NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Business and Organization
W. P. Carey Inc. (“W. P. Carey”) is a REIT that, together with our consolidated subsidiaries, invests primarily in operationally-critical, single-tenant commercial real estate properties located in the United States and Northern and Western Europe on a long-term basis. We earn revenue principally by leasing the properties we own to companies on a triple-net lease basis, which generally requires each tenant to pay the costs associated with operating and maintaining the property.
Founded in 1973, our shares of common stock are listed on the New York Stock Exchange under the symbol “WPC.”
We elected to be taxed as a REIT under Section 856 through 860 of the Internal Revenue Code effective as of February 15, 2012. As a REIT, we are not subject to federal income taxes on income and gains that we distribute to our stockholders as long as we satisfy certain requirements, principally relating to the nature of our income and the level of our distributions, as well as other factors. We 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. Through our taxable REIT subsidiaries (“TRSs”), we also earn revenue as the advisor to certain non-traded investment programs. We hold all of our real estate assets attributable to our Real Estate segment under the REIT structure, while the activities conducted by our Investment Management segment subsidiaries have been organized under TRSs.
On April 13, 2020, two of the non-traded REITs that we advised, Carey Watermark Investors Incorporated (“CWI 1”) and Carey Watermark Investors 2 Incorporated (“CWI 2”) (together, the “CWI REITs”), merged in an all-stock transaction, with CWI 2 as the surviving entity (the “CWI 1 and CWI 2 Merger”). Following the close of the CWI 1 and CWI 2 Merger, our advisory agreements with CWI 1 and CWI 2 were terminated, CWI 2 was renamed Watermark Lodging Trust, Inc. (“WLT”), and we began to provide certain services to WLT pursuant to a transition services agreement (which was terminated on October 13, 2021). As a result, at September 30, 2021, we were the advisor to the following entities (Note 3):
•Corporate Property Associates 18 – Global Incorporated (“CPA:18 – Global”), a publicly owned, non-traded REIT that primarily invests in commercial real estate properties; we refer to CPA:18 – Global together with the CWI REITs as the “Managed REITs” (as used throughout this Report, the term “Managed REITs” does not include CWI 1 and CWI 2 after April 13, 2020); and
•Carey European Student Housing Fund I, L.P. (“CESH”), 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 and CESH collectively as the “Managed Programs.”
We no longer raise capital for new or existing funds, but currently expect to continue managing CPA:18 – Global and CESH through the end of their respective life cycles (Note 3).
Reportable Segments
Real Estate — Lease revenues from our real estate investments generate the vast majority of our earnings. We invest primarily in commercial properties located in the United States and Northern and Western Europe, which are leased to companies on a triple-net lease basis. At September 30, 2021, our owned portfolio was comprised of our full or partial ownership interests in 1,264 properties, totaling approximately 152 million square feet, substantially all of which were net leased to 358 tenants, with a weighted-average lease term of 10.6 years and an occupancy rate of 98.4%. In addition, at September 30, 2021, our portfolio was comprised of full or partial ownership interests in 20 operating properties, including 19 self-storage properties and one hotel, totaling approximately 1.4 million square feet.
Investment Management — Through our TRSs, we manage the real estate investment portfolios for the Managed Programs, for which we earn asset management revenue. We may earn incentive revenue and receive other compensation through our advisory agreements with certain of the Managed Programs, including in connection with providing a liquidity event for CPA:18 – Global’s stockholders. In addition, we include equity income generated through our (i) ownership of shares and limited partnership units of the Managed Programs (Note 7) and (ii) special general partner interest in the operating partnership of CPA:18 – Global (through which we participate in its cash flows (Note 3)), in our Investment Management segment.
W. P. Carey 9/30/2021 10-Q – 9
Notes to Consolidated Financial Statements (Unaudited)
At September 30, 2021, the Managed Programs owned all or a portion of 58 net-leased properties (including certain properties in which we also have an ownership interest), totaling approximately 11.3 million square feet, substantially all of which were leased to 66 tenants, with an occupancy rate of approximately 98.8%. The Managed Programs also had interests in 66 operating properties (totaling approximately 5.1 million square feet in the aggregate) and four active build-to-suit projects at the same date.
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 (“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 presentation 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, 2020, which are included in the 2020 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. 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 VIE and, if so, whether we are the primary beneficiary and are therefore required to consolidate the entity. There have been no significant changes in our VIE policies from what was disclosed in the 2020 Annual Report.
At both September 30, 2021 and December 31, 2020, we considered 12 entities to be VIEs, of which we consolidated four and five, respectively, as we are considered the primary beneficiary. The following table presents a summary of selected financial data of the consolidated VIEs included in our consolidated balance sheets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
Land, buildings and improvements
|
$
|
423,333
|
|
|
$
|
423,333
|
|
Net investments in direct financing leases
|
—
|
|
|
15,242
|
|
In-place lease intangible assets and other
|
41,968
|
|
|
41,997
|
|
Above-market rent intangible assets
|
26,720
|
|
|
26,720
|
|
Accumulated depreciation and amortization
|
(150,266)
|
|
|
(137,827)
|
|
Total assets
|
354,493
|
|
|
381,953
|
|
|
|
|
|
Non-recourse mortgages, net
|
$
|
1,585
|
|
|
$
|
3,508
|
|
Below-market rent and other intangible liabilities, net
|
20,997
|
|
|
22,283
|
|
Total liabilities
|
45,527
|
|
|
48,971
|
|
W. P. Carey 9/30/2021 10-Q – 10
Notes to Consolidated Financial Statements (Unaudited)
At September 30, 2021 and December 31, 2020, our eight and seven unconsolidated VIEs, respectively, included our interests in six and five unconsolidated real estate investments, respectively, which we account for under the equity method of accounting, and two unconsolidated investments in equity securities, which we accounted for as investments in shares of the entities at fair value. 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 September 30, 2021, and December 31, 2020, the net carrying amount of our investments in these entities was $584.8 million and $425.3 million, respectively, and our maximum exposure to loss in these entities was limited to our investments.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation.
Asset management revenue and structuring and other advisory revenue are now included within Asset management and other revenue in the consolidated statements of income.
We currently present Non-operating income on its own line item in the consolidated statements of income, which was previously included within Other gains and (losses). Non-operating income primarily consists of realized gains and losses on derivative instruments, dividends from equity securities, and interest income on our cash deposits and loans to affiliates.
Segment Allocation Changes
Beginning with the second quarter of 2020, general and administrative expenses attributed to our Investment Management segment are comprised of the incremental costs of providing services to the Managed Programs, which are fully reimbursed by those funds (resulting in no net expense for us). All other general and administrative expenses are attributed to our Real Estate segment. Previously, general and administrative expenses were allocated based on time incurred by our personnel for the Real Estate and Investment Management segments. In addition, beginning with the second quarter of 2020, stock-based compensation expense and corporate depreciation and amortization expense are fully recognized within our Real Estate segment. In light of the termination of the advisory agreements with CWI 1 and CWI 2 in connection with the WLT management internalization (Note 3), we now view essentially all assets, liabilities, and operational expenses as part of our Real Estate segment, other than incremental activities that are expected to wind down as we manage CPA:18 – Global and CESH through the end of their respective life cycles. These changes between the segments had no impact on our consolidated financial statements.
In addition, our investments in WLT, and income recognized from our investments in WLT, are included within our Real Estate segment, since we are not the advisor to that company. Previously, our investments in CWI 1 and CWI 2, and income recognized from our investments in CWI 1 and CWI 2, were included within our Investment Management segment (Note 3).
Revenue Recognition
There have been no significant changes in our policies for revenue from contracts under Accounting Standards Codification (“ASC”) 606 from what was disclosed in the 2020 Annual Report. ASC 606 does not apply to our lease revenues, which constitute a majority of our revenues, but primarily applies to revenues generated from our hotel operating properties and our Investment Management segment. Revenue from contracts for our Real Estate segment primarily represented hotel operating property revenues of $2.4 million and $0.6 million for the three months ended September 30, 2021 and 2020, respectively, and $4.9 million and $5.3 million for the nine months ended September 30, 2021 and 2020, respectively (Note 15). Revenue from contracts under ASC 606 from our Investment Management segment is discussed in Note 3.
Lease revenue (including straight-line lease revenue) is only recognized when deemed probable of collection. Collectibility is assessed for each tenant receivable using various criteria including credit ratings (Note 5), guarantees, past collection issues, and the current economic and business environment affecting the tenant. If collectibility of the contractual rent stream is not deemed probable, revenue will only be recognized upon receipt of cash from the tenant.
W. P. Carey 9/30/2021 10-Q – 11
Notes to Consolidated Financial Statements (Unaudited)
Restricted Cash
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets to the consolidated statements of cash flows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
Cash and cash equivalents
|
$
|
129,686
|
|
|
$
|
248,662
|
|
Restricted cash (a)
|
52,236
|
|
|
63,117
|
|
Total cash and cash equivalents and restricted cash
|
$
|
181,922
|
|
|
$
|
311,779
|
|
__________
(a)Restricted cash is included within Other assets, net on our consolidated balance sheets.
Recently Adopted Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 contains practical expedients for reference rate reform-related activities that impact debt, leases, derivatives, and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. On January 7, 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the transition. We have evaluated our contracts that are referenced to London Interbank Offered Rate (“LIBOR”) or other reference rates expected to be discontinued and we expect to account for any necessary modifications with a replacement reference rate using the expedients and exceptions provided for in ASU 2020-04 and ASU 2021-01. We are evaluating the impact these standards may have on our financial statements.
Note 3. Agreements and Transactions with Related Parties
Advisory Agreements and Partnership Agreements with the Managed Programs
We currently have advisory agreements with CPA:18 – Global and CESH, pursuant to which we earn fees and are entitled to receive reimbursement for certain fund management expenses. Upon completion of the CWI 1 and CWI 2 Merger on April 13, 2020, as described below, our advisory agreements with CWI 1 and CWI 2 were terminated, and we no longer receive fees, reimbursements, or distributions of Available Cash from CWI 1 and CWI 2. We no longer raise capital for new or existing funds, but we currently expect to continue to manage CPA:18 – Global and CESH and earn various fees (as described below) through the end of their respective life cycles. We have partnership agreements with CPA:18 – Global and CESH, and under the partnership agreement with CPA:18 – Global, we are entitled to receive certain cash distributions from its operating partnership.
W. P. Carey 9/30/2021 10-Q – 12
Notes to Consolidated Financial Statements (Unaudited)
The following tables present a summary of revenue earned, reimbursable costs, and distributions of Available Cash received/accrued from the Managed Programs and WLT for the periods indicated, included in the consolidated financial statements (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Asset management revenue (a) (b)
|
$
|
3,872
|
|
|
$
|
3,748
|
|
|
$
|
11,792
|
|
|
$
|
18,109
|
|
Distributions of Available Cash (c)
|
1,623
|
|
|
1,168
|
|
|
4,949
|
|
|
5,113
|
|
Reimbursable costs from affiliates (a)
|
1,041
|
|
|
1,276
|
|
|
3,050
|
|
|
7,717
|
|
Interest income on deferred acquisition fees and loans to affiliates (d)
|
57
|
|
|
—
|
|
|
121
|
|
|
360
|
|
Structuring and other advisory revenue (a) (b)
|
—
|
|
|
—
|
|
|
—
|
|
|
494
|
|
|
$
|
6,593
|
|
|
$
|
6,192
|
|
|
$
|
19,912
|
|
|
$
|
31,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
CPA:18 – Global
|
$
|
5,608
|
|
|
$
|
4,865
|
|
|
$
|
16,578
|
|
|
$
|
16,327
|
|
CWI 1
|
—
|
|
|
—
|
|
|
—
|
|
|
5,662
|
|
CWI 2
|
—
|
|
|
—
|
|
|
—
|
|
|
4,668
|
|
CESH
|
909
|
|
|
983
|
|
|
3,054
|
|
|
3,663
|
|
WLT (reimbursed transition services)
|
76
|
|
|
344
|
|
|
280
|
|
|
1,473
|
|
|
$
|
6,593
|
|
|
$
|
6,192
|
|
|
$
|
19,912
|
|
|
$
|
31,793
|
|
__________
(a)Amounts represent revenues from contracts under ASC 606.
(b)Included within Asset management and other revenue in the consolidated statements of income.
(c)Included within Earnings (losses) from equity method investments in the consolidated statements of income.
(d)Included within Non-operating income in the consolidated statements of income.
