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 September 30, 2015
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 104,403,517 shares of common stock, $0.001 par value, outstanding at October 30, 2015.
INDEX
|
| | |
PART I − FINANCIAL INFORMATION | |
Item 1. Financial Statements (Unaudited) | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| |
| |
| |
PART II − OTHER INFORMATION | |
| |
| |
| |
|
| |
| W. P. Carey 9/30/2015 10-Q – 1 |
Forward-Looking Statements
This Quarterly Report on Form 10-Q, or this Report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, 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. These forward-looking statements include, but are not limited to, statements regarding a potential separation, including the timing and potential benefits thereof and whether any such separation will be completed, capital markets, tenant credit quality, general economic overview, our expected range of Adjusted funds from operations, or AFFO, our corporate strategy, our capital structure, our portfolio lease terms, our international exposure and acquisition volume, our expectations about tenant bankruptcies and interest coverage, statements regarding estimated or future economic performance and results, including our underlying assumptions, occupancy rate, credit ratings, and possible new acquisitions by us and our investment management programs, the Managed Programs discussed herein, including their earnings, statements that we make regarding our ability to remain qualified for taxation as a real estate investment trust, or REIT, the amount and timing of any future dividends, our existing or future leverage and debt service obligations, our ability to sell shares under our “at the market” program and the use of any such proceeds from that program, our future prospects for growth, our projected assets under management, our future capital expenditure levels, our historical and anticipated funds from operations, our future financing transactions, our estimates of growth, and our plans to fund our future liquidity needs. These statements are based on the current expectations of our management. It is important to note that our actual results could be materially different from those projected in such forward-looking statements. There are a number of risks and uncertainties that could cause actual results to differ materially from these forward-looking statements. Other unknown or unpredictable factors could also have material adverse effects on our business, financial condition, liquidity, results of operations, AFFO, and prospects, or the business, financial condition, liquidity, results of operations, AFFO, and prospects of any entities resulting from the potential separation transactions. 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 that could impact actual results and cause them to differ from what is anticipated in the forward-looking statements contained herein is included in this Report as well as in our other filings with the Securities and Exchange Commission, or the SEC, including but not limited to those described in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2014, as filed with the SEC on March 2, 2015, as amended by a Form 10-K/A filed with the SEC on March 17, 2015, or the 2014 Annual Report, and Part II, Item 1A “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 as filed with the SEC on May 18, 2015. Moreover, because we operate in a very competitive and rapidly changing environment, new risks are likely to emerge from time to time. Given these risks and uncertainties, potential investors are cautioned not to place undue reliance on these forward-looking statements as a prediction of future results, which speak only as of the date of this Report, unless noted otherwise. Except as required by federal securities laws and the rules and regulations of the SEC, we do not undertake to revise or update any forward-looking statements.
All references to “Notes” throughout the document refer to the footnotes to the consolidated financial statements of the registrant in Part I, Item 1. Financial Statements (Unaudited).
|
| |
| W. P. Carey 9/30/2015 10-Q – 2 |
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
W. P. CAREY INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share and per share amounts)
|
| | | | | | | |
| September 30, 2015 | | December 31, 2014 |
Assets | | | |
Investments in real estate: | | | |
Real estate, at cost (inclusive of $183,818 and $184,417, respectively, attributable to variable interest entities, or VIEs) | $ | 5,297,782 |
| | $ | 5,006,682 |
|
Operating real estate, at cost (inclusive of $38,714 and $38,714, respectively, attributable to VIEs) | 82,648 |
| | 84,885 |
|
Accumulated depreciation (inclusive of $25,350 and $19,982, respectively, attributable to VIEs) | (351,666 | ) | | (258,493 | ) |
Net investments in properties | 5,028,764 |
| | 4,833,074 |
|
Net investments in direct financing leases (inclusive of $59,800 and $61,609, respectively, attributable to VIEs) | 780,239 |
| | 816,226 |
|
Assets held for sale | 4,863 |
| | 7,255 |
|
Net investments in real estate | 5,813,866 |
| | 5,656,555 |
|
Cash and cash equivalents (inclusive of $1,300 and $2,652, respectively, attributable to VIEs) | 191,318 |
| | 198,683 |
|
Equity investments in the Managed Programs and real estate | 275,883 |
| | 249,403 |
|
Due from affiliates | 147,700 |
| | 34,477 |
|
In-place lease and tenant relationship intangible assets, net (inclusive of $18,706 and $21,267, respectively, attributable to VIEs) | 928,962 |
| | 993,819 |
|
Goodwill | 684,576 |
| | 692,415 |
|
Above-market rent intangible assets, net (inclusive of $12,292 and $13,767, respectively, attributable to VIEs) | 492,754 |
| | 522,797 |
|
Other assets, net (inclusive of $18,905 and $18,603, respectively, attributable to VIEs) | 353,369 |
| | 300,330 |
|
Total assets | $ | 8,888,428 |
| | $ | 8,648,479 |
|
Liabilities and Equity | | | |
Liabilities: | | | |
Non-recourse debt, net (inclusive of $121,634 and $125,226, respectively, attributable to VIEs) | $ | 2,412,612 |
| | $ | 2,532,683 |
|
Senior Unsecured Notes, net | 1,502,007 |
| | 498,345 |
|
Senior Unsecured Credit Facility - Revolver | 435,489 |
| | 807,518 |
|
Senior Unsecured Credit Facility - Term Loan | 250,000 |
| | 250,000 |
|
Accounts payable, accrued expenses and other liabilities (inclusive of $4,768 and $5,573, respectively, attributable to VIEs) | 298,514 |
| | 293,846 |
|
Below-market rent and other intangible liabilities, net (inclusive of $8,715 and $9,305, respectively, attributable to VIEs) | 165,647 |
| | 175,070 |
|
Deferred income taxes (inclusive of $544 and $587, respectively, attributable to VIEs) | 87,570 |
| | 94,133 |
|
Distributions payable | 101,645 |
| | 100,078 |
|
Total liabilities | 5,253,484 |
| | 4,751,673 |
|
Redeemable noncontrolling interest | 14,622 |
| | 6,071 |
|
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; 105,446,627 and 105,085,069 shares issued, respectively; and 104,402,211 and 104,040,653 shares outstanding, respectively | 105 |
| | 105 |
|
Additional paid-in capital | 4,300,859 |
| | 4,322,273 |
|
Distributions in excess of accumulated earnings | (655,095 | ) | | (465,606 | ) |
Deferred compensation obligation | 57,395 |
| | 30,624 |
|
Accumulated other comprehensive loss | (156,669 | ) | | (75,559 | ) |
Less: treasury stock at cost, 1,044,416 shares | (60,948 | ) | | (60,948 | ) |
Total W. P. Carey stockholders’ equity | 3,485,647 |
| | 3,750,889 |
|
Noncontrolling interests | 134,675 |
| | 139,846 |
|
Total equity | 3,620,322 |
| | 3,890,735 |
|
Total liabilities and equity | $ | 8,888,428 |
| | $ | 8,648,479 |
|
See Notes to Consolidated Financial Statements.
