0.015
|
%
|
|
300
|
|
|
300
|
|
|
CCIF
|
|
9.551
|
%
|
|
13.322
|
%
|
|
23,750
|
|
|
23,528
|
|
|
CESH I
(a)
|
|
2.392
|
%
|
|
2.431
|
%
|
|
2,948
|
|
|
2,701
|
|
|
|
|
|
|
|
|
$
|
191,299
|
|
|
$
|
160,817
|
|
__________
|
|
|
|
(a)
|
Investment is accounted for at fair value.
|
CPA
®
:17 – Global
— The c
arrying value of our investment in CPA
®
:17 – Global at
June 30, 2017
includes asset management fees receivable, for which
243,578
shares of CPA
®
:17 – Global common stock were issued during the
third
quarter of
2017
. We received distributions from this investment during the
six months ended June 30, 2017
and
2016
of
$4.0 million
and
$3.7 million
, respectively. We received distributions from our investment in the CPA
®
:17 – Global operating partnership during the
six months ended June 30, 2017
and
2016
of
$13.8 million
and
$12.5 million
, respectively.
|
|
|
|
|
|
|
W. P. Carey 6/30/2017 10-Q
–
25
|
Notes to Consolidated Financial Statements (Unaudited)
CPA
®
:18 – Global
— The c
arrying value of our investment in CPA
®
:18 – Global at
June 30, 2017
includes asset management fees receivable, for which
116,752
shares of CPA
®
:18 – Global class A common stock were issued during the
third
quarter of
2017
. We received distributions from this investment during the
six months ended June 30, 2017
and
2016
of
$0.7 million
and
$0.4 million
, respectively. We received distributions from our investment in the CPA
®
:18 – Global operating partnership during the
six months ended June 30, 2017
and
2016
of
$3.9 million
and
$3.7 million
, respectively.
CWI 1
— The c
arrying value of our investment in CWI 1 at
June 30, 2017
includes asset management fees receivable, for which
110,301
shares of CWI 1 common stock were issued during the
third
quarter of
2017
. We received distributions from this investment during the
six months ended June 30, 2017
and
2016
of
$0.5 million
and
$0.4 million
, respectively. We received distributions from our investment in the CWI 1 operating partnership during the
six months ended June 30, 2017
and
2016
of
$3.2 million
and
$4.1 million
, respectively.
CWI 2
—
The carrying value of our investment in CWI 2 at
June 30, 2017
includes asset management fees receivable, for which
67,679
shares of CWI 2 class A common stock were issued during the
third
quarter of
2017
. We received distributions from this investment during the
six months ended June 30, 2017
and
2016
of
$0.1 million
and less than
$0.1 million
, respectively. We received distributions from our investment in the CWI 2 operating partnership during the
six months ended June 30, 2017
and
2016
of
$1.6 million
and
$0.9 million
, respectively.
CCIF
—
We received distributions from this investment during the
six months ended June 30, 2017
and
2016
of
$0.5 million
and
$0.1 million
, respectively.
CESH I
—
Under the limited partnership agreement we have with CESH I, we pay all organization and offering costs on behalf of CESH I, and instead of being reimbursed by CESH I on a dollar-for-dollar basis for those costs, we receive limited partnership units of CESH I equal to
2.5%
of its gross offering proceeds (
Note 3
). We have elected to account for our investment in CESH I at fair value by selecting the equity method fair value option available under GAAP. We record our investment in CESH I on a one quarter lag; therefore, the balance of our equity method investment in CESH I recorded as of
June 30, 2017
is based on the estimated fair value of our equity method investment in CESH I as of
March 31, 2017
. We did not receive distributions from this investment during the
six months ended June 30, 2017
.
At
June 30, 2017
and
December 31, 2016
, the aggregate unamortized basis differences on our equity investments in the Managed Programs were
$36.7 million
and
$31.7 million
, 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. Operating results of our unconsolidated real estate investments are included in the Owned Real Estate segment.
The following table sets forth our ownership interests in our equity investments in real estate, excluding the Managed Programs, and their respective carrying values (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value at
|
|
Lessee
|
|
Co-owner
|
|
Ownership Interest
|
|
June 30, 2017
|
|
December 31, 2016
|
|
The New York Times Company
|
|
CPA
®
:17 – Global
|
|
45%
|
|
$
|
69,511
|
|
|
$
|
69,668
|
|
|
Frontier Spinning Mills, Inc.
|
|
CPA
®
:17 – Global
|
|
40%
|
|
24,140
|
|
|
24,138
|
|
|
Beach House JV, LLC
(a)
|
|
Third Party
|
|
N/A
|
|
15,105
|
|
|
15,105
|
|
|
ALSO Actebis GmbH
(b)
|
|
CPA
®
:17 – Global
|
|
30%
|
|
11,807
|
|
|
11,205
|
|
|
Jumbo Logistiek Vastgoed B.V.
(b) (c)
|
|
CPA
®
:17 – Global
|
|
15%
|
|
10,319
|
|
|
8,739
|
|
|
Wagon Automotive GmbH
(b)
|
|
CPA
®
:17 – Global
|
|
33%
|
|
8,025
|
|
|
8,887
|
|
|
Wanbishi Archives Co. Ltd.
(d)
|
|
CPA
®
:17 – Global
|
|
3%
|
|
334
|
|
|
334
|
|
|
|
|
|
|
|
|
$
|
139,241
|
|
|
$
|
138,076
|
|
__________
|
|
|
|
(a)
|
This investment is in the form of a preferred equity interest.
|
|
|
|
|
|
|
|
W. P. Carey 6/30/2017 10-Q
–
26
|
Notes to Consolidated Financial Statements (Unaudited)
|
|
|
|
(b)
|
The carrying value of this investment is affected by fluctuations in the exchange rate of the euro.
|
|
|
|
|
(c)
|
This investment represents a tenancy-in-common interest, whereby the property is encumbered by the debt for which we are jointly and severally liable. The co-obligor is CPA
®
:17 – Global and the amount due under the arrangement was approximately
$73.3 million
at
June 30, 2017
. Of this amount,
$11.0 million
represents the amount we agreed to pay and is included within the carrying value of the investment at
June 30, 2017
.
|
|
|
|
|
(d)
|
The carrying value of this investment is affected by fluctuations in the exchange rate of the yen.
|
We received aggregate distributions of
$8.1 million
and
$8.7 million
from our other unconsolidated real estate investments for the
six months ended
June 30, 2017
and
2016
, respectively. At
June 30, 2017
and
December 31, 2016
, the aggregate unamortized basis differences on our unconsolidated real estate investments were
$7.1 million
and
$6.7 million
, respectively.
Note 8. 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, foreign currency forward contracts, and foreign currency collars; and Level 3, for securities that do not fall into Level 1 or Level 2 and for which little or no market data exists, therefore requiring us to develop our own assumptions.
Items Measured at Fair Value on a Recurring Basis
The methods and assumptions described below were used to estimate the fair value of each class of financial instrument. For significant Level 3 items, we have also provided the unobservable inputs along with their weighted-average ranges.
Money Market Funds
— Our money market funds, which are included in Cash and cash equivalents in the consolidated financial statements, are comprised of government securities and U.S. Treasury bills. These funds were classified as Level 1 as we used quoted prices from active markets to determine their fair values.
Derivative Assets
— Our derivative assets, which are included in Other assets, net in the consolidated financial statements, are comprised of foreign currency forward contracts, foreign currency collars, interest rate swaps, interest rate caps, and stock warrants (
Note 9
). The foreign currency forward contracts, foreign currency collars, interest rate swaps, and interest rate caps were measured at fair value using readily observable market inputs, such as quotations on interest rates, and were classified as Level 2 as these instruments are custom, over-the-counter contracts with various bank counterparties that are not traded in an active market. The stock warrants were measured at fair value using valuation models that incorporate market inputs and our own assumptions about future cash flows. We classified these assets as Level 3 because these assets are not traded in an active market.
Derivative Liabilities
— Our derivative liabilities, which are included in Accounts payable, accrued expenses and other liabilities in the consolidated financial statements, are comprised of interest rate swaps and foreign currency collars (
Note 9
). These derivative instruments were measured at fair value using readily observable market inputs, such as quotations on interest rates, and were classified as Level 2 because they are custom, over-the-counter contracts with various bank counterparties that are not traded in an active market.
Equity Investment in CESH I
—
We have elected to account for our investment in CESH I at fair value by selecting the equity method fair value option available under GAAP (
Note 7
). The fair value of our equity investment in CESH I approximated its carrying value as of
June 30, 2017
and
December 31, 2016
.
We did not have any transfers into or out of Level 1, Level 2, and Level 3 category of measurements during either the three or
six months ended
June 30, 2017
or
2016
. Gains and losses (realized and unrealized) included in earnings are reported within Other income and (expenses) on our consolidated financial statements.
|
|
|
|
|
|
|
W. P. Carey 6/30/2017 10-Q
–
27
|
Notes to Consolidated Financial Statements (Unaudited)
Our other financial instruments had the following carrying values and fair values as of the dates shown (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
|
|
Level
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
|
Unsecured Senior Notes, net
(a) (b) (c)
|
2
|
|
$
|
2,415,400
|
|
|
$
|
2,509,432
|
|
|
$
|
1,807,200
|
|
|
$
|
1,828,829
|
|
|
Non-recourse mortgages, net
(a) (b) (d)
|
3
|
|
1,314,463
|
|
|
1,328,731
|
|
|
1,706,921
|
|
|
1,711,364
|
|
|
Note receivable
(d)
|
3
|
|
10,166
|
|
|
9,856
|
|
|
10,351
|
|
|
10,046
|
|
__________
|
|
|
|
(a)
|
The carrying value of Unsecured Senior Notes, net (
Note 10
) includes unamortized deferred financing costs of
$15.4 million
and
$12.1 million
at
June 30, 2017
and
December 31, 2016
, respectively. The carrying value of Non-recourse mortgages, net includes unamortized deferred financing costs of
$1.2 million
and
$1.3 million
at
June 30, 2017
and
December 31, 2016
, respectively.
|
|
|
|
|
(b)
|
The carrying value of Unsecured Senior Notes, net includes unamortized discount of
$10.4 million
and
$7.8 million
at
June 30, 2017
and
December 31, 2016
, respectively. The carrying value of Non-recourse mortgages, net includes unamortized discount of
$0.9 million
and
$0.2 million
at
June 30, 2017
and
December 31, 2016
, respectively.
|
|
|
|
|
(c)
|
We determined the estimated fair value of the Unsecured Senior Notes using quoted market prices in an open market with limited trading volume, where available. In cases where there was no trading volume, we determined the estimated fair value using a discounted cash flow model using a rate that reflects the average yield of similar market participants.
|
|
|
|
|
(d)
|
We determined the estimated fair value of these financial instruments using a discounted cash flow model that estimates the present value of the future loan payments by discounting such payments at current estimated market interest rates. The estimated market interest rates take into account interest rate risk and the value of the underlying collateral, which includes quality of the collateral, the credit quality of the tenant/obligor, and the time until maturity.
|
We estimated that our other financial assets and liabilities (excluding net investments in direct financing leases) had fair values that approximated their carrying values at both
June 30, 2017
and
December 31, 2016
.
