10-Q 1 wpc2014q110-q.htm 10-Q WPC 2014 Q1 10-Q


 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2014
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: 001-13779

W. P. CAREY INC.
(Exact name of registrant as specified in its charter) 
Maryland
45-4549771
(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)

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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
 
 
(Do not check if a smaller reporting company)
 

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 99,348,860 shares of common stock, $0.001 par value, outstanding at April 30, 2014.
 



INDEX
 
 
 
Page No.


Forward-Looking Statements

This Quarterly Report on Form 10-Q, or the Report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, in Item 2 of Part I 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. It is important to note that our actual results could be materially different from those projected in such forward-looking statements. You should exercise 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 which 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 in our Annual Report on Form 10-K for the year ended December 31, 2013 as filed with the SEC on March 4, 2014, or the 2013 Annual Report. 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 I, Item 1, Financial Statements (Unaudited).



W. P. Carey 3/31/2014 10-Q – 1


PART I
Item 1. Financial Statements.

W. P. CAREY INC. 
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share and per share amounts)
 
March 31, 2014
 
December 31, 2013
Assets
 

 
 

Investments in real estate:
 

 
 

Real estate, at cost (inclusive of $243,429 and $78,782, respectively, attributable to variable interest entities, or VIEs)
$
4,487,928

 
$
2,516,325

Operating real estate, at cost (inclusive of $38,714 and 0, respectively, attributable to VIEs)
84,494

 
6,024

Accumulated depreciation (inclusive of $19,727 and $18,238, respectively, attributable to VIEs)
(193,370
)
 
(168,958
)
Net investments in properties
4,379,052

 
2,353,391

Net investments in direct financing leases (inclusive of $65,560 and $18,089, respectively, attributable to VIEs)
898,335

 
363,420

Assets held for sale
95,209

 
86,823

Equity investments in real estate and the Managed REITs
186,965

 
530,020

Net investments in real estate
5,559,561

 
3,333,654

Cash and cash equivalents (inclusive of $2,003 and $37, respectively, attributable to VIEs)
198,947

 
117,519

Due from affiliates
32,497

 
32,034

Goodwill
700,024

 
350,208

In-place lease intangible assets, net (inclusive of $36,012 and $3,385, respectively, attributable to VIEs)
997,520

 
467,127

Above-market rent intangible assets, net (inclusive of $15,224 and $2,544, respectively, attributable to VIEs)
595,430

 
241,975

Other assets, net (inclusive of $21,568 and $4,246, respectively, attributable to VIEs)
255,489

 
136,433

Total assets
$
8,339,468

 
$
4,678,950

Liabilities and Equity
 

 
 

Liabilities:
 

 
 

Non-recourse debt (inclusive of $152,223 and $29,042, respectively, attributable to VIEs)
$
2,961,999

 
$
1,492,410

Senior credit facility and unsecured term loan
366,278

 
575,000

Senior unsecured notes
498,210

 
—

Below-market rent and other intangible liabilities, net (inclusive of $11,665 and $3,481, respectively, attributable to VIEs)
182,741

 
128,202

Accounts payable, accrued expenses and other liabilities (inclusive of $8,234 and $2,988, respectively, attributable to VIEs)
291,038

 
166,385

Deferred income taxes (inclusive of $854 and 0, respectively, attributable to VIEs)
89,250

 
39,040

Distributions payable
90,079

 
67,746

Total liabilities
4,479,595

 
2,468,783

Redeemable noncontrolling interest
7,303

 
7,436

Commitments and contingencies (Note 13)


 


Equity:
 

 
 

W. P. Carey stockholders’ equity:
 

 
 

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

 
—

Common stock, $0.001 par value, 450,000,000 shares authorized; 100,392,711 and 69,299,949 shares issued,
respectively; and 99,348,295 and 68,266,570 shares outstanding, respectively
100

 
69

Additional paid-in capital
4,016,019

 
2,256,503

Distributions in excess of accumulated earnings
(302,799
)
 
(318,577
)
Deferred compensation obligation
29,342

 
11,354

Accumulated other comprehensive income
17,443

 
15,336

Less: treasury stock at cost, 1,044,416 and 1,033,379 shares, respectively
(60,948
)
 
(60,270
)
Total W. P. Carey stockholders’ equity
3,699,157

 
1,904,415

Noncontrolling interests
153,413

 
298,316

Total equity
3,852,570

 
2,202,731

Total liabilities and equity
$
8,339,468

 
$
4,678,950

 
See Notes to Consolidated Financial Statements.


W. P. Carey 3/31/2014 10-Q – 2


W. P. CAREY INC. 
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except share and per share amounts)
 
Three Months Ended March 31,
 
2014
 
2013
Revenues
 
 
 
Real estate revenues:
 
 
 
Lease revenues
$
123,213

 
$
72,460

Reimbursable tenant costs
6,030

 
3,117

Operating property revenues
4,993

 
227

Other
1,000

 
679

 
135,236

 
76,483

Revenues from affiliates:
 
 
 
Reimbursable costs
39,732

 
11,968

Structuring revenue
17,750

 
6,342

Asset management revenue
9,777

 
10,015

Dealer manager fees
6,676

 
1,223

 
73,935

 
29,548

 
209,171

 
106,031

Operating Expenses
 

 
 

Depreciation and amortization
52,782

 
29,376

Reimbursable tenant and affiliate costs
45,762

 
15,085

Merger and acquisition expenses
29,613

 
121

General and administrative
28,111

 
19,698

Property expenses, excluding reimbursable tenant costs
8,429

 
1,765

Stock-based compensation expenses
7,045

 
9,149

 
171,742

 
75,194

Other Income and Expenses
 
 
 
Gain on change in control of interests
103,574

 
—

Net income from equity investments in real estate and the Managed REITs
14,262

 
10,656

Interest expense
(39,075
)
 
(25,584
)
Other income and (expenses)
(5,372
)
 
1,399

 
73,389

 
(13,529
)
Income from continuing operations before income taxes
110,818

 
17,308

(Provision for) benefit from income taxes
(2,221
)
 
1,208

Income from continuing operations
108,597

 
18,516

Income (loss) from discontinued operations, net of tax
6,135

 
(2,677
)
Net Income
114,732

 
15,839

Net income attributable to noncontrolling interests
(1,578
)
 
(1,708
)
Net (income) loss attributable to redeemable noncontrolling interest
(262
)
 
50

Net Income Attributable to W. P. Carey
$
112,892

 
$
14,181

Basic Earnings Per Share
 

 
 

Income from continuing operations attributable to W. P. Carey
$
1.19

 
$
0.25

Income (loss) from discontinued operations attributable to W. P. Carey
0.07

 
(0.05
)
Net Income Attributable to W. P. Carey
$
1.26

 
$
0.20

Diluted Earnings Per Share
 

 
 

Income from continuing operations attributable to W. P. Carey
$
1.18

 
$
0.24

Income (loss) from discontinued operations attributable to W. P. Carey
0.07

 
(0.04
)
Net Income Attributable to W. P. Carey
$
1.25

 
$
0.20

Weighted Average Shares Outstanding
 

 
 

Basic
89,366,055

 
68,967,209

Diluted
90,375,311

 
69,975,293

Amounts Attributable to W. P. Carey
 

 
 

Income from continuing operations, net of tax
$
106,609

 
$
17,135

Income (loss) from discontinued operations, net of tax
6,283

 
(2,954
)
Net Income
$
112,892

 
$
14,181

Distributions Declared Per Share
$
0.895

 
$
0.820

 

See Notes to Consolidated Financial Statements.


W. P. Carey 3/31/2014 10-Q – 3


W. P. CAREY INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in thousands) 
 
Three Months Ended March 31,
 
2014
 
2013
Net Income
$
114,732

 
$
15,839

Other Comprehensive Income (Loss)
 
 
 
Foreign currency translation adjustments
4,545

 
(9,752
)
Realized and unrealized (loss) gain on derivative instruments
(2,797
)
 
3,175

Change in unrealized appreciation on marketable securities
17

 
—

 
1,765

 
(6,577
)
Comprehensive Income
116,497

 
9,262

 
 
 
 
Amounts Attributable to Noncontrolling Interests
 

 
 

Net income
(1,578
)
 
(1,708
)
Foreign currency translation adjustments
336

 
1,789

Comprehensive (income) loss attributable to noncontrolling interests
(1,242
)
 
81

Amounts Attributable to Redeemable Noncontrolling Interest
 

 
 

Net (income) loss
(262
)
 
50

Foreign currency translation adjustments
6

 
23

Comprehensive (income) loss attributable to redeemable noncontrolling interest
(256
)
 
73

Comprehensive Income Attributable to W. P. Carey
$
114,999

 
$
9,416

 
See Notes to Consolidated Financial Statements.