|
| |
| W. P. Carey 9/30/2015 10-Q – 3 |
W. P. CAREY INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except share and per share amounts)
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2015 | | 2014 | | 2015 | | 2014 |
Revenues | | | | | | | |
Real estate revenues: | | | | | | | |
Lease revenues | $ | 164,741 |
| | $ | 149,243 |
| | $ | 487,480 |
| | $ | 420,563 |
|
Operating property revenues | 8,107 |
| | 8,344 |
| | 23,645 |
| | 21,586 |
|
Reimbursable tenant costs | 5,340 |
| | 6,271 |
| | 17,409 |
| | 18,034 |
|
Lease termination income and other | 2,988 |
| | 1,415 |
| | 9,319 |
| | 17,590 |
|
| 181,176 |
| | 165,273 |
| | 537,853 |
| | 477,773 |
|
Revenues from the Managed Programs: | | | | | | | |
Asset management revenue | 13,004 |
| | 9,088 |
| | 36,236 |
| | 27,910 |
|
Reimbursable costs | 11,155 |
| | 14,722 |
| | 28,401 |
| | 96,379 |
|
Structuring revenue | 8,207 |
| | 5,487 |
| | 67,735 |
| | 40,492 |
|
Dealer manager fees | 1,124 |
| | 2,436 |
| | 2,704 |
| | 17,062 |
|
Incentive revenue | — |
| | — |
| | 203 |
| | — |
|
| 33,490 |
| | 31,733 |
| | 135,279 |
| | 181,843 |
|
| 214,666 |
| | 197,006 |
| | 673,132 |
| | 659,616 |
|
Operating Expenses | | | | | | | |
Depreciation and amortization | 75,512 |
| | 59,524 |
| | 206,079 |
| | 175,642 |
|
General and administrative | 22,842 |
| | 20,261 |
| | 78,987 |
| | 62,066 |
|
Impairment charges | 19,438 |
| | 4,225 |
| | 22,711 |
| | 6,291 |
|
Reimbursable tenant and affiliate costs | 16,495 |
| | 20,993 |
| | 45,810 |
| | 114,413 |
|
Property expenses, excluding reimbursable tenant costs | 11,120 |
| | 10,346 |
| | 31,504 |
| | 29,976 |
|
Merger, property acquisition, and other expenses | 4,760 |
| | 618 |
| | 12,333 |
| | 31,369 |
|
Stock-based compensation expense | 3,966 |
| | 7,979 |
| | 16,063 |
| | 22,979 |
|
Dealer manager fees and expenses | 3,185 |
| | 3,847 |
| | 7,884 |
| | 15,557 |
|
Subadvisor fees | 1,748 |
| | 381 |
| | 8,555 |
| | 2,850 |
|
| 159,066 |
| | 128,174 |
| | 429,926 |
| | 461,143 |
|
Other Income and Expenses | | | | | | | |
Interest expense | (49,683 | ) | | (46,534 | ) | | (145,325 | ) | | (133,342 | ) |
Equity in earnings of equity method investments in the Managed Programs and real estate | 12,635 |
| | 11,610 |
| | 38,630 |
| | 35,324 |
|
Other income and (expenses) | 6,608 |
| | (5,141 | ) | | 9,944 |
| | (12,158 | ) |
Gain on change in control of interests | — |
| | — |
| | — |
| | 105,947 |
|
| (30,440 | ) | | (40,065 | ) | | (96,751 | ) | | (4,229 | ) |
Income from continuing operations before income taxes and gain (loss) on sale of real estate | 25,160 |
| | 28,767 |
| | 146,455 |
| | 194,244 |
|
Provision for income taxes | (3,361 | ) | | (901 | ) | | (20,352 | ) | | (11,175 | ) |
Income from continuing operations before gain (loss) on sale of real estate | 21,799 |
| | 27,866 |
| | 126,103 |
| | 183,069 |
|
Income from discontinued operations, net of tax | — |
| | 190 |
| | — |
| | 33,018 |
|
Gain (loss) on sale of real estate, net of tax | 1,779 |
| | 260 |
| | 2,980 |
| | (3,482 | ) |
Net Income | 23,578 |
| | 28,316 |
| | 129,083 |
| | 212,605 |
|
Net income attributable to noncontrolling interests | (1,833 | ) | | (993 | ) | | (7,874 | ) | | (4,914 | ) |
Net loss (income) attributable to redeemable noncontrolling interest | — |
| | 14 |
| | — |
| | (137 | ) |
Net Income Attributable to W. P. Carey | $ | 21,745 |
| | $ | 27,337 |
| | $ | 121,209 |
| | $ | 207,554 |
|
Basic Earnings Per Share | | | | | | | |
Income from continuing operations attributable to W. P. Carey | $ | 0.20 |
| | $ | 0.27 |
| | $ | 1.14 |
| | $ | 1.80 |
|
Income from discontinued operations attributable to W. P. Carey | — |
| | — |
| | — |
| | 0.34 |
|
Net Income Attributable to W. P. Carey | $ | 0.20 |
| | $ | 0.27 |
| | $ | 1.14 |
| | $ | 2.14 |
|
Diluted Earnings Per Share | | | | | | | |
Income from continuing operations attributable to W. P. Carey | $ | 0.20 |
| | $ | 0.27 |
| | $ | 1.13 |
| | $ | 1.78 |
|
Income from discontinued operations attributable to W. P. Carey | — |
| | — |
| | — |
| | 0.34 |
|
Net Income Attributable to W. P. Carey | $ | 0.20 |
| | $ | 0.27 |
| | $ | 1.13 |
| | $ | 2.12 |
|
Weighted-Average Shares Outstanding | | | | | | | |
Basic | 105,813,237 |
| | 100,282,082 |
| | 105,627,423 |
| | 96,690,675 |
|
Diluted | 106,337,040 |
| | 101,130,448 |
| | 106,457,495 |
| | 97,728,981 |
|
Amounts Attributable to W. P. Carey | | | | | | | |
Income from continuing operations, net of tax | $ | 21,745 |
| | $ | 27,151 |
| | $ | 121,209 |
| | $ | 174,362 |
|
Income from discontinued operations, net of tax | — |
| | 186 |
| | — |
| | 33,192 |
|
Net Income | $ | 21,745 |
| | $ | 27,337 |
| | $ | 121,209 |
| | $ | 207,554 |
|
Distributions Declared Per Share | $ | 0.9550 |
| | $ | 0.9400 |
| | $ | 2.8615 |
| | $ | 2.7350 |
|
See Notes to Consolidated Financial Statements.
|
| |
| W. P. Carey 9/30/2015 10-Q – 4 |
W. P. CAREY INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (UNAUDITED)
(in thousands)
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2015 | | 2014 | | 2015 | | 2014 |
Net Income | $ | 23,578 |
| | $ | 28,316 |
| | $ | 129,083 |
| | $ | 212,605 |
|
Other Comprehensive Loss | | | | | | | |
Foreign currency translation adjustments | (37,138 | ) | | (55,096 | ) | | (103,127 | ) | | (52,140 | ) |
Realized and unrealized gain on derivative instruments | 1,289 |
| | 16,151 |
| | 18,488 |
| | 11,587 |
|
Change in unrealized (loss) gain on marketable securities | — |
| | (12 | ) | | 14 |
| | — |
|
| (35,849 | ) | | (38,957 | ) | | (84,625 | ) | | (40,553 | ) |
Comprehensive (Loss) Income | (12,271 | ) | | (10,641 | ) | | 44,458 |
| | 172,052 |
|
| | | | | | | |
Amounts Attributable to Noncontrolling Interests | | | | | | | |
Net income | (1,833 | ) | | (993 | ) | | (7,874 | ) | | (4,914 | ) |
Foreign currency translation adjustments | (43 | ) | | 3,504 |
| | 3,515 |
| | 3,951 |
|
Comprehensive (income) loss attributable to noncontrolling interests | (1,876 | ) | | 2,511 |
| | (4,359 | ) | | (963 | ) |
Amounts Attributable to Redeemable Noncontrolling Interest | | | | | | | |
Net loss (income) | — |
| | 14 |
| | — |
| | (137 | ) |
Foreign currency translation adjustments | — |
| | (32 | ) | | — |
| | (5 | ) |
Comprehensive income attributable to redeemable noncontrolling interest | — |
| | (18 | ) | | — |
| | (142 | ) |
Comprehensive (Loss) Income Attributable to W. P. Carey | $ | (14,147 | ) | | $ | (8,148 | ) | | $ | 40,099 |
| | $ | 170,947 |
|
See Notes to Consolidated Financial Statements.
