10-K 1 cpa17201710-k.htm 10-K Document
 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
FORM 10‑K
þ 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
or
 
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                      to                       
 
Commission File Number: 000-52891
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CORPORATE PROPERTY ASSOCIATES 17 – GLOBAL INCORPORATED
(Exact name of registrant as specified in its charter)
Maryland
 
20-8429087
(State of incorporation)
 
(I.R.S. Employer Identification No.)
 
 
 
50 Rockefeller Plaza
 
 
New York, New York
 
10020
(Address of principal executive offices)
 
(Zip Code)
Investor Relations (212) 492-8920
(212) 492-1100
(Registrant’s telephone numbers, including area code)

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, Par Value $0.001 Per Share
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10‑K. þ
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer o
Non-accelerated filer þ 
 
 
(Do not check if a smaller reporting company)
 
 
 
Smaller reporting company o
Emerging growth company o
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Registrant has no active market for its common stock. Non-affiliates held 333,696,813 shares of common stock at June 30, 2017.

As of March 9, 2018, there were 352,603,437 shares of common stock of registrant outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The registrant incorporates by reference its definitive Proxy Statement with respect to its 2018 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of its fiscal year, into Part III of this Annual Report on Form 10‑K.
 


INDEX
 
 
 
Page No.
 
 
 
 
Item 6.
Item 7.
 
 
 
 
Item 15.
Item 16.

Forward-Looking Statements

This Annual Report on Form 10-K, or this Report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of Part II of this Report, contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. These forward-looking statements include, but are not limited to, statements regarding: tenant credit quality; the general economic outlook; our corporate strategy; our capital structure; our portfolio lease terms; our international exposure and acquisition volume, including the effects of the United Kingdom’s decision to exit the European Union; our expectations about tenant bankruptcies and interest coverage; statements that we make regarding our ability to remain qualified for taxation as a real estate investment trust, or REIT; the impact of recently issued accounting pronouncements, the recently adopted Tax Cuts and Jobs Act in the United States, and other regulatory activity, such as the General Data Protection Regulation in the European Union or other data privacy initiatives; the amount and timing of any future dividends; our existing or future leverage and debt service obligations; our future capital expenditure levels; our future financing transactions; and our future liquidity needs. These statements are based on the current expectations of our management. It is important to note that our actual results could be materially different from those projected in such forward-looking statements. Other unknown or unpredictable factors could also have material adverse effects on our business, financial condition, liquidity, results of operations, Modified funds from operations, or MFFO, and prospects. You should exercise


CPA:17 – Global 2017 10-K – 1

caution in relying on forward-looking statements as they involve known and unknown risks, uncertainties, and other factors that may materially affect our future results, performance, achievements, or transactions. Information on factors that could impact actual results and cause them to differ from what is anticipated in the forward-looking statements contained herein is included in this Report as well as in our other filings with the Securities and Exchange Commission, or the SEC, including but not limited to those described in Item 1A. Risk Factors of this Report. Moreover, because we operate in a very competitive and rapidly changing environment, new risks are likely to emerge from time to time. Given these risks and uncertainties, shareholders are cautioned not to place undue reliance on these forward-looking statements as a prediction of future results, which speak only as of the date of this Report, unless noted otherwise. Except as required by federal securities laws and the rules and regulations of the SEC, we do not undertake to revise or update any forward-looking statements.
 
All references to “Notes” throughout the document refer to the footnotes to the consolidated financial statements of the registrant in Part II, Item 8. Financial Statements and Supplementary Data.



CPA:17 – Global 2017 10-K – 2

PART I

Item 1. Business.

General Development of Business

Overview

Corporate Property Associates 17 – Global Incorporated, or CPA:17 – Global, and, together with its consolidated subsidiaries, we, us, or our, is a publicly owned, non-traded REIT that invests in a diversified portfolio of income-producing commercial properties and other real estate-related assets, both domestically and outside the United States. As a REIT, we are not subject to U.S. federal income taxation as long as we satisfy certain requirements, principally relating to the nature of our income and the level of our distributions, among other factors. We conduct substantially all of our investment activities and own all of our assets through CPA:17 Limited Partnership, a Delaware limited partnership, which is our Operating Partnership. In addition to being a general partner and a limited partner of the Operating Partnership, we also own a 99.99% capital interest in the Operating Partnership. W. P. Carey Holdings, LLC, or Carey Holdings, also known as the Special General Partner, an indirect subsidiary of our sponsor, W. P. Carey Inc., or WPC, holds the remaining 0.01% special general partner interest in the Operating Partnership.

Our core investment strategy is to acquire, own, and manage a portfolio of commercial real estate properties leased to a diversified group of companies on a single-tenant, net-leased basis. Our net leases generally require the tenant to pay substantially all of the costs associated with operating and maintaining the property, such as maintenance, insurance, taxes, structural repairs, and other operating expenses. Leases of this type are referred to as triple-net leases. We generally seek to include in our leases:

•
clauses providing for mandated rent increases or periodic rent increases over the term of the lease tied to increases in the Consumer Price Index, or CPI, or other similar index for the jurisdiction in which the property is located or, when appropriate, increases tied to the volume of sales at the property;
•
indemnification for environmental and other liabilities;
•
operational or financial covenants of the tenant; and
•
guarantees of lease obligations from parent companies or letters of credit.

We are managed by WPC through certain of its subsidiaries, or collectively, our Advisor. WPC is a publicly traded REIT listed on the New York Stock Exchange under the symbol “WPC.” Pursuant to an advisory agreement, our Advisor provides both strategic and day-to-day management services for us, including capital funding services, investment research and analysis, investment financing and other investment-related services, asset management, disposition of assets, investor relations, and administrative services. Our Advisor also provides office space and other facilities for us. We pay asset management fees and certain transactional fees to our Advisor and also reimburse our Advisor for certain expenses incurred in providing services to us, including expenses associated with personnel provided for administration of our operations. The current advisory agreement has a term of one year and may be renewed for successive one-year periods. Our Advisor also serves in this capacity for Corporate Property Associates 18 – Global Incorporated, or CPA:18 – Global, a publicly owned, non-traded REIT with an investment strategy similar to ours, which, together with us, is referred to as the CPA REITs. Our Advisor also currently serves in this capacity for Carey Watermark Investors Incorporated and Carey Watermark Investors 2 Incorporated, which are publicly owned, non-traded REITs that invest in hotel and lodging-related properties, which, together with the CPA REITs, are referred to as the Managed REITs. WPC also advises Carey European Student Housing Fund I, L.P., or CESH I, a limited partnership formed for the purpose of developing, owning, and operating student housing properties in Europe, which, together with the Managed REITs is referred to as the Managed Programs.

We were formed as a Maryland corporation in February 2007. We commenced our initial public offering in November 2007 and our follow-on offering in April 2011. We raised aggregate gross proceeds of approximately $2.9 billion from our initial public offering, which closed in April 2011, and our follow-on offering, which closed in January 2013. From inception through December 31, 2017, we have also received proceeds from our Distribution Reinvestment Plan, or DRIP, of $676.0 million. Although we have substantially invested all of the proceeds from our offerings, we intend to continue to use our cash reserves and cash generated from operations to acquire, own, and manage a portfolio of commercial properties leased to a diversified group of companies primarily on a single-tenant, net-leased basis.



CPA:17 – Global 2017 10-K – 3

Our estimated net asset value per share, or NAV, as of December 31, 2016 was $10.11. See Significant Developments in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for more details regarding our NAV.

We have no employees. At December 31, 2017, our Advisor had 207 full-time employees who are available to perform services for us under our advisory agreement (Note 3).

Financial Information About Segments

We operate in two reportable business segments: Net Lease and Self Storage. Our Net Lease segment includes our domestic and foreign investments in net-leased properties, whether they are accounted for as operating or direct financing leases. Our Self Storage segment is comprised of our investments in self-storage properties. In addition, we have investments in loans receivable, commercial mortgage-backed securities, or CMBS, one hotel, and certain other properties, which are included in our All Other category. See Note 15 for financial information about our segments and geographic concentrations.

Business Objectives and Strategy

Our objectives are to:

•
provide attractive risk-adjusted returns for our stockholders;
•
generate sufficient cash flow over time to provide investors with increasing distributions;
•
seek investments with potential for capital appreciation; and
•
use leverage to enhance the returns on our investments.

We seek to achieve these objectives by investing in a portfolio of income-producing commercial properties, which are primarily leased to a diversified group of companies on a net-leased basis.

We intend our portfolio to be diversified by property type, geography, tenant, and industry. We are not required to meet any diversification standards and have no specific policies or restrictions regarding the geographic areas where we make investments, the industries in which our tenants or borrowers may conduct business, or the percentage of our capital that we may invest in a particular asset type.

Our Portfolio

At December 31, 2017, our net lease portfolio was comprised of full or partial ownership interests in 411 properties, substantially all of which were fully-occupied and triple-net leased to 116 tenants, and totaled approximately 44.4 million square feet. In addition, our portfolio was comprised of full or majority ownership interests in 38 operating properties, including 37 self-storage properties and one hotel property, for an aggregate of approximately 2.7 million square feet. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Portfolio Overview for more information about our portfolio.

Asset Management

Our Advisor is generally responsible for all aspects of our operations, including selecting our investments, formulating and evaluating the terms of each proposed acquisition, arranging for the acquisition of the investment, negotiating the terms of borrowings, managing our day-to-day operations, and arranging for and negotiating sales of assets. With respect to our net-leased investments, asset management functions include entering into new or modified transactions to meet the evolving needs of current tenants, re-leasing properties, credit and real estate risk analysis, building expansions and redevelopments, refinancing debt and selling assets. With respect to our self-storage investments, asset management functions include engaging unaffiliated third parties for management of our investments, active oversight of property managers, credit and real estate risk analysis, refinancing debt, and selling assets.



CPA:17 – Global 2017 10-K – 4

Our Advisor monitors, on an ongoing basis, compliance by tenants with their lease obligations and other factors that could affect the financial performance of any of our properties. Monitoring involves verifying that each tenant has paid real estate taxes, assessments, and other expenses relating to the properties it occupies and confirming that appropriate insurance coverage is being maintained by the tenant. Our Advisor also utilizes third-party asset managers for certain domestic and international investments. Our Advisor reviews financial statements of our tenants and undertakes physical inspections of the condition and maintenance of our properties. Additionally, our Advisor periodically analyzes each tenant’s financial condition, the industry in which each tenant operates, and each tenant’s relative strength in its industry. With respect to other real estate-related assets such as debentures, mortgage loans, B Notes, and mezzanine loans, asset management operations include evaluating potential borrowers’ creditworthiness, operating history, and capital structure. With respect to any investments in CMBS or other mortgage-related instruments that we may make, our Advisor is responsible for selecting, acquiring, and facilitating the acquisition or disposition of such investments, including monitoring the portfolio on an ongoing basis. Our Advisor also monitors our portfolio to ensure that investments in equity and debt securities of companies engaged in real estate activities do not require us to register as an “investment company.”

Holding Period

We generally intend to hold each property we invest in for an extended period depending on the type of investment. The determination of whether a particular property should be sold or otherwise disposed of will be made after consideration of relevant factors, including prevailing economic conditions, with a view to achieving maximum capital appreciation for our stockholders or avoiding increases in risk. No assurance can be given that these objectives will be realized.

One of our objectives is ultimately to provide our stockholders with the opportunity to obtain liquidity for their investments in us. We may provide liquidity for our stockholders through sales of assets (either on a portfolio basis or individually), a listing of our shares on a stock exchange, a merger (which may include a merger with one or more of the Managed REITs, WPC or its affiliates), an enhanced redemption program or another transaction approved by our board of directors. We are under no obligation to liquidate our portfolio within any particular period since the precise timing will depend on real estate and financial markets, economic conditions of the areas in which the properties are located, and tax effects on stockholders that may prevail in the future. Furthermore, there can be no assurance that we will be able to consummate a liquidity event. During the quarter ended September 30, 2017, our board of directors formed a special committee of independent directors to begin the process of evaluating possible liquidity alternatives for our shareholders. There can be no assurance as to the form or timing of any liquidity alternative or that any alternative will be pursued at all. We do not intend to discuss the evaluation process unless and until a particular alternative is selected. In the two most recent instances in which stockholders of non-traded REITs managed by our Advisor were provided with liquidity, Corporate Property Associates 15 Incorporated, or CPA:15, and Corporate Property Associates 16 – Global Incorporated, or CPA:16 – Global, merged with and into subsidiaries of WPC on September 28, 2012 and January 31, 2014, respectively. Prior to that, the liquidating entity merged with another, later-formed REIT managed by WPC, as with the merger of Corporate Property Associates 14 Incorporated with CPA:16 – Global on May 2, 2011.

Financing Strategies

Consistent with our investment policies, we use leverage when available on terms we believe are favorable. We will generally borrow in the same currency that is used to pay rent on the property. This enables us to hedge a significant portion of our currency risk on international investments. We, through the subsidiaries we form to make investments, will generally seek to borrow on a non-recourse basis and in amounts that we believe will maximize the return to our stockholders, although we also borrow on a recourse basis at the corporate level. The use of non-recourse mortgage financing may allow us to improve returns to our stockholders and to limit our exposure on any investment to the amount invested. Non-recourse indebtedness means the indebtedness of the borrower or its subsidiaries that is secured only by the assets to which such indebtedness relates without recourse to the borrower or any of its subsidiaries, other than in case of customary carve-outs for which the borrower or its subsidiaries acts as guarantor in connection with such indebtedness, such as fraud, misappropriation, misapplication of funds, environmental conditions, and material misrepresentation. Since non-recourse financing generally restricts the lender’s claim on the assets of the borrower, the lender generally may only take back the asset securing the debt, which protects our other assets. In some cases, particularly with respect to non-U.S. investments, the lenders may require that they have recourse to other assets owned by a subsidiary borrower, in addition to the asset securing the debt. Such recourse generally would not extend to the assets of our other subsidiaries. Lenders typically seek to include change of control provisions in the terms of a loan, making the termination or replacement of our Advisor, or the dissolution of our Advisor, events of default or events requiring the immediate repayment of the full outstanding balance of the loan. While we attempt through negotiations not to include such provisions, lenders may require them. During 2015, we entered into the Senior Credit Facility (Note 10) in order to increase financial flexibility and our range of capital sources. The Senior Credit Facility, which is unsecured, consists of a $200.0 million revolving credit facility, or the Revolver, and a $50.0 million delayed-draw term loan facility, or the Term Loan, and is


CPA:17 – Global 2017 10-K – 5

used for our working capital needs and for new investments, as well as for other general corporate purposes. The Senior Credit Facility is scheduled to mature on August 26, 2018, and may be extended by us for two 12-month periods.

Aggregate borrowings on our portfolio as a whole may not exceed, on average, the lesser of 75% of the total costs of all investments or 300% of our net assets, unless the excess is approved by a majority of the independent directors and disclosed to stockholders in our next quarterly report, along with the reason for the excess. Net assets are our total assets (other than intangibles), valued at cost before deducting depreciation, reserves for bad debts and other non-cash reserves, less total liabilities.

Our charter currently provides that we will not borrow funds from our directors, WPC, our Advisor or any of their respective affiliates unless the transaction is approved by a majority of our directors (including a majority of the independent directors) who do not have an interest in the transaction, as being fair, competitive, and commercially reasonable and not less favorable than those prevailing for loans between unaffiliated third parties under the same circumstances.

Investment Strategies

Long-Term Net-Leased Assets

We invest primarily in income-producing commercial real estate properties that are, upon acquisition, improved or being developed or that are to be developed within a reasonable period after acquisition. A significant portion of our acquisitions are subject to long-term net leases, which require the tenant to pay substantially all of the costs associated with operating and maintaining the property. In analyzing potential investments, our Advisor reviews various aspects of a transaction, including the tenant and the underlying real estate fundamentals, to determine whether a potential investment and lease can be structured to satisfy our investment criteria. In evaluating net-leased transactions, our Advisor generally considers, among other things, the following aspects of each transaction:

Tenant/Borrower Evaluation — Our Advisor evaluates each potential tenant or borrower for its creditworthiness, typically considering factors such as management experience, industry position and fundamentals, operating history, and capital structure. Our Advisor also rates each asset based on its market, liquidity, and criticality to the tenant’s operations, as well as other factors that may be unique to a particular investment. Our Advisor seeks opportunities in which it believes the tenant may have a stable or improving credit profile or credit potential that has not been fully recognized by the market. Whether a prospective tenant or borrower is creditworthy is determined by our Advisor’s investment department and its independent investment committee, as described below. Our Advisor defines creditworthiness as a risk-reward relationship appropriate to its investment strategies, which may or may not coincide with ratings issued by the credit rating agencies. Our Advisor has a robust internal credit rating system and may designate a tenant as “implied investment grade” even if the credit rating agencies have not made a rating determination.

Our Advisor generally seeks investments in facilities that it believes are critical to a tenant’s current business and that it believes have a low risk of tenant default. Our Advisor rates each asset based on the asset’s market and liquidity and also based on how critical the asset is to the tenant’s operations. Our Advisor also evaluates the credit quality of our tenants utilizing an internal five-point credit rating scale, with one representing the highest credit quality (investment grade or equivalent) and five representing the lowest (bankruptcy or foreclosure). Investment grade ratings are provided by third-party rating agencies, such as Standard & Poor’s Ratings Services or Moody’s Investors Service, although our Advisor may determine that a tenant is equivalent to investment grade even if the credit rating agencies have not made that determination. As of December 31, 2017, we had 12 tenants that were rated investment grade. Ratings for other tenants are generated internally utilizing metrics such as interest coverage and debt-to-earnings before interest, taxes, depreciation, and amortization, or EBITDA. These metrics are computed internally based on financial statements obtained from each tenant on a quarterly basis. Under the terms of our lease agreements, tenants are generally required to provide us with periodic financial statements. As of December 31, 2017, we had 103 below-investment grade tenants, with a weighted-average credit rating of 3.4. The aforementioned credit rating data does not include our multi-tenant and operating properties.

Properties Critical to Tenant/Borrower Operations — Our Advisor generally focuses on properties that it believes are critical to the ongoing operations of the tenant. Our Advisor believes that these properties generally provide better protection, particularly in the event of a bankruptcy, since a tenant/borrower is less likely to risk the loss of a critically important lease or property in a bankruptcy proceeding or otherwise.



CPA:17 – Global 2017 10-K – 6

Diversification — Our Advisor attempts to diversify our portfolio to avoid undue dependence on any one particular tenant, borrower, collateral type, geographic location, or industry. By diversifying the portfolio, our Advisor seeks to reduce the adverse effect of a single under-performing investment or a downturn in any particular industry or geographic region. While our Advisor has not endeavored to maintain any particular standard of diversity in our owned portfolio, we believe that it is reasonably well-diversified. Our Advisor also assesses the relative risk of our portfolio on a quarterly basis.

Lease Terms — Generally, the net-leased properties in which we invest will be leased on a full-recourse basis to the tenants or their affiliates. In addition, our Advisor seeks to include a clause in each lease that provides for increases in rent over the term of the lease. These increases are either fixed (i.e., mandated on specific dates) or tied to increases in inflation indices (e.g., the CPI or other similar indices in the jurisdiction where the property is located), but may contain caps or other limitations, either on an annual or overall basis. In the case of retail stores and hotels, the lease may provide for participation in gross revenues of the tenant above a stated level, which we refer to as percentage rent.
 
Real Estate Evaluation — Our Advisor reviews and evaluates the physical condition of the property and the market in which it is located. Our Advisor considers a variety of factors, including current market rents, replacement cost, residual valuation, property operating history, demographic characteristics of the location and accessibility, competitive properties, and suitability for re-leasing. Our Advisor obtains third-party environmental and engineering reports and market studies when required. When considering an investment outside the United States, our Advisor will also consider factors particular to a country or region, including geopolitical risk, in addition to the risks normally associated with real property investments.

Transaction Provisions to Enhance and Protect Value — Our Advisor attempts to include provisions in our leases it believes may help to protect our investment from changes in the tenant’s operating and financial characteristics, which may affect the tenant’s ability to satisfy its obligations to us or reduce the value of our investment. Such provisions include covenants requiring our consent for certain activities, requiring indemnification protections and/or security deposits, and requiring the tenant to satisfy specific operating tests. Our Advisor may also seek to enhance the likelihood that a tenant will satisfy their lease obligations through a letter of credit or guaranty from the tenant’s parent or other entity. Such credit enhancements, if obtained, provide us with additional financial security. However, in markets where competition for net-leased transactions is strong, some or all of these lease provisions may be difficult to obtain. In addition, in some circumstances, tenants may retain the option to repurchase the property typically at the greater of the contract purchase price or the fair market value of the property at the time the option is exercised.

Operating Real Estate and Other

Our operating real estate portfolio is comprised of 37 self-storage properties and one hotel property. As of December 31, 2017, these properties were managed by third parties that receive management fees.

Self-Storage and Hotel Investments — Our Advisor combines a rigorous underwriting process and active oversight of property managers with a goal to generate attractive risk-adjusted returns. We had full ownership interests in 37 self-storage properties and majority ownership of one hotel as of December 31, 2017.

Other Equity Enhancements — Our Advisor may attempt to obtain equity enhancements in connection with transactions. These equity enhancements may involve warrants exercisable at a future time to purchase stock of the tenant or borrower or their parent. If warrants are obtained and become exercisable, and if the value of the stock subsequently exceeds the exercise price of the warrant, equity enhancements can help us to achieve our goal of increasing investor returns.



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Other Real Estate-Related Assets

We have acquired or may in the future acquire other real estate assets, including, but not limited to, the following:

•
Opportunistic Investments — These may include short-term net leases, vacant property, land, multi-tenanted property, non-commercial property, and property leased to non-related tenants.
•
Mortgage Loans Collateralized by Commercial Real Properties — We have invested in, and may in the future invest in, commercial mortgages and other commercial real estate interests consistent with the requirements for qualification as a REIT.
•
B Notes — We may purchase from third parties, and may retain from mortgage loans we originate and securitize or sell, subordinated interests referred to as B Notes.
•
Mezzanine Loans — We have invested in, and may continue to invest in, mezzanine loans that take the form of subordinated loans secured by second mortgages on the underlying property or loans secured by a pledge of the ownership interests in the entity that directly or indirectly owns the property.
•
Commercial Mortgage-Backed Securities — We have invested in, and may in the future invest in, CMBS and other mortgage-related or asset-backed instruments, including CMBS issued or guaranteed by agencies of the U.S. government, non-agency mortgage instruments, and collateralized mortgage obligations that are fully collateralized by a portfolio of mortgages or mortgage-related securities, to the extent consistent with the requirements for qualification as a REIT. In most cases, mortgage-backed securities distribute principal and interest payments on the mortgages to investors. Interest rates on these instruments can be fixed or variable. Some classes of mortgage-backed securities may be entitled to receive mortgage prepayments before other classes do. Therefore, the prepayment risk for a particular instrument may be different than for other mortgage-related securities. We have designated our CMBS investments as securities held to maturity.
•
Equity and Debt Securities of Companies Engaged in Real Estate Activities, including other REITs — We have invested in, and may in the future invest in, equity and debt securities (including common and preferred stock, as well as limited partnership or other interests) of companies engaged in real estate activities.

Transactions with Affiliates

We have entered, and expect in the future to enter, into transactions with our affiliates, including other CPA REITs and our Advisor or its affiliates, if we believe that doing so is consistent with our investment objectives and we comply with our investment policies and procedures. These transactions typically take the form of equity investments in jointly owned entities, direct purchases of assets, mergers, or other types of transactions. Joint ventures with affiliates of WPC are permitted only if:

•
a majority of our directors (including a majority of our independent directors) not otherwise interested in the transaction approve the allocation of the transaction among the affiliates as being fair and reasonable to us; and
•
the affiliate makes its investment on substantially the same terms and conditions as us.

Investment Decisions

Our Advisor’s investment department, under the oversight of its chief investment officer, is primarily responsible for evaluating, negotiating, and structuring potential investment opportunities for the CPA REITs and WPC. Our Advisor also has an independent investment committee that provides services to the CPA REITs, CESH I, and WPC. Before an investment is made on our behalf, the transaction is reviewed by the investment committee. The independent investment committee is not directly involved in originating or negotiating potential investments, but instead functions as a separate and final step in the investment process. Our Advisor places special emphasis on having experienced individuals serve on its investment committee. Subject to limited exceptions, our Advisor generally will not invest in a transaction on our behalf unless it is approved by the investment committee.

The investment committee has developed policies that permit some investments to be made on our behalf without committee approval. Under current policy, certain investments may be approved by either the chairman of the investment committee or the Advisor’s chief investment officer. Additional such delegations may be made in the future, at the discretion of the investment committee.



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Competition

We face active competition from many sources for investment opportunities in commercial properties net leased to tenants both domestically and internationally. In general, we believe our Advisor’s experience in real estate, credit underwriting, and transaction structuring should allow us to compete effectively for commercial properties and other real estate-related assets. However, competitors may be willing to accept rates of return, lease terms, other transaction terms, or levels of risk that we may find unacceptable.

We may also compete for investment opportunities with WPC and the other Managed Programs. Our Advisor has undertaken in the advisory agreement to use its best efforts to present investment opportunities to us and to provide us with a continuing and suitable investment program. Our Advisor follows allocation guidelines set forth in the advisory agreement when allocating investments among us, WPC, the other Managed Programs, and entities that our Advisor may manage in the future. Each quarter, our independent directors review the allocations made by our Advisor during the most recently completed quarter. Compliance with the allocation guidelines is one of the factors that our independent directors expect to consider when deciding whether to renew the advisory agreement each year.

Environmental Matters

We have invested in, and expect to continue to invest in, properties currently or historically used as industrial, manufacturing, and commercial properties. Under various federal, state, and local environmental laws and regulations, current and former owners and operators of property may have liability for the cost of investigating, cleaning up, or disposing of hazardous materials released at, on, under, in, or from the property. These laws typically impose responsibility and liability without regard to whether the owner or operator knew of or was responsible for the presence of hazardous materials or contamination, and liability under these laws is often joint and several. Third parties may also make claims against owners or operators of properties for personal injuries and property damage associated with releases of hazardous materials. As part of our efforts to mitigate these risks, we typically engage third parties to perform assessments of potential environmental risks when evaluating a new acquisition of property, and we frequently require sellers to address them before closing or obtain contractual protection (indemnities, cash reserves, letters of credit, or other instruments) from property sellers, tenants, a tenant’s parent company, or another third party to address known or potential environmental issues. With respect to our hotel and self-storage investments, which are not subject to net-lease arrangements, there is no tenant of the property to provide indemnification, so we may be liable for costs associated with environmental contamination in the event any such circumstances arise after we acquire the property.

Financial Information About Geographic Areas


Available Information

We will supply to any stockholder, upon written request and without charge, a copy of this Report as filed with the SEC. All filings we make with the SEC, including this Report, our quarterly reports on Form 10-Q, and our current reports on Form 8-K, and any amendments to those reports, are available for free on our website, http://www.cpa17global.com, as soon as reasonably practicable after they are filed with or furnished to the SEC. We are providing our website address solely for the information of investors. We do not intend our website to be an active link or to otherwise incorporate the information contained on our website into this Report or other filings with the SEC. Our SEC filings are available to be read or copied at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information regarding the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. Our filings can also be obtained for free on the SEC’s website at http://www.sec.gov. Our Code of Business Conduct and Ethics, which applies to all employees, including our chief executive officer and chief financial officer, is available on our website, http://www.cpa17global.com. We intend to make available on our website any future amendments or waivers to our Code of Business Conduct and Ethics within four business days after any such amendments or waivers.



CPA:17 – Global 2017 10-K – 9

Item 1A. Risk Factors.

Our business, results of operations, financial condition, and ability to pay distributions at the current rate could be materially adversely affected by various risks and uncertainties, including those enumerated below. These risk factors may have affected, and in the future could affect, our actual operating and financial results and could cause such results to differ materially from those in any forward-looking statements. You should not consider this list exhaustive. New risk factors emerge periodically and we cannot assure you that the factors described below list all risks that may become material to us at any later time.

The price of shares being offered through our DRIP is determined by our board of directors based upon our NAV from time to time and may not be indicative of the price at which the shares would trade if they were listed on an exchange or actively traded by brokers.

The price of the shares currently being offered through our DRIP was determined by our board of directors in the exercise of its business judgment based upon our NAV from time to time. The valuation methodologies underlying our estimated NAV involve subjective judgments. Valuations of real properties do not necessarily represent the price at which a willing buyer would purchase our properties; therefore, there can be no assurance that we would realize the values underlying our NAV if we were to sell our assets and distribute the net proceeds to our stockholders. In addition, the values of our assets and debt are likely to fluctuate over time. This price may not be indicative of (i) the price at which shares would trade if they were listed on an exchange or actively traded by brokers, (ii) the proceeds that a stockholder would receive if we were liquidated or dissolved, or (iii) the value of our portfolio at the time you were able to dispose of your shares.

We may be unable to pay or maintain cash distributions or increase distributions over time.

The amount of cash we have available for distribution to stockholders is affected by many factors, such as the performance of our Advisor in selecting investments for us to make, selecting tenants for our properties, and securing financing arrangements; our ability to buy properties; the amount of rental income from our properties; our operating expense levels; existing financing covenants; as well as many other variables. We may not always be in a position to pay distributions to our stockholders and any distributions we do make may not increase over time. Our board of directors, in its sole discretion, will determine on a quarterly basis the amount of cash to be distributed to our stockholders based on a number of considerations, including, but not limited to, our results of operations, cash flow and capital requirements; economic and tax considerations; our borrowing capacity; applicable provisions of the Maryland General Corporation Law; and other factors (including debt covenant restrictions that may impose limitations on cash payments and future acquisitions and divestitures). Our actual results may differ significantly from the assumptions used by our board of directors in establishing the distribution rate to our stockholders. There is also a risk that we may not have sufficient cash from operations to make a distribution required to maintain our REIT status. Consequently, our distribution levels are not guaranteed and may fluctuate.

In the past, our distributions have exceeded, and may in the future exceed, our cash flow from operating activities and our earnings.

Over the life of our company, the regular quarterly cash distributions we pay are expected to be principally sourced from cash flow from operating activities as determined in accordance with U.S. generally accepted accounting principles, or GAAP. Although for the year ended December 31, 2017 and since inception, we funded all of these distributions from GAAP cash flow from operating activities, there can be no assurance that our GAAP cash flow from operating activities will be sufficient to cover our future distributions. If our properties are not generating sufficient cash flow or our other expenses require it, we may need to use other sources of funds, such as proceeds from asset sales or borrowings, to fund distributions in order to satisfy REIT requirements. If we fund distributions from borrowings, such financing will incur interest costs and need to be repaid. The portion of our distributions that exceed our earnings and profits may represent a return of capital to our stockholders.



CPA:17 – Global 2017 10-K – 10

Stockholders’ equity interests may be diluted.

Our stockholders do not have preemptive rights to any shares of common stock issued by us in the future. Therefore, if we (i) sell shares of common stock in the future, including those issued pursuant to our DRIP, (ii) issue shares of common stock to our independent directors or to our Advisor and its affiliates for payment of fees in lieu of cash, or (iii) issue additional common stock or other securities that are convertible into our common stock, then existing stockholders and investors that purchased their shares in our initial public offering will experience dilution of their percentage ownership in us. Depending on the terms of such transactions, most notably the offering price per share, which may be less than the price paid per share in our initial public offering, and the value of our properties and other investments, existing stockholders might also experience a dilution in the book value per share of their investment in us.

If we recognize substantial impairment charges on our properties or investments, our net income may be reduced.

We have and may continue to incur substantial impairment charges, which we are required to recognize: (i) whenever we sell a property for less than its carrying value or we determine that the carrying amount of the property is not recoverable and exceeds its fair value; (ii) for direct financing leases, whenever the unguaranteed residual value of the underlying property has declined on an other-than-temporary basis; and (iii) for equity investments, whenever the estimated fair value of the investment’s underlying net assets in comparison with the carrying value of our interest in the investment has declined on an other-than-temporary basis. By their nature, the timing or extent of impairment charges are not predictable. We may incur non-cash impairment charges in the future, which may reduce our net income.

Our board of directors may change our investment policies without stockholder approval, which could alter the nature of your investment.

Our charter requires that our independent directors review our investment policies at least annually to determine that the policies are in the best interest of our stockholders. These policies may change over time and may also vary as new investment techniques are developed. Except as otherwise provided in our charter, our investment policies, the methods for their implementation, as well as our other objectives, policies, and procedures, may be altered by a majority of our directors (including a majority of the independent directors), without the approval of our stockholders. As a result, the nature of your investment could change without your consent. Material changes in our investment focus will be described in our periodic reports filed with the SEC; however, these reports would typically be filed after changes in our investment focus have been made, and in some cases, several months after such changes. A change in our investment strategy may, among other things, increase our exposure to interest rate risk, default risk, and commercial real property market fluctuations, all of which could materially adversely affect our ability to achieve our investment objectives.

We are not required to meet any diversification standards; therefore, our investments may become subject to concentration risks.

Subject to our intention to maintain our qualification as a REIT, there are no limitations on the number or value of particular types of investments that we may make. We are not required to meet any diversification standards, including geographic diversification standards. Therefore, our investments may become concentrated in type or geographic location, which could subject us to significant concentration risks with potentially adverse effects on our investment objectives.

Our success is dependent on the performance of our Advisor, but the past performance of other programs managed by our Advisor may not be indicative of our success.

Our ability to achieve our investment objectives and to pay distributions is largely dependent upon the performance of our Advisor in the acquisition of investments, the selection of tenants, the determination of any financing arrangements, and the management of our assets. The advisory agreement has a term of one year and may be renewed for successive one-year periods. We may terminate the advisory agreement upon 60 days’ written notice without cause or penalty. The performance of past programs managed by our Advisor may not be indicative of our Advisor’s performance with respect to us. We cannot guarantee that our Advisor will be able to successfully manage and achieve liquidity for us to the extent it has done so for prior programs.



CPA:17 – Global 2017 10-K – 11

We have invested in, and may continue to invest in, assets outside our Advisor’s core expertise and incur losses as a result.

We are not restricted in the types of investments we may make. We have invested in, and may continue to invest in, assets outside our Advisor’s core expertise of long-term, net-leased properties and self-storage. Our Advisor may not be as familiar with the potential risks of investments outside net-leased properties and self-storage. If we continue to invest in assets outside our Advisor’s core expertise, our Advisor’s reduced experience level could result in diminished investment performance, which in turn could adversely affect our revenues, NAV, and distributions to our stockholders.

We may be deterred from terminating the advisory agreement because, upon certain termination events, our Operating Partnership must decide whether to exercise its right to repurchase all or a portion of Carey Holdings’ interests.

The termination or resignation of Carey Asset Management Corp. as our Advisor, including by non-renewal of the advisory agreement and replacement with an entity that is not an affiliate of our Advisor, would give our Operating Partnership the right, but not the obligation, to repurchase all or a portion of Carey Holdings’ special general partner interest in our Operating Partnership at a value based on the lesser of: (i) five times the amount of the last completed fiscal year’s special general partner distributions; and (ii) the discounted present value of the estimated future special general partner distributions until April 7, 2021. This repurchase could be prohibitively expensive and require the Operating Partnership to sell assets in order to complete the repurchase. If our Operating Partnership does not exercise its repurchase right and Carey Holdings’ interest is converted into a special limited partnership interest, we might be unable to find another entity that would be willing to act as our Advisor while Carey Holdings owns a significant interest in the Operating Partnership. Even if we do find another entity to act as our Advisor, we may be subject to higher fees than those charged by Carey Asset Management Corp. These considerations could deter us from terminating the advisory agreement.

The repurchase of Carey Holdings’ special general partner interest in our Operating Partnership upon termination of our Advisor may discourage certain business combination transactions.

In the event of a merger or other extraordinary corporate transaction in which our advisory agreement is terminated and an affiliate of WPC does not replace Carey Asset Management Corp. as our Advisor, the Operating Partnership must either repurchase all or a portion of Carey Holdings’ special general partner interest in our Operating Partnership at the value described in the immediately preceding risk factor or obtain Carey Holdings’ consent to the merger. This obligation may deter a transaction in which we are not the surviving entity. This deterrence may limit the opportunity for stockholders to receive a premium for their shares that might otherwise exist if a third party attempted to acquire us through a merger or other extraordinary corporate transaction.

Change of control provisions under our Senior Credit Facility and the financing arrangements for some of our assets could trigger a default or repayment event.

Under the credit agreement governing our Senior Credit Facility, a default is triggered if a change in control occurs relating to our ownership. A change of control is defined as (i) any group or person becoming the beneficial owner, directly or indirectly, of 35% or more of our equity securities entitled to vote for members of the board of directors on a fully-diluted basis; or (ii) any person or persons acting in concert acquiring, directly or indirectly, a controlling influence over our management or policies, or control over 35% or more of our equity securities entitled to vote for members of the board of directors on a fully-diluted basis. If a change of control occurs and a default is triggered under our credit agreement, our Senior Credit Facility may be terminated and any outstanding balances accelerated to immediate repayment.

In addition, lenders for certain financing arrangements related to our assets may request change of control provisions in their loan documentation that would make the termination or replacement of WPC or its affiliates as our Advisor an event of default or an event triggering the immediate repayment of the full outstanding balance of the loan. If an event of default or a repayment event occurs with respect to any of our loans, our revenues and distributions to our stockholders may be adversely affected.



CPA:17 – Global 2017 10-K – 12

Payment of fees to our Advisor and distributions to our Special General Partner will reduce cash available for investment and distribution.

Our Advisor performs services for us in connection with the selection and acquisition of our investments, the management and leasing of our properties, and the administration of our other investments. Pursuant to the advisory agreement, asset management fees payable to our Advisor may be paid in cash or shares of our common stock at our option, after consultation with our Advisor. If our Advisor receives all or a portion of its fees in cash, we will pay our Advisor substantial cash fees for these services. In addition, our Special General Partner is entitled to certain distributions from our Operating Partnership. The payment of these fees and distributions will reduce the amount of cash available for investments or distribution to our stockholders.

We have limited independence from our Advisor and its affiliates, who may be subject to conflicts of interest.

We delegate our management functions to our Advisor, for which it earns fees pursuant to the advisory agreement. Although at least a majority of our board of directors must be independent, we have limited independence from our Advisor due to the delegation of management functions. As part of its management duties, our Advisor manages our business and selects our investments. Our Advisor and its affiliates have potential conflicts of interest in their dealings with us. Circumstances under which a conflict could arise between us and our Advisor and its affiliates include:

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our Advisor is compensated for certain transactions on our behalf (e.g., acquisitions of investments and sales), which may cause our Advisor to engage in transactions that generate higher fees, rather than transactions that are more appropriate or beneficial for our business;
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agreements between us and our Advisor, including agreements regarding compensation, will not be negotiated on an arm’s-length basis, as would occur if the agreements were with unaffiliated third parties;
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acquisitions of single assets or portfolios of assets from affiliates (including WPC or the other Managed REITs), subject to our investment policies and procedures, in the form of a direct purchase of assets, a merger, or another type of transaction;
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competition with WPC and the other entities managed by it for investments, which are resolved by our Advisor (although our Advisor is required to use its best efforts to present a continuing and suitable investment program to us, allocation decisions present conflicts of interest, which may not be resolved in the manner most favorable to our interests);
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decisions regarding asset sales, which could impact the timing and amount of fees payable to our Advisor, as well as allocations and distributions payable to the Special General Partner pursuant to its special general partner interests (e.g., our Advisor receives asset management fees and may decide not to sell an asset; however, the Special General Partner will be entitled to certain profit allocations and cash distributions based upon sales of assets as a result of its Operating Partnership profits interest);
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business combination transactions, including mergers with WPC or another Managed REIT;
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decisions regarding liquidity events, which may entitle our Advisor and its affiliates to receive additional fees and distributions in relation to the liquidations;
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a recommendation by our Advisor that we declare distributions at a particular rate because our Advisor and Special General Partner may begin collecting subordinated fees once the applicable preferred return rate has been met;
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disposition fees based on the sale price of assets, as well as interests in disposition proceeds based on net cash proceeds from the sale, exchange, or other disposition of assets, may cause a conflict between our Advisor’s desire to sell an asset and our plans for the asset; and
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the termination and negotiation of the advisory agreement and other agreements with our Advisor and its affiliates.

Our NAV is computed by our Advisor relying in part on information that our Advisor provides to a third party.

Our NAV is computed by our Advisor relying in part upon an annual third-party appraisal of the fair market value of our real estate and third-party estimates of the fair market value of our debt. Any valuation includes the use of estimates and our valuation may be influenced by the information provided to the third party by our Advisor. Because our NAV is an estimate and can change as interest rate and real estate markets fluctuate, there is no assurance that a stockholder will realize such NAV in connection with any liquidity event.



CPA:17 – Global 2017 10-K – 13

We face competition from our Advisor and its affiliates in the purchase, sale, lease, and operation of properties.

WPC and its affiliates specialize in providing lease financing services to corporations. WPC and CPA:18 – Global have investment policies and return objectives that are similar to ours and they, as well as the other Managed Programs, are actively seeking investment opportunities. Therefore, WPC and its affiliates, including CPA:18 – Global, may compete with us with respect to properties; potential purchasers, sellers, and lessees of properties; and mortgage financing for properties. We do not have a non-competition agreement with WPC or the other Managed Programs. In addition, some of the Managed Programs may be focused specifically on particular types of investments and receive preference in the allocation of those types of investments.

We face active competition from unrelated parties for the investments we make.

We face active competition for our investments from many sources, including insurance companies, credit companies, pension funds, private individuals, financial institutions, finance companies, investment companies, and other REITs. We also face competition from institutions that provide or arrange for other types of commercial financing through private or public offerings of equity or debt or traditional bank financings. These institutions may accept greater risk or lower returns, allowing them to offer more attractive terms to prospective tenants. In addition, when evaluating acceptable rates of return on our behalf, our Advisor considers a variety of factors, such as the cost of raising capital, the amount of revenue it can earn, and our performance hurdle rate. These factors may limit the number of investments that our Advisor makes on our behalf. Our Advisor believes that the investment community remains risk averse and that the net lease financing market is perceived as a relatively conservative investment vehicle. Accordingly, it expects increased competition for investments, both domestically and internationally. Further capital inflows into our marketplace will place additional pressure on the returns that we can generate from our investments, as well as our Advisor’s willingness and ability to execute transactions. In addition, the majority of our current investments are in single-tenant commercial properties that are subject to triple-net leases. Many factors, including changes in tax laws or accounting rules, may make these types of sale-leaseback transactions less attractive to potential sellers and lessees.

Our Advisor may hire subadvisors without stockholder consent.

Our Advisor has the right to appoint one or more subadvisors with additional expertise in our target asset classes to assist our Advisor with investment decisions and asset management. We do not have control over which subadvisors our Advisor may choose and our Advisor may not have the necessary expertise to effectively monitor the subadvisors’ investment decisions.

If we internalize our management functions, stockholders’ interests could be diluted and we could incur significant self-management costs.

In the future, our board of directors may consider internalizing the functions currently performed for us by our Advisor by, among other methods, acquiring our Advisor. The method by which we could internalize these functions could take many forms. There is no assurance that internalizing our management functions will be beneficial to us and our stockholders. There is also no assurance that the key employees of our Advisor who perform services for us would elect to work directly for us, instead of remaining with our Advisor or another affiliate of WPC. An acquisition of our Advisor could also result in dilution of your interests as a stockholder and could reduce earnings per share. Additionally, we may not realize the perceived benefits, be able to properly integrate a new staff of managers and employees, or be able to effectively replicate the services provided previously by our Advisor. Internalization transactions, including the acquisition of advisors or property managers affiliated with entity sponsors, have also, in some cases, been the subject of litigation. Even if these claims are without merit, we could be forced to spend significant resources defending claims, which would reduce the amount of funds available for us to invest in properties or other investments and to pay distributions. All of these factors could have a material adverse effect on our results of operations, financial condition, and ability to pay distributions.



CPA:17 – Global 2017 10-K – 14

We could be adversely affected if our Advisor sold, transferred or otherwise discontinued its investment management business.

If WPC were to sell or otherwise transfer its advisory business to another Managed Program, we could be adversely affected because our Advisor could be incentivized to make decisions regarding investment allocation, asset management, liquidity transactions, and other matters that are more favorable to its Managed Program owner than to us. In addition, if WPC discontinued its investment management business entirely, we would have to find a new Advisor, who may not be familiar with our company, may not provide the same level of services as our Advisor, and may charge fees that are higher than the fees we pay to our Advisor, all of which may materially adversely affect our performance and delay or otherwise negatively impact our ability to effect a liquidity event. If we terminate the advisory agreement and repurchase the Special General Partner’s interest in our Operating Partnership, which we would have the right to do in such circumstances, the costs to us could be substantial and we may have difficulty finding a replacement advisor that would perform at a level at least as high as that of our Advisor. As of June 30, 2017, WPC exited non-traded retail fundraising activities and no longer sponsors new investment programs, although it currently expects to continue serving as our Advisor through the end of our life cycle.

The value of our real estate is subject to fluctuation.

We are subject to all of the general risks associated with the ownership of real estate. While the revenues from our leases are not directly dependent upon the value of the real estate owned, significant declines in real estate values could adversely affect us in many ways, including a decline in the residual values of properties at lease expiration, possible lease abandonments by tenants, and a decline in the attractiveness of triple-net lease transactions to potential sellers. We also face the risk that lease revenue will be insufficient to cover all corporate operating expenses and debt service payments we incur. General risks associated with the ownership of real estate include:

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adverse changes in general or local economic conditions;
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changes in the supply of, or demand for, similar or competing properties;
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changes in interest rates and operating expenses;
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competition for tenants;
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changes in market rental rates;
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inability to lease or sell properties upon termination of existing leases;
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renewal of leases at lower rental rates;
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inability to collect rents from tenants due to financial hardship, including bankruptcy;
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changes in tax, real estate, zoning, or environmental laws that adversely impact the value of real estate;
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failure to comply with federal, state, and local legal and regulatory requirements, including the Americans with Disabilities Act or fire and life-safety requirements;
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uninsured property liability, property damage, or casualty losses;
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unexpected expenditures for capital improvements or to bring properties into compliance with applicable federal, state, and local laws;
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exposure to environmental losses;
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changes in foreign exchange rates; and
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force majeure and other factors beyond the control of our management.

In addition, the initial appraisals that we obtain on our properties are generally based on the value of the properties when they are leased. If the leases on the properties terminate, the value of the properties may fall significantly below the appraised value, which could result in impairment charges on the properties.

Our ability to fully control the management of our net-leased properties may be limited.

The tenants or managers of net-leased properties are responsible for maintenance and other day-to-day management of the properties. If a property is not adequately maintained in accordance with the terms of the applicable lease, we may incur expenses for deferred maintenance expenditures or other liabilities once the property becomes free of the lease. While our leases generally provide for recourse against the tenant in these instances, a bankrupt or financially-troubled tenant may be more likely to defer maintenance and it may be more difficult to enforce remedies against such a tenant. In addition, to the extent tenants are unable to successfully conduct their operations, their ability to pay rent may be adversely affected. Although we endeavor to monitor, on an ongoing basis, compliance by tenants with their lease obligations and other factors that could affect the financial performance of our properties, such monitoring may not always ascertain or forestall deterioration either in the condition of a property or the financial circumstances of a tenant.



CPA:17 – Global 2017 10-K – 15

Our participation in joint ventures creates additional risk.

We have participated, and may in the future participate, in joint ventures to purchase assets together with CPA: 18 - Global, WPC and its other affiliates, and/or third parties. There are additional risks involved in joint venture transactions, including acquisitions, development and construction of real estate, or ADC Arrangements, that we determine are similar to joint venture transactions. As a co-investor in a joint venture, we would not be in a position to exercise sole decision-making authority relating to the property, the joint venture, or our investment partner. In addition, there is the potential that our joint venture partner may become bankrupt or that we may have diverging or inconsistent economic or business interests. These diverging interests could, among other things, expose us to liabilities in the joint venture in excess of our proportionate share of those liabilities. The partition rights of each owner in a jointly owned property could reduce the value of each portion of the divided property. In addition, the fiduciary obligation that our Advisor or members of our board of directors may owe to our partner in an affiliated transaction may make it more difficult for us to enforce our rights.

We may have difficulty selling or re-leasing our properties and this lack of liquidity may limit our ability to quickly change our portfolio in response to changes in economic or other conditions.

Real estate investments are generally less liquid than many other financial assets, which may limit our ability to quickly adjust our portfolio in response to changes in economic or other conditions. Some of our net leases involve properties that are designed for the particular needs of a tenant. With these properties, we may be required to renovate or make rent concessions in order to lease the property to another tenant. In addition, if we are forced to sell these properties, we may have difficulty selling it to a party other than the tenant due to the property’s unique design. These and other limitations may affect our ability to sell properties without adversely affecting returns to our stockholders.

The recent changes in both U.S. and international accounting standards regarding operating leases may make the leasing of facilities less attractive to our potential tenants, which could reduce overall demand for our leasing services.

A lease is classified by a tenant as a capital lease if the significant risks and rewards of ownership are considered to reside with the tenant. Under capital lease accounting for a tenant, both the leased asset and liability are reflected on their balance sheet. If the lease does not meet any of the criteria for a capital lease, the lease is considered an operating lease by the tenant and the obligation does not appear on the tenant’s balance sheet; rather, the contractual future minimum payment obligations are only disclosed in the footnotes thereto. Thus, entering into an operating lease can appear to enhance a tenant’s balance sheet in comparison to direct ownership. In the first quarter of 2016, both the Financial Accounting Standards Board and the International Accounting Standards Board issued new standards on lease accounting that bring most leases, both existing and new, onto the balance sheet for lessees. For lessors, however, the accounting remains largely unchanged and the distinction between operating and finance leases continues. The new standards also replace existing sale-leaseback guidance with new models applicable to both lessees and lessors. These changes impact most companies but are particularly applicable to those that are significant users of real estate. The standards outlined a completely new model for accounting by lessees, whereby their rights and obligations under most leases, existing and new, would be capitalized and recorded on the balance sheet. For some companies, the new accounting guidance may influence whether, or the extent to which, they will enter into the type of sale-leaseback transactions in which we specialize.

Our operations could be restricted if we become subject to the Investment Company Act and your investment return, if any, may be reduced if we are required to register as an investment company under the Investment Company Act.

A person will generally be deemed to be an “investment company” for purposes of the Investment Company Act of 1940, or the Investment Company Act, if:

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it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, or trading in securities; or
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it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis, which is referred to as the “40% test.”



CPA:17 – Global 2017 10-K – 16

We believe that we and our subsidiaries are engaged primarily in the business of acquiring and owning interests in real estate. We do not hold ourselves out as being engaged primarily in the business of investing, reinvesting, or trading in securities. Accordingly, we do not believe that we are an investment company as defined under the Investment Company Act. If we were required to register as an investment company, we would have to comply with a variety of substantive requirements under the Investment Company Act that impose, among other things, (i) limitations on our capital structure (including our ability to use leverage), (ii) restrictions on specified investments, (iii) prohibitions on proposed transactions with “affiliated persons” (as defined in the Investment Company Act), and (iv) compliance with reporting, record keeping, voting, proxy disclosure, and other rules and regulations that would significantly increase our operating expenses.

Securities issued by majority-owned subsidiaries, such as our operating partnership, are excepted from the term “investment securities” for purposes of the 40% test described in the second bullet point above because they are not themselves investment companies and do not rely on the exception from the definition of investment company set forth in Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act, hence our operating partnership generally expects to satisfy the 40% test. However, depending on the nature of its investments, our operating partnership may rely upon the exclusion from registration as an investment company pursuant to Section 3(c)(5)(C) of the Investment Company Act, which is available for entities “primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.” This exclusion generally requires that at least 55% of the operating partnership’s assets must be comprised of qualifying real estate assets and at least 80% of its portfolio must be comprised of qualifying real estate assets and real estate-related assets. Qualifying assets for this purpose include mortgage loans and other assets, including certain mezzanine loans and B notes, that the SEC staff in various no-action letters has affirmed can be treated as qualifying assets. We treat the following as real estate-related assets: CMBS, debt and equity securities of companies primarily engaged in real estate businesses, and securities issued by pass-through entities of which substantially all the assets consist of qualifying assets and/or real estate-related assets. We rely on guidance published by the SEC staff or on our analyses of guidance published with respect to other types of assets to determine which assets are qualifying real estate assets and real estate-related assets. In August 2011, the SEC issued a concept release soliciting public comment on a wide range of issues relating to Section (3)(c)(5)(C), including the nature of the assets that qualify for purposes of the exemption and whether mortgage REITs should be regulated in a manner similar to investment companies. There can be no assurance that the laws and regulations governing the Investment Company Act status of REITs, including the guidance of the SEC or its staff regarding this exclusion, will not change in a manner that adversely affects our operations. To the extent that the SEC staff publishes new or different guidance with respect to these matters, we may be required to adjust our strategy accordingly. In addition, we may be limited in our ability to make certain investments and these limitations could result in the operating partnership holding assets we might wish to sell or selling assets we might wish to hold.

Because the operating partnership is not an investment company and does not rely on the exclusion from investment company registration provided by Section 3(c)(1) or 3(c)(7), and the operating partnership is our majority-owned subsidiary, our interests in the operating partnership do not constitute investment securities for purposes of the 40% test. Our interest in the operating partnership is our only material asset; therefore, we believe that we satisfy the 40% test.

To maintain compliance with an Investment Company Act exemption or exclusion, we may be unable to sell assets we would otherwise want to sell and may need to sell assets we would otherwise wish to retain. In addition, we may have to acquire additional income or loss generating assets that we might not otherwise have acquired, or may have to forego opportunities to acquire interests in companies that we would otherwise want to acquire and that would be important to our investment strategy. If we were required to register as an investment company, we would be prohibited from engaging in our business as currently contemplated because the Investment Company Act imposes significant limitations on leverage. In addition, we would have to seek to restructure the advisory agreement because the compensation that it contemplates would not comply with the Investment Company Act. If we fail to comply with the Investment Company Act, criminal and civil actions could be brought against us, our contracts could be unenforceable unless a court were to require enforcement, and a court could appoint a receiver to take control of us and liquidate our business.



