10-Q 1 cpa182014q110-q.htm 10-Q CPA 18 2014 Q1 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 March 31, 2014
 
 
 
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: 000-54970
CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
(Exact name of registrant as specified in its charter)
Maryland
 
90-0885534
(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 R 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 R 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 o
Accelerated filer o
Non-accelerated filer þ
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 R

Registrant has 70,341,509 shares of Class A common stock, $0.001 par value, and 5,651,346 shares of Class C common stock, $0.001 par value, outstanding at April 30, 2014.





INDEX

Forward-Looking Statements

This Quarterly Report on Form 10-Q, or the Report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, 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. It is important to note that our actual results could be materially different from those projected in such forward-looking statements. 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 which 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, 2013 as filed with the SEC on March 19, 2014, or the 2013 Annual Report. 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).




CPA®:18 – Global 3/31/2014 10-Q 1


PART I
Item 1. Financial Statements.

CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share and per share amounts)
 
March 31, 2014
 
December 31, 2013
Assets
 
 
 
Investments in real estate:
 
 
 
   Real estate, at cost
$
411,958

 
$
150,424

   Operating real estate, at cost
20,880

 

   Accumulated depreciation
(2,277
)
 
(824
)
Net investments in properties
430,561

 
149,600

Net investment in direct financing leases
30,107

 
22,064

Net investments in real estate
460,668

 
171,664

Cash and cash equivalents
333,599

 
109,061

In-place lease intangible assets, net
106,679

 
53,337

Below-market ground lease intangible asset, net
17,651

 
8,224

Other intangible assets, net
10,762

 

Other assets, net
54,422

 
13,384

Total assets
$
983,781

 
$
355,670

 
 
 
 
Liabilities and Equity
 
 
 
Liabilities:
 
 
 
Non-recourse debt
$
200,662

 
$
85,060

Bonds payable
52,503

 

Due to affiliate
16,130

 
5,149

Deferred income taxes
15,053

 
8,350

Prepaid and deferred rental income
11,038

 
3,317

Accounts payable, accrued expenses and other liabilities
9,729

 
1,502

Distributions payable
6,259

 
1,821

Total liabilities
311,374

 
105,199

 

 

Commitments and contingencies (Note 11)

 

Equity:
 
 
 
CPA®:18 – Global stockholders’ equity:
 
 
 
Preferred stock, $0.001 par value; 50,000,000 shares authorized; none issued

 

Class A common stock, $0.001 par value; 320,000,000 shares authorized; 59,314,868 and 21,290,097 shares issued and outstanding, respectively
59

 
21

Class C common stock, $0.001 par value; 80,000,000 shares authorized; 4,994,383 and 2,776,001 shares issued and outstanding, respectively
5

 
3

Additional paid-in capital
575,098

 
215,371

Distributions and accumulated losses
(23,063
)
 
(2,567
)
Accumulated other comprehensive loss
(894
)
 
(94
)
Total CPA®:18 – Global stockholders’ equity
551,205

 
212,734

Noncontrolling interests
121,202

 
37,737

Total equity
672,407

 
250,471

Total liabilities and equity
$
983,781

 
$
355,670


See Notes to Consolidated Financial Statements.


CPA®:18 – Global 3/31/2014 10-Q 2


CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(in thousands, except share and per share amounts) 
 
 
Three Months Ended 
 March 31, 2014
Revenues
 
 
Lease revenues:
 
 
Rental income
 
$
5,659

Interest income from direct financing leases
 
552

Total lease revenues
 
6,211

Other real estate income
 
421

Other operating income
 
62

 
 
6,694

Operating Expenses
 
 
Acquisition expenses (inclusive of $15,872 to a related party)
 
18,994

Depreciation and amortization
 
2,715

General and administrative (inclusive of $104 to a related party)
 
638

Property expenses (inclusive of $331 to a related party)
 
627

Other real estate expenses
 
117

 
 
23,091

Other Income and Expenses
 
 
Interest expense (inclusive of $20 to a related party)
 
(2,076
)
Other income
 
230

 
 
(1,846
)
Loss from continuing operations before income taxes
 
(18,243
)
Benefit from income taxes
 
263

Net Loss
 
(17,980
)
Net loss attributable to noncontrolling interests (inclusive of Available Cash Distribution to advisor of $69)
 
3,743

Net Loss Attributable to CPA®:18 – Global
 
$
(14,237
)
 
 
 
Class A common stock:
 
 
Net loss attributable to CPA®:18 – Global
 
$
(12,856
)
Weighted average shares outstanding
 
38,001,011

Net loss per share
 
$
(0.34
)
Distributions declared per share
 
$
0.1562

 
 
 
Class C common stock:
 
 
Net loss attributable to CPA®:18 – Global
 
$
(1,381
)
Weighted average shares outstanding
 
3,820,432

Net loss per share
 
$
(0.36
)
Distributions declared per share
 
$
0.1329


See Notes to Consolidated Financial Statements.


