Stock-Based Compensation and Equity

3 Months Ended

Mar. 31, 2014

Equity [Abstract]

Stock-Based Compensation and Equity

Stock-Based Compensation and Equity

We maintain several stock-based compensation plans, which are more fully described in the 2013 Annual Report. There have been no significant changes to the terms and conditions of any of our stock-based compensation plans or arrangements during the three months endedMarch 31, 2014.

The total compensation expense (net of forfeitures) for awards issued under these plans was $7.0 million and $9.1 million for the three months endedMarch 31, 2014 and 2013, respectively, which is included in Stock-based compensation expenses in the consolidated financial statements. The tax benefit recognized by us related to these awards totaled $17.3 million and $16.0 million for the three months endedMarch 31, 2014 and 2013, respectively.

Restricted and Conditional Awards

Nonvested restricted stock awards, or RSAs, restricted share units, or RSUs, and performance share units, or PSUs, at March 31, 2014 and changes during the three months endedMarch 31, 2014were as follows:

	RSA and RSU Awards				PSU Awards
	Shares		Weighted-Average Grant Date Fair Value		Shares		Weighted-Average Grant Date Fair Value
Nonvested at January 1, 2014	519,608		$	45.19	1,220,720		$	28.28
Granted (a)	161,960		60.30		89,653		76.05
Vested (b)	(251,515	)	42.13		(881,388	)	15.04
Forfeited	(667	)	68.05		—		—
Adjustment (c)	—		—		369,158		51.44
Nonvested at March 31, 2014 (d)	429,386		$	52.65	798,143		$	35.20

__________

(a) The grant date fair value of RSAs and RSUs reflect our stock price on the date of grant. The grant date fair value of PSUs were determined utilizing a Monte Carlo simulation model to generate a range of possible future stock prices for both us and the plan defined peer index over thethree-year performance period. To estimate the fair value of PSUs granted duringthe three months endedMarch 31, 2014, we used a risk-free interest rate of0.65%and an expected volatility rate of25.89%(the plan defined peer index assumes21.77%) and assumed a dividend yield ofzero.

(b) The total fair value of shares vested during the three months endedMarch 31, 2014 was $23.9 million. Employees have the option to take immediate delivery of the shares upon vesting or defer receipt to a future date, pursuant to previously-made deferral elections. At March 31, 2014, we had an obligation to issue 889,863 shares of our common stock underlying such deferred shares, which is recorded within W. P. Carey stockholders’ equity as a Deferred compensation obligation of $29.3 million.

(c) Vesting and payment of the PSUs is conditional on certain company and market performance goals being met during the relevant three-year performance period. The ultimate number of PSUs to be vested will depend on the extent to which the performance goals are met and can range from zero to three times the original awards. In connection with the payment of the PSUs granted in 2011 that were paid out in February 2014, we adjusted the shares during the three months endedMarch 31, 2014 to reflect the actual number of shares issued. There was no impact on our consolidated statements of income related to this adjustment, as the initial fair value of our PSUs factored in the variability associated with the performance features of these awards.

(d) At March 31, 2014, total unrecognized compensation expense related to these awards was approximately $41.2 million, with an aggregate weighted-average remaining term of 1.86 years.

During the three months endedMarch 31, 2014, 18,286 stock options were exercised with an aggregate intrinsic value of $0.6 million. At March 31, 2014, 493,734 stock options remained exercisable.

Earnings Per Share

Under current authoritative guidance for determining earnings per share, all unvested share-based payment awards that contain non-forfeitable rights to distributions are considered to be participating securities and therefore are included in the computation of earnings per share under the two-class method. The two-class method is an earnings allocation formula that determines earnings per share for each class of common shares and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. Our unvested RSUs and RSAs contain rights to receive non-forfeitable distribution equivalents, and therefore we apply the two-class method of computing earnings per share. The calculation of earnings per share below excludes the income attributable to the unvested RSUs and RSAs from the numerator. The following table summarizes basic and diluted earnings (in thousands, except share amounts):

	Three Months Ended March 31,
	2014			2013
Net income attributable to W. P. Carey	$	112,892		$	14,181
Allocation of distribution equivalents paid on unvested RSUs and RSAs in excess of income	(482		)	(105		)
Net income – basic	112,410			14,076
Income effect of dilutive securities, net of taxes	141			(27		)
Net income – diluted	$	112,551		$	14,049
Weighted average shares outstanding – basic	89,366,055			68,967,209
Effect of dilutive securities	1,009,256			1,008,084
Weighted average shares outstanding – diluted	90,375,311			69,975,293

Securities totaling118,397shares for thethree months endedMarch 31, 2014was excluded from the earnings per share computation above as the effect would have been anti-dilutive. For thethree months endedMarch 31, 2013, there werenopotentially dilutive securities excluded from the computation of diluted earnings per share.

