Agreements and Transactions with Related Parties

3 Months Ended

Mar. 31, 2013

Agreements and Transactions with Related Parties

Related Party Transactions Disclosure

Note3.Agreements and Transactions with Related Parties

Transactions with the Advisor

We have an advisory agreement with the advisor whereby the advisor performs certain services for us under a fee arrangement. On September 28, 2012, following the merger between our advisor and our affiliate, Corporate Property Associates 15 Incorporated, we entered into an amended and restated advisory agreement, which is scheduled to renew annually. As amended, the advisory agreement provides for the allocation of the advisor's personnel expenses on the basis of our trailing four quarters of reported revenuesand those of WPC and the other publicly-owned, non-listed REITs, which are managed by our advisor under the Corporate Property Associates brand name,and Carey Watermark InvestorsIncorporated (together, the “Managed REITs”) rather than on an allocation of time charges incurred by the advisor's personnel on behalf of the Managed REITs. The fee structure related to asset management fees, initial acquisition fees, subordinated acquisition fees and subordinated disposition fees remains unchanged, and the advisor remains entitled to 10% of the available cash of the Operating Partnership (the “Available Cash Distribution”), as described below. We also have certain agreements with affiliates regarding jointly-owned investments. In addition, we reimbursed the advisor for organization and offering costs incurred in connection with our offering through its closing on January 31, 2013 and for certain administrative duties performed on our behalf. The following tables present a summary of fees we paid and expenses we reimbursed to the advisor in accordance with the advisory agreement (in thousands):

	Three Months Ended March 31,
	2013		2012
Amounts Included in the Consolidated Statements of Income:
Asset management fees	$	5,111	$	4,553
Available Cash Distribution		4,277		2,693
Personnel reimbursements		2,639		938
Office rent reimbursements		218		157
	$	12,245	$	8,341
Other Transaction Fees Incurred:
Current acquisition fees	$	1,762	$	4,204
Deferred acquisition fees		1,183		3,433
	$	2,945	$	7,637
	March 31, 2013		December 31, 2012
Unpaid Transaction Fees:
Deferred acquisition fees	$	19,824	$	26,246
Subordinated disposition fees		202		202
	$	20,026	$	26,448

Asset Management Fees and Available Cash Distribution

We pay the advisor asset management fees ranging from 0.5% per annum of average market value for long-term net leases and certain other types of real estate investments to 1.75% per annum of average equity value for certain types of securities. The asset management fees are payable in cash or shares of our common stock at the option of the advisor. If the advisor elects to receive all or a portion of its fees in shares, the number of shares issued is determined by dividing the dollar amount of fees by our most recently published net asset value per share (“NAV”) or, if an NAV has not yet been published as currently is the case, $10.00 per share, which was the price at which our shares were sold in our recently completed public offering. For both 2013and 2012, the advisor elected to receive its asset management fees in shares of our common stock. At March 31, 2013, the advisor owned 4,418,143 shares (1.4%) of our common stock. We also pay the advisor, depending on the type of investments we own, up to 10% of available cash of the Operating Partnership, which is defined as cash generated from operations, excluding capital proceeds, as reduced by operating expenses and debt service, excluding prepayments and balloon payments.Asset management fees and Available Cash Distributions are included in Property expenses and Net income attributable to noncontrolling interests, respectively, in the consolidated financial statements.

Personnel and Office Rent Reimbursements

We reimburse the advisor for various expenses it incurs in the course of providing services to us. We reimburse certain third-party expenses paid by the advisor on our behalf, including property-specific costs, professional fees, office expenses and business development expenses. In addition, we reimburse the advisor for the allocated costs of personnel and overhead in managing our day-to-day operations, including accounting services, stockholder services, corporate management, and property management and operations. We do not reimburse the advisor for the cost of personnel if these personnel provide services for transactions for which the advisor receives a transaction fee, such as acquisitions, dispositions and refinancings. Personnel and office rent reimbursements are included in General and administrative expenses in the consolidated financial statements.