CPA®:18 – Global 3/31/2014 10-Q 3


CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
 
CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS (UNAUDITED)
(in thousands) 
 
 
Three Months Ended 
 March 31, 2014
Net Loss
 
$
(17,980
)
Other Comprehensive Loss:
 
 
Foreign currency translation adjustments
 
(461
)
Change in net unrealized loss on derivative instruments
 
(663
)
 
 
(1,124
)
Comprehensive Loss
 
(19,104
)
 
 
 
Amounts Attributable to Noncontrolling Interests:
 
 
Net loss
 
3,743

Foreign currency translation adjustments
 
324

Comprehensive loss attributable to noncontrolling interests
 
4,067

 
 
 
Comprehensive Loss Attributable to CPA®:18 – Global
 
$
(15,037
)
 
See Notes to Consolidated Financial Statements.



CPA®:18 – Global 3/31/2014 10-Q 4


CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
Three Months Ended March 31, 2014 and Year Ended December 31, 2013
(in thousands, except share and per share amounts) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CPA®:18 – Global Stockholders
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional Paid-In Capital
 
Distributions
and
Accumulated
Losses
 
Accumulated
Other Comprehensive Loss
 
Total CPA®:18 – Global Stockholders
 
Noncontrolling Interests
 
 
 
Common stock
 
 
 
 
 
 
 
 
Class A
 
Class C
 
General
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
 
Total
Balance at January 1, 2013

 
$

 

 
$

 
23,222

 
$

 
$
209

 
$

 
$

 
$
209

 
$

 
$
209

Renaming of General Shares to Class A common stock
23,222

 

 

 

 
(23,222
)
 

 

 

 

 

 

 

Shares issued, net of offering costs
21,251,565

 
21

 
2,776,001

 
3

 

 

 
215,016

 

 

 
215,040

 

 
215,040

Shares issued to affiliate
7,903












79





 
79




79

Stock-based compensation
7,407

 

 

 

 

 

 
67

 

 

 
67

 

 
67

Contributions from noncontrolling interests

 

 

 

 

 

 

 

 

 

 
38,169

 
38,169

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

 
(853
)
 
(853
)
Distributions declared ($0.2717 and $0.2311 per share to Class A and Class C, respectively)

 

 

 

 

 

 

 
(1,936
)
 

 
(1,936
)
 

 
(1,936
)
Net Loss

 

 

 

 

 

 

 
(631
)
 

 
(631
)
 
390

 
(241
)
Other Comprehensive Loss:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Foreign currency translation adjustments

 

 

 

 

 

 

 

 
125

 
125

 
31

 
156

   Change in unrealized loss on derivative instrument

 

 

 

 

 

 

 

 
(219
)
 
(219
)
 

 
(219
)
Balance at December 31, 2013
21,290,097

 
21

 
2,776,001

 
3

 

 

 
215,371

 
(2,567
)
 
(94
)
 
212,734

 
37,737

 
250,471

Shares issued, net of offering costs
38,003,231

 
38

 
2,218,382

 
2

 

 

 
359,512

 

 

 
359,552

 

 
359,552

Shares issued to affiliate
21,540

 

 

 

 

 

 
215

 

 

 
215

 

 
215

Contributions from noncontrolling interests

 

 

 

 

 

 

 

 

 

 
95,889

 
95,889

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

 
(8,357
)
 
(8,357
)
Distributions declared ($0.1562 and $0.1329 per share to Class A and Class C, respectively)

 

 

 

 

 

 

 
(6,259
)
 

 
(6,259
)
 

 
(6,259
)
Net Loss

 

 

 

 

 

 

 
(14,237
)
 

 
(14,237
)
 
(3,743
)
 
(17,980
)
Other Comprehensive Loss:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Foreign currency translation adjustments

 

 

 

 

 

 

 

 
(137
)
 
(137
)
 
(324
)
 
(461
)
   Change in net unrealized loss on derivative instruments

 

 

 

 

 

 

 

 
(663
)
 
(663
)
 

 
(663
)
Balance at March 31, 2014
59,314,868

 
$
59

 
4,994,383

 
$
5

 

 
$

 
$
575,098

 
$
(23,063
)
 
$
(894
)
 
$
551,205

 
$
121,202

 
$
672,407


See Notes to Consolidated Financial Statements.


