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. As required by current authoritative accounting guidance, 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 ADC Arrangements. Under ADC Arrangements, we have provided two loans to third-party developers of real estate projects, which we account for as equity investments as the characteristics of the arrangement with the third-party developers are more similar to a jointly-owned investment or partnership rather than a loan.

The following table presents Equity in earnings (losses) in equity method investments in real estate, which represents our proportionate share of the income or losses of these investments, as well as amortization of basis differences related to purchase accounting adjustments (in thousands):



	Years Ended December 31,
	2015			2014			2013
Equity Earnings from Equity Investments:
Net Lease	$	21,692		$	12,571		$	(1,261	)
Self-Storage	(1,703		)	(1,878		)	(1,024		)
All Other	(1,762		)	17,655			(3,322		)
	18,227			28,348			(5,607		)
Amortization of Basis Differences on Equity Investments:
Net Lease	(2,263		)	(3,381		)	(3,514		)
Self-Storage	(155		)	(155		)	(66		)
All Other	(1,142		)	(739		)	(313		)
	(3,560		)	(4,275		)	(3,893		)
Equity in earnings (losses) of equity method investments in real estate	$	14,667		$	24,073		$	(9,500	)

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 December 31,
Lessee/Equity Investee	Co-owner	December 31, 2015	2015		2014
Net Lease:
C1000 Logistiek Vastgoed B.V. ^(a)	WPC	85%	$	59,629	$	71,130
U-Haul Moving Partners, Inc. and Mercury Partners, LP	WPC	12%	39,309		41,028
Bank Pekao S.A. ^(a)	CPA^®:18 – Global	50%	25,785		31,045
BPS Nevada, LLC ^(b)	Third Party	15%	22,007		21,850
State Farm	CPA^®:18 – Global	50%	18,587		20,414
Berry Plastics Corporation	WPC	50%	16,094		16,632
Apply Sørco AS ^(a)	CPA^®:18 – Global	49%	15,170		19,076
Hellweg Die Profi-Baumärkte GmbH & Co. KG (referred to as Hellweg 2) ^(a)	WPC	37%	12,212		9,935
Tesco plc ^(a)	WPC	49%	11,849		14,194
Agrokor d.d. (referred to as Agrokor 5) ^(a)	CPA^®:18 – Global	20%	7,858		8,760
Eroski Sociedad Cooperativa – Mallorca ^(a)	WPC	30%	6,790		7,662
Dick’s Sporting Goods, Inc.	WPC	45%	5,055		5,508
			240,345		267,234
Self-Storage:
Madison Storage NYC, LLC and Veritas Group IX-NYC, LLC	Third Party	45%	16,060		20,147
			16,060		20,147
All Other:
Shelborne Property Associates, LLC ^(b)	Third Party	33%	148,121		152,801
IDL Wheel Tenant, LLC ^(b)	Third Party	N/A	44,387		30,049
BG LLH, LLC ^(b)	Third Party	7%	37,720		42,587
BPS Nevada, LLC - Preferred Equity	Third Party	N/A	27,514		18,182
			257,742		243,619
			$	514,147	$	531,000

__________


(a)	The carrying value of this investment is affected by the impact of fluctuations in the exchange rate of the applicable foreign currency.


(b)	This investment is subject to the hypothetical liquidation at book value model.

C1000 Logistiek Vastgoed B.V. — Our investment in C1000 Logistiek Vastgoed B.V. 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 $72.5 million and $82.7 million at December 31, 2015 and 2014, respectively. Of these amounts, $61.7 million and $70.3 million represent the amounts we agreed to pay and are included within the carrying value of this investment at December 31, 2015 and 2014, respectively.

Bank Pekao S.A. — On March 31, 2014, we and CPA^®:18 – Global acquired an office facility leased to Bank Pekao S.A. in Warsaw, Poland 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. Our share of the acquisition expenses and value added taxes paid is included within the carrying value of the investment. On May 21, 2014, this jointly-owned investment obtained non-recourse mortgage financing of $73.1 million, of which our share is $36.6 million, which is included within the carrying value of this investment and is based on the exchange rate of the euro on that date. This mortgage loan bears a fixed annual interest rate of 3.3% and matures on March 10, 2021. The decrease in carrying value was partially due to distributions made to us.

BPS Nevada, LLC — As discussed in Note 8, we recognized an other-than-temporary impairment charge on this investment in 2013.

State Farm — On August 20, 2013, we and CPA^®:18 – Global acquired an office facility from State Farm in Austin, Texas through a jointly-owned investment for a total cost of $115.6 million, including capitalized acquisition-related costs and fees totaling $5.6 million. We acquired a 50% interest in this venture for $57.8 million and account for this investment under the equity method of accounting. In connection with this transaction, this jointly-owned investment obtained non-recourse mortgage financing of $72.8 million, of which our share is $36.4 million, which is included within the carrying value of this investment. This mortgage loan bears a fixed annual interest rate of 4.5% and matures on September 10, 2023.