Items Measured at Fair Value on a Non-Recurring Basis (Including Impairment Charges)
We periodically assess whether there are any indicators that the value of our real estate investments may be impaired or that their carrying value may not be recoverable. For investments in real estate held for use for which an impairment indicator is identified, we follow a two-step process to determine whether the investment is impaired and to determine the amount of the charge. First, we compare the carrying value of the property’s asset group to the future undiscounted net cash flows that we expect the property’s asset group will generate, including any estimated proceeds from the eventual sale of the property’s asset group. If this amount is less than the carrying value, the property’s asset group is considered to be not recoverable. We then measure the impairment charge as the excess of the carrying value of the property’s asset group over the estimated fair value of the property’s asset group, which is primarily determined using market information such as recent comparable sales, broker quotes, or third-party appraisals. If relevant market information is not available or is not deemed appropriate, we perform a future net cash flow analysis, discounted for inherent risk associated with each investment. We determined that the significant inputs used to value these investments fall within Level 3 for fair value reporting. As a result of our assessments, we calculated impairment charges based on market conditions and assumptions that existed at the time. The valuation of real estate is subject to significant judgment and actual results may differ materially if market conditions or the underlying assumptions change.
We did not recognize any impairment charges during the three or
six months ended June 30, 2017
.
During both the three and
six months ended June 30, 2016
, we recognized impairment charges totaling
$35.4 million
, including
$10.2 million
allocated to goodwill, on a portfolio of
14
properties in order to reduce the carrying values of the properties to their estimated fair values. The fair value measurements for the properties, which totaled
$120.3 million
, approximated their estimated selling prices, less estimated costs to sell. We sold these properties in October 2016.
|
|
|
|
|
|
|
W. P. Carey 6/30/2017 10-Q
–
28
|
Notes to Consolidated Financial Statements (Unaudited)
Note 9. 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 our Senior Unsecured Credit Facility and Unsecured Senior Notes (
Note 10
). Credit risk is the risk of default on our operations and our tenants’ inability or unwillingness to make contractually required payments. Market risk includes changes in the value of our properties and related loans, as well as changes in the value of our other securities and the shares or limited partnership units we hold in the Managed Programs due to changes in interest rates or other market factors. We own investments in North America, Europe, Australia, and Asia and are subject to risks associated with fluctuating foreign currency exchange rates.
Derivative Financial Instruments
When we use derivative instruments, it is generally to reduce our exposure to fluctuations in interest rates and foreign currency exchange rate movements. We have not entered into, and do not plan to enter into, financial instruments for trading or speculative purposes. In addition to entering into derivative instruments on our own behalf, we may also be a party to derivative instruments that are embedded in other contracts, and we may be granted common stock warrants by lessees when structuring lease transactions, which are considered to be derivative instruments. The primary risks related to our use of derivative instruments include a counterparty to a hedging arrangement defaulting on its obligation and a downgrade in the credit quality of a counterparty to such an extent that our ability to sell or assign our side of the hedging transaction is impaired. While we seek to mitigate these risks by entering into hedging arrangements with large financial institutions that we deem to be creditworthy, it is possible that our hedging transactions, which are intended to limit losses, could adversely affect our earnings. Furthermore, if we terminate a hedging arrangement, we may be obligated to pay certain costs, such as transaction or breakage fees. We have established policies and procedures for risk assessment and the approval, reporting, and monitoring of derivative financial instrument activities.
We measure derivative instruments at fair value and record them as assets or liabilities, depending on our rights or obligations under the applicable derivative contract. Derivatives that are not designated as hedges must be adjusted to fair value through earnings. For a derivative designated, and that qualified, as a cash flow hedge, the effective portion of the change in fair value of the derivative is recognized in
Other comprehensive income (loss)
until the hedged item is recognized in earnings. For a derivative designated, and that qualified, as a net investment hedge, the effective portion of the change in the fair value and/or the net settlement of the derivative is reported in
Other comprehensive income (loss)
as part of the cumulative foreign currency translation adjustment. The ineffective portion of the change in fair value of any derivative is immediately recognized in earnings.
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
June 30, 2017
and
December 31, 2016
,
no
cash collateral had been posted nor received for any of our derivative positions.
|
|
|
|
|
|
|
W. P. Carey 6/30/2017 10-Q
–
29
|
Notes to Consolidated Financial Statements (Unaudited)
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
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
|
June 30, 2017
|
|
December 31, 2016
|
|
Foreign currency forward contracts
|
|
Other assets, net
|
|
$
|
21,496
|
|
|
$
|
37,040
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Foreign currency collars
|
|
Other assets, net
|
|
8,801
|
|
|
17,382
|
|
|
—
|
|
|
—
|
|
|
Interest rate swaps
|
|
Other assets, net
|
|
205
|
|
|
190
|
|
|
—
|
|
|
—
|
|
|
Interest rate cap
|
|
Other assets, net
|
|
40
|
|
|
45
|
|
|
—
|
|
|
—
|
|
|
Interest rate swaps
|
|
Accounts payable, accrued expenses and other liabilities
|
|
—
|
|
|
—
|
|
|
(2,197
|
)
|
|
(2,996
|
)
|
|
Foreign currency collars
|
|
Accounts payable, accrued expenses and other liabilities
|
|
—
|
|
|
—
|
|
|
(2,024
|
)
|
|
—
|
|
|
Derivatives Not Designated as Hedging Instruments
|
|
|
|
|
|
|
|
|
|
|
|
Stock warrants
|
|
Other assets, net
|
|
3,417
|
|
|
3,752
|
|
|
—
|
|
|
—
|
|
|
Interest rate swaps
(a)
|
|
Other assets, net
|
|
14
|
|
|
9
|
|
|
—
|
|
|
—
|
|
|
Total derivatives
|
|
|
|
$
|
33,973
|
|
|
$
|
58,418
|
|
|
$
|
(4,221
|
)
|
|
$
|
(2,996
|
)
|
__________
|
|
|
|
(a)
|
These interest rate swaps do not qualify for hedge accounting; however, they do protect against fluctuations in interest rates related to the underlying variable-rate debt.
|
The following tables present the impact of our derivative instruments in the consolidated financial statements (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) Recognized on Derivatives in Other Comprehensive Income (Loss) (Effective Portion)
(a)
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
Derivatives in Cash Flow Hedging Relationships
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Foreign currency collars
|
|
$
|
(8,146
|
)
|
|
$
|
6,443
|
|
|
$
|
(10,604
|
)
|
|
$
|
4,057
|
|
|
Foreign currency forward contracts
|
|
(8,034
|
)
|
|
2,966
|
|
|
(11,670
|
)
|
|
(4,208
|
)
|
|
Interest rate swaps
|
|
(20
|
)
|
|
(526
|
)
|
|
529
|
|
|
(2,497
|
)
|
|
Interest rate caps
|
|
(15
|
)
|
|
5
|
|
|
(9
|
)
|
|
8
|
|
|
Derivatives in Net Investment Hedging Relationships
(b)
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
(195
|
)
|
|
1,104
|
|
|
(4,176
|
)
|
|
(1,157
|
)
|
|
Total
|
|
$
|
(16,410
|
)
|
|
$
|
9,992
|
|
|
$
|
(25,930
|
)
|
|
$
|
(3,797
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) on Derivatives Reclassified from Other Comprehensive Income (Loss) (Effective Portion)
|
|
Derivatives in Cash Flow Hedging Relationships
|
|
Location of Gain (Loss) Recognized in Income
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Foreign currency forward contracts
|
|
Other income and (expenses)
|
|
$
|
1,692
|
|
|
$
|
1,780
|
|
|
$
|
3,882
|
|
|
$
|
3,390
|
|
|
Foreign currency collars
|
|
Other income and (expenses)
|
|
1,164
|
|
|
173
|
|
|
2,419
|
|
|
605
|
|
|
Interest rate swaps and caps
|
|
Interest expense
|
|
(340
|
)
|
|
(531
|
)
|
|
(738
|
)
|
|
(1,066
|
)
|
|
Total
|
|
|
|
$
|
2,516
|
|
|
$
|
1,422
|
|
|
$
|
5,563
|
|
|
$
|
2,929
|
|
__________
|
|
|
|
(a)
|
Excludes
net losses
of
$0.4 million
and less than
$0.1 million
recognized on unconsolidated jointly owned investments for the
three months ended June 30, 2017
and
2016
, respectively, and
net losses
of
$0.6 million
and
$0.3 million
for the
six months ended June 30, 2017
and
2016
, respectively.
|
|
|
|
|
|
|
|
W. P. Carey 6/30/2017 10-Q
–
30
|
Notes to Consolidated Financial Statements (Unaudited)
|
|
|
|
(b)
|
The effective portion of the changes in fair value of these contracts are reported in the foreign currency translation adjustment section of
Other comprehensive income (loss)
.
|
Amounts reported in
Other comprehensive income (loss)
related to interest rate swaps will be reclassified to Interest expense as interest is incurred on our variable-rate debt. Amounts reported in
Other comprehensive income (loss)
related to foreign currency derivative contracts will be reclassified to Other income and (expenses) when the hedged foreign currency contracts are settled. As of
June 30, 2017
, we estimate that an additional
$0.9 million
and
$9.7 million
will be reclassified as interest expense and other income, respectively, during the next 12 months.