|
| |
| W. P. Carey 9/30/2015 10-Q – 5 |
W. P. CAREY INC.
CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
Nine Months Ended September 30, 2015
(in thousands, except share and per share amounts)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| W. P. Carey Stockholders | | | | |
| | | | | | | Distributions | | | | Accumulated | | | | | | | | |
| Common Stock | | 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 | | (Loss) Income | | Stock | | Stockholders | | Interests | | Total |
Balance at January 1, 2015 | 104,040,653 |
| | $ | 105 |
| | $ | 4,322,273 |
| | $ | (465,606 | ) | | $ | 30,624 |
| | $ | (75,559 | ) | | $ | (60,948 | ) | | $ | 3,750,889 |
| | $ | 139,846 |
| | $ | 3,890,735 |
|
Contributions from noncontrolling interests | | | | | | | | | | | | | | | — |
| | 586 |
| | 586 |
|
Exercise of stock options and employee purchases under the employee share purchase plan | 8,738 |
| | — |
| | 360 |
| | | | | | | | | | 360 |
| | | | 360 |
|
Grants issued in connection with services rendered | 308,146 |
| | — |
| | (14,695 | ) | | | | | | | | | | (14,695 | ) | | | | (14,695 | ) |
Shares issued under share incentive plans | 44,674 |
| | — |
| | (1,748 | ) | | | | | | | | | | (1,748 | ) | | | | (1,748 | ) |
Deferral of vested shares | | | | | (24,935 | ) | | | | 24,935 |
| | | | | | — |
| | | | — |
|
Windfall tax benefits - share incentive plans | | | | | 7,028 |
| | | | | | | | | | 7,028 |
| | | | 7,028 |
|
Amortization of stock-based compensation expense | | | | | 16,063 |
| | | | | | | | | | 16,063 |
| | | | 16,063 |
|
Redemption value adjustment | | | | | (8,551 | ) | | | | | | | | | | (8,551 | ) | | | | (8,551 | ) |
Distributions to noncontrolling interests | | | | | | | | | | | | | | | — |
| | (10,116 | ) | | (10,116 | ) |
Distributions declared ($2.8615 per share) | | | | | 5,064 |
| | (310,698 | ) | | 1,836 |
| | | | | | (303,798 | ) | | | | (303,798 | ) |
Net income | | | | | | | 121,209 |
| | | | | | | | 121,209 |
| | 7,874 |
| | 129,083 |
|
Other comprehensive (loss) income: | | | | | | | | | | | | | | |
|
| | | |
|
|
Foreign currency translation adjustments | | | | | | | | | | | (99,612 | ) | | | | (99,612 | ) | | (3,515 | ) | | (103,127 | ) |
Realized and unrealized gain on derivative instruments | | | | | | | | | | | 18,488 |
| | | | 18,488 |
| | | | 18,488 |
|
Change in unrealized gain on marketable securities | | | | | | | | | | | 14 |
| | | | 14 |
| | | | 14 |
|
Balance at September 30, 2015 | 104,402,211 |
| | $ | 105 |
| | $ | 4,300,859 |
| | $ | (655,095 | ) | | $ | 57,395 |
| | $ | (156,669 | ) | | $ | (60,948 | ) | | $ | 3,485,647 |
| | $ | 134,675 |
| | $ | 3,620,322 |
|
|
| |
| W. P. Carey 9/30/2015 10-Q – 6 |
W. P. CAREY INC.
CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
(Continued)
Nine Months Ended September 30, 2014
(in thousands, except share and per share amounts)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| W. P. Carey Stockholders | | | | |
| | | | | | | Distributions | | | | Accumulated | | | | | | | | |
| Common Stock | | 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 | | (Loss) Income | | Stock | | Stockholders | | Interests | | Total |
Balance at January 1, 2014 | 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 |
|
Shares issued in public offering | 4,600,000 |
| | 5 |
| | 282,157 |
| | | | | | | | | | 282,162 |
| | | | 282,162 |
|
Purchase of the remaining interests in less-than-wholly-owned investments that we already consolidate in connection with the CPA®:16 Merger | | | | | (41,374 | ) | | | | | | | | | | (41,374 | ) | | (239,562 | ) | | (280,936 | ) |
Purchase of noncontrolling interests in connection with the CPA®:16 Merger | | | | | | | | | | | | | | | — |
| | 99,757 |
| | 99,757 |
|
Contributions from noncontrolling interests | | | | | | | | | | | | | | | — |
| | 379 |
| | 379 |
|
Exercise of stock options and employee purchases under the employee share purchase plan | 24,725 |
| | — |
| | 1,220 |
| | | | | | | | | | 1,220 |
| | | | 1,220 |
|
Grants issued in connection with services rendered | 368,347 |
| | — |
| | (15,736 | ) | | | | | | | | | | (15,736 | ) | | | | (15,736 | ) |
Shares issued under share incentive plans | 35,683 |
| | — |
| | (849 | ) | | | | | | | | | | (849 | ) | | | | (849 | ) |
Deferral of vested shares | | | | | (15,428 | ) | | | | 15,428 |
| | | | | | — |
| | | | — |
|
Windfall tax benefits - share incentive plans | | | | | 5,449 |
| | | | | | | | | | 5,449 |
| | | | 5,449 |
|
Amortization of stock-based compensation expense | | | | | 22,979 |
| | | | | | | | | | 22,979 |
| | | | 22,979 |
|
Redemption value adjustment | | | | | 306 |
| | | | | | | | | | 306 |
| | | | 306 |
|
Distributions to noncontrolling interests | | | | | | | | | | | | | | | — |
| | (15,270 | ) | | (15,270 | ) |
Distributions declared ($2.735 per share) | | | | | 3,179 |
| | (288,093 | ) | | 3,842 |
| | | | | | (281,072 | ) | | | | (281,072 | ) |
Purchase of treasury stock from related party | (11,037 | ) | | — |
| | | | | | | | | | (678 | ) | | (678 | ) | | | | (678 | ) |
Foreign currency translation | | | | | | | | | | | | | | | — |
| | 50 |
| | 50 |
|
Net income | | | | | | | 207,554 |
| | | | | | | | 207,554 |
| | 4,914 |
| | 212,468 |
|
Other comprehensive income (loss): | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustments | | | | | | | | | | | (48,194 | ) | | | | (48,194 | ) | | (3,951 | ) | | (52,145 | ) |
Realized and unrealized gain on derivative instruments | | | | | | | | | | | 11,587 |
| | | | 11,587 |
| | | | 11,587 |
|
Balance at September 30, 2014 | 104,014,166 |
| | $ | 105 |
| | $ | 4,313,896 |
| | $ | (399,116 | ) | | $ | 30,624 |
| | $ | (21,271 | ) | | $ | (60,948 | ) | | $ | 3,863,290 |
| | $ | 144,633 |
| | $ | 4,007,923 |
|
See Notes to Consolidated Financial Statements.