CPA:17 – Global 2017 10-K – 17

We use derivative financial instruments to hedge against interest rate and currency fluctuations, which could reduce the overall return on our investments.

We use derivative financial instruments to hedge exposures to changes in interest rates and currency rates. These instruments involve risk, such as the risk that counterparties may fail to perform under the terms of the derivative contract or that such arrangements may not be effective in reducing our exposure to interest rate changes. In addition, the use of such instruments may reduce the overall return on our investments. These instruments may also generate income that may not be treated as qualifying REIT income for purposes of the 75% or 95% REIT income test. See “Because the REIT provisions of the Internal Revenue Code limit our ability to hedge effectively, the cost of our hedging may increase, and we may incur tax liabilities” below.

Because we invest in properties located outside the United States, we are exposed to additional risks.

We have invested, and may continue to invest in, properties located outside the United States. At December 31, 2017, our directly owned real estate properties located outside of the United States represented 46% of consolidated contractual minimum annualized base rent, or ABR. These investments may be affected by factors particular to the local jurisdiction where the property is located and may expose us to additional risks, including:

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enactment of laws relating to the foreign ownership of property (including expropriation of investments), or laws and regulations relating to our ability to repatriate invested capital, profits, or cash and cash equivalents back to the United States;
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legal systems where the ability to enforce contractual rights and remedies may be more limited than under U.S. law;
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difficulty in complying with conflicting obligations in various jurisdictions and the burden of complying with a wide variety of foreign laws, which may be more stringent than U.S. laws (including land use, zoning, and environmental laws) including the General Data Protection Regulation in the European Union that becomes effective on May 25, 2018;
•
tax requirements vary by country and existing foreign tax laws and interpretations may change (e.g., the on-going implementation of the European Union’s Anti-Tax Avoidance Directive), which may result in additional taxes on our international investments;
•
changes in operating expenses, including real estate and other tax rates, in particular countries;
•
adverse market conditions caused by changes in national or local economic or political conditions;
•
changing laws or governmental rules and policies; and
•
changes in relative interest rates and the availability, cost, and terms of mortgage funds resulting from varying national economic policies.

In addition, the lack of publicly available information in certain jurisdictions in accordance with GAAP could impair our ability to analyze transactions and may cause us to forego an investment opportunity. It may also impair our ability to receive timely and accurate financial information from tenants necessary to meet our reporting obligations to financial institutions or governmental and regulatory agencies. Certain of these risks may be greater in emerging markets and less developed countries. Further, our Advisor’s expertise to date has primarily been in the United States and certain countries in Europe and Asia. Our Advisor has less experience in other international markets and may not be as familiar with the potential risks to our investments in these areas, which could cause us to incur losses as a result.

Our Advisor may engage third-party asset managers in international jurisdictions to monitor compliance with legal requirements and lending agreements with respect to properties we own. Failure to comply with applicable requirements may expose us or our operating subsidiaries to additional liabilities.

Economic conditions and regulatory changes leading up to and following the United Kingdom’s exit from the European Union could have a material adverse effect on our business and results of operations.

Following a referendum in which voters in the United Kingdom approved an exit from the European Union, on March 29, 2017, the United Kingdom invoked Article 50 of the Treaty on European Union and initiated the process to leave the European Union (a process commonly referred to as “Brexit”). Given the ongoing negotiations to determine the terms of the United Kingdom’s future relationship with the European Union, we cannot predict how the Brexit process will be implemented and are continuing to assess the potential impact, if any, of these events on our operations, financial condition, and results of operations.



CPA:17 – Global 2017 10-K – 18

The announcement of Brexit caused significant volatility in global stock markets and currency exchange rate fluctuations. As described elsewhere in this Report, we own real estate in foreign jurisdictions, including the United Kingdom and European countries, and we translate revenue denominated in foreign currency into U.S. dollars for our financial statements. During periods of a strengthening U.S. dollar, our reported international lease revenue is reduced because foreign currencies translate into fewer U.S. dollars.

The longer-term effects of Brexit will depend on the agreements that the United Kingdom makes to retain access to European Union markets, either during the transitional period or more permanently. The real estate industry faces substantial uncertainty regarding the impact of Brexit. Adverse consequences could include, but are not limited to: global economic uncertainty and deterioration, volatility in currency exchange rates, adverse changes in regulation of the real estate industry, disruptions to the markets we invest in and the tax jurisdictions we operate in (which may adversely impact tax benefits or liabilities in these or other jurisdictions), and/or negative impacts on the operations and financial conditions of our tenants. In addition, Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the United Kingdom determines which European Union laws to replace or replicate. Any of these effects of Brexit, among others, could have a material negative impact on our operations, financial condition and results of operations.

Fluctuations in exchange rates may adversely affect our results and our NAV.

We are subject to potential fluctuations in exchange rates between foreign currencies and the U.S. dollar (our principal foreign currency exposures are to the euro and, to a lesser extent, the British pound sterling, the Japanese yen, and the Norwegian krone). We attempt to mitigate a portion of the currency fluctuation risk by financing our properties in the local currency denominations, although there can be no assurance that this will be effective. Since we have historically placed both our debt obligations and tenants’ rental obligations to us in the same currency, our results of our foreign operations are adversely affected by a stronger U.S. dollar relative to foreign currencies (i.e., absent other considerations, a stronger U.S. dollar will reduce both our revenues and our expenses), which may in turn adversely affect our NAV.

Because we use debt to finance investments, our cash flow could be adversely affected.

Most of our investments were made by borrowing a portion of the total investment and securing the loan with a mortgage on the property. We generally borrow on a non-recourse basis to limit our exposure on any property to the amount of equity invested in the property. If we are unable to make our debt payments as required, a lender could foreclose on the property or properties securing its debt. Additionally, lenders for our international mortgage loan transactions typically incorporate various covenants and other provisions (including loan to value ratio, debt service coverage ratio, and material adverse changes in the borrower’s or tenant’s business) that can cause a technical loan default. Accordingly, if the real estate value declines or the tenant defaults, the lender would have the right to foreclose on its security. If any of these events were to occur, it could cause us to lose part or all of our investment, which could reduce the value of our portfolio and revenues available for distribution to our stockholders.

Some of our financing may also require us to make a balloon payment at maturity. Our ability to make such balloon payments will depend upon our ability to refinance the obligation, invest additional equity, or sell the underlying property. When a balloon payment is due, however, we may be unable to refinance the balloon payment on terms as favorable as the original loan, make the payment with existing cash or cash resources, or sell the property at a price sufficient to cover the payment. Our ability to accomplish these goals will be affected by various factors existing at the relevant time, such as the state of national and regional economies, local real estate conditions, available mortgage or interest rates, availability of credit, our equity in the mortgaged properties, our financial condition, the operating history of the mortgaged properties, and tax laws. A refinancing or sale could affect the rate of return to stockholders and the projected disposition timing of our assets.



CPA:17 – Global 2017 10-K – 19

Our level of indebtedness and the limitations imposed on us by our debt agreements could have significant adverse consequences.

Our consolidated indebtedness as of December 31, 2017 was approximately $2.0 billion, representing a leverage ratio (total debt less cash to EBITDA) of approximately 6.1. This consolidated indebtedness was comprised of (i) $1.8 billion in mortgages and (ii) $101.9 million outstanding under our Senior Credit Facility. Our level of indebtedness and the limitations imposed by our debt agreements (including the credit agreement for our Senior Credit Facility), could have significant adverse consequences, including the following:

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it may increase our vulnerability to general adverse economic conditions and limit our flexibility in planning for, or reacting to, changes in our business and industry;
•
we may be required to use a substantial portion of our cash flow from operations for the payment of principal and interest on indebtedness, thereby reducing our ability to fund working capital, acquisitions, capital expenditures, and general corporate requirements;
•
we may be at a disadvantage compared to our competitors with comparatively less indebtedness;
•
it could cause us to violate restrictive covenants in our debt agreements, which would entitle lenders and other debtholders to accelerate the maturity of such debt;
•
debt service requirements and financial covenants relating to our indebtedness may limit our ability to maintain our REIT qualification;
•
we may be unable to hedge our debt; counterparties may fail to honor their obligations under our hedge agreements; our hedge agreements may not effectively protect us from interest rate or currency fluctuation risk; and we will be exposed to existing, and potentially volatile, interest or currency exchange rates upon the expiration of our hedge agreements;
•
because a portion of our debt bears interest at variable rates, increases in interest rates could materially increase our interest expense;
•
we may be forced to dispose of one or more of our properties, possibly on disadvantageous terms, in order to service our debt or if we fail to meet our debt service obligations, in whole or in part;
•
upon any default on our secured indebtedness, lenders may foreclose on the properties or our interests in the entities that own the properties securing such indebtedness and receive an assignment of rents and leases; and
•
we may be unable to raise additional funds as needed or on favorable terms, which could, among other things, adversely affect our ability to capitalize upon acquisition opportunities or meet operational needs.

If any one of these events were to occur, our business, financial condition, liquidity, results of operations, earnings, and prospects, as well as our ability to satisfy all of our debt obligations (including those under our Senior Credit Facility or similar debt that we may incur in the future), could be materially and adversely affected. Furthermore, foreclosures could create taxable income without accompanying cash proceeds, a circumstance that could hinder our ability to meet the REIT distribution requirements imposed by the Internal Revenue Code.

Because most of our properties are occupied by a single tenant, our success is materially dependent upon their financial stability.

Most of our properties are occupied by a single tenant; therefore, the success of our investments is materially dependent on the financial stability of these tenants. Revenues from several of our tenants/guarantors constitute a significant percentage of our revenues. For the year ended December 31, 2017, our five largest tenants/guarantors represented approximately 33% of our total consolidated revenue. Lease payment defaults by tenants could negatively impact our net income and reduce the amounts available for distribution to our stockholders. As some of our tenants may not have a recognized credit rating, these tenants may have a higher risk of lease defaults than tenants with a recognized credit rating. In addition, the bankruptcy or default of a tenant could cause the loss of lease payments as well as an increase in the costs incurred to carry the property until it can be re-leased or sold. We have had, and may in the future have, tenants file for bankruptcy protection. In the event of a default, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and re-leasing our property. If a lease is terminated, there is no assurance that we will be able to re-lease the property for the rent previously received or sell the property without incurring a loss.



CPA:17 – Global 2017 10-K – 20

The bankruptcy or insolvency of tenants or borrowers may cause a reduction in our revenue and an increase in our expenses.

Bankruptcy or insolvency of a tenant or borrower could cause: the loss of lease or interest and principal payments, an increase in the costs incurred to carry the asset, litigation, a reduction in the value of our shares, and/or a decrease in amounts available for distribution to our stockholders. Under U.S. bankruptcy law, a tenant that is the subject of bankruptcy proceedings has the option of assuming or rejecting any unexpired lease. If the tenant rejects the lease, any resulting claim we have for breach of the lease (excluding collateral securing the claim) will be treated as a general unsecured claim. The maximum claim will be capped at the amount owed for unpaid rent prior to the bankruptcy (unrelated to the termination), plus the greater of one year’s lease payments or 15% of the remaining lease payments payable under the lease (but no more than three years’ lease payments). In addition, due to the long-term nature of our leases and, in some cases, terms providing for the repurchase of a property by the tenant, a bankruptcy court could recharacterize a net-leased transaction as a secured lending transaction. If that were to occur, we would not be treated as the owner of the property, but we might have rights as a secured creditor. Those rights would not include a right to compel the tenant to timely perform its obligations under the lease but may instead entitle us to “adequate protection,” a bankruptcy concept that applies to protect against a decrease in the value of the property if the value of the property is less than the balance owed to us.

Insolvency laws outside the United States may not be as favorable to reorganization or the protection of a debtor’s rights as in the United States. Our right to terminate a lease for default may be more likely to be enforced in foreign jurisdictions where a debtor/tenant or its insolvency representative lacks the right to force the continuation of a lease without our consent. Nonetheless, such laws may permit a tenant or an appointed insolvency representative to terminate a lease if it so chooses.

In addition, in circumstances where the bankruptcy laws of the United States are considered to be more favorable to debtors and/or their reorganization, entities that are not ordinarily perceived as U.S. entities may seek to take advantage of U.S. bankruptcy laws (an entity would be eligible to be a debtor under the U.S. bankruptcy laws if it had a domicile (state of incorporation or registration), place of business, or assets in the United States). If a tenant became a debtor under U.S. bankruptcy laws, it would then have the option of assuming or rejecting any unexpired lease. As a general matter, after the commencement of bankruptcy proceedings and prior to assumption or rejection of an expired lease, U.S. bankruptcy laws provide that, until such unexpired lease is assumed or rejected, the tenant or its trustee must perform the tenant’s obligations under the lease in a timely manner. However, under certain circumstances, the time period for performance of such obligations may be extended by an order of the bankruptcy court. We and certain of the other CPA programs previously managed by our Advisor have had tenants file for bankruptcy protection and have been involved in bankruptcy-related litigation (including with several international tenants). Historically, four of the seventeen CPA programs managed by our Advisor temporarily reduced the rate of distributions to their investors as a result of adverse developments involving tenants. Highly leveraged tenants that experience downturns in their operating results due to adverse changes to their business or economic conditions may have a higher possibility of filing for bankruptcy or insolvency.

Similarly, if a borrower under one of our loan transactions declares bankruptcy, there may not be sufficient funds to satisfy its payment obligations to us, which may adversely affect our revenue and distributions to our stockholders. The mortgage loans that we may invest in, as well as the mortgage loans underlying the CMBS in which we have invested and may continue to invest in, may also be subject to delinquency, foreclosure, and loss, which could result in losses to us.

We may incur costs to finish build-to-suit properties.

We have in the past acquired, and may in the future acquire undeveloped land or partially developed buildings in order to construct build-to-suit facilities for a prospective tenant. The primary risks of build-to-suit projects are the potential for failing to meet an agreed-upon delivery schedule and cost-overruns, which may, among other things, cause total project costs to exceed the original budget and may depress our NAV until the projects come online. While some prospective tenants will bear these risks, we may be required to bear these risks in other instances, which means that (i) we may have to advance funds to cover cost-overruns that we would not be able to recover through increased rent payments or (ii) that we may experience delays in the project that delay commencement of rent. We will attempt to minimize these risks through guaranteed maximum price contracts, review of contractor financials, and completing plans and specifications prior to commencement of construction. The incurrence of the additional costs described above or any non-occupancy by a prospective tenant upon completion may reduce the project’s and our portfolio’s returns or result in losses, which may adversely affect our NAV.



CPA:17 – Global 2017 10-K – 21

We are subject to risks posed by fluctuating demand and significant competition in the self-storage industry.
 
Our self-storage facilities are subject to the operating risks common to the self-storage industry. These risks include, but are not limited to, the following:

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decreases in demand for rental spaces in a particular locale;
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changes in supply of similar or competing self-storage facilities in an area;
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changes in market rental rates; and
•
rent defaults by customers.

Our self-storage facilities compete with other self-storage facilities in their geographic markets. As a result of competition, the self-storage facilities could experience a decrease in occupancy levels and rental rates, which would decrease our cash available for distribution. We compete in operations and for acquisition opportunities with companies that have substantial financial resources. Competition may reduce the number of suitable acquisition opportunities offered to us and increase the bargaining power of property owners seeking to sell. The self-storage industry has at times experienced overbuilding in response to perceived increases in demand. A recurrence of overbuilding may cause our self-storage properties to experience a decrease in occupancy levels, limit their ability to increase rents, and compel them to offer discounts.

A decrease in demand for self-storage space would likely have an adverse effect on revenues from our operating portfolio.

A decrease in the demand for self-storage space would likely have an adverse effect on revenues from our operating portfolio. Demand for self-storage space has been and could be adversely affected by weakness in national, regional, and local economies; changes in supply of, or demand for, similar or competing self-storage facilities in an area; and the excess amount of self-storage space in a particular market. To the extent that any of these conditions occur, they are likely to affect market rents for self-storage space, which could cause a decrease in our revenues. For the year ended December 31, 2017, revenue generated from our self-storage investments represented approximately 8% of total revenue.

We depend on the abilities of the property managers of our self-storage facilities.

We contract with independent property managers to operate our self-storage facilities on a day-to-day basis. Although we consult with the property managers with respect to strategic business plans, we may be limited, depending on the terms of the applicable management agreement, in our ability to direct the actions of the independent property managers, particularly with respect to daily operations. Thus, even if we believe that our self-storage facilities are being operated inefficiently or in a manner that does not result in satisfactory occupancy rates or operating profits, we may not have sufficient rights under a particular management agreement to force the property manager to change its method of operation. We can only seek redress if a property manager violates the terms of the applicable management agreement, and then only to the extent of the remedies provided in the agreement. We are, therefore, substantially dependent on the ability of the independent property managers to successfully operate our self-storage facilities. Some of our management agreements may have lengthy terms, may not be terminable by us before the agreement’s expiration and may require the payment of termination fees. In the event that we are able to and do replace any of our property managers, we may experience significant disruptions at the self-storage facilities, which may adversely affect our results of operations.

Short-term leases may expose us to the effects of declining market rent.

Certain types of the properties we own and may acquire, such as self-storage properties, typically have short-term leases (generally one year or less) with tenants. There is no assurance that we will be able to renew these leases as they expire or attract replacement tenants on comparable terms, if at all.

Potential liability for environmental matters could adversely affect our financial condition.

Our properties are currently invested, and we expect to continue to invest, in real properties historically used for industrial, manufacturing, and other commercial purposes, and some of our tenants may handle hazardous or toxic substances, generate hazardous wastes, or discharge regulated pollutants to the environment. We therefore may own properties that have known or potential environmental contamination as a result of historical or ongoing operations. Buildings and structures on the properties we purchase may have known or suspected asbestos-containing building materials. We may invest in properties located in countries that have adopted laws or observe environmental management standards that are less stringent than those generally followed in the United States, which may pose a greater risk that releases of hazardous or toxic substances have occurred.


CPA:17 – Global 2017 10-K – 22

Leasing properties to tenants that engage in these activities, and owning properties historically and currently used for industrial, manufacturing, and commercial purposes, will cause us to be subject to the risk of liabilities under environmental laws. Some of these laws could impose the following on us:

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responsibility and liability for the costs of investigation and removal (including at appropriate disposal facilities) or remediation of hazardous or toxic substances in, on, or migrating from our real property, generally without regard to our knowledge of, or responsibility for, the presence of these contaminants;
•
liability for claims by third parties based on damages to natural resources or property, personal injuries, or costs of removal or remediation of hazardous or toxic substances in, on, or migrating from our property; and
•
responsibility for managing asbestos-containing building materials and third-party claims for exposure to those materials.

Our costs of investigation, remediation, or removal of hazardous or toxic substances, or for third-party claims for damages, may be substantial and could exceed the amounts estimated and recorded within our consolidated financial statements. The presence of hazardous or toxic substances on one of our properties, or the failure to properly remediate a contaminated property, could (i) give rise to a lien in favor of the government for costs it may incur to address the contamination, or (ii) otherwise adversely affect our ability to sell or lease the property or to borrow using the property as collateral. In addition, environmental liabilities, or costs or operating limitations imposed on a tenant by environmental laws, could affect its ability to make rental payments to us. And although we endeavor to avoid doing so, we may be required, in connection with any future divestitures of property, to provide buyers with indemnification against potential environmental liabilities. With respect to our self-storage investments, where there is no tenant to provide indemnification under a net-lease arrangement, we may be liable for costs associated with environmental contamination in the event any such circumstances arise after we acquire the property.

We and our independent property operators rely on information technology in our operations, and any material failure, inadequacy, interruption, or security failure of that technology could harm our business.

We and our independent property operators rely on information technology networks and systems, including the Internet, to process, transmit, and store electronic information, and to manage or support a variety of business processes, including financial transactions and records, personal identifying information, billing, and operating data. We purchase some of our information technology from third-party vendors and we rely on commercially available systems, software, tools, and monitoring to provide security for processing, transmission, and storage of confidential information. It is possible that our safety and security measures will not be able to prevent improper system functions, damage, or the improper access or disclosure of personally identifiable information. Security breaches, including physical or electronic break-ins, computer viruses, attacks by hackers, and similar breaches, can create system disruptions, shutdowns, or unauthorized disclosure of confidential information. Any failure to maintain proper function, security, and availability of our information systems could interrupt our operations, damage our reputation, subject us to liability claims or regulatory penalties, and could have a material adverse effect on our business, financial condition, and results of operations.

The occurrence of cyber incidents to our Advisor, or a deficiency in our Advisor’s cyber security, could negatively impact our business by causing a disruption to our operations, a compromise or corruption of our confidential information, and/or damage to our business relationships, all of which could negatively impact our financial results.

A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity, or availability of information resources. More specifically, a cyber incident could be (i) an intentional attack, which could include gaining unauthorized access to systems to disrupt operations, corrupt data, or steal confidential information; or (ii) an unintentional accident or error. As our Advisor’s reliance on technology has increased, so have the risks posed to our Advisor’s systems, both internal and outsourced. Our Advisor may also store or come into contact with sensitive information and data. If our Advisor or its partners fail to comply with applicable privacy or data security laws in handling this information, including the new General Data Protection Regulation in the European Union, we could face significant legal and financial exposure to claims of governmental agencies and parties whose privacy is compromised. The three primary risks that could directly result from the occurrence of a cyber incident include operational interruption, damage to our relationship with our tenants, and private data exposure. We and our Advisor maintain insurance intended to cover some of these risks, but it may not be sufficient to cover the losses from any future breaches of our Advisor’s systems. Our Advisor has implemented processes, procedures, and controls to help mitigate these risks, but these measures, as well as our and our Advisor’s increased awareness of a risk of a cyber incident, do not guarantee that our financial results will not be negatively impacted by such an incident.



CPA:17 – Global 2017 10-K – 23

The lack of an active public trading market for our shares, combined with the ownership limitation on our shares, may discourage a takeover and make it difficult for stockholders to sell shares quickly or at all.

There is no active public trading market for our shares and we do not expect one to develop. Moreover, we are not required to complete a liquidity event by a specified date. To assist us in meeting the REIT qualification rules, among other things, our charter also prohibits the ownership by one person or an affiliated group of (i) more than 9.8% in value of our shares of stock of any class or series (including common shares or any preferred shares) or (ii) more than 9.8% in value or number, whichever is more restrictive, of our outstanding shares of common stock, unless exempted by our board of directors. This ownership limitation may discourage third parties from making a potentially attractive tender offer for your shares, thereby inhibiting a change of control in us. In addition, you should not rely on our redemption plan as a method to sell shares promptly because it includes numerous restrictions that limit your ability to sell your shares to us and our board of directors may amend, suspend, or terminate the plan without advance notice. In particular, the redemption plan provides that we may redeem shares only if we have sufficient funds available for redemption and to the extent the total number of shares for which redemption is requested in any quarter, together with the aggregate number of shares redeemed in the preceding three fiscal quarters, does not exceed 5% of the total number of our shares outstanding as of the last day of the immediately preceding fiscal quarter. Given these limitations, it may be difficult for investors to sell their shares promptly or at all. In addition, the price received for any shares sold prior to a liquidity event is likely to be less than the proportionate value of the real estate we own. Investor suitability standards imposed by certain states may also make it more difficult for investors to sell their shares to someone in those states. As a result, our shares should only be purchased as a long-term investment.

Conflicts of interest may arise between holders of our common stock and holders of partnership interests in our Operating Partnership.

Our directors and officers have duties to us and our stockholders under Maryland law in connection with their management of us. At the same time, our Operating Partnership was formed in Delaware and we, as general partner, have duties under Delaware law to our Operating Partnership and any other limited partners in connection with our management of our Operating Partnership. Our duties as general partner of our Operating Partnership may come into conflict with the duties of our directors and officers to us and our stockholders.

Under Delaware law, a general partner of a Delaware limited partnership owes its limited partners the duties of good faith and fair dealing. Other duties, including fiduciary duties, may be modified or eliminated in the partnership’s partnership agreement. The partnership agreement of our Operating Partnership provides that, for so long as we own a controlling interest in our Operating Partnership, any conflict that cannot be resolved in a manner not adverse to either our stockholders or the limited partners will be resolved in favor of our stockholders. The provisions of Delaware law that allow the fiduciary duties of a general partner to be modified by a partnership agreement have not been tested in a court of law, and we have not obtained an opinion of counsel covering the provisions set forth in the partnership agreement that purport to waive or restrict our fiduciary duties.

In addition, the partnership agreement expressly limits our liability by providing that we and our officers, directors, agents, employees, and designees will not be liable or accountable to our Operating Partnership for losses sustained, liabilities incurred, or benefits not derived if we or our officers, directors, agents, employees, or designees, as the case may be, acted in good faith. Furthermore, our Operating Partnership is required to indemnify us and our officers, directors, agents, employees, and designees to the extent permitted by applicable law from, and against, any and all claims arising from operations of our Operating Partnership, unless it is established that: (i) the act or omission was committed in bad faith, was fraudulent, or was the result of active and deliberate dishonesty; (ii) the indemnified party actually received an improper personal benefit in money, property, or services; or (iii) in the case of a criminal proceeding, the indemnified person had reasonable cause to believe that the act or omission was unlawful. These limitations on liability do not supersede the indemnification provisions of our charter.



CPA:17 – Global 2017 10-K – 24

Maryland law could restrict a change in control, which could have the effect of inhibiting a change in control even if a change in control were in our stockholders’ interest.

Provisions of Maryland law applicable to us prohibit business combinations with:

•
any person who beneficially owns 10% or more of the voting power of our outstanding voting stock, referred to as an interested stockholder;
•
an affiliate or associate who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of our outstanding stock, also referred to as an interested stockholder; or
•
an affiliate of an interested stockholder.

These prohibitions last for five years after the most recent date on which the interested stockholder became an interested stockholder. Thereafter, any business combination must be recommended by our board of directors and approved by the affirmative vote of at least 80% of the votes entitled to be cast by holders of our outstanding voting stock and two-thirds of the votes entitled to be cast by holders of our voting stock (other than voting stock held by the interested stockholder or by an affiliate or associate of the interested stockholder). These requirements could have the effect of inhibiting a change in control even if a change in control were in our stockholders’ interest. These provisions of Maryland law do not apply, however, to business combinations that are approved or exempted by our board of directors prior to the time that someone becomes an interested stockholder. In addition, a person is not an interested stockholder if the board of directors approved in advance the transaction by which he or she otherwise would have become an interested stockholder. However, in approving a transaction, the board of directors may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the board.

Our charter permits our board of directors to issue stock with terms that may subordinate the rights of the holders of our current common stock or discourage a third party from acquiring us.

Our board of directors may determine that it is in our best interest to classify or reclassify any unissued stock and establish the preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications, and terms or conditions of redemption of any such stock. Thus, our board of directors could authorize the issuance of such stock with terms and conditions that could subordinate the rights of the holders of our common stock or have the effect of delaying, deferring, or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer, or sale of all or substantially all of our assets) that might provide a premium price for holders of our common stock. However, the issuance of preferred stock must also be approved by a majority of independent directors not otherwise interested in the transaction, who will have access at our expense to our legal counsel or to independent legal counsel. In addition, the board of directors, with the approval of a majority of the entire board and without any action by the stockholders, may amend our charter from time to time to increase or decrease the aggregate number of shares or the number of shares of any class or series that we have authority to issue. If our board of directors determines to take any such action, it will do so in accordance with the duties it owes to holders of our common stock.

Risks Related to REIT Structure

While we believe that we are properly organized as a REIT in accordance with applicable law, we cannot guarantee that the Internal Revenue Service will find that we have qualified as a REIT.

We believe that we are organized in conformity with the requirements for qualification as a REIT under the Internal Revenue Code beginning with our 2007 taxable year and that our current and anticipated investments and plan of operation will enable us to meet and continue to meet the requirements for qualification and taxation as a REIT. Investors should be aware, however, that the Internal Revenue Service or any court could take a position different from our own. Given the highly complex nature of the rules governing REITs, the ongoing importance of factual determinations, and the possibility of future changes in our circumstances, no assurance can be given that we will qualify as a REIT for any particular year.



CPA:17 – Global 2017 10-K – 25

Furthermore, our qualification and taxation as a REIT will depend on our satisfaction of certain asset, income, organizational, distribution, stockholder ownership, and other requirements on a continuing basis. Our ability to satisfy the quarterly asset tests under applicable Internal Revenue Code provisions and Treasury Regulations will depend in part upon our board of directors’ good faith analysis of the fair market values of our assets, some of which are not susceptible to a precise determination. Our compliance with the REIT income and quarterly asset requirements also depends upon our ability to successfully manage the composition of our income and assets on an ongoing basis. While we believe that we will satisfy these tests, we cannot guarantee that this will be the case on a continuing basis.

The Internal Revenue Service may treat sale-leaseback transactions as loans, which could jeopardize our REIT qualification.

The Internal Revenue Service may take the position that specific sale-leaseback transactions that we treat as true leases are not true leases for U.S. federal income tax purposes but are, instead, financing arrangements or loans. If a sale-leaseback transaction were so recharacterized, we might fail to satisfy the qualification requirements applicable to REITs.

If we fail to remain qualified as a REIT, we would be subject to federal income tax at corporate income tax rates and would not be able to deduct distributions to stockholders when computing our taxable income.

If, in any taxable year, we fail to qualify for taxation as a REIT and are not entitled to relief under the Internal Revenue Code, we will:

•
not be allowed a deduction for distributions to stockholders in computing our taxable income;
•
be subject to federal and state income tax, including any applicable alternative minimum tax for taxable years ending prior to January 1, 2018, on our taxable income at regular corporate rates; and
•
be barred from qualifying as a REIT for the four taxable years following the year when we were disqualified.

Any such corporate tax liability could be substantial and would reduce the amount of cash available for distributions to our stockholders, which in turn could have an adverse impact on the value of our common stock. This adverse impact could last for five or more years because, unless we are entitled to relief under certain statutory provisions, we will be taxed as a corporation beginning the year in which the failure occurs and for the following four years.

If we fail to qualify for taxation as a REIT, we may need to borrow funds or liquidate some investments to pay the additional tax liability. Were this to occur, funds available for investment would be reduced. REIT qualification involves the application of highly technical and complex provisions of the Internal Revenue Code to our operations, as well as various factual determinations concerning matters and circumstances not entirely within our control. There are limited judicial or administrative interpretations of these provisions. Although we plan to continue to operate in a manner consistent with the REIT qualification rules, we cannot assure you that we will qualify in a given year or remain so qualified.

If we fail to make required distributions, we may be subject to federal corporate income tax.

We intend to declare regular quarterly distributions, the amount of which will be determined, and is subject to adjustment, by our board of directors. To continue to qualify and be taxed as a REIT, we will generally be required to distribute at least 90% of our REIT taxable income (determined without regard to the dividends-paid deduction and excluding net capital gain) each year to our stockholders. Generally, we expect to distribute all, or substantially all, of our REIT taxable income. If our cash available for distribution falls short of our estimates, we may be unable to maintain the proposed quarterly distributions that approximate our taxable income and we may fail to qualify for taxation as a REIT. In addition, our cash flows from operations may be insufficient to fund required distributions as a result of differences in timing between the actual receipt of income and the recognition of income for federal income tax purposes or the effect of nondeductible expenditures (e.g. capital expenditures, payments of compensation for which Section 162(m) of the Internal Revenue Code denies a deduction, the creation of reserves, or required debt service or amortization payments). To the extent we satisfy the 90% distribution requirement, but distribute less than 100% of our REIT taxable income, we will be subject to federal corporate income tax on our undistributed taxable income. We will also be subject to a 4.0% nondeductible excise tax if the actual amount that we pay out to our stockholders for a calendar year is less than a minimum amount specified under the Internal Revenue Code. In addition, in order to continue to qualify as a REIT, any C corporation earnings and profits to which we succeed must be distributed as of the close of the taxable year in which we accumulate or acquire such C corporation’s earnings and profits.



CPA:17 – Global 2017 10-K – 26

Because certain covenants in our debt instruments may limit our ability to make required REIT distributions, we could be subject to taxation.

Our existing debt instruments include, and our future debt instruments may include, covenants that limit our ability to make required REIT distributions. If the limits set forth in these covenants prevent us from satisfying our REIT distribution requirements, we could fail to qualify for federal income tax purposes as a REIT. If the limits set forth in these covenants do not jeopardize our qualification for taxation as a REIT, but prevent us from distributing 100% of our REIT taxable income, we will be subject to federal corporate income tax, and potentially a nondeductible excise tax, on the retained amounts.

Because we will be required to satisfy numerous requirements imposed upon REITs, we may be required to borrow funds, sell assets, or raise equity on terms that are not favorable to us.

In order to meet the REIT distribution requirements and maintain our qualification and taxation as a REIT, we may need to borrow funds, sell assets, or raise equity, even if the then-prevailing market conditions are not favorable for such transactions. If our cash flows are not sufficient to cover our REIT distribution requirements, it could adversely impact our ability to raise short- and long-term debt, sell assets, or offer equity securities in order to fund the distributions required to maintain our qualification and taxation as a REIT. Furthermore, the REIT distribution requirements may increase the financing we need to fund capital expenditures, future growth, and expansion initiatives, which would increase our total leverage.

In addition, if we fail to comply with certain asset ownership tests at the end of any calendar quarter, we must generally correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification. As a result, we may be required to liquidate otherwise attractive investments. These actions may reduce our income and amounts available for distribution to our stockholders.

Because the REIT rules require us to satisfy certain rules on an ongoing basis, our flexibility or ability to pursue otherwise attractive opportunities may be limited.

To qualify as a REIT for federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders, and the ownership of our common stock. Compliance with these tests will require us to refrain from certain activities and may hinder our ability to make certain attractive investments, including the purchase of non-qualifying assets, the expansion of non-real estate activities, and investments in the businesses to be conducted by our taxable REIT subsidiaries, or TRSs, thereby limiting our opportunities and the flexibility to change our business strategy. Furthermore, acquisition opportunities in domestic and international markets may be adversely affected if we need or require target companies to comply with certain REIT requirements prior to closing on acquisitions.

To meet our annual distribution requirements, we may be required to distribute amounts that may otherwise be used for our operations, including amounts that may be invested in future acquisitions, capital expenditures, or debt repayment; and it is possible that we might be required to borrow funds, sell assets, or raise equity to fund these distributions, even if the then-prevailing market conditions are not favorable for such transactions.

Because the REIT provisions of the Internal Revenue Code limit our ability to hedge effectively, the cost of our hedging may increase and we may incur tax liabilities.

The REIT provisions of the Internal Revenue Code limit our ability to hedge assets and liabilities that are not incurred to acquire or carry real estate. Generally, income from hedging transactions that have been properly identified for tax purposes (which we enter into to manage interest rate risk with respect to borrowings to acquire or carry real estate assets) and income from certain currency hedging transactions related to our non-U.S. operations, do not constitute “gross income” for purposes of the REIT gross income tests (such a hedging transaction is referred to as a “qualifying hedge”). In addition, if we enter into a qualifying hedge, but dispose of the underlying property (or a portion thereof) or the underlying debt (or a portion thereof) is extinguished, we can enter into a hedge of the original qualifying hedge, and income from the subsequent hedge will also not constitute “gross income” for purposes of the REIT gross income tests. To the extent that we enter into other types of hedging transactions, the income from those transactions is likely to be treated as non-qualifying income for purposes of the REIT gross income tests. As a result of these rules, we may need to limit our use of advantageous hedging techniques or implement those hedges through a TRS. This could increase the cost of our hedging activities because our TRSs could be subject to tax on income or gains resulting from such hedges or limit our hedging and therefore expose us to greater interest rate risks than we would otherwise want to bear. In addition, losses in any of our TRSs generally will not provide any tax benefit, except for being carried forward for use against future taxable income in the TRSs.


CPA:17 – Global 2017 10-K – 27


We use TRSs, which may cause us to fail to qualify as a REIT.

To qualify as a REIT for federal income tax purposes, we hold our non-qualifying REIT assets and conduct our non-qualifying REIT income activities in or through TRSs. The net income of our TRSs is not required to be distributed to us and income that is not distributed to us will generally not be subject to the REIT income distribution requirement. However, there may be limitations on our ability to accumulate earnings in our TRSs and the accumulation or reinvestment of significant earnings in our TRSs could result in adverse tax treatment. In particular, if the accumulation of cash in our TRSs causes the fair market value of our TRS interests and certain other non-qualifying assets to exceed 20% of the fair market value of our assets (or 25% for tax years beginning after July 30, 2008 and before December 31, 2017), we would lose tax efficiency and could potentially fail to qualify as a REIT.

Because the REIT rules limit our ability to receive distributions from TRSs, our ability to fund distribution payments using cash generated through our TRSs may be limited.

Our ability to receive distributions from our TRSs is limited by the rules we must comply with in order to maintain our REIT status. In particular, at least 75% of our gross income for each taxable year as a REIT must be derived from real estate-related sources, which principally includes gross income from the leasing of our properties. Consequently, no more than 25% of our gross income may consist of dividend income from our TRSs and other non-qualifying income types. Thus, our ability to receive distributions from our TRSs is limited and may impact our ability to fund distributions to our stockholders using cash flows from our TRSs. Specifically, if our TRSs become highly profitable, we might be limited in our ability to receive net income from our TRSs in an amount required to fund distributions to our stockholders commensurate with that profitability.

Our ownership of TRSs will be subject to limitations that could prevent us from growing our portfolio and our transactions with our TRSs could cause us to be subject to a 100% penalty tax on certain income or deductions if those transactions are not conducted on an arm’s-length basis.

Overall, no more than 20% of the value of a REIT’s gross assets (25% for tax years beginning after July 30, 2008 and before December 31, 2017), may consist of interests in TRSs; compliance with this limitation could limit our ability to grow our portfolio. In addition, the Internal Revenue Code limits the deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation. The Internal Revenue Code also imposes a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm’s-length basis. We will monitor the value of investments in our TRSs in order to ensure compliance with TRS ownership limitations and will structure our transactions with our TRSs on terms that we believe are arm’s-length to avoid incurring the 100% excise tax described above. There can be no assurance, however, that we will be able to comply with the TRS ownership limitation or be able to avoid application of the 100% excise tax.


Dividends payable by REITs do not qualify for the reduced tax rates on dividend income from C corporations, which could adversely affect the value of our common stock.

The maximum U.S. federal income tax rate for certain qualified dividends payable by C corporations to U.S. stockholders that are individuals, trusts and estates is 20%. Dividends payable by REITs, however, are generally not eligible for the reduced qualified dividend rate. However, for taxable years beginning after December 31, 2017 and before January 1, 2026, under the recently enacted Tax Cuts and Jobs Act, noncorporate taxpayers may deduct up to 20% of certain qualified business income, including “qualified REIT dividends” (generally, dividends received by a REIT shareholder that are not designated as capital gain dividends or qualified dividend income), subject to certain limitations, resulting in an effective maximum U.S. federal income tax rate of 29.6% on such income. Although the reduced U.S. federal income tax rate applicable to qualified dividends from C corporations does not adversely affect the taxation of REITs or dividends paid by REITs, the more favorable rates applicable to regular corporate dividends, together with the recently reduced corporate tax rate (21%), could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our common stock.



CPA:17 – Global 2017 10-K – 28

Even if we continue to qualify as a REIT, certain of our business activities will be subject to corporate level income tax and foreign taxes, which will continue to reduce our cash flows, and we will have potential deferred and contingent tax liabilities.

Even if we qualify for taxation as a REIT, we may be subject to certain (i) federal, state, local, and foreign taxes on our income and assets, including alternative minimum taxes for taxable years ending prior to January 1, 2018; (ii) taxes on any undistributed income and state, local, or foreign income; and (iii) franchise, property, and transfer taxes. In addition, we could be required to pay an excise or penalty tax under certain circumstances in order to utilize one or more relief provisions under the Internal Revenue Code to maintain qualification for taxation as a REIT, which could be significant in amount.

Any TRS assets and operations would continue to be subject, as applicable, to federal and state corporate income taxes and to foreign taxes in the jurisdictions in which those assets and operations are located. Any of these taxes would decrease our earnings and our cash available for distributions to stockholders.

We will also be subject to a federal corporate level tax at the highest regular corporate rate (currently 21% for year 2018) on all or a portion of the gain recognized from a sale of assets formerly held by any C corporation that we acquire on a carry-over basis transaction occurring within a five-year period after we acquire such assets, to the extent the built-in gain based on the fair market value of those assets on the effective date of the REIT election is in excess of our then tax basis. The tax on subsequently sold assets will be based on the fair market value and built-in gain of those assets as of the beginning of our holding period. Gains from the sale of an asset occurring after the specified period will not be subject to this corporate level tax. We expect to have only a de minimis amount of assets subject to these corporate tax rules and do not expect to dispose of any significant assets subject to these corporate tax rules.

Because dividends received by foreign stockholders are generally taxable, we may be required to withhold a portion of our distributions to such persons.

Ordinary dividends received by foreign stockholders that are not effectively connected with the conduct of a U.S. trade or business are generally subject to U.S. withholding tax at a rate of 30%, unless reduced by an applicable income tax treaty. Additional rules with respect to certain capital gain distributions will apply to foreign stockholders that own more than 10% of our common stock.

The ability of our board of directors to revoke our REIT election, without stockholder approval, may cause adverse consequences for our stockholders.

Our organizational documents permit our board of directors to revoke or otherwise terminate our REIT election, without the approval of our stockholders, if it determines that it is no longer in our best interest to continue to qualify as a REIT. If we cease to be a REIT, we will not be allowed a deduction for dividends paid to stockholders in computing our taxable income, and we will be subject to U.S. federal income tax at regular corporate rates and state and local taxes, which may have adverse consequences on the total return to our stockholders.

Federal and state income tax laws governing REITs and related interpretations may change at any time, and any such legislative or other actions affecting REITs could have a negative effect on us and our stockholders.

Federal and state income tax laws governing REITs or the administrative interpretations of those laws may be amended at any time. Federal, state, and foreign tax laws are under constant review by persons involved in the legislative process, at the Internal Revenue Service and the U.S. Department of the Treasury, and at various state and foreign tax authorities. Changes to tax laws, regulations, or administrative interpretations, which may be applied retroactively, could adversely affect us or our stockholders. We cannot predict whether, when, in what forms, or with what effective dates, the tax laws, regulations, and administrative interpretations applicable to us or our stockholders may be changed. Accordingly, we cannot assure you that any such change will not significantly affect our ability to qualify for taxation as a REIT and/or the attendant tax consequences to us or our stockholders.



CPA:17 – Global 2017 10-K – 29

Recent changes to U.S. tax laws could have a negative impact on our business.

On December 22, 2017, the President signed a tax reform bill into law, referred to herein as the “Tax Cuts and Jobs Act,” which among other things:

•
reduces the corporate income tax rate from 35% to 21% (including with respect to our TRSs);    
•
reduces the rate of U.S. federal withholding tax on distributions made to non-U.S. shareholders by a REIT that are attributable to gains from the sale or exchange of U.S. real property interests from 35% to 21%;
•
allows for an immediate 100% deduction of the cost of certain capital asset investments (generally excluding real estate assets), subject to a phase-down of the deduction percentage over time;     
•
changes the recovery periods for certain real property and building improvements (e.g. to 15 years for qualified improvement property under the modified accelerated cost recovery system, to 30 years (previously 40 years) for residential real property, and 20 years (previously 40 years) for qualified improvement property under the alternative depreciation system);
•
restricts the deductibility of interest expense by businesses (generally, to 30% of the business’s adjusted taxable income) except, among others, real property businesses electing out of such restriction; generally, we expect our business to qualify as such a real property business, but businesses conducted by our TRSs may not qualify, and we have not yet determined whether our subsidiaries can and/or will make such an election;     
•
requires the use of the less favorable alternative depreciation system to depreciate real property in the event a real property business elects to avoid the interest deduction restriction above;    
•
restricts the benefits of like-kind exchanges that defer capital gains for tax purposes to exchanges of real property;
•
permanently repeals the “technical termination” rule for partnerships, meaning sales or exchanges of the interests in a partnership will be less likely to, among other things, terminate the taxable year of, and restart the depreciable lives of assets held by, such partnership for tax purposes;     
•
requires accrual method taxpayers to take certain amounts in income no later than the taxable year in which such income is taken into account as revenue in an applicable financial statement prepared under GAAP, which, with respect to certain leases, could accelerate the inclusion of rental income;    
•
eliminates the federal corporate alternative minimum tax;    
•
implements a one-time deemed repatriation tax on corporate profits (at a rate of 15.5% on cash assets and 8% on non-cash assets) held offshore, which profits are not taken into account for purposes of the REIT gross income tests;     
•
reduces the highest marginal income tax rate for individuals to 37% from 39.6% (excluding, in each case, the 3.8% Medicare tax on net investment income);    
•
generally allows a deduction for individuals equal to 20% of certain income from pass-through entities, including ordinary dividends distributed by a REIT (excluding capital gain dividends and qualified dividend income), generally resulting in a maximum effective federal income tax rate applicable to such dividends of 29.6% compared to 37% (excluding, in each case, the 3.8% Medicare tax on net investment income); and     
•
limits certain deductions for individuals, including deductions for state and local income taxes, and eliminates deductions for miscellaneous itemized deductions (including certain investment expenses).

As a REIT, we are required to distribute at least 90% of our taxable income to our shareholders annually. As a result of the changes to U.S. federal tax laws implemented by the Tax Cuts and Jobs Act, our taxable income and the amount of distributions to our stockholders required to maintain our REIT status, as well as our relative tax advantage as a REIT, could change.
 
The Tax Cuts and Jobs Act is a complex revision to the U.S. federal income tax laws with impacts on different categories of taxpayers and industries, which will require subsequent rulemaking and interpretation in a number of areas. In addition, many provisions in the Tax Cuts and Jobs Act, particularly those affecting individual taxpayers, expire at the end of 2025. The long-term impact of the Tax Cuts and Jobs Act on the overall economy, government revenues, our tenants, us, and the real estate industry cannot be reliably predicted at this time. Furthermore, the Tax Cuts and Jobs Act may negatively impact certain of our tenants’ operating results, financial condition, and future business plans. The Tax Cuts and Jobs Act may also result in reduced government revenues, and therefore reduced government spending, which may negatively impact some of our tenants that rely on government funding. There can be no assurance that the Tax Cuts and Jobs Act will not negatively impact our operating results, financial condition, and future business operations.

Item 1B. Unresolved Staff Comments.

None.



CPA:17 – Global 2017 10-K – 30

Item 2. Properties.

Our principal corporate offices are located in the offices of our Advisor at 50 Rockefeller Plaza, New York, NY 10020.

See Item 1. Business — Our Portfolio for a discussion of the properties we hold for rental operations and Part II, Item 8. Financial Statements and Supplementary Data — Schedule III — Real Estate and Accumulated Depreciation for a detailed listing of such properties.

Item 3. Legal Proceedings.
 
At December 31, 2017, we were not involved in any material litigation.
 
Various claims and lawsuits arising in the normal course of business are pending against us. The results of these proceedings are not expected to have a material adverse effect on our consolidated financial position or results of operations.

Item 4. Mine Safety Disclosures.

Not applicable.



CPA:17 – Global 2017 10-K – 31

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Unlisted Shares and Distributions

There is no active public trading market for our shares. At March 9, 2018, there were 79,488 holders of record of our shares.

We are required to distribute annually at least 90% of our distributable REIT net taxable income to maintain our status as a REIT. Quarterly distributions declared by us for the past two years are as follows:
 
Years Ended December 31,
 
2017
 
2016
First quarter
$
0.1625

 
$
0.1625

Second quarter
0.1625

 
0.1625

Third quarter
0.1625

 
0.1625

Fourth quarter
0.1625

 
0.1625

 
$
0.6500

 
$
0.6500


Our Senior Credit Facility (as described in Note 10) contains certain covenants that restrict the amount of distributions that we can pay.

Unregistered Sales of Equity Securities

During the three months ended December 31, 2017, we issued 728,185 shares of our common stock to our Advisor as consideration for asset management fees. These shares were issued at $10.11 per share, which represented our most recently published NAV as approved by our board of directors at the date of issuance. Since none of these transactions were considered to have involved a “public offering” within the meaning of Section 4(a)(2) of the Securities Act of 1933, as amended, the shares issued were deemed to be exempt from registration. In acquiring our shares, our Advisor represented that such interests were being acquired by it for investment purposes and not with a view to the distribution thereof. From inception through December 31, 2017, we have issued a total of 14,647,412 shares of our common stock to our Advisor as consideration for asset management fees.

All prior sales of unregistered securities have been reported in our previously filed quarterly and annual reports on Form 10-Q and Form 10-K, respectively.

Issuer Purchases of Equity Securities

The following table provides information with respect to repurchases of our common stock during the three months ended December 31, 2017:
 
 
Total number of
shares purchased (a)
 
Average price
paid per share
 
Total number of shares
purchased as part of
publicly announced plans or program (a)
 
Maximum number (or
approximate dollar value)
of shares that may yet be
purchased under the plans or program (a)
2017 Period
 
 
 
 
October
 
8,000

 
$
9.60

 
N/A
 
N/A
November
 
—

 
—

 
N/A
 
N/A
December
 
1,641,914

 
9.50

 
N/A
 
N/A
Total
 
1,649,914

 
 
 
 
 
 
__________


CPA:17 – Global 2017 10-K – 32

(a)
Represents shares of our common stock requested to be repurchased under our redemption plan, pursuant to which we may elect to redeem shares at the request of our stockholders subject to certain exceptions, conditions, and limitations. The maximum amount of shares purchasable by us in any period depends on a number of factors and is at the discretion of our board of directors. During the three months ended December 31, 2017, we redeemed 451 redemption requests for our common stock, which excludes the October 2017 redemptions noted above that were received in September 2017 but not processed until October 2017. As of the date of this Report, we have fulfilled all of the valid requests that we received during the three months ended December 31, 2017. The average price paid per share will vary depending on the number of redemption requests that were made during the period, the most recently published NAV, and the amount of time a stockholder has held their respective shares.

Item 6. Selected Financial Data.

The following selected financial data should be read in conjunction with the consolidated financial statements and related notes in Item 8 (in thousands, except per share data):
 
Years Ended December 31,
 
2017
 
2016
 
2015
 
2014
 
2013
Operating Data
 
 
 
 
 
 
 
 
 
Revenues from continuing operations (a)
$
447,654

 
$
440,362

 
$
426,947

 
$
396,706

 
$
362,772

Income from continuing operations (a)
136,169

 
229,208

 
124,120

 
106,993

 
60,162

Net income
136,169

 
229,208

 
124,120

 
106,993

 
67,649

Net income attributable to noncontrolling interests
(38,882
)
 
(38,863
)
 
(39,915
)
 
(32,842
)
 
(28,935
)
Net income attributable to CPA:17 – Global
97,287

 
190,345

 
84,205

 
74,151

 
38,714

 
 
 
 
 
 
 
 
 
 
Basic and diluted earnings per share:
 
 
 
 
 
 
 
 
 
Income from continuing operations attributable to CPA:17 – Global (a)
0.28

 
0.56

 
0.25

 
0.23

 
0.10

Net income attributable to CPA:17 – Global
0.28

 
0.56

 
0.25

 
0.23

 
0.12

 
 
 
 
 
 
 
 
 
 
Cash distributions declared per share
0.6500

 
0.6500

 
0.6500

 
0.6500

 
0.6500

Balance Sheet Data
 
 
 
 
 
 
 
 
 
Total assets
$
4,587,470

 
$
4,698,923

 
$
4,613,190

 
$
4,591,238

 
$
4,695,775

Net investments in real estate (b)
3,736,921

 
3,745,466

 
3,699,823

 
3,577,665

 
3,707,369

Long-term obligations (c)
1,957,954

 
2,078,585

 
2,000,742

 
1,891,224

 
1,914,410

Other Information
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities
$
257,034

 
$
211,369

 
$
243,884

 
$
210,055

 
$
182,598

Net cash provided by (used in) investing activities
6,676

 
98,316

 
(348,065
)
 
(214,927
)
 
(533,189
)
Net cash (used in) provided by financing activities
(427,021
)
 
(182,523
)
 
(9,709
)
 
(126,182
)
 
109,239

Cash distributions paid
224,964

 
220,991

 
215,914

 
209,054

 
198,440

Distributions declared
225,993

 
222,046

 
217,311

 
210,862

 
203,598

__________
(a)
Amounts for the years ended December 31, 2017, 2016, 2015, and 2014 include the operating results of properties sold or held for sale. Prior to 2014, operating results of properties sold or held for sale were included in income from discontinued operations.
(b)
In the second quarter of 2017, we reclassified certain line items in our consolidated balance sheets. As a result, Net investments in real estate as of December 31, 2016, 2015, 2014, and 2013 has been revised to conform to the current year presentation (Note 2).
(c)
All years include non-recourse mortgage obligations (Note 10) and deferred acquisition fee installments, including interest thereon (Note 3); 2017, 2016, and 2015 include borrowings on our Senior Credit Facility of $101.9 million, $49.8 million, and $112.8 million, respectively.



CPA:17 – Global 2017 10-K – 33

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide the reader with information that will assist in understanding our financial statements and the reasons for changes in certain key components of our financial statements from period to period. Management’s Discussion and Analysis of Financial Condition and Results of Operations also provides the reader with our perspective on our financial position and liquidity, as well as certain other factors that may affect our future results.

We operate in two reportable business segments: Net Lease and Self Storage. Our Net Lease segment includes our domestic and foreign investments in net-leased properties, whether they are accounted for as operating or direct financing leases. Our Self Storage segment is comprised of our investments in self-storage properties. In addition, we have investments in loans receivable, CMBS, one hotel, and certain other properties, which are included in our All Other category (Note 15).

The following discussion should be read in conjunction with our consolidated financial statements included in Item 8 of this Report and the matters described under Item 1A. Risk Factors.