The following table presents the impact of our derivative instruments in the consolidated financial statements (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) on Derivatives Recognized in Income
|
|
Derivatives Not in Cash Flow Hedging Relationships
|
|
Location of Gain (Loss) Recognized in Income
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Foreign currency collars
|
|
Other income and (expenses)
|
|
$
|
(407
|
)
|
|
$
|
454
|
|
|
$
|
(493
|
)
|
|
$
|
179
|
|
|
Stock warrants
|
|
Other income and (expenses)
|
|
67
|
|
|
(201
|
)
|
|
(335
|
)
|
|
(201
|
)
|
|
Interest rate swaps
|
|
Other income and (expenses)
|
|
—
|
|
|
1,181
|
|
|
9
|
|
|
2,255
|
|
|
Derivatives in Cash Flow Hedging Relationships
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
(a)
|
|
Interest expense
|
|
141
|
|
|
148
|
|
|
302
|
|
|
263
|
|
|
Foreign currency forward contracts
|
|
Other income and (expenses)
|
|
(63
|
)
|
|
163
|
|
|
(61
|
)
|
|
141
|
|
|
Foreign currency collars
|
|
Other income and (expenses)
|
|
2
|
|
|
14
|
|
|
2
|
|
|
38
|
|
|
Total
|
|
|
|
$
|
(260
|
)
|
|
$
|
1,759
|
|
|
$
|
(576
|
)
|
|
$
|
2,675
|
|
__________
|
|
|
|
(a)
|
Relates to the ineffective portion of the hedging relationship.
|
See below for information on our purposes for entering into derivative instruments and for information on derivative instruments owned by unconsolidated investments, which are excluded from the tables above.
Interest Rate Swaps and 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, we have entered into, and may continue to enter into, interest rate swap agreements or interest rate cap agreements with counterparties. Interest rate swaps, which effectively convert the variable-rate debt service obligations of a loan to a fixed rate, are agreements in which one party exchanges a stream of interest payments for a counterparty’s stream of cash flow over a specific period. The notional, or face, amount on which the swaps are based is not exchanged. Interest rate caps limit the effective borrowing rate of variable-rate debt obligations while allowing participants to share in downward shifts in interest rates. Our objective in using these derivatives is to limit our exposure to interest rate movements.
|
|
|
|
|
|
|
W. P. Carey 6/30/2017 10-Q
–
31
|
Notes to Consolidated Financial Statements (Unaudited)
The interest rate swaps and caps that our consolidated subsidiaries had outstanding at
June 30, 2017
are summarized as follows (currency in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Instruments
|
|
Notional
Amount
|
|
Fair Value at
June 30, 2017
(a)
|
|
Interest Rate Derivatives
|
|
|
|
|
Designated as Cash Flow Hedging Instruments
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
11
|
|
105,912
|
|
USD
|
|
$
|
(1,781
|
)
|
|
Interest rate swap
|
|
1
|
|
5,842
|
|
EUR
|
|
(211
|
)
|
|
Interest rate cap
|
|
1
|
|
30,634
|
|
EUR
|
|
40
|
|
|
Not Designated as Cash Flow Hedging Instruments
|
|
|
|
|
|
|
|
|
Interest rate swap
(b)
|
|
1
|
|
2,924
|
|
USD
|
|
14
|
|
|
|
|
|
|
|
|
|
$
|
(1,938
|
)
|
__________
|
|
|
|
(a)
|
Fair value amounts are based on the exchange rate of the euro at
June 30, 2017
, as applicable.
|
|
|
|
|
(b)
|
This interest rate swap does not qualify for hedge accounting; however, it does protect against fluctuations in interest rates related to the underlying variable-rate debt.
|
Foreign Currency Contracts and Collars
We are exposed to foreign currency exchange rate movements, primarily in the euro and, to a lesser extent, the British pound sterling, the Australian dollar, and certain other currencies. We manage foreign currency exchange rate movements by generally placing our debt service obligation on an investment in the same currency as the tenant’s rental obligation to us. This reduces our overall exposure to the net cash flow from that investment. However, we are subject to foreign currency exchange rate movements to the extent that there is a difference in the timing and amount of the rental obligation and the debt service. Realized and unrealized gains and losses recognized in earnings related to foreign currency transactions are included in Other income and (expenses) in the consolidated financial statements.
In order to hedge certain of our foreign currency cash flow exposures, we enter into foreign currency forward contracts and collars. A foreign currency forward contract is a commitment to deliver a certain amount of currency at a certain price on a specific date in the future. A foreign currency collar consists of a written call option and a purchased put option to sell the foreign currency at a range of predetermined exchange rates. By entering into forward contracts and holding them to maturity, we are locked into a future currency exchange rate for the term of the contract. A foreign currency collar guarantees that the exchange rate of the currency will not fluctuate beyond the range of the options’ strike prices. Our foreign currency forward contracts and foreign currency collars have maturities of
77
months or less.
The following table presents the foreign currency derivative contracts we had outstanding at
June 30, 2017
, which were designated as cash flow hedges (currency in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Instruments
|
|
Notional
Amount
|
|
Fair Value at
June 30, 2017
|
|
Foreign Currency Derivatives
|
|
|
|
|
Designated as Cash Flow Hedging Instruments
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
28
|
|
84,385
|
|
EUR
|
|
$
|
16,757
|
|
|
Foreign currency collars
|
|
22
|
|
41,000
|
|
GBP
|
|
7,255
|
|
|
Foreign currency forward contracts
|
|
6
|
|
3,210
|
|
GBP
|
|
832
|
|
|
Foreign currency forward contracts
|
|
10
|
|
12,591
|
|
AUD
|
|
660
|
|
|
Foreign currency collars
|
|
22
|
|
82,900
|
|
EUR
|
|
(478
|
)
|
|
Designated as Net Investment Hedging Instruments
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
3
|
|
74,463
|
|
AUD
|
|
3,247
|
|
|
|
|
|
|
|
|
|
$
|
28,273
|
|
|
|
|
|
|
|
|
W. P. Carey 6/30/2017 10-Q
–
32
|
Notes to Consolidated Financial Statements (Unaudited)
Credit Risk-Related Contingent Features
We measure our credit exposure on a counterparty basis as the net positive aggregate estimated fair value of our derivatives, net of any collateral received. No collateral was received as of
June 30, 2017
. At
June 30, 2017
, our total credit exposure and the maximum exposure to any single counterparty was
$29.2 million
and
$17.5 million
, respectively.
Some of the agreements we have with our derivative counterparties contain cross-default provisions that could trigger a declaration of default on our derivative obligations if we default, or are capable of being declared in default, on certain of our indebtedness. At
June 30, 2017
, we had not been declared in default on any of our derivative obligations. The estimated fair value of our derivatives in a net liability position was
$4.5 million
and
$3.3 million
at
June 30, 2017
and
December 31, 2016
, respectively, which included accrued interest and any nonperformance risk adjustments. If we had breached any of these provisions at
June 30, 2017
or
December 31, 2016
, we could have been required to settle our obligations under these agreements at their aggregate termination value of
$4.7 million
and
$3.3 million
, respectively.
Net Investment Hedges
At
June 30, 2017
, the amount borrowed in euro outstanding under our Amended Term Loan (
Note 10
) that was designated as a net investment hedge was
€164.0 million
. Additionally, we have issued two sets of euro-denominated senior notes, each with a principal amount of
€500.0 million
, which we refer to as the
2.0%
Senior Notes and
2.25%
Senior Notes (
Note 10
). These borrowings are designated as, and are effective as, economic hedges of our net investments in foreign entities. Variability in the exchange rates of the foreign currencies with respect to the U.S. dollar impacts our financial results as the financial results of our foreign subsidiaries are translated to U.S. dollars each period, with the effect of changes in the foreign currencies to U.S. dollar exchange rates being recorded in
Other comprehensive income (loss)
as part of the cumulative foreign currency translation adjustment. As a result, the borrowings in euro under our Amended Term Loan (for the amount designated as a net investment hedge),
2.0%
Senior Notes, and
2.25%
Senior Notes are recorded at cost in the consolidated financial statements and all changes in the value related to changes in the spot rates will be reported in the same manner as a translation adjustment, which is recorded in
Other comprehensive income (loss)
as part of the cumulative foreign currency translation adjustment.
At
June 30, 2017
, we also had foreign currency forward contracts that were designated as net investment hedges, as discussed in
“Derivative Financial Instruments” above.
Note 10. Debt
Senior Unsecured Credit Facility
As of December 31, 2016, we had a senior credit facility that provided for a
$1.5 billion
unsecured revolving credit facility, or our Unsecured Revolving Credit Facility, and a
$250.0 million
term loan facility, or our Prior Term Loan, which we refer to collectively as the Senior Unsecured Credit Facility. At December 31, 2016, the Senior Unsecured Credit Facility also permitted (i) up to
$750.0 million
under our Unsecured Revolving Credit Facility to be borrowed in certain currencies other than the U.S. dollar, (ii) swing line loans up to
$50.0 million
under our Unsecured Revolving Credit Facility, and (iii) the issuance of letters of credit under our Unsecured Revolving Credit Facility in an aggregate amount not to exceed
$50.0 million
. On January 26, 2017, we exercised our option to extend our Prior Term Loan by an additional year to January 31, 2018.