|
| |
| W. P. Carey 9/30/2015 10-Q – 7 |
W. P. CAREY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2015 |
| 2014 |
Cash Flows — Operating Activities | | | |
Net income | $ | 129,083 |
| | $ | 212,605 |
|
Adjustments to net income: | | | |
Depreciation and amortization, including intangible assets and deferred financing costs | 212,273 |
| | 184,808 |
|
Straight-line rent and amortization of rent-related intangibles | 27,980 |
| | 35,229 |
|
Impairment charges | 22,711 |
| | 6,291 |
|
Management income received in shares of Managed REITs and other | (16,808 | ) | | (27,933 | ) |
Stock-based compensation expense | 16,063 |
| | 22,979 |
|
Realized and unrealized (gain) loss on foreign currency transactions, derivatives, extinguishment of debt, and other | (3,368 | ) | | 2,718 |
|
Gain on sale of real estate | (2,980 | ) | | (24,188 | ) |
Equity in earnings of equity method investments in the Managed Programs and real estate in excess of distributions received | (2,776 | ) | | (1,915 | ) |
Gain on change in control of interests | — |
| | (105,947 | ) |
Amortization of deferred revenue | — |
| | (786 | ) |
Changes in assets and liabilities: | | | |
Increase in structuring revenue receivable | (21,574 | ) | | (13,398 | ) |
Deferred acquisition revenue received | 20,105 |
| | 12,693 |
|
Payments for withholding taxes upon delivery of equity-based awards and exercises of stock options | (16,443 | ) | | (16,585 | ) |
Net changes in other operating assets and liabilities | (33,363 | ) | | (9,417 | ) |
Net Cash Provided by Operating Activities | 330,903 |
| | 277,154 |
|
Cash Flows — Investing Activities | | | |
Purchases of real estate | (529,812 | ) | | (246,593 | ) |
Funding of short-term loans to affiliates | (155,447 | ) | | (11,000 | ) |
Proceeds from repayment of short-term loans to affiliates | 50,000 |
| | 11,000 |
|
Proceeds from sale of real estate | 28,949 |
| | 281,164 |
|
Investment in real estate under construction | (27,976 | ) | | (7,879 | ) |
Change in investing restricted cash | 24,607 |
| | (29,219 | ) |
Capital contributions to equity investments in real estate | (15,903 | ) | | (468 | ) |
Value added taxes paid in connection with acquisition of real estate | (10,263 | ) | | — |
|
Proceeds from repayment of note receivable | 10,258 |
| | — |
|
Distributions received from equity investments in the Managed Programs and real estate in excess of equity income | 5,798 |
| | 10,057 |
|
Capital expenditures on corporate assets | (3,482 | ) | | (16,696 | ) |
Capital expenditures on owned real estate | (3,416 | ) | | (3,139 | ) |
Other investing activities, net | 1,486 |
| | 2,427 |
|
Cash acquired in connection with the CPA®:16 Merger | — |
| | 65,429 |
|
Purchase of securities | — |
| | (7,664 | ) |
Cash paid to stockholders of CPA®:16 – Global in the CPA®:16 Merger | — |
| | (1,338 | ) |
Net Cash (Used in) Provided by Investing Activities | (625,201 | ) | | 46,081 |
|
Cash Flows — Financing Activities | | | |
Repayments of Senior Unsecured Credit Facility | (1,104,522 | ) | | (1,395,000 | ) |
Proceeds from issuance of Senior Unsecured Notes | 1,022,303 |
| | 498,195 |
|
Proceeds from Senior Unsecured Credit Facility | 758,665 |
| | 1,285,286 |
|
Distributions paid | (302,205 | ) | | (248,918 | ) |
Scheduled payments of mortgage principal | (54,422 | ) | | (96,797 | ) |
Proceeds from mortgage financing | 22,667 |
| | 12,330 |
|
Payment of financing costs | (10,878 | ) | | (12,187 | ) |
Change in financing restricted cash | (10,406 | ) | | (589 | ) |
Distributions paid to noncontrolling interests | (10,116 | ) | | (16,194 | ) |
Prepayments of mortgage principal | (9,678 | ) | | (216,065 | ) |
Windfall tax benefit associated with stock-based compensation awards | 7,028 |
| | 5,449 |
|
Contributions from noncontrolling interests | 586 |
| | 502 |
|
Proceeds from exercise of stock options and employee purchases under the employee share purchase plan | 360 |
| | 1,220 |
|
Proceeds from issuance of shares in public offering | — |
| | 282,586 |
|
Purchase of treasury stock from related party | — |
| | (679 | ) |
Net Cash Provided by Financing Activities | 309,382 |
| | 99,139 |
|
Change in Cash and Cash Equivalents During the Period | | | |
Effect of exchange rate changes on cash | (22,449 | ) | | (9,617 | ) |
Net (decrease) increase in cash and cash equivalents | (7,365 | ) | | 412,757 |
|
Cash and cash equivalents, beginning of period | 198,683 |
| | 117,519 |
|
Cash and cash equivalents, end of period | $ | 191,318 |
| | $ | 530,276 |
|
See Notes to Consolidated Financial Statements.
|
| |
| W. P. Carey 9/30/2015 10-Q – 8 |
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 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 lease basis, which generally requires each tenant to pay substantially all of the costs associated with operating and maintaining the property.
Originally founded in 1973, we reorganized as a REIT in September 2012 in connection with our merger with Corporate Property Associates 15 Incorporated. We refer to that merger as the CPA®:15 Merger. On January 31, 2014, Corporate Property Associates 16 – Global Incorporated, or CPA®:16 – Global, merged with and into us (Note 4), which we refer to as the CPA®:16 Merger. Our shares of common stock are listed on the New York Stock Exchange under the symbol “WPC.”
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 United States federal income taxation other than from our taxable REIT subsidiaries, or TRSs, 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.
Through our TRSs we also earn revenue as the advisor to publicly-owned, non-listed REITs, which are sponsored by us under the Corporate Property Associates, or CPA®, brand name that invest in similar properties. At September 30, 2015, 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 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 together as the CPA® REITs. At September 30, 2015, we were also the advisor to Carey Watermark Investors Incorporated, referred to as CWI or CWI 1, and Carey Watermark Investors 2 Incorporated, or CWI 2, two publicly-owned, non-listed REITs that invest in lodging and lodging-related properties. We refer to CWI 1 and CWI 2 together as the CWI REITs, and, together with the CPA® REITs, as the Managed REITs (Note 5). We have also invested in Carey Credit Income Fund, or CCIF, a newly formed business development company, or BDC (Note 8), with a third-party investment partner, which is the master fund in a master/feeder fund structure.
In July 2015, two registration statements on Form N-2 for two feeder funds of CCIF, or the CCIF Feeder Funds, were declared effective by the SEC. The CCIF Feeder Funds intend to invest the proceeds that they raise in their respective public offerings into the master fund, CCIF. The advisor to CCIF is wholly owned by us. We refer to CCIF and the CCIF Feeder Funds collectively as the Managed BDCs and, together with the Managed REITs, as the Managed Programs.
Reportable Segments
Real Estate Ownership — We own and invest in commercial properties principally in the United States, Europe, and Asia that are then leased to companies, primarily on a triple-net lease basis. We have also invested in several operating properties, such as lodging and self-storage properties. We earn lease revenues from our wholly-owned and co-owned real estate investments that we control. In addition, we generate equity income through co-owned real estate investments that we do not control and through our ownership of shares of the Managed REITs (Note 8). Through our special member interests in the operating partnerships of the Managed REITs, we also participate in their cash flows (Note 5). At September 30, 2015, our owned portfolio was comprised of our full or partial ownership interests in 854 properties, totaling approximately 89.8 million square feet, substantially all of which were net leased to 221 tenants, with an occupancy rate of 98.8%.
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 may 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. At September 30, 2015, CPA®:17 – Global and CPA®:18 – Global collectively owned all or a portion of 421 properties, including certain properties in which we have an ownership interest. Substantially all of these properties, totaling approximately 47.5 million square feet, were net leased to 199 tenants, with an average occupancy rate of approximately 99.9%. The Managed REITs also had interests in 157 operating properties, totaling approximately 18.2 million square feet. We continue to explore alternatives for expanding our investment management
|
| |
| W. P. Carey 9/30/2015 10-Q – 9 |
Notes to Consolidated Financial Statements (Unaudited)
operations by raising funds beyond advising the existing Managed REITs. Any such expansion could involve the purchase of properties or other investments as principal, either for our owned portfolio or with the intention of transferring such investments to a newly-created fund, as well as the sponsorship of one or more funds to make investments other than primarily net lease investments, such as the CWI REITs and the Managed BDCs. These new funds could invest primarily in assets other than net-lease real estate and could include funds raised through private placements or publicly-traded vehicles, either in the United States or internationally.
