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Equity Investment in Real Estate and the REITs

6 Months Ended

Jun. 30, 2011

Equity Investments in Real Estate and REITs [Abstract]

Equity Investments in Real Estate and REITs

Note 6. Equity Investments in Real Estate and the REITs

Our equity investments in real estate for our investments in the REITs and for our interests in unconsolidated real estate investments are summarized below.

REITs

We own interests in the REITs and account for these interests under the equity method because, as their advisor and through our ownership in their common shares, we do not exert control but have the ability to exercise significant influence. Shares of the REITs are publicly registered and the REITs file periodic reports with the SEC, but the shares are not listed on any exchange and are not actively traded. We earn asset management and performance revenue from the REITs and have elected, in certain cases, to receive a portion of this revenue in the form of restricted common stock of the REITs rather than cash.

The following table sets forth certain information about our investments in the REITs (dollars in thousands):


	% of Outstanding Shares at		Carrying Amount of Investment at
Fund	June 30, 2011	December 31, 2010	June 30, 2011 (a)		December 31, 2010 (a)
CPA®:14 (b)	0.0%	9.2%	$	-	$	87,209
CPA®:15	7.4%	7.1%		90,004		87,008
CPA®:16 – Global (c)	17.5%	5.6%		332,463		62,682
CPA®:17 – Global	0.8%	0.6%		14,401		8,156
CWI (d)	0.8%	100.0%		129		-
			$	436,997	$	245,055

__________

Includes asset management fees receivable, for which shares will be issued during the subsequent period.
As described in Note 3, on May 2, 2011, CPA®:14 merged with and into a subsidiary of CPA®:16 — Global. In connection with the CPA®:14/16 Merger, we earned termination fees of $31.2 million, which were received in shares of CPA®:14. Upon closing of the CPA®:14/16 Merger, our shares of CPA®:14 were exchanged into 13,260,091 shares of CPA®:16 — Global with a fair value of $118.0 million. In connection with this share exchange, we recognized a gain of $2.8 million, which is the difference between the carrying value of our investment in CPA®:14 and the estimated fair value of consideration received in shares of CPA®:16 — Global. This gain is included in Other income and (expenses) within our Investment Management segment.
In addition to normal operating activities, the increase in carrying value was due to several factors, including (i) our purchase of 13,750,000 shares of CPA®:16 — Global for $121.0 million; (ii) an increase of $118.0 million as a result of the exchange of our shares of CPA®:14 into shares of CPA®:16 — Global in the CPA®:14/16 Merger; (iii) a $0.3 million contribution to acquire the Special Interest in CPA®:16 — Global's Operating Partnership; and (iv) $28.3 million to reflect the fair value of the Special Interest in CPA®:16 — Global's Operating Partnership (Note 3).
Prior to 2011, the financial statements of CWI, which had no significant assets, liabilities or operations, were included in our consolidated financial statements, as we owned all of CWI's outstanding common stock.

The following tables present combined summarized financial information for the REITs. Amounts provided are expected total amounts attributable to the REITs and do not represent our proportionate share (in thousands):


	At June 30, 2011		At December 31, 2010
Assets	$	9,239,065	$	8,533,899
Liabilities		(5,008,673)		(4,632,709)
Shareholders' equity	$	4,230,392	$	3,901,190


	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Revenues	$	204,105	$	201,334	$	402,773	$	394,088
Expenses (a)		(126,530)		(151,906)		(272,374)		(293,530)
Impairment charges (b)		(29,831)		(886)		(39,839)		(12,980)
Net income	$	47,744	$	48,542	$	90,560	$	87,578

_________

Total net expenses expected to be recognized by the REITs during each of the three and six month periods in 2011 included the following items related to the CPA®:14/16 Merger: (i) $78.8 million of net gains recognized by CPA®:14 in connection with the CPA®:14 Asset Sales, of which our share is approximately $7.4 million; (ii) a net gain of $13.7 million recognized by CPA®:16 – Global in connection with the CPA®:14/16 Merger as a result of the fair value of CPA®:14 exceeding the total merger consideration, of which our share is approximately $2.4 million; (iii) a contract termination fee of $34.3 million incurred by CPA®:16 – Global related to its UPREIT reorganization, of which our share is approximately $4.9 million; (iv) $8.5 million of expenses incurred by CPA®:16 – Global related to the CPA®:14/16 Merger, of which our share is approximately $1.5 million; and (v) a $2.8 million net loss recognized by CPA®:16 – Global in connection with the prepayment of certain non-recourse mortgages, of which our share is approximately $0.5 million.
As a result of the impairment charges expected to be recognized by the REITs, our income earned from these investments was reduced by $4.4 million and $0.1 million during the three months ended June 30, 2011 and 2010, respectively, and by $5.1 million and $0.7 million during the six months ended June 30, 2011 and 2010, respectively.

We recognized income from our equity investments in the REITs of $6.8 million and $2.8 million for the three months ended June 30, 2011 and 2010, respectively, and $8.6 million and $5.1 million for the six months ended June 30, 2011 and 2010, respectively. In addition, we received distributions of available cash from CPA®:17 – Global's operating partnership of $2.0 million and $1.2 million during the three months ended June 30, 2011 and 2010, respectively, and $3.8 million and $1.7 million for the six months ended June 30, 2011 and 2010, respectively, which we recorded as Income from equity investments in the REITs within the Investment Management segment. Our proportionate share of income or loss recognized from our equity investments in the REITs is impacted by several factors, including impairment charges recorded by the REITs.