On February 22, 2017, we amended and restated our Senior Unsecured Credit Facility to increase its capacity to approximately
$1.85 billion
, which is comprised of
$1.5 billion
under our Unsecured Revolving Credit Facility, a
€236.3 million
term loan, or our Amended Term Loan, and a
$100.0 million
delayed draw term loan, or our Delayed Draw Term Loan. The Delayed Draw Term Loan allows for borrowings in U.S. dollars, euros, or British pounds sterling. We refer to our Prior Term Loan, Amended Term Loan, and Delayed Draw Term Loan collectively as the Unsecured Term Loans.
On February 22, 2017, we drew down our Amended Term Loan in full by borrowing
€236.3 million
(equivalent to
$250.0 million
) to repay and terminate our
$250.0 million
Prior Term Loan. On June 8, 2017, we drew down our Delayed Draw Term Loan in full by borrowing
€88.7 million
(equivalent to
$100.0 million
) to partially pay down the amounts then outstanding under our Unsecured Revolving Credit Facility.
The maturity date of the Unsecured Revolving Credit Facility is February 22, 2021. We have two options to extend the maturity date of the Unsecured Revolving Credit Facility by six months, subject to the conditions provided in the Third Amended and Restated Credit Facility dated February 22, 2017, as amended, or the Credit Agreement. The maturity date of both the Amended
|
|
|
|
|
|
|
W. P. Carey 6/30/2017 10-Q
–
33
|
Notes to Consolidated Financial Statements (Unaudited)
Term Loan and Delayed Draw Term Loan is February 22, 2022. The Senior Unsecured Credit Facility is being used for working capital needs, for acquisitions, and for other general corporate purposes.
The Credit Agreement also permits (i) a sub-limit for up to
$1.0 billion
under the Unsecured Revolving Credit Facility to be borrowed in certain currencies other than U.S. dollars, (ii) a sub-limit for swing line loans of up to
$75.0 million
under the Unsecured Revolving Credit Facility, and (iii) a sub-limit for the issuance of letters of credit under the Unsecured Revolving Credit Facility in an aggregate amount not to exceed
$50.0 million
. The aggregate principal amount (of revolving and term loans) available under the Credit Agreement may be increased up to an amount not to exceed the U.S. dollar equivalent of
$2.35 billion
, and may be allocated as an increase to the Unsecured Revolving Credit Facility, the Amended Term Loan, or the Delayed Draw Term Loan, or if the Amended Term Loan has been terminated, an add-on term loan, in each case subject to the conditions to increase provided in the Credit Agreement. In connection with the amendment and restatement of our Senior Unsecured Credit Facility, we capitalized deferred financing costs totaling
$8.5 million
, which is being amortized to Interest expense over the remaining terms of the Unsecured Revolving Credit Facility and Amended Term Loan.
At
June 30, 2017
, our Unsecured Revolving Credit Facility had unused capacity of
$1.3 billion
, excluding amounts reserved for outstanding letters of credit. As of
June 30, 2017
, our lenders had issued letters of credit totaling
$0.1 million
on our behalf in connection with certain contractual obligations, which reduce amounts that may be drawn under our Unsecured Revolving Credit Facility by the same amount. We also incur a facility fee of
0.20%
of the total commitment on our Unsecured Revolving Credit Facility and a fee of
0.20%
on the unused commitments under our Delayed Draw Term Loan prior to the draw or termination of such commitments.
The following table presents a summary of our Senior Unsecured Credit Facility (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate at
June 30, 2017
(a)
|
|
Maturity Date at June 30, 2017
|
|
Principal Outstanding Balance at
|
|
Senior Unsecured Credit Facility
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
|
Unsecured Term Loans:
|
|
|
|
|
|
|
|
|
|
Amended Term Loan — borrowing in euros
(b) (c)
|
|
EURIBOR + 1.10%
|
|
2/22/2022
|
|
$
|
269.7
|
|
|
$
|
—
|
|
|
Delayed Draw Term Loan — borrowing in euros
(c)
|
|
EURIBOR + 1.10%
|
|
2/22/2022
|
|
101.2
|
|
|
—
|
|
|
Prior Term Loan — borrowing in
U.S. dollars
(d)
|
|
N/A
|
|
N/A
|
|
—
|
|
|
250.0
|
|
|
|
|
|
|
|
|
370.9
|
|
|
250.0
|
|
|
Unsecured Revolving Credit Facility:
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured Revolving Credit Facility — borrowing in euros
(c)
|
|
EURIBOR + 1.00%
|
|
2/22/2021
|
|
107.5
|
|
|
286.7
|
|
|
Unsecured Revolving Credit Facility — borrowing in U.S. dollars
|
|
LIBOR + 1.00%
|
|
2/22/2021
|
|
58.0
|
|
|
390.0
|
|
|
|
|
|
|
|
|
165.5
|
|
|
676.7
|
|
|
|
|
|
|
|
|
$
|
536.4
|
|
|
$
|
926.7
|
|
__________
|
|
|
|
(a)
|
The applicable interest rate at
June 30, 2017
was based on the credit rating for our Unsecured Senior Notes of
BBB/Baa2
.
|
|
|
|
|
(b)
|
Balance excludes unamortized deferred financing costs of
$0.3 million
and unamortized discount of
$1.3 million
at
June 30, 2017
.
|
|
|
|
|
(c)
|
EURIBOR means Euro Interbank Offered Rate.
|
|
|
|
|
(d)
|
Balance excludes unamortized deferred financing costs of less than
$0.1 million
at
December 31, 2016
.
|
Unsecured Senior Notes
As set forth in the table below, we have unsecured senior notes outstanding with an aggregate principal balance outstanding of
$2.4 billion
at
June 30, 2017
. We refer to these notes collectively as the Unsecured Senior Notes. On
January 19, 2017
, we completed a public offering of
€500.0 million
of
2.25%
Senior Notes, at a price of
99.448%
of par value, issued by our wholly owned subsidiary, WPC Eurobond B.V., which are guaranteed by us. These
2.25%
Senior Notes have a
7.5
-year term and are scheduled to mature on
July 19, 2024
.
|
|
|
|
|
|
|
W. P. Carey 6/30/2017 10-Q
–
34
|
Notes to Consolidated Financial Statements (Unaudited)
Interest on the Unsecured Senior Notes is payable annually in arrears for our euro-denominated notes and semi-annually for U.S. dollar-denominated notes. The Unsecured Senior Notes can be redeemed at par within three months of their respective maturities, or we can call the notes at any time for the principal, accrued interest, and a make-whole amount based upon the applicable government bond yield plus 30 to 35 basis points. The following table presents a summary of our Unsecured Senior Notes outstanding at
June 30, 2017
(currency in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Original Issue Discount
|
|
Effective Interest Rate
|
|
|
|
|
|
Principal Outstanding Balance at
|
|
Unsecured Senior Notes, net
(a)
|
|
Issue Date
|
|
Principal Amount
|
|
Price of Par Value
|
|
|
|
Coupon Rate
|
|
Maturity Date
|
|
June 30, 2017
|
|
December 31, 2016
|
|
2.0% Senior Notes
|
|
1/21/2015
|
|
€
|
500.0
|
|
|
99.220
|
%
|
|
$
|
4.6
|
|
|
2.107
|
%
|
|
2.0
|
%
|
|
1/20/2023
|
|
$
|
570.6
|
|
|
$
|
527.1
|
|
|
2.25% Senior Notes
|
|
1/19/2017
|
|
€
|
500.0
|
|
|
99.448
|
%
|
|
$
|
2.9
|
|
|
2.332
|
%
|
|
2.25
|
%
|
|
7/19/2024
|
|
570.6
|
|
|
—
|
|
|
4.6% Senior Notes
|
|
3/14/2014
|
|
$
|
500.0
|
|
|
99.639
|
%
|
|
$
|
1.8
|
|
|
4.645
|
%
|
|
4.6
|
%
|
|
4/1/2024
|
|
500.0
|
|
|
500.0
|
|
|
4.0% Senior Notes
|
|
1/26/2015
|
|
$
|
450.0
|
|
|
99.372
|
%
|
|
$
|
2.8
|
|
|
4.077
|
%
|
|
4.0
|
%
|
|
2/1/2025
|
|
450.0
|
|
|
450.0
|
|
|
4.25% Senior Notes
|
|
9/12/2016
|
|
$
|
350.0
|
|
|
99.682
|
%
|
|
$
|
1.1
|
|
|
4.290
|
%
|
|
4.25
|
%
|
|
10/1/2026
|
|
350.0
|
|
|
350.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,441.2
|
|
|
$
|
1,827.1
|
|
__________
|
|
|
|
(a)
|
Aggregate balance excludes unamortized deferred financing costs totaling
$15.4 million
and
$12.1 million
, and unamortized discount totaling
$10.4 million
and
$7.8 million
, at
June 30, 2017
and
December 31, 2016
, respectively.
|
Proceeds from the issuances of each of these notes were used primarily to partially pay down the amounts then outstanding under the unsecured revolving credit facility that we had in place at that time. In connection with the offering of the
2.25%
Senior Notes in January 2017, we incurred financing costs totaling
$4.0 million
during the
six months ended June 30, 2017
, which are included in Unsecured Senior Notes, net in the consolidated financial statements and are being amortized to Interest expense over the term of the
2.25%
Senior Notes.
Covenants
The Senior Unsecured Credit Facility, as amended, and each of the Unsecured Senior Notes include customary financial maintenance covenants that require us to maintain certain ratios and benchmarks at the end of each quarter. The Senior Unsecured Credit Facility also contains various customary affirmative and negative covenants applicable to us and our subsidiaries, subject to materiality and other qualifications, baskets, and exceptions as outlined in the Credit Agreement. We were in compliance with all of these covenants at
June 30, 2017
.
We may make unlimited Restricted Payments (as defined in the Credit Agreement), as long as no non-payment default or financial covenant default has occurred before, or would on a pro forma basis occur as a result of, the Restricted Payment. In addition, we may make Restricted Payments in an amount required to (i) maintain our REIT status and (ii) as a result of that status, not pay federal or state income or excise tax, as long as the loans under the Credit Agreement have not been accelerated and no bankruptcy or event of default has occurred.