Business Overview

We are a publicly owned, non-traded REIT that invests primarily in commercial properties leased to companies domestically and internationally. As opportunities arise, we also make other types of commercial real estate-related investments. As a REIT, we are not subject to U.S. federal income taxation as long as we satisfy certain requirements, principally relating to the nature of our income, the level of our distributions, and other factors. We earn revenue principally by leasing the properties we own to single corporate tenants, primarily on a triple-net lease basis, which requires the tenant to pay substantially all of the costs associated with operating and maintaining the property. Revenue is subject to fluctuation because of the timing of new lease transactions, lease terminations, lease expirations, contractual rent adjustments, tenant defaults, sales of properties, and foreign currency exchange rates. We were formed in 2007 and are managed by our Advisor. We hold substantially all of our assets and conduct substantially all of our business through our Operating Partnership. We are the general partner of, and own 99.99% of the interests in, the Operating Partnership. The remaining interest in the Operating Partnership is held by a subsidiary of WPC. We have previously stated our intention to consider liquidity events for investors generally commencing eight to twelve years following the investment of substantially all of the net proceeds from our initial public offering, which occurred in April 2011. During the quarter ended September 30, 2017, our board of directors formed a special committee of independent directors to begin the process of evaluating possible liquidity alternatives for our shareholders. There can be no assurance as to the form or timing of any liquidity alternative or that any alternative will be pursued at all. We do not intend to discuss the evaluation process unless and until a particular alternative is selected.

Significant Developments

Management Changes

Mr. Mark J. DeCesaris retired from his positions as our chief executive officer and a Director in connection with his resignation from those positions of WPC, all effective as of December 31, 2017. On December 6, 2017, our board of directors elected Mr. Jason E. Fox, the incoming chief executive officer of WPC, to become our chief executive officer, effective as of January 1, 2018, and to fill the vacancy on our board, effective as of that same date. Until he became chief executive officer, Mr. Fox has served as president of WPC since 2015 and previously served in various capacities in WPC’s Investment Department, including as its Head of Global Investments, since joining WPC in 2002.

Net Asset Value

Our Advisor calculates our NAV annually as of year-end, and has determined that our NAV was $10.11 as of December 31, 2016. Our Advisor generally calculates our NAV by relying in part on an appraisal of the fair market value of our real estate provided by a third party, adjusted to give effect to the estimated fair value of mortgage loans encumbering our assets (also provided by a third party) as well as other adjustments. Our NAV is based on a number of variables, including individual tenant credits, lease terms, lending credit spreads, foreign currency exchange rates, and tenant defaults, among others. We do not control all of these variables and, as such, cannot predict how they will change in the future. For additional information regarding the calculation of our NAV as of December 31, 2016, please see our Form 8-K dated March 14, 2016. Our Advisor currently intends to determine our NAV as of December 31, 2017 during the first quarter of 2018.



CPA:17 – Global 2017 10-K – 34

Acquisitions

During 2017, we acquired two domestic and three international investments at a total cost of approximately $58.6 million and $152.8 million, respectively, inclusive of acquisition related costs and fees. Three of our investments are build-to-suit transactions, which include the total commitment for funding on each project. One of our international investments is a joint venture investment that we account for as an equity method investment, and the total cost excludes our portion of mortgage financing, as described below (Note 6). Amounts are based on the exchange rate of the foreign currency at the date of acquisition, as applicable (Note 4).

Shelborne Transaction

On October 3, 2017, we restructured our investment in the Shelborne hotel. Pursuant to the accounting guidance on ADC Arrangements, we previously accounted for the loan we had provided Shelborne Operating Associates, LLC, or the Shelborne Loan, under the equity method of accounting. In the restructuring, all equity interests in the investment were transferred to us in satisfaction of the Shelborne Loan. Simultaneously, we transferred a 4.5% minority interest to one of the original equity partners in exchange for a cash contribution of $4.0 million from that partner. As a result of the restructuring, we became the managing member with the controlling financial interest in the investment, which we consolidate (Note 4). We recorded a loss on change in control of interests of $13.9 million during 2017, which was the difference between the carrying value of our previously held equity investment of $118.7 million and the fair value of our 95.5% ownership interest on the date of restructuring of $104.9 million.

During September 2017, the Shelborne hotel sustained damage from Hurricane Irma. The damage to the hotel is estimated at $31.2 million and the estimated insurance deductible is $1.8 million. In addition, we have incurred additional costs of $1.4 million related to remediation work and $2.7 million in costs incurred related to our insurance adjuster. As of December 31, 2017, insurance receivables outstanding relating to the hurricane damage were $30.8 million.

Dispositions

During 2017, we sold four net-lease properties for total proceeds of $28.6 million, net of closing costs, and recognized an aggregate gain on sale of $2.9 million. In addition, during 2017, we sold our interest in an entertainment complex, which we refer to as the I-drive Property, to the developer that constructed it for net proceeds of $23.5 million. In connection with the dispositions, we provided $34.0 million of seller financing in the form of a mezzanine loan, and recorded a deferred gain on sale of $2.1 million, which will be recognized upon recovery of the cost of the property from the future cash proceeds (Note 4, Note 5). In connection with the restructuring of our investment in the related observation wheel, which we refer to as the I-drive Wheel, we also recorded a deferred gain of $16.4 million, which will be recognized into income upon recovery of the cost of the Wheel Loan (Note 5).

Financing Activity

During 2017, we refinanced two non-recourse mortgage loans totaling $157.7 million with new non-recourse mortgage financing totaling $180.0 million, with weighted-average annual interest rate and term to maturity of 2.8% and three years, respectively, which had weighted-average annual interest rate of 3.7% prior to refinancing. In addition, we obtained mortgage financing related to the international joint venture investment described above, of which our portion totaled $88.0 million (Note 6). During 2017, we drew down on two non-recourse mortgage loans totaling $25.1 million that have a weighted-average annual interest rate and term to maturity of 3.1% and seven years, respectively.

In addition, during 2017, we repaid 13 non-recourse mortgage loans totaling $261.4 million, 11 of which were scheduled to mature in 2017 and two of which were scheduled to mature in 2018 (amount is based on the exchange rate of the euro as of the date of repayment). Of that amount, $60.0 million related to the non-recourse mortgage loan that was repaid in full at closing by the buyer in connection with the sale of the I-drive Property (Note 4), on which we recognized a loss on extinguishment of debt of $1.3 million (Note 10). In addition, in connection with our disposition of a property located in Pordenone, Italy, which was part of a larger portfolio of properties located throughout Italy and leased to a single tenant, we repaid a portion of the principal balance of the non-recourse mortgage loan on that portfolio for a total of $9.3 million (amount is based on the exchange rate of the euro as of the date of repayment).

During 2017, we drew down $119.2 million from our Senior Credit Facility (amount is based on the exchange rate of the euro or yen, as applicable, on the date of each draw), of which we have since repaid $69.0 million (Note 10).



CPA:17 – Global 2017 10-K – 35

As of December 31, 2017, we were in breach of a loan-to-value, or LTV, covenant on one of our non-recourse mortgage loans. On January 22, 2018, we repaid $6.1 million (amount is based on the exchange rate of the euro as of the date of repayment) of principal on this loan to cure the covenant breach (Note 10).

Hurricane Harvey and Hurricane Irma

During 2017, certain of our properties were damaged by Hurricane Harvey and Hurricane Irma. We evaluated these properties to determine if any losses should be recognized and, as a result, recognized a loss on our Shelborne hotel in Miami, Florida as discussed above.

Tax Cuts and Jobs Act

On December 22, 2017, the Tax Cuts and Jobs Act was signed into law by President Trump. The new tax legislation, which is expected to have a minimal impact on our operating results, cash flows, and financial condition, contains several key tax provisions, including the reduction of the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018. Other key provisions that have implications to the real estate industry include the limitation of the tax deductibility of interest expense, acceleration of expensing of certain business assets, deductions for pass-through business income, and limitations on loss carryforwards. In addition, the effect of the international provisions of the Tax Cuts and Jobs Act establishes a territorial-style system for taxing foreign-source income of domestic multinational corporations and imposes a one-time repatriation of foreign earnings and profits for which the inclusions can be spread over an eight-year period.

As a result of the Tax Cuts and Jobs Act, for periods beginning on January 1, 2018:

•
Tax rates are permanently reduced on businesses conducted by taxable corporations. The Tax Cuts and Jobs Act is expected to have a favorable impact on the effective tax rate and net income as reported under GAAP for our TRSs;
•
New limitations on interest deductions are imposed with an exemption for electing real estate businesses. Generally, we expect our business to qualify as such a real property business, but businesses conducted by our TRSs may not qualify, and we have not yet determined whether our subsidiaries can and/or will make such an election;
•
Depreciation expensing rules provide taxpayers with 100% expensing deductions for qualifying new or used property acquired and placed in service between September 28, 2017 and December 31, 2022, with annual 20% step-downs generally from 2023 – 2026; however, this will have a limited impact on us due to the interest limitation exception election;
•
Our non-corporate shareholders may be entitled to deduct 20% of qualified REIT ordinary dividends without regard to wage limitations, asset-based limitations, qualified trade or business limitations, or qualified business income limitations;
•
Net operating loss, or NOL, carryforwards arising in tax years beginning after 2017 now may reduce only 80% of taxable income of any year, and NOL carryforwards can be carried forward indefinitely but can no longer be carried back to prior years; however, the Tax Cuts and Jobs Act does not restrict the usage of our existing NOLs, which arose through 2017; and
•
The territorial tax system taxes our income earned within the United States, as opposed to worldwide income, but will have a minimal impact on us due to the ability of REITs to deduct dividends paid.



CPA:17 – Global 2017 10-K – 36

Portfolio Overview

We hold a diversified portfolio of income-producing commercial real estate properties and other real estate-related assets. We make investments both domestically and internationally. Portfolio information is provided on a pro rata basis, unless otherwise noted below, to better illustrate the economic impact of our various net-leased, jointly owned investments. See Terms and Definitions below for a description of pro rata amounts.

Portfolio Summary
 
December 31,
 
2017
 
2016
Number of net-leased properties
411

 
395

Number of operating properties (a)
38

 
38

Number of tenants (b)
116

 
121

Total square footage (in thousands)
47,039

 
46,119

Occupancy (b)
99.72
%
 
99.72
%
Weighted-average lease term (in years)
11.8

 
12.9

Number of countries
16

 
14

Total assets (consolidated basis in thousands)
$
4,587,470

 
$
4,698,923

Net investments in real estate (consolidated basis in thousands) (c)
3,736,921

 
3,745,466

Debt, net — pro rata (in thousands)
2,128,673

 
2,314,937


 
Years Ended December 31,
(dollars in millions, except exchange rates)
2017
 
2016
 
2015
Acquisition volume — consolidated (d) (e)
$
69.9

 
$
233.8

 
$
357.8

Acquisition volume — pro rata (e) (f)
211.4

 
240.3

 
366.9

Financing obtained — consolidated (g)
205.1

 
448.6

 
170.2

Financing obtained — pro rata (g) (h)
293.1

 
465.5

 
170.2

Average U.S. dollar/euro exchange rate
1.1292

 
1.1067

 
1.1099

Change in the U.S. CPI (i)
2.1
%
 
2.0
%
 
0.7
%
Change in the Harmonized Index of Consumer Prices (i)
1.4
%
 
1.2
%
 
0.2
%
__________
(a)
Operating properties are comprised of full ownership interests in 37 self-storage properties with an average occupancy of 91.9% and 93.0% at December 31, 2017 and 2016, respectively, and a majority interest in one hotel property at each date; all of which are managed by third parties.
(b)
Excludes operating properties.
(c)
In the second quarter of 2017, we reclassified certain line items in our consolidated balance sheets. As a result, amounts for certain line items included within Net investments in real estate as of December 31, 2016 have been revised to the current year presentation (Note 2).
(d)
Includes build-to-suit transactions that are reflected as the total commitment for the build-to-suit funding, and excludes investments in unconsolidated joint ventures.
(e)
Includes acquisition-related costs and fees for business combinations (if applicable), which are expensed in the consolidated financial statements.
(f)
Includes build-to-suit transactions that are reflected as the total commitment for the build-to-suit funding, and investments in unconsolidated joint ventures, which include our equity investments in real estate (Note 6).
(g)
Includes refinancings of $180.0 million, $277.7 million, and $5.9 million obtained during the years ended December 31, 2017, 2016, and 2015, respectively.
(h)
Financing on a pro rata basis during the year ended December 31, 2017 and 2016 includes our share of the mortgage financing related to certain of our joint venture investments.
(i)
Many of our lease agreements include contractual increases indexed to changes in the CPI or similar indices in the jurisdictions in which the properties are located.



CPA:17 – Global 2017 10-K – 37

Net-Leased Portfolio

The tables below represent information about our net-leased portfolio on a pro rata basis and, accordingly, exclude all operating properties at December 31, 2017. See Terms and Definitions below for a description of pro rata amounts and ABR.

Top Ten Tenants by ABR
(dollars in thousands)
Tenant/Lease Guarantor
 
Property Type
 
Tenant Industry
 
Location
 
ABR 
 
Percent
Metro Cash & Carry Italia S.p.A. (a)
 
Retail
 
Retail Stores
 
Germany; Italy
 
$
28,627

 
7
%
Konzum d.d. (referred to as Agrokor) (a) (b)
 
Retail; Warehouse
 
Grocery
 
Croatia
 
25,043

 
7
%
Advance Stores Company, Inc.
 
Office; Warehouse
 
Retail Stores
 
Various U.S.
 
18,345

 
5
%
Kesko Senukai (a)
 
Retail; Warehouse
 
Retail Stores
 
Estonia; Latvia; Lithuania
 
15,006

 
4
%
The New York Times Company
 
Office
 
Media: Advertising, Printing and Publishing
 
New York, NY
 
14,986

 
4
%
Lineage Logistics Holdings, LLC
 
Warehouse
 
Business Services
 
Various U.S.
 
14,375

 
4
%
KBR, Inc.
 
Office
 
Business Services
 
Houston, TX
 
12,567

 
3
%
Blue Cross and Blue Shield of Minnesota, Inc.
 
Education Facility; Office
 
Insurance
 
Various MN
 
12,450

 
3
%
Hellweg Die Profi-Baumärkte GmbH & Co. KG (referred to as Hellweg 2) (a)
 
Retail
 
Retail Stores
 
Germany
 
12,195

 
3
%
Jumbo Logistiek Vastgoed B.V. (a)
 
Warehouse
 
Grocery
 
Netherlands
 
11,041

 
3
%
Total
 
 
 
 
 
 
 
$
164,635

 
43
%
__________
(a)
ABR amounts are subject to fluctuations in foreign currency exchange rates.
(b)
In April 2016, the Croatian government passed a special law assisting the restructuring of companies considered of systematic significance in Croatia. This law directly impacts our Agrokor tenant, which is currently experiencing financial distress and received a credit downgrade from both Standard & Poor’s and Moody’s. As a result of the financial difficulties and the uncertainty regarding future rent collections from the tenant, we recorded bad debt expense of $8.1 million during the year ended December 31, 2017. In addition, during the year ended December 31, 2017, we recognized impairment charges of $3.8 million on a property within the Agrokor portfolio that we consolidate and a $4.3 million impairment charge on our Agrokor equity method investment.



CPA:17 – Global 2017 10-K – 38

Portfolio Diversification by Geography
(dollars in thousands)
 
 
Pro Rata
Region
 
ABR
 
Percent
United States
 
 
 
 
Midwest
 
$
70,815

 
18
%
South
 
61,052

 
16
%
East
 
45,715

 
12
%
West
 
31,199

 
8
%
United States Total
 
208,781

 
54
%
International
 
 
 
 
Poland
 
29,851

 
8
%
Italy
 
26,912

 
7
%
Croatia
 
25,043

 
7
%
Germany
 
21,306

 
6
%
Spain
 
19,527

 
5
%
Netherlands
 
16,612

 
4
%
Lithuania
 
11,075

 
3
%
United Kingdom
 
5,253

 
1
%
Other (a)
 
17,472

 
5
%
International Total
 
173,051

 
46
%
Total
 
$
381,832

 
100
%
__________
(a)
Includes ABR from tenants in Hungary, the Czech Republic, Slovakia, Japan, Latvia, Norway, and Estonia.

Portfolio Diversification by Property Type
(dollars in thousands)
 
 
Pro Rata
Property Type
 
ABR
 
Percent
Warehouse
 
$
107,688

 
28
%
Office
 
102,858

 
27
%
Retail
 
94,555

 
25
%
Industrial
 
54,608

 
14
%
Other (a)
 
22,123

 
6
%
Total
 
$
381,832

 
100
%
__________
(a)
Includes ABR from tenants with the following property types: education facility, fitness facility, self-storage, land, and net-leased student housing.



CPA:17 – Global 2017 10-K – 39

Portfolio Diversification by Tenant Industry
(dollars in thousands)
 
 
Pro Rata
Industry Type
 
ABR
 
Percent
Retail Stores
 
$
108,759

 
28
%
Grocery
 
52,004

 
14
%
Business Services
 
38,717

 
10
%
Media: Advertising, Printing, and Publishing
 
18,526

 
5
%
Insurance
 
16,215

 
4
%
Cargo Transportation
 
16,057

 
4
%
Capital Equipment
 
14,685

 
4
%
Consumer Services
 
13,533

 
4
%
Telecommunications
 
11,549

 
3
%
Automotive
 
10,299

 
3
%
Media: Broadcasting and Subscription
 
10,244

 
3
%
Healthcare and Pharmaceuticals
 
9,581

 
3
%
Banking
 
9,226

 
2
%
Hotel, Gaming, and Leisure
 
9,111

 
2
%
Beverage, Food, and Tobacco
 
8,864

 
2
%
Containers, Packing, and Glass
 
7,671

 
2
%
Non-Durable Consumer Goods
 
7,503

 
2
%
High Tech Industries
 
6,496

 
2
%
Other (a)
 
12,792

 
3
%
Total
 
$
381,832

 
100
%
__________
(a)
Includes ABR from tenants in the following industries: wholesale; construction and building; aerospace and defense; consumer transportation; chemicals, plastics, and rubber; durable consumer goods; real estate; metals and mining; finance; and environmental industries.



CPA:17 – Global 2017 10-K – 40

Lease Expirations
(dollars in thousands)


Pro Rata
Year of Lease Expiration (a)

Number of Leases Expiring

ABR

Percent
2018 (b)

14

 
$
1,472

 
—
%
2019

4

 
2,469

 
1
%
2020

5

 
279

 
—
%
2021

7

 
1,792

 
1
%
2022

4

 
4,262

 
1
%
2023

7

 
4,773

 
1
%
2024

11

 
33,752

 
9
%
2025

16

 
24,320

 
6
%
2026

17

 
27,401

 
7
%
2027

22

 
31,243

 
8
%
2028

26

 
41,396

 
11
%
2029

4

 
6,543

 
2
%
2030

21

 
56,415

 
15
%
2031
 
7

 
24,210

 
6
%
Thereafter

60

 
121,505

 
32
%
Total

225


$
381,832


100
%
__________
(a)
Assumes tenant does not exercise any renewal option.
(b)
Month-to-month leases with ABR totaling $1.1 million are included in 2018 ABR.

Operating Properties

At December 31, 2017, our operating properties were comprised as follows (square footage in thousands):
State
 
Number of Properties
 
Square Footage
Illinois
 
13

 
710

California
 
7

 
476

Florida (a)
 
5

 
452

New York
 
5

 
335

Hawaii
 
4

 
259

Georgia
 
2

 
79

North Carolina
 
1

 
80

Texas
 
1

 
75

Total
 
38

 
2,466

__________
(a)
Includes one hotel property that we consolidate (Note 4).



CPA:17 – Global 2017 10-K – 41

Terms and Definitions

Pro Rata Metrics — The portfolio information above contains certain metrics prepared under the pro rata consolidation method. We refer to these metrics as pro rata metrics. We have a number of investments, usually with our affiliates, in which our economic ownership is less than 100%. Under the full consolidation method, we report 100% of the assets, liabilities, revenues, and expenses of those investments that are deemed to be under our control or for which we are deemed to be the primary beneficiary, even if our ownership is less than 100%. Also, for all other jointly owned investments, which we do not control, we report our net investment and our net income or loss from that investment. Under the pro rata consolidation method, we present our proportionate share, based on our economic ownership of these jointly owned investments, of the portfolio metrics of those investments. Multiplying each of our jointly owned investments’ financial statement line items by our percentage ownership and adding or subtracting those amounts from our totals, as applicable, may not accurately depict the legal and economic implications of holding an ownership interest of less than 100% in our jointly owned investments.

ABR — ABR represents contractual minimum annualized base rent for our net-leased properties and reflects exchange rates as of December 31, 2017. If there is a rent abatement, we annualize the first monthly contractual base rent following the free rent period. ABR is not applicable to operating properties.

Financial Highlights

(in thousands)
 
Years Ended December 31,
 
2017
 
2016
 
2015
Total revenues
$
447,654

 
$
440,362

 
$
426,947

Net income attributable to CPA:17 – Global
97,287

 
190,345

 
84,205

 
 
 
 
 
 
Cash distributions paid
224,964

 
220,991

 
215,914

 
 
 
 
 
 
Net cash provided by operating activities
257,034

 
211,369

 
243,884

Net cash provided by (used in) investing activities
6,676

 
98,316

 
(348,065
)
Net cash used in financing activities
(427,021
)
 
(182,523
)
 
(9,709
)
 
 
 
 
 
 
Supplemental financial measures:
 
 
 
 
 
FFO attributable to CPA:17 – Global (a)
259,947

 
245,557

 
224,760

MFFO attributable to CPA:17 – Global (a)
237,558

 
225,010

 
199,883

Adjusted MFFO attributable to CPA:17 – Global (a)
235,794

 
234,541

 
210,945

__________
(a)
We consider the performance metrics listed above, including Funds from operations, or FFO, MFFO, and Adjusted modified funds from operations, or Adjusted MFFO, which are supplemental measures that are not defined by GAAP, both referred to herein as non-GAAP measures, to be important measures in the evaluation of our operating performance. See Supplemental Financial Measures below for our definitions of these non-GAAP measures and reconciliations to their most directly comparable GAAP measures.

Consolidated Results

Revenues and Net Income Attributable to CPA:17 – Global

2017 vs. 2016 — Total revenues increased by $7.3 million during 2017 as compared to 2016, primarily due to a $15.7 million write-off of a below-market lease intangible liability related to a lease modification/termination on the property leased to KBR, Inc., which was recognized in Rental income in the current year (Note 14). In addition, we had an increase in revenues attributable to our recently acquired properties and an increase in interest income as a result of certain loan receivables that originated in March 2017 (Note 5), all of which was partially offset by our 2016 and 2017 dispositions.



CPA:17 – Global 2017 10-K – 42

Net income attributable to CPA:17 – Global decreased by $93.1 million during 2017 as compared to 2016, primarily due to a gain on sale of real estate, net of tax of $132.9 million, which pertained to 34 self-storage properties sold in 2016 (Note 14), a gain on change in control of interests of $49.9 million recognized in 2016, and a loss on change in control of interests of $13.9 million recognized in 2017. These factors were partially offset by a $22.5 million decrease in losses on extinguishment of debt primarily related to the properties sold in 2016, a decrease in interest expense as a result of loans repaid or refinanced during 2016 and 2017 as well as an increase in foreign currency transaction gains that resulted from the U.S. dollar weakening against other currencies, primarily the euro, between the periods.

2016 vs. 2015 — Total revenues increased by $13.4 million during 2016 as compared to 2015, primarily due to an increase in lease revenues driven by new acquisitions and the acceleration of a below-market lease from a tenant of a domestic property pursuant to a lease termination agreement, partially offset by bankruptcy settlement claim proceeds received during 2015 and a decrease in interest income due to a loan receivable that was repaid in December 2015.

Net income attributable to CPA:17 – Global increased by $106.1 million during 2016 as compared to 2015, primarily due to the aggregate gain on sale of real estate, net of tax of $132.9 million and the gain on change in control of interests of $49.9 million recognized during 2016 discussed above, slightly offset by impairment charges totaling $29.7 million and loss on extinguishment of debt totaling $24.4 million recorded during 2016.

FFO Attributable to CPA:17 – Global

2017 vs. 2016 — FFO attributable to CPA:17 – Global increased during 2017 as compared to 2016, primarily due to foreign currency transaction fluctuations, a decrease to loss on extinguishment of debt, a reduction in interest expense as a result of loan payoffs and refinancings, and a change in deferred tax expenses. These factors were partially offset by a decrease in gain on change in control of interests.

2016 vs. 2015 — FFO attributable to CPA:17 – Global increased during 2016 as compared to 2015, primarily due to the $49.9 million gain on change in control of interests and an additional $10.6 million of income recognized related to termination fees on one of our equity investments during the current year, partially offset by the loss on extinguishment of debt of $24.4 million and an impairment charge of $22.8 million to reduce goodwill of one of our equity investments at the investee level to its fair value recognized during 2016.

MFFO and Adjusted MFFO Attributable to CPA:17 – Global

2017 vs. 2016 — MFFO attributable to CPA:17 – Global increased during 2017 as compared to 2016, primarily as a result of the accretive impact of our investments acquired or placed into service during 2016 and 2017, a reduction in interest expense, and a benefit from income taxes recognized in 2017. These increases were partially offset by the impact of our 2017 and 2016 dispositions and the bad debt expense recognized in connection with our Agrokor investment (Note 15). Adjusted MFFO attributable to CPA:17 – Global increased during 2017 as compared to 2016, primarily as a result of the accretive impact of our investments acquired or placed into service during 2016 and 2017 and a reduction of interest expense, partially offset by the impact of our recent dispositions and the bad debt expense recognized in connection with our Agrokor investment.

2016 vs. 2015 — MFFO and Adjusted MFFO attributable to CPA:17 – Global increased during 2016 as compared to 2015, primarily as a result of the accretive impact of our investments acquired or placed into service during 2015 and 2016 and an additional $10.6 million of income recognized related to termination fees related to one of our equity investments. This increase was partially offset by a reduction in other real estate income as a result of the disposition of 34 self-storage properties.



CPA:17 – Global 2017 10-K – 43

Results of Operations

We evaluate our results of operations with a primary focus on our ability to generate cash flow necessary to meet our objectives of funding distributions to stockholders and increasing the value in our real estate investments. As a result, our assessment of operating results gives less emphasis to the effect of unrealized gains and losses, which may cause fluctuations in net income for comparable periods but have no impact on cash flows, and to other non-cash charges, such as depreciation and impairment charges.

The following table presents the comparative results of operations (in thousands):
 
Years Ended December 31,
 
2017
 
2016
 
Change
 
2016
 
2015
 
Change
Revenues
 
 
 
 
 
 
 
 
 
 
 
Lease revenues
$
367,632

 
$
356,841

 
$
10,791

 
$
356,841

 
$
327,192

 
$
29,649

Other real estate income — operating property revenues
40,309

 
46,623

 
(6,314
)
 
46,623

 
49,562

 
(2,939
)
Reimbursable tenant costs
26,531

 
28,382

 
(1,851
)
 
28,382

 
28,631

 
(249
)
Interest income and other
13,182

 
8,516

 
4,666

 
8,516

 
21,562

 
(13,046
)
 
447,654

 
440,362

 
7,292

 
440,362

 
426,947

 
13,415

Operating Expenses
 
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization:
 
 
 
 
 
 
 
 
 
 
 
Net-leased properties
103,160

 
108,532

 
(5,372
)
 
108,532

 
94,726

 
13,806

Operating properties
12,470

 
13,727

 
(1,257
)
 
13,727

 
12,006

 
1,721

 
115,630

 
122,259

 
(6,629
)
 
122,259

 
106,732

 
15,527

Property expenses:
 
 
 
 
 
 
 
 
 
 
 
Asset management fees
29,363

 
29,705

 
(342
)
 
29,705

 
29,192

 
513

Reimbursable tenant costs
26,531

 
28,382

 
(1,851
)
 
28,382

 
28,631

 
(249
)
Net-leased properties
19,219

 
11,952

 
7,267

 
11,952

 
13,784

 
(1,832
)
Operating properties
17,923

 
18,331

 
(408
)
 
18,331

 
20,502

 
(2,171
)
 
93,036

 
88,370

 
4,666

 
88,370

 
92,109

 
(3,739
)
General and administrative
15,358

 
16,310

 
(952
)
 
16,310

 
18,377

 
(2,067
)
Impairment charges
8,959

 
29,706

 
(20,747
)
 
29,706

 
1,023

 
28,683

Acquisition and other expenses
1,343

 
7,157

 
(5,814
)
 
7,157

 
651

 
6,506

 
234,326

 
263,802

 
(29,476
)
 
263,802

 
218,892

 
44,910

 
213,328

 
176,560

 
36,768

 
176,560

 
208,055

 
(31,495
)
Other Income and Expenses
 
 
 
 
 
 
 
 
 
 
 
Interest expense
(88,270
)
 
(98,813
)
 
10,543

 
(98,813
)
 
(93,551
)
 
(5,262
)
Other income and (expenses)
23,231

 
(1,728
)
 
24,959

 
(1,728
)
 
1,912

 
(3,640
)
(Loss) gain on change in control of interests
(13,851
)
 
49,922

 
(63,773
)
 
49,922

 
—

 
49,922

Loss on extinguishment of debt
(1,922
)
 
(24,376
)
 
22,454

 
(24,376
)
 
(275
)
 
(24,101
)
Equity in earnings of equity method investments in real estate
261

 
3,262

 
(3,001
)
 
3,262

 
14,667

 
(11,405
)
 
(80,551
)
 
(71,733
)
 
(8,818
)
 
(71,733
)
 
(77,247
)
 
5,514

Income before income taxes and gain on sale of real estate
132,777

 
104,827

 
27,950

 
104,827

 
130,808

 
(25,981
)
Benefit from (provision for) income taxes
513

 
(8,477
)
 
8,990

 
(8,477
)
 
(8,885
)
 
408

Income before gain on sale of real estate
133,290

 
96,350

 
36,940

 
96,350

 
121,923

 
(25,573
)
Gain on sale of real estate, net of tax
2,879

 
132,858

 
(129,979
)
 
132,858

 
2,197

 
130,661

Net Income
136,169

 
229,208

 
(93,039
)
 
229,208

 
124,120

 
105,088

Net income attributable to noncontrolling interests
(38,882
)
 
(38,863
)
 
(19
)
 
(38,863
)
 
(39,915
)
 
1,052

Net Income Attributable to CPA:17 – Global
$
97,287

 
$
190,345

 
$
(93,058
)
 
$
190,345

 
$
84,205

 
$
106,140




CPA:17 – Global 2017 10-K – 44

Lease Composition

As of December 31, 2017, approximately 62.3% of our net leases, based on ABR, provide for adjustments based on formulas indexed to changes in the CPI, or similar indices for the jurisdiction in which the property is located, some of which have caps and/or floors. In addition, 35.8% of our net leases on that same basis have fixed rent adjustments, for which ABR is scheduled to increase by an average of 4.7% in the next 12 months. We own international investments and, therefore, lease revenues from these investments are subject to exchange rate fluctuations in various foreign currencies, primarily the euro.



CPA:17 – Global 2017 10-K – 45

Property Level Contribution

The following table presents the property level contribution for our consolidated net-leased and operating properties, as well as a reconciliation to net income attributable to CPA:17 – Global (in thousands):
 
Years Ended December 31,
 
2017
 
2016
 
Change
 
2016
 
2015
 
Change
Existing Net-Leased Properties
 
 
 
 
 
 
 
 
 
 
 
Lease revenues
$
317,166

 
$
296,208

 
$
20,958

 
$
296,208

 
$
295,641

 
$
567

Depreciation and amortization
(80,653
)
 
(80,181
)
 
(472
)
 
(80,181
)
 
(83,063
)
 
2,882

Property expenses
(18,436
)
 
(11,397
)
 
(7,039
)
 
(11,397
)
 
(11,703
)
 
306

Property level contribution
218,077

 
204,630

 
13,447

 
204,630

 
200,875

 
3,755

Recently Acquired Net-Leased Properties
 
 
 
 
 
 
 
 
 
 
 
Lease revenues
43,532

 
29,920

 
13,612

 
29,920

 
12,548

 
17,372

Depreciation and amortization
(19,366
)
 
(13,357
)
 
(6,009
)
 
(13,357
)
 
(5,373
)
 
(7,984
)
Property expenses
(750
)
 
(771
)
 
21

 
(771
)
 
(281
)
 
(490
)
Property level contribution
23,416

 
15,792

 
7,624

 
15,792

 
6,894

 
8,898

Existing Operating Properties
 
 
 
 
 
 
 
 
 
 
 
Operating property revenues
28,322

 
26,765

 
1,557

 
26,765

 
25,652

 
1,113

Operating property expenses
(10,549
)
 
(11,009
)
 
460

 
(11,009
)
 
(10,663
)
 
(346
)
Depreciation and amortization
(3,860
)
 
(4,782
)
 
922

 
(4,782
)
 
(5,079
)
 
297

Property level contribution
13,913

 
10,974

 
2,939

 
10,974

 
9,910

 
1,064

Recently Acquired Operating Properties
 
 
 
 
 
 
 
 
 
 
 
Operating property revenues
11,958

 
7,656

 
4,302

 
7,656

 
—

 
7,656

Depreciation and amortization
(8,610
)
 
(6,658
)
 
(1,952
)
 
(6,658
)
 
—

 
(6,658
)
Operating property expenses
(7,623
)
 
(2,292
)
 
(5,331
)
 
(2,292
)
 
—

 
(2,292
)
Property level contribution
(4,275
)
 
(1,294
)
 
(2,981
)
 
(1,294
)
 
—

 
(1,294
)
Properties Sold or Held for Sale
 
 
 
 
 
 
 
 
 
 
 
Lease revenues
6,934

 
30,713

 
(23,779
)
 
30,713

 
19,003

 
11,710

Operating property revenues
29

 
12,202

 
(12,173
)
 
12,202

 
23,910

 
(11,708
)
Operating property expenses
42

 
(4,702
)
 
4,744

 
(4,702
)
 
(9,217
)
 
4,515

Property expenses
174

 
(112
)
 
286

 
(112
)
 
(2,422
)
 
2,310

Depreciation and amortization
(3,141
)
 
(17,281
)
 
14,140

 
(17,281
)
 
(13,217
)
 
(4,064
)
Property level contribution
4,038

 
20,820

 
(16,782
)
 
20,820

 
18,057

 
2,763

Property Level Contribution
255,169

 
250,922

 
4,247

 
250,922

 
235,736

 
15,186

Add other income:
 
 
 
 
 
 
 
 
 
 
 
Interest income and other
13,182

 
8,516

 
4,666

 
8,516

 
21,562

 
(13,046
)
Less other expenses:
 
 
 
 
 
 
 
 
 
 
 
Asset management fees
(29,363
)
 
(29,705
)
 
342

 
(29,705
)
 
(29,192
)
 
(513
)
General and administrative
(15,358
)
 
(16,310
)
 
952

 
(16,310
)
 
(18,377
)
 
2,067

Impairment charges
(8,959
)
 
(29,706
)
 
20,747

 
(29,706
)
 
(1,023
)
 
(28,683
)
Acquisition and other expenses
(1,343
)
 
(7,157
)
 
5,814

 
(7,157
)
 
(651
)
 
(6,506
)
Other Income and Expenses
 
 
 
 
 
 
 
 
 
 
 
Interest expense
(88,270
)
 
(98,813
)
 
10,543

 
(98,813
)
 
(93,551
)
 
(5,262
)
Other income and (expenses)
23,231

 
(1,728
)
 
24,959

 
(1,728
)
 
1,912

 
(3,640
)
(Loss) gain on change in control of interests
(13,851
)
 
49,922

 
(63,773
)
 
49,922

 
—

 
49,922

Loss on extinguishment of debt
(1,922
)
 
(24,376
)
 
22,454

 
(24,376
)
 
(275
)
 
(24,101
)
Equity in earnings of equity method investments in real estate
261

 
3,262

 
(3,001
)
 
3,262

 
14,667

 
(11,405
)
 
(80,551
)
 
(71,733
)
 
(8,818
)
 
(71,733
)
 
(77,247
)
 
5,514

Income before income taxes and gain on sale of real estate
132,777

 
104,827

 
27,950

 
104,827

 
130,808

 
(25,981
)
Benefit from (provision for) income taxes
513

 
(8,477
)
 
8,990

 
(8,477
)
 
(8,885
)
 
408

Income before gain on sale of real estate
133,290

 
96,350

 
36,940

 
96,350

 
121,923

 
(25,573
)
Gain on sale of real estate, net of tax
2,879

 
132,858

 
(129,979
)
 
132,858

 
2,197

 
130,661

Net Income
136,169

 
229,208

 
(93,039
)
 
229,208

 
124,120

 
105,088

Net income attributable to noncontrolling interests
(38,882
)
 
(38,863
)
 
(19
)
 
(38,863
)
 
(39,915
)
 
1,052

Net Income Attributable to CPA:17 – Global
$
97,287

 
$
190,345

 
$
(93,058
)
 
$
190,345

 
$
84,205

 
$
106,140




CPA:17 – Global 2017 10-K – 46

Property level contribution is a non-GAAP measure that we believe to be a useful supplemental measure for management and investors in evaluating and analyzing the financial results of our net-leased and operating properties over time. Property level contribution presents the lease and operating property revenues, less property expenses and depreciation and amortization. We believe that Property level contribution allows for meaningful comparison between periods of the direct costs of owning and operating our net-leased assets and operating properties. When a property is leased on a net lease basis, reimbursable tenant costs are recorded as both income and property expense and, therefore, have no impact on the Property level contribution. While we believe that Property level contribution is a useful supplemental measure, it should not be considered as an alternative to Net income attributable to CPA:17 – Global as an indication of our operating performance.

Existing Net-Leased Properties

Existing net-leased properties are those we acquired or placed into service prior to January 1, 2015 and were not sold during the years presented. At December 31, 2017, we had 224 existing net-leased properties.

2017 vs. 2016 — For the year ended December 31, 2017 as compared to 2016, property level contribution for existing net-leased properties increased by $13.4 million, primarily due to an increase in lease revenues of $21.0 million, partially offset by increases in property expenses and depreciation and amortization expenses of $7.0 million and $0.5 million, respectively. Lease revenues increased primarily due to the $15.7 million write-off of a below-market lease intangible liability that was recognized in Rental income that related to the KBR Inc. lease modification/termination (Note 14) and $1.4 million as a result of an increase in the average exchange rate of the U.S. dollar in relation to foreign currencies (primarily the euro) between the years. Property expenses increased primarily due to bad debt expense of $8.1 million related to our Agrokor investment (Note 15), partially offset by a refund of real estate taxes totaling $1.4 million received during 2017.

2016 vs. 2015 — For the year ended December 31, 2016 as compared to 2015, property level contribution for existing net-leased properties increased by $3.8 million, primarily due to an increase in lease revenues of $0.6 million, and decreases in depreciation and amortization expenses and property expenses of $2.9 million and $0.3 million, respectively. Lease revenues increased by $0.7 million due to the completion of an expansion of one of our properties during October 2015. Depreciation and amortization decreased primarily due to a tenant that exercised a lease renewal option in October 2015 that extended the life of the In-place lease intangible asset and reduced the periodic amortization expense subsequent to the that date.

Recently Acquired Net-Leased Properties

Recently acquired net-leased properties are those that we acquired or placed into service subsequent to December 31, 2014. Since January 1, 2015, we have acquired 14 investments, comprised of 31 properties.

2017 vs. 2016 — For the year ended December 31, 2017 as compared to 2016, property level contribution from recently acquired net-leased properties increased by $7.6 million, primarily due to an increase in lease revenues of $13.6 million as a result of the new investments that we acquired or placed into service during 2017 and 2016, partially offset by an increase in depreciation and amortization expenses of $6.0 million as a result of those new investments.

2016 vs. 2015 — For the year ended December 31, 2016 as compared to 2015, property level contribution from recently acquired net-leased properties increased by $8.9 million, primarily due to an increase in lease revenues of $17.4 million as a result of the new investments that we acquired or placed into service during 2016 and 2015, partially offset by an increase in depreciation and amortization expenses of $8.0 million and property expenses of $0.5 million as a result of those new investments.

Existing Operating Properties

Existing operating properties are those we acquired or placed into service prior to January 1, 2015 and were not sold during the years presented. At December 31, 2017, we had 32 wholly owned existing self-storage properties. Additionally, other real estate operations includes the results of operations of a parking garage attached to one of our existing net-leased properties.



CPA:17 – Global 2017 10-K – 47

2017 vs. 2016 — For the year ended December 31, 2017, compared to 2016, property level contribution from existing operating properties increased by $2.9 million, primarily due to an increase in operating revenues of $1.6 million and a decrease in depreciation and amortization expenses and property expenses of $0.9 million and $0.5 million, respectively. Operating revenues increased primarily due an increase in the storage unit rates in 2017 compared to 2016. Depreciation and amortization expense decreased primarily because certain of our intangibles assets were fully amortized during 2017 compared to a full year of amortization in 2016.

2016 vs. 2015 — For the year ended December 31, 2016, compared to 2015, property level contribution from existing operating properties increased by $1.1 million, primarily due to an increase in operating revenues of $1.1 million and a decrease in depreciation and amortization expenses of $0.3 million, partially offset by an increase in property expenses of $0.3 million. Operating revenues increased primarily due an increase in the storage unit rate in 2016 compared to 2015.

Recently Acquired Operating Properties

Recently acquired operating properties includes five self-storage properties in which we acquired the remaining 15% controlling interest in April 2016 and that were previously accounted for as an equity investment in real estate. As a result of the acquisition of the controlling interest, we have consolidated this investment since April 2016 and reflect 100% of the property level contribution from these assets (Note 4). In addition, recently acquired operating properties includes the Shelborne hotel, the ownership of which was restructured on October 3, 2017 by converting our underlying loan in the investment to equity and transferring the original partners’ equity interest in the investment to us (Note 4). As a result of the restructuring, we determined that this investment should no longer be accounted for as an ADC Arrangement and we consolidate this investment.

2017 vs. 2016 — For the year ended December 31, 2017 as compared to 2016, property level contribution from recently acquired operating properties decreased by $3.0 million, primarily due to an increase in property expenses and depreciation and amortization of $5.3 million and $2.0 million, respectively, partially offset by an increase in revenue of $4.3 million. Property expenses and revenues both increased primarily as a result of the activity related to the Shelborne hotel as noted above.

Properties Sold or Held for Sale

For the year ended December 31, 2017, we disposed of five net-lease properties, one of which was classified as held for sale at December 31, 2016 (Note 4, Note 14). As a result, lease revenues for the years ended December 31, 2017 and 2016 include acceleration of below-market lease intangible liabilities of $3.3 million and $13.9 million, respectively, related to the KBR Inc. lease termination (Note 14).

For the year ended December 31, 2016, we sold 34 self-storage properties (Note 14). As a result, property level contribution for 2016 includes the acceleration of certain lease intangibles pursuant to a lease termination, which had a net positive impact of $3.4 million for that period.

We did not dispose of or classify any properties as held for sale for the year ended December 31, 2015.

Other Revenues and Expenses

Interest Income and Other

Interest income and other primarily consists of interest earned on our loans receivable and CMBS investments, as well as other income received related to our properties.

2017 vs. 2016 — For the year ended December 31, 2017 as compared to 2016, interest income and other increased by $4.7 million, primarily as a result of the four loans originated in March 2017 in connection with the I-drive Property disposition and I-drive Wheel restructuring (Note 4, Note 5) that generated $4.8 million of interest income in the aggregate.

2016 vs. 2015 — For the year ended December 31, 2016 as compared to 2015, interest income and other decreased by $13.0 million. Contributing to this decrease was the receipt of a $6.3 million bankruptcy settlement claim with a former tenant in 2015, as well as $4.2 million in lower interest income related to a loan receivable that was repaid in December 2015. We also recognized $2.9 million of higher loan premium accretion, which was fully accreted through the loan’s originally scheduled maturity in January 2016.



CPA:17 – Global 2017 10-K – 48

Property Expenses — Asset Management Fees

2017 vs. 2016 — For the year ended December 31, 2017 as compared to 2016, asset management fees decreased by $0.3 million as a result of dispositions since December 31, 2016, slightly offset by an increase in the estimated fair market value of our real estate portfolio, both of which impact the asset base from which our Advisor earns a fee.

2016 vs. 2015 — For the year ended December 31, 2016 as compared to 2015, asset management fees increased by $0.5 million as a result of investments acquired since December 31, 2015 and an increase in the estimated fair market value of our real estate portfolio, both of which increased the asset base from which our Advisor earns a fee.

General and Administrative

2017 vs. 2016 — For the year ended December 31, 2017 as compared to 2016, general and administrative expenses decreased by $1.0 million, primarily due to decreases in personnel and overhead reimbursement costs and investor relations expenses of $0.5 million and $0.4 million, respectively. The decrease in personnel and overhead reimbursement costs was primarily driven by a decrease in compensation costs incurred by WPC and its affiliates, which directly impacts the allocation of our Advisor’s expenses to us (Note 3). The decrease in investor relations expenses was primarily driven by decreases in transfer agent and proxy costs.

2016 vs. 2015 — For the year ended December 31, 2016 as compared to 2015, general and administrative expenses decreased by $2.1 million, primarily due to decreases in personnel and overhead reimbursement costs of $2.9 million, which was partially offset by a $0.8 million increase of investor relations expenses. The decrease in personnel and overhead reimbursement costs were primarily driven by the increase in revenue from other entities managed by WPC and its affiliates, which directly impacts the allocation of our Advisor’s expenses to us (Note 3).

Impairment Charges

Where the undiscounted cash flows for an asset are less than the asset’s carrying value when considering and evaluating the various alternative courses of action that may occur, we recognize an impairment charge to reduce the carrying value of the asset to its estimated fair value. Further, when we classify an asset as held for sale, we carry the asset at the lower of its current carrying value or its fair value, less estimated costs to sell. Our impairment charges are more fully described in Note 8.

For the year ended December 31, 2017, we incurred impairment charges of $8.3 million to reduce the carrying value of certain properties to their estimated fair value, consisting of the following:

•
$4.5 million, inclusive of $1.5 million attributed to a noncontrolling interest, recognized on one property in which we were notified by that the tenant will not be renewing its lease, which we expect to have difficulty replacing the tenant upon the lease expiration; and
•
$3.8 million recognized on a property within the Agrokor portfolio, which is direct result of the financial difficulties of the tenant.

For the year ended December 31, 2016, we incurred impairment charges of $29.2 million on one property classified as Assets held for sale as of December 31, 2016 in order to reduce the carrying value of the property to its estimated fair value. The fair value measurement approximated its estimated selling price, less estimated costs to sell.

For the years ended December 31, 2017, 2016 and 2015, we incurred other-than-temporary impairment charges of $0.7 million, $0.5 million, and $1.0 million, respectively, on our CMBS investments to reduce their carrying values to their estimated fair values as a result of non-performance.

Acquisition and Other Expenses

Acquisition and other expenses represent direct costs incurred to acquire properties in transactions that are accounted for as business combinations, whereby such costs are required to be expensed as incurred (Note 4). However, following our adoption of ASU 2017-01 on January 1, 2017, all investment transaction costs incurred during the year ended December 31, 2017 were capitalized since our acquisitions during the year were classified as asset acquisitions. Most of our future acquisitions are likely to be classified as asset acquisitions under this accounting standard (Note 2).



CPA:17 – Global 2017 10-K – 49

2017 — For the year ended December 31, 2017, acquisition and other expenses totaled $1.3 million, of which $0.5 million related to deal costs for transactions that have not yet been consummated and $0.5 million related to transaction costs of a property that was acquired in 2016.

2016 — For the year ended December 31, 2016, acquisition and other expenses totaled $7.2 million and related to the properties acquired during the year that were deemed to be business combinations, which includes $3.7 million related to the acquisition of the remaining 15% controlling interest in a portfolio of five self-storage properties that were previously accounted for as equity investments in real estate.

2015 — For the year ended December 31, 2015, acquisition and other expenses totaled $0.7 million and related primarily to acquisition-related costs and fees incurred in connection with funding two loans totaling $42.6 million for the development of two hotels.

Interest Expense

2017 vs. 2016 — For the year ended December 31, 2017 as compared to 2016, interest expense decreased by $10.5 million, primarily due to a decrease in our average outstanding debt balance and lower weighted average interest rate on our average outstanding debt during the years presented. Our average outstanding debt balance decreased $31.7 million during the year ended December 31, 2017 as compared to 2016. Our weighted-average interest rate was 4.0% and 4.4% during the years ended December 31, 2017 and 2016, respectively.

2016 vs. 2015 — For the year ended December 31, 2016 as compared to 2015, interest expense increased by $5.3 million, primarily due to (i) $3.2 million of interest expense recorded during 2016 related to mortgage debt of $69.8 million that we consolidated in connection with the acquisition of the remaining 15% controlling interest in a portfolio of five self-storage properties (Note 4), (ii) lower capitalized interest of $1.6 million on our build-to-suit properties, and (iii ) an increase of $0.4 million related to the increase in our average outstanding debt in connection with our investment activity during 2015 and 2016. Our average outstanding debt balance was $2.0 billion and $1.9 billion during the years ended December 31, 2016 and 2015, respectively. Our weighted-average interest rate was 4.4% and 4.7% during the years ended December 31, 2016 and 2015, respectively.
 
Other Income and (Expenses)
 
Other income and (expenses) primarily consists of gains and losses on foreign currency transactions, and derivative instruments. We make intercompany loans to a number of our foreign subsidiaries, most of which do not have the U.S. dollar as their functional currency. Remeasurement of foreign currency intercompany transactions that are scheduled for settlement, consisting primarily of accrued interest and short-term loans, are included in the determination of net income. We also recognize gains or losses on foreign currency transactions when we repatriate cash from our foreign investments or hold foreign currencies in entities designated as U.S. dollar functional currency. In addition, we have certain derivative instruments, including common stock warrants, foreign currency contracts, and a swap, that are not designated as hedges for accounting purposes, for which realized and unrealized gains and losses are included in earnings. The timing and amount of such gains or losses cannot always be estimated and are subject to fluctuation.

2017 — For the year ended December 31, 2017, we recognized net other income of $23.2 million, which was primarily comprised of unrealized foreign currency transaction gains related to our international investments of $18.5 million and gains on derivatives of $6.6 million, partially offset by losses recognized as a result of hurricane damage totaling $2.6 million (Note 4).

2016 — For the year ended December 31, 2016, we recognized net other expenses of $1.7 million, which was primarily comprised of unrealized foreign currency transaction losses related to our international investments of $9.4 million, partially offset by gains recognized on derivatives of $7.6 million.

2015 — For the year ended December 31, 2015, we recognized net other income of $1.9 million, which was primarily comprised of gains recognized on derivatives of $8.0 million and interest income received on our cash balances held with financial institutions of $1.3 million, partially offset by realized and unrealized foreign currency transaction losses related to our international investments of $6.6 million and other losses of $0.7 million primarily related to the write-off of a tenant purchase option that expired in July 2015.



CPA:17 – Global 2017 10-K – 50

(Loss) Gain on Change in Control of Interests

2017 — For the year ended December 31, 2017, we recorded a non-cash loss on change in control of interests of $13.9 million in connection with the Shelborne hotel restructuring, which was the difference between the carrying value from our previously held Shelborne equity investment of $118.7 million and the fair value of our 95.5% ownership interest on the date of restructuring of $104.9 million (Note 4).

2016 — For the year ended December 31, 2016, we recorded a $49.9 million gain on change in control of interests in connection with our acquisition of the remaining 15% controlling interest in a jointly owned investment in five self-storage properties, which was the difference between the carrying value from our previously held equity investment of $15.1 million and the fair value of $64.9 million on April 11, 2016 (Note 4). As a result of this acquisition, we consolidate this investment as of December 31, 2017.

Loss on Extinguishment of Debt

2017 — For the year ended December 31, 2017, we recognized a loss on extinguishment of debt of $1.9 million, primarily due to the $1.3 million loss that related to the $60.0 million non-recourse mortgage loan that was repaid by the buyer at closing in connection with the I-drive Property disposition (Note 10).

2016 — For the year ended December 31, 2016, we recognized a loss on extinguishment of debt of $24.4 million, primarily due to seven non-recourse mortgage loans that were defeased or refinanced during 2016, which resulted in a loss on extinguishment of debt of $23.6 million primarily comprised of prepayment penalties and defeasance costs (Note 10). The defeasance was primarily due to the disposition and refinancing of certain self-storage properties (Note 14).

2015 — For the year ended December 31, 2015, we recognized a loss on extinguishment of debt of $0.3 million related to the refinancing of certain properties.



CPA:17 – Global 2017 10-K – 51

Equity in Earnings of Equity Method Investments in Real Estate

Equity in earnings of equity method investments in real estate is recognized in accordance with the investment agreement for each of our equity method investments and, where applicable, based upon an allocation of the investment’s net assets at book value as if the investment were hypothetically liquidated at the end of each reporting period. Further details about our equity method investments are discussed in Note 6. The following table presents the details of our Equity in earnings of equity method investments in real estate (in thousands):
 
 
Years Ended December 31,
Lessee
 
2017
 
2016
 
2015
Net Lease:
 
 
 
 
 
 
Apply Sørco AS (referred to as Apply) (a) (b)
 
$
(6,977
)
 
$
(1,316
)
 
$
491

Hellweg 2 (a) (c) (d)
 
5,348

 
572

 
6,586

Agrokor (a) (e)
 
(4,413
)
 
421

 
307

Jumbo Logistiek Vastgoed B.V. (a)
 
3,366

 
4,385

 
3,502

U-Haul Moving Partners, Inc. and Mercury Partners, LP
 
2,449

 
2,448

 
2,437

Berry Global Inc.
 
1,767

 
1,671

 
1,640

BPS Nevada, LLC
 
1,222

 
1,029

 
1,507

Kesko Senukai (a) (f)
 
1,004

 
—

 
—

Tesco Global Aruhazak Zrt. (a)
 
908

 
817

 
701

Bank Pekao S.A. (a)
 
836

 
662

 
707

State Farm Automobile Co.
 