Apply Sørco AS— On October 31, 2014, we and CPA^®:18 – Global acquired an office facility leased to Apply Sørco AS in Stavanger, Norway through a jointly-owned investment for a total cost of $108.3 million, including capitalized acquisition-related costs and fees totaling $5.7 million and a deferred tax liability of $12.5 million that was recorded because the investment was a share transaction. We acquired a 49% interest in this venture for $53.1 million and account for this investment under the equity method of accounting. In connection with this transaction, this jointly-owned investment issued privately-placed bonds of $53.3 million, of which our share is $26.1 million, which is included within the carrying value of this investment and is based on the exchange rate of the Norwegian krone on the date of acquisition. The bonds pay an annual coupon of 4.4% on October 30 and mature on October 31, 2021.

Hellweg 2 — In 2007, CPA^®:14, CPA^®:15, and CPA^®:16 – Global acquired a 33%, 40%, and 27% interest, respectively, in an entity, which we refer to as Purchaser, for the purposes of acquiring a 25% interest in a property holding company, which we refer to as PropCo, that owns 37 do-it-yourself stores located in Germany. This is referred to as the Hellweg 2 transaction. The remaining 75% interest in PropCo was owned by a third party, which we refer to as Partner. In November 2010, CPA^®:14, CPA^®:15, and CPA^®:16 – Global obtained a 70% additional interest in PropCo from the Partner, resulting in Purchaser owning approximately 95% of PropCo. In 2011, we acquired CPA^®:14’s interests. In 2012, WPC acquired CPA^®:15’s interests through its merger with CPA^®:15.

In October 2013, we acquired the Partner’s remaining 5% equity interest in PropCo, which resulted in PropCo recording a German real estate transfer tax of $21.9 million, of which our share was approximately $8.1 million and was recorded within Equity in earnings (losses) of equity method investments in real estate in our consolidated financial statements for the year ended December 31, 2013. On January 31, 2014, WPC acquired CPA^®:16 – Global’s interests in Hellweg 2 through its merger with CPA^®:16 – Global. As of December 31, 2015, WPC holds a 63% interest, and we hold a 37% interest, in the Hellweg 2 investment. We account for this investment under the equity method of accounting. During the fourth quarter of 2015, the German tax authority revoked its previous position on the application of a ruling in an unrelated matter by a Federal German tax court. Based on this change in position, the obligation for German real estate transfer taxes recorded in connection with our acquisition of the Partner’s remaining 5% equity interest in PropCo was no longer deemed probable of occurring. As a result, Hellweg 2 recorded a reversal of the amount described above, of which our share was approximately $6.2 million and was recorded within Equity in earnings (losses) of equity method investments in real estate in our consolidated financial statements for the year ended December 31, 2015.

Agrokor 5 — On December 18, 2013, we and CPA^®:18 – Global acquired a portfolio of five retail facilities, referred to as Agrokor 5, from Agrokor d.d. in Croatia through a jointly-owned investment for a total cost of $97.0 million, including capitalized acquisition-related costs and fees totaling $6.3 million. We acquired a 20% interest in this venture for $19.4 million and account for this investment under the equity method of accounting. On February 25, 2014, this jointly-owned investment obtained non-recourse mortgage financing of $42.9 million, of which our share is $8.6 million, which is included within the carrying value of this investment and is based on the exchange rate of the euro on that date. This mortgage loan bears a fixed annual interest rate of 5.8% and matures on December 31, 2020.

Eroski Sociedad Cooperativa – Mallorca — As discussed in Note 8, we recognized an other-than-temporary impairment charge on this investment in 2014.

Madison Storage NYC, LLC and Veritas Group IX-NYC, LLC — 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.

Shelborne Property Associates, LLC — Our investment in Shelborne Property Associates, LLC, a VIE, represents a domestic ADC Arrangement. On December 27, 2012, we funded a domestic build-to-suit project with Shelborne Property Associates, LLC for the construction of a hotel property for a total estimated construction cost of up to $125.0 million, which was subsequently increased to $154.9 million. We funded $154.9 million through December 31, 2015. The loan is collateralized by the property and had an annual interest rate ranging from 6% to 8% for the first three years of the term, followed by seven one-year extensions of the term at the option of the borrower, at which point the annual interest rate would be 10%. On December 31, 2015, the investment exercised its option to extend the maturity of the loan until December 31, 2016, and the interest rate increased to 10%. There was no unfunded balance on the loan related to this investment at December 31, 2015.