The following table presents a summary of amounts included in Due from affiliates in the consolidated financial statements (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
Reimbursable costs
|
$
|
1,083
|
|
|
$
|
1,760
|
|
Asset management fees receivable
|
712
|
|
|
1,054
|
|
Accounts receivable
|
98
|
|
|
305
|
|
Current acquisition fees receivable
|
95
|
|
|
136
|
|
Deferred acquisition fees receivable, including accrued interest
|
4
|
|
|
1,858
|
|
Short-term loans to affiliates, including accrued interest
|
—
|
|
|
21,144
|
|
|
$
|
1,992
|
|
|
$
|
26,257
|
|
W. P. Carey 9/30/2021 10-Q – 13
Notes to Consolidated Financial Statements (Unaudited)
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 remaining Managed Programs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed Program
|
|
Rate
|
|
Payable
|
|
Description
|
CPA:18 – Global
|
|
0.5% – 1.5%
|
|
In shares of its Class A common stock and/or cash, at the option of CPA:18 – Global; payable 50% in cash and 50% in shares of its Class A common stock for 2020 through March 31, 2020; payable in shares of its Class A common stock effective as of April 1, 2020
|
|
Rate depends on the type of investment and is based on the average market or average equity value, as applicable
|
CESH
|
|
1.0%
|
|
In cash
|
|
Based on gross assets at fair value
|
Structuring and Other Advisory Revenue
Under the terms of the advisory agreements with the Managed Programs, we may earn revenue for structuring and negotiating investments. For CPA:18 – Global and CESH, we may earn fees of 4.5% and 2.0%, respectively, of the total aggregate cost of the investments or commitments made.
Reimbursable Costs from Affiliates
The existing Managed Programs reimburse us in cash for certain personnel and overhead costs that we incur on their behalf. For CPA:18 – Global, such costs (excluding those related to our legal transactions group, our senior management, and our investments team) are charged to CPA:18 – Global based on the average of the trailing 12-month aggregate reported revenues of the Managed Programs and us, and personnel costs are capped at 1.0% of CPA:18 – Global’s pro rata lease revenues for both 2021 and 2020. Following the closing of the CWI 1 and CWI 2 Merger on April 13, 2020, we began recording reimbursements from WLT pursuant to a transition services agreement (described below) based on actual expenses incurred. On October 13, 2021, all services provided under the transition services agreement were terminated. For CESH, reimbursements are based on actual expenses incurred.
Distributions of Available Cash
We are entitled to receive distributions of up to 10% of the Available Cash (as defined in CPA:18 – Global’s partnership agreement) from the operating partnership of CPA:18 – Global, payable quarterly in arrears.
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. Such back-end fees or interests include or may include disposition fees, interests in disposition proceeds, and distributions related to ownership of shares or limited partnership units in the Managed Programs. For CPA:18 – Global, the timing and form of any liquidity event is at the discretion of its board of directors. Therefore, there can be no assurance as to whether or when any back-end fees or interests will be realized.
Other Transactions with Affiliates
CWI 1 and CWI 2 Merger
The CWI 1 and CWI 2 Merger closed on April 13, 2020 and is discussed in detail in the 2020 Annual Report. Subsequently, CWI 2 was renamed WLT, as described in Note 1.
W. P. Carey 9/30/2021 10-Q – 14
Notes to Consolidated Financial Statements (Unaudited)
In connection with the CWI 1 and CWI 2 Merger, we entered into an internalization agreement and a transition services agreement. Immediately following the closing of the CWI 1 and CWI 2 Merger, (i) the advisory agreements with each of CWI 1 and CWI 2 and each of their respective operating partnerships terminated, (ii) the subadvisory agreements with the subadvisors for CWI 1 and CWI 2 were terminated, and (iii) we provided certain transition services at cost to WLT generally for a period of 12 months from closing. On October 13, 2021, all services provided under the transition services agreement were terminated.
Pursuant to the internalization agreement, the operating partnerships of each of CWI 1 and CWI 2 redeemed the special general partner interests that we previously held, for which we received common stock and preferred stock of WLT (which was a non-cash investing activity), as disclosed in Note 7 and Note 8, respectively. In connection with this redemption, we recognized a non-cash net gain on sale of $33.0 million, which was included within Earnings (losses) from equity method investments in the consolidated statements of income for the nine months ended September 30, 2020. This net gain on sale included a gain recognized on the redemption of the noncontrolling interest in the special general partner interests previously held by the respective subadvisors for CWI 1 and CWI 2 of $9.9 million (which is included within Net income attributable to noncontrolling interests in our consolidated statements of income and Redemption of noncontrolling interest in our consolidated statements of equity).
Loans to Affiliates
From time to time, our board of directors has approved the making of secured and unsecured loans or lines of credit from us to certain of the Managed Programs, at our sole discretion, generally for the purpose of facilitating acquisitions or for working capital purposes.
The principal outstanding balance on our line of credit to CPA:18 – Global was $21.1 million as of December 31, 2020. CPA:18 – Global repaid the principal outstanding balance in full during the nine months ended September 30, 2021.
Other
At September 30, 2021, we owned interests in ten jointly owned investments in real estate (including our investment in shares of common stock of WLT, as described in Note 7), with the remaining interests held by affiliates or third parties. We account for nine such investments under the equity method of accounting (Note 7) and consolidate the remaining investment. In addition, we owned stock of CPA:18 – Global and limited partnership units of CESH at that date. We accounted for our investment in CPA:18 – Global under the equity method of accounting and elected to account for our investment in CESH under the fair value option (Note 7).
Note 4. Land, Buildings and Improvements and Assets Held for Sale
Land, Buildings and Improvements — Operating Leases
Land and buildings leased to others, which are subject to operating leases, and real estate under construction, are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
Land
|
$
|
2,122,213
|
|
|
$
|
2,012,688
|
|
Buildings and improvements
|
9,348,418
|
|
|
8,724,064
|
|
Real estate under construction
|
90,547
|
|
|
119,391
|
|
Less: Accumulated depreciation
|
(1,382,006)
|
|
|
(1,206,912)
|
|
|
$
|
10,179,172
|
|
|
$
|
9,649,231
|
|
During the nine months ended September 30, 2021, the U.S. dollar strengthened against the euro, as the end-of-period rate for the U.S. dollar in relation to the euro decreased by 5.6% to $1.1579 from $1.2271. As a result of this fluctuation in foreign currency exchange rates, the carrying value of our Land, buildings and improvements subject to operating leases decreased by $182.0 million from December 31, 2020 to September 30, 2021.
W. P. Carey 9/30/2021 10-Q – 15
Notes to Consolidated Financial Statements (Unaudited)
In connection with changes in lease classifications due to modifications of the underlying leases, we reclassified two properties with an aggregate carrying value of $28.8 million from Net investments in direct financing leases to Land, buildings and improvements during the nine months ended September 30, 2021 (Note 5).
Depreciation expense, including the effect of foreign currency translation, on our buildings and improvements subject to operating leases was $70.8 million and $64.9 million for the three months ended September 30, 2021 and 2020, respectively, and $207.2 million and $192.9 million for the nine months ended September 30, 2021 and 2020, respectively.
During the nine months ended September 30, 2021, we determined that the tenant/seller in the January 2020 acquisition of an industrial facility in Aurora, Oregon, would not be able to secure an easement on the property. As a result, the tenant/seller forfeited $5.0 million of the initial purchase price that we held back at the time of acquisition, the release of which was contingent on securing the easement. Since we previously accounted for this as a contingent liability and included the $5.0 million holdback within our capitalized real estate, we reduced the carrying value of Land, buildings and improvements subject to operating leases by this amount during the nine months ended September 30, 2021 and removed the corresponding liability from Accounts payable, accrued expenses and other liabilities on our consolidated balance sheets.
Acquisitions of Real Estate
During the nine months ended September 30, 2021, we entered into the following investments, which were deemed to be real estate asset acquisitions (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property Location(s)
|
|
Number of Properties
|
|
Date of Acquisition
|
|
Property Type
|
|
Total Capitalized Costs
|
Grove City, Ohio, and Anderson, South Carolina
|
|
2
|
|
2/2/2021
|
|
Warehouse
|
|
$
|
19,129
|
|
Various, New Jersey and Pennsylvania (a)
|
|
10
|
|
2/11/2021
|
|
Retail; Office
|
|
55,115
|
|
Central Valley, California (b)
|
|
4
|
|
2/11/2021
|
|
Warehouse; Land
|
|
75,008
|
|
Various, France (c) (d)
|
|
3
|
|
4/1/2021
|
|
Retail
|
|
119,341
|
|
Searcy, Arkansas
|
|
1
|
|
4/14/2021
|
|
Industrial
|
|
14,038
|
|
Detroit, Michigan
|
|
1
|
|
4/27/2021
|
|
Warehouse
|
|
52,810
|
|
Solihull, United Kingdom (c) (d)
|
|
1
|
|
5/4/2021
|
|
Warehouse
|
|
194,954
|
|
New Rochelle, New York
|
|
1
|
|
5/5/2021
|
|
Student Housing (Net Lease)
|
|
26,109
|
|
Groveport, Ohio
|
|
1
|
|
5/5/2021
|
|
Industrial
|
|
27,133
|
|
Dakota, Illinois
|
|
1
|
|
5/12/2021
|
|
Industrial
|
|
65,043
|
|
San Jose, California
|
|
1
|
|
5/13/2021
|
|
Industrial
|
|
51,949
|
|
Opelika, Alabama
|
|
1
|
|
6/7/2021
|
|
Warehouse
|
|
48,897
|
|
Niles and Elk Grove Village, Illinois; and Guelph, Canada
|
|
3
|
|
6/9/2021
|
|
Warehouse
|
|
42,829
|
|
Rome, New York
|
|
1
|
|
6/10/2021
|
|
Warehouse
|
|
44,781
|
|
St. Louis, Missouri
|
|
1
|
|
8/2/2021
|
|
Office
|
|
7,924
|
|
Frankfort, Indiana
|
|
1
|
|
8/26/2021
|
|
Warehouse
|
|
113,544
|
|
Various, United States (e)
|
|
6
|
|
9/1/2021
|
|
Hospitality
|
|
17,396
|
|
Rogers, Minnesota
|
|
1
|
|
9/9/2021
|
|
Warehouse
|
|
26,531
|
|
|
|
40
|
|
|
|
|
|
$
|
1,002,531
|
|
__________
(a)This acquisition is comprised of seven retail facilities and three office facilities.
(b)This acquisition is comprised of two warehouse facilities and two parcels of land.
(c)We also recorded estimated deferred tax liabilities of (i) $8.8 million on the France investment and (ii) $3.6 million on the United Kingdom investment, with corresponding increases to the asset values, due to tax and GAAP temporary differences established in connection with the acquisitions.
(d)Amount reflects the applicable exchange rate on the date of transaction.
(e)This acquisition is comprised of the land under buildings that we already own.
W. P. Carey 9/30/2021 10-Q – 16
Notes to Consolidated Financial Statements (Unaudited)
The aggregate purchase price allocation for investments disclosed above is as follows (dollars in thousands):
|
|
|
|
|
|
|
Total Capitalized Costs
|
Land
|
$
|
150,093
|
|
Buildings and improvements
|
728,528
|
|
Intangibles:
|
|
In-place lease (weighted-average expected life of 21.2 years)
|
153,505
|
|
Below-market rent (weighted-average expected life of 11.1 years)
|
(9,995)
|
|
Right-of-use assets:
|
|
Land lease right-of-use assets
|
5,979
|
|
Above-market ground lease intangibles, net
|
(4,155)
|
|
Prepaid rent liabilities
|
(15,445)
|
|
Operating lease liabilities
|
(5,979)
|
|
|
$
|
1,002,531
|
|
As of September 30, 2021, we committed to purchase a food production facility in Lawrence, Kansas, for approximately $27.3 million upon completion of construction of the property, which is expected to take place during the fourth quarter of 2021.
Real Estate Under Construction
During the nine months ended September 30, 2021, we capitalized real estate under construction totaling $59.3 million. The number of construction projects in progress with balances included in real estate under construction was two and five as of September 30, 2021 and December 31, 2020, respectively. Aggregate unfunded commitments totaled approximately $41.1 million and $81.8 million as of September 30, 2021 and December 31, 2020, respectively.
During the nine months ended September 30, 2021, we completed the following construction projects (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property Location(s)
|
|
Primary Transaction Type
|
|
Number of Properties
|
|
Date of Completion
|
|
Property Type
|
|
Total Capitalized Costs (a)
|
Mason, Ohio
|
|
Expansion
|
|
1
|
|
1/15/2021
|
|
Office
|
|
$
|
2,428
|
|
Langen, Germany (a)
|
|
Build-to-suit
|
|
1
|
|
2/4/2021
|
|
Industrial
|
|
52,719
|
|
San Donato Milanese, Italy (a)
|
|
Renovation
|
|
1
|
|
6/30/2021
|
|
Retail; Office
|
|
7,244
|
|
Whitehall, Pennsylvania
|
|
Redevelopment
|
|
1
|
|
8/18/2021
|
|
Warehouse
|
|
25,769
|
|
|
|
|
|
4
|
|
|
|
|
|
$
|
88,160
|
|
__________
(a)Amount reflects the applicable exchange rate on the date of transaction.