CPA®:18 – Global 3/31/2014 10-Q 5


CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(in thousands)
 
 
Three Months Ended 
 March 31, 2014
Cash Flows — Operating Activities
 

Net loss
 
$
(17,980
)
Adjustments to net loss:
 
 
Depreciation and amortization, including intangible assets and deferred financing costs
 
2,859

Unrealized gain on foreign currency transactions and others
 
(3
)
Realized loss on foreign currency transactions and others
 
38

Straight-line rent adjustment and amortization of rent-related intangibles
 
(409
)
Net change in other operating assets and liabilities
 
15,364

Net Cash Used in Operating Activities
 
(131
)
 
 
 
Cash Flows — Investing Activities
 
 
Acquisitions of real estate and direct financing leases, net of cash acquired
 
(350,937
)
Value added taxes, or VAT, paid in connection with acquisition of real estate
 
(34,071
)
VAT refunded in connection with acquisition of real estate
 
2,672

Funds placed in escrow
 
(5,707
)
Payment of deferred acquisition fees to an affiliate
 
(644
)
Net Cash Used in Investing Activities
 
(388,687
)
 
 
 
Cash Flows — Financing Activities
 
 
Distributions paid
 
(1,821
)
Contributions from noncontrolling interests
 
95,889

Distributions to noncontrolling interests
 
(8,357
)
Scheduled payments of mortgage principal
 
(328
)
Proceeds from mortgage financing
 
115,883

Proceeds from bond financing
 
52,066

Payment of deferred financing costs and mortgage deposits
 
(1,794
)
Receipt of tenant security deposits
 
4,072

Proceeds from issuance of shares, net of issuance costs
 
357,447

Net Cash Provided by Financing Activities
 
613,057

 
 
 
Change in Cash and Cash Equivalents During the Period
 
 
Effect of exchange rate changes on cash and cash equivalents
 
299

Net increase in cash and cash equivalents
 
224,538

Cash and cash equivalents, beginning of period
 
109,061

Cash and cash equivalents, end of period
 
$
333,599

 
 
 

 
See Notes to Consolidated Financial Statements.


CPA®:18 – Global 3/31/2014 10-Q 6


CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1. Organization and Offering

Organization

Corporate Property Associates 18 – Global Incorporated, or CPA®:18 – Global, and, together with its consolidated subsidiaries, we, us, or our, is a Maryland corporation formed in September 2012 for the purpose of investing primarily in a diversified portfolio of income-producing commercial real estate properties and other real estate related assets, both domestically and outside the United States, or the U.S. We intend to qualify as a real estate investment trust, or REIT, under the internal revenue code for the taxable year ended December 31, 2013. We are a general partner and a limited partner and own a 99.97% interest in CPA:18 Limited Partnership, a Delaware limited partnership, which is our Operating Partnership. We intend to conduct substantially all of our investment activities and own all of our assets through our Operating Partnership. The Operating Partnership was formed on April 8, 2013. On July 3, 2013, WPC–CPA®:18 Holdings, LLC, or CPA®:18 Holdings, a subsidiary of our sponsor, W. P. Carey Inc., or WPC, acquired a special general partner interest in the Operating Partnership. On August 20, 2013, we acquired our first property. At March 31, 2014, our portfolio was comprised of full or partial ownership interests in 16 properties, all of which were fully occupied and triple-net leased to 13 tenants totaling 3.7 million square feet (unaudited). In addition, our portfolio was comprised of our full ownership interests in two self-storage properties totaling 0.3 million square feet (unaudited).

We are managed by WPC through Carey Asset Management Corp., or Carey Asset Management or the advisor. Our advisor provides both strategic and day-to-day management services for us, including capital funding services, investment research and analysis, investment financing and other investment related services, asset management, disposition of assets, investor relations and administrative services. W. P. Carey & Co. B.V., an affiliate of our advisor, provides asset management services with respect to our foreign investments.

On April 8, 2013, with the approval of our board of directors, we amended our articles of incorporation, and as a result, we are authorized to issue 320,000,000 shares of Class A common stock, 80,000,000 shares of Class C common stock, and 50,000,000 shares of preferred stock. All of the authorized shares have a par value of $0.001 per share.