759

 
721

 
787

Eroski Sociedad Cooperativa — Mallorca (a)
 
646

 
663

 
649

Dick’s Sporting Goods, Inc.
 
194

 
121

 
115

 
 
7,109

 
12,194

 
19,429

Self-Storage:
 
 
 
 
 
 
Madison Storage NYC, LLC and Veritas Group IX-NYC, LLC (g)
 
—

 
(433
)
 
(1,858
)
 
 
—

 
(433
)
 
(1,858
)
All Other:
 
 
 
 
 
 
Shelborne Operating Associates, LLC (referred to as Shelborne) (h) (i) (j)
 
(8,697
)
 
(8,852
)
 
2,082

BG LLH, LLC (k)
 
1,326

 
297

 
(4,867
)
BPS Nevada, LLC — Preferred Equity (l)
 
1,211

 
3,193

 
2,670

IDL Wheel Tenant, LLC (m) 
 
(688
)
 
(3,137
)
 
(2,789
)
 
 
(6,848
)
 
(8,499
)
 
(2,904
)
Total equity in earnings of equity method investments in real estate
 
$
261

 
$
3,262

 
$
14,667

__________
(a)
Amounts include impact of fluctuations in the exchange rate of the applicable foreign currency.
(b)
Amount for 2017 includes an other-than-temporary impairment charge of $6.3 million recognized on this investment (Note 8).
(c)
The increase in equity earnings was due to a reduction in interest expense for the year ended December 31, 2017 as compared 2016, which was the result of a related mortgage loan that was repaid in January 2017 (Note 6).
(d)
Amount for the year ended December 31, 2015 includes the recognition of tax benefits of $6.2 million as an outcome of the tax audits for the prior years.
(e)
Amount for 2017 includes an other-than-temporary impairment charge of $4.3 million recognized on this investment (Note 8).
(f)
On May 23, 2017, we entered into a joint venture investment to acquire a 70% interest in a real estate portfolio for a total cost of $141.5 million, which excludes our portion of non-recourse mortgage financing totaling $88.0 million (dollar amounts are based on the exchange rate of the euro on the date of acquisition) (Note 6).
(g)
In April 2016, we purchased the remaining 15% controlling interest in this equity investment and therefore consolidated this investment since the date of purchase (Note 4).


CPA:17 – Global 2017 10-K – 52

(h)
On October 3, 2017, we restructured our Shelborne hotel investment by converting the underlying loan to equity and, in addition, each of the partners transferred their equity interest in the investment to us. As a result of the restructuring, we determined that this investment should no longer be accounted for as an ADC Arrangement (Note 4). Upon restructuring, we obtained approximately 95.5% (increased from 33%) of the interest in the entity which simultaneously satisfied the outstanding mortgage loans on the property due to us. We concluded that we should consolidate this investment with the remaining 4.5% noncontrolling interest held by one of the original joint venture partners. During the year ended December 31, 2017, we recognized a loss on change in control of interests of $13.9 million as a result of this restructuring.
(i)
For the year ended December 31, 2017, as a result of Hurricane Irma and prior to the restructuring of this investment, we incurred damage at the hotel, which we currently expect to be covered by insurance after the estimated deductible of $1.7 million is paid (Note 4). We recognized this charge within Equity in earnings of equity method investments in real estate on our consolidated financial statements.
(j)
The amount for 2016 includes a $22.8 million impairment charge to reduce goodwill at the investee level to its fair value partially offset by $10.6 million of income recognized in conjunction with the termination of a management agreement and a $10.6 million gain representing the portion of losses guaranteed by the previous management company under the terms of the management agreement. In addition, we recognized $7.3 million of total losses related to this investment during 2016, which primarily relate to capital contributions from our partners to partially fund cumulative losses that had previously been recognized on our investment as a result of applying the hypothetical liquidation book value model.
(k)
The increase in equity earnings for the year ended December 31, 2017 as compared to 2016 was primarily due to the write off of deferred financing costs during 2016 as a result of debt restructuring on this investment.
(l)
This investment represents a preferred equity interest, with a preferred rate of return of 12%. On May 19, 2017, we received the full repayment of our preferred equity interest totaling $27.0 million; therefore, the preferred equity interest is now retired.
(m)
This investment was restructured on March 17, 2017 and, as a result, we have reclassified the equity investment to a loan receivable, included in Other assets, net in the consolidated financial statements (Note 4).

Benefit from (Provision for) Income Taxes

Our provision for income taxes is primarily related to our international properties and taxable subsidiaries.

2017 — For the year ended December 31, 2017, we recorded a benefit for income taxes of $0.5 million, comprised of deferred income tax benefits of $4.5 million and current income taxes of $4.0 million. The current year benefit for income taxes includes the impact of the Tax Cuts and Jobs Act, which was signed into law on December 22, 2017, and lowered the U.S. corporate income tax rate from 35% to 21%. As a result, we recognized a deferred tax benefit of $6.6 million for the year ended December 31, 2017 related to one of our domestic investments.

2016 — For the year ended December 31, 2016, we recorded a provision for income taxes of $8.5 million, comprised of deferred income taxes of $4.7 million and current income taxes of $3.8 million.

2015 — For the year ended December 31, 2015, we recorded a provision for income taxes of $8.9 million, comprised of deferred income taxes of $4.2 million and current income taxes of $4.7 million.

Gain on Sale of Real Estate, Net of Tax

Gain on sale of real estate, net of tax consists of gain on the sale of properties that were sold.

2017 — For the year ended December 31, 2017, we recognized a gain on sale of real estate, net of tax of $2.9 million as a result of the sale of four net-lease properties and a parcel of land (Note 14).

2016 — During the year ended December 31, 2016, we recognized a gain on sale of real estate, net of tax of $132.9 million as a result of the sale of 34 self-storage properties (Note 14).

2015 — During the year ended December 31, 2015, we recognized a deferred gain on sale of real estate, net of tax of $2.2 million that was related to an equity option that expired in 2015 that related to a partial sale that occurred in 2014 (Note 14).



CPA:17 – Global 2017 10-K – 53

Net Income Attributable to Noncontrolling Interests

2017 vs. 2016 — For the year ended December 31, 2017 as compared to 2016, net income attributable to noncontrolling interests increased by less than $0.1 million, primarily due to an increase of $1.9 million in the Available Cash Distribution paid to our Advisor (Note 3), partially offset by a decrease related to one of our jointly owned investments that recognized an impairment charge in 2017.

2016 vs. 2015 — For the year ended December 31, 2016 as compared to 2015, net income attributable to noncontrolling interests decreased by $1.1 million, primarily due to a decrease of $1.1 million related to income generated from certain of our joint-venture investments, which included a $2.1 million gain of our affiliate’s share of proceeds from a bankruptcy settlement claim with a former tenant received during the second quarter of 2015.

Liquidity and Capital Resources

We use the cash flow generated from our investments primarily to meet our operating expenses, service debt, and fund distributions to stockholders. We currently expect that, for the short term, the aforementioned cash requirements will be funded by our cash on hand, financings, or unused capacity under our Senior Credit Facility. We may also use proceeds from financings and asset sales for the acquisition of real estate and real estate related investments.

Our liquidity would be affected adversely by unanticipated costs and greater-than-anticipated operating expenses. To the extent that our working capital reserve is insufficient to satisfy our cash requirements, additional funds may be provided from cash generated from operations or through short-term borrowings. In addition, we may incur indebtedness in connection with the acquisition of real estate, refinance the debt thereon, arrange for the leveraging of any previously unfinanced property, or reinvest the proceeds of financings or refinancings in additional properties.

Sources and Uses of Cash During the Year

Our cash flows will fluctuate periodically due to a number of factors, which may include, among other things, the timing of purchases and sales of real estate; the timing of the receipt of the proceeds from, and the repayment of, non-recourse mortgage loans and the receipt of lease revenues; whether our Advisor receives fees in shares of our common stock or cash, which our board of directors must elect, after consultation with our Advisor; the timing and characterization of distributions received from equity investments in real estate; the timing of payments of the Available Cash Distribution to our Advisor; and changes in foreign currency exchange rates. Despite these fluctuations, we believe our investments will generate sufficient cash from operations and from equity distributions in excess of equity income in real estate to meet our normal recurring short-term and long-term liquidity needs. We may also use existing cash resources, the proceeds of non-recourse mortgage loans, sales of assets, unused capacity under our Senior Credit Facility, distributions reinvested in our common stock through our DRIP, and the issuance of additional equity securities to meet these needs. We assess our ability to access capital on an ongoing basis. Our sources and uses of cash during the year are described below.

2017

Operating Activities — Net cash provided by operating activities increased by $45.7 million during 2017 as compared to 2016, primarily due to a reduction in the loss on extinguishment of debt related to prepayment penalties on certain loans encumbering the self-storage properties that were sold in 2016, a reduction in interest expense related to those loans, a reduction in acquisition expenses since we did not have any acquisitions that were classified as business combinations in 2017, an increase in the cash flows generated from our 2016 and 2017 acquisitions, and past due receivables collected on our I-drive Property, which were partially offset by a decrease in the rent collected on our Agrokor investments (Note 8).

Investing Activities — Our investing activities are generally comprised of real estate-related transactions (purchases and sales), payment of deferred acquisition fees to our Advisor related to asset acquisitions, and capitalized property-related costs. During 2017, we used $153.5 million to fund capital contributions to our equity investments in real estate, primarily due to the $90.3 million contribution for Hellweg 2 mortgage loan payoffs and $51.3 million for our Kesko Senukai investment (Note 6), and received $40.0 million as a return of capital from our equity method investments. We completed the sale of five net-lease properties for total proceeds of $111.2 million, net of selling costs (Note 14). We also received proceeds from the repayment of a preferred equity interest of $27.0 million (Note 6) and we funded $12.0 million and $10.8 million for build-to-suit expansion projects and a real estate acquisition, respectively.



CPA:17 – Global 2017 10-K – 54

Financing Activities — During 2017, we made scheduled and unscheduled mortgage principal payments totaling $458.0 million and received $203.5 million in proceeds from non-recourse mortgage financings related to new and existing investments (Note 10). We paid distributions to our stockholders totaling $225.0 million, which consisted of $122.9 million of cash distributions and $102.1 million of distributions that were reinvested by stockholders in shares of our common stock through our DRIP. We received $119.2 million of proceeds related to the Revolver under our Senior Credit Facility, of which $69.0 million was repaid during 2017. We also paid $61.9 million for the repurchase of shares pursuant to our redemption plan as described below, and paid distributions of $40.3 million to affiliates that hold noncontrolling interests in various investments jointly owned with us.

2016

Operating Activities — Net cash provided by operating activities decreased by $32.5 million during 2016 as compared to 2015, primarily due to an increase in defeasance fees and costs paid in connection with debt repayments of $23.0 million, a $3.4 million increase in acquisition expenses related to our business combinations, a $3.5 million increase in interest expense paid during the year as a result of higher average outstanding debt due to our investing activity in 2016 and 2015, and the effect of having received $6.3 million in 2015 from a bankruptcy settlement claim with a former tenant, partially offset by an increase in operating cash flow generated from investments acquired during 2016 and 2015.

Investing Activities — During 2016, we sold 34 self-storage properties for proceeds of $258.3 million, net of selling costs. We funded $203.1 million for real estate investment acquisitions, $13.3 million for build-to-suit projects, and $10.7 million for capital expenditures on owned real estate (Note 4, Note 5). We received $42.7 million as a return of capital from our equity method investments and $12.6 million of loan receivable repayment proceeds, and used $11.0 million to fund capital contributions to our equity investments in real estate. We recovered $23.8 million of value-added taxes in connection with our international acquisitions.

Financing Activities — During 2016, our gross borrowings under our Senior Credit Facility were $225.7 million, including a $50.0 million delayed draw of our Term Loan, and repayments were $289.6 million. We received $267.0 million in proceeds from non-recourse mortgage financings related to new and existing investments (Note 10). We paid distributions to our stockholders for the fourth quarter of 2015 and the first, second, and third quarters of 2016 totaling $221.0 million, which consisted of $117.4 million of cash distributions and $103.6 million of distributions that were reinvested by stockholders in shares of our common stock through our DRIP. We also made scheduled and unscheduled mortgage principal installments totaling $177.5 million, paid $50.0 million for the repurchase of shares pursuant to our redemption plan as described below, and paid distributions of $38.2 million to affiliates that hold noncontrolling interests in various investments jointly owned with us.

Distributions

Our objectives are to generate sufficient cash flow over time to provide stockholders with distributions and to continue to seek investments with potential for capital appreciation throughout varying economic cycles. During 2017, we declared distributions to our stockholders totaling $226.0 million, which consisted of $124.6 million of cash distributions and $101.4 million of distributions reinvested by stockholders in our shares through our DRIP. We funded all of these distributions from Net cash provided by operating activities. Since inception, we have funded all of our cumulative distributions from Net cash provided by operating activities. Cash flow from operations is first applied to current period distributions, then to any deficit from prior period cumulative negative cash flow, and finally to future period distributions. We expect that, in the future, if distributions cannot be fully sourced from net cash provided by operating activities, they may be sourced from the proceeds of financings or sales of assets.

Redemptions

We maintain a quarterly redemption program pursuant to which we may, at the discretion of our board of directors, redeem shares of our common stock from stockholders seeking liquidity. During the years ended December 31, 2017 and 2016, we redeemed 6,517,080 and 5,229,975 shares, respectively, of our common stock pursuant to our redemption plan, comprised of 1,899 and 1,267 requests, respectively, at a weighted-average price per share of $9.49 and $9.56, respectively. As of the date of this Report, we have fulfilled all of the valid redemptions requests that have been received during the year ended December 31, 2017.



CPA:17 – Global 2017 10-K – 55

Summary of Financing
 
The table below summarizes our debt and Senior Credit Facility (dollars in thousands):
 
December 31,
 
2017
 
2016
Carrying Value (a)
 
 
 
Fixed rate
$
1,013,378

 
$
1,236,058

Variable rate:
 
 
 
Senior Credit Facility — Revolver
52,016

 
—

Senior Credit Facility — Term Loan
49,915

 
49,751

Amount subject to interest rate swaps and caps
455,143

 
292,291

Floating interest rate mortgage loans
380,938

 
493,901

 
938,012

 
835,943

 
$
1,951,390

 
$
2,072,001

Percent of Total Debt
 
 
 
Fixed rate
52
%
 
60
%
Variable rate
48
%
 
40
%
 
100
%
 
100
%
Weighted-Average Interest Rate at End of Year
 
 
 
Fixed rate
4.8
%
 
4.9
%
Variable rate (b)
2.9
%
 
2.9
%
__________
(a)
Aggregate debt balance includes unamortized deferred financing costs totaling $8.0 million and $9.5 million as of December 31, 2017 and 2016, respectively, and unamortized discount totaling $5.5 million and $6.3 million as of December 31, 2017 and 2016, respectively.
(b)
The impact of our derivative instruments is reflected in the weighted-average interest rates.

Cash Resources
 
At December 31, 2017, our cash resources consisted primarily of cash and cash equivalents totaling $119.1 million. Of this amount, $35.7 million, at then-current exchange rates, was held in foreign subsidiaries, but we could be subject to restrictions or significant costs should we decide to repatriate these funds. As of the date of this Report, we also had unused capacity of $167.0 million on our Senior Credit Facility. Our cash resources may be used for future investments and can be used for working capital needs, other commitments, and distributions to our stockholders. In addition, our unleveraged properties had an aggregate carrying value of $712.6 million at December 31, 2017, although there can be no assurance that we would be able to obtain financing for these properties.
 
Cash Requirements
 
During the next 12 months, we expect that our cash requirements will include funding capital commitments, such as build-to-suit projects; paying distributions to our stockholders and to our affiliates that hold noncontrolling interests in entities we control; payments to acquire new investments; making share repurchases pursuant to our redemption plan; making scheduled mortgage debt service payments and repayments of borrowings under our Revolver (Note 10); as well as other normal recurring operating expenses. Balloon payments totaling $137.5 million on our consolidated mortgage loan obligations are due during the next 12 months. Our Advisor is actively seeking to refinance certain of these loans, although there can be no assurance that it will be able to do so on favorable terms, or at all. Capital and other lease commitments totaling $53.0 million are expected to be funded during the next 12 months. We expect to fund capital commitments, any future investments, any capital expenditures on existing properties, scheduled and unscheduled debt payments on our mortgage loans, and repayments of borrowings under our Revolver through the use of our cash reserves; cash generated from operations; and proceeds from repayments of loans receivable, financings, and asset sales.



CPA:17 – Global 2017 10-K – 56

Off-Balance Sheet Arrangements and Contractual Obligations
 
The table below summarizes our debt, off-balance sheet arrangements, and other contractual obligations (primarily our capital commitments and lease obligations) at December 31, 2017 and the effect that these arrangements and obligations are expected to have on our liquidity and cash flow in the specified future periods (in thousands):
 
Total
 
Less than
1 year
 
1-3 years
 
3-5 years
 
More than
5 years
Mortgage debt, net — principal (a)
$
1,862,835

 
$
71,628

 
$
501,806

 
$
802,916

 
$
486,485

Senior Credit Facility — Revolver — principal
52,016

 
52,016

 
—

 
—

 
—

Senior Credit Facility — Term Loan — principal (b)
50,000

 
50,000

 
—

 
—

 
—

Deferred acquisition fees — principal
6,193

 
3,515

 
2,678

 
—

 
—

Interest on borrowings and deferred acquisition fees
301,989

 
75,639

 
130,270

 
72,033

 
24,047

Operating and other lease commitments (c)
71,778

 
2,883

 
6,027

 
2,060

 
60,808

Asset retirement obligations, net (d)
16,932

 
—

 
—

 
—

 
16,932

Capital commitments (e)
56,505

 
50,151

 
6,354

 
—

 
—

 
$
2,418,248

 
$
305,832

 
$
647,135

 
$
877,009

 
$
588,272

__________
(a)
Excludes deferred financing costs totaling $7.9 million and unamortized discount, net of $5.5 million, which were included in Mortgage debt, net at December 31, 2017.
(b)
Excludes deferred financing costs of $0.1 million and unamortized discount of less than $0.1 million on our Term Loan within the Senior Credit Facility, which is scheduled to mature on August 26, 2018, unless extended pursuant to its terms (Note 10).
(c)
Operating commitments consist of rental obligations under ground leases. Other lease commitments consist of our estimated share of future rents payable for the purpose of leasing office space pursuant to the advisory agreement. Amounts are estimated based on current allocation percentages among WPC and the other Managed Programs as of December 31, 2017 (Note 3).
(d)
Represents the estimated amount of future obligations for the removal of asbestos and environmental waste in connection with several of our investments, payable upon the retirement or sale of the assets.
(e)
Capital commitments include $55.5 million and $1.0 million related to unfunded construction commitments and tenant improvement allowances, respectively.
 
Amounts in the table above that relate to our foreign operations are based on the exchange rate of the local currencies at December 31, 2017, which consisted primarily of the euro. At December 31, 2017, we had no material capital lease obligations for which we were the lessee, either individually or in the aggregate.

Equity Method Investments
 
We have interests in unconsolidated investments that primarily own single-tenant properties net leased to companies. Generally, the underlying investments are jointly owned with our affiliates (Note 6). At December 31, 2017, on a combined basis, these investments had total assets of approximately $4.4 billion and third-party non-recourse mortgage debt of $2.6 billion. At that date, our pro rata share of the aggregate debt for these investments was $335.0 million. Cash requirements with respect to our share of these debt obligations are discussed above under Cash Requirements.
 


CPA:17 – Global 2017 10-K – 57

Environmental Obligations
 
In connection with the purchase of many of our properties, we required the sellers to perform environmental reviews. We believe, based on the results of these reviews, that our properties were in substantial compliance with federal, state, and foreign environmental statutes at the time the properties were acquired. However, portions of certain properties have been subject to some degree of contamination, principally in connection with leakage from underground storage tanks, surface spills, or other on-site activities. In most instances where contamination has been identified, tenants are actively engaged in the remediation process and addressing identified conditions. Sellers are generally subject to environmental statutes and regulations regarding the discharge of hazardous materials and any related remediation obligations, and we frequently require sellers to address them before closing or obtain contractual protections (e.g. indemnities, cash reserves, letters of credit, or other instruments) from sellers when we acquire a property. In addition, our leases generally require tenants to indemnify us from all liabilities and losses related to the leased properties and the provisions of such indemnifications specifically address environmental matters. The leases generally include provisions that allow for periodic environmental assessments, paid for by the tenant, and allow us to extend leases until such time as a tenant has satisfied its environmental obligations. Certain of our leases allow us to require financial assurances from tenants, such as performance bonds or letters of credit, if the costs of remediating environmental conditions are, in our estimation, in excess of specified amounts. With respect to our operating properties, which are not subject to net-lease arrangements, there is no tenant to provide for indemnification, so we may be liable for costs associated with environmental contamination in the event any such circumstances arise. However, we believe that the ultimate resolution of environmental matters should not have a material adverse effect on our financial condition, liquidity, or results of operations.

Critical Accounting Estimates

Our significant accounting policies are described in Note 2. Many of these accounting policies require judgment and the use of estimates and assumptions when applying these policies in the preparation of our consolidated financial statements. On a quarterly basis, we evaluate these estimates and judgments based on historical experience as well as other factors that we believe to be reasonable under the circumstances. These estimates are subject to change in the future if underlying assumptions or factors change. Certain accounting policies, while significant, may not require the use of estimates. Those accounting policies that require significant estimation and/or judgment are described under Critical Accounting Policies and Estimates in Note 2. The recent accounting change that may potentially impact our business is described under Recent Accounting Pronouncements in Note 2.

Supplemental Financial Measures
 
In the real estate industry, analysts and investors employ certain non-GAAP supplemental financial measures in order to facilitate meaningful comparisons between periods and among peer companies. Additionally, in the formulation of our goals and in the evaluation of the effectiveness of our strategies, we use FFO, MFFO, and Adjusted MFFO, which are non-GAAP measures. We believe that these measures are useful to investors to consider because they may assist them to better understand and measure the performance of our business over time and against similar companies. A description of FFO, MFFO, and Adjusted MFFO and reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are provided below.
 
FFO, MFFO, and Adjusted MFFO
 
Due to certain unique operating characteristics of real estate companies, as discussed below, the National Association of Real Estate Investment Trusts, Inc., or NAREIT, an industry trade group, has promulgated a non-GAAP measure known as FFO, which we believe to be an appropriate supplemental measure, when used in addition to and in conjunction with results presented in accordance with GAAP, to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplemental non-GAAP measure. FFO is not equivalent to nor a substitute for net income or loss as determined under GAAP.
 


CPA:17 – Global 2017 10-K – 58

We define FFO, a non-GAAP measure, consistent with the standards established by the White Paper on FFO approved by the Board of Governors of NAREIT, as revised in February 2004. The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding gains or losses from sales of property, impairment charges on real estate, and depreciation and amortization from real estate assets; and after adjustments for unconsolidated partnerships and jointly owned investments. Adjustments for unconsolidated partnerships and jointly owned investments are calculated to reflect FFO. Our FFO calculation complies with NAREIT’s policy described above. However, NAREIT’s definition of FFO does not distinguish between the conventional method of equity accounting and the hypothetical liquidation at book value method of accounting for unconsolidated partnerships and jointly owned investments.
 
The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements. We believe that, since real estate values historically rise and fall with market conditions, including inflation, interest rates, the business cycle, unemployment, and consumer spending, presentations of operating results for a REIT using historical accounting for depreciation may be less informative. Historical accounting for real estate involves the use of GAAP. Any other method of accounting for real estate such as the fair value method cannot be construed to be any more accurate or relevant than the comparable methodologies of real estate valuation found in GAAP. Nevertheless, we believe that the use of FFO, which excludes the impact of real estate-related depreciation and amortization, as well as impairment charges of real estate-related assets, provides a more complete understanding of our performance to investors and to management; and when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income. In particular, we believe it is appropriate to disregard impairment charges, as this is a fair value adjustment that is largely based on market fluctuations and assessments regarding general market conditions, which can change over time. While impairment charges are excluded from the calculation of FFO it could be difficult to recover any impairment charges. However, FFO, MFFO, and Adjusted MFFO, as described below, should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or in its applicability in evaluating the operating performance of the company. The method utilized to evaluate the value and performance of real estate under GAAP should be construed as a more relevant measure of operational performance and considered more prominently than the non-GAAP measures FFO, MFFO, and Adjusted MFFO and the adjustments to GAAP in calculating FFO, MFFO, and Adjusted MFFO.
 
The Investment Program Association, an industry trade group, has standardized a measure known as MFFO, which the Investment Program Association has recommended as a supplemental measure for publicly registered non-traded REITs and which we believe to be another appropriate non-GAAP measure to reflect the operating performance of a non-traded REIT. MFFO is not equivalent to our net income or loss as determined under GAAP, and MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate with a limited life and targeted exit strategy, as currently intended. We believe that, because MFFO excludes costs that we consider more reflective of investing activities and other non-operating items included in FFO, and also excludes acquisition fees and expenses that affect our operations only in periods in which properties are acquired, MFFO can provide, on a going forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance after the period in which we are acquiring properties and once our portfolio is in place. By providing MFFO, we believe we are presenting useful information that assists investors and analysts to better assess the sustainability of our operating performance now that our offering has been completed and once essentially all of our properties have been acquired. We also believe that MFFO is a recognized measure of sustainable operating performance by the non-traded REIT industry. Further, we believe MFFO is useful in comparing the sustainability of our operating performance, with the sustainability of the operating performance of other real estate companies that are not as involved in acquisition activities. MFFO should only be used to assess the sustainability of a company’s operating performance after a company’s offering has been completed and properties have been acquired, as it excludes acquisition costs that have a negative effect on a company’s operating performance during the periods in which properties are acquired.
 
We define MFFO consistent with the Investment Program Association’s Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations, or the Practice Guideline, issued by the Investment Program Association in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for the following items, included in the determination of GAAP net income, as applicable: acquisition fees and expenses; amounts relating to deferred rent receivables and amortization of above- and below-market leases and liabilities (which are adjusted in order to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments); accretion of discounts and amortization of premiums on debt investments; nonrecurring impairments of real estate-related investments (i.e., infrequent or unusual, not reasonably likely to recur in the ordinary course of business); mark-to-market adjustments included in net income; nonrecurring gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives, or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after


CPA:17 – Global 2017 10-K – 59

adjustments for consolidated and unconsolidated partnerships and jointly owned investments, with such adjustments calculated to reflect MFFO on the same basis. The accretion of discounts and amortization of premiums on debt investments, unrealized gains and losses on hedges, foreign exchange, derivatives or securities holdings, unrealized gains and losses resulting from consolidations, as well as other listed cash flow adjustments are adjustments made to net income in calculating the cash flows provided by operating activities and, in some cases, reflect gains or losses that are unrealized and may not ultimately be realized.
 
Our MFFO calculation complies with the Investment Program Association’s Practice Guideline described above. In calculating MFFO, we exclude acquisition-related expenses, amortization of above- and below-market leases, fair value adjustments of derivative financial instruments, deferred rent receivables, and the adjustments of such items related to noncontrolling interests. Under GAAP, acquisition fees and expenses are characterized as operating expenses in determining operating net income. These expenses are paid in cash by a company. All paid and accrued acquisition fees and expenses will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by the company, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property, these fees and expenses, and other costs related to such property. Further, under GAAP, certain contemplated non-cash fair value and other non-cash adjustments are considered operating non-cash adjustments to net income in determining cash flow from operating activities.

Our management uses MFFO and the adjustments used to calculate it in order to evaluate our performance against other non-traded REITs, which have limited lives with short and defined acquisition periods and targeted exit strategies shortly thereafter. As noted above, MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate in this manner. We believe that MFFO and the adjustments used to calculate it allow us to present our performance in a manner that takes into account certain characteristics unique to non-traded REITs, such as their limited life, defined acquisition period, and targeted exit strategy, and is therefore a useful measure for investors. For example, acquisition costs are generally funded from the proceeds of our offering and other financing sources and not from operations. By excluding expensed acquisition costs, the use of MFFO provides information consistent with management’s analysis of the operating performance of the properties. Additionally, fair value adjustments, which are based on the impact of current market fluctuations and underlying assessments of general market conditions, but can also result from operational factors such as rental and occupancy rates, may not be directly related or attributable to our current operating performance. By excluding such changes that may reflect anticipated and unrealized gains or losses, we believe MFFO provides useful supplemental information.

In addition, our management uses Adjusted MFFO as another measure of sustainable operating performance. Adjusted MFFO adjusts MFFO for deferred income tax expenses and benefits, which are non-cash items that may cause short-term fluctuations in net income but have no impact on current period cash flows. Additionally, we adjust MFFO to reflect the realized gains/losses on the settlement of foreign currency derivatives to arrive at Adjusted MFFO. Foreign currency derivatives are a fundamental part of our operations in that they help us manage the foreign currency exposure we have associated with cash flows from our international investments

Presentation of this information is intended to provide useful information to investors as they compare the operating performance of different REITs, although it should be noted that not all REITs calculate FFO, MFFO, and Adjusted MFFO the same way, so comparisons with other REITs may not be meaningful. Furthermore, FFO, MFFO, and Adjusted MFFO are not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income as an indication of our performance, as an alternative to cash flows from operations as an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. FFO, MFFO, and Adjusted MFFO should be reviewed in conjunction with other GAAP measurements as an indication of our performance.
 
Neither the SEC, NAREIT, nor any other regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate FFO, MFFO, and Adjusted MFFO. In the future, the SEC, NAREIT, or another regulatory body may decide to standardize the allowable adjustments across the non-traded REIT industry and we would have to adjust our calculation and characterization of FFO, MFFO, or Adjusted MFFO accordingly.



CPA:17 – Global 2017 10-K – 60

FFO, MFFO, and Adjusted MFFO were as follows (in thousands): 
 
Years Ended December 31,
 
2017
 
2016
 
2015
Net income attributable to CPA:17 – Global
$
97,287

 
$
190,345

 
$
84,205

Adjustments:
 
 
 
 
 
Depreciation and amortization of real property
115,824

 
122,391

 
106,502

Impairment charges on real estate
8,276

 
29,183

 
—

Gain on sale of real estate (a)
(2,879
)
 
(132,858
)
 
(2,197
)
Proportionate share of adjustments to equity in net income of partially owned entities
43,533

 
37,067

 
36,813

Proportionate share of adjustments for noncontrolling interests (b)
(2,094
)
 
(571
)
 
(563
)
Total adjustments
162,660

 
55,212

 
140,555

FFO (as defined by NAREIT) attributable to CPA:17 – Global
259,947

 
245,557

 
224,760

Adjustments:
 
 
 
 
 
Above- and below-market rent intangible lease amortization, net (c) (d)
(17,826
)
 
(14,160
)
 
(3,632
)
Straight-line and other rent adjustments (e)
(16,546
)
 
(18,182
)
 
(20,365
)
Unrealized (gains) losses on foreign currency, derivatives, and other
(15,059
)
 
7,028

 
5,079

Loss (gain) on change in control of interests (f)
13,851

 
(49,922
)
 
—

Realized gains on foreign currency, derivatives and other
(7,053
)
 
(5,695
)
 
(5,868
)
Loss on extinguishment of debt (g)
1,922

 
24,376

 
275

Amortization of premiums/discounts on debt investments, net
1,814

 
2,206

 
637

Acquisition and other expenses (h)
1,343

 
7,157

 
651

Impairment charges, held-to-maturity securities
683

 
523

 
1,023

Proportionate share of adjustments to equity in net income of partially owned entities (i) (j)
14,872

 
25,755

 
(3,100
)
Proportionate share of adjustments for noncontrolling interests
(390
)
 
367

 
423

Total adjustments
(22,389
)
 
(20,547
)
 
(24,877
)
MFFO attributable to CPA:17 – Global
237,558

 
225,010

 
199,883

Adjustments:
 
 
 
 
 
Deferred taxes and other adjustments (k)
(8,148
)
 
2,312

 
2,311

Hedging gains
6,384

 
7,219

 
8,751

Total adjustments
(1,764
)
 
9,531

 
11,062

Adjusted MFFO attributable to CPA:17 – Global
$
235,794

 
$
234,541

 
$
210,945

__________
(a)
During the year ended December 31, 2016, we recognized a gain on sale of real estate, net of tax of $132.9 million as a result of the sale of 34 self-storage properties (Note 14).
(b)
Amount for the year ended December 31, 2017 includes $1.5 million related to an impairment charge recognized on one of our consolidated joint-venture investments (Note 8).
(c)
Amount for the year ended December 31, 2017 includes a $15.7 million write-off and $3.3 million of acceleration of below-market lease intangible liabilities, related to the KBR Inc. lease modification/termination (Note 14). Amount for the year ended December 31, 2016 includes a $13.9 million acceleration of below-market lease intangible liabilities, related to the KBR Inc. lease termination (Note 14).
(d)
Under GAAP, certain intangibles are accounted for at cost and reviewed at least annually for impairment and certain intangibles are assumed to diminish predictably in value over time and amortized, similar to depreciation and amortization of other real estate related assets that are excluded from FFO. However, because real estate values and market lease rates historically rise or fall with market conditions, management believes that, by excluding charges relating to amortization of these intangibles, MFFO and Adjusted MFFO provides useful supplemental information on the performance of the real estate.


CPA:17 – Global 2017 10-K – 61

(e)
Under GAAP, rental receipts are allocated to periods using an accrual basis. This may result in timing of income recognition that is significantly different than underlying contract terms. By adjusting for these items (to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments), management believes that MFFO and Adjusted MFFO provides useful supplemental information on the realized economic impact of lease terms and debt investments, provides insight on the contractual cash flows of such lease terms and debt investments, and aligns results with management’s analysis of operating performance.
(f)
Loss on change in control of interests for the year ended December 31, 2017 represents the loss recognized on the restructuring of the Shelborne hotel investment, which we had previously accounted for as an equity method investment (Note 4, Note 6). Gain on change in control of interests for the year ended December 31, 2016 represents gain recognized on our acquisition of a 15% controlling interest in five self-storage properties, which we had previously accounted for as an equity method investment (Note 4, Note 6).
(g)
During the year ended December 31, 2016, this amount primarily relates to the seven non-recourse mortgage loans that were defeased with outstanding principal balances totaling $121.9 million, net of discounts, and recognized losses on extinguishment of debt totaling $23.6 million (Note 10).
(h)
In evaluating investments in real estate, management differentiates the costs to acquire the investment from the operations derived from the investment. Such information would be comparable only for non-traded REITs that have completed their acquisition activity and have other similar operating characteristics. By excluding expensed acquisition costs, management believes MFFO and Adjusted MFFO provides useful supplemental information that is comparable for each type of real estate investment and is consistent with management’s analysis of the investing and operating performance of our properties. Acquisition fees and expenses include payments to our Advisor or third parties. Acquisition fees and expenses under GAAP are considered operating expenses and as expenses included in the determination of net income, a performance measure under GAAP. All paid and accrued acquisition fees and expenses will have negative effects on returns to stockholders, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to the property. On January 1, 2017, we adopted ASU 2017-01 (Note 2), and, as a result, transaction costs are more likely to be capitalized since we expect most of our future acquisitions to be classified as asset acquisitions under this standard.
(i)
During the year ended December 31, 2016, the investee of one of our equity investments incurred a $22.8 million impairment charge to reduce goodwill at the investee level to its fair value (Note 8).
(j)
Amount for the year ended December 31, 2015 includes the reversal of $6.2 million of liabilities for German real estate transfer taxes. These transfer taxes were originally recorded for $8.1 million and were related to the restructuring of the Hellweg 2 investment in October 2013. The variance between the original amount and the reversal is due to the decrease in the exchange rate of the U.S. dollar in relation to the euro between 2013 and 2015.
(k)
Amount for the year ended December 31, 2017, includes the impact of the Tax Cuts and Jobs Act, which was signed into law on December 22, 2017, and lowered the U.S. corporate income tax rate from 35% to 21% (Note 13).



CPA:17 – Global 2017 10-K – 62

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Market Risk

Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, and equity prices. The primary risks that we are exposed to are interest rate risk and foreign currency exchange risk. We are also exposed to further market risk as a result of tenant concentrations in certain industries and/or geographic regions, since adverse market factors can affect the ability of tenants in a particular industry/region to meet their respective lease obligations. In order to manage this risk, our Advisor views our collective tenant roster as a portfolio and attempts to diversify such portfolio so that we are not overexposed to a particular industry or geographic region.

Generally, we do not use derivative instruments to hedge credit/market risks or for speculative purposes. However, from time to time, we may enter into foreign currency forward contracts to hedge our foreign currency cash flow exposures.

Interest Rate Risk

The values of our real estate, related fixed-rate debt obligations, our Senior Credit Facility, and our loans receivable investments are subject to fluctuations based on changes in interest rates. The value of our real estate is also subject to fluctuations based on local and regional economic conditions and changes in the creditworthiness of lessees, which may affect our ability to refinance property-level mortgage debt when balloon payments are scheduled, if we do not choose to repay the debt when due. Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political conditions, and other factors beyond our control. An increase in interest rates would likely cause the fair value of assets to decrease. Increases in interest rates may also have an impact on the credit profile of certain tenants.

We are exposed to the impact of interest rate changes primarily through our borrowing activities. To limit this exposure, we have historically attempted to obtain non-recourse mortgage financing on a long-term, fixed-rate basis. However, from time to time, we or our joint investment partners have obtained, and may in the future obtain, variable-rate non-recourse mortgage loans, and, as a result, we have entered into, and may continue to enter into, swaptions, interest rate swap agreements or interest rate cap agreements with lenders. Interest rate swap agreements effectively convert the variable-rate debt service obligations of a loan to a fixed rate, while interest rate cap agreements limit the underlying interest rate from exceeding a specified strike rate. Interest rate swaps are agreements in which one party exchanges a stream of interest payments for a counterparty’s stream of cash flows over a specific period, and interest rate caps limit the effective borrowing rate of variable-rate debt obligations while allowing participants to share in downward shifts in interest rates. These interest rate swaps and caps are derivative instruments that, where applicable, are designated as cash flow hedges on the forecasted interest payments on the debt obligation. The face amount on which the swaps or caps are based is not exchanged. A swaption is an option that gives us the right, but not the obligation, to enter into an interest rate swap under which we would pay a fixed-rate and receive a variable-rate. At the option’s expiration, we may also elect to cash settle the option if such option is “in-the-money” or allow the option to expire at no additional cost to us. Our objective in using these derivatives is to limit our exposure to interest rate movements. At December 31, 2017, we estimated that the total fair value of our interest rate swaps and caps, which are included in Other assets, net and Accounts payable, accrued expenses and other liabilities in the consolidated financial statements, was in a net liability position of $3.5 million (Note 9).

At December 31, 2017, our outstanding debt either bore interest at fixed rates, bore interest at floating rates, was swapped or capped to a fixed rate, or bore interest at fixed rates that were scheduled to convert to then-prevailing market fixed rates at certain future points during their term. The annual interest rates on our fixed-rate debt at December 31, 2017 ranged from 1.9% to 7.4%. The contractual annual interest rates on our variable-rate debt at December 31, 2017 ranged from 1.3% to 6.0%. Our debt obligations are more fully described in Note 10 and Liquidity and Capital Resources — Summary of Financing in Item 7 above. The following table presents principal cash outflows based upon expected maturity dates of our debt obligations outstanding at December 31, 2017 (in thousands):
 
2018
 
2019
 
2020
 
2021
 
2022
 
Thereafter
 
Total
 
Fair value
Fixed-rate debt (a)
$
50,681

 
$
29,778

 
$
126,200

 
$
214,021

 
$
272,046

 
$
326,341

 
$
1,019,067

 
$
1,023,241

Variable-rate debt (a) (b)
$
122,963

 
$
44,674

 
$
301,154

 
$
238,036

 
$
78,813

 
$
160,144

 
$
945,784

 
$
942,817

__________
(a)
Amounts are based on the exchange rate at December 31, 2017, as applicable.


CPA:17 – Global 2017 10-K – 63

(b)
Includes $50.0 million outstanding Term Loan under our Senior Credit Facility, which is scheduled to mature on August 26, 2018, unless extended pursuant to its terms.

At December 31, 2017, the estimated fair value of our fixed-rate debt, as well as any variable-rate debt that currently bears interest at fixed rates or has effectively been converted to a fixed rate through the use of interest rate swaps, is affected by changes in interest rates. A decrease or increase in interest rates of 1% would change the estimated fair value of this debt at December 31, 2017 by an aggregate increase of $48.0 million or an aggregate decrease of $66.9 million, respectively. Annual interest expense on our unhedged variable-rate debt at December 31, 2017 would increase or decrease by $4.8 million for each respective 1% change in annual interest rates.

As more fully described under Liquidity and Capital Resources — Summary of Financing in Item 7 above, a portion of our variable-rate debt in the table above bore interest at fixed rates at December 31, 2017, but has interest rate reset features that will change the fixed interest rates to then-prevailing market fixed rates at certain points during their term. This debt is generally not subject to short-term fluctuations in interest rates.

Foreign Currency Exchange Rate Risk

We own international investments, primarily in Europe and Asia, and as a result, are subject to risk from the effects of exchange rate movements in various foreign currencies, primarily the euro and, to a lesser extent, the British pound sterling, the Japanese yen, and the Norwegian krone, which may affect future costs and cash flows. Although all of our international investments through the fourth quarter of 2017 were conducted in these currencies, we may conduct business in other currencies in the future. We manage foreign currency exchange rate movements by generally placing both our debt service obligation to the lender and the tenant’s rental obligation to us in the same currency. This reduces our overall exposure to the actual equity that we have invested and the equity portion of our cash flow. In addition, we may use currency hedging to further reduce the exposure to our equity cash flow. We are generally a net receiver of these currencies (we receive more cash than we pay out), therefore our foreign operations benefit from a weaker U.S. dollar and are adversely affected by a stronger U.S. dollar, relative to the foreign currency.

We have obtained, and may in the future obtain, non-recourse mortgage financing in local currencies. To the extent that currency fluctuations increase or decrease rental revenues, as translated to U.S. dollars, the change in debt service, as translated to U.S. dollars, will partially offset the effect of fluctuations in revenue and, to some extent, mitigate the risk from changes in foreign currency exchange rates.

The June 23, 2016 referendum by voters in the United Kingdom to exit the European Union, a process commonly referred to as “Brexit,” adversely impacted global markets, including certain currencies, and has resulted in a decline in the value of the British pound sterling as compared to the U.S. dollar. Volatility in exchange rates is expected to continue as the United Kingdom negotiates its likely exit from the European Union. As of December 31, 2017, 1% and 43% of our total pro rata ABR was from the United Kingdom and other European Union countries, respectively. Any impact from Brexit on us will depend, in part, on the outcome of the related tariff, trade, regulatory, and other negotiations. Although it is unknown what the result of those negotiations will be, it is possible that new terms may adversely affect our operations and financial results.

Scheduled future minimum rents, exclusive of renewals, under non-cancelable operating leases, for our consolidated foreign operations as of December 31, 2017, during each of the next five calendar years and thereafter, are as follows (in thousands):
Lease Revenues (a)
 
2018
 
2019
 
2020
 
2021
 
2022
 
Thereafter
 
Total
Euro (b)
 
$
120,305

 
$
120,491

 
$
121,010

 
$
120,098

 
$
119,748

 
$
764,966

 
$
1,366,618

British pound sterling (c)
 
5,249

 
5,249

 
5,263

 
5,249

 
5,249

 
42,093

 
68,352

Japanese yen (d)
 
2,708

 
2,708

 
2,715

 
2,708

 
653

 
—

 
11,492

 
 
$
128,262

 
$
128,448

 
$
128,988

 
$
128,055

 
$
125,650

 
$
807,059

 
$
1,446,462




CPA:17 – Global 2017 10-K – 64

Scheduled debt service payments (principal and interest) for mortgage notes payable for our consolidated foreign operations as of December 31, 2017, during each of the next five calendar years and thereafter, are as follows (in thousands):
Debt Service (a) (e)
 
2018
 
2019
 
2020
 
2021
 
2022
 
Thereafter
 
Total
Euro (b)
 
$
62,747

 
$
28,987

 
$
107,975

 
$
165,042

 
$
92,297

 
$
180,839

 
$
637,887

British pound sterling (c)
 
1,695

 
12,613

 
379

 
17,579

 
—

 
—

 
32,266

Japanese yen (d)
 
22,263

 
—

 
—

 
—

 
—

 
—

 
22,263

 
 
$
86,705

 
$
41,600

 
$
108,354

 
$
182,621

 
$
92,297

 
$
180,839

 
$
692,416

__________
(a)
Amounts are based on the applicable exchange rates at December 31, 2017. Contractual rents and debt obligations are denominated in the functional currency of the country of each property. Our foreign operations denominated in the Norwegian krone are related to an unconsolidated jointly owned investment and is excluded from the amounts in the tables.
(b)
We estimate that, for a 1% increase or decrease in the exchange rate between the euro and the U.S. dollar, there would be a corresponding change in the projected estimated property-level cash flow at December 31, 2017 of $7.3 million.
(c)
We estimate that, for a 1% increase or decrease in the exchange rate between the British pound sterling and the U.S. dollar, there would be a corresponding change in the projected estimated property-level cash flow at December 31, 2017 of $0.4 million.
(d)
We estimate that, for a 1% increase or decrease in the exchange rate between the Japanese yen and the U.S. dollar, there would be a corresponding change in the projected estimated property-level cash flow at December 31, 2017 of less than $0.1 million.
(e)
Interest on unhedged variable-rate debt obligations was calculated using the applicable annual interest rates and balances outstanding at December 31, 2017.

Projected debt service obligations exceed projected lease revenues denominated in Japanese yen in 2018, British pound sterling in 2019, and euros and British pound sterling in 2021. This is primarily due to balloon payments on certain of our non-recourse mortgage loans that are collateralized by properties that we own with affiliates. We currently anticipate that, by their respective due dates, we will have refinanced or repaid certain of these loans using our cash resources, including unused capacity on our credit facility and proceeds from dispositions, but there can be no assurance that we will be able to do so on favorable terms, if at all.

Concentration of Credit Risk

Concentrations of credit risk arise when a number of tenants are engaged in similar business activities or have similar economic risks or conditions that could cause them to default on their lease obligations to us. We regularly monitor our portfolio to assess potential concentrations of credit risk. While we believe our portfolio is reasonably well diversified, it does contain concentrations in certain areas in excess of 10%, based on the percentage of our consolidated total revenues or pro rata ABR.

For the year ended December 31, 2017, our consolidated portfolio had the following significant characteristics in excess of 10%, based on the percentage of our consolidated total revenues:

•
72% related to domestic properties, which included a concentration in Texas and New York of 15% and 10%, respectively; and
•
28% related to international properties.

At December 31, 2017, our net-leased portfolio, which excludes investments within our Self Storage segment as well as in our All Other category, had the following significant property and lease characteristics in excess of 10% in certain areas, based on the percentage of our pro rata ABR as of that date:

•
54% related to domestic properties;
•
46% related to international properties;
•
28% related to warehouse facilities, 27% related to office facilities, 25% related to retail facilities, and 14% related to industrial facilities; and
•
28% related to the retail stores industry, 14% related to the grocery industry, and 10% related to business service industry.



CPA:17 – Global 2017 10-K – 65

Item 8. Financial Statements and Supplementary Data.


Financial statement schedules other than those listed above are omitted because the required information is given in the financial statements, including the notes thereto, or because the conditions requiring their filing do not exist.


CPA:17 – Global 2017 10-K – 66

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of
Corporate Property Associates 17 – Global Incorporated

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Corporate Property Associates 17 – Global Incorporated and its subsidiaries as of December 31, 2017 and 2016, and the related consolidated statements of income, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2017, including the related notes and financial statement schedules listed in the accompanying index (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2017 in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/PricewaterhouseCoopers LLP
New York, New York
March 14, 2018

We have served as the Company’s auditor since 2007.



CPA:17 – Global 2017 10-K – 67

CORPORATE PROPERTY ASSOCIATES 17 – GLOBAL INCORPORATED
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
 
December 31,
 
2017
 
2016
Assets
 
 
 
Investments in real estate:
 
 
 
Real estate — Land, buildings and improvements
$
2,772,611

 
$
2,745,424

Operating real estate — Land, buildings and improvements
340,772

 
258,971

Net investments in direct financing leases
509,228

 
508,392

In-place lease intangible assets
629,961

 
620,149

Other intangible assets
111,004

 
103,918

Assets held for sale
—

 
14,850

Investments in real estate
4,363,576

 
4,251,704

Accumulated depreciation and amortization
(626,655
)
 
(506,238
)
Net investments in real estate
3,736,921

 
3,745,466

Equity investments in real estate
409,254

 
451,105

Cash and cash equivalents
119,094

 
273,635

Other assets, net
322,201

 
228,717

Total assets
$
4,587,470

 
$
4,698,923

Liabilities and Equity
 
 
 
Debt:
 
 
 
Mortgage debt, net
$
1,849,459

 
$
2,022,250

Senior Credit Facility, net
101,931

 
49,751

Debt, net
1,951,390

 
2,072,001

Accounts payable, accrued expenses and other liabilities
132,751

 
128,911

Below-market rent and other intangible liabilities, net
61,222

 
82,799

Deferred income taxes
30,524

 
32,655

Due to affiliates
11,467

 
11,723

Distributions payable
56,859

 
55,830

Total liabilities
2,244,213

 
2,383,919

Commitments and contingencies (Note 11)


 


 
 
 
 
Preferred stock, $0.001 par value; 50,000,000 shares authorized; none issued
—

 
—

Common stock, $0.001 par value; 900,000,000 shares authorized; and 349,899,827 and 343,575,840 shares, respectively, issued and outstanding
349

 
343

Additional paid-in capital
3,174,786

 
3,106,456

Distributions in excess of accumulated earnings
(861,319
)
 
(732,613
)
Accumulated other comprehensive loss
(78,420
)
 
(156,676
)
Total stockholders’ equity
2,235,396

 
2,217,510

Noncontrolling interests
107,861

 
97,494

Total equity
2,343,257

 
2,315,004

Total liabilities and equity
$
4,587,470

 
$
4,698,923


See Notes to Consolidated Financial Statements.


CPA:17 – Global 2017 10-K – 68

CORPORATE PROPERTY ASSOCIATES 17 – GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share amounts) 
 
Years Ended December 31,
 
2017
 
2016
 
2015
Revenues
 
 
 
 
 
Lease revenues:
 
 
 
 
 
Rental income
$
309,233

 
$
298,775

 
$
271,523

Interest income from direct financing leases
58,399

 
58,066

 
55,669

Total lease revenues
367,632

 
356,841

 
327,192

Other real estate income
40,309

 
46,623

 
49,562

Other operating income
27,875

 
30,224

 
36,591

Other interest income
11,838

 
6,674

 
13,602

 
447,654

 
440,362

 
426,947

Operating Expenses
 
 
 
 
 
Depreciation and amortization
115,630

 
122,259

 
106,732

Property expenses
75,209

 
70,728

 
72,514

Other real estate expenses
17,827

 
17,642

 
19,595

General and administrative
15,358

 
16,310

 
18,377

Impairment charges
8,959

 
29,706

 
1,023

Acquisition and other expenses
1,343

 
7,157

 
651

 
234,326

 
263,802

 
218,892

Other Income and Expenses
 
 
 
 
 
Interest expense
(88,270
)
 
(98,813
)
 
(93,551
)
Other income and (expenses)
23,231

 
(1,728
)
 
1,912

(Loss) gain on change in control of interests
(13,851
)
 
49,922

 
—

Loss on extinguishment of debt
(1,922
)
 
(24,376
)
 
(275
)
Equity in earnings of equity method investments in real estate
261

 
3,262

 
14,667

 
(80,551
)
 
(71,733
)
 
(77,247
)
Income before income taxes and gain on sale of real estate
132,777

 
104,827

 
130,808

Benefit from (provision for) income taxes
513

 
(8,477
)
 
(8,885
)
Income before gain on sale of real estate, net of tax
133,290

 
96,350

 
121,923

Gain on sale of real estate, net of tax
2,879

 
132,858

 
2,197

Net Income
136,169

 
229,208

 
124,120

Net income attributable to noncontrolling interests (inclusive of Available Cash Distributions to a related party of $26,675, $24,765, and $24,668, respectively)
(38,882
)
 
(38,863
)
 
(39,915
)
Net Income Attributable to CPA:17 – Global
$
97,287

 
$
190,345

 
$
84,205

Basic and Diluted Earnings Per Share
$
0.28

 
$
0.56

 
$
0.25

Basic and Diluted Weighted-Average Shares Outstanding
348,329,966

 
342,147,444

 
334,468,363


See Notes to Consolidated Financial Statements. 


CPA:17 – Global 2017 10-K – 69

CORPORATE PROPERTY ASSOCIATES 17 – GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands) 

Years Ended December 31,
 
2017
 
2016
 
2015
Net Income
$
136,169

 
$
229,208

 
$
124,120

Other Comprehensive Income (Loss)
 
 
 
 
 
Foreign currency translation adjustments
100,948

 
(18,785
)
 
(81,037
)
Change in net unrealized (loss) gain on derivative instruments
(20,462
)
 
1,349

 
20,889

Change in unrealized gain on marketable investments
33

 
29

 
29

 
80,519

 
(17,407
)
 
(60,119
)
Comprehensive Income
216,688

 
211,801

 
64,001

 
 
 
 
 
 
Amounts Attributable to Noncontrolling Interests
 
 
 
 
 
Net income
(38,882
)
 
(38,863
)
 
(39,915
)
Foreign currency translation adjustments
(2,263
)
 
536

 
1,321

Comprehensive income attributable to noncontrolling interests
(41,145
)
 
(38,327
)
 
(38,594
)
Comprehensive Income Attributable to CPA:17 – Global
$
175,543

 
$
173,474

 
$
25,407

 
See Notes to Consolidated Financial Statements.