As of September 30, 2021, we committed to fund a build-to-suit project for a research center in Wageningen, the Netherlands, for an aggregate amount of $29.1 million (based on the exchange rate of the euro at September 30, 2021). We currently expect to complete the project in the second quarter of 2022.
Capitalized interest incurred during construction was $0.6 million and $0.8 million for the three months ended September 30, 2021 and 2020, respectively, and $1.9 million and $2.1 million for the nine months ended September 30, 2021 and 2020, respectively, which reduces Interest expense in the consolidated statements of income.
Dispositions of Properties
During the nine months ended September 30, 2021, we sold nine properties, which were classified as Land, buildings and improvements subject to operating leases. As a result, the carrying value of our Land, buildings and improvements subject to operating leases decreased by $37.2 million from December 31, 2020 to September 30, 2021.
W. P. Carey 9/30/2021 10-Q – 17
Notes to Consolidated Financial Statements (Unaudited)
Lease Termination Income and Other
2021 — For the three and nine months ended September 30, 2021, lease termination income and other on our consolidated statements of income included: (i) interest income of $1.2 million and $3.0 million, respectively, from our loans receivable (Note 5); (ii) lease-related settlements totaling $0.8 million and $6.1 million, respectively; and (iii) income from a parking garage attached to one of our net-leased properties totaling $0.5 million and $1.4 million, respectively.
2020 — For the three and nine months ended September 30, 2020, lease termination income and other on our consolidated statements of income included: (i) lease-related settlements totaling $0.9 million and $6.6 million, respectively; (ii) income from a parking garage attached to one of our net-leased properties totaling $0.5 million and $1.7 million, respectively; and (iii) interest income from our loans receivable totaling $1.0 million during the nine months ended September 30, 2020 (Note 5).
Leases
Operating Lease Income
Lease income related to operating leases recognized and included in the consolidated statements of income is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Lease income — fixed
|
$
|
271,360
|
|
|
$
|
249,356
|
|
|
$
|
790,391
|
|
|
$
|
725,321
|
|
Lease income — variable (a)
|
27,255
|
|
|
26,871
|
|
|
81,953
|
|
|
74,424
|
|
Total operating lease income (b)
|
$
|
298,615
|
|
|
$
|
276,227
|
|
|
$
|
872,344
|
|
|
$
|
799,745
|
|
__________
(a)Includes (i) rent increases based on changes in the U.S. Consumer Price Index and other comparable indices and (ii) reimbursements for property taxes, insurance, and common area maintenance services.
(b)Excludes $15.6 million and $17.6 million for the three months ended September 30, 2021 and 2020, respectively, and $48.9 million and $56.5 million for nine months ended September 30, 2021 and 2020, respectively, of interest income from direct financing leases that is included in Lease revenues in the consolidated statements of income.
Land, Buildings and Improvements — Operating Properties
At both September 30, 2021, and December 31, 2020, Land, buildings and improvements attributable to operating properties consisted of our investments in ten consolidated self-storage properties and one consolidated hotel. Below is a summary of our Land, buildings and improvements attributable to operating properties (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
Land
|
$
|
10,452
|
|
|
$
|
10,452
|
|
Buildings and improvements
|
73,221
|
|
|
73,024
|
|
Less: Accumulated depreciation
|
(16,065)
|
|
|
(14,004)
|
|
|
$
|
67,608
|
|
|
$
|
69,472
|
|
Depreciation expense on our buildings and improvements attributable to operating properties was $0.7 million for both the three months ended September 30, 2021 and 2020, and $2.1 million for both the nine months ended September 30, 2021 and 2020.
W. P. Carey 9/30/2021 10-Q – 18
Notes to Consolidated Financial Statements (Unaudited)
Assets Held for Sale, Net
Below is a summary of our properties held for sale (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
Land, buildings and improvements
|
$
|
12,993
|
|
|
$
|
14,051
|
|
In-place lease intangible assets and other, net
|
1,454
|
|
|
12,754
|
|
Above-market rent intangible assets
|
394
|
|
|
518
|
|
Accumulated depreciation and amortization
|
(3,169)
|
|
|
(8,733)
|
|
Assets held for sale, net
|
$
|
11,672
|
|
|
$
|
18,590
|
|
At September 30, 2021, we had three properties classified as Assets held for sale, net, with an aggregate carrying value of $11.7 million. At December 31, 2020, we had four properties classified as Assets held for sale, net, with an aggregate carrying value of $18.6 million. All of these properties were sold in 2021.
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 (net of allowance for credit losses), loans receivable (net of allowance for credit losses), and deferred acquisition fees. Operating leases are not included in finance receivables.
Net Investments in Direct Financing Leases
Net investments in direct financing leases is summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
Lease payments receivable
|
$
|
434,089
|
|
|
$
|
527,691
|
|
Unguaranteed residual value
|
598,661
|
|
|
677,722
|
|
|
1,032,750
|
|
|
1,205,413
|
|
Less: unearned income
|
(389,223)
|
|
|
(476,365)
|
|
Less: allowance for credit losses (a)
|
(10,337)
|
|
|
(17,074)
|
|
|
$
|
633,190
|
|
|
$
|
711,974
|
|
__________
(a)During the nine months ended September 30, 2021 and 2020, we recorded a net reversal of allowance for credit losses of $6.7 million and a net allowance for credit losses of $6.1 million, respectively, on our Net investments in direct financing leases due to changes in expected economic conditions, which was included within Other gains and (losses) in our consolidated statements of income.
Interest income from direct financing leases, which is included in Lease revenues in the consolidated financial statements, was $15.6 million and $17.6 million for the three months ended September 30, 2021 and 2020, respectively, and $48.9 million and $56.5 million for the nine months ended September 30, 2021 and 2020, respectively.
During the nine months ended September 30, 2021, we sold four properties accounted for as direct financing leases that had an aggregate net carrying value of $35.8 million. During the nine months ended September 30, 2021, we reclassified two properties with an aggregate carrying value of $28.8 million from Net investments in direct financing leases to Land, buildings and improvements subject to operating leases in connection with changes in lease classifications due to modifications of the underlying leases. During the nine months ended September 30, 2021, the U.S. dollar strengthened against the euro, resulting in a $18.0 million decrease in the carrying value of Net investments in direct financing leases from December 31, 2020 to September 30, 2021.
W. P. Carey 9/30/2021 10-Q – 19
Notes to Consolidated Financial Statements (Unaudited)
Loans Receivable
At both September 30, 2021 and December 31, 2020, we had two loans receivable related to a domestic investment with an aggregate carrying value of $24.1 million (net of allowance for credit losses of $12.6 million), which are included in Other assets, net in the consolidated financial statements. In the first quarter of 2021, we entered into an agreement with the borrowers, who agreed to pay us at maturity a total of $3.7 million of unpaid interest due over the previous year. We did not recognize this interest in the consolidated financial statements due to uncertainty of collectibility. Earnings from our loans receivable are included in Lease termination income and other in the consolidated financial statements, and totaled $1.2 million for the three months ended September 30, 2021, and $3.0 million and $1.0 million for the nine months ended September 30, 2021 and 2020, respectively. We did not recognize income from our loans receivable during the three months ended September 30, 2020, since such income was deemed uncollectible as a result of the COVID-19 pandemic.
Credit Quality of Finance Receivables
We generally invest in facilities that we believe are critical to a tenant’s business and therefore have a lower risk of tenant default. At both September 30, 2021 and December 31, 2020, other than uncollected income from our loans receivable (as noted above), no material balances of our finance receivables were past due. Other than the lease modifications noted under Net Investments in Direct Financing Leases above, there were no material modifications of finance receivables during the nine months ended September 30, 2021.
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 is updated quarterly. We believe the credit quality of our deferred acquisition fees receivable falls under category one, as CPA:18 – Global is expected to have the available cash to make such payments (Note 3).
A summary of our finance receivables by internal credit quality rating, excluding our deferred acquisition fees receivable and allowance for credit losses, is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Tenants / Obligors at
|
|
Carrying Value at
|
Internal Credit Quality Indicator
|
|
September 30, 2021
|
|
December 31, 2020
|
|
September 30, 2021
|
|
December 31, 2020
|
1 – 3
|
|
17
|
|
18
|
|
$
|
514,709
|
|
|
$
|
587,103
|
|
4
|
|
10
|
|
9
|
|
165,554
|
|
|
141,944
|
|
5
|
|
—
|
|
2
|
|
—
|
|
|
36,737
|
|
|
|
|
|
|
|
$
|
680,263
|
|
|
$
|
765,784
|
|
Note 6. Goodwill and Other Intangibles
We have recorded net lease, internal-use software development, and trade name intangibles that are being amortized over periods ranging from three years to 48 years. In-place lease intangibles, at cost are included in In-place lease intangible assets and other 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 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 and below-market purchase option intangibles are included in Below-market rent and other intangible liabilities, net in the consolidated financial statements.
W. P. Carey 9/30/2021 10-Q – 20
Notes to Consolidated Financial Statements (Unaudited)
Goodwill within our Real Estate segment decreased by $6.8 million during the nine months ended September 30, 2021 due to foreign currency translation adjustments, from $881.5 million as of December 31, 2020 to $874.6 million as of September 30, 2021. Goodwill within our Investment Management segment was $29.3 million as of September 30, 2021, unchanged from December 31, 2020.
Intangible assets, intangible liabilities, and goodwill are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
|
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
|
$
|
19,577
|
|
|
$
|
(17,912)
|
|
|
$
|
1,665
|
|
|
$
|
19,204
|
|
|
$
|
(15,711)
|
|
|
$
|
3,493
|
|
Trade name
|
3,975
|
|
|
(3,382)
|
|
|
593
|
|
|
3,975
|
|
|
(2,786)
|
|
|
1,189
|
|
|
23,552
|
|
|
(21,294)
|
|
|
2,258
|
|
|
23,179
|
|
|
(18,497)
|
|
|
4,682
|
|
Lease Intangibles:
|
|
|
|
|
|
|
|
|
|
|
|
In-place lease
|
2,276,549
|
|
|
(914,496)
|
|
|
1,362,053
|
|
|
2,181,584
|
|
|
(828,219)
|
|
|
1,353,365
|
|
Above-market rent
|
859,386
|
|
|
(480,780)
|
|
|
378,606
|
|
|
881,159
|
|
|
(440,952)
|
|
|
440,207
|
|
|
3,135,935
|
|
|
(1,395,276)
|
|
|
1,740,659
|
|
|
3,062,743
|
|
|
(1,269,171)
|
|
|
1,793,572
|
|
Indefinite-Lived Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
903,976
|
|
|
—
|
|
|
903,976
|
|
|
910,818
|
|
|
—
|
|
|
910,818
|
|
Total intangible assets
|
$
|
4,063,463
|
|
|
$
|
(1,416,570)
|
|
|
$
|
2,646,893
|
|
|
$
|
3,996,740
|
|
|
$
|
(1,287,668)
|
|
|
$
|
2,709,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finite-Lived Intangible Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Below-market rent
|
$
|
(276,134)
|
|
|
$
|
101,717
|
|
|
$
|
(174,417)
|
|
|
$
|
(270,730)
|
|
|
$
|
90,193
|
|
|
$
|
(180,537)
|
|
Indefinite-Lived Intangible Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Below-market purchase option
|
(16,711)
|
|
|
—
|
|
|
(16,711)
|
|
|
(16,711)
|
|
|
—
|
|
|
(16,711)
|
|
Total intangible liabilities
|
$
|
(292,845)
|
|
|
$
|
101,717
|
|
|
$
|
(191,128)
|
|
|
$
|
(287,441)
|
|
|
$
|
90,193
|
|
|
$
|
(197,248)
|
|
During the nine months ended September 30, 2021, the U.S. dollar strengthened against the euro, resulting in a decrease of $33.4 million in the carrying value of our net intangible assets from December 31, 2020 to September 30, 2021. Net amortization of intangibles, including the effect of foreign currency translation, was $55.2 million and $54.5 million for the three months ended September 30, 2021 and 2020, respectively, and $166.9 million and $171.8 million for the nine months ended September 30, 2021 and 2020, respectively. Amortization of below-market rent and above-market rent intangibles is recorded as an adjustment to Lease revenues and amortization of internal-use software development, trade name, and in-place lease intangibles is included in Depreciation and amortization.
Note 7. Equity Method Investments
We own interests in (i) the Managed Programs, (ii) certain unconsolidated real estate investments with CPA:18 – Global and third parties, and (iii) WLT. 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.