W. P. Carey 3/31/2014 10-Q – 4


W. P. CAREY INC.
CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
For the Three Months Ended March 31, 2014 and Year Ended December 31, 2013
(in thousands, except share and per share amounts)
 
W. P. Carey Stockholders
 
 
 
 
 
 
 
 
 
 
 
Distributions
 
 
 
Accumulated
 
 
 
 
 
 
 
 
 
 
 
Additional
 
in Excess of
 
Deferred
 
Other
 
 
 
Total
 
 
 
 
 
$0.001 Par Value
 
Paid-in
 
Accumulated
 
Compensation
 
Comprehensive
 
Treasury
 
W. P. Carey
 
Noncontrolling
 
 
 
Shares
 
Amount
 
Capital
 
Earnings
 
Obligation
 
Income (Loss)
 
Stock
 
Stockholders
 
Interests
 
Total
Balance at January 1, 2013
68,485,525

 
$
69

 
$
2,175,820

 
$
(172,182
)
 
$
8,358

 
$
(4,649
)
 
$
(20,270
)
 
$
1,987,146

 
$
270,177

 
$
2,257,323

Reclassification of Estate Shareholders’ shares from temporary equity to permanent equity
 
 
 
 
40,000

 
 
 
 
 
 
 
 
 
40,000

 
 
 
40,000

Exercise of stock options and employee purchase under the employee share purchase plan
55,423

 
 
 
2,312

 
 
 
 
 
 
 
 
 
2,312

 
 
 
2,312

Grants issued in connection with services rendered
295,304

 
 
 
 
 
 
 
 
 
 
 
 
 
—

 
 
 
—

Shares issued under share incentive plans
47,289

 
 
 
(9,183
)
 
 
 
 
 
 
 
 
 
(9,183
)
 
 
 
(9,183
)
Contributions from noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 
 
—

 
65,145

 
65,145

Windfall tax benefits - share incentive plans
 
 
 
 
12,817

 
 
 
 
 
 
 
 
 
12,817

 
 
 
12,817

Amortization of stock-based compensation expenses
 
 
 
 
34,737

 
 
 
2,459

 
 
 
 
 
37,196

 
 
 
37,196

Distributions to noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 
 
—

 
(71,820
)
 
(71,820
)
Distributions declared ($3.39 per share)
 
 
 
 
 
 
(245,271
)
 
537

 
 
 
 
 
(244,734
)
 
 
 
(244,734
)
Purchase of treasury stock from related party
(616,971
)
 
 
 
 
 
 
 
 
 
 
 
(40,000
)
 
(40,000
)
 
 
 
(40,000
)
Foreign currency translation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
—

 
(5
)
 
(5
)
Net income
 
 
 
 
 
 
98,876

 
 
 
 
 
 
 
98,876

 
32,936

 
131,812

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
 
 
 
 
 
 
 
 
 
19,965

 
 
 
19,965

 
1,883

 
21,848

Realized and unrealized gain on derivative instruments
 
 
 
 
 
 
 
 
 
 
20

 
 
 
20

 
 
 
20

Balance at December 31, 2013
68,266,570

 
69

 
2,256,503

 
(318,577
)
 
11,354

 
15,336

 
(60,270
)
 
1,904,415

 
298,316

 
2,202,731

Shares issued to stockholders of CPA®:16 – Global in connection with the CPA®:16 Merger
30,729,878

 
31

 
1,815,490

 
 
 
 
 
 
 
 
 
1,815,521

 
 
 
1,815,521

Purchase of the remaining interests in less-than-wholly-owned investments that we already consolidate in connection with the CPA®:16 Merger
 
 
 
 
(42,015
)
 
 
 
 
 
 
 
 
 
(42,015
)
 
(239,562
)
 
(281,577
)
Purchase of noncontrolling interests in connection with the CPA®:16 Merger
 
 
 
 
 
 
 
 
 
 
 
 
 
 
—

 
99,469

 
99,469

Exercise of stock options
2,961

 
 
 
91

 
 
 
 
 
 
 
 
 
91

 
 
 
91

Grants issued in connection with services rendered
352,188

 
 
 
(15,735
)
 
 
 
 
 
 
 
 
 
(15,735
)
 
 
 
(15,735
)
Shares issued under share incentive plans
7,735

 
 
 
(146
)
 
 
 
 
 
 
 
 
 
(146
)
 
 
 
(146
)
Deferral of vested shares
 
 
 
 
(14,146
)
 
 
 
14,146

 
 
 
 
 
—

 
 
 
—

Windfall tax benefits - share incentive plans
 
 
 
 
5,449

 
 
 
 
 
 
 
 
 
5,449

 
 
 
5,449

Amortization of stock-based compensation expenses
 
 
 
 
7,043

 
 
 


 
 
 
 
 
7,043

 
 
 
7,043

Redemption value adjustment
 
 
 
 
306

 
 
 
 
 
 
 
 
 
306

 
 
 
306

Distributions to noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 
 
—

 
(6,045
)
 
(6,045
)
Distributions declared ($0.895 per share)
 
 
 
 
3,179

 
(97,114
)
 
3,842

 
 
 
 
 
(90,093
)
 
 
 
(90,093
)
Purchase of treasury stock from related party
(11,037
)
 
 
 
 
 
 
 
 
 
 
 
(678
)
 
(678
)
 
 
 
(678
)
Foreign currency translation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
—

 
(7
)
 
(7
)
Net income
 
 
 
 
 
 
112,892

 
 
 
 
 
 
 
112,892

 
1,578

 
114,470

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
 
 
 


 
 
 


Foreign currency translation adjustments
 
 
 
 
 
 
 
 
 
 
4,887

 
 
 
4,887

 
(336
)
 
4,551

Realized and unrealized loss on derivative instruments
 
 
 
 
 
 
 
 
 
 
(2,797
)
 
 
 
(2,797
)
 
 
 
(2,797
)
Change in unrealized appreciation on marketable securities
 
 
 
 
 
 
 
 
 
 
17

 
 
 
17

 
 
 
17

Balance at March 31, 2014
99,348,295


$
100


$
4,016,019


$
(302,799
)

$
29,342


$
17,443


$
(60,948
)

$
3,699,157


$
153,413


$
3,852,570

 
See Notes to Consolidated Financial Statements.


W. P. Carey 3/31/2014 10-Q – 5


W. P. CAREY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
 
Three Months Ended March 31,
 
2014

2013
Cash Flows — Operating Activities
 

 
 

Net income
$
114,732

 
$
15,839

Adjustments to net income:
 
 
 
Depreciation and amortization, including intangible assets and deferred financing costs
57,557

 
33,803

Income from equity investments in real estate and the Managed REITs in excess of distributions received
(1,222
)
 
(991
)
Straight-line rent and amortization of rent-related intangibles
10,497

 
4,459

Amortization of deferred revenue
(786
)
 
(2,359
)
(Gain) loss on sale of real estate
(3,176
)
 
931

Unrealized gain on derivative instruments and others
(1,583
)
 
(1,002
)
Realized loss on extinguishment of debt and others
2,301

 
100

Management and disposition income received in shares of Managed REITs
(8,207
)
 
(9,942
)
Gain on change in control of interests
(103,361
)
 
—

Impairment charges
—

 
3,279

Stock-based compensation expense
7,043

 
9,149

Deferred acquisition revenue received
6,469

 
8,561

Increase in structuring revenue receivable
(8,121
)
 
(1,437
)
Increase in income taxes, net
(9,735
)
 
(4,144
)
Decrease (increase) in prepaid taxes
2,659

 
(15,721
)
Payments for withholding taxes upon delivery of equity-based awards and exercises of stock options
(15,882
)
 
(9,332
)
Net changes in other operating assets and liabilities
(5,489
)
 
(13,718
)
Net Cash Provided by Operating Activities
43,696

 
17,475

Cash Flows — Investing Activities
 

 
 

Cash paid to stockholders of CPA®:16 – Global in the CPA®:16 Merger
(1,338
)
 
—

Cash acquired in connection with the CPA®:16 Merger
65,429

 
—

Distributions received from equity investments in real estate and the Managed REITs in excess of equity income
7,970

 
11,955

Capital contributions to equity investments
(453
)
 
(1,418
)
Purchases of real estate and equity investments in real estate
(40,986
)
 
(71,131
)
Capital expenditures
(5,494
)
 
(1,826
)
Proceeds from sale of real estate and equity investments
105,095

 
11,065

Purchase of securities for the defeasance of debt
(7,664
)
 
—

Proceeds from repayment of short-term loans
1,080

 
—

Funds placed in escrow
(40,395
)
 
(27,128
)
Funds released from escrow
44,041

 
50,749

Other investing activities, net
334

 
—

Net Cash Provided by (Used in) Investing Activities
127,619

 
(27,734
)
Cash Flows — Financing Activities
 

 
 

Distributions paid
(68,159
)
 
(45,746
)
Contributions from noncontrolling interests
123

 
2,463

Distributions paid to noncontrolling interests
(6,131
)
 
(9,232
)
Purchase of treasury stock from related party
(678
)
 
—

Scheduled payments of mortgage principal
(16,711
)
 
(67,192
)
Prepayments of mortgage principal
(116,816
)
 
(35,420
)
Proceeds from mortgage financing
5,110

 
99,000

Proceeds from senior credit facility and unsecured term loan
901,383

 
55,000

Repayments of senior credit facility
(1,280,000
)
 
(10,000
)
Proceeds from issuance of senior unsecured notes
498,195

 
—

Payment of financing costs and mortgage deposits, net of deposits refunded
(11,894
)
 
(570
)
(Return) receipt of tenant security deposits
(428
)
 
43

Proceeds from exercise of stock options
91

 
25

Windfall tax benefit associated with stock-based compensation awards
5,449

 
10,764

Net Cash Used in Financing Activities
(90,466
)
 
(865
)
Change in Cash and Cash Equivalents During the Period
 

 
 

Effect of exchange rate changes on cash
579

 
(1,216
)
Net increase (decrease) in cash and cash equivalents
81,428

 
(12,340
)
Cash and cash equivalents, beginning of period
117,519

 
123,904

Cash and cash equivalents, end of period
$
198,947

 
$
111,564

 

See Notes to Consolidated Financial Statements.