Note 2. Revisions of Previously-Issued Financial Statements
During the second quarter of 2015, we identified errors in the March 31, 2015 interim consolidated financial statements related to the calculation of foreign currency translation of the assets and liabilities of a foreign investment acquired in January 2015 and the presentation of certain foreign currency losses within the consolidated statement of cash flows for the three months ended March 31, 2015. We evaluated the impact on the previously issued financial statements and concluded that these errors were not material to our consolidated financial statements as of and for the three months ended March 31, 2015. However, in order to correctly present such foreign currency translation and certain foreign currency losses, we will revise the consolidated statements of comprehensive (loss) income, equity, and cash flows for the three months ended March 31, 2015 when such statements are presented in our future public filings. The interim consolidated financial statements as of and for the three months ended June 30, 2015 and September 30, 2015 are not impacted by these adjustments.
If the correct foreign currency translation adjustments had been recorded during the three months ended March 31, 2015, Total assets and Total liabilities and equity each would have been higher by $17.6 million, comprised of increases in Real estate, at cost of $14.8 million and In-place lease intangibles of $2.8 million with a corresponding increase of $0.3 million in Below-market rent and other intangible liabilities, net and a $17.3 million decrease in Accumulated other comprehensive loss on the consolidated balance sheet and consolidated statement of equity as of and for the three months ended March 31, 2015. Additionally, Other comprehensive loss, Comprehensive loss, and Comprehensive loss attributable to W. P. Carey within the consolidated statement of comprehensive loss each would have been reduced by $17.3 million for the three months ended March 31, 2015.
In addition, if foreign currency losses had been properly presented within the consolidated statement of cash flows for the three months ended March 31, 2015, Net cash provided by operating activities for that period would have increased by $13.6 million with a corresponding decrease to the Effect of exchange rate changes on cash.
The revisions described above had no effect on our cash balances or liquidity as of March 31, 2015, or the consolidated statements of income or basic and diluted earnings per common share for the three months ended March 31, 2015.
Note 3. Basis of Presentation
Basis of Presentation
Our interim consolidated financial statements have been prepared 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 financial position, results of operations, and cash flows in accordance with accounting principles generally accepted in the United States, 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, 2014, which are included in the 2014 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 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.
|
| |
| W. P. Carey 9/30/2015 10-Q – 10 |
Notes to Consolidated Financial Statements (Unaudited)
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 September 30, 2015, we had an investment in a tenancy-in-common interest in various underlying international properties. Consolidation of this investment is not required as such interest does not qualify as a VIE and does not meet the control requirement for consolidation. Accordingly, we account for this investment using the equity method of accounting. We use the equity method of accounting because the shared decision-making involved in a tenancy-in-common interest investment provides us with significant influence on the operating and financial decisions of this investment. We also have certain investments in wholly-owned tenancy-in-common interests, which we now consolidate after we obtained the remaining interests in the CPA®:16 Merger.
At September 30, 2015, we consolidated 18 VIEs. 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.
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 jointly-owned investments’ future operating deficits should the need arise. However, we have no legal obligation to pay for any of the liabilities of such investments nor do we have any legal obligation to fund operating deficits. At September 30, 2015, one of our equity investments was a VIE and none had carrying values below zero.
In June 2014, CWI 2 filed a registration statement on Form S-11 with the SEC to sell up to $1.0 billion of common stock in an initial public offering plus up to an additional $400.0 million of its common stock under a distribution reinvestment plan. In January 2015, CWI 2 amended the registration statement to increase the offering size to $1.4 billion of its class A common stock plus up to an additional $600.0 million of its class A common stock through its distribution reinvestment plan. The registration statement was declared effective by the SEC on February 9, 2015. An amended registration statement adding the class T common stock was declared effective by the SEC on April 13, 2015, so that the offering amounts noted can be in any combination of class A or class T shares. Through May 15, 2015, the financial activity of CWI 2 was included in our consolidated financial statements. On May 15, 2015, upon CWI 2 reaching its minimum offering proceeds and admitting new stockholders, we deconsolidated CWI 2 and began to account for our interest in it under the equity method. The deconsolidation did not have a material impact on our financial position or results of operations.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation. The consolidated financial statements included in this Report have been retrospectively adjusted to reflect the disposition of certain properties as discontinued operations and certain measurement period adjustments related to purchase accounting for all periods presented.
Recent Accounting Requirements
The following Accounting Standards Updates, or ASUs, promulgated by the Financial Accounting Standards Board are applicable to us:
ASU 2015-16, Business Combinations (Topic 805) — ASU 2015-16 requires that an acquirer recognize adjustments identified during the business combination measurement period in the reporting period in which the adjustment amounts are determined. The effects on earnings due to changes in depreciation, amortization, or other income effects as a result of the change are also recognized in the same period’s financial statements. ASU 2015-16 also requires that acquirers present separately on the face of the income statement or disclose in the notes to the financial statements the portion of the amount recorded in current-period earnings that would have been recorded in previous reporting periods if the adjustment had been recognized as of the
|
| |
| W. P. Carey 9/30/2015 10-Q – 11 |
Notes to Consolidated Financial Statements (Unaudited)
acquisition date. ASU 2015-16 is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years, early adoption is permitted, and prospective application is required for adjustments that are identified after the effective date of this update. We elected to early adopt ASU 2015-16 and implemented the standard prospectively beginning July 1, 2015.
ASU 2015-03, Interest-Imputation of Interest (Subtopic 835-30) — ASU 2015-03 changes the presentation of debt issuance costs, which are currently recognized as a deferred charge (that is, an asset) and requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03 does not affect the recognition and measurement guidance for debt issuance costs. ASU 2015-03 is effective for periods beginning after December 15, 2015, early adoption is permitted and retrospective application is required. We are currently evaluating the impact of ASU 2015-03 on our consolidated financial statements.
ASU 2014-09, Revenue from Contracts with Customers (Topic 606) — ASU 2014-09 is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. ASU 2014-09 does not apply to our lease revenues, but will apply to reimbursed tenant costs and revenues generated from our operating properties and our Investment Management business. Additionally, this guidance modifies disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In August 2015, the Financial Accounting Standards Board issued ASU 2015-14, which defers the effective date of ASU 2014-09 for all entities by one year, until years beginning in 2018, with early adoption permitted but not before 2017, the original public company effective date. We are currently evaluating the impact of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which we will adopt the standard.
Note 4. 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 each share of CPA®:16 – Global stock owned, 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 5).
Immediately prior to the CPA®:16 Merger, CPA®:16 – Global’s portfolio was comprised of the consolidated full or partial interests in 325 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% at that date. 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. In addition, CPA®:16 – Global had equity interests in 18 unconsolidated investments, 11 of which were consolidated by us prior to the CPA®:16 Merger, five of which were consolidated by us subsequent to the CPA®:16 Merger, and two of which were jointly-owned with CPA®:17 – Global. These investments owned 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% on January 31, 2014. The lease revenues and income from continuing operations from the properties acquired from the date of the CPA®:16 Merger through September 30, 2014 were $184.3 million and $62.5 million (inclusive of $2.2 million attributable to noncontrolling interests), respectively.
|
| |
| W. P. Carey 9/30/2015 10-Q – 12 |
Notes to Consolidated Financial Statements (Unaudited)
During 2014, we sold all ten of the properties that were classified as held-for-sale upon acquisition in connection with the CPA®:16 Merger (Note 16). The results of operations for all ten of these properties have been included in Income from discontinued operations, net of tax in the consolidated financial statements. In addition, we sold one property subject to a direct financing lease that we acquired in the CPA®:16 Merger. The results of operations for this property have been included in Income from continuing operations before income taxes in the consolidated financial statements.
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 $30.5 million related to the CPA®:16 Merger were incurred in 2014, of which $30.4 million were incurred and expensed during the nine months ended September 30, 2014 and classified within Merger and property acquisition expenses in the consolidated financial statements. In addition, CPA®:16 – Global incurred a total of $10.6 million of merger expenses prior to January 31, 2014.