We classify distributions received from equity method investments using the cumulative earnings approach. In general, distributions received are considered returns on the investment and classified as cash inflows from operating activities. If, however, the investor’s cumulative distributions received, less distributions received in prior periods determined to be returns of investment, exceeds cumulative equity in earnings recognized, the excess is considered a return of investment and is classified as cash inflows from investing activities.
W. P. Carey 9/30/2021 10-Q – 21
Notes to Consolidated Financial Statements (Unaudited)
Managed Programs
We own interests in the Managed Programs and account for these interests under the equity method because, as their advisor, we do not exert control over, but we do have the ability to exercise significant influence over, 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
|
|
September 30, 2021
|
|
December 31, 2020
|
|
September 30, 2021
|
|
December 31, 2020
|
CPA:18 – Global (a)
|
|
5.265
|
%
|
|
4.569
|
%
|
|
$
|
60,296
|
|
|
$
|
51,949
|
|
CPA:18 – Global operating partnership
|
|
0.034
|
%
|
|
0.034
|
%
|
|
209
|
|
|
209
|
|
CESH (b)
|
|
2.430
|
%
|
|
2.430
|
%
|
|
4,936
|
|
|
4,399
|
|
|
|
|
|
|
|
$
|
65,441
|
|
|
$
|
56,557
|
|
__________
(a)During the nine months ended September 30, 2021, we received asset management revenue from CPA:18 – Global in shares of its common stock, which increased our ownership percentage in CPA:18 – Global (Note 3).
(b)Investment is accounted for at fair value.
CPA:18 – Global — We received distributions from this investment during the nine months ended September 30, 2021 and 2020 of $1.4 million and $2.2 million, respectively. We received distributions from our investment in the CPA:18 – Global operating partnership during the nine months ended September 30, 2021 and 2020 of $4.9 million and $5.1 million, respectively (Note 3).
CWI 1 — We received distributions from this investment during the nine months ended September 30, 2020 of $0.8 million.
CWI 2 — We received distributions from this investment during the nine months ended September 30, 2020 of $0.5 million.
CESH — We have elected to account for our investment in CESH at fair value by selecting the equity method fair value option available under GAAP. We record our investment in CESH on a one quarter lag; therefore, the balance of our equity method investment in CESH recorded as of September 30, 2021 is based on the estimated fair value of our investment as of June 30, 2021. We received distributions from this investment during the nine months ended September 30, 2021 of $1.3 million. We did not receive a distribution from this investment during the nine months ended September 30, 2020.
At September 30, 2021 and December 31, 2020, the aggregate unamortized basis differences on our equity method investments in the Managed Programs were $22.2 million and $18.8 million, respectively.
Interests in Other Unconsolidated Real Estate Investments and WLT
We own equity interests in properties that are generally leased to companies through noncontrolling interests in partnerships and limited liability companies that we do not control but over which we exercise significant influence. The underlying investments are jointly owned with affiliates or third parties. In addition, we own shares of WLT common stock, as described in Note 3. We account for these investments under the equity method of accounting. Operating results of our unconsolidated real estate investments are included in the Real Estate segment.
W. P. Carey 9/30/2021 10-Q – 22
Notes to Consolidated Financial Statements (Unaudited)
The following table sets forth our ownership interests in our equity method investments in real estate, excluding the Managed Programs, and their respective carrying values (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value at
|
Lessee/Fund/Description
|
|
Co-owner
|
|
Ownership Interest
|
|
September 30, 2021
|
|
December 31, 2020
|
Las Vegas Retail Complex (a)
|
|
Third Party
|
|
N/A
|
|
$
|
93,997
|
|
|
$
|
—
|
|
Johnson Self Storage
|
|
Third Party
|
|
90%
|
|
67,807
|
|
|
68,979
|
|
Kesko Senukai (b)
|
|
Third Party
|
|
70%
|
|
42,044
|
|
|
46,443
|
|
WLT (c)
|
|
WLT
|
|
5%
|
|
34,319
|
|
|
44,182
|
|
Harmon Retail Corner (d)
|
|
Third Party
|
|
15%
|
|
24,358
|
|
|
23,815
|
|
Bank Pekao (b)
|
|
CPA:18 – Global
|
|
50%
|
|
17,558
|
|
|
17,850
|
|
State Farm Mutual Automobile Insurance Co. (e)
|
|
CPA:18 – Global
|
|
50%
|
|
7,484
|
|
|
15,475
|
|
Apply Sørco AS (f)
|
|
CPA:18 – Global
|
|
49%
|
|
5,940
|
|
|
7,156
|
|
Fortenova Grupa d.d. (b)
|
|
CPA:18 – Global
|
|
20%
|
|
2,887
|
|
|
2,989
|
|
|
|
|
|
|
|
$
|
296,394
|
|
|
$
|
226,889
|
|
__________
(a)See “Las Vegas Retail Complex” below for discussion of this equity method investment in real estate.
(b)The carrying value of this investment is affected by fluctuations in the exchange rate of the euro.
(c)Following the closing of the CWI 1 and CWI 2 Merger, we own 12,208,243 shares of common stock of WLT, which we account for as an equity method investment in real estate. We follow the hypothetical liquidation at book value (“HLBV”) model for this investment. We record any earnings from our investment in shares of common stock of WLT on a one quarter lag (Note 3). For the three and nine months ended September 30, 2021, we recognized losses of $1.4 million and $9.9 million, respectively, from our equity method investment in WLT (due to the adverse impact of the COVID-19 pandemic on its operations), which was recognized within Earnings (losses) from equity method investments in our consolidated statements of income.
(d)This investment is reported using the HLBV model, which may be different than pro rata ownership percentages, primarily due to the capital structure of the partnership agreement.
(e)We recognized an other-than-temporary impairment charge of $6.8 million on this investment during the nine months ended September 30, 2021, as described in Note 8.
(f)The carrying value of this investment is affected by fluctuations in the exchange rate of the Norwegian krone.
We received aggregate distributions of $14.1 million and $11.2 million from our other unconsolidated real estate investments for the nine months ended September 30, 2021 and 2020, respectively. At September 30, 2021 and December 31, 2020, the aggregate unamortized basis differences on our unconsolidated real estate investments were $8.7 million and $16.1 million, respectively. This decrease was primarily due to the other-than-temporary impairment charge that we recognized on an equity method investment in real estate during the nine months ended September 30, 2021, as described above and in Note 8.
Las Vegas Retail Complex
On June 10, 2021, we entered into an agreement to fund a construction loan of approximately $224.3 million for a retail complex in Las Vegas, Nevada, at an interest rate of 6.0% and term of 36 months. Through September 30, 2021, we funded $93.5 million, with the remaining amount expected to be funded over the 15 to 22 months following closing. We hold a purchase option for two net-leased units at the complex upon its completion, as well as an equity purchase option to acquire a 47.5% equity interest in the partnership that owns the borrower. As of the agreement date, we did not deem the exercise of the purchase options to be reasonably certain.
In accordance with ASC 810, Consolidation, we determined that this loan will not be consolidated, but due to the characteristics of the arrangement (including our participation in expected residual profits), the risks and rewards of the agreement are similar to those associated with an investment in real estate rather than a loan. Therefore, the loan will be treated as an implied investment in real estate (as an equity method investment in real estate) for accounting purposes in accordance with the acquisition, development and construction arrangement sub-section of ASC 310, Receivables. Interest income from this investment was $1.4 million and $1.6 million for the three and nine months ended September 30, 2021, respectively, which was recognized within Earnings (losses) from equity method investments in our consolidated statements of income.
W. P. Carey 9/30/2021 10-Q – 23
Notes to Consolidated Financial Statements (Unaudited)
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, 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.
Derivative Assets and Liabilities — Our derivative assets and liabilities, which are included in Other assets, net and Accounts payable, accrued expenses and other liabilities, respectively, in the consolidated financial statements, are comprised of foreign currency collars, interest rate swaps, interest rate caps, and stock warrants (Note 9).
The valuation of our derivative instruments (excluding stock warrants) is determined using a discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, as well as observable market-based inputs, including interest rate curves, spot and forward rates, and implied volatilities. We incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative instruments for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. These derivative instruments 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.
Equity Method Investment in CESH — We have elected to account for our investment in CESH, which is included in Equity method investments in the consolidated financial statements, at fair value by selecting the equity method fair value option available under GAAP (Note 7). We classified this investment as Level 3 because we primarily used valuation models that incorporate unobservable inputs to determine its fair value.
Investment in Shares of Lineage Logistics — We have elected to apply the measurement alternative under ASU 2016-01, Financial Instruments — Overall (Subtopic 825-10) to account for our investment in shares of Lineage Logistics (a cold storage REIT), which is included in Other assets, net in the consolidated financial statements. Under this alternative, the carrying value is adjusted for any impairments or changes in fair value resulting from observable transactions for similar or identical investments in the issuer. We classified this investment as Level 3 because it is not traded in an active market. We recognized non-cash unrealized gains on our investment in shares of Lineage Logistics totaling $52.9 million and $76.3 million during the three and nine months ended September 30, 2021, respectively, and $48.8 million during both the three and nine months ended September 30, 2020, due to a secondary market transaction at a higher price per share, which were recorded within Other gains and (losses) in the consolidated financial statements. In addition, during the nine months ended September 30, 2021, we received a cash dividend of $6.4 million from our investment in shares of Lineage Logistics, which was recorded within Non-operating income in the consolidated financial statements. See Note 13 for further discussion of the impact of Lineage Logistics’s conversion to a REIT during the first quarter of 2020. The fair value of this investment was $366.3 million and $290.0 million at September 30, 2021 and December 31, 2020, respectively.
W. P. Carey 9/30/2021 10-Q – 24
Notes to Consolidated Financial Statements (Unaudited)
Investment in Shares of GCIF — We account for our investment in shares of Guggenheim Credit Income Fund (“GCIF”), which is included in Other assets, net in the consolidated financial statements, at fair value. We classified this investment as Level 2 because we used a quoted price from an inactive market to determine its fair value. During the nine months ended September 30, 2021, we redeemed a portion of our investment in shares of GCIF for approximately $0.8 million and recognized a net loss of $0.1 million, which was included within Other gains and (losses) in the consolidated statements of income. During the nine months ended September 30, 2021, we received liquidating distributions from our investment in shares of GCIF totaling $1.4 million, which reduced the cost basis of our investment (in March 2021, GCIF announced its intention to liquidate and to distribute substantially all of its assets). In addition, during the nine months ended September 30, 2021 and 2020, we received distributions from our investment in shares of GCIF totaling less than $0.1 million and $0.5 million, respectively, which were recorded within Non-operating income in the consolidated financial statements. During the nine months ended September 30, 2021, we recognized unrealized gains on our investment in shares of GCIF totaling $0.6 million, which was recognized within Other gains and (losses) in the consolidated financial statements. The fair value of our investment in shares of GCIF was $4.4 million and $6.1 million at September 30, 2021 and December 31, 2020, respectively.
Investment in Preferred Shares of WLT — We account for our investment in preferred shares of WLT (Note 3), which is included in Other assets, net in the consolidated financial statements, as available-for-sale debt securities at fair value. The fair value was primarily determined by a discounted cash flow approach based on a weighted-average probability analysis of certain redemption options. We classified this investment as Level 3 because the discounted cash flow valuation model incorporates unobservable inputs to determine its fair value, including a cash flow discount rate of 15% as of September 30, 2021. During the three and nine months ended September 30, 2021, we received cash dividends of $0.8 million and $4.1 million, respectively, from our investment in preferred shares of WLT, which was recorded within Non-operating income in the consolidated financial statements. The fair value of our investment in preferred shares of WLT was $46.3 million as of both September 30, 2021 and December 31, 2020.
We did not have any transfers into or out of Level 1, Level 2, and Level 3 category of measurements during either the nine months ended September 30, 2021 or 2020. Gains and losses (realized and unrealized) recognized on items measured at fair value on a recurring basis included in earnings are reported within Other gains and (losses) on our consolidated financial statements.
Our other material financial instruments had the following carrying values and fair values as of the dates shown (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
|
Level
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
Senior Unsecured Notes, net (a) (b) (c)
|
2
|
|
$
|
5,419,419
|
|
|
$
|
5,766,633
|
|
|
$
|
5,146,192
|
|
|
$
|
5,639,586
|
|
Non-recourse mortgages, net (a) (b) (d)
|
3
|
|
688,430
|
|
|
690,310
|
|
|
1,145,554
|
|
|
1,148,551
|
|
__________
(a)The carrying value of Senior Unsecured Notes, net (Note 10) includes unamortized deferred financing costs of $27.0 million and $23.9 million at September 30, 2021 and December 31, 2020, respectively. The carrying value of Non-recourse mortgages, net includes unamortized deferred financing costs of $0.2 million and $0.4 million at September 30, 2021 and December 31, 2020, respectively.