CPA:17 – Global 2017 10-K – 70

CORPORATE PROPERTY ASSOCIATES 17 – GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF EQUITY
Years Ended December 31, 2017, 2016, and 2015
(in thousands, except share and per share amounts)
 
 CPA:17 – Global
 
 
 
 
 
Total Outstanding Shares
 
Common Stock
 
Additional Paid-In Capital
 
Distributions in Excess of Accumulated Earnings
 
Accumulated Other Comprehensive Loss
 
Total CPA:17
– Global Stockholders
 
Noncontrolling Interests
 
Total
Balance at January 1, 2017
343,575,840

 
$
343

 
$
3,106,456

 
$
(732,613
)
 
$
(156,676
)
 
$
2,217,510

 
$
97,494

 
$
2,315,004

Shares issued
10,064,364

 
10

 
102,068

 
 
 
 
 
102,078

 
 
 
102,078

Shares issued to affiliates
2,773,407

 
3

 
28,051

 
 
 
 
 
28,054

 
 
 
28,054

Shares issued to directors
9,891

 
—

 
100

 
 
 
 
 
100

 
 
 
100

Distributions declared ($0.6500 per share)
 
 
 
 
 
 
(225,993
)
 
 
 
(225,993
)
 
 
 
(225,993
)
Distributions to noncontrolling interests
 
 
 
 
 
 
 
 
 
 
—

 
(40,290
)
 
(40,290
)
Contributions from noncontrolling interests
 
 
 
 
 
 
 
 
 
 
—

 
9,512

 
9,512

Net income
 
 
 
 
 
 
97,287

 
 
 
97,287

 
38,882

 
136,169

Other comprehensive income:
 
 
 
 
 
 
 
 
 
 

 
 
 

Foreign currency translation adjustments
 
 
 
 
 
 
 
 
98,685

 
98,685

 
2,263

 
100,948

Realized and unrealized loss on derivative instruments
 
 
 
 
 
 
 
 
(20,462
)
 
(20,462
)
 
 
 
(20,462
)
Change in unrealized gain on marketable investments
 
 
 
 
 
 
 
 
33

 
33

 
 
 
33

Repurchase of shares
(6,523,675
)
 
(7
)
 
(61,889
)
 
 
 
 
 
(61,896
)
 
 
 
(61,896
)
Balance at December 31, 2017
349,899,827

 
$
349

 
$
3,174,786

 
$
(861,319
)
 
$
(78,420
)
 
$
2,235,396

 
$
107,861

 
$
2,343,257

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2016
337,065,419

 
$
337

 
$
3,037,727

 
$
(700,912
)
 
$
(139,805
)
 
$
2,197,347

 
$
97,248

 
$
2,294,595

Shares issued
10,255,011

 
10

 
103,608

 
 
 
 
 
103,618

 
 
 
103,618

Shares issued to affiliates
1,469,025

 
1

 
14,975

 
 
 
 
 
14,976

 
 
 
14,976

Shares issued to directors
9,766

 
—

 
100

 
 
 
 
 
100

 
 
 
100

Distributions declared ($0.6500 per share)
 
 
 
 
 
 
(222,046
)
 
 
 
(222,046
)
 
 
 
(222,046
)
Distributions to noncontrolling interests
 
 
 
 
 
 
 
 
 
 
—

 
(38,228
)
 
(38,228
)
Contributions from noncontrolling interests
 
 
 
 
 
 
 
 
 
 
—

 
147

 
147

Net income
 
 
 
 
 
 
190,345

 
 
 
190,345

 
38,863

 
229,208

Other comprehensive loss:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
 
 
 
 
 
 
 
(18,249
)
 
(18,249
)
 
(536
)
 
(18,785
)
Realized and unrealized gain on derivative instruments
 
 
 
 
 
 
 
 
1,349

 
1,349

 
 
 
1,349

Change in unrealized gain on marketable investments
 
 
 
 
 
 
 
 
29

 
29

 
 
 
29

Repurchase of shares
(5,223,381
)
 
(5
)
 
(49,954
)
 
 
 
 
 
(49,959
)
 
 
 
(49,959
)
Balance at December 31, 2016
343,575,840

 
$
343

 
$
3,106,456

 
$
(732,613
)
 
$
(156,676
)
 
$
2,217,510

 
$
97,494

 
$
2,315,004

(Continued)


CPA:17 – Global 2017 10-K – 71

CORPORATE PROPERTY ASSOCIATES 17 – GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF EQUITY
(Continued)
Years Ended December 31, 2017, 2016, and 2015
(in thousands, except share and per share amounts)
 
 CPA:17 – Global
 
 
 
 
 
Total Outstanding Shares
 
Common Stock
 
Additional Paid-In Capital
 
Distributions in Excess of Accumulated Earnings
 
Accumulated Other Comprehensive Loss
 
Total CPA:17
– Global Stockholders
 
Noncontrolling Interests
 
Total
Balance at January 1, 2015
328,480,839

 
$
328

 
$
2,955,440

 
$
(567,806
)
 
$
(81,007
)
 
$
2,306,955

 
$
78,442

 
$
2,385,397

Shares issued
11,009,104

 
11

 
103,646

 
 
 
 
 
103,657

 
 
 
103,657

Shares issued to affiliates
1,613,468

 
2

 
15,628

 
 
 
 
 
15,630

 
 
 
15,630

Shares issued to directors
10,288

 
—

 
100

 
 
 
 
 
100

 
 
 
100

Distributions declared ($0.6500 per share)
 
 
 
 
 
 
(217,311
)
 
 
 
(217,311
)
 
 
 
(217,311
)
Distributions to noncontrolling interests
 
 
 
 
 
 
 
 
 
 
—

 
(35,716
)
 
(35,716
)
Contributions from noncontrolling interests
 
 
 
 
 
 
 
 
 
 
—

 
15,928

 
15,928

Net income
 
 
 
 
 
 
84,205

 
 
 
84,205

 
39,915

 
124,120

Other comprehensive loss:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
 
 
 
 
 
 
 
(79,716
)
 
(79,716
)
 
(1,321
)
 
(81,037
)
Realized and unrealized gain on derivative instruments
 
 
 
 
 
 
 
 
20,889

 
20,889

 

 
20,889

Change in unrealized gain on marketable investments
 
 
 
 
 
 
 
 
29

 
29

 
 
 
29

Repurchase of shares
(4,048,280
)
 
(4
)
 
(37,087
)
 
 
 
 
 
(37,091
)
 
 
 
(37,091
)
Balance at December 31, 2015
337,065,419

 
$
337

 
$
3,037,727

 
$
(700,912
)
 
$
(139,805
)
 
$
2,197,347

 
$
97,248

 
$
2,294,595


See Notes to Consolidated Financial Statements.


CPA:17 – Global 2017 10-K – 72

CORPORATE PROPERTY ASSOCIATES 17 – GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
Years Ended December 31,
 
2017
 
2016
 
2015
Cash Flows — Operating Activities
 
 
 
 
 
Net income
$
136,169

 
$
229,208

 
$
124,120

Adjustments to net income:
 
 
 
 
 
Depreciation and amortization, including intangible assets and deferred financing costs
121,749

 
129,712

 
112,722

Non-cash asset management fee expense and directors’ compensation
29,463

 
14,953

 
14,696

Realized and unrealized (gain) loss on foreign currency transactions and other
(18,040
)
 
8,746

 
7,696

Straight-line rent
(14,386
)
 
(14,900
)
 
(17,062
)
Equity in losses of equity method investments in real estate in excess of distributions received
14,201

 
11,745

 
2,501

Loss (gain) on change in control of interests
13,851

 
(49,922
)
 
—

Impairment charges
8,959

 
29,706

 
1,023

Write-off of real estate, provision for doubtful accounts, and other non-cash adjustments
(7,159
)
 
(1,453
)
 
2,646

Amortization of rent-related intangibles and deferred rental revenue
(6,153
)
 
(19,637
)
 
(6,076
)
Deferred income tax (benefit) expense
(4,500
)
 
4,683

 
4,150

Accretion of commercial mortgage-backed securities and other
(3,171
)
 
(1,827
)
 
(3,760
)
Gain on sale of real estate
(2,879
)
 
(132,858
)
 
(2,197
)
Loss on extinguishment of debt
1,587

 
1,136

 
58

Settlement of derivative asset
(26
)
 
—

 
2,948

Net changes in other operating assets and liabilities
(12,631
)
 
2,077

 
419

Net Cash Provided by Operating Activities
257,034

 
211,369

 
243,884

Cash Flows — Investing Activities
 
 
 
 
 
Capital contributions to equity investments in real estate
(153,460
)
 
(11,048
)
 
(39,015
)
Proceeds from sale of real estate
111,229

 
258,293

 
—

Return of capital from equity investments in real estate
39,974

 
42,744

 
34,962

Proceeds from repayment of preferred equity interest
27,000

 
—

 
—

Funding for build-to-suit projects
(12,021
)
 
(13,312
)
 
(24,258
)
Acquisitions of real estate and direct financing leases
(10,822
)
 
(203,093
)
 
(293,324
)
Value added taxes refunded in connection with acquisition of real estate
7,334

 
23,769

 
15,194

Other investing activities, net
4,689

 
2,407

 
—

Payment of deferred acquisition fees to an affiliate
(3,828
)
 
(2,631
)
 
(6,382
)
Capital expenditures on owned real estate
(2,958
)
 
(10,682
)
 
(8,035
)
Value added taxes paid in connection with acquisition of real estate
(1,941
)
 
(5,712
)
 
(37,540
)
Changes in investing restricted cash
1,480

 
1,870

 
6,300

Proceeds from repayment of loan receivable
—

 
12,600

 
40,000

Deposits for investments
—

 
2,501

 
(1,000
)
Proceeds from repayment of debenture
—

 
610

 
7,633

Funding of loans receivable
—

 
—

 
(42,600
)
Net Cash Provided by (Used in) Investing Activities
6,676

 
98,316

 
(348,065
)
Cash Flows — Financing Activities
 
 
 
 
 
Scheduled payments and prepayments of mortgage principal
(458,010
)
 
(177,469
)
 
(121,267
)
Distributions paid
(224,964
)
 
(220,991
)
 
(215,914
)
Proceeds from mortgage financing
203,478

 
266,970

 
170,233

Proceeds from Senior Credit Facility
119,235

 
225,693

 
235,367

Proceeds from issuance of shares, net of issuance costs
102,078

 
103,618

 
103,657

Repayments of Senior Credit Facility
(68,990
)
 
(289,558
)
 
(120,400
)
Repurchase of shares
(61,896
)
 
(49,959
)
 
(37,091
)
Distributions to noncontrolling interests
(40,290
)
 
(38,228
)
 
(35,716
)
Contributions from noncontrolling interests
4,001

 
147

 
15,928

Payment of financing costs and mortgage deposits, net of deposits refunded
(1,058
)
 
(2,203
)
 
(3,544
)
Other financing activities, net
(595
)
 
(81
)
 
—

Changes in financing restricted cash
(10
)
 
(462
)
 
(962
)
Proceeds from notes payable to affiliate
—

 
—

 
25,000

Repayment of notes payable to affiliate
—

 
—

 
(25,000
)
Net Cash Used in Financing Activities
(427,021
)
 
(182,523
)
 
(9,709
)
Change in Cash and Cash Equivalents During the Year
 
 
 
 
 
Effect of exchange rate changes on cash
8,770

 
(6,416
)
 
(8,940
)
Net (decrease) increase in cash and cash equivalents
(154,541
)
 
120,746

 
(122,830
)
Cash and cash equivalents, beginning of year
273,635

 
152,889

 
275,719

Cash and cash equivalents, end of year
$
119,094

 
$
273,635

 
$
152,889


See Notes to Consolidated Financial Statements.


CPA:17 – Global 2017 10-K – 73

CORPORATE PROPERTY ASSOCIATES 17 – GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)

Supplemental Cash Flow Information
(in thousands)
 
Years Ended December 31,
 
2017
 
2016
 
2015
Interest paid, net of amounts capitalized
$
83,734

 
$
93,590

 
$
90,448

Interest capitalized
$
—

 
$
—

 
$
1,632

Income taxes paid
$
3,761

 
$
4,650

 
$
3,399


See Notes to Consolidated Financial Statements.



CPA:17 – Global 2017 10-K – 74

CORPORATE PROPERTY ASSOCIATES 17 – GLOBAL INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization

Corporate Property Associates 17 – Global Incorporated, or CPA:17 – Global, and, together with its consolidated subsidiaries, we, us, or our, is a publicly owned, non-traded real estate investment trust, or REIT, that invests primarily in commercial real estate properties leased to companies both domestically and internationally. We were formed in 2007 and are managed by W. P. Carey Inc., or WPC, through one of its subsidiaries, or collectively our Advisor. As a REIT, we are not subject to U.S. federal income taxation as long as we satisfy certain requirements, principally relating to the nature of our income and the level of our distributions, among other factors. We earn revenue primarily by leasing the properties we own to single corporate tenants, predominantly on a triple-net leased basis, which requires the tenant to pay substantially all of the costs associated with operating and maintaining the property. Revenue is subject to fluctuation due to the timing of new lease transactions, lease terminations, lease expirations, contractual rent adjustments, tenant defaults, sales of properties, and changes in foreign currency exchange rates.
 
Substantially all of our assets and liabilities are held by CPA:17 Limited Partnership, or the Operating Partnership, and at December 31, 2017, we owned 99.99% of general and limited partnership interests in the Operating Partnership. The remaining interest in the Operating Partnership is held by a subsidiary of WPC.

At December 31, 2017, our portfolio was comprised of full or partial ownership interests in 411 properties, substantially all of which were fully-occupied and triple-net leased to 116 tenants, and totaled approximately 44.4 million square feet (unaudited). In addition, our portfolio was comprised of full or majority ownership interests in 38 operating properties, including 37 self-storage properties and one hotel property, for an aggregate of approximately 2.7 million square feet (unaudited).

We operate in two reportable business segments: Net Lease and Self Storage. Our Net Lease segment includes our domestic and foreign investments in net-leased properties, whether they are accounted for as operating or direct financing leases. Our Self Storage segment is comprised of our investments in self-storage properties. In addition, we have investments in loans receivable, commercial mortgage-backed securities, or CMBS, one hotel, and certain other properties, which are included in our All Other category (Note 15). Our reportable business segments and All Other category are the same as our reporting units.

We raised aggregate gross proceeds of approximately $2.9 billion from our initial public offering, which closed in April 2011, and our follow-on offering, which closed in January 2013. We have fully invested the proceeds from our initial and follow-on public offerings. In addition, from inception through December 31, 2017, $676.0 million of distributions to our shareholders were reinvested in our common stock through our Distribution Reinvestment Plan, or DRIP.

Note 2. Summary of Significant Accounting Policies

Critical Accounting Policies and Estimates

Accounting for Acquisitions 

In accordance with the guidance for business combinations, we determine whether a transaction or other event is a business combination, which requires that the assets acquired and liabilities assumed constitute a business. Each business combination is then accounted for by applying the acquisition method. If the assets acquired are not a business, we account for the transaction or other event as an asset acquisition. Under both methods, we recognize the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired entity. In addition, for transactions that are business combinations, we evaluate the existence of goodwill or a gain from a bargain purchase. We capitalize acquisition-related costs and fees associated with asset acquisitions. We immediately expense acquisition-related costs and fees associated with business combinations. However, following our adoption of Accounting Standards Update, or ASU, 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, on January 1, 2017, as described below, all transaction costs incurred during the year ended December 31, 2017 were capitalized since our acquisitions during the year were classified as asset acquisitions. Most of our future acquisitions are likely to be classified as asset acquisitions.



CPA:17 – Global 2017 10-K – 75

Notes to Consolidated Financial Statements

Purchase Price Allocation of Tangible Assets — When we acquire properties with leases classified as operating leases, we allocate the purchase price to the tangible and intangible assets and liabilities acquired based on their estimated fair values. The tangible assets consist of land, buildings, and site improvements. The intangible assets include the above- and below-market value of leases and the in-place leases, which includes the value of tenant relationships. Land is typically valued utilizing the sales comparison (or market) approach. Buildings are valued, as if vacant, using the cost and/or income approach. Site improvements are valued using the cost approach. The fair value of real estate is determined (i) primarily by reference to portfolio appraisals, which determines their values on a property level, by applying a discounted cash flow analysis to the estimated net operating income for each property in the portfolio during the remaining anticipated lease term, and (ii) by the estimated residual value, which is based on a hypothetical sale of the property upon expiration of a lease factoring in the re-tenanting of such property at estimated current market rental rates, applying a selected capitalization rate, and deducting estimated costs of sale.

Assumptions used in the model are property-specific where this information is available; however, when certain necessary information is not available, we use available regional and property-type information. Assumptions and estimates include the following:

•
a discount rate or internal rate of return;
•
the marketing period necessary to put a lease in place;
•
carrying costs during the marketing period;
•
leasing commissions and tenant improvement allowances;
•
market rents and growth factors of these rents; and
•
a market lease term and a capitalization rate to be applied to an estimate of market rent at the end of the market lease term.

The discount rates and residual capitalization rates used to value the properties are selected based on several factors, including:

•
the creditworthiness of the lessees;
•
industry surveys;
•
property type;
•
property location and age;
•
current lease rates relative to market lease rates; and
•
anticipated lease duration.

In the case where a tenant has a purchase option deemed to be favorable to the tenant, or the tenant has long-term renewal options at rental rates below estimated market rental rates, we include the value of the exercise of such purchase option or long-term renewal options in the determination of residual value.

The remaining economic life of leased assets is estimated by relying in part upon third-party appraisals of the leased assets, industry standards, and based on our experience. Different estimates of remaining economic life will affect the depreciation expense that is recorded.

Purchase Price Allocation of Intangible Assets and Liabilities — We record above- and below-market lease intangible assets and liabilities for acquired properties based on the present value (using a discount rate reflecting the risks associated with the leases acquired including consideration of the credit of the lessee) of the difference between (i) the contractual rents to be paid pursuant to the leases negotiated or in place at the time of acquisition of the properties and (ii) our estimate of fair market lease rates for the property or equivalent property, both of which are measured over the estimated lease term which includes renewal options that have rental rates below estimated market rental rates. We discount the difference between the estimated market rent and contractual rent to a present value using an interest rate reflecting our current assessment of the risk associated with the lease acquired, which includes a consideration of the credit of the lessee. Estimates of market rent are generally determined by us relying in part upon a third-party appraisal obtained in connection with the property acquisition and can include estimates of market rent increase factors, which are generally provided in the appraisal or by local real estate brokers. We measure the fair value of below-market purchase option liabilities we acquire as the excess of the present value of the fair value of the real estate over the present value of the tenant’s exercise price at the option date.

We determine these values using our estimates or by relying in part upon third-party appraisals conducted by independent appraisal firms.



CPA:17 – Global 2017 10-K – 76

Notes to Consolidated Financial Statements

We amortize the above-market lease intangible as a reduction of lease revenue over the remaining contractual lease term. We amortize the below-market lease intangible as an increase to lease revenue over the initial term and any renewal periods in the respective leases (Note 7).

The value of any in-place lease is estimated to be equal to the acquirer’s avoidance of costs as a result of having tenants in place, that would be necessary to lease the property for a lease term equal to the remaining primary in-place lease term and the value of investment grade tenancy. The cost avoidance is derived first by determining the in-place lease term on the subject lease. Then, based on our review of the market, the cost to be borne by a property owner to replicate a market lease to the remaining in-place term is estimated. These costs consist of: (i) rent lost during downtime (i.e. assumed periods of vacancy), (ii) estimated expenses that would be incurred by the property owner during periods of vacancy, (iii) rent concessions (i.e. free rent), (iv) leasing commissions, and (v) tenant improvements allowances given to tenants. We determine these values using our estimates or by relying in part upon third-party appraisals. We amortize the value of in-place lease intangibles to expense over the remaining initial term of each lease (Note 7). The amortization period for intangibles does not exceed the remaining depreciable life of the building.

If a lease is terminated, we charge the unamortized portion of above- and below-market lease values to rental income and in-place lease values to amortization expense. If a lease is amended, we will determine whether the economics of the amended lease continue to support the existence of the above- or below-market lease intangibles.

Purchase Price Allocation of Debt — When we acquire leveraged properties, the fair value of the related debt instruments is determined using a discounted cash flow model with rates that take into account the credit of the tenants, where applicable, and interest rate risk. Such resulting premium or discount is amortized into Interest expense within our consolidated financial statements over the remaining term of the obligation. We also consider the value of the underlying collateral, taking into account the quality of the collateral, the credit quality of the tenant, the time until maturity and the current interest rate.

Purchase Price Allocation of Goodwill — In the case of a business combination, after identifying all tangible and intangible assets and liabilities, the excess consideration paid over the fair value of the assets and liabilities acquired and assumed, respectively, represents goodwill. We allocate goodwill to reporting units in which such goodwill arises. In the event we dispose of a property that constitutes a business under U.S. generally accepted accounting principles, or GAAP, from a reporting unit with goodwill, we allocate a portion of the reporting unit’s goodwill to that business in determining the gain or loss on the disposal of the business. The amount of goodwill allocated to the business is based on the relative fair value of the business to the fair value of the reporting unit. As part of purchase accounting, we record any deferred tax assets and/or liabilities resulting from the difference between the tax basis and GAAP basis of the investment in the taxing jurisdiction. Such deferred tax amount will be included in purchase accounting and may impact the amount of goodwill recorded depending on the fair value of all of the other assets and liabilities and the amounts paid.

Impairments 

We periodically assess whether there are any indicators that the value of our long-lived real estate and related intangible assets may be impaired or that their carrying value may not be recoverable. These impairment indicators include, but are not limited to, the vacancy of a property that is not subject to a lease, an upcoming lease expiration, a tenant with credit difficulty, the termination of a lease by a tenant, or a likely disposition of the property. We may incur impairment charges on long-lived assets, including real estate, related intangible assets, direct financing leases, assets held for sale, and equity investments in real estate. We may also incur impairment charges on marketable investments, loans receivable and goodwill. Our policies and estimates for evaluating whether these assets are impaired are presented below.

Real Estate — For real estate assets held for investment and related intangible assets in which an impairment indicator is identified, we follow a two-step process to determine whether an asset is impaired and to determine the amount of the charge. First, we compare the carrying value of the property’s asset group to the estimated future net undiscounted cash flow that we expect the property’s asset group will generate, including any estimated proceeds from the eventual sale of the property’s asset group. The undiscounted cash flow analysis requires us to make our best estimate of market rents, residual values, and holding periods. We estimate market rents and residual values using market information from outside sources, such as third-party market research, external appraisals, broker quotes, or recent comparable sales. In cases where the available market information is not deemed appropriate, we perform a future net cash flow analysis discounted for inherent risk associated with each asset to determine an estimated fair value.



CPA:17 – Global 2017 10-K – 77

Notes to Consolidated Financial Statements

As our investment objective is to hold properties on a long-term basis, holding periods used in the undiscounted cash flow analysis are generally ten years, but may be less if our intent is to hold a property for less than ten years. Depending on the assumptions made and estimates used, the future cash flow projected in the evaluation of long-lived assets and associated intangible assets can vary within a range of outcomes. We consider the likelihood of possible outcomes in determining our estimate of future cash flows and, if warranted, we apply a probability-weighted method to the different possible scenarios. If the future net undiscounted cash flow of the property’s asset group is less than the carrying value, the carrying value of the property’s asset group is considered not recoverable. We then measure the impairment loss as the excess of the carrying value of the property’s asset group over its estimated fair value. The estimated fair value of the property’s asset group is primarily determined using market information from outside sources, such as broker quotes or recent comparable sales. In cases where the available market information is not deemed appropriate, we perform a future net cash flow analysis discounted for inherent risk associated with each asset to determine an estimated fair value.

Assets Held for Sale — We classify real estate assets that are subject to operating leases or direct financing leases as held for sale when we have entered into a contract to sell the property, all material due diligence requirements have been satisfied, and we believe it is probable that the disposition will occur within one year. When we classify an asset as held for sale, we compare the asset’s fair value less estimated cost to sell to its carrying value, and if the fair value less estimated cost to sell is less than the property’s carrying value, we reduce the carrying value to the fair value less estimated cost to sell. We base the fair value on the contract and the estimated cost to sell on information provided by brokers and legal counsel. We will continue to review the property for subsequent changes in the fair value and may recognize an additional impairment charge if warranted.

Real Estate Sales — In the unlikely event that we decide not to sell a property previously classified as held for sale, we reclassify the property as held and used. We measure and record a property that is reclassified as held and used at the lower of (i) its carrying amount before the property was classified as held for sale, adjusted for any depreciation expense that would have been recognized had the property been continuously classified as held and used or (ii) the estimated fair value at the date of the subsequent decision not to sell.

We recognize gains and losses on the sale of properties when, among other criteria, we no longer have continuing involvement, the parties are bound by the terms of the contract, all consideration has been exchanged, and all conditions precedent to closing have been performed. At the time the sale is consummated, a gain or loss is recognized as the difference between the sale price, less any selling costs, and the carrying value of the property.

Direct Financing Leases — We review our direct financing leases at least annually to determine whether there has been an other-than-temporary decline in the current estimate of residual value of the property. The residual value is our estimate of what we could realize upon the sale of the property at the end of the lease term, based on market information and third-party estimates where available. If this review indicates that a decline in residual value has occurred that is other-than-temporary, we recognize an impairment charge equal to the difference between the fair value and carrying amount of the residual value.

We also assess the carrying amount for recoverability and if, as a result of the decreased expected cash flows, we determine that our carrying value is not fully recoverable, we record an allowance for credit losses to reflect the change in the estimate of the future cash flows that includes rent. Accordingly, the net investment balance is written down to fair value. When we enter into a contract to sell the real estate assets that are recorded as direct financing leases, we evaluate whether we believe it is probable that the disposition will occur. If we determine that the disposition is probable, we will classify the net investment as held for sale and write down the net investment to its fair value if the fair value is less than the carrying value.

Equity Investments in Real Estate — We evaluate our equity investments in real estate on a periodic basis to determine if there are any indicators that the value of our equity investment may be impaired and whether or not that impairment is other-than-temporary. To the extent an impairment has occurred and is determined to be other-than-temporary, we measure the charge as the excess of the carrying value of our investment over its estimated fair value, which is determined by calculating our share of the estimated fair market value of the underlying net assets based on the terms of the applicable partnership or joint venture agreement. For our equity investments in real estate, we calculate the estimated fair value of the underlying investment’s real estate or net investment in direct financing lease as described in Real Estate and Direct Financing Leases above. The fair value of the underlying investment’s debt, if any, is calculated based on market interest rates and other market information. The fair value of the underlying investment’s other financial assets and liabilities (excluding net investments in direct financing leases) have fair values that generally approximate their carrying values.



CPA:17 – Global 2017 10-K – 78

Notes to Consolidated Financial Statements

Goodwill — We evaluate goodwill for possible impairment at least annually or upon the occurrence of a triggering event using a two-step process. A triggering event is an event or circumstance that would more likely than not reduce the fair value of a reporting unit below its carrying amount, including sales of properties defined as businesses for which the relative size of the sold property is significant to the reporting unit, that could impact our goodwill impairment calculations. To identify any impairment, we first compare the estimated fair value of each of our reporting units with their respective carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, we do not consider goodwill to be impaired and no further analysis is required. If the carrying amount of the reporting unit exceeds its estimated fair value, we then perform the second step to determine and measure the amount of the potential impairment charge.

For the second step, if it were required, an impairment loss is recognized in an amount equal to the excess of the carrying amount over its estimated fair value, limited to the total amount of goodwill allocated to that reporting unit.

Loans Receivable — We evaluate our loans receivable on a periodic basis to determine if there are any indicators that the value may be impaired. We determine the estimated fair value of these financial instruments using a discounted cash flow model that estimates the present value of the future loan payments by discounting such payments at current estimated market interest rates. The estimated market interest rates take into account interest rate risk and the value of the underlying collateral, which includes quality of the collateral, the credit quality of the tenant/obligor, and the time until maturity.

Debt Securities — We have investments in debt securities that are designated as securities held to maturity. On a quarterly basis, we evaluate our debt securities to determine if they have experienced an other-than temporary decline in value. If the market value of the debt security is below its amortized cost, and we either intend to sell the security or it is more likely than not that we will be required to sell the security before its anticipated recovery, we record the entire amount of the other-than-temporary impairment charge in earnings. Additionally, we consider the significance of the decline and other factors contributing to the decline, such as delinquency, expected credit losses, the length of time that the fair market value has been below cost, and expected market conditions (including volatility), in our analysis of whether a decline is other than temporary. Under current authoritative accounting guidance, if the debt security’s market value is below its amortized cost and we either intend to sell the security or it is more likely than not that we will be required to sell the security before its anticipated recovery, we record the entire amount of the other-than-temporary impairment charge in earnings.

We do not intend to sell our debt securities and we do not expect that it is more likely than not that we will be required to sell these investments before their anticipated recovery. However, if we determine that an other-than-temporary impairment has occurred, we calculate the total impairment charge as the difference between the carrying value of our debt securities and their estimated fair value. We then separate the other-than-temporary impairment charge into the non-credit loss portion and the credit loss portion. We determine the non-credit loss portion by analyzing the changes in spreads on high credit quality debt securities as compared with the changes in spreads on the debt securities being analyzed for other-than-temporary impairment. We generally perform this analysis over a time period from the date of acquisition of the debt securities through the date of the analysis. Any resulting loss is deemed to represent losses due to the illiquidity of the debt securities and is recorded as a separate component of other comprehensive loss in equity. We then measure the credit loss portion of the other-than-temporary impairment as the residual amount of the other-than-temporary impairment. We record the non-credit loss portion in earnings.

Following recognition of the other-than-temporary impairment, the difference between the new cost basis of the debt securities and cash flows expected to be collected is accreted to Other interest income over the remaining expected lives of the securities.

Other Accounting Policies

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

When we obtain an economic interest in an entity, we evaluate the entity to determine if it should be deemed a variable interest entity, or VIE, and, if so, whether we are the primary beneficiary and are therefore required to consolidate the entity. We apply accounting guidance for consolidation of VIEs to certain entities in which the equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. Fixed price purchase and renewal options within a lease, as well as certain decision-making rights within a loan or joint-venture agreement, can cause us to consider an entity a VIE. Limited partnerships and other similar entities that operate as a partnership will be considered a VIE unless the limited partners hold substantive kick-out rights or participation rights. Significant judgment is required to determine whether a VIE should be consolidated. We


CPA:17 – Global 2017 10-K – 79

Notes to Consolidated Financial Statements

review the contractual arrangements provided for in the partnership agreement or other related contracts to determine whether the entity is considered a VIE, and to establish whether we have any variable interests in the VIE. We then compare our variable interests, if any, to those of the other variable interest holders to determine which party is the primary beneficiary of the VIE based on whether the entity (i) has the power to direct the activities that most significantly impact the economic performance of the VIE and (ii) has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. The liabilities of these VIEs are non-recourse to us and can only be satisfied from each VIE’s respective assets.

At December 31, 2017, we considered 21 entities VIEs, nine of which we consolidated as we are considered the primary beneficiary and one of which we accounted for as a loan receivable. The following table presents a summary of selected financial data of the consolidated VIEs, included in the consolidated balance sheets (in thousands):
 
December 31,
 
2017
 
2016 (a) (b)
Real estate — Land, buildings and improvements
$
109,426

 
$
225,347

Operating real estate — Land, buildings and improvements
80,658

 
11,388

Net investments in direct financing leases
312,234

 
315,251

In-place lease intangible assets
8,650

 
8,795

Accumulated depreciation and amortization
(26,395
)
 
(25,000
)
Other assets, net
73,620

 
52,565

Total assets
567,929

 
590,526

 
 
 
 
Mortgage debt, net
$
104,213

 
$
192,839

Accounts payable, accrued expenses and other liabilities
12,693

 
11,187

Deferred income taxes
12,374

 
15,687

Total liabilities
129,662

 
220,077

___________
(a)
In the second quarter of 2017, we reclassified certain line items in our consolidated balance sheets, as described below. As a result, amounts for certain line items included within Net investments in real estate have been reclassified to conform to the current period presentation.
(b)
The consolidated financial statements as of and for the year ended December 31, 2016 accurately reflect the correct accounting treatment for VIEs. In the second quarter of 2017, we identified an error in the notes to the consolidated financial statements as of December 31, 2016 related to the VIE tabular disclosure above in which we improperly classified four consolidated entities as VIEs. We concluded that the disclosure error to the table above was not material to the notes to the consolidated financial statements. As such, we have corrected the information as of December 31, 2016 in the table above to correctly exclude these four entities, which reduced (i) Real estate — land, buildings and improvements by $111.1 million; (ii) in-place lease intangible assets by $21.8 million; (iii) accumulated depreciation and amortization by $21.6 million; (iv) other assets, net by $13.0 million; (v) total assets by $124.4 million; (vi) mortgage debt, net by $73.0 million; (vii) accounts payable, accrued expenses and other liabilities by $3.3 million; and (viii) total liabilities by $76.6 million.

At December 31, 2017 and 2016, we had 11 and 13 unconsolidated VIEs, respectively, all of which we account for under the equity method of accounting. We do not consolidate these entities because we are not the primary beneficiary and the nature of our involvement in the activities of these entities allows us to exercise significant influence on, but does not give us power over, decisions that significantly affect the economic performance of these entities. As of December 31, 2017 and 2016, the net carrying amount of our investments in these entities was $282.0 million and $377.4 million, respectively, and our maximum exposure to loss in these entities was limited to our investments.

At December 31, 2017, we had an investment in a tenancy-in-common interest in a portfolio of international properties. Consolidation of this investment is not required as such interest does not qualify as a VIE and does not meet the control requirement for consolidation. Accordingly, we account for this investment using the equity method of accounting. We use the equity method of accounting because the shared decision-making involved in a tenancy-in-common interest investment provides us with significant influence on the operating and financial decisions of this investment.



CPA:17 – Global 2017 10-K – 80

Notes to Consolidated Financial Statements

At times, the carrying value of our equity investments may fall below zero for certain investments. We intend to fund our share of the jointly owned investments’ future operating deficits should the need arise. However, we have no legal obligation to pay for any of the liabilities of such investments nor do we have any legal obligation to fund operating deficits. At December 31, 2017, none of our equity investments had carrying values below zero.

Reclassifications — Certain prior year amounts have been reclassified to conform to the current year presentation.

In the second quarter of 2017, we reclassified in-place lease intangible assets, net and other intangible assets, net to be included within Net investments in real estate in our consolidated balance sheets. The accumulated amortization on these assets is now included in Accumulated depreciation and amortization in our consolidated balance sheets. In addition, we reclassified goodwill, which was previously included in other intangibles, net to be included in Other assets, net. Prior period balances have been reclassified to conform to the current period presentation.

Real Estate and Operating Real Estate — We carry land, buildings, and personal property at cost less accumulated depreciation. We capitalize improvements and significant renovations that extend the useful life of the properties, while we expense replacements, maintenance, and repairs that do not improve or extend the lives of the respective assets as incurred.

Real Estate Under Construction — For properties under construction, operating expenses, including interest charges and other property expenses (e.g. real estate taxes, insurance and legal costs) are capitalized rather than expensed. We capitalize interest by applying the interest rate applicable to any funding specific to the property or the interest rate applicable to outstanding borrowings to the average amount of accumulated qualifying expenditures for properties under construction during the period.

Acquisition, Development, and Construction Loans — We provide funding to developers for the acquisition, development, and construction of real estate, or ADC Arrangements. Under such ADC Arrangements, we may participate in the residual profits of the project through the sale or refinancing of the property. We evaluate these arrangements to determine if they have characteristics similar to a loan or if the characteristics are more similar to a joint venture or partnership, such as participating in the risks and rewards of the project as an owner or an investment partner. For those arrangements with characteristics of a loan, we follow the accounting guidance for loans and disclose within our Finance Receivables footnote (Note 5). When we determine that the characteristics are more similar to a jointly owned investment or partnership, we account for those arrangements under the equity method of accounting (Note 6). Once the investment or partnership begins operations, we use the hypothetical liquidation at book value method to calculate income or loss (which considers the principal and interest under the loan to be a preferential return).

Loans Receivable — For investments in mortgage notes and loan participations, the loans are initially reflected at acquisition cost, which consists of the outstanding balance, net of the acquisition discount or premium. We amortize any discount or premium as an adjustment to increase or decrease, respectively, the yield realized on these loans over the life of the loan. As such, differences between carrying value and principal balances outstanding do not represent embedded losses or gains as we generally plan to hold such loans to maturity. Our loans receivable are included in Other assets, net in the consolidated financial statements. We generate revenue in the form of interest payments from the borrower, which are recognized in Other interest income in the consolidated financial statements.

Allowance for Doubtful Accounts — We consider rents due under leases and payments under loans receivable to be past-due or delinquent when a contractually required rent, principal payment, or interest payment is not remitted in accordance with the provisions of the underlying agreement. We evaluate each account individually and set up an allowance when, based upon current information and events, it is probable that we will be unable to collect all amounts due according to the existing contractual terms and the amount can be reasonably estimated.

Cash and Cash Equivalents — We consider all short-term, highly liquid investments that are both readily convertible to cash and have a maturity of three months or less at the time of purchase to be cash equivalents. Items classified as cash equivalents include commercial paper and money market funds. Our cash and cash equivalents are held in the custody of several financial institutions, and these balances, at times, exceed federally-insurable limits. We seek to mitigate this risk by depositing funds only with major financial institutions.

Debt Securities — We have investments, such as CMBS, that were designated as securities held to maturity on the date of acquisition, in accordance with current accounting guidance. We carry these securities at cost, net of unamortized premiums and discounts, which are recognized in interest income using an effective yield or “interest” method, and assess them for other-than-temporary impairment on a quarterly basis.



CPA:17 – Global 2017 10-K – 81

Notes to Consolidated Financial Statements

Other Assets and Liabilities — We include prepaid expenses, deferred rental income, tenant receivables, deferred charges, escrow balances held by lenders, restricted cash balances, deferred tax assets, marketable debt securities, derivative assets, and loans receivable in Other assets, net in the consolidated financial statements. We include derivative liabilities, amounts held on behalf of tenants, asset retirement obligations, and deferred revenue in Accounts payable, accrued expenses and other liabilities in the consolidated financial statements. Deferred charges include costs incurred in connection with the Revolver in the Senior Credit Facility that are amortized over the term of the facility and included in Interest expense in the consolidated financial statements. Deferred rental income for operating leases is the aggregate cumulative difference between scheduled rents that vary during the lease term and rent recognized on a straight-line basis.

Deferred Acquisition Fees Payable to Affiliate — Fees payable to our Advisor for structuring and negotiating investments and related mortgage financing on our behalf are included in Due to affiliates (Note 3). This fee, together with its accrued interest, is payable in three equal annual installments on the first business day of the fiscal quarter immediately following the fiscal quarter in which an investment is made, and the first business day of the corresponding fiscal quarter in each of the subsequent two fiscal years. The timing of the payment of such fees is subject to preferred return criterion, a non-compounded cumulative distribution return of 5% per annum (based initially on our invested capital).

Share Repurchases — Share repurchases are recorded as a reduction of common stock par value and additional paid-in capital under our redemption plan, pursuant to which we may elect to redeem shares at the request of our stockholders, subject to certain exceptions, conditions, and limitations. The maximum amount of shares purchasable by us in any period depends on a number of factors and is at the discretion of our board of directors.

Noncontrolling Interests — We account for the special general partner interest in our Operating Partnership as a noncontrolling interest (Note 3). The special general partner interest in our Operating Partnership entitles W. P. Carey Holdings, LLC, or Carey Holdings, also known as the Special General Partner, to cash distributions and, in the event there is a termination or non-renewal of the advisory agreement, redemption rights. Cash distributions to the Special General Partner are accounted for as an allocation to net income attributable to noncontrolling interest.

Revenue Recognition — We lease real estate to others primarily on a triple-net leased basis whereby the tenant is generally responsible for operating expenses relating to the property, including property taxes, insurance, maintenance, repairs, and improvements. For the years ended December 31, 2017, 2016, and 2015, our tenants, pursuant to their lease obligations, have made direct payment to the taxing authorities of real estate taxes of approximately $26.3 million, $22.9 million, and $23.6 million, respectively.

Substantially all of our leases provide for either scheduled rent increases, periodic rent adjustments based on formulas indexed to changes in the Consumer Price Index, or CPI, or similar indices, or percentage rents. CPI-based adjustments are contingent on future events and are therefore not included as minimum rent in straight-line rent calculations. We recognize rents from percentage rents as reported by the lessees, which is after the level of sales requiring a rental payment to us is reached. Percentage rents were insignificant for the periods presented.

For our operating leases, we record real estate at cost less accumulated depreciation; we recognize future minimum rental revenue on a straight-line basis over the non-cancelable lease term of the related leases and charge expenses to operations as incurred (Note 4).

We record leases accounted for under the direct financing method as a net investment in leases (Note 5). The net investment is equal to the cost of the leased assets. The difference between the cost and the gross investment, which includes the residual value of the leased asset and the future minimum rents, is unearned income. We defer and amortize unearned income to income over the lease term so as to produce a constant periodic rate of return on our net investment in the lease.

Asset Retirement Obligations — Asset retirement obligations relate to the legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development, and/or normal operation of a long-lived asset. The fair value of a liability for an asset retirement obligation is recorded in the period in which it is incurred and the cost of such liability is recorded as an increase in the carrying amount of the related long-lived asset by the same amount. The liability is accreted each period in Property expenses on our consolidated financial statements and the capitalized cost is depreciated over the estimated remaining life of the related long-lived asset. Revisions to estimated retirement obligations result in adjustments to the related capitalized asset and corresponding liability.



CPA:17 – Global 2017 10-K – 82

Notes to Consolidated Financial Statements

In order to determine the fair value of the asset retirement obligations, we make certain estimates and assumptions including, among other things, projected cash flows, the borrowing interest rate, and an assessment of market conditions that could significantly impact the estimated fair value. These estimates and assumptions are subjective.

Depreciation — We compute depreciation of building and related improvements using the straight-line method over the estimated remaining useful lives of the properties (not to exceed 40 years) and furniture, fixtures, and equipment (generally up to seven years). We compute depreciation of tenant improvements using the straight-line method over the lesser of the remaining term of the lease or the estimated useful life.

Interest Capitalized in Connection with Real Estate Under Construction — Interest directly related to build-to-suit projects is capitalized. We consider a build-to-suit project as substantially completed upon the completion of improvements. If discrete portions of a project are substantially completed and occupied and other portions have not yet reached that stage, the substantially completed portions are accounted for separately. We allocate costs incurred between the portions under construction and the portions substantially completed and only capitalize those costs associated with the portion under construction. We determine an interest rate to be applied for capitalizing interest based on a blended rate of our debt obligations.

Foreign Currency Translation and Transaction Gains and Losses — We have interests in real estate investments primarily in Europe, for which the functional currency is either the euro or the British pound sterling. We perform the translation from euro or the British pound sterling to the U.S. dollar for assets and liabilities using current exchange rates in effect at the balance sheet date and for revenue and expense accounts using a weighted-average exchange rate during the year. We report the gains and losses resulting from such translation as a component of other comprehensive loss in equity. These translation gains and losses are released to net income when we have substantially exited from all investments in the related currency.

A transaction gain or loss (measured from the transaction date or the most recent intervening balance sheet date, whichever is later), realized upon settlement of a foreign currency transaction generally will be included in net income for the period in which the transaction is settled. Also, intercompany foreign currency transactions that are scheduled for settlement, consisting primarily of accrued interest and the translation to the reporting currency of short-term subordinated intercompany debt with scheduled principal payments, are included in the determination of net income.

Intercompany foreign currency transactions of a long-term nature (that is, settlement is not planned or anticipated in the foreseeable future), in which the entities to the transactions are consolidated or accounted for by the equity method in our consolidated financial statements, are not included in net income but are reported as a component of other comprehensive income in equity.

Net realized gains or (losses) are recognized on foreign currency transactions in connection with the transfer of cash from foreign operations of subsidiaries to the parent company. For the year ended December 31, 2017, we recognized net realized gains on such transactions of $2.9 million and losses on such transactions of $2.3 million for both the years ended December 31, 2016, and 2015.

Derivative Instruments — We measure derivative instruments at fair value and record them as assets or liabilities, depending on our rights or obligations under the applicable derivative contract. Derivatives that are not designated as hedges must be adjusted to fair value through earnings. For a derivative designated and that qualifies as a cash flow hedge, the effective portion of the change in fair value of the derivative is recognized in Other comprehensive income (loss) until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value is immediately recognized in earnings. For a derivative designated, and that qualifies, as a net investment hedge, the effective portion of the change in the fair value and/or the net settlement of the derivative are reported in Other comprehensive income (loss) as part of the cumulative foreign currency translation adjustment. The ineffective portion of the change in fair value of the derivative is recognized directly in earnings. Amounts are reclassified out of Other comprehensive income (loss) into earnings when the hedged investment is either sold or substantially liquidated. In accordance with fair value measurement guidance, counterparty credit risk is measured on a net portfolio position basis.

Income Taxes — We have elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code. In order to maintain our qualification as a REIT, we are required, among other things, to distribute at least 90% of our REIT net taxable income to our stockholders and meet certain tests regarding the nature of our income and assets. As a REIT, we are not subject to federal income taxes on our income and gains that we distribute to our stockholders as long as we satisfy certain requirements, principally relating to the nature of our income and the level of our distributions, as well as other factors. We believe that we have operated, and we intend to continue to operate, in a manner that allows us to continue to qualify as a REIT.



CPA:17 – Global 2017 10-K – 83

Notes to Consolidated Financial Statements

We conduct business in various states and municipalities within the United States, Europe, and Asia and, as a result, we or one or more of our subsidiaries file income tax returns in the United States federal jurisdiction and various state and certain foreign jurisdictions. As a result, we are subject to certain foreign, state, and local taxes and a provision for such taxes is included in the consolidated financial statements.

We elect to treat certain of our corporate subsidiaries as taxable REIT subsidiaries, or TRSs. In general, a TRS may perform additional services for our tenants and generally may engage in any real estate or non-real estate-related business (except for the operation or management of health care facilities or lodging facilities or providing to any person, under a franchise, license or otherwise, rights to any brand name under which any lodging facility or health care facility is operated). A TRS is subject to corporate federal income tax.

Significant judgment is required in determining our tax provision and in evaluating our tax positions. We establish tax reserves based on a benefit recognition model, which we believe could result in a greater amount of benefit (and a lower amount of reserve) being initially recognized in certain circumstances. Provided that the tax position is deemed more likely than not of being sustained, we recognize the largest amount of tax benefit that is greater than 50% likely of being ultimately realized upon settlement. We derecognize the tax position when it is no longer more likely than not of being sustained.

Our earnings and profits, which determine the taxability of distributions to stockholders, differ from net income reported for financial reporting purposes due primarily to differences in depreciation, including our hotel property, and timing differences of rent recognition and certain expense deductions, for federal income tax purposes. Deferred income taxes relate primarily to our TRSs and foreign properties, and are accounted for using the asset and liability method. Under this method, deferred income taxes are recognized for temporary differences between the financial reporting bases of assets and liabilities of our TRSs and their respective tax bases, and for their operating loss and tax credit carryforwards based on enacted tax rates expected to be in effect when such amounts are realized or settled. However, deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based on consideration of available evidence, including tax planning strategies and other factors (Note 13).

We recognize deferred income taxes in certain of our subsidiaries taxable in the United States or in foreign jurisdictions. Deferred income taxes are generally the result of temporary differences (items that are treated differently for tax purposes than for U.S. GAAP purposes as described in Note 13). In addition, deferred tax assets arise from unutilized tax net operating losses, generated in prior years. Deferred income taxes are computed under the asset and liability method. The asset and liability method requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between tax bases and financial bases of assets and liabilities. We provide a valuation allowance against our deferred income tax assets when we believe that it is more likely than not that all or some portion of the deferred income tax asset may not be realized. Whenever a change in circumstances causes a change in the estimated realizability of the related deferred income tax asset, the resulting increase or decrease in the valuation allowance is included in deferred income tax expense.

Earnings Per Share — We have a simple equity capital structure with only common stock outstanding. As a result, earnings per share, as presented, represents both basic and dilutive per-share amounts for all periods presented in the consolidated financial statements. Income per basic and diluted share of common stock is calculated by dividing net income by the weighted-average number of shares of common stock issued and outstanding during such period.

Use of Estimates — The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in our consolidated financial statements and the accompanying notes. Actual results could differ from those estimates.



CPA:17 – Global 2017 10-K – 84

Notes to Consolidated Financial Statements

Recent Accounting Pronouncements

Pronouncements Adopted as of December 31, 2017

In October 2016, the Financial Accounting Standards Board, or FASB, issued ASU 2016-17, Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control. ASU 2016-17 changes how a reporting entity that is a decision maker should consider indirect interests in a VIE held through an entity under common control. If a decision maker must evaluate whether it is the primary beneficiary of a VIE, it will only need to consider its proportionate indirect interest in the VIE held through a common control party. ASU 2016-17 amends ASU 2015-02, which we adopted on January 1, 2016, and which currently directs the decision maker to treat the common control party’s interest in the VIE as if the decision maker held the interest itself. ASU 2016-17 is effective for public business entities in fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. We adopted ASU 2016-17 as of January 1, 2017 on a prospective basis. The adoption of this standard did not have a material impact on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. ASU 2017-01 intends to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Under the current implementation guidance in Topic 805, there are three elements of a business: inputs, processes, and outputs. While an integrated set of assets and activities, collectively referred to as a “set,” that is a business usually has outputs, outputs are not required to be present. ASU 2017-01 provides a screen to determine when a set is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. ASU 2017-01 will be effective for public business entities in fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. We elected to early adopt ASU 2017-01 on January 1, 2017 on a prospective basis. While our acquisitions have historically been classified as either business combinations or asset acquisitions, certain acquisitions that were classified as business combinations by us likely would have been considered asset acquisitions under the new standard. As a result, all transaction costs incurred during the year ended December 31, 2017 were capitalized since our acquisitions during the year were classified as asset acquisitions. Most of our future acquisitions are likely to be classified as asset acquisitions under this new standard. In addition, goodwill that was previously allocated to businesses that were sold or held for sale will no longer be allocated and written off upon sale if future sales were deemed to be sales of assets and not businesses.

In January 2017, the FASB issued ASU 2017-04, Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 removes step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. ASU 2017-04 will be effective for public business entities in fiscal years beginning after December 15, 2019, including interim periods within those fiscal years in which a goodwill impairment test is performed, with early adoption permitted. We adopted ASU 2017-04 as of April 1, 2017 on a prospective basis. The adoption of this standard did not have a material impact on our consolidated financial statements.

Pronouncements to be Adopted after December 31, 2017

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. ASU 2014-09 does not apply to our lease revenues, which constitute a majority of our revenues, but will primarily apply to revenues generated from our operating properties. We adopted this guidance for our interim and annual periods beginning January 1, 2018 using the modified retrospective method. We performed a comprehensive evaluation of the impact of the new standard across our revenue streams, and determined that the timing of revenue recognition and its classification in our consolidated financial statements will remain substantially unchanged.



CPA:17 – Global 2017 10-K – 85

Notes to Consolidated Financial Statements

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 outlines a new model for accounting by lessees, whereby their rights and obligations under substantially all leases, existing and new, would be capitalized and recorded on the balance sheet. For lessors, however, the accounting remains largely unchanged from the current model, with the distinction between operating and financing leases retained, but updated to align with certain changes to the lessee model and the new revenue recognition standard. The new standard also replaces existing sale-leaseback guidance with a new model applicable to both lessees and lessors. In addition, it also requires lessors to record gross revenues and expenses associated with activities that do not transfer services to the lessee (such as real estate taxes and insurance). Additionally, the new standard requires extensive quantitative and qualitative disclosures. Early application will be permitted for all entities. The new standard must be adopted using a modified retrospective transition of the new guidance and provides for certain practical expedients. Transition will require application of the new model at the beginning of the earliest comparative period presented. We will adopt this guidance for our interim and annual periods beginning January 1, 2019. The ASU is expected to impact our consolidated financial statements as we have certain land lease arrangements for which we are the lessee. We are evaluating the impact of the new standard and have not yet determined if it will have a material impact on our business or our consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses. ASU 2016-13 introduces a new model for estimating credit losses based on current expected credit losses for certain types of financial instruments, including loans receivable, held-to-maturity debt securities, and net investments in direct financing leases, amongst other financial instruments. ASU 2016-13 also modifies the impairment model for available-for-sale debt securities and expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for losses. ASU 2016-13 will be effective for public business entities in fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early application of the guidance permitted. We are in the process of evaluating the impact of adopting ASU 2016-13 on our consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 intends to reduce diversity in practice for certain cash flow classifications, including, but not limited to (i) debt prepayment or debt extinguishment costs, (ii) contingent consideration payments made after a business combination, (iii) proceeds from the settlement of insurance claims, and (iv) distributions received from equity method investees. ASU 2016-15 will be effective for public business entities in fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early application of the guidance permitted. We adopted this guidance for our interim and annual periods beginning January 1, 2018. The adoption of ASU 2016-15 is not expected to have a material impact on our consolidated financial statements, with the exception of debt prepayment or debt extinguishment cost reclassifications between operating and financing cash flow activities.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. ASU 2016-18 intends to reduce diversity in practice for the classification and presentation of changes in restricted cash on the statement of cash flows. ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 will be effective for public business entities in fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. We adopted this guidance for our interim and annual periods beginning January 1, 2018. The adoption of ASU 2016-18 is not expected to have a material impact on our consolidated financial statements.