Obligations under the Senior Unsecured Credit Facility may be declared immediately due and payable upon the occurrence of certain events of default as defined in the Credit Agreement, including failure to pay any principal when due and payable, failure to pay interest within five business days after becoming due, failure to comply with any covenant, representation or condition of any loan document, any change of control, cross-defaults, and certain other events as set forth in the Credit Agreement, with grace periods in some cases.
Non-Recourse Mortgages
At
June 30, 2017
, our mortgage notes payable bore interest at fixed annual rates ranging from
2.0%
to
7.8%
and variable contractual annual rates ranging from
0.9%
to
6.9%
, with maturity dates ranging from August
2017
to June
2027
.
In January 2017, we repaid two international non-recourse mortgage loans at maturity with an aggregate principal balance of approximately
$243.8 million
encumbering a German investment, comprised of certain properties leased to Hellweg Die Profi-Baumärkte GmbH & Co. KG, or the Hellweg 2 Portfolio, which is jointly owned with our affiliate, CPA
®
:17 – Global. In connection with this repayment, CPA
®
:17 – Global contributed
$90.3 million
, which was accounted for as a contribution from a noncontrolling interest. Amounts are based on the exchange rate of the euro as of the date of repayment. The weighted-average interest rate for these mortgage loans on the date of repayment was
5.4%
. During the
six months ended June 30, 2017
, we repaid additional loans at maturity with an aggregate principal balance of approximately
$16.8 million
.
|
|
|
|
|
|
|
W. P. Carey 6/30/2017 10-Q
–
35
|
Notes to Consolidated Financial Statements (Unaudited)
During the
six months ended June 30, 2017
, we prepaid non-recourse mortgage loans totaling
$100.6 million
, including a mortgage loan of
$18.5 million
encumbering a property that was sold in January 2017 (
Note 15
). Amounts are based on the exchange rate of the euro as of the date of repayment, as applicable. The weighted-average interest rate for these mortgage loans on their respective dates of prepayment was
5.3%
. In connection with these payments, we recognized a gain on extinguishment of debt of
$2.4 million
during the
six months ended June 30, 2017
, which was included in Other income and (expenses) in the consolidated financial statements.
Foreign Currency Exchange Rate Impact
During the
six months ended June 30,
2017
, the U.S. dollar
weakened
against the euro, resulting in an aggregate
increase
of
$138.6 million
in the aggregate carrying values of our Non-recourse mortgages, net, Senior Unsecured Credit Facility, and Unsecured Senior Notes, net from
December 31, 2016
to
June 30, 2017
.
Scheduled Debt Principal Payments
Scheduled debt principal payments during the remainder of
2017
, each of the next four calendar years following
December 31, 2017
, and thereafter through 2027 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
Years Ending December 31,
|
|
Total
(a)
|
|
2017 (remainder)
|
|
$
|
101,633
|
|
|
2018
|
|
274,732
|
|
|
2019
|
|
100,550
|
|
|
2020
|
|
224,166
|
|
|
2021
|
|
325,204
|
|
|
Thereafter through 2027
|
|
3,267,862
|
|
|
Total principal payments
|
|
4,294,147
|
|
|
Unamortized deferred financing costs
|
|
(16,852
|
)
|
|
Unamortized discount, net
(b)
|
|
(12,631
|
)
|
|
Total
|
|
$
|
4,264,664
|
|
__________
|
|
|
|
(a)
|
Certain amounts are based on the applicable foreign currency exchange rate at
June 30, 2017
.
|
|
|
|
|
(b)
|
Represents the unamortized discount on the Unsecured Senior Notes of
$10.4 million
in aggregate, unamortized discount on the Unsecured Term Loans of
$1.3 million
, and unamortized discount of
$0.9 million
in aggregate resulting from the assumption of property-level debt in connection with both the CPA
®
:15 Merger and the CPA
®
:16 Merger (
Note 1
).
|
Note 11. Commitments and Contingencies
At
June 30, 2017
, we were not involved in any material litigation. Various claims and lawsuits arising in the normal course of business are pending against us. The results of these proceedings are not expected to have a material adverse effect on our consolidated financial position or results of operations.
Note 12. Restructuring and Other Compensation
Expenses Recorded During 2017
On June 15, 2017, our Board approved a plan to exit all non-traded retail fundraising activities carried out by our wholly-owned broker-dealer subsidiary, Carey Financial, as of June 30, 2017 (
Note 1
). As a result, we incurred non-recurring charges to exit our fundraising activities, consisting primarily of severance costs. During both the
three and six months ended June 30,
2017
, we recorded
$7.1 million
of severance and benefits and
$0.6 million
of other related costs, which are all included in Restructuring and other compensation in the consolidated financial statements.
|
|
|
|
|
|
|
W. P. Carey 6/30/2017 10-Q
–
36
|
Notes to Consolidated Financial Statements (Unaudited)
Expenses Recorded During 2016
In connection with the resignation of our then-chief executive officer, Trevor P. Bond, we and Mr. Bond entered into a letter agreement, dated February 10, 2016. Under the terms of the agreement, subject to certain conditions, Mr. Bond is entitled to receive the severance benefits provided for in his employment agreement and, subject to satisfaction of applicable performance conditions and proration, vesting of his outstanding unvested PSUs in accordance with their terms. In addition, the portion of his previously granted RSUs that were scheduled to vest on February 15, 2016, which would have been forfeited upon separation pursuant to their terms, were allowed to vest on that date. In connection with the separation agreement, we recorded
$5.1 million
of severance-related expenses during the
six months ended June 30, 2016
, which are included in Restructuring and other compensation in the consolidated financial statements.
In February 2016, we entered into an agreement with Catherine D. Rice, our former chief financial officer, in connection with the termination of her employment, which provides for the continued vesting of her outstanding RSUs and PSUs pursuant to their terms as though her employment had continued through their respective vesting dates. In connection with the modification of these award terms, we recorded incremental stock-based compensation expense of
$2.4 million
during the
six months ended June 30, 2016
, which is included in Restructuring and other compensation in the consolidated financial statements.
In March 2016, as part of a cost savings initiative, we undertook a reduction in force, or RIF, and realigned and consolidated certain positions within the company, resulting in employee headcount reductions. As a result of these reductions in headcount and the separations described above, during the
six months ended June 30, 2016
, we recorded
$8.2 million
of severance and benefits,
$3.2 million
of stock-based compensation, and
$0.5 million
of other related costs, which are all included in Restructuring and other compensation in the consolidated financial statements.
As of
June 30, 2017
, the accrued liability for these severance obligations recorded during 2016 and 2017 was
$9.4 million
, which is included within Accounts payable, accrued expenses and other liabilities in the consolidated financial statements.
Note 13. Stock-Based Compensation and Equity
Stock-Based Compensation
In June 2017, our shareholders approved the 2017 Share Incentive Plan, which replaced our predecessor plans for employees, the 2009 Share Incentive Plan, and for non-employee directors, the 2009 Non-Employee Directors’ Incentive Plan. No further awards will be granted under those predecessor plans, which are more fully described in the
2016
Annual Report. The 2017 Share Incentive Plan authorizes the issuance of up to
4,000,000
shares of our common stock, reduced by the number of shares
(279,728)
that were subject to awards granted under the 2009 Share Incentive Plan and the 2009 Non-Employee Directors’ Incentive Plan after December 31, 2016 and before the effective date of the 2017 Share Incentive Plan, which was June 15, 2017. The 2017 Share Incentive Plan provides for the grant of various stock- and cash-based awards, including (i) share options, (ii) RSUs, (iii) PSUs, (iv) RSAs, and (v) dividend equivalent rights.
During the
six months ended June 30, 2017
and
2016
, we recorded stock-based compensation expense of
$10.0 million
and
$13.8 million
, respectively, of which
$3.2 million
was included in Restructuring and other compensation for the
six months ended June 30, 2016
(
Note 12
).
|
|
|
|
|
|
|
W. P. Carey 6/30/2017 10-Q
–
37
|
Notes to Consolidated Financial Statements (Unaudited)
Restricted and Conditional Awards
Nonvested RSAs, RSUs, and PSUs at
June 30, 2017
and changes during the
six months ended
June 30, 2017
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, 2017
|
356,865
|
|
|
$
|
61.63
|
|
|
310,018
|
|
|
$
|
73.80
|
|
|
Granted
(a)
|
176,651
|
|
|
61.66
|
|
|
107,934
|
|
|
75.39
|
|
|
Vested
(b)
|
(154,310
|
)
|
|
62.21
|
|
|
(132,412
|
)
|
|
74.21
|
|
|
Forfeited
|
(35,662
|
)
|
|
61.13
|
|
|
(45,258
|
)
|
|
76.91
|
|
|
Adjustment
(c)
|
—
|
|
|
—
|
|
|
16,420
|
|
|
65.18
|
|
|
Nonvested at June 30, 2017
(d)
|
343,544
|
|
|
$
|
61.44
|
|
|
256,702
|
|
|
$
|
75.84
|
|
__________
|
|
|
|
(a)
|
The grant date fair value of RSAs and RSUs reflect our stock price on the date of grant on a one-for-one basis. The grant date fair value of PSUs was determined utilizing (i) a Monte Carlo simulation model to generate an estimate of our future stock price over the three-year performance period and (ii) future financial performance projections. To estimate the fair value of PSUs granted during the
six months ended
June 30, 2017
, we used a risk-free interest rate of
1.5%
, an expected volatility rate of
17.1%
, and assumed a dividend yield of
zero
.
|
|
|
|
|
(b)
|
The total fair value of shares vested during the
six months ended
June 30, 2017
was
$19.4 million
. Employees have the option to take immediate delivery of the shares upon vesting or defer receipt to a future date pursuant to previously made deferral elections. At
June 30, 2017
and
December 31, 2016
, we had an obligation to issue
1,135,563
and
1,217,274
shares, respectively, of our common stock underlying such deferred awards, which is recorded within Total stockholders’ equity as a Deferred compensation obligation of
$46.7 million
and
$50.2 million
, respectively.
