Agreements and Transactions with Related Parties

Transactions with Our Advisor

We have an advisory agreement with our advisor whereby our advisor performs certain services for us under a fee arrangement. The current advisory agreement will expire on December 31, 2015 and is scheduled to renew annually thereafter with our approval. We also have certain agreements with affiliates regarding jointly-owned investments. In addition, we reimburse our advisor for general and administrative duties performed on our behalf.

The following tables present a summary of fees we paid, expenses we reimbursed, and distributions we made to our advisor and other affiliates in accordance with the advisory agreement and the operating partnership agreement (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Amounts Included in the Consolidated Statements of Income
Asset management fees	$	7,300	$	6,846	$	14,442	$	13,465
Available Cash Distributions	5,789		4,590		11,853		9,269
Personnel and overhead reimbursements	2,696		2,824		6,152		6,324
Interest expense on deferred acquisition fees and loan from affiliate	60		129		133		280
Acquisition expenses	—		298		430		1,191
	$	15,845	$	14,687	$	33,010	$	30,529
Acquisition Fees Capitalized
Current acquisition fees	$	2,504	$	1,351	$	4,938	$	1,355
Deferred acquisition fees	2,003		682		3,732		690
	$	4,507	$	2,033	$	8,670	$	2,045

The following table presents a summary of amounts included in Due to affiliates in the consolidated financial statements (in thousands):



	June 30, 2015		December 31, 2014
Due to Affiliates
Deferred acquisition fees, including interest	$	5,681	$	9,394
Reimbursable costs	3,381		228
Asset management fees payable	2,470		2,283
Accounts payable	579		527
Current acquisition fees	296		—
Subordinated disposition fees	—		202
	$	12,407	$	12,634

Acquisition and Disposition Fees

We pay our 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, which is a non-compounded cumulative distribution of 5.0% per annum (based initially on our invested capital). Acquisition fees payable to our advisor with respect to our long-term, net-lease investments are 4.5% of the total cost of those investments and are comprised of a current portion of 2.5%, typically paid upon acquisition, and a deferred portion of 2.0%, typically paid over three years and subject to the 5.0% preferred return described above. For certain types of non-long term net-lease investments, initial acquisition fees are up to 1.75% of the equity invested plus the related acquisition fees, with no portion of the payment being deferred. Unpaid installments of deferred acquisition fees are included in Due to affiliates in the consolidated financial statements. Unpaid installments of deferred acquisition fees bear interest at an annual rate of 5.0%.

Our advisor may be entitled to receive a disposition fee equal to the lesser of (i) 50.0% of the competitive real estate commission (as defined in the advisory agreement) or (ii) 3.0% of the contract sales price of the investment being sold; however, payment of such fees is subordinated to the 5.0% preferred return. These fees, which are paid at the discretion of our board of directors, are deferred and are payable to our advisor only in connection with a liquidity event.

Asset Management Fees and Available Cash Distribution

As defined in the advisory agreement, we pay our advisor asset management fees that vary based on the nature of the underlying investment. We pay 0.5% per annum of average market value for long-term net leases and certain other types of real estate investments, and 1.5% to 1.75% per annum of average equity value for certain types of securities. For 2015, the asset management fees are payable in cash or shares of our common stock at our option, after consultation with our advisor. For 2014, the asset management fees were payable in cash or shares of our common stock at the option of our advisor. If our advisor receives 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 estimated net asset value per share, or NAV, which was $9.72 as of December 31, 2014. For 2015, we elected to pay our advisor 50.0% of its asset management fees in cash and 50.0% in shares of our common stock. For 2014, our advisor elected to receive its asset management fees in shares of our common stock. At June 30, 2015, our advisor owned 9,647,643 shares (2.9%) of our common stock. We also distribute to our advisor, depending on the type of investments we own, up to 10.0% of available cash of the Operating Partnership, referred to as the Available Cash Distribution, 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 Overhead Reimbursements

Under the terms of the advisory agreement, our advisor allocates a portion of its personnel and overhead expenses to us and the other publicly-owned, non-listed REITs that are managed by our advisor, including Corporate Property Associates 18 – Global Incorporated, which we refer to as CPA^®:18 – Global or, together with us, as the CPA^® REITs, Carey Watermark Investors Incorporated, or CWI, and Carey Watermark Investors 2 Incorporated, or CWI 2. Our advisor allocates these expenses to us on the basis of our trailing four quarters of reported revenues and those of WPC, CPA^®:18 – Global, CWI, and CWI 2.

We reimburse our advisor for various expenses it incurs in the course of providing services to us. We reimburse certain third-party expenses paid by our advisor on our behalf, including property-specific costs, professional fees, office expenses, and business development expenses. In addition, we reimburse our 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 our advisor for the cost of personnel if these personnel provide services for transactions for which our advisor receives a transaction fee, such as acquisitions and dispositions. Under the advisory agreement, the amount of applicable personnel costs allocated to us is capped at 2.4% for 2015 and 2.2% for 2016, of pro rata lease revenues for each year. Beginning in 2017, the cap decreases to 2.0% of pro rata lease revenues for that year. Costs related to our advisor’s legal transactions group are based on a schedule of expenses for different types of transactions, including 0.25% of the total investment cost of an acquisition. Personnel and overhead reimbursements are included in General and administrative expenses in the consolidated financial statements.

Our 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, our 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, our 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 our advisor to reimburse us.

Loans from WPC

In March 2015, our board of directors and the board of directors of WPC approved unsecured loans from WPC to us of up to $75.0 million, in the aggregate, at a rate equal to the rate at which WPC is able to borrow funds under its senior credit facility, for the purpose of facilitating acquisitions approved by our advisor’s investment committee that we would not otherwise have sufficient available funds to complete. All loans are made solely at the discretion of WPC’s management. As of June 30, 2015, no loans were outstanding. On July 1, 2015, we obtained a $10.0 million loan from WPC in connection with our acquisition of six retail facilities in Illinois, North Dakota, and Wisconsin (Note 5, Note 6) with a maturity date of December 30, 2015. On July 14, 2015, we obtained an additional $15.0 million loan from WPC in connection with our acquisition of a warehouse facility in Sered, Slovakia with a maturity date of December 30, 2015. Both loans have a rate of London Interbank Offered Rate plus 1.1%

Jointly-Owned Investments and Other Transactions with Affiliates

At June 30, 2015, we owned interests ranging from 7% to 97% in jointly-owned investments, with the remaining interests held by affiliates or by third parties. We consolidate certain of these investments and account for the remainder under the equity method of accounting. We also owned an interest in a jointly-controlled tenancy-in-common interest in several properties, which we account for under the equity method of accounting (Note 7).