W. P. Carey 3/31/2014 10-Q – 6


W. P. CAREY INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1. Business and Organization
 
W. P. Carey Inc., or W. P. Carey, is, together with its consolidated subsidiaries and predecessors, a real estate investment trust, or REIT, that provides long-term financing via sale-leaseback and build-to-suit transactions for companies worldwide and manages a global investment portfolio. We invest primarily in commercial properties domestically and internationally. We earn revenue principally by leasing the properties we own to single corporate tenants, primarily on a triple-net leased basis, which requires each tenant to pay substantially all of the costs associated with operating and maintaining the property. Through our taxable REIT subsidiaries, or TRSs, we also earn revenue as the advisor to publicly-owned, non-listed REITs under the Corporate Property Associates, or CPA®, brand name, which invest in similar properties. At March 31, 2014, we were the advisor to Corporate Property Associates 17 – Global Incorporated, or CPA®:17 – Global, and Corporate Property Associates 18 – Global Incorporated, or CPA®:18 – Global. We were also the advisor to Corporate Property Associates 16 – Global Incorporated, or CPA®:16 – Global, until its merger with us on January 31, 2014. We refer to CPA®:16 – Global, CPA®:17 – Global, and CPA®:18 – Global as the CPA® REITs. We are also the advisor to Carey Watermark Investors Incorporated, or CWI, and together with CPA® REITs, the Managed REITs, a publicly-owned, non-listed REIT that invests in lodging and lodging-related properties.

Originally founded in 1973, we reorganized as a REIT in September 2012 in connection with our merger with Corporate Property Associates 15 Incorporated, or CPA®:15. We refer to these transactions as the REIT Conversion and the CPA®:15 Merger, respectively. Our shares of common stock are listed on the New York Stock Exchange under the symbol “WPC.”

On January 31, 2014, CPA®:16 – Global merged with and into us based on a merger agreement, dated as of July 25, 2013, which we refer to as the CPA®:16 Merger (Note 3).

We have elected to be taxed as a REIT under Section 856 through 860 of the Internal Revenue Code. As a REIT, we are not generally subject to 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, as well as other factors. We hold all of our real estate assets attributable to our Real Estate Ownership segment under the REIT structure, while the activities conducted by our Investment Management segment subsidiaries have been organized under TRSs.

Primary Reportable Segments
 
Real Estate Ownership — We own and invest in commercial properties principally in the United States, or the U.S. and the European Union that are then leased to companies, primarily on a triple-net lease basis. We may also invest in other properties if opportunities arise. We earn lease revenues from our wholly-owned and co-owned real estate investments. In addition, we generate equity income through co-owned real estate investments that we do not control and our investments in the shares of the Managed REITs (Note 7). Through our special member interests in the operating partnerships of the Managed REITs, we also participate in their cash flows (Note 4). At March 31, 2014, our owned portfolio was comprised of our full or partial ownership interest in 700 properties, substantially all of which were net leased to 230 tenants, with an occupancy rate of 98.3%, and totaled approximately 82.8 million square feet. Collectively, at March 31, 2014, the Managed REITs owned all or a portion of 363 properties, including certain properties in which we have an ownership interest. Substantially all of these properties, totaling approximately 37.9 million square feet, were net leased to 112 tenants, with an average occupancy rate of approximately 99.96%. The Managed REITs also had interests in 95 operating properties for an aggregate of approximately 9.4 million square feet at March 31, 2014.

Investment Management — Through our TRSs, we structure and negotiate investments and debt placement transactions for the Managed REITs, for which we earn structuring revenue, and manage their portfolios of real estate investments, for which we earn asset-based management revenue. We earn disposition revenue when we negotiate and structure the sale of properties on behalf of the Managed REITs, and we may also earn incentive revenue and receive other compensation in connection with providing liquidity events for the Managed REITs’ stockholders.

Note 2. Basis of Presentation

Our interim consolidated financial statements have been prepared, without audit, in accordance with the instructions to Form 10-Q and, therefore, do not necessarily include all information and footnotes necessary for a fair statement of our consolidated


W. P. Carey 3/31/2014 10-Q – 7
 
Notes to Consolidated Financial Statements

financial position, results of operations and cash flows in accordance with accounting principles generally accepted in the U.S., or GAAP.

In the opinion of management, the unaudited financial information for the interim periods presented in this Report reflects all normal and recurring adjustments necessary for a fair statement of financial position, results of operations and cash flows. Our interim consolidated financial statements should be read in conjunction with our audited consolidated financial statements and accompanying notes for the year ended December 31, 2013, which are included in the 2013 Annual Report, as certain disclosures that would substantially duplicate those contained in the audited consolidated financial statements have not been included in this Report. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year.

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

The unaudited consolidated financial statements included in this Report have been retrospectively adjusted to reflect the disposition (or planned disposition) of certain properties as discontinued operations for all periods presented.

Basis of Consolidation

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

At March 31, 2014, we had six investments in tenancy-in-common interests in various domestic and international properties, five of which we consolidate because we own 100% of these investments and account for the remaining jointly-owned investment using the equity method of accounting. Consolidation of this investment is not required as such interest does not qualify as a VIE and do not meet the control requirement required 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 these investments.

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 can cause us to consider an entity a VIE. In connection with the CPA®:16 Merger, we acquired 12 VIEs from CPA®:16 – Global. We consider these entities VIEs because the leases have either fixed price purchase or renewal options. In connection with our acquisition of a property during the three months ended March 31, 2014 (Note 5), we assigned the property to a third-party special purpose entity, or SPE, and provided a loan to the SPE to purchase the property. The SPE is funded solely from that loan and does not have any equity investment at risk. As such, the SPE is deemed to be a VIE in which we are the primary beneficiary and which we consolidate.

Additionally, we own interests in single-tenant net-leased properties leased to companies through noncontrolling interests in partnerships and limited liability companies that we do not control but over which we exercise significant influence. We account for these investments under the equity method of accounting. At times, the carrying value of our equity investments may fall below zero for certain investments. We intend to fund our share of the 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.

Recent Accounting Requirements

The following Accounting Standards Update, or ASU, promulgated by the Financial Accounting Standards Board is applicable to us:

ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360). ASU 2014-08 changes the requirements for reporting discontinued operations. A discontinued operation may include a component of an entity or a group of components of an entity, or a business. Under this new guidance, a disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a “strategic


W. P. Carey 3/31/2014 10-Q – 8
 
Notes to Consolidated Financial Statements

shift that has or will have a major effect on an entity’s operations and financial results.” The new guidance also requires disclosures including pretax profit or loss and significant gains or losses arising from dispositions that represent an “individually significant component of an entity,” but do not meet the criteria to be reported as discontinued operations under ASU 2014-08. In the ordinary course of business we sell properties, which, under prior accounting guidance, we generally reported as discontinued operations; however, under ASU 2014-08 such property dispositions typically would not meet the criteria to be reported as discontinued operations. We elected to early adopt ASU 2014-08 prospectively for all dispositions after December 31, 2013. Consequently, individually significant properties that were sold or classified as held-for-sale during 2014 were not reclassified to discontinued operations in the consolidated statements of income, but have been disclosed in Note 16 to the consolidated financial statements. By contrast, and as required by the new guidance, the results for the current and prior year period reflect as discontinued operations in the consolidated statements of income all dispositions and assets classified as held for sale through December 31, 2013 that were deemed under the prior accounting guidance to be discontinued operations, as well as those assets classified as held-for-sale as part of the CPA®:16 Merger. This ASU did not have a significant impact on our financial position or results of operations for any of the periods presented.

Note 3. Merger with CPA®:16 – Global

On July 25, 2013, we and CPA®:16 – Global entered into a definitive agreement pursuant to which CPA®:16 – Global would merge with and into one of our wholly-owned subsidiaries, subject to the approval of our stockholders and the stockholders of CPA®:16 – Global. On January 24, 2014, our stockholders and the stockholders of CPA®:16 – Global each approved the CPA®:16 Merger, and the CPA®:16 Merger closed on January 31, 2014.