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. During 2014, we identified certain measurement period adjustments that impacted the provisional accounting, which increased the estimated fair value of our previously-held equity interest in shares of CPA®:16 – Global’s common stock by $2.6 million, resulting in an increase of $2.6 million in Gain on change in control of interests. In accordance with Accounting Standards Codification, or ASC, 805-10-25, we did not record the measurement period adjustments during the periods they occurred. Rather, such amounts are reflected in the financial statements for the three months ended March 31, 2014.
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 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 $30.2 million during the first quarter of 2014, which was the difference between our carrying values and the estimated fair values of our previously-held equity interests on the acquisition date of approximately $142.5 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 during the first quarter of 2014 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 $278.2 million, respectively. During 2014, we identified certain measurement period adjustments that impacted the provisional accounting, 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.
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 and nine months ended September 30, 2014. 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.
|
| |
| W. P. Carey 9/30/2015 10-Q – 13 |
Notes to Consolidated Financial Statements (Unaudited)
(in thousands, except share and per share amounts)
|
| | | | | | | |
| Three Months Ended September 30, 2014 | | Nine Months Ended September 30, 2014 |
Pro forma total revenues | $ | 195,945 |
| | $ | 682,977 |
|
| | | |
Pro forma net income from continuing operations, net of tax | $ | 28,086 |
| | $ | 106,495 |
|
Pro forma net income attributable to noncontrolling interests | (993 | ) | | (3,909 | ) |
Pro forma net loss (income) attributable to redeemable noncontrolling interest | 14 |
| | (137 | ) |
Pro forma net income from continuing operations, net of tax attributable to W. P. Carey (a) | $ | 27,107 |
| | $ | 102,449 |
|
| | | |
Pro forma earnings per share: (a) | | | |
Basic | $ | 0.27 |
| | $ | 1.02 |
|
Diluted | $ | 0.26 |
| | $ | 1.01 |
|
| | | |
Pro forma weighted-average shares: (b) | | | |
Basic | 100,282,082 |
| | 100,080,000 |
|
Diluted | 101,130,448 |
| | 101,118,305 |
|
__________
| |
(a) | The pro forma income attributable to W. P. Carey for the three and nine months ended September 30, 2014 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 through December 31, 2014, (ii) an aggregate gain on change in control of interests, and (iii) an income tax expense from a permanent difference upon recognition of deferred revenue associated with accelerated vesting of shares previously issued by CPA®:16 – Global for asset management and performance fees in connection with the CPA®:16 Merger. |
| |
(b) | The pro forma weighted-average shares outstanding for the three and nine months ended September 30, 2014 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 9/30/2015 10-Q – 14 |
Notes to Consolidated Financial Statements (Unaudited)
Note 5. Agreements and Transactions with Related Parties
Advisory Agreements with the Managed Programs
We have advisory agreements with each of the Managed Programs, pursuant to which we earn fees and are entitled to receive reimbursement for fund management expenses, as well as cash distributions. We also earn fees for serving as the dealer-manager of the public offerings of the Managed Programs. The following tables present a summary of revenue earned and/or cash received from the Managed Programs for the periods indicated, included in the consolidated financial statements (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2015 | | 2014 | | 2015 | | 2014 |
Asset management revenue | $ | 12,981 |
| | $ | 9,064 |
| | $ | 36,167 |
| | $ | 27,840 |
|
Reimbursable costs from affiliates | 11,155 |
| | 14,722 |
| | 28,401 |
| | 96,379 |
|
Distributions of Available Cash | 10,182 |
| | 7,893 |
| | 28,244 |
| | 23,574 |
|
Structuring revenue | 8,207 |
| | 5,487 |
| | 67,735 |
| | 40,492 |
|
Dealer manager fees | 1,124 |
| | 2,436 |
| | 2,704 |
| | 17,062 |
|
Interest income on deferred acquisition fees and loans to affiliates | 576 |
| | 172 |
| | 1,172 |
| | 515 |
|
Incentive revenue | — |
| | — |
| | 203 |
| | — |
|
Deferred revenue earned | — |
| | — |
| | — |
| | 786 |
|
| $ | 44,225 |
| | $ | 39,774 |
| | $ | 164,626 |
| | $ | 206,648 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2015 | | 2014 | | 2015 | | 2014 |
CPA®:16 – Global (a) | $ | — |
| | $ | — |
| | $ | — |
| | $ | 7,999 |
|
CPA®:17 – Global (b) | 17,654 |
| | 16,555 |
| | 59,815 |
| | 49,032 |
|
CPA®:18 – Global (b) | 12,725 |
| | 8,836 |
| | 56,392 |
| | 107,668 |
|
CWI 1 (b) | 7,581 |
| | 14,383 |
| | 36,735 |
| | 41,949 |
|
CWI 2 (b) | 6,265 |
| | — |
| | 11,684 |
| | — |
|
CCIF (c) | — |
| | — |
| | — |
| | — |
|
| $ | 44,225 |
| | $ | 39,774 |
| | $ | 164,626 |
| | $ | 206,648 |
|
__________
| |
(a) | The amount for the nine months ended September 30, 2014 reflects transactions through January 31, 2014, the date of the CPA®:16 Merger. |
| |
(b) | The advisory agreements with each of the Managed REITs are scheduled to expire on December 31, 2015, unless otherwise renewed. |
| |
(c) | The advisory agreement with CCIF, which commenced February 27, 2015, is subject to renewal on or before February 26, 2017 unless otherwise renewed. |
|
| |
| W. P. Carey 9/30/2015 10-Q – 15 |
Notes to Consolidated Financial Statements (Unaudited)
The following table presents a summary of amounts included in Due from affiliates in the consolidated financial statements (in thousands):
|
| | | | | | | |
| September 30, 2015 | | December 31, 2014 |
Notes receivable from affiliates, including interest thereon | $ | 106,005 |
| | $ | — |
|
Deferred acquisition fees receivable | 28,382 |
| | 26,913 |
|
Reimbursable costs | 5,140 |
| | 301 |
|
Accounts receivable | 4,083 |
| | 2,680 |
|
Asset management fees receivable | 2,157 |
| | — |
|
Organization and offering costs | 1,405 |
| | 2,120 |
|
Current acquisition fees receivable | 528 |
| | 2,463 |
|
| $ | 147,700 |
| | $ | 34,477 |
|
Asset Management Revenue
Under the advisory agreements with the Managed Programs, we earn asset management revenue for managing their investment portfolios. The following table presents a summary of our asset management fee arrangements with the Managed Programs:
|
| | | | | | |
Managed Program | | Rate | | Payable | | Description |
CPA®:16 – Global | | 0.5% | | 2014 in cash; 2015 N/A | | Rate is based on adjusted invested assets |
CPA®:17 – Global | | 0.5% - 1.75% | | 2014 in shares of its common stock; 2015 50% in cash and 50% in shares of its common stock | | Rate depends on the type of investment and is based on the average market or average equity value, as applicable |
CPA®:18 – Global | | 0.5% - 1.5% | | 2014 and 2015 in shares of its class A common stock | | Rate depends on the type of investment and is based on the average market or average equity value, as applicable |
CWI 1 | | 0.5% | | 2014 in shares of its common stock; 2015 in cash | | Rate is based on the average market value of the investment |
CWI 2 | | 0.55% | | 2014 N/A; 2015 in shares of its class A common stock | | Rate is based on the average market value of the investment |
CCIF | | 1.75% - 2.00% | | We have elected to waive all asset management fees until the day before either of the CCIF Feeder Funds initially acquires CCIF’s common shares | | Based on the average of gross assets at fair value; we are required to pay 50% of the asset management revenue we receive to the subadvisor |
Incentive Fees
We are entitled to receive a quarterly incentive fee on income from CCIF equal to 100% of quarterly net investment income, before incentive fee payments, in excess of 1.875% of CCIF’s average adjusted capital up to a limit of 2.344%, plus 20% of net investment income, before incentive fee payments, in excess of 2.344% of average adjusted capital. We are also entitled to receive from CCIF an incentive fee on realized capital gains of 20%, net of (i) all realized capital losses and unrealized depreciation on a cumulative basis, and (ii) the aggregate amount, if any, of previously paid incentive fees on capital gains since inception. We have elected to waive all incentive fees until the day before either of the CCIF Feeder Funds initially acquires CCIF’s common shares. Through September 30, 2015, the CCIF Feeder Funds had not acquired any of CCIF’s common shares.