|
|
|
|
|
(c)
|
Vesting and payment of the PSUs is conditioned upon certain company and/or market performance goals being met during the relevant three-year performance period. The ultimate number of PSUs to be vested will depend on the extent to which the performance goals are met and can range from zero to three times the original awards. As a result, we recorded adjustments to reflect the number of shares expected to be issued when the PSUs vest.
|
|
|
|
|
(d)
|
At
June 30, 2017
, total unrecognized compensation expense related to these awards was approximately
$24.6 million
, with an aggregate weighted-average remaining term of
2.0
years.
|
During the three and
six months ended
June 30, 2017
,
22,432
and
132,234
stock options, respectively, were exercised with an aggregate intrinsic value of
$0.7 million
and
$3.9 million
, respectively. At
June 30, 2017
, there were
12,799
stock options outstanding, all of which were exercisable.
|
|
|
|
|
|
|
W. P. Carey 6/30/2017 10-Q
–
38
|
Notes to Consolidated Financial Statements (Unaudited)
Earnings Per Share
Under current authoritative guidance for determining earnings per share, all nonvested share-based payment awards that contain non-forfeitable rights to distributions are considered to be participating securities and therefore are included in the computation of earnings per share under the two-class method. The two-class method is an earnings allocation formula that determines earnings per share for each class of common shares and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. Certain of our nonvested RSUs and RSAs contain rights to receive non-forfeitable distribution equivalents or distributions, respectively, and therefore we apply the two-class method of computing earnings per share. The calculation of earnings per share below excludes the income attributable to the nonvested RSUs and RSAs from the numerator and such nonvested shares in the denominator. The following table summarizes basic and diluted earnings (in thousands, except share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Net income attributable to W. P. Carey
|
$
|
64,318
|
|
|
$
|
51,661
|
|
|
$
|
121,802
|
|
|
$
|
109,100
|
|
|
Net income attributable to nonvested RSUs and RSAs
|
(204
|
)
|
|
(174
|
)
|
|
(386
|
)
|
|
(368
|
)
|
|
Net income — basic and diluted
|
$
|
64,114
|
|
|
$
|
51,487
|
|
|
$
|
121,416
|
|
|
$
|
108,732
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding — basic
|
107,668,218
|
|
|
106,310,362
|
|
|
107,615,644
|
|
|
106,124,881
|
|
|
Effect of dilutive securities
|
114,986
|
|
|
219,674
|
|
|
185,674
|
|
|
379,345
|
|
|
Weighted-average shares outstanding — diluted
|
107,783,204
|
|
|
106,530,036
|
|
|
107,801,318
|
|
|
106,504,226
|
|
For the
three and six months ended June 30,
2017
and
2016
, there were
no
potentially dilutive securities excluded from the computation of diluted earnings per share.
At-The-Market Equity Offering Program
On March 1, 2017, we filed a prospectus supplement with the SEC pursuant to which we may offer and sell shares of our common stock, up to an aggregate gross sales price of
$400.0 million
, through an “at-the-market,” or ATM, offering program with a consortium of banks as sales agents. On that date, we also terminated a prior ATM program that was established on June 3, 2015, under which we could also offer and sell shares of our common stock, up to an aggregate gross sales price of
$400.0 million
. During both the
three and six months ended June 30,
2017
, we issued
329,753
shares of our common stock under the current ATM program at a weighted-average price of
$67.82
per share for net proceeds of
$21.9 million
. During both the
three and six months ended June 30,
2016
, we issued
281,301
shares of our common stock under the prior ATM program at a weighted-average price of
$68.47
per share for net proceeds of
$18.9 million
. As of
June 30, 2017
,
$377.6 million
remained available for issuance under our current ATM program. In July 2017, we issued
15,500
shares of common stock under the current ATM program at a weighted-average price of
$67.05
per share for net proceeds of
$1.0 million
.
Acquisition of Noncontrolling Interest
On May 24, 2017, we acquired the remaining
25%
interest in an international jointly owned investment (which we already consolidated) from the noncontrolling interest holders for
€2
, bringing our ownership interest to
100%
. No gain or loss was recognized on the transaction. We recorded an adjustment of approximately
$1.8 million
to Additional paid-in capital in our consolidated statement of equity for the
six months ended June 30, 2017
related to the difference between the consideration transferred and the carrying value of the noncontrolling interest related to this investment. The property owned by the investment was sold on May 26, 2017 and we recognized a gain on sale of less than
$0.1 million
(
Note 15
).
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, because, pursuant to a put option held by the third party, we had an obligation to redeem the interest at fair value, subject to certain conditions. This obligation was required to be settled in shares of our common stock. On October 1, 2013, we received a notice from the holder of the noncontrolling interest in WPCI regarding the exercise of the put option, pursuant to which we were required to purchase the third party’s
7.7%
interest in WPCI. Pursuant to the terms of the related put agreement, the value of that interest was determined based on a third-party valuation as of October 31, 2013, which is the end of the month that the put option was exercised. In March 2016, we issued
217,011
shares of our common stock to the holder of
|
|
|
|
|
|
|
W. P. Carey 6/30/2017 10-Q
–
39
|
Notes to Consolidated Financial Statements (Unaudited)
the redeemable noncontrolling interest, which had a value of
$13.4 million
at the date of issuance, pursuant to a formula set forth in the put agreement. Through the date of this Report, the third party has not formally transferred his interests in WPCI to us pursuant to the put agreement because of a dispute regarding any amounts that may still be owed to him.
The following table presents a reconciliation of redeemable noncontrolling interest (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
2017
|
|
2016
|
|
Beginning balance
|
$
|
965
|
|
|
$
|
14,944
|
|
|
Distributions
|
—
|
|
|
(13,418
|
)
|
|
Redemption value adjustment
|
—
|
|
|
(561
|
)
|
|
Ending balance
|
$
|
965
|
|
|
$
|
965
|
|
Reclassifications Out of Accumulated Other Comprehensive Loss
The following tables present a reconciliation of changes in Accumulated other comprehensive loss by component for the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2017
|
|
|
Gains and Losses on Derivative Instruments
|
|
Foreign Currency Translation Adjustments
|
|
Gains and Losses on Marketable Securities
|
|
Total
|
|
Beginning balance
|
$
|
41,259
|
|
|
$
|
(287,150
|
)
|
|
$
|
(343
|
)
|
|
$
|
(246,234
|
)
|
|
Other comprehensive income before reclassifications
|
(14,115
|
)
|
|
27,957
|
|
|
(73
|
)
|
|
13,769
|
|
|
Amounts reclassified from accumulated other comprehensive loss to:
|
|
|
|
|
|
|
|
|
Interest expense
|
340
|
|
|
—
|
|
|
—
|
|
|
340
|
|
|
Other income and (expenses)
|
(2,856
|
)
|
|
—
|
|
|
—
|
|
|
(2,856
|
)
|
|
Total
|
(2,516
|
)
|
|
—
|
|
|
—
|
|
|
(2,516
|
)
|
|
Net current period other comprehensive income
|
(16,631
|
)
|
|
27,957
|
|
|
(73
|
)
|
|
11,253
|
|
|
Net current period other comprehensive gain attributable to noncontrolling interests
|
8
|
|
|
(8,675
|
)
|
|
—
|
|
|
(8,667
|
)
|
|
Ending balance
|
$
|
24,636
|
|
|
$
|
(267,868
|
)
|
|
$
|
(416
|
)
|
|
$
|
(243,648
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2016
|
|
|
Gains and Losses on Derivative Instruments
|
|
Foreign Currency Translation Adjustments
|
|
Gains and Losses on Marketable Securities
|
|
Total
|
|
Beginning balance
|
$
|
25,875
|
|
|
$
|
(197,814
|
)
|
|
$
|
36
|
|
|
$
|
(171,903
|
)
|
|
Other comprehensive loss before reclassifications
|
10,291
|
|
|
(44,208
|
)
|
|
4
|
|
|
(33,913
|
)
|
|
Amounts reclassified from accumulated other comprehensive loss to:
|
|
|
|
|
|
|
|
|
Interest expense
|
531
|
|
|
—
|
|
|
—
|
|
|
531
|
|
|
Other income and (expenses)
|
(1,953
|
)
|
|
—
|
|
|
—
|
|
|
(1,953
|
)
|
|
Total
|
(1,422
|
)
|
|
—
|
|
|
—
|
|
|
(1,422
|
)
|
|
Net current period other comprehensive loss
|
8,869
|
|
|
(44,208
|
)
|
|
4
|
|
|
(35,335
|
)
|
|
Net current period other comprehensive loss attributable to noncontrolling interests
|
—
|
|
|
1,037
|
|
|
—
|
|
|
1,037
|
|
|
Ending balance
|
$
|
34,744
|
|
|
$
|
(240,985
|
)
|
|
$
|
40
|
|
|
$
|
(206,201
|
)
|
|
|
|
|
|
|
|
W. P. Carey 6/30/2017 10-Q
–
40
|
Notes to Consolidated Financial Statements (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2017
|
|
|
Gains and Losses on Derivative Instruments
|
|
Foreign Currency Translation Adjustments
|
|
Gains and Losses on Marketable Securities
|
|
Total
|
|
Beginning balance
|
$
|
46,935
|
|
|
$
|
(301,330
|
)
|
|
$
|
(90
|
)
|
|
$
|
(254,485
|
)
|
|
Other comprehensive income before reclassifications
|
(16,741
|
)
|
|
42,707
|
|
|
(326
|
)
|
|
25,640
|
|
|
Amounts reclassified from accumulated other comprehensive loss to:
|
|
|
|
|
|
|
|
|
Interest expense
|
738
|
|
|
—
|
|
|
—
|
|
|
738
|
|
|
Other income and (expenses)
|
(6,301
|
)
|
|
—
|
|
|
—
|
|
|
(6,301
|
)
|
|
Total
|
(5,563
|
)
|
|
—
|
|
|
—
|
|
|
(5,563
|
)
|
|
Net current period other comprehensive income
|
(22,304
|
)
|
|
42,707
|
|
|
(326
|
)
|
|
20,077
|
|
|
Net current period other comprehensive gain attributable to noncontrolling interests
|
5
|
|
|
(9,245
|
)
|
|
—
|
|
|
(9,240
|
)
|
|
Ending balance
|
$
|
24,636
|
|
|
$
|
(267,868
|
)
|
|
$
|
(416
|
)
|
|
$
|
(243,648
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2016
|
|
|
Gains and Losses on Derivative Instruments
|
|
Foreign Currency Translation Adjustments
|
|
Gains and Losses on Marketable Securities
|
|
Total
|
|
Beginning balance
|
$
|
37,650
|
|
|
$
|
(209,977
|
)
|
|
$
|
36
|
|
|
$
|
(172,291
|
)
|
|
Other comprehensive loss before reclassifications
|
23
|
|
|
(30,175
|
)
|
|
4
|
|
|
(30,148
|
)
|
|
Amounts reclassified from accumulated other comprehensive loss to:
|
|
|
|
|
|
|
|
|
Interest expense
|
1,066
|
|
|
—
|
|
|
—
|
|
|
1,066
|
|
|
Other income and (expenses)
|
(3,995
|
)
|
|
—
|
|
|
—
|
|
|
(3,995
|
)
|
|
Total
|
(2,929
|
)
|
|
—
|
|
|
—
|
|
|
(2,929
|
)
|
|
Net current period other comprehensive loss
|
(2,906
|
)
|
|
(30,175
|
)
|
|
4
|
|
|
(33,077
|
)
|
|
Net current period other comprehensive gain attributable to noncontrolling interests
|
—
|
|
|
(833
|
)
|
|
—
|
|
|
(833
|
)
|
|
Ending balance
|
$
|
34,744
|
|
|
$
|
(240,985
|
)
|
|
$
|
40
|
|
|
$
|
(206,201
|
)
|
Distributions Declared
During the
second
quarter of
2017
, we declared a quarterly distribution of
$1.0000
per share, which was paid on
July 14, 2017
to stockholders of record on
June 30, 2017
, in the aggregate amount of
$106.9 million
.