Interests in Unconsolidated Real Estate Investments

We own interests in single-tenant net leased properties leased to corporations through noncontrolling interests in (i) partnerships and limited liability companies that we do not control but over which we exercise significant influence, and (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 (i.e., at cost, increased or decreased by our share of earnings or losses, less distributions, plus contributions and other adjustments required by equity method accounting, such as basis differences from other-than-temporary impairments).

The following table sets forth our ownership interests in our equity investments in real estate and their respective carrying values (dollars in thousands):


	Ownership Interest	Carrying Value at
Lessee	at June 30, 2011	June 30, 2011		December 31, 2010
Schuler A.G. (a) (b)	33%	$	23,246	$	20,493
Carrefour France, SAS (a)	46%		20,856		18,274
The New York Times Company	18%		19,275		20,191
U.S. Airways Group, Inc. (b)	75%		7,738		7,934
Medica - France, S.A. (a)	46%		5,085		5,232
Hologic, Inc. (b)	36%		4,728		4,383
Childtime Childcare, Inc. (c)	34%		4,140		1,862
Consolidated Systems, Inc. (b)	60%		3,400		3,388
Symphony IRI Group, Inc. (d)	33%		1,437		3,375
Hellweg Die Profi-Baumarkte GmbH & Co. KG (a)	5%		1,110		1,086
Federal Express Corporation (e) (g)	100%		-		(4,272)
Amylin Pharmaceuticals, Inc. (f) (g)	100%		-		(4,707)
		$	91,015	$	77,239

____________

(a) The carrying value of the investment is affected by the impact of fluctuations in the exchange rate of the Euro.

(b) Represents tenant-in-common interest.

(c) In January 2011, we made a contribution of $2.1 million to the venture to pay off our share of its maturing mortgage loan.

(d) The decrease in carrying value in the current period was due to our portion of an $8.6 million impairment charge recognized in the first quarter of 2011 on the venture property to reduce the carrying value of the property to its contracted selling price. In addition, we recognized an other-than-temporary impairment charge of $0.2 million to reflect the decline in the estimated fair value of the venture's underlying net assets in comparison with the carrying value of our interest in the venture.

(e) In 2010, this venture refinanced its maturing non-recourse mortgage debt with new non-recourse financing and distributed the net proceeds to the venture partners. Our share of the distribution was $5.5 million, which exceeded our total investment in the venture at that time.

(f) In 2007, this venture refinanced its existing non-recourse mortgage debt with new non-recourse financing based on the appraised value of its underlying real estate and distributed the proceeds to the venture partners. Our share of the distribution was $17.6 million, which exceeded our total investment in the venture at that time.

(g) In connection with the CPA®:14/16 Merger in May 2011, we purchased the remaining interest in this investment from CPA®:14. Subsequent to the acquisition, we consolidate this investment as our ownership interest in the investment is now 100% (Note 4).

The following tables present combined summarized financial information of our venture properties. Amounts provided are the total amounts attributable to the venture properties and do not represent our proportionate share (in thousands):


	June 30, 2011		December 31, 2010
Assets	$	1,106,283	$	1,151,859
Liabilities		(766,170)		(818,238)
Partners'/members' equity	$	340,113	$	333,621


	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010

Revenues	$	30,364	$	37,849	$	60,918	$	76,058
Expenses		(20,090)		(19,948)		(40,738)		(39,657)
Impairment charges (a)		(40)		-		(8,602)		-
Net income	$	10,234	$	17,901	$	11,578	$	36,401

__________

Represents impairment charges incurred by a venture that leases property to the Symphony IRI Group, Inc. in connection with a potential sale of the property

We recognized income from equity investments in real estate of $3.7 million and $6.3 million for the three and six months ended June 30, 2011, respectively, and $3.7 million and $9.9 million for the three and six months ended June 30, 2010, respectively. Income from equity investments in real estate represents our proportionate share of the income or losses of these ventures as well as certain depreciation and amortization adjustments related to other-than-temporary impairment charges.

- Definition

Equity investment disclosure, or group of investments for which combined disclosure is appropriate, including: (a) the name of each investee and percentage of ownership of common stock, (b) accounting policies for investments in common stock, (c) difference between the amount at which the investment is carried and the amount of underlying equity in net assets and the accounting treatment of the difference, (d) the total fair value of each identified investment for which a market value is available, (e) summarized information as to assets, liabilities, and results of operations of the investees (for investments in unconsolidated subsidiaries, common stock of joint ventures, or other investments using the equity method), and (f) material effects of possible conversions, exercises, or contingent issuances of the investee. Other disclosures include (a) the names of any investee in which the investor owns 20 percent or more of the voting stock and investment is not accounted for using the equity method, and the reasons why not, and (b) the names of any investee in which the investor owns less than 20% of the voting stock and the investment is accounted for using the equity method, and the reasons why it is.

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