In the CPA®:16 Merger, CPA®:16 – Global stockholders received 0.1830 shares of our common stock in exchange for their shares of CPA®:16 – Global stock, pursuant to an exchange ratio based upon a value of $11.25 per share of CPA®:16 – Global and the volume weighted average trading price of our common stock for the five consecutive trading days ending on the third trading day preceding the closing of the transaction on January 31, 2014. CPA®:16 – Global stockholders received cash in lieu of any fractional shares in the CPA®:16 Merger. We paid total merger consideration of approximately $1.8 billion, including the issuance of 30,729,878 shares of our common stock with a fair value of $1.8 billion, based on the closing price of our common stock on January 31, 2014, of $59.08 per share, to the stockholders of CPA®:16 – Global in exchange for the 168,041,772 shares of CPA®:16 – Global common stock that we and our affiliates did not previously own, and cash of $1.3 million paid in lieu of issuing any fractional shares, or collectively, the Merger Consideration. As a condition of the CPA®:16 Merger, we waived the subordinated disposition and termination fees that we would have been entitled to receive from CPA®:16 – Global upon its liquidation pursuant to the terms of our advisory agreement with CPA®:16 – Global (Note 4).

Immediately prior to the CPA®:16 Merger, CPA®:16 – Global’s portfolio was comprised of the consolidated full or partial interests in 327 leased properties, substantially all of which were triple-net leased with an average remaining life of 10.4 years and an estimated contractual minimum annualized base rent, or ABR, totaling $300.1 million, and two hotel properties. The related property-level debt was comprised of 92 fixed-rate and 18 variable-rate non-recourse mortgage loans with an aggregate fair value of approximately $1.8 billion and a weighted-average annual interest rate of 5.6%. Additionally, CPA®:16 – Global had a line of credit with an outstanding balance of $170.0 million on the date of the closing of the CPA®:16 Merger (Note 12). In addition, CPA®:16 – Global had equity interests in 18 unconsolidated investments, eleven of which were consolidated by us prior to the CPA®:16 Merger, five of which are consolidated by us subsequent to the CPA®:16 Merger and two of which are jointly-owned with CPA®:17 – Global. These investments own 140 properties, substantially all of which were triple-net leased with an average remaining life of 8.6 years and an estimated ABR totaling $63.9 million as of January 31, 2014. The debt related to these equity investments was comprised of 17 fixed-rate and five variable-rate non-recourse mortgage loans with an aggregate fair value of approximately $0.3 billion and a weighted-average annual interest rate of 4.8%. The lease revenues and income from operations from the properties acquired from the date of the CPA®:16 Merger through March 31, 2014 were $45.8 million and $12.5 million (inclusive of $0.2 million attributable to noncontrolling interests), respectively.
 
Preliminary Purchase Price Allocation

We accounted for the CPA®:16 Merger as a business combination under the acquisition method of accounting. After consideration of all applicable factors pursuant to the business combination accounting rules, we were considered the “accounting acquirer” due to various factors, including the fact that our stockholders held the largest portion of the voting rights in us upon completion of the CPA®:16 Merger. Costs of $29.5 million related to the CPA®:16 Merger have been expensed as incurred and classified within Merger and acquisition expenses in the consolidated statements of income for the three months ended March 31, 2014.
 
The purchase price was allocated to the assets acquired and liabilities assumed, based upon their preliminary fair values at January 31, 2014. The fair values of the lease intangibles acquired were measured in a manner consistent with our purchase


W. P. Carey 3/31/2014 10-Q – 9
 
Notes to Consolidated Financial Statements

price allocation policy described in our 2013 Annual Report. The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed in the acquisition, based on the current best estimate of management. We are in the process of finalizing our assessment of the fair value of the assets acquired and liabilities assumed. Investments in real estate, net investments in direct financing leases, equity investments in real estate, non-recourse debt and amounts attributable to noncontrolling interests were based on preliminary valuation data and estimates. Accordingly, the fair value of these assets and liabilities and the impact to goodwill are subject to change.
 
Preliminary Purchase Price Allocation
(in thousands)
Total Consideration
 

Fair value of W. P. Carey shares of common stock issued
$
1,815,521

Cash consideration for fractional shares
1,338

Merger Consideration
1,816,859

Fair value of our equity interest in CPA®:16 – Global prior to the CPA®:16 Merger
347,164

Fair value of our equity interest in jointly-owned investments with CPA®:16 – Global prior to the
   CPA®:16 Merger
172,720

Fair value of noncontrolling interests acquired
(278,829
)
 
$
2,057,914

Assets Acquired at Fair Value
 

Net investments in properties
$
1,969,274

Net investments in direct financing leases
538,607

Equity investments in real estate
74,367

Assets held for sale
132,951

In-place lease intangible assets
553,479

Above-market rent intangible assets
395,663

Cash and cash equivalents
65,429

Other assets, net
82,032

 
3,811,802

Liabilities Assumed at Fair Value
 

Non-recourse debt and line of credit
(1,768,288
)
Below-market rent and other intangible liabilities
(57,209
)
Accounts payable, accrued expenses and other liabilities
(118,389
)
Deferred tax liability
(59,629
)
 
(2,003,515
)
 
 
Total identifiable net assets
1,808,287

Amounts attributable to noncontrolling interests
(99,345
)
Goodwill
348,972

 
$
2,057,914

 


W. P. Carey 3/31/2014 10-Q – 10
 
Notes to Consolidated Financial Statements

Goodwill
 
The $349.0 million of preliminary estimated goodwill recorded in the CPA®:16 Merger was primarily attributable to the $428.5 million premium we agreed to pay for CPA®:16 – Global’s common stock. At the time we entered into the merger agreement, the consideration of $11.25 per common share of CPA®:16 – Global represented a premium of $2.55 per share over the December 31, 2012 estimated net asset value per share, or NAV, of CPA®:16 – Global, its most recently published NAV, which was $8.70. Management believes the premium is supported by several factors of the combined entity, including the fact that (i) it is among the largest publicly traded commercial net-lease REITs with greater operating and financial flexibility and better access to capital markets and with a lower cost of capital than CPA®:16 – Global had on a stand-alone basis; (ii) the CPA®:16 Merger eliminated costs associated with the advisory structure that CPA®:16 – Global had previously; and (iii) the combined portfolio has greater tenant and geographic diversification and an improved overall weighted-average debt maturity and interest rate.
 
The fair value of the 30,729,878 shares of our common stock issued in the CPA®:16 Merger as part of the consideration paid for CPA®:16 – Global of $1.8 billion was derived from the closing market price of our common stock on the acquisition date. As required by GAAP, the fair value related to the assets acquired and liabilities assumed, as well as the shares exchanged, has been computed as of the date we gained control of CPA®:16 – Global, which was the closing date of the CPA®:16 Merger, in a manner consistent with the methodology described above.
 
Goodwill acquired in the CPA®:16 Merger is not deductible for income tax purposes.

Equity Investments and Noncontrolling Interests
 
During the first quarter of 2014, we recognized a gain on change in control of interests of approximately $73.1 million, which was the difference between the carrying value of approximately $274.1 million and the preliminary estimated fair value of approximately $347.2 million of our previously-held equity interest in 38,229,294 shares of CPA®:16 – Global’s common stock.
 
The CPA®:16 Merger also resulted in our acquisition of the remaining interests in nine investments in which we already had a joint interest and accounted for under the equity method. Upon acquiring the remaining interests in these investments, we owned 100% of these investments and thus accounted for the acquisitions of these interests as step acquisitions utilizing the purchase method of accounting. Due to the change in control of the nine jointly-owned investments that occurred, we recorded a gain on change in control of interests of approximately $30.5 million, which was the difference between our carrying values and the preliminary estimated fair values of our previously-held equity interests on the acquisition date of approximately $142.2 million and approximately $172.7 million, respectively. Subsequent to the CPA®:16 Merger, we consolidate these wholly-owned investments.
 
In connection with the CPA®:16 Merger, we also acquired the remaining interests in 12 less-than-wholly-owned investments that we already consolidate and recorded an adjustment to additional paid-in-capital of approximately $42.0 million related to the difference between our carrying values and the preliminary estimated fair values of our previously-held noncontrolling interests on the acquisition date of approximately $236.8 million and approximately $278.8 million, respectively.

The preliminary fair values of our previously-held equity interests and our noncontrolling interests are based on the estimated fair market values of the underlying real estate and related mortgage debt, both of which were determined by management relying in part on a third party. Real estate valuation requires significant judgment. We determined the significant inputs to be Level 3 with ranges for the entire portfolio as follows:
 
•
Discount rates applied to the estimated net operating income of each property ranged from approximately 4.75% to 15.25%;
•
Discount rates applied to the estimated residual value of each property ranged from approximately 4.75% to 14.00%;
•
Residual capitalization rates applied to the properties ranged from approximately 5.00% to 12.50%;
•
The fair market value of the property level debt was determined based upon available market data for comparable liabilities and by applying selected discount rates to the stream of future debt payments; and
•
Discount rates applied to the property level debt cash flows ranged from approximately 1.80% to 8.75%.
 