(b)The carrying value of Senior Unsecured Notes, net includes unamortized discount of $27.2 million and $22.6 million at September 30, 2021 and December 31, 2020, respectively. The carrying value of Non-recourse mortgages, net includes unamortized discount of $3.1 million and $4.5 million at September 30, 2021 and December 31, 2020, respectively.
(c)We determined the estimated fair value of the Senior Unsecured Notes using observed market prices in an open market, which may experience limited trading volume.
(d)We determined the estimated fair value of our non-recourse mortgage loans 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 consider 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, including amounts outstanding under our Senior Unsecured Credit Facility (Note 10), but excluding finance receivables (Note 5), had fair values that approximated their carrying values at both September 30, 2021 and December 31, 2020.
W. P. Carey 9/30/2021 10-Q – 25
Notes to Consolidated Financial Statements (Unaudited)
Items Measured at Fair Value on a Non-Recurring Basis (Including Impairment Charges)
We periodically assess whether there are any indicators that the value of our real estate investments may be impaired or that their carrying value may not be recoverable. There have been no significant changes in our impairment policies from what was disclosed in the 2020 Annual Report.
The following tables present information about assets for which we recorded an impairment charge and that were measured at fair value on a non-recurring basis (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
2021
|
|
2020
|
|
Fair Value Measurements
|
|
Impairment Charges
|
|
Fair Value Measurements
|
|
Impairment Charges
|
Impairment Charges
|
|
|
|
|
|
|
|
Land, buildings and improvements and intangibles
|
$
|
13,912
|
|
|
$
|
16,301
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
$
|
16,301
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2021
|
|
2020
|
|
Fair Value
Measurements
|
|
Impairment
Charges
|
|
Fair Value
Measurements
|
|
Impairment
Charges
|
Impairment Charges
|
|
|
|
|
|
|
|
Land, buildings and improvements and intangibles
|
$
|
13,912
|
|
|
$
|
16,301
|
|
|
$
|
12,148
|
|
|
$
|
19,420
|
|
Equity method investments
|
8,175
|
|
|
6,830
|
|
|
37,396
|
|
|
47,112
|
|
|
|
|
$
|
23,131
|
|
|
|
|
$
|
66,532
|
|
Impairment charges, and their related triggering events and fair value measurements, recognized during the three and nine months ended September 30, 2021 and 2020 were as follows:
Land, Buildings and Improvements and Intangibles
The impairment charges described below are reflected within Impairment charges in our consolidated statements of income.
During the three and nine months ended September 30, 2021, we recognized an impairment charge of $16.3 million on a property in order to reduce the carrying value of the property to its estimated fair value, due to the existing tenant’s non-renewal of its lease expiring in 2022. The fair value measurement was determined by estimating discounted cash flows using four significant unobservable inputs, which were the cash flow discount rate (range of 7.00% to 9.00%), terminal capitalization rate (range of 6.00% to 7.00%), estimated market rents (range of $10 to $11 per square foot), and estimated capital expenditures ($100 per square foot).
During the nine months ended September 30, 2020, we recognized impairment charges totaling $16.0 million on two properties leased to the same tenant in order to reduce the carrying values of the properties to their estimated fair values, due to potential property vacancies. The fair value measurements were determined using a direct capitalization rate analysis based on the probability of vacancy versus the tenant continuing in the lease; the capitalization rate for the various scenarios ranged from 6.25% to 11.00%.
In addition, we recognized an impairment charge of $3.4 million on a property in order to reduce the carrying value of the property to its estimated fair value. The fair value measurement approximated its estimated selling price; it was sold in September 2020.
W. P. Carey 9/30/2021 10-Q – 26
Notes to Consolidated Financial Statements (Unaudited)
Equity Method Investments
The other-than-temporary impairment charges described below are reflected within Earnings (losses) from equity method investments in our consolidated statements of income.
During the nine months ended September 30, 2021, we recognized an other-than-temporary impairment charge of $6.8 million on a jointly owned real estate investment to reduce the carrying value of our investment to its estimated fair value, which declined due to changes in expected cash flows related to the existing tenant’s lease expiration in 2028. The fair value measurement was determined by estimating discounted cash flows using three significant unobservable inputs, which were the cash flow discount rate (5.75%), residual discount rate (7.50%), and residual capitalization rate (6.75%).
During the nine months ended September 30, 2020, we recognized other-than-temporary impairment charges of $27.8 million and $19.3 million on our equity method investments in CWI 1 and CWI 2, respectively, to reduce the carrying values of our investments to their estimated fair values, due to the adverse effect of the COVID-19 pandemic on the operations of CWI 1 and CWI 2. The fair value measurements were estimated based on implied asset value changes and changes in market capitalizations for publicly traded lodging REITs, all of which was obtained from third-party market data.
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 (Note 10) and unhedged variable-rate non-recourse mortgage loans. 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, Senior Unsecured Notes, 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, and Japan and are subject to risks associated with fluctuating foreign currency exchange rates.
Derivative Financial Instruments
There have been no significant changes in our derivative financial instrument policies from what was disclosed in the 2020 Annual Report. At both September 30, 2021 and December 31, 2020, no cash collateral had been posted nor received for any of our derivative positions.
The following table sets forth certain information regarding our derivative instruments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Designated as Hedging Instruments
|
|
Balance Sheet Location
|
|
Derivative Assets Fair Value at
|
|
Derivative Liabilities Fair Value at
|
|
|
September 30, 2021
|
|
December 31, 2020
|
|
September 30, 2021
|
|
December 31, 2020
|
Foreign currency collars
|
|
Other assets, net
|
|
$
|
16,345
|
|
|
$
|
3,489
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Foreign currency collars
|
|
Accounts payable, accrued expenses and other liabilities
|
|
—
|
|
|
—
|
|
|
(1,683)
|
|
|
(15,122)
|
|
Interest rate swaps
|
|
Accounts payable, accrued expenses and other liabilities
|
|
—
|
|
|
—
|
|
|
(1,295)
|
|
|
(5,859)
|
|
|
|
|
|
16,345
|
|
|
3,489
|
|
|
(2,978)
|
|
|
(20,981)
|
|
Derivatives Not Designated as Hedging Instruments
|
|
|
|
|
|
|
|
|
|
|
Stock warrants
|
|
Other assets, net
|
|
5,300
|
|
|
5,800
|
|
|
—
|
|
|
—
|
|
|
|
|
|
5,300
|
|
|
5,800
|
|
|
—
|
|
|
—
|
|
Total derivatives
|
|
|
|
$
|
21,645
|
|
|
$
|
9,289
|
|
|
$
|
(2,978)
|
|
|
$
|
(20,981)
|
|
W. P. Carey 9/30/2021 10-Q – 27
Notes to Consolidated Financial Statements (Unaudited)
The following tables present the impact of our derivative instruments in the consolidated financial statements (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) Recognized on Derivatives in
Other Comprehensive Income (Loss) (a)
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
Derivatives in Cash Flow Hedging Relationships
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Foreign currency collars
|
|
$
|
12,666
|
|
|
$
|
(17,029)
|
|
|
$
|
26,294
|
|
|
$
|
(5,524)
|
|
Interest rate swaps
|
|
203
|
|
|
312
|
|
|
3,851
|
|
|
(2,047)
|
|
Interest rate caps
|
|
1
|
|
|
4
|
|
|
5
|
|
|
5
|
|
Foreign currency forward contracts
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,272)
|
|
Derivatives in Net Investment Hedging Relationships (b)
|
|
|
|
|
|
|
|
|
Foreign currency collars
|
|
—
|
|
|
(16)
|
|
|
—
|
|
|
9
|
|
Total
|
|
$
|
12,870
|
|
|
$
|
(16,729)
|
|
|
$
|
30,150
|
|
|
$
|
(12,829)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) on Derivatives Reclassified from
Other Comprehensive Income (Loss)
|
Derivatives in Cash Flow Hedging Relationships
|
|
Location of Gain (Loss) Recognized in Income
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Interest rate swaps and caps (c)
|
|
Interest expense
|
|
$
|
(196)
|
|
|
$
|
(548)
|
|
|
$
|
(720)
|
|
|
$
|
(1,254)
|
|
Foreign currency collars
|
|
Non-operating income
|
|
14
|
|
|
1,664
|
|
|
(553)
|
|
|
4,565
|
|
Foreign currency forward contracts
|
|
Non-operating income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,716
|
|
Total
|
|
|
|
$
|
(182)
|
|
|
$
|
1,116
|
|
|
$
|
(1,273)
|
|
|
$
|
9,027
|
|
__________
(a)Excludes net gains of $0.2 million and less than $0.1 million recognized on unconsolidated jointly owned investments for the three months ended September 30, 2021 and 2020, respectively, and net gains of $0.9 million and net losses of $0.4 million for the nine months ended September 30, 2021 and 2020, respectively.
(b)The changes in fair value of these contracts are reported in the foreign currency translation adjustment section of Other comprehensive (loss) income.
(c)Amount for the nine months ended September 30, 2021 excludes other comprehensive income totaling $3.1 million that was released from the consolidated financial statements (along with the related liability balances) upon the termination of interest rate swaps in connection with certain prepayments of non-recourse mortgage loans during the period (Note 10).
Amounts reported in Other comprehensive (loss) income related to interest rate derivative contracts will be reclassified to Interest expense as interest is incurred on our variable-rate debt. Amounts reported in Other comprehensive (loss) income related to foreign currency derivative contracts will be reclassified to Non-operating income when the hedged foreign currency contracts are settled. As of September 30, 2021, we estimate that an additional $0.7 million and $5.5 million will be reclassified as Interest expense and Non-operating 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 September 30,
|
|
Nine Months Ended September 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Foreign currency collars
|
|
Non-operating income
|
|
$
|
357
|
|
|
$
|
(1,368)
|
|
|
$
|
516
|
|
|
$
|
(937)
|
|
Interest rate swaps
|
|
Interest expense
|
|
—
|
|
|
11
|
|
|
—
|
|
|
41
|
|
Stock warrants
|
|
Other gains and (losses)
|
|
—
|
|
|
—
|
|
|
(500)
|
|
|
(1,300)
|
|
Foreign currency forward contracts
|
|
Non-operating income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(43)
|
|
Derivatives in Cash Flow Hedging Relationships
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
Interest expense
|
|
223
|
|
|
627
|
|
|
1,354
|
|
|
1,491
|
|
Total
|
|
|
|
$
|
580
|
|
|
$
|
(730)
|
|
|
$
|
1,370
|
|
|
$
|
(748)
|
|
See below for information on our purposes for entering into derivative instruments.
W. P. Carey 9/30/2021 10-Q – 28
Notes to Consolidated Financial Statements (Unaudited)
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 generally seek long-term debt financing on a fixed-rate basis. However, from time to time, we or our investment partners have obtained, and may in the future obtain, variable-rate, non-recourse mortgage loans and, as a result, we have entered into, and may continue to enter into, interest rate swap agreements or interest rate cap agreements with counterparties. Interest rate swaps, which effectively convert the variable-rate debt service obligations of a loan to a fixed rate, are agreements in which one party exchanges a stream of interest payments for a counterparty’s stream of cash flow over a specific period. The notional, or face, amount on which the swaps are based is not exchanged. Interest rate caps limit the effective borrowing rate of variable-rate debt obligations while allowing participants to share in downward shifts in interest rates. Our objective in using these derivatives is to limit our exposure to interest rate movements.
The interest rate swaps and caps that our consolidated subsidiaries had outstanding at September 30, 2021 are summarized as follows (currency in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Derivatives
|
|
Number of Instruments
|
|
Notional
Amount
|
|
Fair Value at
September 30, 2021 (a)
|
Designated as Cash Flow Hedging Instruments
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
2
|
|
47,506
|
|
EUR
|
|
$
|
(1,020)
|
|
Interest rate swaps
|
|
2
|
|
21,895
|
|
USD
|
|
(275)
|
|
Interest rate cap
|
|
1
|
|
10,842
|
|
EUR
|
|
—
|
|
|
|
|
|
|
|
|
$
|
(1,295)
|
|
__________
(a)Fair value amounts are based on the exchange rate of the euro or British pound sterling at September 30, 2021, as applicable.
Foreign Currency Collars
We are exposed to foreign currency exchange rate movements, primarily in the euro and, to a lesser extent, the British pound sterling, the Danish krone, the Norwegian krone, and certain other currencies. In order to hedge certain of our foreign currency cash flow exposures, we enter into foreign currency collars. 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. 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 collars have maturities of 62 months or less.