Public Offering

On May 7, 2013, our registration statement on Form S-11 (File No. 333-185111), or the Registration Statement, was declared effective by the SEC under the Securities Act of 1933, or the Securities Act. This Registration Statement covers our initial public offering of up to $1.0 billion of common stock, in any combination of Class A common stock and Class C common stock at a price of $10.00 per share of Class A common stock and $9.35 per share of Class C common stock. The Registration Statement also covers the offering of up to $400.0 million in common stock, in any combination of Class A common stock and Class C common stock, pursuant to our distribution reinvestment and stock purchase plan, or DRIP, at a price of $9.60 per share of Class A common stock and $8.98 per share of Class C common stock. Our initial public offering is being made on a “best efforts” basis by Carey Financial, LLC, our dealer manager and a subsidiary of WPC, or Carey Financial, and selected other dealers. The per share amount of distributions on shares of Class A and C common stock will likely differ because of different allocations of class-specific expenses. Specifically, distributions on shares of Class C common stock will be lower than distributions on shares of Class A common stock because shares of Class C common stock are subject to ongoing distribution and shareholder servicing fees (Note 3). We currently intend to sell shares in our initial public offering until May 7, 2015, unless we sell all of the shares sooner; however, our board of directors may decide to extend the offering for up to an additional 18 months, and if so we would announce such extension in a prospectus supplement. In some states, we will need to renew our registration annually in order to continue offering our shares beyond the initial registration period. On July 25, 2013, aggregate subscription proceeds for our Class A and Class C common stock exceeded the minimum offering amount of $2.0 million and we began to admit stockholders. Through March 31, 2014, we raised gross offering proceeds for our Class A common stock and Class C common stock of $589.8 million and $46.5 million, respectively. The gross offering proceeds raised exclude reinvested distributions through the DRIP of $0.9 million and $0.2 million for our Class A common stock and Class C common stock, respectively. See Note 13 for additional information regarding the discontinuation of the offering of Class A shares.


CPA®:18 – Global 3/31/2014 10-Q 7


Notes to Consolidated Financial Statements (Unaudited)



Note 2. Basis of Presentation

Basis of Presentation

Our interim consolidated financial statements have been prepared, without audit, 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 U.S., 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, 2013, which are included in the 2013 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 fiscal 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.

We had no operating activity prior to April 8, 2013 and acquired our first investment on August 20, 2013. As such, consolidated results of operations and cash flows for the three months ended March 31, 2013 have not been presented.

Basis of Consolidation

Our consolidated financial statements reflect all of our accounts, including those of our controlled subsidiaries. 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.

When we obtain an economic interest in an entity, we evaluate the entity to determine if it is deemed to be a variable interest entity, or VIE, and, if so, whether we are deemed to be the primary beneficiary and are therefore required to consolidate the entity. We review the contractual arrangements provided for in the partnership agreement or other related contracts to determine whether the entity is considered a VIE, and to establish whether we have any variable interests in the VIE. We then compare our variable interests, if any, to those of the other variable interest holders to determine which party is the primary beneficiary of a VIE based on whether the entity (i) has the power to direct the activities that most significantly impact the economic performance of the VIE, and (ii) has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. During the three months ended March 31, 2014, we made several new investments (Note 4) that we evaluated for VIE purposes. We have concluded that none of our investments through March 31, 2014 qualify as a VIE.

For an entity that is not considered to be a VIE but rather a voting interest entity, or VOE, the general partners in a limited partnership (or similar entity) are presumed to control the entity regardless of the level of their ownership and, accordingly, may be required to consolidate the entity. We evaluate the partnership agreements or other relevant contracts to determine whether there are provisions in the agreements that would overcome this presumption. If the agreements provide the limited partners with either (a) the substantive ability to dissolve or liquidate the limited partnership or otherwise remove the general partners without cause or (b) substantive participating rights, the limited partners’ rights overcome the presumption of control by a general partner of the limited partnership, and, therefore, the general partner must account for its investment in the limited partnership using the equity method of accounting.

Based on our evaluation, we determined that our Operating Partnership was not a VIE but should be consolidated as we control all decisions regarding our Operating Partnership. We account for the special general partner interest held by CPA®:18 Holdings in the Operating Partnership as a noncontrolling interest.


CPA®:18 – Global 3/31/2014 10-Q 8


Notes to Consolidated Financial Statements (Unaudited)


Recent Accounting Requirement

The following Accounting Standard Update, or ASU, promulgated by the Financial Accounting Standards Board, or FASB, is applicable to us:

ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360). ASU 2014-08 changes the requirements for reporting discontinued operations. A discontinued operation may include a component of an entity or a group of components of an entity, or a business. Under this new guidance, a disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a “strategic shift that has or will have a major effect on an entity’s operations and financial results.” The new guidance also requires disclosures including pre-tax profit or loss and significant gains or losses arising from dispositions that represent an “individually significant component of an entity,” but do not meet the criteria to be reported as discontinued operations under ASU 2014-08. In the ordinary course of business, we may sell properties, which, under prior accounting guidance, would have been reported each as discontinued operations; however, under ASU 2014-08 such property dispositions typically would not meet the criteria to be reported as discontinued operations. We elected to early adopt ASU 2014-08 prospectively for any dispositions after December 31, 2013. Consequently, individually significant operations that are sold or classified as held-for-sale during 2014 will not be reclassified to discontinued operations in the consolidated statements of income, but will be disclosed in the Notes to the consolidated financial statements. This ASU did not have a significant impact on our financial position or results of operations for any of the periods presented.