|
| |
| W. P. Carey 9/30/2015 10-Q – 16 |
Notes to Consolidated Financial Statements (Unaudited)
Structuring Revenue
Under the terms of the advisory agreements, we earn revenue for structuring and negotiating investments and related financing for the Managed REITs. We do not earn any structuring revenue from the Managed BDCs. The following table presents a summary of our structuring fee arrangements with the Managed REITs:
|
| | | | | | |
Managed Program | | Rate | | Payable | | Description |
CPA®:17 – Global | | 1% - 1.75%, 4.5% | | In cash; for non net-lease investments, 1% - 1.75% upon completion; for net-lease investments, 2.5% upon completion, with 2% deferred and payable in three interest-bearing annual installments | | Based on the total aggregate cost of the net-lease investments made; also based on the total aggregate cost of the non net-lease investments made; total limited to 6% of the contract prices in aggregate |
CPA®:18 – Global | | 4.5% | | In cash; for net-lease investments, 2.5% upon completion, with 2% deferred and payable in three interest-bearing annual installments | | Based on the total aggregate cost of the net-lease investments made; total limited to 6% of the contract prices in aggregate |
CWI REITs | | 2.5% | | In cash upon completion | | Based on the total aggregate cost of the lodging investments made; loan refinancing transactions up to 1% of the principal amount; total limited to 6% of the contract prices in aggregate |
Reimbursable Costs from Affiliates
The Managed Programs reimburse us for certain costs that we incur on their behalf, which consist primarily of broker-dealer commissions, marketing costs, an annual distribution and shareholder servicing fee, or Shareholder Servicing Fee, and certain personnel and overhead costs, as applicable. The following tables present summaries of such fee arrangements:
Broker-Dealer Selling Commissions
|
| | | | | | |
Managed Program | | Rate | | Payable | | Description |
CPA®:18 – Global and CWI 2 Class A Shares, and CWI 1 Common Stock | | $0.70 | | In cash upon share settlement; 100% re-allowed to broker-dealers | | Per share sold |
CPA®:18 – Global Class C Shares | | $0.14 | | In cash upon share settlement; 100% re-allowed to broker-dealers | | Per share sold |
CWI 2 Class T Shares | | $0.19 | | In cash upon share settlement; 100% re-allowed to broker-dealers | | Per share sold |
CCIF Feeder Funds | | 0% - 3% | | In cash upon share settlement; 100% re-allowed to broker-dealers | | Based on the selling price of each share sold |
Dealer Manager Fees
|
| | | | | | |
Managed Program | | Rate | | Payable | | Description |
CPA®:18 – Global and CWI 2 Class A Shares, and CWI 1 Common Stock | | $0.30 | | Per share sold | | In cash upon share settlement; a portion may be re-allowed to broker-dealers |
CPA®:18 – Global Class C Shares | | $0.21 | | Per share sold | | In cash upon share settlement; a portion may be re-allowed to broker-dealers |
CWI 2 Class T Shares | | $0.26 | | Per share sold | | In cash upon share settlement; a portion may be re-allowed to broker-dealers |
CCIF Feeder Funds | | 2.75% - 3.0% | | Based on the selling price of each share sold | | In cash upon share settlement; a portion may be re-allowed to broker-dealers |
|
| |
| W. P. Carey 9/30/2015 10-Q – 17 |
Notes to Consolidated Financial Statements (Unaudited)
Annual Distribution and Shareholder Servicing Fee
|
| | | | | | |
Managed Program | | Rate | | Payable | | Description |
CPA®:18 – Global Class C Shares | | 1.0% | | Accrued daily and payable quarterly in arrears in cash; 100% re-allowed to selected dealers | | Based on the purchase price per share sold or, once reported, the NAV; cease paying when underwriting compensation from all sources equals 10% of gross offering proceeds |
CWI 2 Class T Shares | | 1.0% | | Accrued daily and payable quarterly in arrears in cash; 100% re-allowed to selected dealers | | Limited to six years and 10% of gross offering proceeds |
Personnel and Overhead Costs
|
| | | | |
Managed Program | | Payable | | Description |
CPA®:17 – Global and CPA®:18 – Global | | In cash | | Personnel and overhead costs, excluding those related to our legal transactions group, are charged to the CPA® REITs based on the average of the trailing 12-month aggregate reported revenues of the CPA® REITs, the CWI REITs, and us, and for 2015, are capped at 2.4% of each CPA® REIT’s pro rata lease revenues; for the legal transactions group, costs are charged according to a fee schedule |
CWI 1 | | 2014 in shares of its common stock; 2015 in cash | | Actual expenses incurred; allocated between the CWI REITs based on the percentage of their total pro rata hotel revenues for the most recently completed quarter |
CWI 2 | | 2014 N/A; 2015 in cash | | Actual expenses incurred; allocated between the CWI REITs based on the percentage of their total pro rata hotel revenues for the most recently completed quarter |
CCIF and CCIF Feeder Funds | | 2014 N/A; 2015 in cash | | Actual expenses incurred |
Organization and Offering Costs
|
| | | | |
Managed Program | | Payable | | Description |
CPA®:18 – Global and CWI 2 | | In cash; within 60 days after the end of the quarter in which the offering terminates | | Actual costs incurred from 1.5% through 4.0% of the gross offering proceeds, depending on the amount raised |
CWI 1 | | In cash; within 60 days after the end of the quarter in which the offering terminates | | Actual costs incurred up to 4.0% of the gross offering proceeds |
CCIF and CCIF Feeder Funds | | In cash; payable monthly | | Up to 1.5% of the gross offering proceeds |
For CCIF, total reimbursements to us for personnel and overhead costs and organization and offering costs may not exceed 18% of total Front End Fees, as defined in its Declaration of Trust, so that total funds available for investment may not be lower than 82% of total gross proceeds.
|
| |
| W. P. Carey 9/30/2015 10-Q – 18 |
Notes to Consolidated Financial Statements (Unaudited)
Expense Support and Conditional Reimbursements
Under the expense support and conditional reimbursement agreement we have with each of the CCIF Feeder Funds, we and the CCIF subadvisor are obligated to reimburse the CCIF Feeder Fund 50% of the excess of the cumulative distributions paid to the CCIF Feeder Funds’ shareholders over the available operating funds on a monthly basis. Following any month in which the available operating funds exceed the cumulative distributions paid to its shareholders, the excess operating funds are used to reimburse us and the CCIF subadvisor for any expense payment we made within three years prior to the last business day of such month that have not been previously reimbursed by the CCIF Feeder Fund, up to the lesser of (i) 1.75% of each CCIF Feeder Fund’s average net assets or (ii) the percentage of each CCIF Feeder Fund’s average net assets attributable to its common shares represented by other operating expenses during the fiscal year in which such expense support payment from us and the CCIF’s subadvisor was made, provided that the effective rate of distributions per share at the time of reimbursement is not less than such rate at the time of expense payment.
Distributions of Available Cash and Deferred Revenue Earned
We are entitled to receive distributions of up to 10% of the Available Cash (as defined in the respective advisory agreements) from the operating partnerships of each of the Managed REITs, as described in their respective operating partnership agreements, payable quarterly in arrears.
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 as deferred revenue 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 Equity in earnings of equity method investments in real estate and the Managed REITs within the Real Estate Ownership segment.
Other Transactions with Affiliates
Loans to Affiliates
During 2015 and 2014, our board of directors approved unsecured loans from us to CPA®:17 – Global of up to $75.0 million, CPA®:18 – Global of up to $100.0 million, CWI 1 and CWI 2 of up to $110.0 million in the aggregate, and CCIF of up to $50.0 million, with each loan 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.