The following table presents the foreign currency collars that we had outstanding at September 30, 2021 (currency in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Derivatives
|
|
Number of Instruments
|
|
Notional
Amount
|
|
Fair Value at
September 30, 2021
|
Designated as Cash Flow Hedging Instruments
|
|
|
|
|
|
|
|
Foreign currency collars
|
|
94
|
|
335,500
|
|
EUR
|
|
$
|
13,854
|
|
Foreign currency collars
|
|
96
|
|
58,300
|
|
GBP
|
|
808
|
|
|
|
|
|
|
|
|
$
|
14,662
|
|
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 September 30, 2021. At September 30, 2021, our total credit exposure and the maximum exposure to any single counterparty was $14.9 million and $3.9 million, respectively.
W. P. Carey 9/30/2021 10-Q – 29
Notes to Consolidated Financial Statements (Unaudited)
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 September 30, 2021, we had not been declared in default on any of our derivative obligations. The estimated fair value of our derivatives in a net liability position was $3.0 million and $25.1 million at September 30, 2021 and December 31, 2020, respectively, which included accrued interest and any nonperformance risk adjustments. If we had breached any of these provisions at September 30, 2021 or December 31, 2020, we could have been required to settle our obligations under these agreements at their aggregate termination value of $3.0 million and $25.6 million, respectively.
Net Investment Hedges
Borrowings under our Senior Unsecured Notes, Unsecured Revolving Credit Facility, and Unsecured Term Loans (all as defined in Note 10) denominated in euro, British pounds sterling, or Japanese yen are designated as, and are effective as, economic hedges of our net investments in foreign entities.
Exchange rate variations impact our financial results because the financial results of our foreign subsidiaries are translated to U.S. dollars each period, with the effect of exchange rate variations being recorded in Other comprehensive (loss) income as part of the cumulative foreign currency translation adjustment. As a result, changes in the value of our borrowings under our euro-denominated senior notes and changes in the value of our euro, Japanese yen, and British pound sterling borrowings under our Senior Unsecured Credit Facility, related to changes in the spot rates, will be reported in the same manner as foreign currency translation adjustments, which are recorded in Other comprehensive (loss) income as part of the cumulative foreign currency translation adjustment. Such gains (losses) related to non-derivative net investment hedges were $92.6 million and $(140.5) million for the three months ended September 30, 2021 and 2020, respectively, and $190.5 million and $(118.5) million for the nine months ended September 30, 2021 and 2020, respectively.
Note 10. Debt
Senior Unsecured Credit Facility
On February 20, 2020, we entered into the Fourth Amended and Restated Credit Facility, which has capacity of approximately $2.1 billion, comprised of (i) a $1.8 billion unsecured revolving credit facility for our working capital needs, acquisitions, and other general corporate purposes (our “Unsecured Revolving Credit Facility”), (ii) a £150.0 million term loan (our “Term Loan”), and (iii) a €96.5 million delayed draw term loan (our “Delayed Draw Term Loan”). We refer to our Term Loan and Delayed Draw Term Loan collectively as the “Unsecured Term Loans” and the entire facility collectively as our “Senior Unsecured Credit Facility.”
The Senior Unsecured Credit Facility includes the ability to borrow in certain currencies other than U.S. dollars and has a maturity date of February 20, 2025. The aggregate principal amount (of revolving and term loans) available under the Senior Unsecured Credit Facility may be increased up to an amount not to exceed the U.S. dollar equivalent of $2.75 billion, subject to the conditions to increase set forth in our credit agreement.
As of both September 30, 2021 and December 31, 2020, we have drawn down our Unsecured Term Loans in full.
At September 30, 2021, our Unsecured Revolving Credit Facility had available capacity of approximately $1.5 billion (net of amounts reserved for standby letters of credit totaling $18.8 million). We incur an annual facility fee of 0.20% of the total commitment on our Unsecured Revolving Credit Facility, which is included within Interest expense in our consolidated statements of income.
W. P. Carey 9/30/2021 10-Q – 30
Notes to Consolidated Financial Statements (Unaudited)
The following table presents a summary of our Senior Unsecured Credit Facility (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate at
September 30, 2021 (a)
|
|
Maturity Date at September 30, 2021
|
|
Principal Outstanding Balance at
|
Senior Unsecured Credit Facility
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
Unsecured Term Loans:
|
|
|
|
|
|
|
|
|
Term Loan — borrowing in British pounds sterling (b)
|
|
GBP LIBOR + 0.95%
|
|
2/20/2025
|
|
$
|
201,835
|
|
|
$
|
204,737
|
|
Delayed Draw Term Loan — borrowing in euros (c)
|
|
EURIBOR + 0.95%
|
|
2/20/2025
|
|
111,737
|
|
|
118,415
|
|
|
|
|
|
|
|
313,572
|
|
|
323,152
|
|
Unsecured Revolving Credit Facility:
|
|
|
|
|
|
|
|
|
Borrowing in British pounds sterling
|
|
GBP LIBOR + 0.85%
|
|
2/20/2025
|
|
192,416
|
|
|
—
|
|
Borrowing in euros (c)
|
|
EURIBOR + 0.85%
|
|
2/20/2025
|
|
40,527
|
|
|
58,901
|
|
Borrowing in Japanese yen
|
|
JPY LIBOR + 0.85%
|
|
2/20/2025
|
|
21,520
|
|
|
23,380
|
|
|
|
|
|
|
|
254,463
|
|
|
82,281
|
|
|
|
|
|
|
|
$
|
568,035
|
|
|
$
|
405,433
|
|
__________
(a)The applicable interest rate at September 30, 2021 was based on the credit rating for our Senior Unsecured Notes of BBB/Baa2.
(b)Balance excludes unamortized discount of $1.0 million and $1.2 million at September 30, 2021 and December 31, 2020, respectively.
(c)EURIBOR means Euro Interbank Offered Rate.
Senior Unsecured Notes
As set forth in the table below, we have euro and U.S. dollar-denominated senior unsecured notes outstanding with an aggregate principal balance outstanding of $5.5 billion at September 30, 2021 (the “Senior Unsecured Notes”).
On February 25, 2021, we completed an underwritten public offering of $425.0 million of 2.250% Senior Notes due 2033, at a price of 98.722% of par value. These 2.250% Senior Notes due 2033 have a 12.1-year term and are scheduled to mature on April 1, 2033. Proceeds from this offering were used to prepay non-recourse mortgage loans totaling $427.5 million (including prepayment penalties), as described below.
On March 8, 2021, we completed an underwritten public offering of €525.0 million of 0.950% Senior Notes due 2030, at a price of 99.335% of par value, issued by our wholly owned finance subsidiary, WPC Eurobond B.V., and fully and unconditionally guaranteed by us. These 0.950% Senior Notes due 2030 have a 9.2-year term and are scheduled to mature on June 1, 2030. Proceeds from this offering were used to redeem the €500.0 million of 2.0% Senior Notes due 2023 in March 2021. In connection with this redemption, we paid a “make-whole” amount of $26.2 million (based on the exchange rate of the euro as of the date of redemption) and recognized a loss on extinguishment of $28.2 million, which is included within Other gains and (losses) on our consolidated statements of income.
W. P. Carey 9/30/2021 10-Q – 31
Notes to Consolidated Financial Statements (Unaudited)
Interest on the Senior Unsecured Notes is payable annually in arrears for our euro-denominated senior notes and semi-annually for U.S. dollar-denominated senior notes. The Senior Unsecured Notes can be redeemed at par within three months of their respective maturities, or we can call the notes at any time for the principal, accrued interest, and a make-whole amount based upon the applicable government bond yield plus 30 to 35 basis points. The following table presents a summary of our Senior Unsecured Notes outstanding at September 30, 2021 (currency in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal Amount
|
|
Coupon Rate
|
|
Maturity Date
|
|
Principal Outstanding Balance at
|
Senior Unsecured Notes, net (a)
|
|
Issue Date
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
2.0% Senior Notes due 2023
|
|
1/21/2015
|
|
€
|
500,000
|
|
|
2.0
|
%
|
|
Redeemed
|
|
$
|
—
|
|
|
$
|
613,550
|
|
4.6% Senior Notes due 2024
|
|
3/14/2014
|
|
$
|
500,000
|
|
|
4.6
|
%
|
|
4/1/2024
|
|
500,000
|
|
|
500,000
|
|
2.25% Senior Notes due 2024
|
|
1/19/2017
|
|
€
|
500,000
|
|
|
2.25
|
%
|
|
7/19/2024
|
|
578,950
|
|
|
613,550
|
|
4.0% Senior Notes due 2025
|
|
1/26/2015
|
|
$
|
450,000
|
|
|
4.0
|
%
|
|
2/1/2025
|
|
450,000
|
|
|
450,000
|
|
2.250% Senior Notes due 2026
|
|
10/9/2018
|
|
€
|
500,000
|
|
|
2.250
|
%
|
|
4/9/2026
|
|
578,950
|
|
|
613,550
|
|
4.25% Senior Notes due 2026
|
|
9/12/2016
|
|
$
|
350,000
|
|
|
4.25
|
%
|
|
10/1/2026
|
|
350,000
|
|
|
350,000
|
|
2.125% Senior Notes due 2027
|
|
3/6/2018
|
|
€
|
500,000
|
|
|
2.125
|
%
|
|
4/15/2027
|
|
578,950
|
|
|
613,550
|
|
1.350% Senior Notes due 2028
|
|
9/19/2019
|
|
€
|
500,000
|
|
|
1.350
|
%
|
|
4/15/2028
|
|
578,950
|
|
|
613,550
|
|
3.850% Senior Notes due 2029
|
|
6/14/2019
|
|
$
|
325,000
|
|
|
3.850
|
%
|
|
7/15/2029
|
|
325,000
|
|
|
325,000
|
|
0.950% Senior Notes due 2030
|
|
3/8/2021
|
|
€
|
525,000
|
|
|
0.950
|
%
|
|
6/1/2030
|
|
607,898
|
|
|
—
|
|
2.400% Senior Notes due 2031
|
|
10/14/2020
|
|
$
|
500,000
|
|
|
2.400
|
%
|
|
2/1/2031
|
|
500,000
|
|
|
500,000
|
|
2.250% Senior Notes due 2033
|
|
2/25/2021
|
|
$
|
425,000
|
|
|
2.250
|
%
|
|
4/1/2033
|
|
425,000
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,473,698
|
|
|
$
|
5,192,750
|
|
__________
(a)Aggregate balance excludes unamortized deferred financing costs totaling $27.0 million and $23.8 million, and unamortized discount totaling $27.2 million and $22.5 million, at September 30, 2021 and December 31, 2020, respectively.
In connection with the offering of the 2.250% Senior Notes due 2033 in February 2021 and the 0.950% Senior Notes due 2030 in March 2021, we incurred financing costs totaling $8.2 million during the nine months ended September 30, 2021, which are included in Senior Unsecured Notes, net in the consolidated financial statements and are being amortized to Interest expense over the term of their respective Senior Notes.
On October 15, 2021, we completed an underwritten public offering of $350.0 million of 2.450% Senior Notes due 2032, at a price of 99.048% of par value, in our inaugural green bond offering. These 2.450% Senior Notes due 2032 have a 10.3-year term and are scheduled to mature on February 1, 2032 (Note 16).
Covenants
The Credit Agreement, each of the Senior Unsecured Notes, and certain of our non-recourse mortgage loan agreements include customary financial maintenance covenants that require us to maintain certain ratios and benchmarks at the end of each quarter. There have been no significant changes in our debt covenants from what was disclosed in the 2020 Annual Report (which are consistent with debt covenants for the Senior Unsecured Notes issued during the nine months ended September 30, 2021). We were in compliance with all of these covenants at September 30, 2021.
Non-Recourse Mortgages
At September 30, 2021, the weighted-average interest rate for our total non-recourse mortgage notes payable was 4.1% (fixed-rate and variable-rate non-recourse mortgage notes payable were 4.7% and 2.1%, respectively), with maturity dates ranging from March 2022 to September 2031.
W. P. Carey 9/30/2021 10-Q – 32
Notes to Consolidated Financial Statements (Unaudited)
Repayments
During the nine months ended September 30, 2021, we (i) prepaid non-recourse mortgage loans totaling $427.5 million, and (ii) repaid non-recourse mortgage loans at maturity with an aggregate principal balance of approximately $27.5 million. We recognized an aggregate net loss on extinguishment of debt of $32.0 million on these repayments, primarily comprised of prepayment penalties totaling $32.1 million, which is included within Other gains and (losses) on our consolidated statements of income. The weighted-average interest rate for these non-recourse mortgage loans on their respective dates of repayment was 5.1%. We funded these prepayments primarily using proceeds from the issuance of the $425.0 million of 2.250% Senior Notes due 2033.