The advisor is obligated to reimburse us for the amount by which our operating expenses exceeds the “2%/25%guidelines” (the greater of 2% of average invested assets or 25% of net income) as defined in the advisory agreement for any 12-month period. If in any year our operating expenses exceed the 2%/25% guidelines, the advisor will have an obligation to reimburse us for such excess, subject to certain conditions. If our independent directors find that the excess expenses were justified based on any unusual and nonrecurring factors that they deem sufficient, the advisor may be paid in future years for the full amount or any portion of such excess expenses, but only to the extent that the reimbursement would not cause our operating expenses to exceed this limit in any such year. We record the reimbursement as a reduction of asset management fees at such time that a reimbursement is fixed, determinable and irrevocable. Our operating expenses have not exceeded the amount that would require the advisor to reimburse us.

Transaction Fees

We pay the advisor acquisition fees for structuring and negotiating investments and related mortgage financing on our behalf, a portion of which is payable upon acquisition of investments with the remainder subordinated to the achievement of a preferred return, a non-compounded cumulative distribution of 5% per annum (based initially on our invested capital). Acquisition fees payable to the advisor with respect to our long-term net lease investments is 4.5% of the total cost of those investments and is comprised of a current portion of 2.5%, typically paid when the investment is purchased, and a deferred portion of 2%, typically paid over three years. For certain types of non-long term net lease investments, initial acquisition fees may range from 0% to 1.75% of the equity invested plus the related acquisition fees, with no portion of the fee being deferred. During the three months ended March 31, 2013 and2012, we made payments of deferred acquisition fees to the advisor totaling $6.0 million and $4.8 million, respectively. Unpaid installments of deferred acquisition fees are included in Due to affiliates in the consolidated financial statements.

The advisor may also receive subordinated disposition fees of up to 3% of the contract sales price of an investment for services provided in connection with a disposition; however, payment of such fees is subordinated to a preferred return.

Organization and Offering Expenses

Through the termination of our public offering on January 31, 2013, we incurred expenses in connection with the offering of our securities. These expenses were deducted from the gross proceeds of our offering. Total organization and offering expenses, including underwriting compensation, did not exceed 15% of the gross proceeds of our offering and our DRIP, consistent with applicable regulatory requirements. Under the terms of a sales agency agreement between Carey Financial LLC (“Carey Financial”), a wholly-owned subsidiary of our advisor, and us, Carey Financial received a selling commission of up to $0.65 per share sold and a dealer manager fee of up to $0.35 per share sold in our public offering. Carey Financial re-allowed all or a portion of selling commissions to selected dealers participating in the offering and re-allowed up to the full dealer manager fee to the selected dealers. Total underwriting compensation paid in connection with our offering, including selling commissions, the dealer manager fee, and reimbursements made by Carey Financial to selected dealers and investment advisors, did not exceed the limitations prescribed by Financial Industry Regulatory Authority, which limit underwriting compensation to 10% of gross offering proceeds. We also reimbursed Carey Financial up to an additional 0.5% of offering proceeds for bona fide due diligence expenses. We reimbursed the advisor or one of its affiliates for other organization and offering expenses (including, but not limited to, filing fees, legal, accounting, printing and escrow costs). The advisor agreed to be responsible for the payment of organization and offering expenses (excluding selling commissions and dealer manager fees) that exceed 4% of the gross offering proceeds.

The total costs paid by the advisor and its affiliates in connection with the organization and offering of our securities were $20.8 million from inception through January 31, 2013, of which $20.6 million had been reimbursed as of March 31, 2013. Unpaid costs are included in Due to affiliates in the consolidated financial statements. During the offering period, we accrued costs incurred in connection with the raising of capital as deferred offering costs. Upon receipt of offering proceeds and reimbursement to the advisor for costs incurred, we charged the deferred costs to equity.

Jointly-Owned Investments and Other Transactions with Affiliates

We share with our affiliates leased office space used for the administration of our operations. Rental, occupancy and leasehold improvement costs are allocated among us and our affiliates based on our respective gross revenues and are adjusted quarterly.

We own interests ranging from 12% to 85% in jointly-owned entities, with the remaining interests generally held by affiliates. We consolidate certain of these investments and account for the remainder under the equity method of accounting. We also own interests in jointly-controlled tenancy-in-common interests in properties, which we account for under the equity method of accounting.