Other than for two investments, no illiquidity adjustments to the equity interests or noncontrolling interests were deemed necessary as the investments are generally held with affiliates and do not allow for unilateral sale or financing by any of the affiliated parties. With respect to the two investments, a discount of 5% was applied in deriving the value of such interest, reflecting the terms of the third-party jointly-owned investments in which the real estate interest is held.  The discount and/or


W. P. Carey 3/31/2014 10-Q – 11
 
Notes to Consolidated Financial Statements

capitalization rates utilized in the appraisals also reflect the illiquidity of real estate assets. Lastly, there were no control premiums contemplated as the investments were in individual, or a portfolio of, underlying real estate and debt, as opposed to a business operation.

Pro Forma Financial Information (Unaudited)

The following unaudited consolidated pro forma financial information has been presented as if the CPA®:16 Merger had occurred on January 1, 2013 for the three months ended March 31, 2014 and 2013. The pro forma financial information is not necessarily indicative of what the actual results would have been had the CPA®:16 Merger occurred on that date, nor does it purport to represent the results of operations for future periods.
 
(in thousands, except share and per share amounts):
 
 
Three Months Ended March 31,
 
 
2014
 
2013
Pro forma total revenues
 
$
234,125

 
$
176,517

 
 
 
 
 
Pro forma net income
 
$
37,940

 
$
71,404

Pro forma net income attributable to noncontrolling interests
 
(572
)
 
(729
)
Pro forma net (income) loss attributable to redeemable noncontrolling interest
 
(262
)
 
1,951

Pro forma net income attributable to W. P. Carey
 
$
37,106

 
$
72,626

 
 
 
 
 
Pro forma earnings per share: (a)
 
 

 
 
Basic
 
$
0.37

 
$
0.73

Diluted
 
$
0.37

 
$
0.72

 
 
 
 
 
Pro forma weighted-average shares: (b)
 
 

 
 
Basic
 
99,724,441

 
99,697,087

Diluted
 
100,615,300

 
100,705,171

___________
(a)
The pro forma income attributable to W. P. Carey for the three months ended March 31, 2013 reflects the following income and expenses recognized related to the CPA®:16 Merger as if the CPA®:16 Merger had taken place on January 1, 2013: (i) combined merger expenses of $45.1 million; (ii) an aggregate gain on change in control of interests of $103.6 million; and (iii) an income tax expense of $3.8 million due to a permanent difference from the recognition of deferred revenue as a result of the accelerated vesting of shares previously issued by CPA®:16 – Global for asset management and performance fees and the payment of deferred acquisition fees in connection with the CPA®:16 Merger.
(b)
The pro forma weighted average shares outstanding for the three months ended March 31, 2014 and 2013 were determined as if the 30,729,878 shares of our common stock issued to CPA®:16 – Global stockholders in the CPA®:16 Merger were issued on January 1, 2013.



W. P. Carey 3/31/2014 10-Q – 12
 
Notes to Consolidated Financial Statements

Note 4. Agreements and Transactions with Related Parties
 
Advisory Agreements with the Managed REITs
 
We have advisory agreements with each of the Managed REITs, pursuant to which we earn fees and are entitled to receive cash distributions. The following tables present a summary of revenue earned and/or cash received from the Managed REITs for the periods indicated, included in the consolidated statements of income (in thousands):
 
Three Months Ended March 31,
 
2014
 
2013
Reimbursable costs from affiliates
$
39,732

 
$
11,968

Structuring revenue
17,750

 
6,342

Distributions of Available Cash
10,445

 
7,891

Asset management revenue (a)
9,754

 
9,993

Dealer manager fees
6,676

 
1,223

Deferred revenue earned
786

 
2,123

Interest income on deferred acquisition fees and loans to affiliates
175

 
255

 
$
85,318

 
$
39,795

 
 
Three Months Ended March 31,
 
2014
 
2013
CPA®:16 – Global (b)
$
7,998

 
$
13,942

CPA®:17 – Global (c)
15,828

 
14,993

CPA®:18 – Global (d)
56,176

 
—

CWI (d)
5,316

 
10,860

 
$
85,318

 
$
39,795

 ___________
(a)
Excludes amounts received from third parties.
(b)
Upon completion of the CPA®:16 Merger on January 31, 2014, we terminated the advisory agreement with CPA®:16 – Global. Pursuant to the terms of the merger agreement, we waived the incentive or termination fee that we would have been entitled to receive from CPA®:16 – Global pursuant to the terms of the advisory agreement. Amount shown for three months ended March 31, 2014 reflects transactions through January 31, 2014.
(c)
The current form of the advisory agreement is scheduled to expire on June 30, 2014, unless renewed pursuant to its terms.
(d)
The current form of the advisory agreement is scheduled to expire on September 30, 2014, unless renewed pursuant to its terms.

The following table presents a summary of amounts Due from affiliates (in thousands):
 
March 31, 2014
 
December 31, 2013
Deferred acquisition fees receivable
$
20,479

 
$
19,684

Current acquisition fees receivable
6,120

 
4,149

Organization and offering costs
2,545

 
2,700

Reimbursable costs
2,150

 
334

Accounts receivable
1,203

 
3,716

Asset management fee receivable
—

 
1,451

 
$
32,497

 
$
32,034


Asset Management Revenue
 
We earn asset management revenue from each Managed REIT, which is based on average invested assets and is calculated according to the respective advisory agreement. For CPA®:16 – Global, prior to the CPA®:16 Merger, we earned asset management revenue of 0.5% of average invested assets. For CPA®:17 – Global, we earn asset management revenue ranging


W. P. Carey 3/31/2014 10-Q – 13
 
Notes to Consolidated Financial Statements

from 0.5% of average market value for long-term net leases and certain other types of real estate investments up to 1.75% of average equity value for certain types of securities. For CPA®:18 – Global, we earn asset management revenue ranging from 0.5% to 1.5%, depending on the type of investment and based on the average market value or average equity value, as applicable. For CWI, we earn asset management revenue of 0.5% of the average market value of lodging-related investments.
 
Under the terms of the advisory agreements, we may elect to receive cash or shares of stock for asset management revenue due from each Managed REIT. In 2014 and 2013, we elected to receive all asset management revenue from CPA®:17 – Global, CPA®:18 – Global and CWI in their respective shares. For 2013, we had initially elected to receive asset management revenue from CPA®:16 – Global in its shares. However, in light of the announcement of the CPA®:16 Merger in July 2013 (Note 3), a Special Committee of the Board of Directors of CPA®:16 – Global requested that we elect to receive the asset management revenue in cash, which became effective as of August 1, 2013.
 
Structuring Revenue
 
Under the terms of the advisory agreements, we earn revenue in connection with structuring and negotiating investments and related financing for the Managed REITs, which we call acquisition revenue. We may receive acquisition revenue of 4.5% of the total aggregate cost of long-term net lease investments made by each CPA® REIT. A portion of this revenue (generally 2.5%) is paid when the transaction is completed, while the remainder (generally 2%) is payable in annual installments over three years, provided the relevant CPA® REIT meets its performance criterion. For certain types of non-long term net lease investments acquired on behalf of CPA®:17 – Global, initial acquisition revenue may range from 0% to 1.75% of the equity invested plus the related acquisition revenue, with no deferred acquisition revenue being earned. For CWI, we earn initial acquisition revenue of 2.5% of the total investment cost of the properties acquired and loans originated by CWI not to exceed 6% of the aggregate contract purchase price of all investments and loans, with no deferred acquisition revenue being earned. For CWI, we may also be entitled to fees for structuring loan refinancing transactions of up to 1% of the principal amount. This loan refinancing revenue, together with the acquisition revenue, is referred to as structuring revenue.

Unpaid transaction fees, including accrued interest, are included in Due from affiliates in the consolidated financial statements. Unpaid transaction fees bear interest at annual rates ranging from 2% to 5%.

Reimbursable Costs from Affiliates and Dealer Manager Fees
 
The Managed REITs reimburse us for certain costs we incur on their behalf, primarily broker-dealer commissions, marketing costs, and certain personnel and overhead costs. Since October 1, 2012, personnel and overhead costs have been charged to the CPA® REITs based on the trailing 12-month reported revenues of the CPA® REITs, CWI and us. We began to allocate personnel and overhead costs to CWI on January 1, 2014 based on the time incurred by our personnel. For 2014, we agreed to receive personnel cost reimbursements from CWI in shares of its common stock.

During CWI’s initial public offering, which was terminated in September 2013, we earned a selling commission of $0.70 per share sold and a dealer manager fee of $0.30 per share sold. We currently earn a selling commission of $0.70 per share sold and a dealer manager fee of $0.30 per share sold for CWI’s follow-on offering, which began in December 2013. We also earned a selling commission of $0.65 per share sold and a dealer manager fee of $0.35 per share sold during CPA®:17 – Global’s follow-on offering, which was terminated in January 2013.