Foreign Currency Exchange Rate Impact
During the nine months ended September 30, 2021, the U.S. dollar strengthened against the euro, resulting in an aggregate decrease of $205.0 million in the aggregate carrying values of our Non-recourse mortgages, net, Senior Unsecured Credit Facility, and Senior Unsecured Notes, net from December 31, 2020 to September 30, 2021.
Scheduled Debt Principal Payments
Scheduled debt principal payments as of September 30, 2021 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
Years Ending December 31,
|
|
Total (a)
|
2021 (remainder)
|
|
$
|
5,704
|
|
2022
|
|
311,752
|
|
2023
|
|
201,156
|
|
2024
|
|
1,120,399
|
|
2025
|
|
1,112,036
|
|
Thereafter through 2031
|
|
3,982,399
|
|
Total principal payments
|
|
6,733,446
|
|
Unamortized discount, net (b)
|
|
(31,330)
|
|
Unamortized deferred financing costs
|
|
(27,199)
|
|
Total
|
|
$
|
6,674,917
|
|
__________
(a)Certain amounts are based on the applicable foreign currency exchange rate at September 30, 2021.
(b)Represents the unamortized discount on the Senior Unsecured Notes of $27.2 million in aggregate, unamortized discount, net, of $3.1 million in aggregate primarily resulting from the assumption of property-level debt in connection with business combinations, and unamortized discount of $1.0 million on the Term Loan.
Note 11. Commitments and Contingencies
At September 30, 2021, 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. Stock-Based Compensation and Equity
Stock-Based Compensation
We maintain several stock-based compensation plans, which are more fully described in the 2020 Annual Report. There have been no significant changes to the terms and conditions of any of our stock-based compensation plans or arrangements during the nine months ended September 30, 2021. We recorded stock-based compensation expense of $4.4 million and $4.6 million during the three months ended September 30, 2021 and 2020, respectively, and $18.8 million and $10.1 million during the nine months ended September 30, 2021 and 2020, respectively, which was included in Stock-based compensation expense in the consolidated financial statements.
W. P. Carey 9/30/2021 10-Q – 33
Notes to Consolidated Financial Statements (Unaudited)
Restricted and Conditional Awards
Nonvested restricted share awards (“RSAs”), restricted share units (“RSUs”), and performance share units (“PSUs”) at September 30, 2021 and changes during the nine months ended September 30, 2021 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, 2021
|
260,977
|
|
|
$
|
74.75
|
|
|
262,013
|
|
|
$
|
88.99
|
|
Granted (a)
|
191,940
|
|
|
67.44
|
|
|
134,290
|
|
|
86.19
|
|
Vested (b)
|
(136,120)
|
|
|
72.60
|
|
|
(151,678)
|
|
|
76.04
|
|
Forfeited
|
(9,883)
|
|
|
71.92
|
|
|
(16,463)
|
|
|
93.91
|
|
Adjustment (c)
|
—
|
|
|
—
|
|
|
161,125
|
|
|
75.13
|
|
Nonvested at September 30, 2021 (d)
|
306,914
|
|
|
$
|
71.22
|
|
|
389,287
|
|
|
$
|
87.33
|
|
__________
(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 nine months ended September 30, 2021, we used a risk-free interest rate of 0.2%, an expected volatility rate of 36.7%, and assumed a dividend yield of zero.
(b)The grant date fair value of shares vested during the nine months ended September 30, 2021 was $21.4 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 September 30, 2021 and December 31, 2020, we had an obligation to issue 1,104,020 and 986,859 shares, respectively, of our common stock underlying such deferred awards, which is recorded within Total stockholders’ equity as a Deferred compensation obligation of $49.8 million and $42.0 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 at September 30, 2021 to reflect the number of shares expected to be issued when the PSUs vest.
(d)At September 30, 2021, total unrecognized compensation expense related to these awards was approximately $30.9 million, with an aggregate weighted-average remaining term of 1.9 years.
Earnings Per Share
The following table summarizes basic and diluted earnings (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income — basic and diluted
|
$
|
138,547
|
|
|
$
|
149,397
|
|
|
$
|
310,426
|
|
|
$
|
320,787
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding — basic
|
185,422,639
|
|
|
174,974,185
|
|
|
180,753,115
|
|
|
173,879,068
|
|
Effect of dilutive securities
|
589,839
|
|
|
287,627
|
|
|
570,013
|
|
|
264,970
|
|
Weighted-average shares outstanding — diluted
|
186,012,478
|
|
|
175,261,812
|
|
|
181,323,128
|
|
|
174,144,038
|
|
For the three and nine months ended September 30, 2021 and 2020, there were no potentially dilutive securities excluded from the computation of diluted earnings per share.
W. P. Carey 9/30/2021 10-Q – 34
Notes to Consolidated Financial Statements (Unaudited)
ATM Program
Our ATM Program is discussed in the 2020 Annual Report. During the nine months ended September 30, 2021, we issued 4,225,624 shares of our common stock under our ATM Program at a weighted-average price of $72.50 per share, for net proceeds of $302.5 million. During the three months ended September 30, 2021, as well as the three and nine months ended September 30, 2020, we did not issue any shares of our common stock under our ATM Program. Proceeds from issuances of common stock under our ATM Program during the nine months ended September 30, 2021 were used primarily to pay down a portion of the amounts then outstanding under our Unsecured Revolving Credit Facility and for general corporate purposes. As of September 30, 2021, $310.1 million remained available for issuance under our ATM Program.
Forward Equity Offerings
From time to time, we have entered into underwriting agreements and forward sale agreements with syndicates of banks acting as underwriters, forward sellers, and/or forward purchasers in connection with public offerings of our common stock. At the closing of these transactions, the offered shares were borrowed from third parties by the banks acting as forward purchasers and sold to the underwriters for distribution at the respective gross offering prices. As a result of this forward construct, we did not receive any proceeds from the sale of shares at the closing of each offering, but rather at later settlement dates. We have determined that the forward sale agreements meet the criteria for equity classification and are therefore exempt from derivative accounting. We recorded the forward sale agreements at fair value at inception, which we determined to be zero. Subsequent changes to fair value are not required under equity classification.
We refer to our three forward equity offerings presented below as the June 2020 Equity Forwards, June 2021 Equity Forwards, and August 2021 Equity Forwards (collectively, the “Equity Forwards”) (gross offering proceeds at closing in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agreement Date (a)
|
|
Shares Offered (b)
|
|
Gross Offering Price
|
|
Gross Offering Proceeds at Closing
|
|
Outstanding Shares as of September 30, 2021
|
June 2020 Equity Forwards (c)
|
6/17/2020
|
|
5,462,500
|
|
$
|
70.00
|
|
|
$
|
382,375
|
|
|
—
|
June 2021 Equity Forwards
|
6/7/2021
|
|
6,037,500
|
|
75.30
|
|
|
454,624
|
|
|
2,012,500
|
August 2021 Equity Forwards
|
8/9/2021
|
|
5,175,000
|
|
78.00
|
|
|
403,650
|
|
|
5,175,000
|
|
|
|
|
|
|
|
|
|
7,187,500
|
__________
(a)We expect to settle the Equity Forwards in full within 18 months of the respective agreement dates via physical delivery of the outstanding shares of common stock in exchange for cash proceeds, although we may elect cash settlement or net share settlement for all or a portion of our obligations under the Equity Forwards, subject to certain conditions.
(b)Includes 712,500, 787,500, and 675,000 shares of common stock purchased by certain underwriters in connection with the June 2020 Equity Forwards, June 2021 Equity Forwards, and August 2021 Equity Forwards, respectively, upon the exercise of 30-day options to purchase additional shares.
(c)All remaining outstanding shares were settled during the three months ended June 30, 2021.
The following table sets forth certain information regarding the settlement of our Equity Forwards during the periods presented (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Shares of common stock delivered
|
2,012,500
|
|
|
1,488,291
|
|
|
6,535,709
|
|
|
2,951,791
|
|
Net proceeds
|
$
|
147,363
|
|
|
$
|
99,829
|
|
|
$
|
457,227
|
|
|
$
|
199,716
|
|
Net proceeds from the settlement of our Equity Forwards were primarily used to pay down a portion of the amounts then outstanding under our Unsecured Revolving Credit Facility and for general corporate purposes.
W. P. Carey 9/30/2021 10-Q – 35
Notes to Consolidated Financial Statements (Unaudited)
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 September 30, 2021
|
|
Gains and (Losses) on Derivative Instruments
|
|
Foreign Currency Translation Adjustments
|
|
|
|
Total
|
Beginning balance
|
$
|
(1,062)
|
|
|
$
|
(228,898)
|
|
|
|
|
$
|
(229,960)
|
|
Other comprehensive loss before reclassifications
|
12,932
|
|
|
(20,400)
|
|
|
|
|
(7,468)
|
|
Amounts reclassified from accumulated other comprehensive loss to:
|
|
|
|
|
|
|
|
Interest expense
|
196
|
|
|
—
|
|
|
|
|
196
|
|
Non-operating income
|
(14)
|
|
|
—
|
|
|
|
|
(14)
|
|
Total
|
182
|
|
|
—
|
|
|
|
|
182
|
|
Net current period other comprehensive loss
|
13,114
|
|
|
(20,400)
|
|
|
|
|
(7,286)
|
|
Ending balance
|
$
|
12,052
|
|
|
$
|
(249,298)
|
|
|
|
|
$
|
(237,246)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2020
|
|
Gains and (Losses) on Derivative Instruments
|
|
Foreign Currency Translation Adjustments
|
|
|
|
Total
|
Beginning balance
|
$
|
16,455
|
|
|
$
|
(307,068)
|
|
|
|
|
$
|
(290,613)
|
|
Other comprehensive income before reclassifications
|
(15,558)
|
|
|
34,170
|
|
|
|
|
18,612
|
|
Amounts reclassified from accumulated other comprehensive loss to:
|
|
|
|
|
|
|
|
Non-operating income
|
(1,664)
|
|
|
—
|
|
|
|
|
(1,664)
|
|
Interest expense
|
548
|
|
|
—
|
|
|
|
|
548
|
|
Total
|
(1,116)
|
|
|
—
|
|
|
|
|
(1,116)
|
|
Net current period other comprehensive income
|
(16,674)
|
|
|
34,170
|
|
|
|
|
17,496
|
|
Net current period other comprehensive income attributable to noncontrolling interests
|
(7)
|
|
|
—
|
|
|
|
|
(7)
|
|
Ending balance
|
$
|
(226)
|
|
|
$
|
(272,898)
|
|
|
|
|
$
|
(273,124)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2021
|
|
Gains and (Losses) on Derivative Instruments
|
|
Foreign Currency Translation Adjustments
|
|
|
|
Total
|
Beginning balance
|
$
|
(18,937)
|
|
|
$
|
(220,969)
|
|
|
|
|
$
|
(239,906)
|
|
Other comprehensive income before reclassifications
|
29,737
|
|
|
(28,329)
|
|
|
|
|
1,408
|
|
Amounts reclassified from accumulated other comprehensive loss to:
|
|
|
|
|
|
|
|
Interest expense
|
720
|
|
|
—
|
|
|
|
|
720
|
|
Non-operating income
|
553
|
|
|
—
|
|
|
|
|
553
|
|
Total
|
1,273
|
|
|
—
|
|
|
|
|
1,273
|
|
Net current period other comprehensive income
|
31,010
|
|
|
(28,329)
|
|
|
|
|
2,681
|
|
Net current period other comprehensive income attributable to noncontrolling interests
|
(21)
|
|
|
—
|
|
|
|
|
(21)
|
|
Ending balance
|
$
|
12,052
|
|
|
$
|
(249,298)
|
|
|
|
|
$
|
(237,246)
|
|
W. P. Carey 9/30/2021 10-Q – 36
Notes to Consolidated Financial Statements (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2020
|
|
Gains and (Losses) on Derivative Instruments
|
|
Foreign Currency Translation Adjustments
|
|
|
|
Total
|
Beginning balance
|
$
|
13,048
|
|
|
$
|
(268,715)
|
|
|
|
|
$
|
(255,667)
|
|
Other comprehensive loss before reclassifications
|
(4,240)
|
|
|
(4,183)
|
|
|
|
|
(8,423)
|
|
Amounts reclassified from accumulated other comprehensive loss to:
|
|
|
|
|
|
|
|
Non-operating income
|
(10,281)
|
|
|
—
|
|
|
|
|
(10,281)
|
|
Interest expense
|
1,254
|
|
|
—
|
|
|
|
|
1,254
|
|
Total
|
(9,027)
|
|
|
—
|
|
|
|
|
(9,027)
|
|
Net current period other comprehensive loss
|
(13,267)
|
|
|
(4,183)
|
|
|
|
|
(17,450)
|
|
Net current period other comprehensive income attributable to noncontrolling interests
|
(7)
|
|
|
—
|
|
|
|
|
(7)
|
|
Ending balance
|
$
|
(226)
|
|
|
$
|
(272,898)
|
|
|
|
|
$
|
(273,124)
|
|
See Note 9 for additional information on our derivatives activity recognized within Other comprehensive (loss) income for the periods presented.