Note 3. Agreements and Transactions with Related Parties

On May 7, 2013, we entered into an advisory agreement with the advisor to perform certain services for us under a fee arrangement, including the identification, evaluation, negotiation, purchase, and disposition of real estate and related assets and mortgage loans, day-to-day management, and the performance of certain administrative duties. The term of the advisory agreement is through September 30, 2014 and is scheduled to renew annually thereafter with our approval.

The following tables present a summary of fees we paid and expenses we reimbursed to the advisor and other affiliates in accordance with the terms of the related agreements (in thousands):
 
 
 
Three Months Ended 
 March 31, 2014
Amounts Included in the Consolidated Statement of Operations:
 
 
 
Acquisition expenses
 
 
$
15,872

Asset management fees
 
 
331

Available Cash Distribution
 
 
69

Interest expense on deferred acquisition fees
 
 
20

Personnel and overhead reimbursements
 
 
16

Shareholder servicing fee
 
 
88

 
 
 
$
16,396

 
 
 
 
Other Transaction Fees Incurred:
 
 
 
Selling commissions and dealer manager fees
 
 
$
38,670

Current acquisition fees
 
 
471

Deferred acquisition fees
 
 
484

Offering costs
 
 
798

 
 
 
$
40,423

 
 
 
 
 
March 31, 2014
 
December 31, 2013
Due to Affiliate:
 
 
 
Deferred acquisition fees, including interest
$
9,546

 
$
2,705

Accounts payable
6,414

 
2,406

Asset management fees payable
154

 
38

Reimbursable costs
16

 

 
$
16,130

 
$
5,149




CPA®:18 – Global 3/31/2014 10-Q 9


Notes to Consolidated Financial Statements (Unaudited)


Organization and Offering Costs

Pursuant to the advisory agreement with the advisor, we are liable for certain expenses related to our initial public offering, which include filing, legal, accounting, printing, advertising, transfer agent, and escrow fees, and are to be deducted from the gross proceeds of the offering. We will reimburse Carey Financial or selected dealers for reasonable bona fide due diligence expenses incurred that are supported by a detailed and itemized invoice. The total underwriting compensation to Carey Financial and selected dealers in connection with the offering cannot exceed limitations prescribed by the Financial Industry Regulatory Authority, Inc. The advisor has agreed to be responsible for the repayment of organization and offering expenses (excluding selling commissions and dealer manager fees paid to Carey Financial and selected dealers and fees paid and expenses reimbursed to selected dealers) that exceed in the aggregate 2.0% of the gross proceeds from the initial public offering if the gross proceeds are $500.0 million or more but less than $750.0 million, and 1.5% of the gross proceeds from the initial public offering if the gross proceeds are $750.0 million or more. Since inception and through March 31, 2014, the advisor has incurred organization and offering costs of $0.1 million and $5.8 million, respectively, on our behalf, of which we repaid $5.2 million. We recorded a liability to the advisor for the remaining unpaid offering costs based on our estimate of expected gross offering proceeds.

Loan from WPC

Our board of directors and the board of directors of WPC have approved unsecured loans from WPC to us of up to $100.0 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, with any loans to be made solely at the discretion of the management of WPC. We did not borrow any funds from WPC during the three months ended March 31, 2014 nor do we have any amounts outstanding at March 31, 2014.

Asset Management Fees

Pursuant to the advisory agreement, the advisor is entitled to an annual asset management fee ranging from 0.5% to 1.5%, depending on the type of investment and based on the average market value or average equity value, as applicable, of our investments. The asset management fees are payable in cash or shares of our Class A 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 estimated net asset value per share, or NAV, or, if an NAV has not yet been published, as currently is the case, $10.00 per share, which is the price at which our Class A shares are being sold in our initial public offering. For 2013 and 2014, the advisor elected to receive its asset management fees in shares of our Class A common stock. At March 31, 2014, the advisor owned 52,665 shares (0.1%) of our outstanding Class A common stock. Asset management fees are included in Property expenses in the consolidated statement of operations.

Selling Commissions and Dealer Manager Fees

On May 7, 2013, we entered into a dealer manager agreement with Carey Financial, whereby Carey Financial receives a selling commission, depending on the class of common stock sold, of $0.70 and $0.14 per share sold and a dealer manager fee of $0.30 and $0.21 per share sold for the Class A and Class C common stock, respectively. These amounts are recorded in Additional paid-in capital in the consolidated financial statements.