In February 2017, the FASB issued ASU 2017-05, Other Income — Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20). ASU 2017-05 clarifies that a financial asset is within the scope of Subtopic 610-20 if it meets the definition of an in substance nonfinancial asset. The amendments define the term “in substance nonfinancial asset,” in part, as a financial asset promised to a counterparty in a contract if substantially all of the fair value of the assets (recognized and unrecognized) that are promised to the counterparty in the contract is concentrated in nonfinancial assets. If substantially all of the fair value of the assets that are promised to the counterparty in a contract is concentrated in nonfinancial assets, then all of the financial assets promised to the counterparty are in substance nonfinancial assets within the scope of Subtopic 610-20. This amendment also clarifies that nonfinancial assets within the scope of Subtopic 610-20 may include nonfinancial assets transferred within a legal entity to a counterparty. For example, a parent company may transfer control of nonfinancial assets by transferring ownership interests in a consolidated subsidiary. ASU 2017-05 is effective for periods beginning after December 15, 2017, with early application permitted for fiscal years beginning after December 15, 2016. We are in the process of evaluating the impact of ASU 2017-05 on our consolidated financial statements and will adopt the standard for the fiscal year beginning January 1, 2018.



CPA:17 – Global 2017 10-K – 86

Notes to Consolidated Financial Statements

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. ASU 2017-12 will make more financial and nonfinancial hedging strategies eligible for hedge accounting. It also amends the presentation and disclosure requirements and changes how companies assess hedge effectiveness. It is intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. ASU 2017-12 will be effective in fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. We are in the process of evaluating the impact of adopting ASU 2017-12 on our consolidated financial statements, and expect to adopt the standard for the fiscal year beginning January 1, 2019.

Note 3. Agreements and Transactions with Related Parties

Transactions with Our Advisor

We have an advisory agreement with our Advisor whereby our Advisor performs certain services for us under a fee arrangement, including the identification, evaluation, negotiation, purchase, and disposition of real estate and related assets and mortgage loans; day-to-day management; and the performance of certain administrative duties. We also reimburse our Advisor for general and administrative duties performed on our behalf. The advisory agreement has a term of one year and may be renewed for successive one-year periods. We may terminate the advisory agreement upon 60 days’ written notice without cause or penalty.

The following tables present a summary of fees we paid, expenses we reimbursed, and distributions we made to our Advisor and other affiliates in accordance with the relevant agreements (in thousands):
 
Years Ended December 31,
 
2017
 
2016
 
2015
Amounts Included in the Consolidated Statements of Income
 
 
 
 
 
Asset management fees
$
29,363

 
$
29,705

 
$
29,192

Available Cash Distributions
26,675

 
24,765

 
24,668

Personnel and overhead reimbursements
8,878

 
9,684

 
12,199

Director compensation
310

 
310

 
310

Interest expense on deferred acquisition fees and loan from affiliate
273

 
238

 
309

Acquisition expenses
—

 
2,844

 
430

 
$
65,499

 
$
67,546

 
$
67,108

Acquisition Fees Capitalized
 
 
 
 
 
Current acquisition fees
$
5,284

 
$
3,985

 
$
8,180

Deferred acquisition fees
4,228

 
3,188

 
6,325

Personnel and overhead reimbursements
849

 
584

 
858

 
$
10,361

 
$
7,757

 
$
15,363


The following table presents a summary of amounts included in Due to affiliates in the consolidated financial statements (in thousands):
 
December 31,
 
2017
 
2016
Due to Affiliates
 
 
 
Deferred acquisition fees, including interest
$
6,564

 
$
6,584

Asset management fees payable
2,435

 
2,250

Reimbursable costs
2,162

 
2,299

Accounts payable
175

 
360

Current acquisition fees
131

 
230

 
$
11,467

 
$
11,723




CPA:17 – Global 2017 10-K – 87

Notes to Consolidated Financial Statements

Acquisition and Disposition Fees

We pay our Advisor acquisition fees for structuring and negotiating investments and related mortgage financing on our behalf, a portion of which is payable upon acquisition of investments, with the remainder subordinated to the achievement of a preferred return, which is a non-compounded cumulative distribution of 5.0% per annum (based initially on our invested capital). Acquisition fees payable to our Advisor with respect to our long-term, net-leased investments are 4.5% of the total cost of those investments and are comprised of a current portion of 2.5%, typically paid upon acquisition, and a deferred portion of 2.0%, typically paid over three years and subject to the 5.0% preferred return described above. The preferred return was achieved as of each of the cumulative periods ended December 31, 2017, 2016, and 2015. For certain types of non-long term net-leased investments, initial acquisition fees are between 1.0% and 1.75% of the equity invested plus the related acquisition fees, with no portion of the payment being deferred. Unpaid installments of deferred acquisition fees are included in Due to affiliates in the consolidated financial statements. Unpaid installments of deferred acquisition fees bear interest at an annual rate of 5.0%. The cumulative total acquisition costs, including acquisition fees paid to our Advisor, may not exceed 6.0% of the aggregate contract purchase price of all investments, which is measured at the end of each year. Our cumulative total acquisition costs have not exceeded the amount that would require our Advisor to reimburse us.

Our Advisor may be entitled to receive a disposition fee equal to the lesser of (i) 50.0% of the competitive real estate commission (as defined in the advisory agreement) or (ii) 3.0% of the contract sales price of the investment being sold; however, payment of such fees is subordinated to the 5.0% preferred return. These fees are payable at the discretion of our board of directors.

Asset Management Fees

As described in the advisory agreement, we pay our Advisor asset management fees that vary based on the nature of the underlying investment. We pay 0.5% per annum of average market value for long-term net leases and certain other types of real estate investments, and 1.5% to 1.75% per annum of average equity value for certain types of securities. Asset management fees are payable in cash and/or shares of our common stock at our option, after consultation with our Advisor. If our Advisor receives all or a portion of its fees in shares, the number of shares issued is determined by dividing the dollar amount of fees by our most recently published estimated net asset value per share, or NAV, which was $10.11 as of December 31, 2016. For 2017 we paid our Advisor 100.0% of its asset management fees in shares of our common stock. For 2016 and 2015, we paid our Advisor 50% of its asset management fees in cash and 50.0% in shares of our common stock. At December 31, 2017, our Advisor owned 14,647,412 shares (4.2%) of our common stock. Asset management fees are included in Property expenses in the consolidated financial statements.

Available Cash Distribution

WPC’s interest in the Operating Partnership entitles it to receive distributions of up to 10.0% of available cash generated by the Operating Partnership, referred to as the Available Cash Distribution, which is defined as cash generated from operations, excluding capital proceeds, as reduced by operating expenses and debt service, excluding prepayments and balloon payments. Available Cash Distributions are included in Net income attributable to noncontrolling interests in the consolidated financial statements.
 
Personnel and Overhead Reimbursements

Under the terms of the advisory agreement, our Advisor allocates a portion of its personnel and overhead expenses to us and the other entities that are managed by our Advisor, including Corporate Property Associates 18 – Global Incorporated; Carey Watermark Investors Incorporated; Carey Watermark Investors 2 Incorporated; and Carey European Student Housing Fund I, L.P.; collectively referred to as the Managed Programs. Our Advisor also allocated a portion of its personnel and overhead expenses to Carey Credit Income Fund (now known as Guggenheim Credit Income Fund) prior to September 11, 2017, which was the effective date of its resignation as the advisor to that fund. Our Advisor allocates these expenses to us on the basis of our trailing four quarters of reported revenues in comparison to those of WPC and other entities managed by WPC and its affiliates.

We reimburse our Advisor for various expenses it incurs in the course of providing services to us. We reimburse certain third-party expenses paid by our Advisor on our behalf, including property-specific costs, professional fees, office expenses, and business development expenses. In addition, we reimburse our Advisor for the allocated costs of personnel and overhead in managing our day-to-day operations, including accounting services, stockholder services, corporate management, and property management and operations. We do not reimburse our Advisor for the cost of personnel if these personnel provide services for


CPA:17 – Global 2017 10-K – 88

Notes to Consolidated Financial Statements

transactions for which our Advisor receives a transaction fee, such as for acquisitions and dispositions. As per the advisory agreement, the amount of applicable personnel costs allocated to us is capped at 2.0% and 2.2% for 2017 and 2016, respectively, of pro rata lease revenues for each year. Beginning in 2018, the cap decreases to 1.0% of pro rata lease revenues for that year. Costs related to our Advisor’s legal transactions group are based on a schedule of expenses relating to services performed for different types of transactions, such as financings, lease amendments, and dispositions, among other categories, and includes 0.25% of the total investment cost of an acquisition. In general, personnel and overhead reimbursements are included in General and administrative expenses in the consolidated financial statements. However, we capitalize certain of the costs related to our Advisor’s legal transactions group if the costs relate to a transaction that is not considered to be a business combination.

Excess Operating Expenses

Our Advisor is obligated to reimburse us for the amount by which our operating expenses exceeds the “2%/25% guidelines” (the greater of 2% of average invested assets or 25% of net income) as defined in the advisory agreement for any 12-month period, subject to certain conditions. For the most recent trailing four quarters, our operating expenses were below this threshold.

Jointly Owned Investments and Other Transactions with Affiliates

At December 31, 2017, we owned interests ranging from 6% to 97% in jointly owned investments, with the remaining interests held by affiliates or by third parties. We consolidate certain of these investments and account for the remainder under the equity method of accounting. We also owned an interest in a jointly controlled tenancy-in-common interest in several properties, which we account for under the equity method of accounting (Note 6). At December 31, 2017, we had $0.2 million due from an affiliate primarily related to one of our jointly owned investments, which is included in Other assets, net on our consolidated financial statements. At December 31, 2016, we had $0.9 million due from an affiliate primarily related to one of our jointly owned investments, which was subsequently repaid.

Note 4. Real Estate, Operating Real Estate, and Assets Held for Sale

Real Estate — Land, Buildings and Improvements

Real estate, which consists of land and buildings leased to others, at cost, and which are subject to operating leases, is summarized as follows (in thousands):
 
December 31,
 
2017
 
2016
Land
$
567,113

 
$
563,050

Buildings and improvements
2,200,901

 
2,182,374

Real estate under construction
4,597

 
—

Less: Accumulated depreciation
(354,668
)
 
(280,657
)
 
$
2,417,943

 
$
2,464,767


During the year ended December 31, 2017, the U.S. dollar weakened against the euro, as the end-of-period rate for the U.S. dollar in relation to the euro increased by 13.8% to $1.1993 from $1.0541. As a result, the carrying value of our real estate increased by $145.9 million from December 31, 2016 to December 31, 2017.

Depreciation expense, including the effect of foreign currency translation, on our real estate for the years ended December 31, 2017, 2016, and 2015 was $64.6 million, $63.1 million, and $57.9 million, respectively.

Acquisitions of Real Estate During 2017

On February 2, 2017, we acquired an office facility in Buffalo Grove, Illinois, which was deemed to be a real estate asset acquisition, at a total cost of $11.5 million, including land of $2.0 million, building of $7.5 million (including acquisition-related costs of $0.5 million, which were capitalized), and an intangible asset of $2.0 million (Note 7).



CPA:17 – Global 2017 10-K – 89

Notes to Consolidated Financial Statements

On July 19, 2017, we acquired a parcel of land located in Zary, Poland for $0.4 million, which is adjacent to an industrial facility we previously acquired. The land will be used to construct an expansion to the existing facility, which is currently expected to cost $5.9 million (amounts are based on the exchange rate of the euro on the date of acquisition and includes capitalized acquisition related costs of $0.3 million) and to be completed in 2018. See Real Estate Under Construction below for additional information.

On October 27, 2017, we agreed to fund the expansion of a distribution facility in Dillon, South Carolina, which is adjacent to a distribution facility we previously acquired. The expansion of the facility is currently expected to cost $47.1 million (including capitalized acquisition related costs of $2.3 million) and to be completed in 2018. See Real Estate Under Construction below for additional information.

On December 8, 2017, we agreed to fund the expansion of a facility located in Zabia Wola, Poland, which is adjacent to a facility we previously acquired. The expansion to the existing facility is currently expected to cost $5.5 million (amount is based on the exchange rate of the euro on the date of acquisition and includes capitalized acquisition related costs of $0.3 million) and to be completed in 2019. See Real Estate Under Construction below for additional information.

Acquisitions of Real Estate During 2016

During the year ended December 31, 2016, we acquired the following investments, which were deemed to be business combinations because we assumed the existing leases on the properties, at a total cost of $51.2 million, including land of $6.7 million, buildings of $40.2 million, and net lease intangibles of $4.3 million:

•
$17.3 million for a student housing accommodation in Jacksonville, Florida on January 8, 2016;
•
$4.2 million for an industrial facility in Houston, Texas on February 10, 2016;
•
$16.9 million for an office building in Oak Creek, Wisconsin on September 1, 2016; and
•
$12.8 million for a warehouse and light manufacturing building in Perrysburg, Ohio on September 30, 2016.

In connection with these investments, we expensed acquisition-related costs and fees totaling $2.6 million, which are included in Acquisition expenses in the consolidated financial statements.

During the year ended December 31, 2016, we capitalized $10.4 million of building improvements with existing tenants of our net-leased properties.

During 2016, we entered into the following investments, which were deemed to be real estate asset acquisitions because we acquired the sellers’ properties and simultaneously entered into new leases in connection with these acquisitions, at a total cost of $134.8 million, including land of $8.6 million, buildings of $97.0 million (including acquisition-related costs of $7.1 million, which were capitalized), and net intangibles of $29.2 million:

•
an investment of $38.2 million for five distribution centers located in Tiffin, Ohio; Kalamazoo, Michigan; Andersonville, Tennessee; Shelbyville, Indiana; and Millwood, West Virginia on November 1, 2016;
•
an investment of $32.6 million for a facility located in Zabia Wola, Poland on November 29, 2016. In addition, we recorded a deferred tax liability of $2.1 million partially offset by intangible assets of $2.0 million and land of $0.1 million related to this transaction (amounts are based on the exchange rate of the euro on the date of acquisition); and
•
an investment of $64.0 million for a facility located in Kaunas, Lithuania on December 14, 2016. In addition, we recorded a deferred tax liability of $0.5 million partially offset by building and improvements and intangible assets (amounts are based on the exchange rate of the euro on the date of acquisition).



CPA:17 – Global 2017 10-K – 90

Notes to Consolidated Financial Statements

Scheduled Future Minimum Rents

Scheduled future minimum rents, exclusive of renewals, expenses paid by tenants, and future CPI-based adjustments, under non-cancelable operating leases at December 31, 2017 are as follows (in thousands):
Years Ending December 31, 
 
Total
2018
 
$
283,901

2019
 
285,026

2020
 
287,210

2021
 
289,060

2022
 
288,150

Thereafter
 
2,231,027

Total
 
$
3,664,374


Real Estate Under Construction

As noted above, during 2017 we acquired three build-to-suit investments, which were still under construction as of December 31, 2017. The aggregate unfunded commitment on our build-to-suit investments and certain other tenant improvements totaled approximately $56.5 million at December 31, 2017. As of December 31, 2017, real estate under construction totaled $4.6 million and is included within Real estate — Land, buildings and improvements on our consolidated financial statements.

Operating Real Estate — Land, Buildings and Improvements

Operating real estate, which consists of our wholly owned domestic self-storage operations and a majority ownership in one hotel, at cost, is summarized as follows (in thousands):
 
December 31,
 
2017
 
2016
Land
$
90,042

 
$
55,645

Buildings and improvements
250,730

 
203,326

Less: Accumulated depreciation
(26,087
)
 
(18,876
)
 
$
314,685

 
$
240,095


Depreciation expense on our operating real estate for the years ended December 31, 2017, 2016, and 2015 was $6.7 million, $7.8 million, and $8.4 million, respectively.

Acquisitions of Operating Real Estate During 2017

In 2012, we funded a domestic build-to-suit project for the construction and redevelopment of the Shelborne hotel located in Miami, Florida. The funding of the hotel was provided in the form of a $125.0 million loan (which subsequently increased to $174.0 million including accrued interest), which we refer to as the Shelborne Loan. In addition to providing the loan, we acquired a 33% equity interest in the build-to-suit investment. The remaining 67% equity interest was held by two third-party joint venture partners. Pursuant to the accounting guidance regarding ADC Arrangements, we accounted for the Shelborne Loan under the equity method of accounting as the characteristics of the arrangement with the third-party developer were more similar to a jointly owned investment or partnership rather than a loan (Note 6). During 2014, construction was completed and the hotel was placed into service.

During September 2017, the Shelborne hotel sustained estimated damages of $31.2 million from Hurricane Irma, all of which is expected to be covered by insurance, with exception to the estimated insurance deductible of $1.8 million. Of this amount, $1.7 million was recorded prior to the restructuring within Equity in earnings of equity method investments in real estate on our consolidated financial statements (Note 6).



CPA:17 – Global 2017 10-K – 91

Notes to Consolidated Financial Statements

On October 3, 2017, we restructured our Shelborne hotel investment. All equity interests in the investment were transferred to us in satisfaction of the Shelborne Loan. Simultaneously, we transferred a 4.5% minority interest back to one of the original equity partners in exchange for a cash contribution of $4.0 million from that partner. As a result of the restructuring, we became the managing member with the controlling financial interest in the investment. The minority interests have no decision-making control. Since the construction is now completed and the Shelborne Loan has been satisfied, we determined that this investment should no longer be accounted for as an ADC Arrangement (Note 6) and, as a result, we consolidate this investment after October 3, 2017.

We deemed this to be an asset acquisition as substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset group. Due to the change in control resulting from the acquisition of this controlling interest, we accounted for this acquisition using the purchase method of accounting. We recorded a non-cash loss on change in control of interests of $13.9 million during 2017, which was the difference between the carrying value from our previously held equity investment of $118.7 million and the fair value of our 95.5% ownership interest on the date of restructuring of $104.9 million. We determined the following purchase price allocation based on an appraisal provided by an independent valuation firm performed as of the date of acquisition (in thousands):

 
Shelborne Hotel
 
October 3, 2017
Assets acquired at fair value:
 
Land
$
34,397

Buildings and improvements
46,261

Other assets, net (a)
32,695

 
113,353

Liabilities assumed at fair value:
 
Other liabilities assumed
(2,777
)
 
(2,777
)
Total identifiable net assets
110,576

Noncontrolling interest contribution (b)
(9,529
)
Net cash received
3,829

Fair value of our majority interest in investment
104,876

Carrying value of previously held equity investment
(118,727
)
Loss on change in control of interest
$
(13,851
)
___________
(a)
Includes insurance receivables of $29.4 million related to the damage caused by Hurricane Irma, which excludes remediation costs of $1.4 million noted below.
(b)
Includes a non-cash contribution of $5.5 million from the joint-venture partner.

Subsequent to restructuring, and through December 31, 2017, we incurred additional costs of $1.4 million related to remediation work at the hotel, which is covered by our insurance policy. In addition, we recognized $2.7 million in costs related to our insurance adjuster, which is recorded within Other income and (expenses) on our consolidated financial statements. As of December 31, 2017, insurance receivables outstanding relating to the hurricane damage were $30.8 million, which is included in Other assets, net and represents our estimate of the net proceeds for damages to be received under our insurance policy related to this property.

We are still assessing the impact of the hurricane to this hotel, and the final damages incurred could vary significantly from our estimate and additional remediation work may be performed. Any changes in estimates for property damage will be recorded in the periods in which they were determined and any additional work will be recorded in the periods in which it is performed.



CPA:17 – Global 2017 10-K – 92

Notes to Consolidated Financial Statements

Acquisitions of Operating Real Estate During 2016

In 2013, we acquired a 45% equity interest and 40% indirect economic interest in Madison Storage NYC, LLC and Veritas Group IX-NYC, LLC, which were previously accounted for under the equity method of accounting and included in Equity investments in real estate in the consolidated financial statements. On April 11, 2016, we acquired the remaining 15% controlling interest in these entities at a total cost of $22.0 million and, as a result, gained 100% of the economic interest and consolidated this investment. In connection with this business combination, we expensed acquisition-related costs and fees of $3.7 million, which are included in Acquisition expenses in the consolidated financial statements. Due to the change in control resulting from the acquisition of this controlling interest, we accounted for this acquisition using the purchase method of accounting. We recorded a non-cash gain on change in control of interests of $49.9 million during 2016, which was the difference between the carrying value of $15.1 million and the fair value of $64.9 million from our previously held equity interest on April 11, 2016. On October 26, 2016, we exercised our option to purchase the additional 40% indirect economic interest in Madison Storage NYC, LLC from CIF Storage LLC, and as a result, we directly owned 100% of these four entities at both December 31, 2017 and 2016. There was no cash transfer for this additional interest as we previously owned this 40% interest indirectly. At December 31, 2016, we had a 45% equity interest and 40% indirect economic interest in the Veritas Group IX-NYC, LLC property, which was deemed to be a VIE. In March 2017, we exercised our call option on this property, and as a result, we now own 100% of the entity. As such, since that date we no longer classify this entity as a VIE.

The following tables present a summary of assets acquired and liabilities assumed, and revenues and earnings thereon since the date of acquisition through December 31, 2016 (in thousands):
 
Madison Storage NYC, LLC and Veritas Group IX-NYC, LLC
Cash consideration
$
11,363

Assets acquired at fair value:
 
Land
$
26,941

Buildings
109,399

In-place lease intangible assets
9,783

Other assets acquired
1,705

 
147,828

Liabilities assumed at fair value:
 
Non-recourse debt, net
(70,578
)
Other liabilities assumed
(831
)
 
(71,409
)
Total identifiable net assets
76,419

Gain on change in control of interests
(49,922
)
Carrying value of previously held equity investment
(15,134
)
 
$
11,363


 
Madison Storage NYC, LLC and Veritas Group IX-NYC, LLC
 
April 11, 2016 through
December 31, 2016
Revenues
$
7,166

 
 
Net loss (a) (b)
$
(9,021
)
Net loss attributable to CPA:17 – Global (a) (b)
$
(9,021
)
___________
(a)
Excludes a $49.9 million gain on change in control of interests.
(b)
Includes equity in losses of equity method investments in real estate of $0.4 million.



CPA:17 – Global 2017 10-K – 93

Notes to Consolidated Financial Statements

Pro Forma Financial Information

The following consolidated pro forma financial information presents our financial results as if this business combination had occurred as of January 1, 2015. The pro forma financial information is not necessarily indicative of what the actual results would have been had the acquisition actually occurred on January 1, 2015, nor does it purport to represent the results of operations for future periods.

(In thousands, except per share data)
 
Years Ended December 31,
 
2016
 
2015
Pro forma total revenues
$
442,972

 
$
437,295

 
 
 
 
Pro forma net income (a)
$
184,487

 
$
165,489

Pro forma net income attributable to noncontrolling interests
(38,863
)
 
(39,915
)
Pro forma net income attributable to CPA:17 – Global
$
145,624

 
$
125,574

Pro forma basic and diluted weighted-average shares outstanding
342,147,444

 
334,468,362

Pro-forma basic and diluted income per share
$
0.43

 
$
0.38

___________
(a) Pro forma net income for 2015 includes a gain on change in control of interests of $49.9 million and transaction costs of $3.7 million as if they were recognized on January 1, 2015.

Dispositions and Assets Held for Sale

Below is a summary of our properties held for sale (in thousands):
 
December 31,
 
2017
 
2016
Real estate, net
$
—

 
$
14,850

Assets held for sale
$
—

 
$
14,850


At December 31, 2016, we had a property classified as Assets held for sale (Note 14). On March 13, 2017, we sold this property for $14.1 million, net of closing costs. In addition, during the year ended December 31, 2017, we sold three net-leased properties, two of which were accounted for as direct financing leases (Note 5, Note 14).

I-drive Property Disposition and I-drive Wheel Restructuring

In 2012, we entered into a contract for the construction of a domestic build-to-suit project with IDL Master Tenant, LLC, a developer, for the construction of an entertainment complex, which we refer to as the I-drive Property, and an observation wheel, which we refer to as the I-drive Wheel, at the I-drive Property. We had accounted for the construction of the I-drive Property as Real estate under construction. The funding for the construction of the I-drive Wheel was provided by us in the form of a $50.0 million loan, which we refer to as the Wheel Loan. Pursuant to the accounting guidance regarding ADC Arrangements, we accounted for the Wheel Loan under the equity method of accounting as the characteristics of the arrangement with the third-party developer were more similar to a jointly-owned investment or partnership rather than a loan (Note 6). During 2015, the construction on both the I-drive Property and the I-drive Wheel were completed and placed into service.

On March 17, 2017, the developer exercised its purchase option and acquired the I-drive Property for a purchase price of $117.5 million (Note 14). The $60.0 million non-recourse mortgage loan encumbering the I-drive Property was repaid at closing by the buyer (Note 10). In connection with the disposition, we provided seller financing in the form of a $34.0 million mezzanine loan (Note 5), which was considered to be a non-cash investing activity, and the sale was accounted for under the cost recovery method. As a result, the $2.1 million gain on sale was deferred and will be recognized into income upon recovery of the cost of the property from the future cash proceeds. As a result of the sale of the I-drive Property, we no longer consider this entity to be a VIE at December 31, 2017.



CPA:17 – Global 2017 10-K – 94

Notes to Consolidated Financial Statements

During 2016, we sold 34 self-storage properties (Note 14).

Asset Retirement Obligations

We have recorded asset retirement obligations for the removal of asbestos and environmental waste in connection with certain of our investments. We estimated the fair value of the asset retirement obligations based on the estimated economic lives of the properties and the estimated removal costs provided by the inspectors. The liability was discounted using the weighted-average interest rate on the associated fixed-rate mortgage loans at the time the liability was incurred.

The following table provides the activity of our asset retirement obligations, which are included in Accounts payable, accrued expenses and other liabilities in the consolidated financial statements (in thousands):
 
Years Ended December 31,
 
2017
 
2016
Beginning balance
$
17,749

 
$
25,424

Reductions due to dispositions
(2,038
)
 
(10,541
)
Accretion expense (a)
991

 
1,292

Foreign currency translation adjustments and other
230

 
(314
)
Additions
—

 
1,888

Ending balance
$
16,932

 
$
17,749

__________
(a)
Accretion of the liability is included in Property expenses in the consolidated financial statements and recognized over the economic life of the properties.

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 and loans receivable. Operating leases are not included in finance receivables as such amounts are not recognized as an asset in the consolidated financial statements. Our loans receivable are included in Other assets, net in the consolidated financial statements. Earnings from our loans receivable are included in Other interest income in the consolidated financial statements.

Net Investments in Direct Financing Leases

Net investments in direct financing leases is summarized as follows (in thousands):
 
December 31,
 
2017
 
2016
Minimum lease payments receivable
$
732,092

 
$
790,111

Unguaranteed residual value
188,517

 
189,692

 
920,609

 
979,803

Less: unearned income
(411,381
)
 
(471,411
)
 
$
509,228

 
$
508,392


During the year ended December 31, 2017, the U.S. dollar weakened against the euro, as the end-of-period rate for the U.S. dollar in relation to the euro increased by 13.8% to $1.1993 from $1.0541. As a result, the carrying value of our net investment in direct financing leases increased by $5.7 million from December 31, 2016 to December 31, 2017.

In June 2017, we sold two net-leased properties located in Lima and Miamisburg, Ohio, back to the tenant, Civitas Media, LLC, for net proceeds of $6.1 million (Note 14). These properties were previously accounted for as direct financing leases. We retained the remaining four net-leased properties leased to this tenant.



CPA:17 – Global 2017 10-K – 95

Notes to Consolidated Financial Statements

On February 10, 2016, we entered into a net lease financing transaction for an industrial facility in Houston, Texas for $4.2 million. In connection with this business combination, we expensed acquisition-related costs and fees of $0.3 million, which are included in Acquisition expenses in the consolidated financial statements.

On April 8, 2016, we entered into a net lease financing transaction for six newspaper printing facilities in Ohio, North Carolina, Pennsylvania, and Missouri for $12.0 million, including capitalized acquisition-related costs and fees of $0.5 million.

Scheduled Future Minimum Rents

Scheduled future minimum rents, exclusive of renewals, expenses paid by tenants, and future CPI-based adjustments, under non-cancelable direct financing leases at December 31, 2017 are as follows (in thousands):
Years Ending December 31, 
 
Total
2018
 
$
58,257

2019 (a)
 
306,525

2020
 
31,696

2021
 
32,072

2022
 
32,548

Thereafter
 
270,994

Total
 
$
732,092

___________
(a)
Includes $250.0 million for a bargain purchase option. In January 2018, the tenant, The New York Times Company, exercised its bargain purchase option to acquire the property for $250.0 million, which is expected to occur on December 1, 2019 (Note 17).

Loans Receivable

In connection with the I-drive Property disposition (Note 4, Note 14), on March 17, 2017 we provided seller financing in the form of a $34.0 million mezzanine loan (Note 4) to the developer of the I-drive Property, which has an interest rate of 9.0% and is scheduled to mature in April 2019 with an option to extend to April 2020.

In addition to the sale of the I-drive Property, we restructured the Wheel Loan (Note 4) on March 17, 2017. Under the original ADC Arrangement that was accounted for as an equity method investment (Note 6), (i) we provided all the equity for the initial construction and carried all of the risk, (ii) all interest and fees on the Wheel Loan were added to the Wheel Loan balance, and (iii) we participated in the residual profits of the I-drive Wheel post-construction through rents we received pursuant to a ground lease. The original $50.0 million Wheel Loan was restructured as follows:

•
$5.0 million of principal was repaid.
•
$10.0 million of principal was converted into separate loans to two individuals associated with the developer. These loans are guaranteed by their 80.0% equity interest in the I-Shops Property that we originally owned and sold back to the developer in 2014. The loans have an interest rate of 6.5% and are scheduled to mature in December 2018 with an option to extend to April 2020.
•
We reduced the interest rate to 6.5% on the remaining $35.0 million and extended the maturity in December 2018 with an option to extend to December 2020.

In connection with the restructuring of the Wheel Loan, we determined that the loan no longer qualifies as an ADC Arrangement and should no longer be accounted for as an equity investment since (i) the construction was completed, (ii) the borrowers contributed cash and equity pledges as security, which substantially reduced our risk, and (iii) we no longer participate in the residual profits through the ground lease rents (pursuant to the aforementioned I-drive Property disposition mentioned in Note 4). As a result, we reclassified the aggregate loan balance noted above to loans receivable, included in Other Assets, net, which was a non-cash investing activity. A deferred gain of $16.4 million was recorded during the first quarter, which was the difference between the fair value of the remaining $35.0 million loan and the $18.6 million carrying value of our previously held equity investment on March 17, 2017. The deferred gain related to the restructuring of the Wheel Loan will be recognized into income upon recovery of the cost of the Wheel Loan from future cash proceeds.



CPA:17 – Global 2017 10-K – 96

Notes to Consolidated Financial Statements

At December 31, 2017 and 2016, we had five loans and one loan receivable with outstanding balances of $110.5 million and $31.5 million, respectively, which are included in Other assets, net in the consolidated financial statements.

1185 Broadway LLC — On January 8, 2015, we provided a mezzanine loan of $30.0 million to a subsidiary of 1185 Broadway LLC for the development of a hotel on a parcel of land in New York, New York. The mezzanine loan is collateralized by an equity interest in a subsidiary of 1185 Broadway LLC. It has an interest rate of 10% and is scheduled to mature on April 3, 2018. The agreement also contains rights to certain fees upon maturity and an equity interest in the underlying entity that has been recorded in Other assets, net in the consolidated financial statements. At December 31, 2017, the balance of the loan receivable including interest thereon was $31.5 million.

Credit Quality of Finance Receivables

We generally seek investments in facilities that we believe are critical to a tenant’s business and have a low risk of tenant default. At December 31, 2017, we had $1.1 million of finance receivable balances that were past due, of which we established an allowance for credit losses of $0.7 million. At December 31, 2016, we did not have any finance receivable balances that were past due. Additionally, there were no modifications of finance receivables during the years ended December 31, 2017 and 2016. We evaluate the credit quality of our finance receivables utilizing an internal five-point credit rating scale, with one representing the highest credit quality and five representing the lowest. The credit quality evaluation of our finance receivables was last updated in the fourth quarter of 2017.

A summary of our finance receivables by internal credit quality rating is as follows (dollars in thousands):
 
 
Number of Tenants / Obligors at December 31,
 
Carrying Value at December 31,
Internal Credit Quality Indicator
 
2017
 
2016
 
2017
 
2016
1
 
—
 
—
 
$
—

 
$
—

2
 
2
 
2
 
62,744

 
61,949

3
 
8
 
9
 
379,621

 
412,075

4
 
8
 
5
 
165,413

 
65,868

5
 
1
 
—
 
11,950

 
—

 
 
 
 
 
 
$
619,728

 
$
539,892


Note 6. Equity Investments in Real Estate

We own equity interests in net-leased properties that are generally leased to companies through noncontrolling interests (i) in partnerships and limited liability companies that we do not control but over which we exercise significant influence or (ii) as tenants-in-common subject to common control. Generally, the underlying investments are jointly owned with affiliates. We account for these investments under the equity method of accounting. Earnings for each investment are recognized in accordance with each respective investment agreement and, where applicable, based upon an allocation of the investment’s net assets at book value as if the investment were hypothetically liquidated at the end of each reporting period.

As required by current authoritative accounting guidance, we periodically compare an investment’s carrying value to its estimated fair value and recognize an impairment charge to the extent that the carrying value exceeds fair value and such decline is determined to be other than temporary. Additionally, we provide funding to developers for ADC Arrangements, under which we have provided loans to third-party developers of real estate projects, which we account for as equity investments as the characteristics of the arrangement with the third-party developers are more similar to a jointly owned investment or partnership rather than a loan.



CPA:17 – Global 2017 10-K – 97

Notes to Consolidated Financial Statements

The following table presents Equity in earnings of equity method investments in real estate, which represents our proportionate share of the income or losses of these investments, as well as amortization of basis differences related to purchase accounting adjustments (in thousands):
 
Years Ended December 31,
 
2017
 
2016
 
2015
Equity Earnings from Equity Investments:
 
 
 
 
 
Net Lease (a)
$
9,369

 
$
15,271

 
$
21,692

Self Storage
—

 
(394
)
 
(1,703
)
All Other (b)
(6,274
)
 
(5,010
)
 
(1,762
)
 
3,095

 
9,867

 
18,227

Amortization of Basis Differences on Equity Investments:
 
 
 
 
 
Net Lease
(2,260
)
 
(3,077
)
 
(2,263
)
Self Storage
—

 
(39
)
 
(155
)
All Other
(574
)
 
(3,489
)
 
(1,142
)
 
(2,834
)
 
(6,605
)
 
(3,560
)
Equity in earnings of equity method investments in real estate
$
261

 
$
3,262

 
$
14,667

__________
(a)
For the years ended December 31, 2017 and 2016, amounts include impairment charges of $10.6 million and $1.9 million, respectively, related to certain of our equity investments (Note 8).
(b)
As of December 31, 2016, the carrying value of one of our investments was reduced to reflect a $22.8 million impairment of goodwill at the investee level to its fair value (Note 8). In addition, we recorded $10.6 million of income recognized in conjunction with the termination of a management agreement and a $10.6 million gain representing the portion of losses guaranteed by the previous management company under the terms of the management agreement.



CPA:17 – Global 2017 10-K – 98

Notes to Consolidated Financial Statements

The following table sets forth our ownership interests in our equity method investments in real estate and their respective carrying values, along with those ADC Arrangements that are recorded as equity investments (dollars in thousands):
 
 
 
 
Ownership Interest at
 
Carrying Value at December 31,
Lessee/Equity Investee
 
Co-owner
 
December 31, 2017
 
2017
 
2016
Net Lease:
 
 
 
 
 
 
 
 
Hellweg Die Profi-Baumärkte GmbH & Co. KG (referred to as Hellweg 2) (a) (b) (c)
 
WPC
 
37%
 
$
109,933

 
$
10,125

Kesko Senukai (a) (d)
 
Third Party
 
70%
 
58,136

 
—

Jumbo Logistiek Vastgoed B.V. (a) (e)
 
WPC
 
85%
 
55,162

 
54,621

U-Haul Moving Partners, Inc. and Mercury Partners, LP (b)
 
WPC
 
12%
 
35,897

 
37,601

Bank Pekao S.A. (a) (b)
 
CPA:18 – Global
 
50%
 
25,582

 
23,025

BPS Nevada, LLC (b) (f)
 
Third Party
 
15%
 
23,455

 
23,036

State Farm Automobile Co. (b)
 
CPA:18 – Global
 
50%
 
16,072

 
17,603

Berry Global Inc. (b)
 
WPC
 
50%
 
14,476

 
14,974

Tesco Global Aruhazak Zrt. (a) (b) (g)
 
WPC
 
49%
 
10,707

 
10,807

Eroski Sociedad Cooperativa — Mallorca (a)
 
WPC
 
30%
 
7,629

 
6,576

Apply Sørco AS (referred to as Apply) (a) (h)
 
CPA:18 – Global
 
49%
 
6,298

 
12,528

Dick’s Sporting Goods, Inc. (b)
 
WPC
 
45%
 
3,750

 
4,367

Konzum d.d. (referred to as Agrokor) (a) (b) (i)
 
CPA:18 – Global
 
20%
 
3,433

 
7,079

 
 
 
 
 
 
370,530

 
222,342

All Other:
 
 
 
 
 
 
 
 
BG LLH, LLC (b) (f)
 
Third Party
 
6%
 
38,724

 
36,756

Shelborne Operating Associates, LLC (referred to as Shelborne) (b) (f) (j) (k) (l)
 
Third Party
 
N/A
 
—

 
127,424

IDL Wheel Tenant, LLC (m)
 
Third Party
 
N/A
 
—

 
37,124

BPS Nevada, LLC — Preferred Equity (b) (n)
 
Third Party
 
N/A
 
—

 
27,459

 
 
 
 
 
 
38,724

 
228,763

 
 
 
 
 
 
$
409,254

 
$
451,105

__________
(a)
The carrying value of this investment is affected by the impact of fluctuations in the exchange rate of the applicable foreign currency.
(b)
This investment is a VIE.
(c)
In January 2017, our Hellweg 2 jointly owned equity investment repaid non-recourse mortgage loans with an aggregate principal balance of approximately $243.8 million, of which we contributed $90.3 million (amounts are based on the exchange rate of the euro as of the date of repayment). This contribution was accounted for as a capital contribution to equity investments in real estate.
(d)
On May 23, 2017, we entered into a joint venture investment to acquire a 70% interest in a real estate portfolio for a total cost of $141.5 million, which excludes our portion of mortgage financing totaling $88.0 million (dollar amounts are based on the exchange rate of the euro on the date of acquisition). In addition, we recorded $7.2 million of basis difference, which was primarily attributable to acquisition costs. This was structured as a sale-leaseback transaction in which the tenant retained the remaining 30% ownership interest in the real estate portfolio. The portfolio includes 18 retail stores and one warehouse collectively located in Lithuania, Latvia, and Estonia, which we will account for as an equity method investment as the minority shareholders have significant influence. All major decisions that significantly impact the economic performance of the entity require a unanimous decision vote from all of the shareholders and, therefore, we do not have control over this investment.
(e)
This investment represents a tenancy-in-common interest, whereby the property is encumbered by debt for which we are jointly and severally liable. The co-obligor is WPC and the amount due under the arrangement was approximately $76.2 million at December 31, 2017. Of this amount, $64.8 million represents the amount we are liable for and is included within the carrying value of this investment at December 31, 2017.


CPA:17 – Global 2017 10-K – 99

Notes to Consolidated Financial Statements

(f)
This investment is reported using the hypothetical liquidation at book value model, which may be different then pro rata ownership percentages, primarily due to the complex capital structures of the partnership agreements.
(g)
On July 29, 2016, this investment refinanced a non-recourse mortgage loan that had an outstanding balance of $33.8 million with new financing of $34.6 million, of which our proportionate share was $17.0 million. The previous loan had an interest rate of 5.9% and a maturity date of July 31, 2016, while the new loan has an interest rate of Euro Interbank Offered Rate plus a margin of 3.3% and a term of five years.
(h)
During the year ended December 31, 2017, we recognized an impairment charge of $6.3 million related to our Apply equity method investment (Note 8).
(i)
During the year ended December 31, 2017, we recognized an impairment charge of $4.3 million related to our Agrokor equity method investment (Note 8).
(j)
On October 3, 2017, we restructured our Shelborne hotel investment by converting the underlying loan to equity when each of the partners transferred their equity interest in the investment to us in full satisfaction for the loan. We then transferred a 4.5% noncontrolling interest back to one of the original joint venture partners for a cash contribution of $4.0 million. As a result, we obtained approximately 95.5% (increased from 33%) of the interest in the entity. As a result of the restructuring, we determined that this investment should no longer be accounted for as an ADC Arrangement (Note 4) and we therefore consolidate this investment. During the year ended December 31, 2017, we recognized a loss on change in control of interests of $13.9 million as a result of this restructuring.
(k)
During the year ended December 31, 2017, as a result of Hurricane Irma and prior to the restructuring of this investment, we incurred damage at the Shelborne hotel, which is currently expected to be covered by insurance proceeds after the estimated deductible is paid (Note 4). We recognized this charge within Equity in earnings of equity method investments in real estate on our consolidated financial statements.
(l)
The carrying value as of December 31, 2016 includes a $22.8 million impairment charge to reduce goodwill at the investee level to its fair value, partially offset by $10.6 million of income recognized in conjunction with the termination of a management agreement and a $10.6 million gain representing the portion of losses guaranteed by the previous management company under the terms of the management agreement.
(m)
As of December 31, 2016, the carrying value included our investment in the Wheel Loan (Note 5) that was considered to be a VIE and was reported using the hypothetical liquidation at book value model. The Wheel Loan was restructured on March 17, 2017 and, as a result, we have reclassified the equity investment to a loan receivable, included in Other assets, net and no longer consider this to be a VIE.
(n)
This investment represents a preferred equity interest, with a preferred rate of return of 12%. On May 19, 2017, we received the full repayment of our preferred equity interest totaling $27.0 million; therefore, the preferred equity interest is now retired.

The following tables present combined summarized investee financial information of our equity method investment properties. Amounts provided are the total amounts attributable to the investment properties and do not represent our proportionate share (in thousands):
 
December 31 or September 30
(as applicable), (a) (b) (c)
 
2017
 
2016
Net investments in real estate (d)
$
3,850,204

 
$
3,569,612

Other assets (d)
595,352

 
497,198

Total assets
4,445,556

 
4,066,810

Debt
2,584,248

 
2,619,153

Accounts payable, accrued expenses and other liabilities
374,040

 
447,944

Total liabilities
2,958,288

 
3,067,097

Total equity
$
1,487,268

 
$
999,713

 
Twelve Months Ended December 31 or September 30
(as applicable), (a) (b) (c)
 
2017
 
2016
 
2015
Revenues
$
888,159

 
$
815,161

 
$
779,875

Expenses
927,121

 
865,706

 
791,224

Loss from continuing operations
$
(38,962
)
 
$
(50,545
)
 
$
(11,349
)
__________


CPA:17 – Global 2017 10-K – 100

Notes to Consolidated Financial Statements

(a)
We record our investments in BPS Nevada, LLC and BG LLH, LLC on a one quarter lag. Therefore, amounts in our financial statements for the years ended December 31, 2017, 2016, and 2015 are based on balances and results of operations from the aforementioned investments is as of and for the 12 months ended September 30, 2017, 2016, and 2015, respectively.
(b)
Our investment in IDL Wheel Tenant, LLC was restructured on March 17, 2017, and as a result, we no longer account for this investment as an equity method investment as of that date. Prior to the restructuring, we recorded this investment on a one quarter lag. Therefore, amounts in our financial statements for the years ended December 31, 2016 and 2015 are based on balances and results of operations from IDL Wheel Tenant, LLC as of and for the 12 months ended September 30, 2016 and 2015, respectively. Therefore, amounts in our financial statements for the year ended December 31, 2017, only include operations from this investment for the three months ended December 31, 2016.
(c)
Our investment in Shelborne hotel was restructured on October 3, 2017, and as a result, we no longer account for this investment as an equity method investment as of that date. Prior to the restructuring, we recorded this investment on a one quarter lag. Therefore, amounts in our financial statements for the years ended December 31, 2016 and 2015 are based on balances and results of operations from Shelborne hotel as of and for the 12 months ended September 30, 2016 and 2015, respectively. Therefore, amounts for the year ended December 31, 2017 in the table above, only include operations from this investment for the 12 months ended September 30, 2017.
(d)
In the second quarter of 2017, we reclassified certain line items in our consolidated balance sheets. As a result, amounts for certain line items included within Net investments in real estate as of December 31, 2016 have been revised to the current year presentation (Note 2).

Aggregate distributions from our interests in other unconsolidated real estate investments were $54.5 million, $57.8 million, and $52.1 million for the years ended December 31, 2017, 2016, and 2015, respectively. At December 31, 2017 and 2016, the unamortized basis differences on our equity investments were $26.3 million and $19.1 million, respectively.



CPA:17 – Global 2017 10-K – 101

Notes to Consolidated Financial Statements

Note 7. Intangible Assets and Liabilities

In-place lease intangibles are included in In-place lease intangible assets in the consolidated financial statements. Above-market rent and below-market ground lease and other (as lessee) intangibles are included in Other intangible assets in the consolidated financial statements. Goodwill is included in Other assets, net in the consolidated financial statements. Below-market rent and above-market ground lease (as lessor) intangibles are included in Below-market rent and other intangible liabilities, net in the consolidated financial statements.

In connection with our investment activity during 2017 (Note 4), we recorded an In-place lease intangible of $2.0 million, which has an expected life of 20 years.

Intangible assets and liabilities are summarized as follows (in thousands):
 
 
 
December 31, 2017
 
December 31, 2016
 
Amortization Period (Years)
 
Gross Carrying Amount
 
Accumulated
Amortization
 
Net Carrying Amount
 
Gross Carrying Amount
 
Accumulated
Amortization
 
Net Carrying Amount
Finite-Lived Intangible Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
In-place lease
4 – 53
 
$
629,961

 
$
(213,641
)
 
$
416,320

 
$
620,149

 
$
(181,598
)
 
$
438,551

Above-market rent
5 – 40
 
98,162

 
(31,533
)
 
66,629

 
91,895

 
(24,599
)
 
67,296

Below-market ground leases and other
55 – 94
 
12,842

 
(726
)
 
12,116

 
12,023

 
(508
)
 
11,515

 
 
 
740,965

 
(245,900
)
 
495,065

 
724,067

 
(206,705
)
 
517,362

Indefinite-Lived Intangible Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill
 
 
304

 
—

 
304

 
304

 
—

 
304

Total intangible assets
 
 
$
741,269

 
$
(245,900
)
 
$
495,369

 
$
724,371

 
$
(206,705
)
 
$
517,666

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Finite-Lived Intangible Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
Below-market rent
7 – 53
 
$
(82,259
)
 
$
22,121

 
$
(60,138
)
 
$
(120,725
)
 
$
39,025

 
$
(81,700
)
Above-market ground lease
49 – 88
 
(1,145
)
 
61

 
(1,084
)
 
(1,145
)
 
46

 
(1,099
)
Total intangible liabilities
 
 
$
(83,404
)
 
$
22,182

 
$
(61,222
)
 
$
(121,870
)
 
$
39,071

 
$
(82,799
)

Amortization of below-market rent and above-market rent intangibles is recorded as an adjustment to Rental income; amortization of below-market ground lease and other and above-market ground lease intangibles is included in Property expenses; and amortization of in-place lease intangibles is included in Depreciation and amortization expense on our consolidated financial statements. Amortization of below- and above-market rent intangibles, including the effect of foreign currency translation, increased Rental income by $17.8 million, $14.2 million and $3.6 million for the years ended December 31, 2017, 2016, and 2015, respectively. The year ended December 31, 2017 includes the impact of a below-market rent intangible liability write off of $15.7 million recognized in conjunction with the KBR lease modification (Note 14) that occurred during the current year. Net amortization expense of all of our other net intangible assets totaled $43.7 million, $51.2 million, and $40.3 million for the years ended December 31, 2017, 2016, and 2015, respectively.

We performed our annual test for impairment of goodwill during the fourth quarter of 2017 and no impairment was indicated. Goodwill resides within our Net Lease segment, which is also the reporting unit for goodwill impairment testing.



CPA:17 – Global 2017 10-K – 102

Notes to Consolidated Financial Statements

Based on the intangible assets and liabilities recorded at December 31, 2017, scheduled annual net amortization of intangibles for the next five calendar years and thereafter is as follows (in thousands):
Years Ending December 31,
 
Net Decrease (Increase) in Rental Income
 
Increase to Amortization/Property Expenses
 
Net
2018
 
$
1,374

 
$
37,007

 
$
38,381

2019
 
1,374

 
36,740

 
38,114

2020
 
1,367

 
36,563

 
37,930

2021
 
1,369

 
36,435

 
37,804

2022
 
1,375

 
36,141

 
37,516

Thereafter
 
(368
)
 
244,466

 
244,098

 
 
$
6,491

 
$
427,352

 
$
433,843


Note 8. Fair Value Measurements

The fair value of an asset is defined as the exit price, which is the amount that would either be received when an asset is sold or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance establishes a three-tier fair value hierarchy based on the inputs used in measuring fair value. These tiers are: Level 1, for which quoted market prices for identical instruments are available in active markets, such as money market funds, equity securities, and U.S. Treasury securities; Level 2, for which there are inputs other than quoted prices included within Level 1 that are observable for the instrument, such as certain derivative instruments including interest rate caps, interest rate swaps, foreign currency forward contracts, and foreign currency collars; and Level 3, for securities and other derivative assets that do not fall into Level 1 or Level 2 and for which little or no market data exists, therefore requiring us to develop our own assumptions.

Items Measured at Fair Value on a Recurring Basis

The methods and assumptions described below were used to estimate the fair value of each class of financial instrument. For significant Level 3 items, we have also provided the unobservable inputs along with their weighted-average ranges.

Derivative Assets — Our derivative assets, which are included in Other assets, net in the consolidated financial statements, are comprised of interest rate caps, interest rate swaps, foreign currency forward contracts, stock warrants, and foreign currency collars (Note 9). The interest rate caps, interest rate swaps, foreign currency forward contracts, and foreign currency collars were measured at fair value using readily observable market inputs, such as quotations on interest rates, and were classified as Level 2 as these instruments are custom, over-the-counter contracts with various bank counterparties that are not traded in an active market. The stock warrants were measured at fair value using internal valuation models that incorporated market inputs and our own assumptions about future cash flows. We classified these assets as Level 3 because they are not traded in an active market.

Derivative Liabilities — Our derivative liabilities, which are included in Accounts payable, accrued expenses and other liabilities in the consolidated financial statements, are comprised of interest rate swaps and foreign currency collars (Note 9). These derivative instruments were measured at fair value using readily observable market inputs, such as quotations on interest rates, and were classified as Level 2 because they are custom, over-the-counter contracts with various bank counterparties that are not traded in an active market.

We did not have any transfers into or out of Level 1, Level 2, and Level 3 measurements during the years ended December 31, 2017, 2016, or 2015. Gains and losses (realized and unrealized) recognized on items measured at fair value on a recurring basis included in earnings are reported within Other income and (expenses) on our consolidated financial statements.



CPA:17 – Global 2017 10-K – 103

Notes to Consolidated Financial Statements

Our other financial instruments had the following carrying values and fair values as of the dates shown (dollars in thousands):
 
 
 
December 31, 2017
 
December 31, 2016
 
Level
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Mortgage debt, net (a) (b)
3
 
$
1,849,459

 
$
1,864,043

 
$
2,022,250

 
$
2,053,353

Loans receivable (b)
3
 
110,500

 
110,500

 
31,500

 
31,500

CMBS (c)
3
 
6,548

 
7,237

 
4,027

 
7,470

___________
(a)
The carrying value of Mortgage debt, net includes unamortized deferred financing costs of $7.9 million and $9.3 million at December 31, 2017 and 2016, respectively.
(b)
We determined the estimated fair value of these financial instruments using a discounted cash flow model that estimates the present value of the future loan payments by discounting such payments at current estimated market interest rates. The estimated market interest rates take into account interest rate risk and the value of the underlying collateral, which includes quality of the collateral, the credit quality of the tenant/obligor, certain guarantees, and the time until maturity.
(c)
At December 31, 2017 and 2016, we had two and three separate tranches of CMBS investments, respectively. The carrying value of our CMBS is inclusive of impairment charges for the years ended December 31, 2017 and 2016, as well as accretion related to the estimated cash flows expected to be received.

We estimated that our other financial assets and liabilities (excluding net investments in direct financing leases) had fair values that approximated their carrying values at both December 31, 2017 and 2016.

Items Measured at Fair Value on a Non-Recurring Basis (Including Impairment Charges)

We periodically assess whether there are any indicators that the value of our real estate investments may be impaired or that their carrying value may not be recoverable. For investments in real estate held for use for which an impairment indicator is identified, we follow a two-step process to determine whether the investment is impaired and to determine the amount of the charge. First, we compare the carrying value of the property’s asset group to the future undiscounted net cash flows that we expect the property’s asset group will generate, including any estimated proceeds from the eventual sale of the property’s asset group. If this amount is less than the carrying value, the property’s asset group is considered to be not recoverable. We then measure the impairment charge as the excess of the carrying value of the property’s asset group over the estimated fair value of the property’s asset group, which is primarily determined using market information such as recent comparable sales, broker quotes, or third-party appraisals. If relevant market information is not available or is not deemed appropriate, we perform a future net cash flow analysis, discounted for inherent risk associated with each investment. We determined that the significant inputs used to value these investments fall within Level 3 for fair value reporting. As a result of our assessments, we calculated impairment charges based on market conditions and assumptions. The valuation of real estate is subject to significant judgment and actual results may differ materially if market conditions or the underlying assumptions change.
 