During the
six months ended June 30, 2017
, we declared distributions totaling
$1.9950
per share in the aggregate amount of
$212.8 million
.
Note 14. Income Taxes
We elected to be treated as a REIT and believe that we have been organized and have operated in such a manner to maintain our qualification as a REIT for federal and state income tax purposes. As a REIT, we are generally not subject to corporate level federal income taxes on earnings distributed to our stockholders. Since inception, we have distributed at least 100% of our taxable income annually and intend to do so for the tax year ending
December 31, 2017
. Accordingly, we have not included any provisions for federal income taxes related to the REIT in the accompanying consolidated financial statements for the
three and six months ended June 30,
2017
and
2016
.
Certain of our subsidiaries have elected TRS status. A TRS may provide certain services considered impermissible for REITs and may hold assets that REITs may not hold directly. We also own real property in jurisdictions outside the United States through foreign subsidiaries and are subject to income taxes on our pre-tax income earned from properties in such countries. The accompanying consolidated financial statements include an interim tax provision for our TRSs and foreign subsidiaries, as
|
|
|
|
|
|
|
W. P. Carey 6/30/2017 10-Q
–
41
|
Notes to Consolidated Financial Statements (Unaudited)
necessary, for the
three and six months ended June 30,
2017
and
2016
. Current income tax expense was
$3.8 million
and
$6.4 million
for the
three months ended June 30, 2017
and
2016
, respectively, and
$8.1 million
and
$9.9 million
for the
six months ended June 30, 2017
and
2016
, respectively.
During the second quarter of 2016, we identified and recorded out-of-period adjustments related to adjustments to prior period income tax returns. This adjustment is reflected as a
$3.0 million
reduction of our Benefit from income taxes in the consolidated statements of income for the three and
six months ended June 30, 2016
(
Note 2
).
Our TRSs and foreign subsidiaries are subject to U.S. federal, state, and foreign income taxes. As such, deferred tax assets and liabilities are established for temporary differences between the financial reporting basis and the tax basis of assets and liabilities at the enacted tax rates expected to be in effect when the temporary differences reverse. A valuation allowance for deferred tax assets is provided if we believe that it is more likely than not that we will not realize the tax benefit of deferred tax assets based on available evidence at the time the determination is made. A change in circumstances may cause us to change our judgment about whether the tax benefit of a deferred tax asset will more likely than not be realized. We generally report any change in the valuation allowance through our income statement in the period in which such changes in circumstances occur. Deferred tax assets (net of valuation allowance) and liabilities for our TRSs and foreign subsidiaries were recorded, as necessary, as of
June 30, 2017
and
December 31, 2016
. The majority of our deferred tax assets relate to the timing difference between the financial reporting basis and tax basis for stock-based compensation expense. The majority of our deferred tax liabilities relate to differences between the tax basis and financial reporting basis of the assets acquired in acquisitions in which the tax basis of such assets was not stepped up to fair value for income tax purposes. (Provision for) benefit from income taxes included deferred income tax benefits of
$1.4 million
and
$14.6 million
for the
three months ended June 30, 2017
and
2016
, respectively, and
$6.9 million
and
$17.6 million
for the
six months ended June 30, 2017
and
2016
, respectively.
Note 15. Property Dispositions
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. All property dispositions are recorded within our Owned Real Estate segment.
The results of operations for properties that have been sold or classified as held for sale are included in the consolidated financial statements and are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Revenues
|
$
|
2,417
|
|
|
$
|
16,073
|
|
|
$
|
4,118
|
|
|
$
|
81,106
|
|
|
Expenses
|
(930
|
)
|
|
(10,010
|
)
|
|
(2,529
|
)
|
|
(43,888
|
)
|
|
Impairment charges
|
—
|
|
|
(35,429
|
)
|
|
—
|
|
|
(35,429
|
)
|
|
Gain (loss) on extinguishment of debt
|
2,418
|
|
|
—
|
|
|
2,380
|
|
|
(1,940
|
)
|
|
(Provision for) benefit from income taxes
|
(559
|
)
|
|
11,692
|
|
|
(550
|
)
|
|
10,655
|
|
|
Gain on sale of real estate, net of tax
|
3,465
|
|
|
18,282
|
|
|
3,475
|
|
|
18,944
|
|
|
Income from properties sold or classified as held for sale, net of income taxes
(a)
|
$
|
6,811
|
|
|
$
|
608
|
|
|
$
|
6,894
|
|
|
$
|
29,448
|
|
__________
|
|
|
|
(a)
|
Amounts included net (income) loss attributable to noncontrolling interests of
$(0.1) million
and less than
$0.1 million
for the
three months ended June 30, 2017
and
2016
, respectively, and less than
$(0.1) million
and
$(1.5) million
for the
six months ended June 30, 2017
and
2016
, respectively.
|
|
|
|
|
|
|
|
W. P. Carey 6/30/2017 10-Q
–
42
|
Notes to Consolidated Financial Statements (Unaudited)
2017 —
During the three and
six months ended June 30, 2017
, we sold
five
properties, and
six
properties and a parcel of vacant land, respectively, for total proceeds of
$19.6 million
and
$43.8 million
, respectively, net of selling costs, and recognized a net gain on these sales of
$3.5 million
and
$3.5 million
, respectively. One of the properties sold during the
six months ended June 30, 2017
was held for sale at December 31, 2016 (
Note 4
). In addition, in January 2017, we transferred ownership of two international properties and the related non-recourse mortgage loan, which had an aggregate asset carrying value of
$31.3 million
and an outstanding balance of
$28.1 million
(net of
$3.8 million
of cash held in escrow that was retained by the mortgage lender), respectively, on the dates of transfer, to the mortgage lender, resulting in a net loss of less than
$0.1 million
. During the
six months ended June 30, 2017
, we entered into contracts to sell
three
properties, which were classified as held for sale as of
June 30, 2017
(
Note 4
). Subsequent to June 30, 2017 and through the date of this Report, we sold all of these properties (
Note 17
).
2016 —
During the three and
six months ended June 30, 2016
, we sold
three
properties, and
seven
properties and a parcel of vacant land, respectively, for total proceeds of
$96.9 million
and
$200.6 million
, respectively, net of selling costs, and recognized a net gain on these sales of
$1.9 million
and
$2.5 million
, respectively, inclusive of amounts attributable to noncontrolling interests of
$0.9 million
for the
six months ended June 30, 2016
. In addition, in April 2016, we transferred ownership of a vacant international property and the related non-recourse mortgage loan to the mortgage lender. As of the date of the transfer, the property had a carrying value of
$39.8 million
and the related non-recourse mortgage loan had an outstanding balance of
$60.9 million
. In connection with the transfer, we recognized a net gain of
$16.4 million
.
In connection with those sales that constituted businesses, during the three and
six months ended June 30, 2016
we allocated goodwill totaling
$9.0 million
and
$14.9 million
, respectively, to the cost basis of the properties for our Owned Real Estate segment based on the relative fair value at the time of the sale.