Carey Financial also receives an annual distribution and shareholder servicing fee in connection with sales of our Class C common stock. The amount of the shareholder servicing fee will be 1.0% of the selling price per share (or, once reported, the amount of our NAV) for the Class C common stock in our initial public offering. The shareholder servicing fee accrues daily and is payable quarterly in arrears. We will no longer incur the shareholder servicing fee beginning on the date at which, in the aggregate, underwriting compensation from all sources, including the shareholder servicing fee, any organizational and offering fee paid for underwriting and underwriting compensation paid by WPC and its affiliates, equals 10.0% of the gross proceeds from our initial public offering, which we have not yet reached. The shareholder servicing fee for the three months ended March 31, 2014 was less than $0.1 million and is included in General and administrative on the consolidated statement of operations. See Note 13 for additional information regarding the discontinuation of the offering of Class A shares.

Acquisition and Disposition Fees

The advisor receives acquisition fees, a portion of which is payable upon acquisition and the payment of the remaining portion is subordinated to a preferred return, a non-compounded cumulative distribution of 5.0% per annum (based initially on our invested capital). The initial acquisition fee and subordinated acquisition fee are 2.5% and 2.0%, respectively, of the aggregate total cost of our


CPA®:18 – Global 3/31/2014 10-Q 10


Notes to Consolidated Financial Statements (Unaudited)


portion of each investment for all investments other than those in readily-marketable real estate securities purchased in the secondary market, for which the advisor will not receive any acquisition fees. Deferred acquisition fees are scheduled to be paid in three equal annual installments following the quarter on which a property was purchased. Unpaid deferred acquisition fees are included in Due to affiliates in the consolidated financial statements. The total acquisition fees to be paid (initial and subordinated, and including interest thereon) will not exceed 6.0% of the aggregate contract purchase price of all investments and loans.

In addition, pursuant to the advisory agreement, the advisor may be entitled to receive a disposition fee in an amount 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 the advisor only in connection with a liquidity event.

Personnel and Overhead Reimbursements

Under the terms of the advisory agreement, the 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 under the Corporate Property Associates brand name, or the CPA® REITs, and Carey Watermark Investors Incorporated, or CWI, which is a publicly-owned non-listed REIT sponsored by WPC.

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 and dispositions. Personnel and overhead reimbursements are included in General and administrative expenses in the consolidated financial statements.

Excess Operating Expenses
 
The advisory agreement provides that, for any four trailing quarters (with quoted variables as defined in the advisory agreement), “operating expenses” may not exceed the greater of 2.0% of our “average invested assets” or 25.0% of our “adjusted net income.” For the year ended December 31, 2013, we charged back less than $0.1 million to the advisor as excess operating expenses pursuant to the limitation described above. Our board of directors may elect to repay the advisor for such excess operating expenses in its sole discretion. For the first quarter of 2014, our operating expenses were below the 2.0%/25.0% threshold. 

Available Cash Distributions

CPA®:18 Holdings’ interest in the Operating Partnership entitles it to receive distributions of 10.0% of the available cash generated by the Operating Partnership, referred to as the Available Cash Distribution. During the three months ended March 31, 2014, we made less than $0.1 million of such distributions. Available Cash Distributions are included in Net loss attributable to noncontrolling interests in the consolidated financial statements.

Jointly-Owned Investments and Other Transactions with Affiliates

At March 31, 2014, we owned interests ranging from 50% to 80% in three jointly-owned investments, with the remaining interests held by one of the CPA® REITs, Corporate Property Associates 17 – Global Incorporated, or CPA®:17 – Global. We consolidate all of these investments and we account for CPA®:17 – Global’s equity investments as noncontrolling interests.


CPA®:18 – Global 3/31/2014 10-Q 11


Notes to Consolidated Financial Statements (Unaudited)



Note 4. 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, is summarized as follows (in thousands):
 
March 31, 2014
 
December 31, 2013
Land
$
67,039

 
$
36,636

Building
344,919

 
113,788

Less: Accumulated depreciation
(2,200
)
 
(824
)
 
$
409,758

 
$
149,600


Operating Real Estate
 
Operating real estate, which consists of our self-storage operations, at cost, is summarized as follows (in thousands):
 
March 31, 2014
 
December 31, 2013
Land
$
6,565

 
$

Building
14,315

 

Less: Accumulated depreciation
(77
)
 

 
$
20,803

 
$


2014 Acquisitions

During the three months ended March 31, 2014, we acquired eight new investments, two of which were considered to be asset acquisitions, five which were considered to be business combinations, and one was considered to be a direct financing lease (Note 5).