For CPA®:18 – Global’s initial public offering, we receive selling commissions, depending on the class of common stock sold, of $0.70 or $0.14 per share sold, and a dealer manager fee of $0.30 or $0.21 per share sold, for its class A common stock and class C common stock, respectively. We also receive an annual distribution and shareholder servicing fee, or Shareholder Servicing Fee, paid in connection with investor purchases of shares of class C common stock. The amount of the Shareholder Servicing Fee is 1% of the purchase price per share (or, once reported, the amount of the estimated NAV per share) for the shares of class C common stock sold in the offering. The Shareholder Servicing Fee is accrued daily and is payable quarterly in arrears. CPA®:18 – Global will cease paying the Shareholder Servicing Fee on the date at which, in the aggregate, underwriting compensation from all sources, including the Shareholder Servicing Fee, any organizational and offering fee paid for underwriting, and underwriting compensation paid by us, equals 10% of the gross proceeds from the initial public offering.

We re-allow all of the selling commissions and may re-allow a portion of the dealer manager fees to selected dealers in the offerings for CWI and CPA®:18 – Global. Dealer manager fees that are not re-allowed and the Shareholder Servicing Fee are classified as Dealer manager fees in the consolidated financial statements.

Pursuant to its advisory agreement, CWI is obligated to reimburse us for all organization costs and a portion of offering costs incurred in connection with its initial and follow-on public offerings up to a maximum amount (excluding selling commissions


W. P. Carey 3/31/2014 10-Q – 14
 
Notes to Consolidated Financial Statements

and the dealer manager fee) of 2% and 4%, respectively, of the gross proceeds of its offering and distribution reinvestment plan. Through March 31, 2014, we incurred organization and offering costs on behalf of CWI of approximately $11.3 million, of which CWI is obligated to reimburse us $10.2 million, and $9.5 million had been reimbursed as of March 31, 2014.

Pursuant to its advisory agreement, CPA®:18 – Global is obligated to reimburse us for all organization costs and a portion of offering costs incurred in connection with its initial public offering. CPA®:18 – Global is obligated to reimburse us up to 4.0% of the gross proceeds of its offering if the gross proceeds are less than $500.0 million, 2% of the gross proceeds if the gross proceeds are $500.0 million or more but less than $750.0 million, and 1.5% of the gross proceeds if the gross proceeds are $750.0 million or more within 60 days after the end of the quarter in which the offering terminates. Through March 31, 2014, we incurred organization and offering costs on behalf of CPA®:18 – Global of approximately $5.9 million, and based on current fundraising projections, the entire amount is expected to be reimbursed by CPA®:18 – Global. As of March 31, 2014, $5.2 million had been reimbursed.
 
Distributions of Available Cash and Deferred Revenue Earned
 
We are entitled to receive distributions of our proportionate share of earnings up to 10% of the Available Cash from the operating partnerships of each of the Managed REITs, as defined in their respective operating partnership agreements. In May 2011, we acquired a special member interest, or the Special Member Interest, in CPA®:16 – Global’s operating partnership. We initially recorded this Special Member Interest at its fair value, and amortized it into earnings through the date of the CPA®:16 Merger. Cash distributions of our proportionate share of earnings from the Managed REITs’ operating partnerships as well as deferred revenue earned from our Special Member Interest in CPA®:16 – Global’s operating partnership are recorded as Income from equity investments in real estate and the Managed REITs within the Real Estate Ownership segment.

Other Transactions with Affiliates
 
Transactions with the Estate of Wm. Polk Carey
 
On March 28, 2013, we received an irrevocable notice from the Estate of Wm. Polk Carey, our chairman and founder who passed away on January 2, 2012, to exercise its final sale option under a Share Purchase Agreement that we entered into in July 2012. Accordingly, as the notice resulted in a fixed and determinable obligation at March 31, 2013, we reclassified $40.0 million from Redeemable securities – related party to Accounts payable, accrued expenses and other liabilities. On April 4, 2013, we repurchased 616,971 shares of our common stock for $40.0 million from the Estate at a price of $64.83 per share.
 
The following table presents a reconciliation of our Redeemable securities – related party (in thousands):
 
Three Months Ended March 31,
 
2014
 
2013
Beginning balance
$
—

 
$
40,000

Reclassification to a liability upon receipt of notice
—

 
(40,000
)
Ending balance
$
—

 
$
—

 
Loans to Managed REITs

During 2013, our board of directors approved unsecured loans from us to CWI and CPA®:18 – Global of up to $50.0 million and up to $100.0 million, respectively, each at a rate equal to the rate at which we are able to borrow funds under our senior credit facility (Note 12), for the purpose of facilitating acquisitions approved by their respective investment committees, that they would not otherwise have sufficient available funds to complete, with any loans to be made solely at our Management’s discretion. No such loans were provided for either the three months ended March 31, 2014 or 2013.
 
Treasury Stock

In February 2014, we repurchased 11,037 shares of our common stock for $0.7 million in cash from the former independent directors of CPA®:16 – Global at a price per share equal to the volume weighted average trading price. These shares were issued to them as Merger Consideration in exchange for their shares of CPA®:16 – Global common stock in the CPA®:16 Merger (Note 3) and were repurchased by agreement in order to satisfy the independence requirements set forth in the organizational documents of the remaining CPA® REITs, for which these individuals also serve as independent directors.



W. P. Carey 3/31/2014 10-Q – 15
 
Notes to Consolidated Financial Statements

Other

We own interests in entities ranging from 3% to 90%, as well as jointly-controlled tenancy-in-common interests in properties, with the remaining interests generally held by affiliates, and own common stock in each of the Managed REITs. We consolidate certain of these investments and account for the remainder under the equity method of accounting.

Note 5. Net Investments in Properties
 
Real Estate

Real estate, which consists of land and buildings leased to others, at cost, and which are subject to operating leases, and real estate under construction, is summarized as follows (in thousands):
 
March 31, 2014
 
December 31, 2013
Land
$
1,108,314

 
$
534,697

Buildings
3,368,684

 
1,972,107

Real estate under construction
10,930

 
9,521

Less: Accumulated depreciation
(191,666
)
 
(168,076
)
 
$
4,296,262

 
$
2,348,249

 
As discussed in Note 3, we acquired 226 properties subject to existing operating leases in the CPA®:16 Merger, which increased the carrying value of our real estate by $2.0 billion during the three months ended March 31, 2014. In connection with restructuring one of the leases, we reclassified properties with an aggregate carrying value of $6.2 million from Net investments in direct financing leases to Real estate during the three months ended March 31, 2014 (Note 6).

Acquisitions of Real Estate

During the three months ended March 31, 2014, we entered into a domestic investment for an office building, which was deemed to be a business combination because we assumed the existing lease on the property, at a total cost of $43.1 million, including land of $5.3 million, building of $27.6 million and net lease intangibles of $10.2 million (Note 9). In connection with this transaction, we expensed acquisition-related costs of $0.1 million, which are included in Merger and acquisition costs in the consolidated financial statements.

Real Estate Held for Sale

Below is a summary of our properties held for sale (in thousands):

 
March 31, 2014
 
December 31, 2013
Real estate, net
$
61,274

 
$
62,466

Above-market rent intangible assets, net
21,394

 
13,872

In-Place lease intangible assets, net
14,041

 
12,293

Below-market rent and other intangible liabilities, net
(1,500
)
 
(1,808
)
Assets held for sale
$
95,209

 
$
86,823

 
 
 
 
Non-recourse debt
$
(9,279
)
 
$
—

Liabilities associated with assets held for sale (a)
$
(9,279
)
 
$
—

___________
(a)
Amount is included in Non-recourse debt on the consolidated balance sheet.

At December 31, 2013, we had nine properties classified as Assets held for sale, six of which were sold during the three months ended March 31, 2014 and three remain as Assets held for sale at March 31, 2014. In connection with the CPA®:16 Merger in January 2014, we acquired nine properties that were classified as Assets held for sale with a total fair value of $133.0 million, three of which were sold during the three months ended March 31, 2014 and six remain as Assets held for sale at March 31,


W. P. Carey 3/31/2014 10-Q – 16
 
Notes to Consolidated Financial Statements

2014. The results of operations for these properties are reflected in the consolidated financial statements as discontinued operations (Note 16).

During the three months ended March 31, 2014, we also reclassified one property with a carrying value of $1.3 million to Assets held for sale. The result of operations for this property are included within continuing operations in the consolidated financial statements (Note 16).

Operating Real Estate
 
Operating real estate, which consists of our investments in two hotels acquired in the CPA®:16 Merger and two self-storage properties, at cost, is summarized as follows (in thousands): 
 
March 31, 2014
 
December 31, 2013
Land
$
7,027

 
$
1,097

Buildings
77,467

 
4,927

Less: Accumulated depreciation
(1,704
)
 
(882
)
 
$
82,790

 
$
5,142


Note 6. 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, notes receivable and deferred acquisition fees. Operating leases are not included in finance receivables as such amounts are not recognized as an asset in the consolidated balance sheets.
 
