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 nine months ended September 30, 2014.

The total compensation expense (net of forfeitures) for awards issued under these plans was $8.0 million and $7.9 million for the three months ended September 30, 2014 and 2013, respectively, and $23.0 million and $25.4 million for the nine months ended September 30, 2014 and 2013, respectively, which is included in Stock-based compensation expense in the consolidated financial statements. The tax benefit recognized by us related to these awards were $17.3 million and $16.0 million for the nine months ended September 30, 2014 and 2013, respectively. There was no such tax benefit recognized by us during either the three months ended September 30, 2014 or 2013.

Restricted and Conditional Awards

Nonvested restricted stock awards, or RSAs, restricted share units, or RSUs, and performance share units, or PSUs, at September 30, 2014 and changes during the nine months ended September 30, 2014 were as follows:



	RSA and RSU Awards				PSU Awards
	Shares		Weighted-Average Grant Date Fair Value		Shares		Weighted-Average Grant Date Fair Value
Nonvested at January 1, 2014	519,608		$	45.19	1,220,720		$	28.28
Granted ^(a)	179,621		60.71		89,653		76.05
Vested ^(b)	(264,726	)	43.35		(881,388	)	15.04
Forfeited	(667	)	68.05		—		—
Adjustment ^(c)	—		—		448,811		55.91
Nonvested at September 30, 2014 ^(d)	433,836		$	52.71	877,796		$	32.06

__________

(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 the three-year performance period. To estimate the fair value of PSUs granted during the nine months ended September 30, 2014, we used a risk-free interest rate of 0.65% and an expected volatility rate of 25.89% (the plan defined peer index assumes 21.77%) and assumed a dividend yield of zero.

(b)

The total fair value of shares vested during the nine months ended September 30, 2014 was $24.7 million. Employees have the option to take immediate delivery of the shares upon vesting or defer receipt to a future date, pursuant to previously-made deferral elections. At September 30, 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 $30.6 million.

(c)

Vesting and payment of the PSUs is conditioned upon 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, which were paid out in February 2014, we adjusted the shares during the three months ended March 31, 2014 to reflect the actual number of shares issued. During the three months ended June 30, 2014 and September 30, 2014, we also adjusted the number of PSUs expected to vest based on updated forecasted performance targets. There was no impact on our consolidated financial statements related to these adjustments, as the initial fair value of our PSUs factored in the variability associated with the performance features of these awards.


(d)	At September 30, 2014, total unrecognized compensation expense related to these awards was approximately $31.4 million, with an aggregate weighted-average remaining term of 1.67 years.

During the nine months ended September 30, 2014, 93,745 stock options were exercised with an aggregate intrinsic value of $3.2 million. At September 30, 2014, there were 525,035 stock options outstanding, of which 453,324 were exercisable.

Public Offering

In September 2014, we completed a public offering of 4,600,000 shares of our common stock, $0.001 par value per share, at a price of $64.00 per share, or the Offering, which includes the full exercise of the underwriters’ option to purchase an additional 600,000 shares of our common stock. The net proceeds of $282.2 million from the Offering were intended to repay certain indebtedness, including amounts outstanding under our Senior Unsecured Credit Facility, to fund potential future acquisitions and for general corporate purposes. As described in Note 17, in October 2014, we utilized $225.8 million of the net proceeds from the Offering to pay down a portion of the amount outstanding under the Revolver.

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 and such unvested shares in the denominator. The following table summarizes basic and diluted earnings (in thousands, except share amounts):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Net income attributable to W. P. Carey	$	27,337		$	18,506		$	206,252		$	75,854
Allocation of distribution equivalents paid on unvested RSUs and RSAs in excess of income	(113		)	(139		)	(849		)	(570		)
Net income – basic	27,224			18,367			205,403			75,284
Income (loss) effect of dilutive securities, net of taxes	(8		)	128			74			77
Net income – diluted	$	27,216		$	18,495		$	205,477		$	75,361

Weighted-average shares outstanding – basic	100,282,082			68,397,176			96,690,675			68,719,264
Effect of dilutive securities	848,366			1,003,649			1,038,306			1,127,056
Weighted-average shares outstanding – diluted	101,130,448			69,400,825			97,728,981			69,846,320

Securities totaling 105,920 shares associated with the Redeemable noncontrolling interest were excluded from the earnings per share computation above as their effect would have been anti-dilutive for the three months ended September 30, 2013. There were no such anti-dilutive securities for the three months ended September 30, 2014 and nine months ended September 30, 2014 and 2013.

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 pursuant to a put option held by the third party. 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 and the amount of $6.3 million recorded represents our best estimate of the fair value of that interest.