The following table presents a summary of our unsecured loans to the Managed Programs, all of which were made at an interest rate equal to the London Interbank Offered Rate, or LIBOR, as of the issue date, plus 1.1% (in thousands):
|
| | | | | | | | | | | | | | | | |
| | | | | | | | Carrying Amount at |
Managed Program | | Principal Amount | | Issue Date | | Maturity Date | | September 30, 2015 | | December 31, 2014 |
CWI 2 | | $ | 37,170 |
| | 4/1/2015 | | 3/31/2016 | | $ | 12,170 |
| | — |
|
CWI 2 | | 65,277 |
| | 5/1/2015 | | 12/30/2015 | | 65,277 |
| | — |
|
CCIF | | 10,000 |
| | 5/28/2015 | | 12/30/2015 | | 10,000 |
| | — |
|
CCIF | | 10,000 |
| | 6/10/2015 | | 12/30/2015 | | 10,000 |
| | — |
|
CCIF | | 5,000 |
| | 7/15/2015 | | 12/30/2015 | | 5,000 |
| | |
CCIF | | 3,000 |
| | 9/30/2015 | | 12/30/2015 | | 3,000 |
| | |
Principal | | | | | | | | 105,447 |
| | — |
|
Accrued interest | | | | | | | | 558 |
| | — |
|
| | | | | | | | $ | 106,005 |
| | $ | — |
|
|
| |
| W. P. Carey 9/30/2015 10-Q – 19 |
Notes to Consolidated Financial Statements (Unaudited)
On June 25, 2014, we made an $11.0 million loan to CWI 1, with a scheduled maturity date of June 30, 2015. The loan, including accrued interest, was repaid in full on July 22, 2014, prior to maturity. On July 29, 2015, CWI 2 repaid $25.0 million of the $37.2 million loan noted in the table above, which was issued on April 1, 2015. On October 21, 2015, CWI 2 repaid an additional $10.0 million of the same loan. On July 1 and July 14, 2015, we made two loans totaling $25.0 million to CPA®:17 – Global, both of which had a scheduled maturity date of December 30, 2015. These loans, including accrued interest, were repaid in full on August 26, 2015, prior to maturity. On August 26, 2015, we arranged a credit agreement for CPA®:17 – Global and, as a result, our board of directors terminated the previous authorization to provide loans to CPA®:17 – Global.
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 of our stock utilized in the CPA®:16 Merger. These shares were issued to them as their portion of the Merger Consideration in exchange for their shares of CPA®:16 – Global common stock (Note 4) 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.
Other
At September 30, 2015, we owned interests ranging from 3% to 90% in jointly-owned investments, including a jointly-controlled tenancy-in-common interest in several properties, with the remaining interests generally held by affiliates, and stock of each of the Managed REITs and CCIF. We consolidate certain of these investments and account for the remainder under the equity method of accounting.
Note 6. 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):
|
| | | | | | | |
| September 30, 2015 | | December 31, 2014 |
Land | $ | 1,179,423 |
| | $ | 1,146,704 |
|
Buildings | 4,116,644 |
| | 3,829,981 |
|
Real estate under construction | 1,715 |
| | 29,997 |
|
Less: Accumulated depreciation | (343,922 | ) | | (253,627 | ) |
| $ | 4,953,860 |
| | $ | 4,753,055 |
|
During the nine months ended September 30, 2015, the U.S. dollar strengthened against the euro, as the end-of-period rate for the U.S. dollar in relation to the euro at September 30, 2015 decreased by 7.8% to $1.1203 from $1.2156 at December 31, 2014. As a result, the carrying value of our Real estate decreased by $135.5 million from December 31, 2014 to September 30, 2015.
Acquisitions of Real Estate
During the nine months ended September 30, 2015, we entered into the following investments, which were deemed to be business combinations because we assumed the existing leases on the properties, for which the sellers were not the lessees, at a total cost of $479.1 million, including land of $81.9 million, buildings of $317.3 million, and net lease intangibles of $79.9 million (Note 9):
| |
• | an investment of $345.9 million for 73 auto dealership properties in various locations in the United Kingdom on January 28, 2015; |
| |
• | an investment of $42.4 million for a logistics facility in Rotterdam, the Netherlands on February 11, 2015; |
| |
• | an investment of $23.3 million for a retail facility in Bad Fischau, Austria on April 10, 2015; |
| |
• | an investment of $26.3 million for a logistics facility in Oskarshamn, Sweden on June 17, 2015; and |
| |
• | an investment of $41.2 million for three truck and bus service facilities in Gersthofen and Senden, Germany on August 12, 2015 and Leopoldsdorf, Austria on August 24, 2015. |
|
| |
| W. P. Carey 9/30/2015 10-Q – 20 |
Notes to Consolidated Financial Statements (Unaudited)
In connection with these transactions, we also expensed acquisition-related costs totaling $10.7 million, which are included in Merger and property acquisition expenses in the consolidated financial statements. Dollar amounts are based on the exchange rates of the foreign currencies on the dates of acquisitions.
We also entered into an investment for an office building in Sunderland, United Kingdom on August 6, 2015, which was deemed to be real estate asset acquisition because we acquired the seller’s property and simultaneously entered into a new lease in connection with the acquisition, at a total cost of $53.5 million, including net lease intangibles of $20.6 million (Note 9) and acquisition-related costs of $3.1 million, which were capitalized. Dollar amounts are based on the exchange rate of the British pound sterling on the date of acquisition.
Real Estate Under Construction
In December 2013, we entered into a build-to-suit transaction for the construction of an office building located in Mönchengladbach, Germany for a total projected cost of up to $65.0 million, including acquisition expenses. During the nine months ended September 30, 2015, we funded approximately $28.0 million. The building was placed in service in September 2015 at a cost totaling $51.3 million and we have no further funding commitment as of September 30, 2015.
Operating Real Estate
At September 30, 2015, Operating real estate consisted of our investments in two hotels and one self-storage property. During the nine months ended September 30, 2015, we sold one self-storage property (Note 16). At December 31, 2014, Operating real estate consisted of our investments in two hotels and two self-storage properties. Below is a summary of our Operating real estate (in thousands): |
| | | | | | | |
| September 30, 2015 | | December 31, 2014 |
Land | $ | 6,570 |
| | $ | 7,074 |
|
Buildings | 76,078 |
| | 77,811 |
|
Less: Accumulated depreciation | (7,744 | ) | | (4,866 | ) |
| $ | 74,904 |
| | $ | 80,019 |
|
Assets Held for Sale
Below is a summary of our properties held for sale (in thousands):
|
| | | | | | | |
| September 30, 2015 | | December 31, 2014 |
Real estate, net | $ | 4,863 |
| | $ | 5,969 |
|
Above-market rent intangible assets, net | — |
| | 838 |
|
In-place lease intangible assets, net | — |
| | 448 |
|
Assets held for sale | $ | 4,863 |
| | $ | 7,255 |
|
At September 30, 2015, we had two properties classified as Assets held for sale. There can be no assurance that the properties will be sold at the contracted prices, or at all. At December 31, 2014, we had four properties classified as Assets held for sale, all of which were sold during the nine months ended September 30, 2015.
|
| |
| W. P. Carey 9/30/2015 10-Q – 21 |
Notes to Consolidated Financial Statements (Unaudited)
Note 7. 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, deferred acquisition fees, and loans receivable. Operating leases are not included in finance receivables as such amounts are not recognized as an asset in the consolidated financial statements.
Net Investments in Direct Financing Leases
Net investments in direct financing leases is summarized as follows (in thousands):
|
| | | | | | | |
| September 30, 2015 | | December 31, 2014 |
Minimum lease payments receivable | $ | 830,831 |
| | $ | 904,788 |
|
Unguaranteed residual value | 783,553 |
| | 818,334 |
|
| 1,614,384 |
| | 1,723,122 |
|
Less: unearned income | (834,145 | |