Real Estate Asset Acquisitions

During the three months ended March 31, 2014, we entered into two domestic investments that were deemed to be real estate asset acquisitions because we entered into new leases in connection with the acquisitions, at a total cost of $11.7 million, including lease intangible assets of $2.8 million (Note 7), and acquisition-related costs and fees of $0.7 million, which were capitalized. A portion of the transaction fees capitalized include current and deferred acquisition fees paid and payable to our advisor, respectively (Note 3).

Business Combinations

Bank Pekao S.A. — On March 31, 2014, we acquired a 50% controlling interest in a jointly-owned investment, which is co-owned by our affiliate, CPA®:17 – Global, and on that date acquired the Bank Pekao S.A., or Bank Pekao, office headquarters located in Warsaw, Poland from an unaffiliated third party. The jointly-owned investment acquired real estate assets and intangibles of $147.9 million, with our portion of the investment totaling $74.0 million. CPA®:17 – Global’s equity investment was $74.0 million, which we account for as a noncontrolling interest. We have concluded that we will consolidate this entity as we are the managing member and the non-managing member does not have substantive participating or “kick-out” rights. This office facility is subject to multiple leases, of which Bank Pekao is the largest tenant and occupies over 98% of the rental space. Bank Pekao’s triple-net lease will expire on May 15, 2023 unless extended at the option of the lessee. The rent for this lease is subject to annual Harmonized Index of Consumer Prices, or HICP, which is an indicator of inflation and price stability for the European Central Bank. Because we assumed the seller’s lease, we account for this acquisition as a business combination, and as a result, we expensed acquisition costs of $8.4 million, which include acquisition fees paid to the advisor (Note 3). There was no debt financing obtained for this acquisition as of March 31, 2014. Upon acquisition, we placed certain funds in escrow, which we considered to be restricted cash. At March 31, 2014, $0.6 million of restricted cash related to the Bank Pekao investment is included in Other assets, net on the consolidated balances sheets. We recorded a deferred tax asset of $1.9 million related to this investment, which was fully offset by a valuation allowance as we currently estimate that it is more likely than not that we will unable to recover this asset.

Siemens AS — On February 27, 2014, we acquired a Siemens AS, or Siemens, office headquarters located in Oslo, Norway from an unaffiliated third party for $82.0 million. This facility consists of an office building and three underground parking floors, which


CPA®:18 – Global 3/31/2014 10-Q 12


Notes to Consolidated Financial Statements (Unaudited)


Siemens leases except for a portion of the underground parking. These triple-net leases expire on December 14, 2025 with two 10-year renewal options and rent subject to annual Norwegian krone, or NOK, consumer price index, or CPI, indexation. Because we assumed the seller’s lease, we account for this acquisition as a business combination, and as a result, we expensed acquisition costs of $5.2 million, which include acquisition fees paid to the advisor (Note 3). Debt was incurred at closing through the issuance of privately placed bonds indexed to inflation in the amount of $52.1 million (NOK 315.0 million) (Note 10). In conjunction with this acquisition, we placed certain funds in escrow for costs related to (i) ongoing construction on the property that the seller is obligated to complete and (ii) a pre-existing contractor dispute that was assumed in the acquisition. Funds for the ongoing construction and contractor dispute will be released when the construction has been completed and a binding settlement is reached, respectively. At March 31, 2014, $4.0 million of restricted cash related to the Siemens property is included in Other assets, net on the consolidated balances sheets. Because we acquired stock in a subsidiary of the seller to complete the acquisition, this investment is considered to be a share transaction, and as a result, we assumed the tax basis of the entity that we purchased and recorded a deferred tax liability of $7.0 million and goodwill in the same amount.

Solo Cup — On February 3, 2014, we acquired a distribution center located in University Park, Illinois from an unaffiliated third party for $80.7 million. The property is leased to Solo Cup Operating Company, or Solo Cup. This triple-net lease expires on September 30, 2023, has two 5-year renewal options and includes fixed-rent escalations. Because we assumed the seller’s lease, we account for this acquisition as a business combination, and as a result, we expensed acquisition costs of $3.9 million, which include acquisition fees paid to the advisor (Note 3). Simultaneously, we entered into a mortgage loan in the amount of $47.3 million (Note 10).

St. Petersburg Self-Storage Facility — On January 23, 2014, we acquired a self-storage facility from an unaffiliated third party for $11.6 million located in St. Petersburg, Florida. We refer to this facility as St. Petersburg Self Storage. In connection with this transaction, we expensed acquisition costs of $0.7 million, which include acquisition fees paid to the advisor (Note 3). On January 23, 2014, we entered into a mortgage loan in the amount of $14.5 million that we split between St. Petersburg Self Storage and Kissimmee Self Storage (described below), which are jointly and severally liable for any possible defaults on the loan (Note 10).

