Equity Investments in Real Estate

We own equity interests in net-leased properties that are generally leased to companies through noncontrolling interests (i) in partnerships and limited liability companies that we do not control but over which we exercise significant influence or (ii) as tenants-in-common subject to common control. Generally, the underlying investments are jointly-owned with affiliates. We account for these investments under the equity method of accounting. Earnings for each investment are recognized in accordance with each respective investment agreement and where applicable, based upon an allocation of the investment’s net assets at book value as if the investment were hypothetically liquidated at the end of each reporting period. Investments in unconsolidated investments are required to be evaluated periodically. We periodically compare an investment’s carrying value to its estimated fair value and recognize an impairment charge to the extent that the carrying value exceeds fair value and such decline is determined to be other than temporary. Additionally, we provide funding to developers for the acquisition, development and construction of real estate, or ADC Arrangement. Under ADC Arrangements, we have provided two loans to third-party developers of real estate projects, which we account for as equity investments.

The following table sets forth our ownership interests in our equity investments in real estate and their respective carrying values along with those ADC Arrangements that are recorded as equity investments (dollars in thousands):



		Ownership Interest at	Carrying Value at
Lessee/Equity Investee	Co-owner(s)	June 30, 2014	June 30, 2014		December 31, 2013
Shelborne Property Associates, LLC ^(a)	Third Party	33%	$	142,695	$	129,575
C1000 Logistiek Vastgoed B.V. ^{(b) (c) (d)}	WPC	85%	80,624		84,119
U-Haul Moving Partners, Inc. and Mercury Partners, LP	WPC	12%	42,181		43,051
Bank Pekao S.A. ^(b) ^(e)	CPA^®:18 – Global	50%	36,545		—
Lineage Logistics Holdings LLC ^(f)	Third Party	7%	30,035		—
IDL Wheel Tenant, LLC ^(g)	Third Party	N/A	27,274		6,017
BPS Nevada, LLC	Third Party	15%	23,834		23,278
Madison Storage NYC, LLC and Veritas Group IX-NYC, LLC ^(h)	Third Party	45%	21,934		23,907
State Farm	CPA^®:18 – Global	50%	20,987		20,913
Berry Plastics Corporation	WPC	50%	17,158		17,659
Tesco plc ^(b)	WPC	49%	17,020		17,965
Hellweg Die Profi-Baumärkte GmbH & Co. KG ^{(b) (d)}	WPC	37%	11,457		12,978
Agrokor 5 ^{(b) (i)}	CPA^®:18 – Global	20%	11,359		19,217
Eroski Sociedad Cooperativa – Mallorca ^(b)	WPC	30%	9,502		9,639
Dick’s Sporting Goods, Inc.	WPC	45%	5,086		4,646
			$	497,691	$	412,964

___________

(a)

Represents a domestic ADC Arrangement that we account for under the equity method of accounting as the characteristics of the arrangement with the third-party developer are more similar to a jointly-owned investment or partnership rather than a loan. We consider this investment a VIE. We provided funding of $9.1 million to this investment during the six months ended June 30, 2014. At June 30, 2014, the unfunded balance on the loan related to this investment was $2.0 million. Additionally, during the six months ended June 30, 2014, capital contributions were made by our partners that resulted in income attributed to us of $6.5 million based upon the hypothetical liquidation at book value method of accounting.


(b)	The carrying value of this investment is affected by the impact of fluctuations in the exchange rate of the euro.

(c)

This investment represents a tenancy-in-common interest, whereby the property is encumbered by debt for which we are jointly and severally liable. For this investment, the co-obligor is WPC and the amount due under the arrangement was approximately $93.8 million and $95.6 million at June 30, 2014 and December 31, 2013, respectively. Of these amounts, $79.8 million and $81.3 million represent the amounts we agreed to pay and are included within the carrying value of this investment at June 30, 2014 and December 31, 2013, respectively.


(d)	The decrease in carrying value is primarily due to distributions made to us.


(e)	See Acquisition of Equity Investment below. Carrying value includes our share of the acquisition expenses and VAT paid. Additionally, a $54.6 million distribution was made to us representing our share of new financing obtained by the investment during three months ended June 30, 2014.


(f)	See Conversion to Equity Investment below.

(g)

Represents a domestic ADC Arrangement that we account for under the equity method of accounting as the characteristics of the arrangement with the third-party developer are more similar to a jointly-owned investment or partnership rather than a loan. We consider this investment a VIE. We provided funding of $21.3 million to this investment and capitalized $0.4 million of interest related to the loan during the six months ended June 30, 2014. At June 30, 2014, the unfunded balance on the loan related to this investment was $22.8 million.


(h)	In addition to our 45% equity interest, we have a 40% indirect economic interest in this investment based upon certain contractual arrangements with our partner in this entity that enable or could require us to purchase their interest.


(i)	The decrease in carrying value is primarily due to a distribution made to us as a result of new financing obtained by the investment.

We recognized net income from equity investments in real estate of $11.0 million and $1.7 million for the three months ended June 30, 2014 and 2013, respectively, and a net loss from equity investments in real estate of $7.7 million for the six months ended June 30, 2014 and net income from equity investments in real estate of $2.9 million for the six months ended June 30, 2013. Net income or loss from equity investments is based on the hypothetical liquidation at book value model as well as certain depreciation and amortization adjustments related to basis differentials from acquisitions of certain investments. Aggregate distributions from our interests in other unconsolidated real estate investments were $12.8 million and $18.1 million for the six months ended June 30, 2014 and the year ended December 31, 2013, respectively. At June 30, 2014 and December 31, 2013, the unamortized basis differences on our equity investments were $23.9 million and $25.9 million, respectively. Net amortization of the basis differences reduced the carrying values of our equity investments by $1.0 million and $0.9 million for the three months ended June 30, 2014 and 2013, respectively, and reduced the carrying values of our equity investments by $1.9 million and $1.7 million for the six months ended June 30, 2014 and 2013, respectively.

Acquisition of Equity Investment

In March 2014, we and CPA^®:18 – Global acquired an office facility through a jointly-owned investment for a total cost of $147.9 million. Acquisition-related costs and fees totaling $8.4 million were expensed by the jointly-owned investment as this acquisition was deemed a business combination. We acquired a 50% interest in this venture for $74.0 million and account for this investment under the equity method of accounting.

Conversion to Equity Investment

In April 2014, we made a follow-on equity investment of $20.4 million, including acquisition-related fees and costs of $0.4 million, to our existing equity holdings in Lineage Logistics Holdings LLC, which was accounted for using the cost method of accounting. With our existing holdings, we were deemed to have a significant influence when we acquired our follow-on investment. As a result, we recorded the follow-on investment to Equity investments in real estate and reclassified our existing holdings, totaling $8.3 million, from Other assets, net to Equity investments in real estate during the six months ended June 30, 2014. Additionally, we recorded equity income of $1.4 million related to the investment for the three and six months ended June 30, 2014.