In the fourth quarter of 2015, we executed a lease amendment with a tenant in a domestic office building. The amendment extended the lease term an additional
15
years to January 31, 2037 and provided a one-time rent payment of
$25.0 million
, which was paid to us on December 18, 2015. The lease amendment also provided an option to terminate the lease effective February 29, 2016, with additional lease termination fees of
$22.2 million
to be paid to us on or five days before February 29, 2016 upon exercise of the option. The tenant exercised the option on January 1, 2016. The aggregate of the additional rent payment of
$25.0 million
and the lease termination fees of
$22.2 million
were amortized to lease termination income from the lease amendment date on December 4, 2015 through the end of the non-cancelable lease term on February 29, 2016, resulting in
$15.0 million
recognized during the year ended December 31, 2015 and
$32.2 million
recognized during the
six months ended June 30, 2016
within Lease termination income and other in the consolidated financial statements. In addition, during the fourth quarter of 2015, we entered into an agreement to sell the property to a third party and the buyer placed a deposit of
$12.7 million
for the purchase of the property that was held in escrow. In February 2016, we sold the property for proceeds of
$44.4 million
, net of selling costs, and recognized a loss on the sale of
$10.7 million
.
|
|
|
|
|
|
|
W. P. Carey 6/30/2017 10-Q
–
43
|
Notes to Consolidated Financial Statements (Unaudited)
Note 16. Segment Reporting
We evaluate our results from operations through our
two
major business segments: Owned Real Estate and Investment Management. As a result of our Board’s decision to exit all non-traded retail fundraising activities as of June 30, 2017 (
Note 1
), we have revised how we view and present a component of our two reportable segments. As such, effective for the second quarter of 2017, we include (i) equity in earnings of equity method investments in the Managed REITs and CESH I and (ii) our equity investments in the Managed REITs and CESH I in our Investment Management segment. Both (i) equity in earnings of our equity method investment in CCIF and (ii) our equity investment in CCIF continue to be included in our Investment Management segment. Results of operations and assets for prior periods have been reclassified to conform to the current period presentation. The following tables present a summary of comparative results and assets for these business segments (in thousands):
Owned Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Revenues
|
|
|
|
|
|
|
|
|
Lease revenues
|
$
|
158,255
|
|
|
$
|
167,328
|
|
|
$
|
314,036
|
|
|
$
|
342,572
|
|
|
Operating property revenues
|
8,223
|
|
|
8,270
|
|
|
15,203
|
|
|
15,172
|
|
|
Reimbursable tenant costs
|
5,322
|
|
|
6,391
|
|
|
10,543
|
|
|
12,700
|
|
|
Lease termination income and other
|
2,247
|
|
|
838
|
|
|
3,007
|
|
|
33,379
|
|
|
|
174,047
|
|
|
182,827
|
|
|
342,789
|
|
|
403,823
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
61,989
|
|
|
65,457
|
|
|
123,511
|
|
|
148,817
|
|
|
Property expenses, excluding reimbursable tenant costs
|
10,530
|
|
|
10,510
|
|
|
20,640
|
|
|
28,282
|
|
|
General and administrative
|
7,803
|
|
|
8,656
|
|
|
16,077
|
|
|
18,200
|
|
|
Reimbursable tenant costs
|
5,322
|
|
|
6,391
|
|
|
10,543
|
|
|
12,700
|
|
|
Property acquisition and other expenses
|
1,000
|
|
|
78
|
|
|
1,073
|
|
|
2,975
|
|
|
Stock-based compensation expense
|
899
|
|
|
907
|
|
|
2,853
|
|
|
2,744
|
|
|
Impairment charges
|
—
|
|
|
35,429
|
|
|
—
|
|
|
35,429
|
|
|
Restructuring and other compensation
|
—
|
|
|
(13
|
)
|
|
—
|
|
|
4,413
|
|
|
|
87,543
|
|
|
127,415
|
|
|
174,697
|
|
|
253,560
|
|
|
Other Income and Expenses
|
|
|
|
|
|
|
|
|
Interest expense
|
(42,235
|
)
|
|
(46,752
|
)
|
|
(84,192
|
)
|
|
(95,147
|
)
|
|
Equity in earnings of equity method investments in real estate
|
3,721
|
|
|
3,198
|
|
|
5,793
|
|
|
6,355
|
|
|
Other income and (expenses)
|
(1,371
|
)
|
|
662
|
|
|
(1,331
|
)
|
|
4,437
|
|
|
|
(39,885
|
)
|
|
(42,892
|
)
|
|
(79,730
|
)
|
|
(84,355
|
)
|
|
Income before income taxes and gain on sale of real estate
|
46,619
|
|
|
12,520
|
|
|
88,362
|
|
|
65,908
|
|
|
(Provision for) benefit from income taxes
|
(3,731
|
)
|
|
9,410
|
|
|
(5,185
|
)
|
|
7,322
|
|
|
Income before gain on sale of real estate
|
42,888
|
|
|
21,930
|
|
|
83,177
|
|
|
73,230
|
|
|
Gain on sale of real estate, net of tax
|
3,465
|
|
|
18,282
|
|
|
3,475
|
|
|
18,944
|
|
|
Net Income from Owned Real Estate
|
46,353
|
|
|
40,212
|
|
|
86,652
|
|
|
92,174
|
|
|
Net income attributable to noncontrolling interests
|
(2,813
|
)
|
|
(1,510
|
)
|
|
(5,154
|
)
|
|
(4,935
|
)
|
|
Net Income from Owned Real Estate Attributable to W. P. Carey
|
$
|
43,540
|
|
|
$
|
38,702
|
|
|
$
|
81,498
|
|
|
$
|
87,239
|
|
|
|
|
|
|
|
|
W. P. Carey 6/30/2017 10-Q
–
44
|
Notes to Consolidated Financial Statements (Unaudited)
Investment Management
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Revenues
|
|
|
|
|
|
|
|
|
Asset management revenue
|
$
|
17,966
|
|
|
$
|
15,005
|
|
|
$
|
35,333
|
|
|
$
|
29,618
|
|
|
Structuring revenue
|
14,330
|
|
|
5,968
|
|
|
18,164
|
|
|
18,689
|
|
|
Reimbursable costs from affiliates
|
13,479
|
|
|
12,094
|
|
|
39,179
|
|
|
31,832
|
|
|
Dealer manager fees
|
1,000
|
|
|
1,372
|
|
|
4,325
|
|
|
3,544
|
|
|
Other advisory revenue
|
706
|
|
|
—
|
|
|
797
|
|
|
—
|
|
|
|
47,481
|
|
|
34,439
|
|
|
97,798
|
|
|
83,683
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
Reimbursable costs from affiliates
|
13,479
|
|
|
12,094
|
|
|
39,179
|
|
|
31,832
|
|
|
General and administrative
|
9,726
|
|
|
12,295
|
|
|
19,876
|
|
|
24,189
|
|
|
Restructuring and other compensation
|
7,718
|
|
|
465
|
|
|
7,718
|
|
|
7,512
|
|
|
Subadvisor fees
|
3,672
|
|
|
1,875
|
|
|
6,392
|
|
|
5,168
|
|
|
Dealer manager fees and expenses
|
2,788
|
|
|
2,620
|
|
|
6,082
|
|
|
5,972
|
|
|
Stock-based compensation expense
|
2,205
|
|
|
3,094
|
|
|
7,161
|
|
|
7,864
|
|
|
Depreciation and amortization
|
860
|
|
|
1,124
|
|
|
1,768
|
|
|
2,216
|
|
|
Property acquisition and other expenses
|
—
|
|
|
(285
|
)
|
|
—
|
|
|
2,384
|
|
|
|
40,448
|
|
|
33,282
|
|
|
88,176
|
|
|
87,137
|
|
|
Other Income and Expenses
|
|
|
|
|
|
|
|
|
Equity in earnings of equity method investments in the Managed Programs
|
12,007
|
|
|
13,231
|
|
|
25,709
|
|
|
25,085
|
|
|
Other income and (expenses)
|
455
|
|
|
(236
|
)
|
|
931
|
|
|
(140
|
)
|
|
|
12,462
|
|
|
12,995
|
|
|
26,640
|
|
|
24,945
|
|
|
Income before income taxes
|
19,495
|
|
|
14,152
|
|
|
36,262
|
|
|
21,491
|
|
|
Benefit from (provision for) income taxes
|
1,283
|
|
|
(1,193
|
)
|
|
4,042
|
|
|
370
|
|
|
Net Income from Investment Management Attributable to W. P. Carey
|
$
|
20,778
|
|
|
$
|
12,959
|
|
|
$
|
40,304
|
|
|
$
|
21,861
|
|
Total Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Revenues
|
$
|
221,528
|
|
|
$
|
217,266
|
|
|
$
|
440,587
|
|
|
$
|
487,506
|
|
|
Operating expenses
|
127,991
|
|
|
160,697
|
|
|
262,873
|
|
|
340,697
|
|
|
Other income and (expenses)
|
(27,423
|
)
|
|
(29,897
|
)
|
|
(53,090
|
)
|
|
(59,410
|
)
|
|
(Provision for) benefit from income taxes
|
(2,448
|
)
|
|
8,217
|
|
|
(1,143
|
)
|
|
7,692
|
|
|
Gain on sale of real estate, net of tax
|
3,465
|
|
|
18,282
|
|
|
3,475
|
|
|
18,944
|
|
|
Net income attributable to noncontrolling interests
|
(2,813
|
)
|
|
(1,510
|
)
|
|
(5,154
|
)
|
|
(4,935
|
)
|
|
Net income attributable to W. P. Carey
|
$
|
64,318
|
|
|
$
|
51,661
|
|
|
$
|
121,802
|
|
|
$
|
109,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets at
|
|
|
June 30, 2017
|
|
December 31, 2016
|
|
Owned Real Estate
|
$
|
7,944,244
|
|
|
$
|
8,104,974
|
|
|
Investment Management
|
373,005
|
|
|
348,980
|
|
|
Total Company
|
$
|
8,317,249
|
|
|
$
|
8,453,954
|
|
|
|
|
|
|
|
|
W. P. Carey 6/30/2017 10-Q
–
45
|
Notes to Consolidated Financial Statements (Unaudited)
Note 17. Subsequent Events
Mortgage Loan Repayments
Subsequent to June 30, 2017 and through the date of this Report, we prepaid
five
non-recourse mortgage loans with an aggregate principal balance of
$54.9 million
and a weighted-average interest rate of
5.7%
.
Dispositions
On July 18, 2017, we sold a domestic property for gross proceeds of
$25.6 million
. On August 1, 2017, we sold an international property for gross proceeds of
$21.4 million
. On August 4, 2017, we sold an international property for gross proceeds of approximately
$4.3 million
. All of these properties were held for sale at June 30, 2017 (
Note 4
).
Build-to-Suit Transaction
On August 3, 2017, we committed to a
$11.1 million
build-to-suit transaction for a facility in Poland.
|
|
|
|
|
|
|
W. P. Carey 6/30/2017 10-Q
–
46
|