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



	Nine Months Ended September 30,
	2014			2013
Beginning balance	$	7,436		$	7,531
Redemption value adjustment	(306		)	—
Net income	137			139
Distributions	(926		)	(354		)
Change in other comprehensive income	5			—
Ending balance	$	6,346		$	7,316

Transfers to Noncontrolling Interests

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



	Nine Months Ended September 30,
	2014			2013
Net income attributable to W. P. Carey	$	206,252		$	75,854
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 ^(a)	(41,374		)	—
Net transfers to noncontrolling interest	(41,374		)	—
Change from net income attributable to W. P. Carey and transfers to noncontrolling interest	$	164,878		$	75,854

__________


(a)	During the second quarter of 2014, we identified certain measurement period adjustments that impacted the provisional accounting of the CPA^®:16 Merger, which increased the fair value of our previously-held noncontrolling interests on the acquisition date by $0.6 million, resulting in a reduction of $0.6 million to additional paid-in-capital.

Reclassifications Out of Accumulated Other Comprehensive (Loss) Income

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



	Three Months Ended September 30, 2014
	Gains and Losses on Derivative Instruments			Foreign Currency Translation Adjustments			Gains and Losses on Marketable Securities			Total
Beginning balance	$	(12,052	)	$	26,224		$	43		$	14,215
Other comprehensive income (loss) before reclassifications	15,725			(55,096		)	(12		)	(39,383		)
Amounts reclassified from accumulated other comprehensive income (loss) to:
Interest expense	661			—			—			661
Other income and (expenses)	(337		)	—			—			(337		)
Net income from equity investments in real estate and the Managed REITs	102			—			—			102
Total	426			—			—			426
Net current period other comprehensive income (loss)	16,151			(55,096		)	(12		)	(38,957		)
Net current period other comprehensive loss attributable to noncontrolling interests and redeemable noncontrolling interest	—			3,471			—			3,471
Ending balance	$	4,099		$	(25,401	)	$	31		$	(21,271	)



	Three Months Ended September 30, 2013
	Gains and Losses on Derivative Instruments			Foreign Currency Translation Adjustments			Gains and Losses on Marketable Securities		Total
Beginning balance	$	(2,253	)	$	(762	)	$	31	$	(2,984	)
Other comprehensive (loss) income before reclassifications	(4,711		)	17,675			—		12,964
Amounts reclassified from accumulated other comprehensive income (loss) to:
Interest expense	436			—			—		436
Other income and (expenses)	206			—			—		206
Net income from equity investments in real estate and the Managed REITs	56			—			—		56
Total	698			—			—		698
Net current period other comprehensive (loss) income	(4,013		)	17,675			—		13,662
Net current period other comprehensive (income) loss attributable to noncontrolling interests and redeemable noncontrolling interest	—			(2,052		)	—		(2,052		)
Ending balance	$	(6,266	)	$	14,861		$	31	$	8,626



	Nine Months Ended September 30, 2014
	Gains and Losses on Derivative Instruments			Foreign Currency Translation Adjustments			Gains and Losses on Marketable Securities		Total
Beginning balance	$	(7,488	)	$	22,793		$	31	$	15,336
Other comprehensive income (loss) before reclassifications	8,696			(52,140		)	—		(43,444		)
Amounts reclassified from accumulated other comprehensive income (loss) to:
Interest expense	2,024			—			—		2,024
Other income and (expenses)	487			—			—		487
Net income from equity investments in real estate and the Managed REITs	380			—			—		380
Total	2,891			—			—		2,891
Net current period other comprehensive income (loss)	11,587			(52,140		)	—		(40,553		)
Net current period other comprehensive loss attributable to noncontrolling interests and redeemable noncontrolling interest	—			3,946			—		3,946
Ending balance	$	4,099		$	(25,401	)	$	31	$	(21,271	)



	Nine Months Ended September 30, 2013
	Gains and Losses on Derivative Instruments			Foreign Currency Translation Adjustments			Gains and Losses on Marketable Securities		Total
Beginning balance	$	(7,508	)	$	2,828		$	31	$	(4,649	)
Other comprehensive (loss) income before reclassifications	(727		)	13,017			—		12,290
Amounts reclassified from accumulated other comprehensive income (loss) to:
Interest expense	1,311			—			—		1,311
Other income and (expenses)	182			—			—		182
Net income from equity investments in real estate and the Managed REITs	476			—			—		476
Total	1,969			—			—		1,969
Net current period other comprehensive income	1,242			13,017			—		14,259
Net current period other comprehensive (income) loss attributable to noncontrolling interests and redeemable noncontrolling interest	—			(984		)	—		(984		)
Ending balance	$	(6,266	)	$	14,861		$	31	$	8,626

Distributions Declared

During the third quarter of 2014, we declared a quarterly distribution of $0.94 per share, which was paid on October 15, 2014 to stockholders of record on September 30, 2014.