The following table presents information about the assets for which we recorded an impairment charge that was measured at fair value on a non-recurring basis (in thousands):
 
Years Ended December 31,
 
2017
 
2016
 
2015
 
Fair Value
Measurements
 
Total
Impairment
Charges
 
Fair Value
Measurements
 
Total
Impairment
Charges
 
Fair Value
Measurements
 
Total
Impairment
Charges
Impairment Charges
 

 
 

 
 

 
 

 
 

 
 

Equity investments in real estate
$
10,242

 
$
10,576

 
$
12,528

 
$
1,919

 
$
—

 
$
—

Real estate
7,525

 
8,276

 
14,850

 
29,183

 
—

 
—

CMBS
258

 
683

 
400

 
523

 
1,478

 
1,023

 
 
 
$
19,535

 
 
 
$
31,625

 
 
 
$
1,023




CPA:17 – Global 2017 10-K – 104

Notes to Consolidated Financial Statements

Impairment charges, and their related triggering events and fair value measurements, recognized during 2017, 2016, and 2015 were as follows:

Equity Investments in Real Estate

During the year ended December 31, 2017, we recognized an other-than-temporary impairment charge of $6.3 million on our Apply Sørco AS investment (Note 6), to reduce the carrying value of a property held by the jointly owned investment to its estimated fair value due to a lease restructuring with the tenant that was executed in September 2017. The fair value measurement related to the impairment charge was determined by estimating discounted cash flows using three significant unobservable inputs, which are the cash flow discount rate, the residual discount rate, and the residual capitalization rate equal to 9.3%, 7.8%, and 6.8%, respectively. Significant increases or decreases to these inputs in isolation would result in a significant change in the fair value measurement.

During the year ended December 31, 2017, we recognized an other-than-temporary impairment charge of $4.3 million on our Agrokor investment, to reduce the carrying value of a property held by the jointly owned investment to its estimated fair value due to a decline in market conditions (Note 6). The fair value measurement related to the impairment charge was determined by estimating discounted cash flows using three significant unobservable inputs, which are the cash flow discount rate, the residual discount rate, and the residual capitalization rate equal to 12.4%, 10.9%, and 10.4%, respectively. Significant increases or decreases to these inputs in isolation would result in a significant change in the fair value measurement.

During the year ended December 31, 2016, we recognized an other-than-temporary impairment charge of $1.9 million on our Agrokor equity investment, to reduce the carrying value of a property held by the jointly owned investment to its estimated fair value due to a decline in market conditions (Note 6). The fair value measurement related to the impairment charge was determined by estimating discounted cash flows using three significant unobservable inputs, which are the cash flow discount rate, the residual discount rate, and the residual capitalization rate equal to 8.8%, 7.8%, and 6.8%, respectively. Significant increases or decreases to these inputs in isolation would result in a significant change in the fair value measurement.

During the year ended December 31, 2016, our Shelborne equity method investment recorded a $22.8 million impairment charge to reduce goodwill at the investee level to its fair value (Note 6). The fair value measurement related to the impairment charge was determined by estimating discounted cash flows using three significant unobservable inputs, which are the cash flow discount rate, the residual discount rate, and the residual capitalization rate equal to 8.0%, 8.0%, and 6.8%, respectively. Significant increases or decreases to these inputs in isolation would result in a significant change in the fair value measurement.

Real Estate

During the year ended December 31, 2017, the Croatian government passed a special law assisting the restructuring of companies considered of systematic significance in Croatia. This law directly impacts our Agrokor tenant, which is currently experiencing financial distress and recently received a credit downgrade from both Standard & Poor’s and Moody’s. As a result of this information, we recognized an impairment charge of $3.8 million on a property within the Agrokor portfolio (amount is based on the exchange rate of the euro at the date of impairment). The fair value of the property after the impairment charge approximated $2.8 million. The fair value measurement related to the impairment charge were determined by estimating discounted cash flows using three significant unobservable inputs, which are the cash flow discount rate, the residual discount rate , and the residual capitalization rate equal to 11.8%, 10.5%, and 9.8%, respectively. Significant increases or decreases to these inputs in isolation would result in a significant change in the fair value measurement.

During the year ended December 31, 2017, we were notified by the tenant currently occupying a property that we own with an affiliate, located in Waldaschaff, Germany, that the tenant will not be renewing its lease. As a result of this information, and with our expectation that we will not be able to replace the tenant upon the lease expiration primarily due to, among other things, the remote location of the facility and certain environmental concerns, we recognized an impairment charge of $4.5 million, which included $1.5 million attributed to a noncontrolling interest (amounts are based on the exchange rate of the euro at the date of impairment). The fair value of the property after the impairment charge approximated $4.7 million. The fair value measurement related to the impairment charge was determined by estimating discounted cash flows using a cash flow discount rate of 9.75%, which is considered a significant unobservable input. Significant increases or decreases to this input would result in a significant change in the fair value measurement.



CPA:17 – Global 2017 10-K – 105

Notes to Consolidated Financial Statements

During the year ended December 31, 2016, as a result of entering into a purchase agreement to sell one of our investments located in Houston Texas, which was classified as held for sale at that date and sold in the first quarter of 2017, we recognized an impairment charge of $29.2 million in order to reduce the carrying value of the property to its estimated fair value. The fair value measurements for the property approximated its estimated selling price, less estimated cost to sell. We used available information, including third-party broker information and internal discounted cash flow models (Level 3 inputs), in determining the fair value of this property.

CMBS

During the years ended December 31, 2017, 2016, and 2015, we incurred other-than-temporary impairment charges on certain tranches in our CMBS portfolio totaling $0.7 million, $0.5 million, and $1.0 million, respectively, to reduce their carrying values to their estimated fair values as a result of non-performance. The fair value measurements related to the impairment charges were derived from third-party appraisals, which were based on input from dealers, buyers, and other market participants, as well as updates on prepayments, losses, and delinquencies within our CMBS portfolio.

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 the Senior Credit Facility (Note 10). Credit risk is the risk of default on our operations and our tenants’ inability or unwillingness to make contractually required payments. Market risk includes changes in the value of our properties and related loans, as well as changes in the value of our other investments due to changes in interest rates or other market factors. We own investments in Europe and Asia and are subject to risks associated with fluctuating foreign currency exchange rates.
 
Derivative Financial Instruments
 
When we use derivative instruments, it is generally to reduce our exposure to fluctuations in interest rates and foreign currency exchange rate movements. We have not entered into, and do not plan to enter into, financial instruments for trading or speculative purposes. In addition to entering into derivative instruments on our own behalf, we may also be a party to derivative instruments that are embedded in other contracts and we may be granted common stock warrants by lessees when structuring lease transactions, which are considered to be derivative instruments. The primary risks related to our use of derivative instruments include a counterparty to a hedging arrangement defaulting on its obligation and a downgrade in the credit quality of a counterparty to such an extent that our ability to sell or assign our side of the hedging transaction is impaired. While we seek to mitigate these risks by entering into hedging arrangements with large financial institutions that we deem to be creditworthy, it is possible that our hedging transactions, which are intended to limit losses, could adversely affect our earnings. Furthermore, if we terminate a hedging arrangement, we may be obligated to pay certain costs, such as transaction or breakage fees. We have established policies and procedures for risk assessment and the approval, reporting, and monitoring of derivative financial instrument activities.
 
We measure derivative instruments at fair value and record them as assets or liabilities, depending on our rights or obligations under the applicable derivative contract. Derivatives that are not designated as hedges must be adjusted to fair value through earnings. For a derivative designated, and that qualified, as a cash flow hedge, the effective portion of the change in fair value of the derivative is recognized in Other comprehensive income (loss) until the hedged item is recognized in earnings. For a derivative designated, and that qualified, as a net investment hedge, the effective portion of the change in the fair value and/or the net settlement of the derivative is reported in Other comprehensive income (loss) as part of the cumulative foreign currency translation adjustment. The ineffective portion of the change in fair value of any derivative is immediately recognized in earnings.

All derivative transactions with an individual counterparty are governed by a master International Swap and Derivatives Association agreement, which can be considered as a master netting arrangement; however, we report all our derivative instruments on a gross basis on our consolidated financial statements. At both December 31, 2017 and 2016, no cash collateral had been posted or received for any of our derivative positions.



CPA:17 – Global 2017 10-K – 106

Notes to Consolidated Financial Statements

The following table sets forth certain information regarding our derivative instruments (in thousands):
Derivatives Designated
as Hedging Instruments
 
 
 
Asset Derivatives Fair Value at 
 
Liability Derivatives Fair Value at
 
Balance Sheet Location
 
December 31, 2017
 
December 31, 2016
 
December 31, 2017
 
December 31, 2016
Foreign currency forward contracts
 
Other assets, net
 
$
14,382

 
$
38,735

 
$
—

 
$
—

Interest rate swaps
 
Other assets, net
 
314

 
54

 
—

 
—

Interest rate caps
 
Other assets, net
 
201

 
79

 
—

 
—

Foreign currency collars
 
Other assets, net
 
—

 
522

 
—

 
—

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

 
—

 
(3,852
)
 
(6,011
)
Foreign currency collars
 
Accounts payable, accrued expenses and other liabilities
 
—

 
—

 
(1,431
)
 
(4
)
Derivatives Not Designated
as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
Stock warrants
 
Other assets, net
 
1,815

 
1,848

 
—

 
—

Foreign currency forward contracts
 
Other assets, net
 
86

 
—

 
—

 
—

Swaption
 
Other assets, net
 
—

 
264

 
—

 
—

Interest rate swap
 
Accounts payable, accrued expenses and other liabilities
 
—

 
—

 
(128
)
 
(173
)
Total derivatives
 
 
 
$
16,798

 
$
41,502

 
$
(5,411
)
 
$
(6,188
)

The following tables present the impact of our derivative instruments in the consolidated financial statements (in thousands):
 
 
Amount of (Loss) Gain Recognized on Derivatives
in Other Comprehensive Income (Loss) (Effective Portion) (a)
 
 
Years Ended December 31,
Derivatives in Cash Flow Hedging Relationships 
 
2017
 
2016
 
2015
Foreign currency forward contracts
 
$
(20,620
)
 
$
(2,224
)
 
$
18,126

Interest rate swaps
 
2,385

 
4,174

 
2,715

Foreign currency collars
 
(1,919
)
 
628

 
(107
)
Interest rate caps
 
(509
)
 
4

 
—

 
 
 
 
 
 
 
Derivatives in Net Investment Hedging Relationships (b)
 
 
 
 
 
 
Foreign currency forward contracts
 
(156
)
 
(241
)
 
417

Foreign currency collars
 
(17
)
 
(5
)
 
2

Total
 
$
(20,836
)
 
$
2,336

 
$
21,153

 
 
 
 
Amount of Gain (Loss) Reclassified from
Other Comprehensive (Loss) Income into Income
(Effective Portion)
Derivatives in Cash Flow Hedging Relationships
 
Location of Gain (Loss) Reclassified to Income
 
Years Ended December 31,
 
2017
 
2016
 
2015
Foreign currency forward contracts
 
Other income and (expenses)
 
$
7,170

 
$
7,558

 
$
8,083

Interest rate swaps
 
Interest expense
 
(2,443
)
 
(6,339
)
 
(7,837
)
Total
 
 
 
$
4,727

 
$
1,219

 
$
246

__________
(a)
Excludes net gains of $0.2 million recognized on unconsolidated jointly owned investments for both the years ended December 31, 2017 and 2015 and net losses of $1.2 million on unconsolidated jointly owned investments for year ended December 31, 2016.


CPA:17 – Global 2017 10-K – 107

Notes to Consolidated Financial Statements

(b)
The effective portion of the change in fair value and the settlement of these contracts are reported in the foreign currency translation adjustment section of Other comprehensive income (loss) until the underlying investment is sold, at which time we reclassify the gain or loss to earnings.

Amounts reported in Other comprehensive income (loss) related to interest rate swaps will be reclassified to Interest expense as interest is incurred on our variable-rate debt. Amounts reported in Other comprehensive income (loss) related to foreign currency derivative contracts will be reclassified to Other income and (expenses) when the hedged foreign currency contracts are settled. At December 31, 2017, we estimated that an additional $1.5 million and $5.5 million will be reclassified as interest expense and as other income and (expenses), 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) Recognized in Income on Derivatives
Derivatives Not in Cash Flow Hedging Relationships
 
Location of Gain (Loss) Recognized in Income
 
Years Ended December 31,
 
 
2017
 
2016
 
2015
Swaption
 
Other income and (expenses)
 
$
(220
)
 
$
(45
)
 
$
(196
)
Stock warrants
 
Other income and (expenses)
 
(33
)
 
66

 
(66
)
Interest rate swap
 
Interest expense
 
11

 
6

 
—

Foreign currency forward contracts
 
Other income and (expenses)
 
10

 
—

 
(16
)
Embedded credit derivatives
 
Other income and (expenses)
 
—

 
—

 
177

Foreign currency collars
 
Other income and (expenses)
 
—

 
—

 
(8
)
 
 
 
 
 
 
 
 
 
Derivatives in Cash Flow Hedging Relationships
 
 
 
 
 
 
 
 
Interest rate swaps (a)
 
Interest expense
 
121

 
463

 
302

Foreign currency collars
 
Other income and (expenses)
 
(12
)
 
—

 
—

Total
 
 
 
$
(123
)
 
$
490

 
$
193

__________
(a)
Relates to the ineffective portion of the hedging relationship.
 
See below for information regarding why we enter into our derivative instruments and concerning derivative instruments owned by unconsolidated investments, which are excluded from the tables above.
 
Interest Rate Swaps, Caps, and Swaption
 
We are exposed to the impact of interest rate changes primarily through our borrowing activities. To limit this exposure, we attempt to obtain mortgage financing on a long-term, fixed-rate basis. However, from time to time, we or our investment partners may obtain variable-rate, non-recourse mortgage loans and, as a result, we have entered into, and may continue to enter into, interest rate swap agreements, interest rate cap agreements or swaptions 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 downward shifts in interest rates. A swaption gives us the right but not the obligation to enter into an interest rate swap, of which the terms and conditions are set on the trade date, on a specified date in the future. Our objective in using these derivatives is to limit our exposure to interest rate movements.
 


CPA:17 – Global 2017 10-K – 108

Notes to Consolidated Financial Statements

The interest rate swaps and caps that our consolidated subsidiaries had outstanding at December 31, 2017 are summarized as follows (currency in thousands):
Interest Rate Derivatives
 
Number of Instruments
 
Notional Amount
 
Fair Value at
December 31, 2017 (a)
Designated as Cash Flow Hedging Instruments
 
 
 
 
 
 
 
Interest rate swaps
 
12
 
123,536

USD
 
$
(3,074
)
Interest rate swaps
 
5
 
69,345

EUR
 
(464
)
Interest rate caps
 
4
 
132,770

EUR
 
177

Interest rate cap
 
1
 
6,394

GBP
 
13

Interest rate cap
 
1
 
75,000

USD
 
11

Not Designated as Hedging Instrument
 
 
 
 
 
 
 
Interest rate swap
 
1
 
4,843

EUR
 
(128
)
 
 
 
 
 
 
 
$
(3,465
)
__________
(a)
Fair value amount is based on the exchange rate of the euro or British pound sterling at December 31, 2017, as applicable.

Foreign Currency Contracts
 
We are exposed to foreign currency exchange rate movements, primarily in the euro and, to a lesser extent, the British pound sterling, the Japanese yen, and the Norwegian krone. We manage foreign currency exchange rate movements by generally placing our debt service obligation on an investment in the same currency as the tenant’s rental obligation to us. This reduces our overall exposure to the net cash flow from that investment. However, we are subject to foreign currency exchange rate movements to the extent that there is a difference in the timing and amount of the rental obligation and the debt service. Realized and unrealized gains and losses recognized in earnings related to foreign currency transactions are included in Other income and (expenses) in the consolidated financial statements.

In order to hedge certain of our foreign currency cash flow exposures, we enter into foreign currency forward contracts and collars. A foreign currency forward contract is a commitment to deliver a certain amount of currency at a certain price on a specific date in the future. A foreign currency collar consists of a written call option and a purchased put option to sell the foreign currency at a range of predetermined exchange rates. By entering into forward contracts and holding them to maturity, we are locked into a future currency exchange rate for the term of the contract. A foreign currency collar guarantees that the exchange rate of the currency will not fluctuate beyond the range of the options’ strike prices. Our foreign currency forward contracts and foreign currency collars have maturities of 77 months or less.

The following table presents the foreign currency derivative contracts we had outstanding and their designations at December 31, 2017 (currency in thousands):
Foreign Currency Derivatives
 
Number of Instruments
 
Notional Amount
 
Fair Value at
December 31, 2017
Designated as Cash Flow Hedging Instruments
 
 
 
 
 
 
 
Foreign currency forward contracts
 
43
 
88,173

EUR
 
$
14,325

Foreign currency collars
 
2
 
15,100

EUR
 
(1,395
)
Foreign currency collars
 
3
 
2,000

NOK
 
(16
)
Not Designated as Hedging Instruments
 
 
 
 
 
 
 
Foreign currency forward contracts
 
9
 
6,521

NOK
 
86

Designated as Net Investment Hedging Instruments
 
 
 
 
 
 
 
Foreign currency forward contracts
 
2
 
4,329

NOK
 
57

Foreign currency collar
 
1
 
2,500

NOK
 
(20
)
 
 
 
 
 
 
 
$
13,037

 


CPA:17 – Global 2017 10-K – 109

Notes to Consolidated Financial Statements

Credit Risk-Related Contingent Features

We measure our credit exposure on a counterparty basis as the net positive aggregate estimated fair value of our derivatives, net of any collateral received. No collateral was received as of December 31, 2017. At December 31, 2017, our total credit exposure was $12.8 million and the maximum exposure to any single counterparty was $6.0 million.

Some of the agreements with our derivative counterparties contain cross-default provisions that could trigger a declaration of default on our derivative obligations if we default, or are capable of being declared in default, on certain of our indebtedness. At December 31, 2017, we had not been declared in default on any of our derivative obligations. The estimated fair value of our derivatives that were in a net liability position was $5.6 million and $6.7 million at December 31, 2017 and 2016, respectively, which included accrued interest and any nonperformance risk adjustments. If we had breached any of these provisions at December 31, 2017 or 2016, we could have been required to settle our obligations under these agreements at their aggregate termination value of $5.7 million and $7.3 million, respectively.

Portfolio Concentration Risk

Concentrations of credit risk arise when a number of tenants are engaged in similar business activities or have similar economic risks or conditions that could cause them to default on their lease obligations to us. We regularly monitor our portfolio to assess potential concentrations of credit risk. See Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Portfolio Overview for more information about our portfolio concentration risk.

For the year ended December 31, 2017, our KBR Inc. tenant contributed 12% of our total revenues, which included $15.7 million for the year ended December 31, 2017 as a result of a write-off of a below-market lease intangible liability that increased rental income (Note 14).

Note 10. Debt

Mortgage Debt, Net

Mortgage debt, net consists of mortgage notes payable, which are collateralized by the assignment of real estate properties. For a list of our encumbered properties, see Schedule III — Real Estate and Accumulated Depreciation. At December 31, 2017, our mortgage notes payable bore interest at fixed annual rates ranging from 1.9% to 7.4% and variable contractual annual rates ranging from 1.3% to 6.0%, with maturity dates ranging from 2018 to 2039.

Financing Activity During 2017

During 2017, we drew down on two non-recourse mortgage loans totaling $25.1 million that have a weighted-average annual interest rate and term to maturity of 3.1% and seven years, respectively. In addition, we refinanced two non-recourse mortgage loans totaling $157.7 million with new loans of $180.0 million that have a weighted-average annual interest rate and term to maturity of 2.8% and three years, respectively.

During 2017, we repaid 13 non-recourse mortgage loans totaling $261.4 million, 11 of which were scheduled to mature in 2017 and two of which were scheduled to mature in 2018 (amount is based on the exchange rate of the euro as of the date of repayment, as applicable). Of that amount, $60.0 million pertained to the non-recourse mortgage loan that was repaid in full at closing by the buyer in connection with the I-drive Property disposition (Note 4, Note 14), on which we recognized a loss on extinguishment of debt of $1.3 million. In addition, in connection with our disposition of a property located in Pordenone, Italy, which was part of a larger portfolio of properties located throughout Italy leased to a single tenant, we repaid a portion of the principal balance of the mortgage loan on that portfolio for a total of $9.3 million (amount is based on the exchange rate of the euro as of the date of repayment).

In March 2017, we completed the sale of the KBR II property (Note 14), which had a non-recourse mortgage loan of $31.2 million at the time of sale. This mortgage loan, which has an interest rate 4.9% and is scheduled to mature in January 2024, has since been recollateralized with two of our existing net-lease properties. As a result of the swapping of the collateral of this loan, this debt is now considered to be a recourse mortgage loan to us in the event of a default.



CPA:17 – Global 2017 10-K – 110

Notes to Consolidated Financial Statements

Financing Activity During 2016

During 2016, we obtained seven new non-recourse mortgage financings and completed two additional drawdowns on already existing mortgage financings totaling $170.9 million net of discounts with a weighted-average annual interest rate and term to maturity of 2.0% and 7.1 years, respectively.

Additionally, in connection with the acquisition of the remaining 15% interest in a self-storage portfolio that we now control (Note 4), we now consolidate the outstanding mortgage debt of this investment, which totaled $69.8 million net of discounts with a weighted-average annual interest rate of 4.5% and term to maturity of 1.1 years.

During 2016, we defeased seven non-recourse mortgage loans with outstanding principal balances totaling $121.9 million net of discounts and recognized losses on extinguishment of debt totaling $23.6 million primarily comprised of prepayment penalties and defeasance costs. These mortgage loans had a weighted-average interest rate and remaining term to maturity of 4.9% and 5.7 years, respectively, and encumbered a total of 52 self-storage properties, 34 of which were sold (Note 14) and 18 of which were refinanced with new non-recourse mortgage loans totaling $65.9 million. These loans have a weighted-average interest rate and term to maturity of 3.0% and 4.8 years, respectively.

Additionally, during 2016, we refinanced four non-recourse mortgage loans totaling $206.4 million with new non-recourse mortgage financing totaling $211.8 million and recognized a loss on extinguishment of debt of $0.8 million. These mortgage loans have a weighted-average interest rate and term to maturity of 2.0% and 4.7 years, respectively.

Senior Credit Facility

On August 26, 2015, we entered into a Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, Bank of America, N.A., as syndication agent, and a syndicate of other lenders, which we refer to herein as the Credit Agreement. The Credit Agreement was amended on March 31, 2016 to clarify the Restricted Payments covenant (see below); no other terms were changed. The Credit Agreement provides for a $200.0 million senior unsecured revolving credit facility, or the Revolver, and a $50.0 million delayed-draw term loan facility, or the Term Loan. We refer to the Revolver and the Term Loan together as the Senior Credit Facility, which has a maximum aggregate principal amount of $250.0 million and, subject to lender approval, an accordion feature of $250.0 million. The Senior Credit Facility is scheduled to mature on August 26, 2018, and may be extended by us for two 12-month periods.

The Senior Credit Facility provides for an annual interest rate of either (i) the Eurocurrency Rate or (ii) the Base Rate, in each case plus the Applicable Rate (each as defined in the Credit Agreement). With respect to the Revolver, the Applicable Rate on Eurocurrency loans and letters of credit ranges from 1.50% to 2.25% (based on London Interbank Offered Rate, or LIBOR) and the Applicable Rate on Base Rate loans ranges from 0.50% to 1.25% (as defined in the Credit Agreement), depending on our leverage ratio. With respect to the Term Loan, the Applicable Rate on Eurocurrency loans and letters of credit ranges from 1.45% to 2.20% (based on LIBOR) and the Applicable Rate on Base Rate loans ranges from 0.45% to 1.20% (as defined in the Credit Agreement), depending on our leverage ratio. In addition, we pay a fee of either 0.15% or 0.30% on the unused portion of the Senior Credit Facility. If usage of the Senior Credit Facility is equal to or greater than 50% of the Aggregate Commitments, the Unused Fee Rate will be 0.15%, and if usage of the Senior Credit Facility is less than 50% of the Aggregate Commitments, the Unused Fee Rate will be 0.30%. In connection with the transaction, we incurred costs of $1.9 million, which are being amortized to interest expense over the remaining term of the Senior Credit Facility.

The following table presents a summary of our Senior Credit Facility (dollars in thousands):
 
 
Interest Rate at December 31, 2017
 
Outstanding Balance at December 31,
Senior Credit Facility, net
 
 
2017
 
2016
Term Loan (a)
 
LIBOR + 1.45%
 
$
49,915

 
$
49,751

Revolver:
 
 
 
 
 
 
Revolver — borrowing in euros(b)
 
1.50%
 
29,969

 
—

Revolver — borrowing in yen (c)
 
1.50%
 
22,047

 
—

 
 
 
 
$
101,931

 
$
49,751

__________
(a)
Includes unamortized deferred financing costs and discounts.
(b)
Amount is based on the exchange rate of the euro at December 31, 2017.


CPA:17 – Global 2017 10-K – 111

Notes to Consolidated Financial Statements

(c)
Amount is based on the exchange rate of the yen at December 31, 2017.

On September 30, 2016, we exercised the delayed draw option on our Term Loan and borrowed $50.0 million. The Term Loan bears interest at LIBOR + 1.45% and is scheduled to mature on August 26, 2018, unless extended pursuant to its terms. The Revolver and Term Loan are used for our working capital needs and for new investments, as well as for general corporate purposes. During the year ended December 31, 2017, we drew down a total of $119.2 million from our Senior Credit Facility (amount is based on the exchange rate of the euro on the date of each draw), of which we have since repaid $69.0 million.

We are required to ensure that the total Restricted Payments (as defined in the amended Credit Agreement) in an aggregate amount in any fiscal year does not exceed the greater of 95% of Modified funds from operations, or MFFO, and the amount of Restricted Payments required in order for us to (i) maintain our REIT status and (ii) avoid the payment of federal or state income or excise tax. Restricted Payments include quarterly dividends and the total amount of shares repurchased by us, if any, in excess of $100.0 million per year. In addition to placing limitations on dividend distributions and share repurchases, the Credit Agreement also stipulates certain customary financial covenants. We were in compliance with all such covenants at December 31, 2017.

Scheduled Debt Principal Payments

Scheduled debt principal payments for each of the next five calendar years following December 31, 2017 and thereafter through 2039 are as follows (in thousands):
Years Ending December 31,
 
Total
2018 (a)
 
$
173,644

2019
 
74,452

2020
 
427,354

2021
 
452,057

2022
 
350,859

Thereafter through 2039
 
486,485

Total principal payments
 
1,964,851

Deferred financing costs
 
(8,003
)
Unamortized discount, net
 
(5,458
)
Total
 
$
1,951,390

__________
(a)
Includes the $50.0 million Term Loan and $52.0 million Revolver outstanding at December 31, 2017 under our Senior Credit Facility, which is scheduled to mature on August 26, 2018, unless extended pursuant to its terms.

Certain amounts in the table above are based on the applicable foreign currency exchange rate at December 31, 2017. The carrying value of our Debt, net increased by $79.0 million from December 31, 2016 to December 31, 2017 due to the weakening of the U.S. dollar relative to foreign currencies, particularly the euro, during the same period.

Debt Covenants

As of December 31, 2017, we were in breach of a loan-to-value, or LTV, covenant on one of our non-recourse mortgage loans. On January 22, 2018, we repaid $6.1 million (amount is based on the exchange rate of the euro as of the date of repayment) of principal on this loan to cure the covenant breach (Note 17).

Note 11. Commitments and Contingencies

At December 31, 2017, we were not involved in any material litigation. Various claims and lawsuits arising in the normal course of business are pending against us. The results of these proceedings are not expected to have a material adverse effect on our consolidated financial position or results of operations. See Note 4 for unfunded construction commitments.



CPA:17 – Global 2017 10-K – 112

Notes to Consolidated Financial Statements

Note 12. Equity

Distributions
 
Distributions paid to stockholders consist of ordinary income, capital gains, return of capital, or a combination thereof for income tax purposes. The following table presents annualized distributions per share, declared and paid during the years ended December 31, 2017, 2016 and 2015, reported for tax purposes and serves as a designation of capital gain distributions, if applicable, pursuant to Internal Revenue Code Section 857(b)(3)(C) and Treasury Regulation § 1.857-6(e):
 
Years Ended December 31,
 
2017
 
2016
 
2015
Ordinary income
$
0.3091

 
$
0.1994

 
$
0.3220

Return of capital
0.3409

 
0.1403

 
0.3280

Capital gain
—

 
0.3103

 
—

Total distributions paid
$
0.6500

 
$
0.6500

 
$
0.6500

 
During the fourth quarter of 2017, our board of directors declared a quarterly distribution of $0.1625 per share, which was paid on January 16, 2018 to stockholders of record on December 29, 2017, in the amount of $56.9 million.

During the year ended December 31, 2017, our board of directors declared distributions in the aggregate amount of $226.0 million, which equates to $0.6500 per share.



CPA:17 – Global 2017 10-K – 113

Notes to Consolidated Financial Statements

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):
 
Gains and (Losses)
on Derivative Instruments
 
Gains and (Losses) on Marketable Investments
 
Foreign Currency Translation Adjustments
 
Total
Balance at January 1, 2015
$
7,311

 
$
(106
)
 
$
(88,212
)
 
$
(81,007
)
Other comprehensive loss before reclassifications
21,135

 
29

 
(81,037
)
 
(59,873
)
Amounts reclassified from accumulated other comprehensive loss to:
 
 
 
 
 
 
 
Interest expense
7,837

 
—

 
—

 
7,837

Other income and (expenses)
(8,083
)
 
—

 
—

 
(8,083
)
Total
(246
)
 
—

 
—

 
(246
)
Net current-period Other comprehensive loss
20,889

 
29

 
(81,037
)
 
(60,119
)
Net current-period Other comprehensive loss attributable to noncontrolling interests
—

 
—

 
1,321

 
1,321

Balance at December 31, 2015
28,200

 
(77
)
 
(167,928
)
 
(139,805
)
Other comprehensive loss before reclassifications
2,568

 
29

 
(18,785
)
 
(16,188
)
Amounts reclassified from accumulated other comprehensive loss to:
 
 
 
 
 
 
 
Interest expense
6,339

 
—

 
—

 
6,339

Other income and (expenses)
(7,558
)
 
—

 
—

 
(7,558
)
Total
(1,219
)
 
—

 
—

 
(1,219
)
Net current-period Other comprehensive loss
1,349

 
29

 
(18,785
)
 
(17,407
)
Net current-period Other comprehensive loss attributable to noncontrolling interests
—

 
—

 
536

 
536

Balance at December 31, 2016
29,549

 
(48
)
 
(186,177
)
 
(156,676
)
Other comprehensive income before reclassifications
(15,735
)
 
33

 
100,948

 
85,246

Amounts reclassified from accumulated other comprehensive income to:
 
 
 
 
 
 
 
Interest expense
2,443

 
—

 
—

 
2,443

Other income and (expenses)
(7,170
)
 
—

 
—

 
(7,170
)
Total
(4,727
)
 
—

 
—

 
(4,727
)
Net current-period Other comprehensive income
(20,462
)
 
33

 
100,948

 
80,519

Net current-period Other comprehensive income attributable to noncontrolling interests
—

 
—

 
(2,263
)
 
(2,263
)
Balance at December 31, 2017
$
9,087

 
$
(15
)
 
$
(87,492
)
 
$
(78,420
)

Note 13. Income Taxes
 
We have elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code. We believe we have operated, and we intend to continue to operate, in a manner that allows us to continue to qualify as a REIT. Under the REIT operating structure, we are permitted to deduct distributions paid to our stockholders and generally will not be required to pay U.S. federal income taxes. Accordingly, the only provision of income taxes in the consolidated financial statements relates to our TRSs. The Tax Cuts and Jobs Act, which was signed into law on December 22, 2017, lowered the U.S. corporate income tax rate from 35% to 21%. As a result, we recognized a deferred tax benefit of $6.6 million for the year ended December 31, 2017.



CPA:17 – Global 2017 10-K – 114

Notes to Consolidated Financial Statements

We conduct business in various states and municipalities within the United States, Europe, and Asia, and as a result, we file income tax returns in the U.S. federal jurisdiction and various states and certain foreign jurisdictions. Our tax returns are subject to audit by taxing authorities. Such audits can often take years to complete and settle.

The components of our (benefit from) provision for income taxes for the periods presented are as follows (in thousands):
 
Years Ended December 31,
 
2017
 
2016
 
2015
Federal
 
 
 
 
 
Current
$
190

 
$
130

 
$
110

Deferred
(3,577
)
 
4,327

 
954

 
(3,387
)
 
4,457

 
1,064

State and Local
 
 
 
 
 
Current
838

 
(26
)
 
840

Deferred
765

 
312

 
1,312

 
1,603

 
286

 
2,152

Foreign
 
 
 
 
 
Current
2,959

 
3,677

 
3,787

Deferred
(1,688
)
 
57

 
1,882

 
1,271

 
3,734

 
5,669

Total (Benefit) Provision (a)
$
(513
)
 
$
8,477

 
$
8,885

 __________
(a)
We recorded a deferred tax benefit of $2.6 million for certain of our equity investments in 2017. We recorded deferred tax provisions of $4.0 million and $2.3 million for certain of our equity investments in 2016 and 2015, respectively.

We account for uncertain tax positions in accordance with Accounting Standards Codification 740, Income Taxes. Our taxable subsidiaries recognize tax positions in the financial statements only when it is more likely than not that the position will be sustained on examination by the relevant taxing authority based on the technical merits of the position. A position that meets this standard is measured at the largest amount of benefit that will more likely than not be realized on settlement. A liability is established for differences between positions taken in a tax return and amounts recognized in the financial statements.

The following table presents a reconciliation of the beginning and ending amount of unrecognized tax benefits (in thousands):
 
Years Ended December 31,
 
2017
 
2016
Beginning balance
$
—

 
$
198

Addition based on tax positions related to the current year
437

 
—

Decrease due to lapse in statute of limitations
—

 
(198
)
Ending balance
$
437

 
$
—

 
At December 31, 2017 we had unrecognized tax benefits as presented in the table above that, if recognized, would have a favorable impact on our effective income tax rate in future periods. We recognize interest and penalties related to uncertain tax positions in income tax expense. At December 31, 2017 and 2016, we had no significant accrued interest related to uncertain tax positions.

Tax authorities in the relevant jurisdictions may select our tax returns for audit and propose adjustments before the expiration of the statute of limitations. Our tax returns filed for tax years 2011 through 2016 remain open to adjustment in the major tax jurisdictions.



CPA:17 – Global 2017 10-K – 115

Notes to Consolidated Financial Statements

Deferred Income Taxes

Our deferred tax assets before valuation allowances were $31.8 million and $33.0 million at December 31, 2017 and 2016, respectively. Our deferred tax liabilities were $30.5 million and $32.7 million at December 31, 2017 and 2016, respectively. We determined that $26.3 million and $28.1 million of our deferred tax assets did not meet the criteria for recognition under the accounting guidance for income taxes and accordingly, we established valuation allowances in those amounts at December 31, 2017 and 2016, respectively. Our deferred tax asset, net of valuation allowance, is recorded in Other assets, net on our consolidated balance sheet. Our deferred tax assets and liabilities at December 31, 2017 and 2016 are primarily the result of temporary differences related to:

•
basis differences between tax and GAAP for real estate assets and equity investments (For income tax purposes, certain acquisitions have resulted in us assuming the seller’s basis, or the carry-over basis, in assets and liabilities for tax purposes. In accordance with purchase accounting requirements under GAAP, we record all of the acquired assets and liabilities at their estimated fair values at the date of acquisition. For our subsidiaries subject to income taxes in the United States or in foreign jurisdictions, we recognize deferred income tax liabilities representing the tax effect of the difference between the tax basis and the fair value of the tangible and intangible assets recorded at the date of acquisition for GAAP.);
•
timing differences generated by differences in the GAAP basis and the tax basis of assets such as those related to capitalized acquisition costs, straight-line rent, prepaid rents, and intangible assets; and
•
tax net operating losses in foreign jurisdictions that may be realized in future periods if we generate sufficient taxable income.

At December 31, 2017, we had net operating losses in U.S. federal, state, and foreign jurisdictions of approximately $48.9 million, $31.9 million, and $40.5 million, respectively. At December 31, 2016, we had net operating losses in U.S. federal, state and foreign jurisdictions of approximately $35.1 million, $21.3 million, and $19.9 million, respectively. If not utilized, the U.S. federal net operating loss carryforwards will begin to expire in 2032. The state and local net operating loss carryforwards will begin to expire in 2027. The foreign net operating loss carryforwards will begin to expire in 2018. The utilization of net operating losses may be subject to certain limitations under the tax laws of the relevant jurisdiction.



CPA:17 – Global 2017 10-K – 116

Notes to Consolidated Financial Statements

Note 14. Property Dispositions
 
From time to time, we may decide to sell a property. We have an active capital recycling program, with a goal of extending the average lease term through reinvestment, improving portfolio credit quality through dispositions and acquisitions of assets, increasing the asset criticality factor in our portfolio, and/or executing strategic dispositions of assets. We may decide to dispose of a property due to vacancy, 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.

Property Dispositions

The results of operations for properties that have been sold or classified as held for sale are included in the consolidated financial statements and are summarized as follows (in thousands):
 
Years Ended December 31,
 
2017
 
2016
 
2015
Revenues
$
7,245

 
$
46,928

 
$
47,737

Operating expenses (excluding impairment charges)
(3,150
)
 
(25,944
)
 
(29,365
)
Impairment charges
—

 
(29,183
)
 
—

Interest expense
(1,108
)
 
(7,485
)
 
(6,996
)
Other income and (expenses)
—

 
—

 
676

Loss on extinguishment of debt
(1,364
)
 
(15,807
)
 
—

Equity in losses of equity method investments
(688
)
 
(3,137
)
 
(2,789
)
Provision for income taxes
(2
)
 
(24
)
 
(4
)
Gain on sale of real estate, net of tax
2,879

 
132,858

 
2,197

Income from properties sold or classified as held for sale, net of income taxes
$
3,812

 
$
98,206

 
$
11,456


2017 — During the second quarter of 2017, we sold three properties for total proceeds of $14.6 million, net of selling costs, and recorded an aggregate gain on sale of $1.2 million (amounts are based on the euro exchange rate on the applicable date of disposition), which was recorded under the full accrual method.

In March 2017, we sold one of our net-lease properties to the developer that constructed the I-drive Property for net proceeds of $23.5 million, inclusive of $34.0 million of financing provided by us to the developer in the form of a mezzanine loan. This sale was accounted for under the cost recovery method. As a result, we recorded a deferred gain on sale of $2.1 million, which will be recognized into income upon recovery of the cost of the property (Note 4, Note 5). The developer repaid the $60.0 million non-recourse mortgage loan encumbering the I-drive Property in full at closing (Note 10). In addition, in connection with the I-drive Wheel restructuring, we recorded a deferred gain of $16.4 million, which will be recognized into income upon recovery of the cost of the Wheel Loan (Note 5).

In August 2016, we simultaneously entered into two agreements with one of our tenants, KBR, Inc., to amend the lease at one property and terminate the lease at another property, both located in Houston, Texas. The lease modification and lease termination were contingent upon one another and became effective upon disposing of one net-lease property on March 13, 2017, which was previously classified as held for sale as of December 31, 2016 prior to its sale in the first quarter of 2017. Upon disposition, we received proceeds of $14.1 million, net of closing costs, and recognized a gain on sale of $1.6 million, which was recorded under the full accrual method. In addition, as a result of the aforementioned lease modification, contractual rents were renegotiated to be at market and the existing below-market rent lease liability of $15.7 million was written off and recognized in Rental income during the year ended December 31, 2017 (Note 7). In addition, as a result of the termination of the lease noted above, we accelerated the below-market lease intangible liabilities of $3.3 million and $13.9 million that were also recognized in Rental income during the year ended December 31, 2017 and 2016, respectively. At December 31, 2016, the land and building for this property were classified as held for sale and we recognized an impairment charge of $29.2 million during the year ended December 31, 2016 to reduce the carrying value of the property to its estimated fair value (Note 8).



CPA:17 – Global 2017 10-K – 117

Notes to Consolidated Financial Statements

2016 — During 2016, we sold 34 self-storage properties for total proceeds of $259.1 million, net of selling costs and recognized a gain on the sale of these assets of $132.9 million in the aggregate. Proceeds from the sales were used to repay non-recourse mortgage loans encumbering the properties with outstanding principal balances aggregating $84.7 million, and as a result, we recorded a loss on extinguishment of debt of $15.8 million.

2015 — We did not have any dispositions during 2015. However, we recognized a gain on sale of real estate of $2.2 million during that year related to an equity interest option (on a property that was previously disposed of), which expired on January 31, 2015.

None of our property dispositions during 2017, 2016, or 2015 qualified for classification as a discontinued operation.



CPA:17 – Global 2017 10-K – 118

Notes to Consolidated Financial Statements

Note 15. Segment Reporting
 
We operate in two reportable business segments: Net Lease and Self Storage. Our Net Lease segment includes our domestic and foreign investments in net-leased properties, whether they are accounted for as operating or direct financing leases. Our Self Storage segment is comprised of our investments in self-storage properties. In addition, we have investments in loans receivable, CMBS, one hotel, and certain other properties, which are included in our All Other category. The following tables present a summary of comparative results and assets for these business segments (in thousands):
 
Years Ended December 31,
 
2017
 
2016
 
2015
Net Lease
 
 
 
 
 
Revenues (a)
$
397,766

 
$
389,709

 
$
366,904

Operating expenses (b) (c)
(157,206
)
 
(180,376
)
 
(136,838
)
Interest expense
(77,503
)
 
(87,703
)
 
(85,138
)
Other income and (expenses), excluding interest expense (d)
5,839

 
10,412

 
18,508

Provision for income taxes
(718
)
 
(2,887
)
 
(7,458
)
Gain on sale of real estate, net of tax
2,872

 
—

 
2,197

Net income attributable to noncontrolling interests
(13,530
)
 
(14,098
)
 
(15,247
)
Net income attributable to CPA:17 – Global
$
157,520

 
$
115,057

 
$
142,928

Self-Storage
 
 
 
 
 
Revenues
$
35,935

 
$
43,979

 
$
46,418

Operating expenses
(26,235
)
 
(36,094
)
 
(32,575
)
Interest expense
(7,638
)
 
(8,744
)
 
(7,655
)
Other income and (expenses), excluding interest expense (e) (f)
(260
)
 
25,920

 
(1,858
)
Provision for income taxes
(163
)
 
(183
)
 
(167
)
Gain on sale of real estate, net of tax
7

 
132,858

 
—

Net income attributable to CPA:17 – Global
$
1,646

 
$
157,736

 
$
4,163

All Other
 
 
 
 
 
Revenues
$
13,953

 
$
6,674

 
$
13,625

Operating expenses
(5,482
)
 
(633
)
 
(1,712
)
Interest expense
—

 
(5
)
 
404

Other income and (expenses), excluding interest expense (g) (h)
(23,428
)
 
(8,419
)
 
(1,691
)
Benefit from (provision for) income taxes
2,741

 
(4,671
)
 
(150
)
Net loss attributable to noncontrolling interests
1,323

 
—

 
—

Net (loss) income attributable to CPA:17 – Global
$
(10,893
)
 
$
(7,054
)
 
$
10,476

Corporate
 
 
 
 
 
Unallocated Corporate Overhead (i)
$
(24,311
)
 
$
(50,629
)
 
$
(48,694
)
Net income attributable to noncontrolling interests – Available Cash Distributions
$
(26,675
)
 
$
(24,765
)
 
$
(24,668
)
Total Company
 
 
 
 
 
Revenues
$
447,654

 
$
440,362

 
$
426,947

Operating expenses
(234,326
)
 
(263,802
)
 
(218,892
)
Interest expense
(88,270
)
 
(98,813
)
 
(93,551
)
Other income and (expenses), excluding interest expense
7,719

 
27,080

 
16,304

Benefit from (provision for) income taxes
513

 
(8,477
)
 
(8,885
)
Gain on sale of real estate, net of tax
2,879

 
132,858

 
2,197

Net income attributable to noncontrolling interests
(38,882
)
 
(38,863
)
 
(39,915
)
Net income attributable to CPA:17 – Global
$
97,287

 
$
190,345

 
$
84,205



CPA:17 – Global 2017 10-K – 119

Notes to Consolidated Financial Statements

 
Total Assets at December 31,
 
2017
 
2016
Net Lease (j)
$
3,980,445

 
$
3,905,402

Self-Storage
241,438

 
252,195

All Other (k)
277,702

 
266,231

Corporate
87,885

 
275,095

Total Company
$
4,587,470

 
$
4,698,923

___________
(a)
Amount for the year ended December 31, 2017 includes a $15.7 million write-off of a below-market rent lease liability, pertaining to our KBR Inc., properties that were recognized in Rental income as a result of a lease modification (Note 14). In addition, as a result of a lease termination, we accelerated the below-market rent lease intangible liabilities of $3.3 million and $13.9 million that were also recognized in Rental income during the year ended December 31, 2017 and 2016, respectively.
(b)
Includes impairment charges of $8.3 million and $29.2 million incurred during the year ended December 31, 2017 and 2016, respectively (Note 8).
(c)
In April 2017, the Croatian government passed a special law assisting the restructuring of companies considered of systematic significance in Croatia. This law directly impacts our Agrokor tenant, which is currently experiencing financial distress and recently received a credit downgrade from both Standard & Poor’s and Moody’s. As a result of the financial difficulties and the uncertainty regarding future rent collections from the tenant, we recorded bad debt expense of $8.1 million during the year ended December 31, 2017.
(d)
For the years ended December 31, 2017 and 2016, amounts include impairment charges of $10.6 million and $1.9 million, respectively, related to certain of our equity investments (Note 8).
(e)
Includes a gain on change in control of interests of $49.9 million for the year ended December 31, 2016 (Note 4).
(f)
Includes loss on extinguishment of debt of $23.6 million for the year ended December 31, 2016 (Note 10).
(g)
Includes a loss on change in control of interests of $13.9 million for the year ended December 31, 2017 (Note 4). In addition, as a result of Hurricane Irma damage incurred at the Shelborne hotel investment (Note 4), this amount includes an estimated insurance deductible of $1.8 million and $2.7 million of costs incurred related to our insurance adjuster.
(h)
For the year ended December 31, 2016, our Shelborne equity method investment recorded a $22.8 million impairment charge to reduce goodwill at the investee level to its fair value, partially offset by $10.6 million of income recognized in conjunction with the termination of a management agreement and a $10.6 million gain representing the portion of losses guaranteed by the previous management company under the terms of the management agreement.
(i)
Included in unallocated corporate overhead are asset management fees, and general and administrative expenses, as well as interest expense and other charges related to our Senior Credit Facility. These expenses are calculated and reported at the portfolio level and not evaluated as part of any segment’s operating performance.
(j)
Includes the impact of the I-drive Property disposition (Note 4, Note 14), the sale of a property classified as Assets held for sale as of December 31, 2016, and the sale of three other net-leased properties that occurred during the year ended December 31, 2017 (Note 14).
(k)
Includes the impact of the I-drive Wheel restructuring during the year ended December 31, 2017 (Note 5, Note 6, Note 14).



CPA:17 – Global 2017 10-K – 120

Notes to Consolidated Financial Statements

Our portfolio is comprised of domestic and international investments. The following tables present the geographic information (in thousands):
As of and for the Year Ended December 31, 2017
 
Texas
 
New York
 
Other Domestic
 
International (a)
 
Total
Revenues
 
$
67,317

 
$
45,430

 
$
208,562

 
$
126,345

 
$
447,654

Operating expenses
 
(28,389
)
 
(12,211
)
 
(121,672
)
 
(72,054
)
 
(234,326
)
Interest expense
 
(10,053
)
 
(6,937
)
 
(50,087
)
 
(21,193
)
 
(88,270
)
Other income and (expenses), excluding interest expense
 
688

 
(257
)
 
(665
)
 
7,953

 
7,719

Benefit from income taxes
 
(53
)
 
162

 
1,532

 
(1,128
)
 
513

Gain on sale of real estate, net of tax
 
1,647

 
—

 
755

 
477

 
2,879

Net income attributable to noncontrolling interests
 
—

 
(11,222
)
 
(27,206
)
 
(454
)
 
(38,882
)
Net income attributable to CPA:17 – Global
 
31,157

 
14,965

 
11,219

 
39,946

 
97,287

Long-lived assets (b)
 
308,195

 
388,336

 
1,694,242

 
1,346,148

 
3,736,921

Equity investments in real estate
 
16,072

 
—

 
116,302

 
276,880

 
409,254

Debt, net
 
216,542

 
179,775

 
981,081

 
573,992

 
1,951,390

As of and for the Year Ended December 31, 2016
 
Texas
 
New York
 
Other Domestic
 
International (a)
 
Total
Revenues
 
$
67,860

 
$
42,912

 
$
213,027

 
$
116,563

 
$
440,362

Operating expenses (c)
 
(75,455
)
 
(13,152
)
 
(124,776
)
 
(50,419
)
 
(263,802
)
Interest expense
 
(11,774
)
 
(7,098
)
 
(54,760
)
 
(25,181
)
 
(98,813
)
Other income and (expenses), excluding interest expense
 
(2,859
)
 
49,483

 
(10,428
)
 
(9,116
)
 
27,080

Provision for income taxes
 
(67
)
 
(682
)
 
(4,102
)
 
(3,626
)
 
(8,477
)
Gain on sale of real estate, net of tax
 
10,565

 
—

 
122,293

 
—

 
132,858

Net income attributable to noncontrolling interests
 
—

 
(10,972
)
 
(26,608
)
 
(1,283
)
 
(38,863
)
Net income attributable to CPA:17 – Global
 
(11,730
)
 
60,491

 
114,646

 
26,938

 
190,345

Long-lived assets (b)
 
337,379

 
395,508

 
1,770,506

 
1,242,073

 
3,745,466

Equity investments in real estate
 
17,603

 
—

 
308,741

 
124,761

 
451,105

Debt, net
 
249,336

 
173,823

 
1,012,929

 
635,913

 
2,072,001

For the Year Ended December 31, 2015
 
Texas
 
New York
 
Other Domestic
 
International (a)
 
Total
Revenues
 
$
63,933

 
$
37,567

 
$
212,394

 
$
113,053

 
$
426,947

Operating expenses
 
(42,934
)
 
(1,624
)
 
(131,013
)
 
(43,321
)
 
(218,892
)
Interest expense
 
(12,465
)
 
(3,602
)
 
(52,853
)
 
(24,631
)
 
(93,551
)
Other income and (expenses), excluding interest expense
 
787

 
(1,857
)
 
15,277

 
2,097

 
16,304

Provision for income taxes
 
(4
)
 
—

 
(3,354
)
 
(5,527
)
 
(8,885
)
Gain on sale of real estate, net of tax
 
—

 
—

 
2,197

 
—

 
2,197

Net income attributable to noncontrolling interests
 
—

 
(11,068
)
 
(26,105
)
 
(2,742
)
 
(39,915
)
Net income attributable to CPA:17 – Global
 
9,317

 
19,416

 
16,543

 
38,929

 
84,205

___________
(a)
All years include investments in Poland, Italy, Croatia, Spain, Germany, the United Kingdom, the Netherlands, Japan, the Czech Republic, Slovakia, Norway, and Hungary; 2017 and 2016 include investments in Lithuania; and 2017 includes investments in Latvia and Estonia.
(b)
Consists of Net investments in real estate. In the second quarter of 2017, we reclassified certain line items in our consolidated balance sheets. As a result, amounts for certain line items included within Net investments in real estate as of December 31, 2016 have been revised to the current year presentation (Note 2).
(c)
Amount for Texas includes an impairment charge of $29.2 million recognized on one property for the year ended December 31, 2016 (Note 8).


CPA:17 – Global 2017 10-K – 121

Notes to Consolidated Financial Statements

Note 16. Selected Quarterly Financial Data (Unaudited)

(Dollars in thousands, except per share amounts)
 
Three Months Ended
 
March 31, 2017
 
June 30, 2017
 
September 30, 2017
 
December 31, 2017
Revenues
$
123,005

 
$
106,513

 
$
107,396

 
$
110,740

Expenses (a)
59,615

 
55,581

 
53,313

 
65,817

Net income (a) (b) (c)
47,146

 
41,725

 
33,810

 
13,488

Net income attributable to noncontrolling interests
(9,135
)
 
(10,919
)
 
(9,081
)
 
(9,747
)
Net income attributable to CPA:17 – Global (a) (b) (c)
38,011

 
30,806

 
24,729

 
3,741

 
 
 
 
 
 
 
 
Earnings per share attributable to
  CPA:17 – Global
$
0.11

 
$
0.09

 
$
0.07

 
$
0.01

Distributions declared per share
$
0.1625

 
$
0.1625

 
$
0.1625

 
$
0.1625

 
 
 
 
 
 
 
 
 
Three Months Ended
 
March 31, 2016
 
June 30, 2016
 
September 30, 2016
 
December 31, 2016
Revenues
$
107,226

 
$
109,185

 
$
110,076

 
$
113,875

Expenses (d)
56,205

 
60,037

 
87,442

 
60,118

Net income (e)
55,617

 
91,241

 
67,045

 
15,305

Net income attributable to noncontrolling interests
(10,194
)
 
(9,383
)
 
(8,827
)
 
(10,459
)
Net income attributable to CPA:17 – Global (d) (e)
45,423

 
81,858

 
58,218

 
4,846

 
 
 
 
 
 
 
 
Earnings per share attributable to CPA:17 – Global
$
0.13

 
$
0.24

 
$
0.17

 
$
0.01

Distributions declared per share
$
0.1625

 
$
0.1625

 
$
0.1625

 
$
0.1625

__________
(a)
Amounts for the three months ended December 31, 2017 and March 31, 2017 include impairment charges of $4.2 million and $4.5 million, respectively, on our consolidated real estate investments (Note 8).
(b)
Amounts for the three months ended December 31, 2017, September 30, 2017, and June 30, 2017 include impairment charges of $1.8 million, $6.3 million, and $2.5 million, respectively, on our equity investments on real estate (Note 8).
(c)
Amount for the three months ended December 31, 2017 includes loss on change of control of interests of $13.9 million that was recognized in connection with the restructuring of the Shelborne hotel (Note 4).
(d)
Amount for the three months ended September 30, 2016, includes an impairment charge of $29.2 million (Note 8).
(e)
Amount for the three months ended June 30, 2016 includes gains on change of control of interests of $49.9 million, recognized in connection our acquisition of the remaining 15% controlling interest in a jointly owned investment in five self-storage properties (Note 4). Amounts for the three months ended March 31, 2016, June 30, 2016, and September 30, 2016 include gain on sale of real estate, net of tax totaling $25.4 million, $25.0 million, and $82.3 million, respectively, recognized in connection with the disposition of certain self-storage properties that occurred during these periods. Amounts for the three months ended March 31, 2016, June 30, 2016, September 30, 2016, and December 31, 2016 include a loss on extinguishment of debt of $2.5 million, $5.1 million, $16.0 million, and $0.8 million, respectively (Note 10). During the three months ended December 31, 2016, our Shelborne equity investment incurred a $22.8 million impairment charge to reduce goodwill at the investee level to its fair value, partially offset by $10.6 million of income recognized in conjunction with the termination of a management agreement. Additionally, we recorded $10.6 million of losses guaranteed by the previous management company under the terms of the management agreement (Note 6).