Dividends Declared
During the third quarter of 2021, our Board declared a quarterly dividend of $1.052 per share, which was paid on October 15, 2021 to stockholders of record as of September 30, 2021.
During the nine months ended September 30, 2021, we declared dividends totaling $3.150 per share.
Note 13. 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. 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 nine months ended September 30, 2021 and 2020.
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 necessary, for the three and nine months ended September 30, 2021 and 2020. Current income tax expense was $9.0 million and $8.9 million for the three months ended September 30, 2021 and 2020, respectively, and $26.5 million and $19.3 million for the nine months ended September 30, 2021 and 2020, respectively. As a result of the U.S. federal Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which was enacted on March 27, 2020 in response to the COVID-19 pandemic, we recognized a $4.7 million current tax benefit during the nine months ended September 30, 2020 by carrying back certain net operating losses, which is included within current tax expense described above.
There have been no significant changes in our deferred tax assets and liabilities policies from what was disclosed in the 2020 Annual Report. Deferred income tax benefit was $0.7 million and $2.9 million for the three months ended September 30, 2021 and 2020, respectively, and $3.0 million and $47.4 million for the nine months ended September 30, 2021 and 2020, respectively. Benefit from income taxes for the nine months ended September 30, 2020 included a deferred tax benefit of $37.2 million as a result of the release of a deferred tax liability relating to our investment in shares of Lineage Logistics (Note 8), which converted to a REIT during the period and is therefore no longer subject to federal and state income taxes, as well as a deferred tax benefit of $6.5 million as a result of the other-than-temporary impairment charges that we recognized on our equity method investments in CWI 1 and CWI 2 during the period (Note 8).
W. P. Carey 9/30/2021 10-Q – 37
Notes to Consolidated Financial Statements (Unaudited)
Note 14. Property Dispositions
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 decide 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 Real Estate segment.
2021 — During the three and nine months ended September 30, 2021, we sold five and 17 properties, respectively, for total proceeds, net of selling costs, of $28.3 million and $126.7 million, respectively, and recognized a net gain on these sales totaling $1.7 million and $30.9 million, respectively (inclusive of income taxes totaling $3.8 million recognized upon sale during the nine months ended September 30, 2021).
2020 — During the three and nine months ended September 30, 2020, we sold four and eight properties, respectively, for total proceeds, net of selling costs, of $62.9 million and $168.0 million (inclusive of $4.7 million attributable to a noncontrolling interest), respectively, and recognized a net gain on these sales totaling $20.9 million and $32.7 million (inclusive of $0.6 million attributable to a noncontrolling interest), respectively (inclusive of income taxes totaling $3.1 million and $3.0 million, respectively, recognized upon sale). Disposition activity included the sale of one of our two hotel operating properties in January 2020 for total proceeds, net of selling costs, of $103.5 million (inclusive of $4.7 million attributable to a noncontrolling interest).
W. P. Carey 9/30/2021 10-Q – 38
Notes to Consolidated Financial Statements (Unaudited)
Note 15. Segment Reporting
We evaluate our results from operations through our two major business segments: Real Estate and Investment Management. The following tables present a summary of comparative results and assets for these business segments (in thousands):
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Revenues
|
|
|
|
|
|
|
|
Lease revenues
|
$
|
314,194
|
|
|
$
|
293,856
|
|
|
$
|
921,269
|
|
|
$
|
856,269
|
|
Operating property revenues (a)
|
4,050
|
|
|
1,974
|
|
|
9,474
|
|
|
9,368
|
|
Lease termination income and other
|
2,597
|
|
|
1,565
|
|
|
11,059
|
|
|
9,991
|
|
|
320,841
|
|
|
297,395
|
|
|
941,802
|
|
|
875,628
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
Depreciation and amortization (b)
|
115,657
|
|
|
108,351
|
|
|
340,327
|
|
|
331,035
|
|
General and administrative (b)
|
19,750
|
|
|
19,399
|
|
|
62,297
|
|
|
51,793
|
|
Impairment charges
|
16,301
|
|
|
—
|
|
|
16,301
|
|
|
19,420
|
|
Reimbursable tenant costs
|
15,092
|
|
|
15,728
|
|
|
45,942
|
|
|
42,699
|
|
Property expenses, excluding reimbursable tenant costs
|
13,734
|
|
|
11,923
|
|
|
36,432
|
|
|
33,649
|
|
Stock-based compensation expense (b)
|
4,361
|
|
|
4,564
|
|
|
18,790
|
|
|
9,452
|
|
Operating property expenses
|
3,001
|
|
|
1,594
|
|
|
6,961
|
|
|
8,205
|
|
Merger and other expenses
|
(908)
|
|
|
(1,016)
|
|
|
(3,998)
|
|
|
(213)
|
|
|
186,988
|
|
|
160,543
|
|
|
523,052
|
|
|
496,040
|
|
Other Income and Expenses
|
|
|
|
|
|
|
|
Interest expense
|
(48,731)
|
|
|
(52,537)
|
|
|
(149,623)
|
|
|
(157,259)
|
|
Other gains and (losses)
|
48,172
|
|
|
44,115
|
|
|
13,455
|
|
|
38,579
|
|
Earnings (losses) from equity method investments in real estate
|
2,445
|
|
|
631
|
|
|
(10,528)
|
|
|
2,407
|
|
Gain on sale of real estate, net
|
1,702
|
|
|
20,933
|
|
|
30,914
|
|
|
32,684
|
|
Non-operating income
|
1,283
|
|
|
662
|
|
|
10,620
|
|
|
10,364
|
|
|
4,871
|
|
|
13,804
|
|
|
(105,162)
|
|
|
(73,225)
|
|
Income before income taxes
|
138,724
|
|
|
150,656
|
|
|
313,588
|
|
|
306,363
|
|
(Provision for) benefit from income taxes
|
(7,827)
|
|
|
(3,636)
|
|
|
(23,372)
|
|
|
24,047
|
|
Net Income from Real Estate
|
130,897
|
|
|
147,020
|
|
|
290,216
|
|
|
330,410
|
|
Net income attributable to noncontrolling interests
|
(39)
|
|
|
(37)
|
|
|
(84)
|
|
|
(688)
|
|
Net Income from Real Estate Attributable to W. P. Carey
|
$
|
130,858
|
|
|
$
|
146,983
|
|
|
$
|
290,132
|
|
|
$
|
329,722
|
|
W. P. Carey 9/30/2021 10-Q – 39
Notes to Consolidated Financial Statements (Unaudited)
Investment Management
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Revenues
|
|
|
|
|
|
|
|
Asset management and other revenue
|
$
|
3,872
|
|
|
$
|
3,748
|
|
|
$
|
11,792
|
|
|
$
|
18,603
|
|
Reimbursable costs from affiliates
|
1,041
|
|
|
1,276
|
|
|
3,050
|
|
|
7,717
|
|
|
4,913
|
|
|
5,024
|
|
|
14,842
|
|
|
26,320
|
|
Operating Expenses
|
|
|
|
|
|
|
|
Reimbursable costs from affiliates
|
1,041
|
|
|
1,276
|
|
|
3,050
|
|
|
7,717
|
|
Merger and other expenses
|
—
|
|
|
420
|
|
|
15
|
|
|
878
|
|
General and administrative (b)
|
—
|
|
|
—
|
|
|
—
|
|
|
5,823
|
|
Subadvisor fees
|
—
|
|
|
—
|
|
|
—
|
|
|
1,469
|
|
Depreciation and amortization (b)
|
—
|
|
|
—
|
|
|
—
|
|
|
987
|
|
Stock-based compensation expense (b)
|
—
|
|
|
—
|
|
|
—
|
|
|
691
|
|
|
1,041
|
|
|
1,696
|
|
|
3,065
|
|
|
17,565
|
|
Other Income and Expenses
|
|
|
|
|
|
|
|
Earnings (losses) from equity method investments in the Managed Programs
|
3,290
|
|
|
1,089
|
|
|
6,374
|
|
|
(12,494)
|
|
Other gains and (losses)
|
1,047
|
|
|
533
|
|
|
2,121
|
|
|
513
|
|
Non-operating (loss) income
|
—
|
|
|
(197)
|
|
|
84
|
|
|
81
|
|
|
4,337
|
|
|
1,425
|
|
|
8,579
|
|
|
(11,900)
|
|
Income (loss) before income taxes
|
8,209
|
|
|
4,753
|
|
|
20,356
|
|
|
(3,145)
|
|
(Provision for) benefit from income taxes
|
(520)
|
|
|
(2,339)
|
|
|
(62)
|
|
|
4,075
|
|
Net Income from Investment Management
|
7,689
|
|
|
2,414
|
|
|
20,294
|
|
|
930
|
|
Net income attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
(9,865)
|
|
Net Income (Loss) from Investment Management Attributable to W. P. Carey
|
$
|
7,689
|
|
|
$
|
2,414
|
|
|
$
|
20,294
|
|
|
$
|
(8,935)
|
|
Total Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Revenues
|
$
|
325,754
|
|
|
$
|
302,419
|
|
|
$
|
956,644
|
|
|
$
|
901,948
|
|
Operating expenses
|
188,029
|
|
|
162,239
|
|
|
526,117
|
|
|
513,605
|
|
Other income and (expenses)
|
9,208
|
|
|
15,229
|
|
|
(96,583)
|
|
|
(85,125)
|
|
(Provision for) benefit from income taxes
|
(8,347)
|
|
|
(5,975)
|
|
|
(23,434)
|
|
|
28,122
|
|
Net income attributable to noncontrolling interests
|
(39)
|
|
|
(37)
|
|
|
(84)
|
|
|
(10,553)
|
|
Net income attributable to W. P. Carey
|
$
|
138,547
|
|
|
$
|
149,397
|
|
|
$
|
310,426
|
|
|
$
|
320,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets at
|
|
September 30, 2021
|
|
December 31, 2020
|
Real Estate
|
$
|
14,999,355
|
|
|
$
|
14,582,015
|
|
Investment Management
|
135,779
|
|
|
125,621
|
|
Total Company
|
$
|
15,135,134
|
|
|
$
|
14,707,636
|
|
__________
(a)Operating property revenues from our hotels include (i) $2.4 million and $0.6 million for the three months ended September 30, 2021 and 2020, respectively, and $4.9 million and $3.4 million for the nine months ended September 30, 2021 and 2020, respectively, generated from a hotel in Bloomington, Minnesota (revenues reflect the impact of the COVID-19 pandemic on the hotel’s operations), and (ii) $1.9 million for the nine months ended September 30, 2020, generated from a hotel in Miami, Florida, which was sold in January 2020 (Note 14).
W. P. Carey 9/30/2021 10-Q – 40
Notes to Consolidated Financial Statements (Unaudited)
(b)Beginning with the second quarter of 2020, general and administrative expenses attributed to our Investment Management segment are comprised of the incremental costs of providing services to the Managed Programs, which are fully reimbursed by those funds (resulting in no net expense for us). All other general and administrative expenses are attributed to our Real Estate segment. Previously, general and administrative expenses were allocated based on time incurred by our personnel for the Real Estate and Investment Management segments. In addition, beginning with the second quarter of 2020, stock-based compensation expense and corporate depreciation and amortization expense are fully recognized within our Real Estate segment. In light of the termination of the advisory agreements with CWI 1 and CWI 2 in connection with the WLT management internalization (Note 3), we now view essentially all assets, liabilities, and operational expenses as part of our Real Estate segment, other than incremental activities that are expected to wind down as we manage CPA:18 – Global and CESH through the end of their respective life cycles (Note 2). These changes between the segments had no impact on our consolidated financial statements.
Note 16. Subsequent Events
Issuance of Senior Unsecured Notes
On October 15, 2021, we completed an underwritten public offering of $350.0 million of 2.450% Senior Notes due 2032, at a price of 99.048% of par value, in our inaugural green bond offering. These 2.450% Senior Notes due 2032 have a 10.3-year term and are scheduled to mature on February 1, 2032.
Acquisition
In October 2021, we completed the acquisition of two manufacturing facilities in Chattanooga, Tennessee, for $40.7 million.
Mortgage Loan Repayments
In October 2021, we prepaid or repaid at maturity six non-recourse mortgage loans for $297.6 million with a weighted-average interest rate of 4.4%.
Dividend from our Investment in Preferred Shares of WLT
In October 2021, we received a $0.8 million quarterly cash dividend from our investment in preferred shares of WLT.
W. P. Carey 9/30/2021 10-Q – 41