Net Investment in Direct Financing Leases
 
Net investment in direct financing leases is summarized as follows (in thousands):
 
March 31, 2014
 
December 31, 2013
Minimum lease payments receivable
$
1,045,464

 
$
466,182

Unguaranteed residual value
899,112

 
363,903

 
1,944,576

 
830,085

Less: unearned income
(1,046,241
)
 
(466,665
)
 
$
898,335

 
$
363,420

 
Interest income from direct financing leases, which was included in Lease revenues in the consolidated statements of income, was $17.2 million and $9.4 million for the three months ended March 31, 2014 and 2013, respectively. In connection with the CPA®:16 Merger in January 2014, we acquired 98 properties subject to direct financing leases with a total fair value of $538.6 million (Note 3). During the three months ended March 31, 2014, we reclassified $6.2 million of property from Net investment in direct financing leases to Real estate (Note 5) in connection with the restructuring of a lease. At March 31, 2014 and December 31, 2013, Other assets, net included $3.7 million and $0.1 million, respectively, of accounts receivable related to amounts billed under these direct financing leases.

Notes Receivable

At March 31, 2014, our notes receivable, which were included in Other assets, net on the consolidated balance sheet, consisted of the following:

•
A note we acquired in the CPA®:16 Merger with a fair value of $11.1 million, representing the expected future payments under a sales type lease; and
•
A B-note we acquired in the CPA®:16 Merger with a fair value of $9.9 million. This note has a fixed annual interest rate of 6.3% and a maturity date of February 11, 2015.



W. P. Carey 3/31/2014 10-Q – 17
 
Notes to Consolidated Financial Statements

Deferred Acquisition Fees Receivable
 
As described in Note 4, we earn revenue in connection with structuring and negotiating investments and related mortgage financing for the CPA® REITs. A portion of this revenue is due in equal annual installments over three years, provided the CPA® REITs meet their respective performance criteria. Unpaid deferred installments, including accrued interest, from the CPA® REITs were included in Due from affiliates in the consolidated financial statements.
 
Credit Quality of Finance Receivables
 
We generally seek investments in facilities that we believe are critical to a tenant’s business and that we believe have a low risk of tenant default. At both March 31, 2014 and December 31, 2013, none of the balances of our finance receivables were past due and we had not established any allowances for credit losses. There were no modifications of finance receivables during the three months ended March 31, 2014 or the year ended December 31, 2013. 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 first quarter of 2014. We believe the credit quality of our deferred acquisition fees receivable falls under category one, as the CPA® REITs are expected to have the available cash to make such payments.
 
A summary of our finance receivables by internal credit quality rating is as follows (dollars in thousands):
 
 
Number of Tenants
 
Net Investments in Direct Financing Leases at
Internal Credit Quality Indicator
 
March 31, 2014
 
December 31, 2013
 
March 31, 2014
 
December 31, 2013
1
 
4
 
3
 
$
86,345

 
$
42,812

2
 
3
 
3
 
27,753

 
27,869

3
 
22
 
8
 
642,838

 
284,968

4
 
7
 
1
 
141,399

 
7,771

5
 
—
 
—
 
—

 
—

 
 
 
 
 
 
$
898,335

 
$
363,420


A summary of our notes receivable by internal credit quality rating is as follows (dollars in thousands):
 
 
Number of Obligors at
 
Notes Receivable at
Internal Credit Quality Indicator
 
March 31, 2014
 
December 31, 2013
 
March 31, 2014
 
December 31, 2013
1
 
—
 
—
 
$
—

 
$
—

2
 
1
 
—
 
9,909

 
—

3
 
1
 
—
 
11,149

 
—

4
 
—
 
—
 
—

 
—

5
 
—
 
—
 
—

 
—

 
 
 
 
 
 
21,058

 
—


Note 7. Equity Investments in Real Estate and the Managed REITs
 
We own interests in certain unconsolidated real estate investments with the Managed REITs and also own interests in the Managed REITs. We account for our interests in these investments under the equity method of accounting (i.e., at cost, increased or decreased by our share of earnings or losses, less distributions, plus contributions and other adjustments required by equity method accounting, such as basis differences).
 
The following table presents net income from equity investments in real estate and the Managed REITs, which represents our proportionate share of the income or losses of these investments as well as certain adjustments related to other-than-temporary impairment charges and amortization of basis differences related to purchase accounting adjustments (in thousands):
 
Three Months Ended March 31,
 
2014
 
2013
Proportionate share of earnings from equity investments in the Managed REITs
$
782

 
$
1,441

Amortization of basis differences on equity investments in the Managed REITs
(390
)
 
(1,655
)
Other-than-temporary impairment charges on the Special Member Interest in
   CPA®:16 – Global’s operating partnership
(735
)
 
(2,684
)
Distributions of Available Cash (Note 4)
10,445

 
7,891

Deferred revenue earned (Note 4)
786

 
2,359

Total equity earnings from the Managed REITs
10,888

 
7,352

Equity earnings from other equity investments
3,956

 
4,857

Amortization of basis differences on other equity investments
(582
)
 
(1,553
)
Net income from equity investments in real estate and the Managed REITs
$
14,262

 
$
10,656

 
Managed REITs
 
We own interests in the Managed REITs and account for these interests under the equity method because, as their advisor and through our ownership of their common stock, we do not exert control over, but we do have the ability to exercise significant influence on, the Managed REITs.
 


W. P. Carey 3/31/2014 10-Q – 18
 
Notes to Consolidated Financial Statements

The following table sets forth certain information about our investments in the Managed REITs (dollars in thousands):
 
 
% of Outstanding Shares Owned at
 
Carrying Amount of Investment at
Fund
 
March 31, 2014
 
December 31, 2013
 
March 31, 2014 (a) (b)
 
December 31, 2013 (b)
CPA®:16 – Global (c)
 
100.000
%
 
18.533
%
 
$
—

 
$
282,520

CPA®:16 – Global operating partnership (d)
 
100.000
%
 
0.015
%
 
—

 
813

CPA®:17 – Global (e)
 
2.096
%
 
1.910
%
 
63,374

 
57,753

CPA®:17 – Global operating partnership (f)
 
0.009
%
 
0.009
%
 
—

 
—

CPA®:18 – Global
 
0.081
%
 
0.127
%
 
628

 
320

CPA®:18 – Global operating partnership (g)
 
0.034
%
 
0.034
%
 
209

 
209

CWI
 
0.734
%
 
0.538
%
 
4,659

 
3,369

CWI operating partnership (h)
 
0.015
%
 
0.015
%
 
—

 
—

 
 
 

 
 

 
$
68,870

 
$
344,984

___________
(a)
Includes asset management fees receivable, for which 232,160 shares, 15,328 class A shares and 31,463 shares of CPA®:17 – Global, CPA®:18 – Global and CWI, respectively, were issued during the second quarter of 2014.
(b)
At March 31, 2014 and December 31, 2013, the aggregate unamortized basis differences on our equity investments in the Management REITs were $13.0 million and $80.5 million, respectively.
(c)
On January 31, 2014, we acquired all the remaining interests in CPA®:16 – Global, which merged into one of our subsidiaries with our subsidiary as the surviving entity, in the CPA®:16 Merger (Note 3). We received distributions of $6.4 million and $6.2 million from this affiliate during January 2014 and the three months ended March 31, 2013, respectively.
(d)
During January 2014 and the three months ended March 31, 2013, we recognized other-than-temporary impairment charges of $0.7 million and $2.7 million, respectively, on this investment to reduce the carrying value of our interest in the investment to its estimated fair value (Note 10). In addition, we received distributions of $4.8 million and $3.6 million from this investment during January 2014 and the three months ended March 31, 2013, respectively. On January 31, 2014, we acquired the remaining interests in CPA®:16 – Global’s operating partnership and now consolidate this entity.
(e)
We received distributions of $1.0 million and $0.6 million from this affiliate during the three months ended March 31, 2014 and 2013, respectively.
(f)
We received distributions of $4.7 million and $4.3 million from this affiliate during the three months ended March 31, 2014, and 2013, respectively.
(g)
We received distributions of $0.1 million from this affiliate, which commenced operations in May 2013, during the three months ended March 31, 2014.
(h)
We received distributions of $0.9 million from this affiliate during the three months ended March 31, 2014.