Note 17. Subsequent Events

On January 22, 2018, we repaid $6.1 million (amount is based on the exchange rate of the euro as of the date of repayment) of principal on one of our non-recourse mortgage loans to cure the LTV covenant breach that existed at December 31, 2017 (Note 10).

In January 2018, a tenant, The New York Times Company, exercised its bargain purchase option to acquire the property it leases from us for $250.0 million, which is expected to occur on December 1, 2019.


CPA:17 – Global 2017 10-K – 122

CORPORATE PROPERTY ASSOCIATES 17 – GLOBAL INCORPORATED
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2017, 2016, and 2015
(in thousands)
Description
 
Balance at
Beginning
of Year
 
Other Additions
 
Deductions
 
Balance at
End of Year
Year Ended December 31, 2017
 
 

 
 
 
 

 
 

Valuation reserve for deferred tax assets
 
$
28,150

 
$
3,406

 
$
(5,303
)
 
$
26,253

Valuation for tenant receivables
 
36

 
8,565

 
(36
)
 
8,565

 
 
 
 
 
 
 
 
 
Year Ended December 31, 2016
 
 
 
 
 
 
 
 
Valuation reserve for deferred tax assets
 
$
29,001

 
$
5,151

 
$
(6,002
)
 
$
28,150

Valuation for tenant receivables
 
1,750

 
24

 
(1,738
)
 
36

 
 
 
 
 
 
 
 
 
Year Ended December 31, 2015
 
 
 
 
 
 
 
 
Valuation reserve for deferred tax assets
 
$
13,103

 
$
21,211

 
$
(5,313
)
 
$
29,001

Valuation for tenant receivables
 
—

 
1,750

 
—

 
1,750




CPA:17 – Global 2017 10-K – 123

CORPORATE PROPERTY ASSOCIATES 17 – GLOBAL INCORPORATED
SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2017
(in thousands)
 
 
 
 
Initial Cost to 
Company
 
Cost Capitalized
Subsequent to
Acquisition (a)
 
Increase 
(Decrease)
in Net
Investments (b)
 
Gross Amount at which 
Carried at Close of Period (c) (d)
 
Accumulated Depreciation (d)
 
Date of Construction
 
Date Acquired
 
Life on which
Depreciation in Latest
Statement of 
Income
is Computed
Description
 
Encumbrances
 
Land
 
Buildings
 
 
 
Land
 
Buildings
 
Total
 
 
 
 
Real Estate Under Operating Leases
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
 
 
Industrial facility in Norfolk, NE
 
$
1,340

 
$
625

 
$
1,713

 
$
—

 
$
107

 
$
625

 
$
1,820

 
$
2,445

 
$
582

 
1975
 
Jun. 2008
 
30 yrs.
Office facility in Soest, Germany and warehouse facility in Bad Wünnenberg, Germany
 
—

 
3,193

 
45,932

 
—

 
(11,903
)
 
2,419

 
34,803

 
37,222

 
8,800

 
1982; 1996
 
Jul. 2008
 
36 yrs.
Education facility in Chicago, IL
 
11,782

 
6,300

 
20,509

 
—

 
(527
)
 
6,300

 
19,982

 
26,282

 
6,329

 
1912
 
Jul. 2008
 
30 yrs.
Industrial facilities in Sergeant Bluff, IA; Bossier City, LA; and Alvarado, TX
 
27,730

 
2,725

 
25,233

 
28,116

 
(3,395
)
 
4,701

 
47,978

 
52,679

 
9,055

 
Various
 
Aug. 2008
 
25 - 40 yrs.
Industrial facility in Waldaschaff, Germany
 
—

 
10,373

 
16,708

 
—

 
(16,744
)
 
2,987

 
7,350

 
10,337

 
5,269

 
1937
 
Aug. 2008
 
15 yrs.
Fitness facilities in Phoenix, AZ and Columbia, MD
 
33,367

 
14,500

 
48,865

 
—

 
(2,062
)
 
14,500

 
46,803

 
61,303

 
10,833

 
2006
 
Sep. 2008
 
40 yrs.
Office facility in Birmingham, United Kingdom
 
17,056

 
3,591

 
15,810

 
949

 
(3,279
)
 
2,990

 
14,081

 
17,071

 
2,830

 
2009
 
Sep. 2009
 
40 yrs.
Retail facility in Gorzow, Poland
 
—

 
1,095

 
13,947

 
—

 
(2,767
)
 
895

 
11,380

 
12,275

 
2,352

 
2008
 
Oct. 2009
 
40 yrs.
Office facility in Hoffman Estates, IL
 
25,817

 
5,000

 
21,764

 
—

 
—

 
5,000

 
21,764

 
26,764

 
4,391

 
2009
 
Dec. 2009
 
40 yrs.
Office facility in The Woodlands, TX
 
34,828

 
1,400

 
41,502

 
—

 
—

 
1,400

 
41,502

 
42,902

 
8,387

 
2009
 
Dec. 2009
 
40 yrs.
Retail facilities located throughout Spain
 
—

 
32,574

 
52,101

 
—

 
(11,943
)
 
28,057

 
44,675

 
72,732

 
8,930

 
Various
 
Dec. 2009
 
20 yrs.
Industrial facilities in Middleburg Heights and Union Township, OH
 
5,318

 
1,000

 
10,793

 
2

 
—

 
1,000

 
10,795

 
11,795

 
2,137

 
1990; 1997
 
Feb. 2010
 
40 yrs.
Industrial facilities in Phoenix, AZ; Colton, Fresno, Los Angeles, Orange, Pomona, and San Diego, CA; Safety Harbor, FL; Durham, NC; and Columbia, SC
 
12,185

 
19,001

 
13,059

 
—

 
—

 
19,001

 
13,059

 
32,060

 
2,982

 
Various
 
Mar. 2010
 
27 - 40 yrs.
Industrial facility in Evansville, IN
 
14,936

 
150

 
9,183

 
11,745

 
—

 
150

 
20,928

 
21,078

 
3,805

 
2009
 
Mar. 2010
 
40 yrs.
Warehouse facilities in Bristol, Cannock, Liverpool, Luton, Plymouth, Southampton, and Taunton, United Kingdom
 
3,905

 
8,639

 
2,019

 
—

 
(1,511
)
 
7,358

 
1,789

 
9,147

 
491

 
Various
 
Apr. 2010
 
28 yrs.
Warehouse facility in Zagreb, Croatia
 
—

 
31,941

 
45,904

 
—

 
(6,576
)
 
29,077

 
42,192

 
71,269

 
10,795

 
2001
 
Apr. 2010
 
30 yrs.
Office facilities in Tampa, FL
 
30,948

 
18,300

 
32,856

 
1,342

 
—

 
18,323

 
34,175

 
52,498

 
6,397

 
1985; 2000
 
May 2010
 
40 yrs.
Warehouse facility in Bowling Green, KY
 
24,864

 
1,400

 
3,946

 
33,809

 
—

 
1,400

 
37,755

 
39,155

 
5,979

 
2011
 
May 2010
 
40 yrs.
Land in Elorrio, Spain
 
—

 
19,924

 
3,981

 
—

 
246

 
24,151

 
—

 
24,151

 
—

 
N/A
 
Jun. 2010
 
N/A
Warehouse facility in Gadki, Poland
 
—

 
1,134

 
1,183

 
7,611

 
(1,491
)
 
960

 
7,477

 
8,437

 
1,261

 
2011
 
Aug. 2010
 
40 yrs.
Industrial and office facilities in Elberton, GA
 
—

 
560

 
2,467

 
—

 
—

 
560

 
2,467

 
3,027

 
521

 
1997; 2002
 
Sep. 2010
 
40 yrs.
Warehouse facilities in Rincon and Unadilla, GA
 
24,254

 
1,595

 
44,446

 
—

 
—

 
1,595

 
44,446

 
46,041

 
7,964

 
2000; 2006
 
Nov. 2010
 
40 yrs.
Office facility in Hartland, WI
 
2,996

 
1,402

 
2,041

 
—

 
—

 
1,402

 
2,041

 
3,443

 
418

 
2001
 
Nov. 2010
 
35 yrs.


CPA:17 – Global 2017 10-K – 124

SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
December 31, 2017
(in thousands)
 
 
 
 
Initial Cost to 
Company
 
Cost Capitalized
Subsequent to
Acquisition (a)
 
Increase 
(Decrease)
in Net
Investments (b)
 
Gross Amount at which 
Carried at Close of Period (c) (d)
 
Accumulated Depreciation (d)
 
Date of Construction
 
Date Acquired
 
Life on which
Depreciation in Latest
Statement of 
Income
is Computed
Description
 
Encumbrances
 
Land
 
Buildings
 
 
 
Land
 
Buildings
 
Total
 
 
 
 
Retail facilities in Kutina, Slavonski Brod, Spansko, and Zagreb, Croatia
 
—

 
6,700

 
24,114

 
194

 
(5,624
)
 
5,316

 
20,068

 
25,384

 
5,182

 
2000; 2002; 2003
 
Dec. 2010
 
30 yrs.
Warehouse and office facilities located throughout the United States
 
104,062

 
31,735

 
129,011

 
855

 
(9,861
)
 
28,511

 
123,229

 
151,740

 
24,696

 
Various
 
Dec. 2010
 
40 yrs.
Office facility in Madrid, Spain
 
59,012

 
22,230

 
81,508

 
—

 
(9,013
)
 
20,295

 
74,430

 
94,725

 
13,035

 
2002
 
Dec. 2010
 
40 yrs.
Office facility in Houston, TX
 
3,055

 
1,838

 
2,432

 
—

 
20

 
1,838

 
2,452

 
4,290

 
688

 
1982
 
Dec. 2010
 
25 yrs.
Retail facility in Las Vegas, NV
 
39,766

 
26,934

 
31,037

 
26,048

 
(44,166
)
 
5,070

 
34,783

 
39,853

 
4,809

 
2012
 
Dec. 2010
 
40 yrs.
Warehouse facilities in Oxnard and Watsonville, CA
 
40,106

 
16,036

 
67,300

 
—

 
(7,149
)
 
16,036

 
60,151

 
76,187

 
11,722

 
1975; 1994; 2002
 
Jan. 2011
 
10 - 40 yrs.
Warehouse facility in Dillon, SC
 
16,970

 
1,355

 
15,620

 
1,600

 
(123
)
 
1,232

 
17,220

 
18,452

 
2,821

 
2001
 
Mar. 2011
 
40 yrs.
Warehouse facility in Middleburg Heights, OH
 
—

 
600

 
1,690

 
—

 
—

 
600

 
1,690

 
2,290

 
286

 
2002
 
Mar. 2011
 
40 yrs.
Office facility in Martinsville, VA
 
7,847

 
600

 
1,998

 
11,331

 
—

 
600

 
13,329

 
13,929

 
2,038

 
2011
 
May 2011
 
40 yrs.
Land in Chicago, IL
 
4,643

 
7,414

 
—

 
—

 
—

 
7,414

 
—

 
7,414

 
—

 
N/A
 
Jun. 2011
 
N/A
Industrial facility in Fraser, MI
 
3,787

 
928

 
1,392

 
6,193

 
(80
)
 
928

 
7,505

 
8,433

 
1,182

 
2012
 
Sep. 2011
 
35 yrs.
Retail facilities located throughout Italy
 
178,792

 
91,691

 
262,377

 
—

 
(49,384
)
 
79,856

 
224,828

 
304,684

 
38,757

 
Various
 
Sep. 2011
 
29 - 40 yrs.
Retail facilities in Delnice, Pozega, and Sesvete, Croatia
 
—

 
2,687

 
24,820

 
15,378

 
(5,533
)
 
3,562

 
33,790

 
37,352

 
6,849

 
2011
 
Nov. 2011
 
30 yrs.
Retail facility in Orlando, FL
 
—

 
32,739

 
—

 
19,959

 
(32,739
)
 
5,577

 
14,382

 
19,959

 
1,354

 
2011
 
Dec. 2011
 
40 yrs.
Land in Hudson, NY
 
704

 
2,080

 
—

 
—

 
—

 
2,080

 
—

 
2,080

 
—

 
N/A
 
Dec. 2011
 
N/A
Office facilities in Aurora, Eagan, and Virginia, MN
 
104,499

 
13,546

 
110,173

 
—

 
993

 
13,546

 
111,166

 
124,712

 
22,491

 
Various
 
Jan. 2012
 
32 - 40 yrs.
Industrial facility in Chmielów, Poland
 
17,536

 
1,323

 
5,245

 
30,804

 
(443
)
 
1,977

 
34,952

 
36,929

 
3,792

 
2012
 
Apr. 2012
 
40 yrs.
Office facility in St. Louis, MO
 
5,374

 
954

 
4,665

 
1,685

 
—

 
954

 
6,350

 
7,304

 
897

 
1995
 
Jul. 2012
 
38 yrs.
Industrial facility in Avon, OH
 
3,325

 
926

 
4,975

 
—

 
—

 
926

 
4,975

 
5,901

 
823

 
2001
 
Aug. 2012
 
35 yrs.
Industrial facility in Elk Grove Village, IL
 
8,638

 
1,269

 
11,317

 
163

 
—

 
1,269

 
11,480

 
12,749

 
2,892

 
1961
 
Aug. 2012
 
40 yrs.
Education facilities in Montgomery, AL and Savannah, GA
 
15,110

 
5,255

 
16,960

 
—

 
—

 
5,255

 
16,960

 
22,215

 
2,751

 
1969; 2002
 
Sep. 2012
 
40 yrs.
Automotive dealerships in Huntsville, AL; Bentonville, AR; Bossier City, LA; Lee’s Summit, MO; Fayetteville, TN; and Fort Worth, TX
 
—

 
17,283

 
32,225

 
—

 
(32
)
 
17,269

 
32,207

 
49,476

 
7,603

 
Various
 
Sep. 2012
 
16 yrs.
Office facility in Warrenville, IL
 
18,101

 
3,698

 
28,635

 
—

 
—

 
3,698

 
28,635

 
32,333

 
4,360

 
2002
 
Sep. 2012
 
40 yrs.
Office and warehouse facility in Zary, Poland
 
3,003

 
356

 
1,168

 
6,910

 
(680
)
 
327

 
7,427

 
7,754

 
898

 
2013
 
Sep. 2012
 
40 yrs.
Industrial facility in Sterling, VA
 
—

 
3,118

 
14,007

 
5,071

 
—

 
3,118

 
19,078

 
22,196

 
2,981

 
1980
 
Oct. 2012
 
35 yrs.
Office facility in Houston, TX
 
127,853

 
19,331

 
123,084

 
7,482

 
2,899

 
19,331

 
133,465

 
152,796

 
22,722

 
1973
 
Nov. 2012
 
30 yrs.
Education facility in Eagan, MN
 
8,867

 
2,104

 
11,462

 
—

 
(85
)
 
1,994

 
11,487

 
13,481

 
1,769

 
2003
 
Dec. 2012
 
35 yrs.


CPA:17 – Global 2017 10-K – 125

SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
December 31, 2017
(in thousands)
 
 
 
 
Initial Cost to 
Company
 
Cost Capitalized
Subsequent to
Acquisition (a)
 
Increase 
(Decrease)
in Net
Investments (b)
 
Gross Amount at which 
Carried at Close of Period (c) (d)
 
Accumulated Depreciation (d)
 
Date of Construction
 
Date Acquired
 
Life on which
Depreciation in Latest
Statement of 
Income
is Computed
Description
 
Encumbrances
 
Land
 
Buildings
 
 
 
Land
 
Buildings
 
Total
 
 
 
 
Warehouse facility in Saitama Prefecture, Japan
 
—

 
17,292

 
28,575

 
—

 
(12,392
)
 
12,620

 
20,855

 
33,475

 
4,204

 
2007
 
Dec. 2012
 
26 yrs.
Retail facilities in Bjelovar, Karlovac, Krapina, Krizevci, Metkovic, Novigrad, Porec, Umag, and Vodnjan, Croatia
 
21,041

 
5,059

 
28,294

 
6,634

 
(3,453
)
 
6,531

 
30,003

 
36,534

 
3,997

 
Various
 
Dec. 2012
 
32 - 40 yrs.
Industrial facility in Portage, WI
 
4,524

 
3,338

 
4,556

 
502

 
—

 
3,338

 
5,058

 
8,396

 
962

 
1970
 
Jan. 2013
 
30 yrs.
Retail facility in Dallas, TX
 
9,431

 
4,441

 
9,649

 
87

 
—

 
4,441

 
9,736

 
14,177

 
1,207

 
1913
 
Feb. 2013
 
40 yrs.
Warehouse facility in Dillon, SC
 
25,856

 
3,096

 
2,281

 
37,989

 
(566
)
 
2,530

 
40,270

 
42,800

 
3,608

 
2013
 
Mar. 2013
 
40 yrs.
Land in Chicago, IL
 
—

 
15,459

 
—

 
—

 
—

 
15,459

 
—

 
15,459

 
—

 
N/A
 
Apr. 2013
 
N/A
Office facility in Northbrook, IL
 
5,369

 
—

 
942

 
—

 
—

 
—

 
942

 
942

 
284

 
2007
 
May 2013
 
40 yrs.
Industrial facility in Wageningen, Netherlands
 
18,853

 
4,790

 
24,301

 
47

 
(2,402
)
 
4,438

 
22,298

 
26,736

 
2,565

 
2013
 
Jul. 2013
 
40 yrs.
Warehouse facilities in Gadki, Poland
 
33,703

 
9,219

 
48,578

 
121

 
(4,706
)
 
8,469

 
44,743

 
53,212

 
5,466

 
2007; 2010
 
Jul. 2013
 
40 yrs.
Automotive dealership in Lewisville, TX
 
9,145

 
3,269

 
9,605

 
—

 
—

 
3,269

 
9,605

 
12,874

 
1,465

 
2004
 
Aug. 2013
 
39 yrs.
Office facility in Auburn Hills, MI
 
5,806

 
789

 
7,163

 
—

 
—

 
789

 
7,163

 
7,952

 
823

 
2012
 
Oct. 2013
 
40 yrs.
Office facility in Haibach, Germany
 
9,249

 
2,544

 
11,114

 
—

 
(1,534
)
 
2,258

 
9,866

 
12,124

 
1,547

 
1993
 
Oct. 2013
 
30 yrs.
Office facility in Tempe, AZ
 
14,550

 
—

 
16,996

 
4,272

 
—

 
—

 
21,268

 
21,268

 
2,373

 
2000
 
Dec. 2013
 
40 yrs.
Office facility in Tucson, AZ
 
—

 
2,440

 
11,175

 
—

 
—

 
2,440

 
11,175

 
13,615

 
1,355

 
2002
 
Feb. 2014
 
38 yrs.
Industrial facility in Drunen, Netherlands
 
10,296

 
990

 
6,328

 
7,922

 
1,693

 
1,470

 
15,463

 
16,933

 
1,025

 
2014
 
Apr. 2014
 
40 yrs.
Industrial facility in New Concord, OH
 
1,532

 
784

 
2,636

 
—

 
—

 
784

 
2,636

 
3,420

 
337

 
1999
 
Apr. 2014
 
35 - 40 yrs.
Office facility in Krakow, Poland
 
5,669

 
2,771

 
6,549

 
—

 
(682
)
 
2,568

 
6,070

 
8,638

 
571

 
2003
 
Sep. 2014
 
40 yrs.
Retail facility in Gelsenkirchen, Germany
 
14,232

 
2,060

 
17,534

 
123

 
(985
)
 
1,956

 
16,776

 
18,732

 
1,682

 
2000
 
Oct. 2014
 
35 yrs.
Office facility in Plymouth, Minnesota
 
22,117

 
2,601

 
15,599

 
5,835

 
926

 
2,601

 
22,360

 
24,961

 
2,665

 
1999
 
Dec. 2014
 
40 yrs.
Office facility in San Antonio, TX
 
13,919

 
3,131

 
13,124

 
—

 
—

 
3,131

 
13,124

 
16,255

 
1,148

 
2002
 
Jan. 2015
 
40 yrs.
Warehouse facilities in Mszczonów and Tomaszów Mazowiecki, Poland
 
33,497

 
10,108

 
35,856

 
8

 
2,719

 
10,704

 
37,987

 
48,691

 
3,785

 
1995; 2000
 
Feb. 2015
 
31 yrs.
Retail facilities in Joliet, IL; Fargo, ND; and Ashwaubenon, Brookfield, Greendale, and Wauwatosa, WI
 
41,388

 
20,936

 
34,627

 
332

 
—

 
20,936

 
34,959

 
55,895

 
3,708

 
Various
 
Jun. 2015
 
27 - 29 yrs.
Warehouse facility in Sered, Slovakia
 
17,867

 
4,059

 
15,297

 
9,920

 
2,557

 
4,425

 
27,408

 
31,833

 
1,712

 
2004
 
Jul. 2015
 
36 yrs.
Industrial facility in Tuchomerice, Czech Republic
 
18,294

 
9,424

 
21,860

 
256

 
1,619

 
10,381

 
22,778

 
33,159

 
1,411

 
1998
 
Dec. 2015
 
40 yrs.
Office facility in Warsaw, Poland
 
41,189

 
—

 
54,296

 
9

 
5,518

 
—

 
59,823

 
59,823

 
3,170

 
2015
 
Dec. 2015
 
40 yrs.
Net-lease student housing facility in Jacksonville, FL
 
11,939

 
870

 
15,787

 
—

 
—

 
870

 
15,787

 
16,657

 
824

 
2015
 
Jan. 2016
 
40 yrs.
Warehouse facilities in Houston, TX
 
—

 
2,210

 
1,362

 
—

 
—

 
2,210

 
1,362

 
3,572

 
89

 
1972
 
Feb. 2016
 
38 yrs.
Office facility in Oak Creek, WI
 
—

 
2,801

 
11,301

 
—

 
—

 
2,801

 
11,301

 
14,102

 
546

 
2000
 
Sep. 2016
 
35 yrs.


CPA:17 – Global 2017 10-K – 126

SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
December 31, 2017
(in thousands) 
 
 
 
 
Initial Cost to 
Company
 
Cost Capitalized
Subsequent to
Acquisition (a)
 
Increase 
(Decrease)
in Net
Investments (b)
 
Gross Amount at which 
Carried at Close of Period (c) (d)
 
Accumulated Depreciation (d)
 
Date of Construction
 
Date Acquired
 
Life on which
Depreciation in Latest
Statement of 
Income
is Computed
Description
 
Encumbrances
 
Land
 
Buildings
 
 
 
Land
 
Buildings
 
Total
 
 
 
 
Warehouse facility in Perrysburg, OH
 
—

 
774

 
11,756

 
—

 
—

 
774

 
11,756

 
12,530

 
594

 
1974
 
Sep. 2016
 
30 yrs.
Warehouse facilities in Shelbyville, IN; Kalamazoo, MI; Tiffin, OH; Andersonville, TN; and Millwood, WV
 
—

 
2,706

 
24,178

 
10,622

 
—

 
3,086

 
34,420

 
37,506

 
1,405

 
Various
 
Nov. 2016
 
28 - 40 yrs.
Warehouse facility in Zabia Wola, Poland
 
18,876

 
3,441

 
20,654

 
118

 
3,214

 
3,897

 
23,530

 
27,427

 
701

 
1999
 
Nov. 2016
 
40 yrs.
Warehouse facility in Kaunas, Lithuania
 
43,141

 
2,194

 
42,109

 
167

 
5,636

 
2,472

 
47,634

 
50,106

 
1,325

 
2008
 
Dec. 2016
 
40 yrs.
Office facility in Buffalo Grove, IL
 
—

 
2,035

 
7,444

 
—

 
—

 
2,035

 
7,444

 
9,479

 
208

 
1992
 
Feb. 2017
 
38 yrs.
 
 
$
1,493,859

 
$
646,783

 
$
2,044,703

 
$
302,211

 
$
(225,683
)
 
$
567,113

 
$
2,200,901

 
$
2,768,014

 
$
354,668

 
 
 
 
 
 


CPA:17 – Global 2017 10-K – 127

SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
December 31, 2017
(in thousands)
 
 
 
 
Initial Cost to Company
 
Cost Capitalized
Subsequent to
Acquisition (a)
 
Increase 
(Decrease)
in Net
Investments (b)
 
Gross Amount at
which Carried at
Close of Period
Total
 
Date of Construction
 
Date Acquired
Description
 
Encumbrances
 
Land
 
Buildings
 
 
 
 
 
Direct Financing Method
 
 

 
 

 
 

 
 

 
  

 
 

 
 
 
 
Industrial and office facilities in Nagold, Germany
 
$
—

 
$
6,012

 
$
41,493

 
$
—

 
$
(27,418
)
 
$
20,087

 
1937; 1994
 
Aug. 2008
Industrial facilities in Mayodan, Sanford, and Stoneville, NC
 
—

 
3,100

 
35,766

 
—

 
(3,152
)
 
35,714

 
1992; 1997; 1998
 
Dec. 2008
Industrial facility in Glendale Heights, IL
 
16,562

 
3,820

 
11,148

 
18,245

 
3,172

 
36,385

 
1991
 
Jan. 2009
Office facility in New York City, NY
 
100,426

 
—

 
233,720

 
—

 
15,680

 
249,400

 
2007
 
Mar. 2009
Industrial facilities in Colton, Fresno, Los Angeles, Orange, Pomona, and San Diego, CA; Holly Hill, FL; Rockmart, GA; Ooltewah, TN; and Dallas, TX
 
8,973

 
1,730

 
20,778

 
—

 
(1,094
)
 
21,414

 
Various
 
Mar. 2010
Warehouse facilities in Bristol, Leeds, Liverpool, Luton, Newport, Plymouth, and Southampton, United Kingdom
 
8,780

 
508

 
24,009

 
—

 
(5,052
)
 
19,465

 
Various
 
Apr. 2010
Retail facilities in Dugo Selo and Samobor, Croatia
 
—

 
1,804

 
11,618

 
—

 
(1,472
)
 
11,950

 
2002; 2003
 
Dec. 2010
Warehouse facility in Oxnard, CA
 
5,658

 
—

 
8,957

 
—

 
137

 
9,094

 
1975
 
Jan. 2011
Industrial facilities in Bartow, FL; Momence, IL; Smithfield, NC; Hudson, NY; and Ardmore, OK
 
20,454

 
3,750

 
50,177

 
—

 
6,553

 
60,480

 
Various
 
Apr. 2011
Industrial facility in Clarksville, TN
 
3,971

 
600

 
7,291

 
—

 
451

 
8,342

 
1998
 
Aug. 2011
Industrial facility in Countryside, IL
 
1,920

 
425

 
1,800

 
—

 
38

 
2,263

 
1981
 
Dec. 2011
Industrial facility in Bluffton, IN
 
1,834

 
264

 
3,407

 
—

 
19

 
3,690

 
1975
 
Apr. 2014
Retail facilities in Joliet, Illinois and Greendale, Wisconsin
 
15,568

 
—

 
19,002

 
2

 
626

 
19,630

 
1970; 1978
 
Jun. 2015
Warehouse facility in Houston, TX
 
—

 
—

 
4,233

 
—

 
48

 
4,281

 
1972
 
Feb. 2016
Industrial facilities in Sedalia, MO; Lumberton and Mount Airy, NC; and Wilkes-Barre, PA
 
—

 
2,142

 
10,085

 
50

 
(5,244
)
 
7,033

 
Various
 
Apr. 2016
 
 
$
184,146

 
$
24,155

 
$
483,484

 
$
18,297

 
$
(16,708
)
 
$
509,228

 
 
 
 


CPA:17 – Global 2017 10-K – 128

SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
December 31, 2017
(in thousands) 
 
 
 
 
Initial Cost to Company
 
Costs 
Capitalized
Subsequent to
Acquisition (a)
 
Increase 
(Decrease)
in Net
Investments (b)
 
Gross Amount at which Carried 
 at Close of Period (c) (d)
 
 Accumulated
Depreciation (d)
 
Date of Construction
 
 Date
Acquired
 
Life on which
Depreciation
in Latest
Statement of
Income is
Computed
Description
 
Encumbrances
 
Land
 
Buildings
 
 
 
Land
 
Buildings
 
Total
 
 
 
 
Operating Real Estate — Self-Storage Facilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fort Worth, TX
 
$
3,539

 
$
610

 
$
2,672

 
$
62

 
$
36

 
$
610

 
$
2,770

 
$
3,380

 
$
594

 
2004
 
Apr. 2011
 
33 yrs.
Palm Springs, CA
 
5,932

 
1,287

 
3,124

 
106

 
36

 
1,287

 
3,266

 
4,553

 
750

 
1989
 
Jun. 2011
 
30 yrs.
Kailua-Kona, HI
 
3,803

 
1,000

 
1,108

 
70

 
38

 
1,000

 
1,216

 
2,216

 
343

 
1987
 
Jun. 2011
 
30 yrs.
Chicago, IL
 
3,483

 
600

 
4,124

 
217

 
10

 
600

 
4,351

 
4,951

 
872

 
1916
 
Jun. 2011
 
25 yrs.
Chicago, IL
 
2,490

 
400

 
2,074

 
229

 
4

 
400

 
2,307

 
2,707

 
478

 
1968
 
Jun. 2011
 
30 yrs.
Rockford, IL
 
1,807

 
548

 
1,881

 
51

 
22

 
548

 
1,954

 
2,502

 
526

 
1979
 
Jun. 2011
 
25 yrs.
Rockford, IL
 
586

 
114

 
633

 
139

 
41

 
114

 
813

 
927

 
242

 
1979
 
Jun. 2011
 
25 yrs.
Rockford, IL
 
2,298

 
380

 
2,321

 
68

 
(98
)
 
337

 
2,334

 
2,671

 
618

 
1957
 
Jun. 2011
 
25 yrs.
Kihei, HI
 
5,064

 
2,523

 
7,481

 
818

 
26

 
2,523

 
8,325

 
10,848

 
1,388

 
1991
 
Aug. 2011
 
40 yrs.
National City, CA
 
2,409

 
3,158

 
1,483

 
185

 
17

 
3,158

 
1,685

 
4,843

 
400

 
1987
 
Aug. 2011
 
28 yrs.
Mundelein, IL
 
3,405

 
1,080

 
5,287

 
264

 
69

 
1,080

 
5,620

 
6,700

 
1,474

 
1991
 
Aug. 2011
 
25 yrs.
Pearl City, HI
 
6,145

 
—

 
5,141

 
774

 
22

 
—

 
5,937

 
5,937

 
1,843

 
1977
 
Aug. 2011
 
20 yrs.
Palm Springs, CA
 
1,968

 
1,019

 
2,131

 
435

 
7

 
1,019

 
2,573

 
3,592

 
583

 
1987
 
Sep. 2011
 
28 yrs.
Loves Park, IL
 
1,127

 
394

 
3,390

 
137

 
(122
)
 
394

 
3,405

 
3,799

 
1,069

 
1997
 
Sep. 2011
 
20 yrs.
Mundelein, IL
 
684

 
535

 
1,757

 
157

 
21

 
535

 
1,935

 
2,470

 
622

 
1989
 
Sep. 2011
 
20 yrs.
Chicago, IL
 
3,025

 
1,049

 
5,672

 
254

 
7

 
1,049

 
5,933

 
6,982

 
1,237

 
1988
 
Sep. 2011
 
30 yrs.
Beaumont, CA
 
2,586

 
1,616

 
2,873

 
94

 
14

 
1,616

 
2,981

 
4,597

 
600

 
1992
 
Nov. 2011
 
40 yrs.
San Bernardino, CA
 
990

 
698

 
1,397

 
95

 
15

 
698

 
1,507

 
2,205

 
292

 
1989
 
Nov. 2011
 
40 yrs.
Peoria, IL
 
3,009

 
549

 
2,424

 
37

 
6

 
549

 
2,467

 
3,016

 
634

 
1990
 
Nov. 2011
 
35 yrs.
East Peoria, IL
 
2,281

 
409

 
1,816

 
64

 
8

 
409

 
1,888

 
2,297

 
457

 
1986
 
Nov. 2011
 
35 yrs.
Loves Park, IL
 
1,712

 
439

 
998

 
251

 
155

 
439

 
1,404

 
1,843

 
339

 
1978
 
Nov. 2011
 
35 yrs.
Hesperia, CA
 
843

 
648

 
1,377

 
151

 
8

 
648

 
1,536

 
2,184

 
313

 
1989
 
Dec. 2011
 
40 yrs.
Cherry Valley, IL
 
1,658

 
1,076

 
1,763

 
35

 
18

 
1,076

 
1,816

 
2,892

 
690

 
1988
 
Jul. 2012
 
20 yrs.
Fayetteville, NC
 
3,093

 
1,677

 
3,116

 
67

 
10

 
1,677

 
3,193

 
4,870

 
743

 
2001
 
Sep. 2012
 
34 yrs.
Cathedral City, CA
 
1,288

 
—

 
2,275

 
17

 
15

 
—

 
2,307

 
2,307

 
428

 
1990
 
Mar. 2013
 
34 yrs.
Hilo, HI
 
7,758

 
296

 
4,996

 
45

 
—

 
296

 
5,041

 
5,337

 
587

 
2007
 
Jun. 2013
 
40 yrs.
Clearwater, FL
 
3,684

 
924

 
2,966

 
66

 
14

 
924

 
3,046

 
3,970

 
463

 
2001
 
Jul. 2013
 
32 yrs.
Winder, GA
 
954

 
546

 
30

 
7

 
8

 
546

 
45

 
591

 
16

 
2006
 
Jul. 2013
 
31 yrs.
Winder, GA
 
3,281

 
495

 
1,253

 
55

 
9

 
495

 
1,317

 
1,812

 
323

 
2001
 
Jul. 2013
 
25 yrs.
Orlando, FL
 
5,614

 
1,064

 
4,889

 
195

 
18

 
1,064

 
5,102

 
6,166

 
701

 
2000
 
Aug. 2013
 
35 yrs.
Palm Coast, FL
 
3,372

 
1,749

 
3,285

 
117

 
155

 
1,749

 
3,557

 
5,306

 
691

 
2001
 
Sep. 2013
 
29 yrs.
Holiday, FL
 
2,218

 
1,829

 
1,097

 
652

 
9

 
1,829

 
1,758

 
3,587

 
314

 
1975
 
Nov. 2013
 
23 yrs.
 


CPA:17 – Global 2017 10-K – 129

SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
December 31, 2017
(in thousands) 
 
 
 
 
Initial Cost to Company
 
Costs 
Capitalized
Subsequent to
Acquisition (a)
 
Increase 
(Decrease)
in Net
Investments (b)
 
Gross Amount at which Carried 
at Close of Period (c) (d)
 
 Accumulated
Depreciation (d)
 
Date of Construction
 
 Date
Acquired
 
Life on which
Depreciation
in Latest
Statement of
Income is
Computed
Description
 
Encumbrances
 
Land
 
Buildings
 
 
 
Land
 
Buildings
 
Total
 
 
 
 
New York City, NY
 
12,704

 
5,692

 
16,076

 
9

 
—

 
5,692

 
16,085

 
21,777

 
694

 
1963
 
Apr. 2016
 
40 yrs.
New York City, NY
 
21,908

 
5,823

 
31,032

 
3

 
—

 
5,823

 
31,035

 
36,858

 
1,350

 
2005
 
Apr. 2016
 
40 yrs.
New York City, NY
 
23,376

 
6,184

 
35,188

 
18

 
—

 
6,184

 
35,206

 
41,390

 
1,558

 
2007
 
Apr. 2016
 
40 yrs.
New York City, NY
 
15,908

 
8,120

 
18,502

 
5

 
—

 
8,120

 
18,507

 
26,627

 
922

 
1948
 
Apr. 2016
 
35 yrs.
New York City, NY
 
5,452

 
1,157

 
10,167

 
80

 
—

 
1,157

 
10,247

 
11,404

 
447

 
1928
 
Apr. 2016
 
40 yrs.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Real Estate — Hotel
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Miami, FL
 
—

 
34,397

 
46,261

 
—

 
—

 
34,397

 
46,261

 
80,658

 
486

 
1940
 
Oct. 2017
 
40 yrs.
 
 
$
171,454

 
$
90,085

 
$
244,060

 
$
6,029

 
$
598

 
$
90,042

 
$
250,730

 
$
340,772

 
$
26,087

 
 
 
 
 
 
___________
(a)
Consists of the cost of improvements subsequent to acquisition and acquisition costs, including construction costs on build-to-suit transactions, legal fees, appraisal fees, title costs, and other related professional fees. For business combinations, transaction costs are excluded.
(b)
The increase (decrease) in net investment was primarily due to (i) changes in foreign currency exchange rates, (ii) sales of properties, (iii) impairment charges, and (iv) the amortization of unearned income from net investment in direct financing leases, which produces a periodic rate of return that at times may be greater or less than lease payments received.
(c)
Excludes (i) gross lease intangible assets of $741.0 million and the related accumulated amortization of $245.9 million, (ii) gross lease intangible liabilities of $83.4 million and the related accumulated amortization of $22.2 million, and (iii) real estate under construction of $4.6 million.
(d)
A reconciliation of real estate and accumulated depreciation follows:



CPA:17 – Global 2017 10-K – 130

CORPORATE PROPERTY ASSOCIATES 17 – GLOBAL INCORPORATED
NOTES TO SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION
(in thousands)
 
Reconciliation of Real Estate Subject to Operating Leases
 
Years Ended December 31,
 
2017
 
2016
 
2015
Beginning balance
$
2,745,424

 
$
2,658,877

 
$
2,396,715

Foreign currency translation adjustment
145,945

 
(36,617
)
 
(99,252
)
Dispositions
(127,577
)
 
—

 
—

Additions
9,481

 
142,142

 
222,739

Impairment charges
(7,065
)
 
(29,183
)
 
—

Reclassification from real estate under construction
1,024

 
21,825

 
129,225

Improvements
782

 
7,262

 
9,450

Reclassification to assets held for sale
—

 
(18,882
)
 
—

Ending balance
$
2,768,014

 
$
2,745,424

 
$
2,658,877

 
Reconciliation of Accumulated Depreciation for
Real Estate Subject to Operating Leases
 
Years Ended December 31,
 
2017
 
2016
 
2015
Beginning balance
$
280,657

 
$
225,867

 
$
175,478

Depreciation expense
64,676

 
62,808

 
57,831

Foreign currency translation adjustment
15,045

 
(3,986
)
 
(7,442
)
Dispositions
(5,710
)
 
—

 
—

Reclassification to assets held for sale
—

 
(4,032
)
 
—

Ending balance
$
354,668

 
$
280,657

 
$
225,867

 
Reconciliation of Operating Real Estate
 
Years Ended December 31,
 
2017
 
2016
 
2015
Beginning balance
$
258,971

 
$
275,521

 
$
272,859

Additions
80,658

 
137,958

 
—

Improvements
1,143

 
2,443

 
2,662

Dispositions
—

 
(156,951
)
 
—

Ending balance
$
340,772

 
$
258,971

 
$
275,521

 
Reconciliation of Accumulated
Depreciation for Operating Real Estate
 
Years Ended December 31,
 
2017
 
2016
 
2015
Beginning balance
$
18,876

 
$
30,308

 
$
22,217

Depreciation expense
7,211

 
7,791

 
8,091

Dispositions
—

 
(19,223
)
 
—

Ending balance
$
26,087

 
$
18,876

 
$
30,308


At December 31, 2017, the aggregate cost of real estate that we and our consolidated subsidiaries own for federal income tax purposes was approximately $4.2 billion. 



CPA:17 – Global 2017 10-K – 131

CORPORATE PROPERTY ASSOCIATES 17 – GLOBAL INCORPORATED
SCHEDULE IV — MORTGAGE LOANS ON REAL ESTATE
December 31, 2017
(dollars in thousands)
 
 
Interest Rate
 
Final Maturity Date
 
Fair Value
 
Carrying Amount
Description
 
 
 
 
Financing agreement — 1185 Broadway LLC
 
10.0
%
 
Apr. 2018
 
$
31,500

 
$
31,500

Financing agreement — I-drive
 
9.0
%
 
Apr. 2019
 
34,000

 
34,000

Financing agreement — I-drive Wheel
 
6.5
%
 
Dec. 2018
 
35,000

 
35,000

Financing agreement — I-drive developer
 
6.5
%
 
Dec. 2018
 
5,000

 
5,000

Financing agreement — I-drive developer
 
6.5
%
 
Dec. 2018
 
5,000

 
5,000




CPA:17 – Global 2017 10-K – 132

CORPORATE PROPERTY ASSOCIATES 17 – GLOBAL INCORPORATED
NOTES TO SCHEDULE IV — MORTGAGE LOANS ON REAL ESTATE
(in thousands)
 
Reconciliation of Mortgage Loans on Real Estate
 
Years Ended December 31,
 
2017
 
2016
 
2015
Balance
$
31,500

 
$
44,044

 
$
40,000

Additions
79,000

 
—

 
42,600

Repayment
—

 
(12,600
)
 
(40,000
)
Accretion
—

 
56

 
1,444

Ending balance
$
110,500

 
$
31,500

 
$
44,044




CPA:17 – Global 2017 10-K – 133

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Disclosure Controls and Procedures

Our disclosure controls and procedures include internal controls and other procedures designed to provide reasonable assurance that information required to be disclosed in this and other reports filed under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized, and reported within the required time periods specified in the SEC’s rules and forms; and that such information is accumulated and communicated to management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosures. It should be noted that no system of controls can provide complete assurance of achieving a company’s objectives and that future events may impact the effectiveness of a system of controls.

Our chief executive officer and chief financial officer, after conducting an evaluation, together with members of our management, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2017, have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were effective as of December 31, 2017 at a reasonable level of assurance.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.

We assessed the effectiveness of our internal control over financial reporting as of December 31, 2017. In making this assessment, we used criteria set forth in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment, we concluded that, as of December 31, 2017, our internal control over financial reporting is effective based on those criteria.

This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to SEC rules that permit us to provide only management’s report in this Annual Report.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Item 9B. Other Information.

None.



CPA:17 – Global 2017 10-K – 134

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

This information will be contained in our definitive proxy statement for the 2018 Annual Meeting of Stockholders, to be filed within 120 days following the end of our fiscal year, and is incorporated herein by reference.

Item 11. Executive Compensation.

This information will be contained in our definitive proxy statement for the 2018 Annual Meeting of Stockholders, to be filed within 120 days following the end of our fiscal year, and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

This information will be contained in our definitive proxy statement for the 2018 Annual Meeting of Stockholders, to be filed within 120 days following the end of our fiscal year, and is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

This information will be contained in our definitive proxy statement for the 2018 Annual Meeting of Stockholders, to be filed within 120 days following the end of our fiscal year, and is incorporated herein by reference.

Item 14. Principal Accounting Fees and Services.

This information will be contained in our definitive proxy statement for the 2018 Annual Meeting of Stockholders, to be filed within 120 days following the end of our fiscal year, and is incorporated herein by reference.



CPA:17 – Global 2017 10-K – 135

PART IV

Item 15. Exhibits and Financial Statement Schedules.

The following exhibits are filed with this Report. Documents other than those designated as being filed herewith are incorporated herein by reference.
Exhibit No.

 
Description
 
Method of Filing
3.1

 
Articles of Incorporation of Registrant
 
Incorporated by reference to Exhibit 3.1 to Registration Statement on Form S-11 (No. 333-140842) filed February 22, 2007
 
 
 
 
 
3.2

 
Articles of Amendment and Restatement of Corporate Property Associates 17 – Global Incorporated
 
Incorporated by reference to Exhibit 3.1 to Quarterly Report on Form 10-Q for the quarter ended September 30, 2007 filed December 14, 2007
 
 
 
 
 
3.3

 
Articles of Amendment of Corporate Property Associates 17 – Global Incorporated
 
Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed January 29, 2013
 
 
 
 
 
3.4

 
Amended and Restated Bylaws of Corporate Property Associates 17 – Global Incorporated
 
Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on August 23, 2016
 
 
 
 
 
4.1

 
Amended and Restated 2007 Distribution Reinvestment Plan
 
Incorporated by reference to Exhibit 4.1 to Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 filed May 15, 2015
 
 
 
 
 
10.1

 
Amended and Restated Agreement of Limited Partnership of CPA:17 Limited Partnership dated January 1, 2015, by and among Corporate Property Associates 17 – Global Incorporated and W. P. Carey Holdings, LLC
 
Incorporated by reference to Exhibit 10.1 to Annual Report on Form 10-K for the year ended December 31, 2014 filed March 31, 2015
 
 
 
 
 
10.2

 
Amended and Restated Advisory Agreement dated as of January 1, 2015 among Corporate Property Associates 17 – Global Incorporated, CPA:17 Limited Partnership and Carey Asset Management Corp.
 
Incorporated by reference to Exhibit 10.12 to Annual Report on Form 10-K (File No. 001-13779) for W. P. Carey Inc. for the year ended December 31, 2014 filed March 2, 2015
 
 
 
 
 
10.3

 
Amended and Restated Asset Management Agreement dated as of May 13, 2015, by and among Corporate Property Associates 17 – Global Incorporated, CPA:17 Limited Partnership, and W. P. Carey & Co. B.V.
 
Incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 filed May 15, 2015
 
 
 
 
 
10.4

 
Form of Indemnification Agreement with independent directors
 
Incorporated by reference to Exhibit 10.14 to Registration Statement on Form S-11 (No. 333-140842) filed on August 1, 2008
 
 
 
 
 
10.5

 
Credit Agreement, dated as of August 26, 2015, by and among Corporate Property Associates 17 – Global Incorporated, as Borrower, JPMorgan Chase Bank, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer; Bank of America, N.A., as Syndication Agent and L/C Issuer; the Other Lenders Party Hereto; J.P. Morgan Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Joint Lead Arrangers and Joint Bookrunners; and Regions Bank, as Documentation Agent
 
Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed August 28, 2015
 
 
 
 
 


CPA:17 – Global 2017 10-K – 136

Exhibit No.

 
Description
 
Method of Filing
10.6

 
First Amendment to Credit Agreement, dated as of March 31, 2016, by and among Corporate Property Associates 17 – Global Incorporated, as Borrower; the Lenders; JPMorgan Chase Bank, N.A., as Administrative Agent and Swing Line Lender; and JPMorgan Chase Bank, N.A. and Bank of America, N.A., as L/C Issuers
 
Incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 filed May 9, 2016
 
 
 
 
 
10.7

 
First Amendment to Amended and Restated Advisory Agreement, dated as of January 30, 2018, by and among Corporate Property Associates 17 – Global Incorporated, CPA:17 Limited Partnership and Carey Asset Management Corp.
 
Incorporated by reference to Exhibit 10.18 to W. P. Carey Inc.’s Annual Report on Form 10-K (File No. 001-13779) for the year ended December 31, 2017 filed February 23, 2018
 
 
 
 
 
21.1

 
List of Registrant Subsidiaries
 
Filed herewith
 
 
 
 
 
23.1

 
Consent of PricewaterhouseCoopers LLP
 
Filed herewith
 
 
 
 
 
31.1

 
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
Filed herewith
 
 
 
 
 
31.2

 
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
Filed herewith
 
 
 
 
 
32

 
Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
Filed herewith
 
 
 
 
 
101

 
The following materials from Corporate Property Associates 17 – Global Incorporated’s Annual Report on Form 10-K for the year ended December 31, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at December 31, 2017 and 2016, (ii) Consolidated Statements of Income for the years ended December 31, 2017, 2016, and 2015, (iii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016, and 2015, (iv) Consolidated Statements of Equity for the years ended December 31, 2017, 2016, and 2015, (v) Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016, and 2015, (vi) Notes to Consolidated Financial Statements, (vii) Schedule II — Valuation and Qualifying Accounts, (viii) Schedule III — Real Estate and Accumulated Depreciation, (ix) Notes to Schedule III — Real Estate and Accumulated Depreciation, (x) Schedule IV — Mortgage Loans on Real Estate, and (xi) Notes to Schedule IV — Mortgage Loans on Real Estate.
 
Filed herewith



CPA:17 – Global 2017 10-K – 137

Item 16. Form 10-K Summary.

None.



CPA:17 – Global 2017 10-K – 138

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
 
 
Corporate Property Associates 17 – Global Incorporated
 
 
 
 
Date:
March 14, 2018
By:
/s/ Mallika Sinha
 
 
 
Mallika Sinha
 
 
 
Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature
 
Title
 
Date
 
 
 
 
 
/s/ Jason E. Fox
 
Chief Executive Officer
 
March 14, 2018
Jason E. Fox
 
(Principal Executive Officer)
 
 
 
 
 
 
 
/s/ Mallika Sinha
 
Chief Financial Officer
 
March 14, 2018
Mallika Sinha
 
(Principal Financial Officer)
 
 
 
 
 
 
 
/s/ Kristin Sabia
 
Chief Accounting Officer
 
March 14, 2018
Kristin Sabia
 
(Principal Accounting Officer)
 
 
 
 
 
 
 
/s/ Richard J. Pinola
 
Chairman of the Board and Director
 
March 14, 2018
Richard J. Pinola
 
 
 
 
 
 
 
 
 
/s/ Marshall E. Blume
 
Director
 
March 14, 2018
Marshall E. Blume
 
 
 
 
 
 
 
 
 
/s/ Elizabeth P. Munson
 
Director
 
March 14, 2018
Elizabeth P. Munson
 
 
 
 



CPA:17 – Global 2017 10-K – 139

EXHIBIT INDEX

The following exhibits are filed with this Report. Documents other than those designated as being filed herewith are incorporated herein by reference.
Exhibit No.

 
Description
 
Method of Filing
3.1

 
Articles of Incorporation of Registrant
 
 
 
 
 
 
3.2

 
Articles of Amendment and Restatement of Corporate Property Associates 17 – Global Incorporated
 
 
 
 
 
 
3.3

 
Articles of Amendment of Corporate Property Associates 17 – Global Incorporated
 
 
 
 
 
 
3.4

 
Amended and Restated Bylaws of Corporate Property Associates 17 – Global Incorporated
 
 
 
 
 
 
4.1

 
Amended and Restated 2007 Distribution Reinvestment Plan
 
 
 
 
 
 
10.1

 
Amended and Restated Agreement of Limited Partnership of CPA:17 Limited Partnership dated January 1, 2015, by and among Corporate Property Associates 17 – Global Incorporated and W. P. Carey Holdings, LLC
 
 
 
 
 
 
10.2

 
Amended and Restated Advisory Agreement dated as of January 1, 2015 among Corporate Property Associates 17 – Global Incorporated, CPA:17 Limited Partnership and Carey Asset Management Corp.
 
Incorporated by reference to Exhibit 10.12 to Annual Report on Form 10-K (File No. 001-13779) for W. P. Carey Inc. for the year ended December 31, 2014 filed March 2, 2015
 
 
 
 
 
10.3

 
Amended and Restated Asset Management Agreement dated as of May 13, 2015, by and among Corporate Property Associates 17 – Global Incorporated, CPA:17 Limited Partnership, and W. P. Carey & Co. B.V.
 
 
 
 
 
 
10.4

 
Form of Indemnification Agreement with independent directors
 
 
 
 
 
 
10.5

 
Credit Agreement, dated as of August 26, 2015, by and among Corporate Property Associates 17 – Global Incorporated, as Borrower, JPMorgan Chase Bank, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer; Bank of America, N.A., as Syndication Agent and L/C Issuer; the Other Lenders Party Hereto; J.P. Morgan Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Joint Lead Arrangers and Joint Bookrunners; and Regions Bank, as Documentation Agent
 
 
 
 
 
 


Exhibit No.

 
Description
 
Method of Filing
10.6

 
First Amendment to Credit Agreement, dated as of March 31, 2016, by and among Corporate Property Associates 17 – Global Incorporated, as Borrower; the Lenders; JPMorgan Chase Bank, N.A., as Administrative Agent and Swing Line Lender; and JPMorgan Chase Bank, N.A. and Bank of America, N.A., as L/C Issuers
 
 
 
 
 
 
10.7

 
First Amendment to Amended and Restated Advisory Agreement, dated as of January 30, 2018, by and among Corporate Property Associates 17 – Global Incorporated, CPA:17 Limited Partnership and Carey Asset Management Corp.
 
 
 
 
 
 
21.1

 
List of Registrant Subsidiaries
 
 
 
 
 
 
23.1

 
Consent of PricewaterhouseCoopers LLP
 
 
 
 
 
 
31.1

 
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
 
 
 
 
31.2

 
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
 
 
 
 
32

 
Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
 
 
 
 
101

 
The following materials from Corporate Property Associates 17 – Global Incorporated’s Annual Report on Form 10-K for the year ended December 31, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at December 31, 2017 and 2016, (ii) Consolidated Statements of Income for the years ended December 31, 2017, 2016, and 2015, (iii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016, and 2015, (iv) Consolidated Statements of Equity for the years ended December 31, 2017, 2016, and 2015, (v) Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016, and 2015, (vi) Notes to Consolidated Financial Statements, (vii) Schedule II — Valuation and Qualifying Accounts, (viii) Schedule III — Real Estate and Accumulated Depreciation, (ix) Notes to Schedule III — Real Estate and Accumulated Depreciation, (x) Schedule IV — Mortgage Loans on Real Estate, and (xi) Notes to Schedule IV — Mortgage Loans on Real Estate.
 
Filed herewith