IDL Wheel Tenant, LLC— Our investment in IDL Wheel Tenant, LLC, a VIE, represents a domestic ADC Arrangement. We provided funding of $17.7 million to this investment and capitalized $0.6 million of interest related to the investment during the year ended December 31, 2015. There was no unfunded balance on the loan related to this investment at December 31, 2015.

On November 16, 2012, we funded a domestic build-to-suit project with IDL Wheel Tenant, LLC for the construction of an observation wheel in an entertainment complex, which we also acquired as a build-to-suit project (Note 4). The total estimated construction cost of the observation wheel is up to $50.0 million, which was fully funded through December 31, 2015. The loan is personally guaranteed by each of the principals of IDL Wheel Tenant, LLC and has an annual interest rate of 9% and matures in November 2017. As part of the arrangement, we agreed to fund a portion of the loan in euros and we locked the euro to U.S. dollar exchange rate to the developer at $1.278 at the time of the transaction. This component of the loan is deemed to be an embedded derivative (Note 9). At December 31, 2015, the related loan did not have any unfunded balance.

BG LLH, LLC — On April 7, 2014, we made a follow-on equity investment of $20.4 million, including acquisition-related costs and fees of $0.4 million, to our existing equity holdings in BG LLH, LLC, which owns substantially all of the equity of Lineage Logistics Holdings, LLC, an entity that owns and operates cold storage facilities in the United States. We formerly accounted for our existing equity holdings using the cost method of accounting. With our investment in April 2014, we were deemed to have significant influence over BG LLH, LLC and, accordingly, we changed our accounting for this investment to the equity method of accounting and reclassified our existing holdings, totaling $8.3 million, from Other assets, net to Equity investments in real estate during 2014. In addition, we recorded equity income of $11.5 million related to this investment for the year ended December 31, 2014, which is primarily comprised of our share of earnings recorded by the investee related to a business combination during the year, and which is included in Equity in earnings (losses) of equity method investments in real estate in the consolidated financial statements.

BPS Nevada, LLC - Preferred Equity — On November 19, 2014, we acquired a preferred equity position in BPS Nevada, LLC, an entity in which we hold a 15% equity interest, for a total cost of $18.2 million, including acquisition-related costs and fees of $0.2 million. The preferred equity interest provides us with a preferred rate of return of 8% during the first four months of the term, 10% during the next four months of the term, and 12% thereafter, until November 19, 2019, the date on which the preferred equity interest is redeemable. Our equity interest and preferred equity position in BPS Nevada, LLC allow us to have significant influence over the entity. Accordingly, we account for this investment using the equity method of accounting. On February 2, 2015, we funded an additional $9.1 million, including acquisition-related costs and fees of $0.1 million, related to this investment. During the year ended December 31, 2015, we recognized $4.2 million of income related to this investment, which is included in Equity in earnings (losses) of equity method investments in real estate in the consolidated financial statements.

The following tables present combined summarized investee financial information of our equity method investment properties. Amounts provided are the total amounts attributable to the investment properties and do not represent our proportionate share (in thousands):



	December 31 or September 30 (as applicable), ^(a)
	2015			2014
Real estate assets	$	3,378,044		$	3,271,264
Other assets	728,439			761,924
Total assets	4,106,483			4,033,188
Debt	(2,530,826		)	(2,386,161		)
Accounts payable, accrued expenses and other liabilities	(325,315		)	(242,703		)
Total liabilities	(2,856,141		)	(2,628,864		)
Noncontrolling interests	360			—
Partners’/members’ equity	$	1,250,702		$	1,404,324



	Twelve Months Ended December 31 or September 30 (as applicable), ^(a)
	2015			2014			2013
Revenues	$	779,875		$	595,228		$	381,169
Expenses	(791,224		)	(546,170		)	(368,302		)
(Loss) income from continuing operations	$	(11,349	)	$	49,058		$	12,867

__________

(a)

We recorded our investments in BPS Nevada, LLC, BG LLH, LLC, IDL Wheel Tenant, LLC, and Shelborne Property Associates, LLC on a one quarter lag. Therefore, amounts in our financial statements for the years ended December 31, 2015, 2014, and 2013 are based on balances and results of operations from BPS Nevada, LLC, BG LLH, LLC, IDL Wheel Tenant, LLC, and Shelborne Property Associates, LLC as of and for the 12 months ended September 30, 2015, 2014, and 2013, respectively.

Aggregate distributions from our interests in other unconsolidated real estate investments were $52.1 million, $28.7 million, and $18.1 million for the years ended December 31, 2015, 2014, and 2013, respectively. At December 31, 2015 and 2014, the unamortized basis differences on our equity investments were $26.5 million and $31.0 million, respectively.