The following tables present estimated combined summarized financial information for the Managed REITs. Certain prior year amounts have been retrospectively adjusted to reflect the impact of discontinued operations. Amounts provided are expected total amounts attributable to the Managed REITs and do not represent our proportionate share (in thousands):
 
March 31, 2014
 
December 31, 2013
Real estate, net
$
4,992,873

 
$
7,218,177

Other assets
1,793,842

 
2,128,862

Total assets
6,786,715

 
9,347,039

Debt
(2,759,763
)
 
(4,237,044
)
Accounts payable, accrued expenses, and other liabilities
(412,277
)
 
(571,097
)
Total liabilities
(3,172,040
)
 
(4,808,141
)
Noncontrolling interests
(210,726
)
 
(192,492
)
Stockholders’ equity
$
3,403,949

 
$
4,346,406



W. P. Carey 3/31/2014 10-Q – 19
 
Notes to Consolidated Financial Statements

 
 
Three Months Ended March 31,
 
2014
 
2013
Revenues
$
193,830

 
$
178,685

Expenses
(196,845
)
 
(171,253
)
Income from continuing operations
$
(3,015
)
 
$
7,432

Net income attributable to the Managed REITs (a) (b)
$
(3,015
)
 
$
10,352

 ___________
(a)
Inclusive of impairment charges recognized by the Managed REITs totaling $9.3 million during the three months ended March 31, 2013. These impairment charges reduced our income earned from these investments by approximately $1.7 million during the three months ended March 31, 2013. There were no such impairment charges recognized by the Managed REITs during the three months ended March 31, 2014.
(b)
Amounts included net gains on sale of real estate recorded by the Managed REITs totaling $2.7 million during the three months ended March 31, 2013. There were no such gains or losses recorded by the Managed REITs during the three months ended March 31, 2014.
 
Interests in Other Unconsolidated Real Estate Investments

We own equity interests in single-tenant net-leased properties that are generally leased to companies through noncontrolling interests (i) in partnerships and limited liability companies that we do not control but over which we exercise significant influence or (ii) as tenants-in-common subject to common control. Generally, the underlying investments are jointly-owned with affiliates. We account for these investments under the equity method of accounting. Earnings for each investment are recognized in accordance with each respective investment agreement. Investments in unconsolidated investments are required to be evaluated periodically. 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.



W. P. Carey 3/31/2014 10-Q – 20
 
Notes to Consolidated Financial Statements

The following table sets forth our ownership interests in our equity investments in real estate, excluding the Managed REITs, and their respective carrying values (dollars in thousands):
 
 
 
 
Ownership Interest
 
Carrying Value at
Lessee
 
Co-owner(s)
 
at March 31, 2014
 
March 31, 2014
 
December 31, 2013
Same Store Equity Investments (a) (b):
 
 
 
 
 
 
 
 
C1000 Logistiek Vastgoed B.V. (c) 
 
CPA®:17 – Global
 
15%
 
$
13,813

 
$
13,673

Waldaschaff Automotive GmbH and Wagon Automotive Nagold GmbH
 
CPA®:17 – Global
 
33%
 
7,503

 
7,267

Wanbishi Archives Co. Ltd.
 
CPA®:17 – Global
 
3%
 
382

 
395

 
 
 
 
 
 
21,698

 
21,335

Equity Investments Consolidated after the CPA®:16 Merger (d): 
 
 
 
 
 
 
Schuler A.G. (a) 
 
CPA®:16 – Global
 
100%
 
—

 
65,798

Hellweg Die Profi-Baumärkte GmbH 
& Co. KG (Hellweg 2) (a)
 
CPA®:16 – Global/ CPA®:17 – Global
 
63%
 
—

 
27,923

Advanced Micro Devices
 
CPA®:16 – Global
 
100%
 
—

 
22,392

The Upper Deck Company
 
CPA®:16 – Global
 
100%
 
—

 
7,518

Del Monte Corporation
 
CPA®:16 – Global
 
100%
 
—

 
7,145

Builders FirstSource, Inc.
 
CPA®:16 – Global
 
100%
 
—

 
4,968

PetSmart, Inc.
 
CPA®:16 – Global
 
100%
 
—

 
3,877

Consolidated Systems, Inc.
 
CPA®:16 – Global
 
100%
 
—

 
3,176

SaarOTEC (a) 
 
CPA®:16 – Global
 
100%
 
—

 
(639
)
 
 
 
 
 
 
—

 
142,158

Equity Investments Acquired in the CPA®:16 Merger
The New York Times Company (e)
 
CPA®:16 – Global/
CPA®:17 – Global
 
45%
 
73,793

 
21,543

Frontier Spinning Mills, Inc.
 
CPA®:17 – Global
 
40%
 
15,516

 
—

Actebis Peacock GmbH (a)
 
CPA®:17 – Global
 
30%
 
7,088

 
—







96,397


21,543

 
 
 
 
 
 
$
118,095

 
$
185,036

___________
(a)
The carrying value of this investment is affected by the impact of fluctuations in the exchange rate of the foreign currency.
(b)
Represents equity investments we acquired prior to January 1, 2013.
(c)
This investment represents a tenancy-in-common interest, whereby the property is encumbered by the debt for which we are jointly and severally liable. For this investment, the co-obligor is CPA®:17 – Global and the amount due under the arrangement was approximately $95.0 million at March 31, 2014. Of this amount, $14.3 million represents the amount we agreed to pay and is included within the carrying value of the investment at March 31, 2014.
(d)
We acquired the remaining interests in these investments from CPA®:16 – Global in the CPA®:16 Merger. Subsequent to the CPA®:16 Merger, we consolidate these wholly-owned or majority-owned investments (Note 3).
(e)
We acquired an additional 27% interest in this investment from CPA®:16 – Global in the CPA®:16 Merger.

We received aggregate distributions of $2.3 million and $4.0 million from our other unconsolidated real estate investments for the three months ended March 31, 2014 and 2013, respectively. At March 31, 2014 and December 31, 2013, the aggregate unamortized basis differences on our unconsolidated real estate investments were $5.9 million and $16.6 million, respectively.



W. P. Carey 3/31/2014 10-Q – 21
 
Notes to Consolidated Financial Statements

Note 8. Cash Flow Information

Supplemental Non-cash Investing and Financing Activities:

A summary of our non-cash investing and financing activities for the periods presented is as follows (in thousands):
 
Three Months Ended March 31,
 
2014
 
2013
Reclassification out of Net investments in direct financing leases
$
(6,184
)
 
$
(5,586
)
Reclassification to Real estate, net
6,184

 
5,586

Reclassification out of Real estate, net
(1,347
)
 
(1,505
)
Reclassification to Assets held for sale
1,347

 
1,505

First quarter distributions declared
90,079

 
57,128


2014 — On January 31, 2014, CPA®:16 – Global merged with and into us in the CPA®:16 Merger (Note 3). The following table summarizes estimated fair values of the assets acquired and liabilities assumed in the CPA®:16 Merger (in thousands):
Total Consideration
 

Fair value of W. P. Carey shares of common shares issued
$
1,815,521

Cash consideration for fractional shares
1,338

Fair value of our equity interest in CPA®:16 – Global prior to the CPA®:16 Merger
347,164

Fair value of our equity interest in jointly-owned investments with CPA®:16 – Global prior to the CPA®:16 Merger
172,720

Fair value of noncontrolling interests acquired
(278,829
)
 
2,057,914

Assets Acquired at Fair Value
 
Net investments in real estate
1,969,274

Net investments in direct financing leases
538,607

Equity investments in real estate
74,367

Assets held for sale
132,951

Goodwill
348,972

In-place lease intangible assets
553,479

Above-market rent intangible assets
395,663

Other assets
82,032

Liabilities Assumed at Fair Value
 
Non-recourse debt and line of credit
(1,768,288
)
Accounts payable, accrued expenses and other liabilities
(118,389
)
Below-market rent and other intangible liabilities
(57,209
)
Deferred tax liability
(59,629
)
Amounts attributable to noncontrolling interests
(99,345
)
Net assets acquired excluding cash
1,992,485

Cash acquired on acquisition of subsidiaries
$
65,429


Note 9. Goodwill and Other Intangibles

In connection with our acquisitions of properties, we have recorded net lease intangibles that are being amortized over periods ranging from one to 40 years. In addition, we have several ground leases that are being amortized over periods up to 134 years. In-place lease and above-market rent are included in In-place lease intangible assets, net and Above-market rent intangible assets, net, respectively, in the consolidated balance sheets. Tenant relationship, below-market ground lease (as lessee), trade name, management contracts and software license intangibles are included in Other assets, net in the consolidated balance sheets. Below-market rent, above-market ground lease (as lessee), and below-market purchase option intangibles are included in Accounts payable, accrued expenses and other liabilities in the consolidated balance sheets.


W. P. Carey 3/31/2014 10-Q – 22
 
Notes to Consolidated Financial Statements


In connection with our investment activity during the three months ended March 31, 2014, including primarily the properties we acquired through the CPA®:16 Merger, we recorded net lease intangibles comprised as follows (life in years, dollars in thousands):
 
Weighted-Average
Life
 
Amount
Amortizable Intangible Assets
 
 
 

In-place lease
12.2
 
$
564,198

Above-market rent
12.3
 
395,663

Below-market ground lease
62.7
 
14,397

 
 
 
$
974,258

 
 
 
 
Amortizable Intangible Liabilities
 
 
 

Below-market rent
18.4
 
$