Redeemable Noncontrolling Interest

We account for the noncontrolling interest in WPCI held by a third party as a redeemable noncontrolling interest, as we have an obligation to repurchase the interest at fair value, subject to certain conditions. This obligation is required to be settled in shares of our common stock. The third-party interest is reflected at estimated redemption value for all periods presented. On October 1, 2013, we received a notice from the holder of the noncontrolling interest in WPCI regarding the exercise of the put option, pursuant to which we are required to purchase the third-party’s 7.7% interest in WPCI. Pursuant to the terms of the related put agreement, the purchase price is to be determined based on a third-party valuation as of October 31, 2013, which is the end of the month that the put option was exercised. We cannot currently estimate when the redemption will occur.

The following table presents a reconciliation of redeemable noncontrolling interest (in thousands):

	Three Months Ended March 31,
	2014			2013
Beginning balance	$	7,436		$	7,531
Redemption value adjustment	(306		)	—
Net income	262			(50		)
Distributions	(83		)	(54		)
Change in other comprehensive income (loss)	(6		)	(23		)
Ending balance	$	7,303		$	7,404

Transfers to Noncontrolling Interests

The following table presents a reconciliation of the effect of transfers in noncontrolling interest (in thousands):

	Three Months Ended March 31,
	2014			2013
Net income attributable to W. P. Carey	$	112,892		$	14,181
Transfers to noncontrolling interest
Decrease in W. P. Carey’s additional paid-in capital for purchases of less-than-wholly-owned investments in connection with the CPA®:16 Merger	(42,015		)	—
Net transfers to noncontrolling interest	(42,015		)	—
Change from net income attributable to W. P. Carey and transfers to noncontrolling interest	$	70,877		$	14,181

Reclassifications Out of Accumulated Other Comprehensive Income (Loss)

The following tables present a reconciliation of changes in accumulated other comprehensive income (loss) by component for the periods presented (in thousands):

	Three Months Ended March 31, 2014
	Realized and Unrealized Gains (Losses) on Derivative Instruments			Foreign Currency Translation Adjustments		Unrealized Appreciation (Depreciation) on Marketable Securities		Total
Beginning balance	$	(7,488	)	$	22,793	$	31	$	15,336
Other comprehensive (loss) income before reclassifications	(4,001		)	4,545		17		561
Amounts reclassified from accumulated other comprehensive income (loss) to:
Interest expense	701			—		—		701
Other income and (expenses)	384			—		—		384
Net income from equity investments in real estate and the Managed REITs	119			—		—		119
Total	1,204			—		—		1,204
Net current period other comprehensive (loss) income	(2,797		)	4,545		17		1,765
Net current period other comprehensive income attributable to noncontrolling interests and redeemable noncontrolling interests	—			342		—		342
Ending balance	$	(10,285	)	$	27,680	$	48	$	17,443

	Three Months Ended March 31, 2013
	Realized and Unrealized Gains (Losses) on Derivative Instruments			Foreign Currency Translation Adjustments			Unrealized Appreciation (Depreciation) on Marketable Securities		Total
Beginning balance	$	(7,508	)	$	2,828		$	31	$	(4,649	)
Other comprehensive income (loss) before reclassifications	2,685			(9,752		)	—		(7,067		)
Amounts reclassified from accumulated other comprehensive income to:
Interest expense	434			—			—		434
Other income and (expenses)	(47		)	—			—		(47		)
Net income from equity investments in real estate and the Managed REITs	103			—			—		103
Total	490			—			—		490
Net current period other comprehensive income (loss)	3,175			(9,752		)	—		(6,577		)
Net current period other comprehensive income attributable to noncontrolling interests and redeemable noncontrolling interests	—			1,812			—		1,812
Ending balance	$	(4,333	)	$	(5,112	)	$	31	$	(9,414	)