Kissimmee Self-Storage Facility — On January 22, 2014, we acquired a self-storage facility from an unaffiliated third party for $11.7 million located in Kissimmee, Florida. We refer to this facility as Kissimmee Self Storage. In connection with this transaction, we expensed acquisition costs of $0.6 million, which include acquisition fees paid to the advisor (Note 3).

The impact on the carrying value of our Real estate due to the strengthening of the U.S. dollar relative to foreign currencies during the three months ended March 31, 2014 was immaterial.

2013 Acquisitions

In 2013 we made three investments in which we acquired certain properties leased to State Farm Automobile Company, or State Farm, Konzum d. d., or Agrokor, and Crowne Group Inc., or Crowne Group.



CPA®:18 – Global 3/31/2014 10-Q 13


Notes to Consolidated Financial Statements (Unaudited)


The following tables present a summary of assets acquired and liabilities assumed in these business combinations, each at the date of acquisition, and revenues and earnings thereon, since their respective dates of acquisition through March 31, 2014 (in thousands):
 
 
2014 Business Combinations (a)
 
 
Bank Pekao
 
Siemens
 
Solo Cup
 
St. Petersburg Self Storage
 
Kissimmee Self Storage
Cash Consideration
 
$
73,952

 
$
82,019

 
$
80,650

 
$
11,550

 
$
11,735

Assets acquired at fair value:
 
 
 
 
 
 
 
 
 
 
Land
 
$

 
$
14,362

 
$
13,748

 
$
3,258

 
$
3,306

Building
 
112,676

 
59,219

 
52,135

 
7,128

 
7,187

In-place lease intangibles assets
 
23,471

 
10,528

 
15,394

 
1,201

 
1,221

Above-market rent intangible assets
 
3,014

 

 
773

 

 

Below-market ground lease
 
9,456

 

 

 

 

Other assets assumed
 

 
2,820

 

 
7

 
24

 
 
148,617

 
86,929

 
82,050

 
11,594

 
11,738

Liabilities assumed at fair value:
 
 
 
 
 
 
 
 
 
 
Below-market rent intangible liabilities
 
(713
)
 

 
(1,400
)
 

 

Deferred income taxes
 

 
(6,982
)
 

 

 

Other liabilities assumed
 

 
(4,910
)
 

 
(44
)
 
(3
)
 
 
(713
)
 
(11,892
)
 
(1,400
)
 
(44
)
 
(3
)
Total identifiable net assets
 
147,904

 
75,037

 
80,650

 
11,550

 
11,735

Amounts attributable to noncontrolling interests
 
(73,952
)
 

 

 

 

Goodwill
 

 
6,982

 

 

 

 
 
$
73,952

 
$
82,019

 
$
80,650

 
$
11,550

 
$
11,735


 
 
2014 Business Combinations
 
 
Bank Pekao
 
Siemens
 
Solo Cup
 
St. Petersburg Self Storage
 
Kissimmee Self Storage
 
 
For the Period from
 
 
March 31, 2014 through
March 31, 2014
 
February 27, 2014 through
March 31, 2014
 
February 3, 2014 through
March 31, 2014
 
January 23, 2014 through
March 31, 2014
 
January 22, 2014 through
March 31, 2014
Revenues
 
$
1

 
$
531

 
$
998

 
$
201

 
$
220

 
 
 
 
 
 
 
 
 
 
 
Net loss
 
$
(8,481
)
 
$
(5,559
)
 
$
(3,930
)
 
$
(749
)
 
$
(638
)
Net loss attributable to noncontrolling interests
 
4,238

 

 

 

 

Net loss attributable to CPA®:18 – Global stockholders
 
$
(4,243
)
 
$
(5,559
)
 
$
(3,930
)
 
$
(749
)
 
$
(638
)
___________

(a)
The purchase price was allocated to the assets acquired and liabilities assumed based upon their preliminary fair values. The information in this table is based on the best estimates of management as of the date of this Report. We are in the process of finalizing our assessment of the fair value of the assets acquired and liabilities assumed. Accordingly, the fair value of these assets acquired and liabilities assumed are subject to change.

Pro Forma Financial Information
 
The following unaudited consolidated pro forma financial information presents our financial results as if the business combination acquisitions we completed during the three months ended March 31, 2014, and the new financings related to these acquisitions, had


CPA®:18 – Global 3/31/2014 10-Q 14


Notes to Consolidated Financial Statements (Unaudited)


occurred on January 1, 2014. The pro forma financial information is not necessarily indicative of what the actual results would have been had the acquisitions actually occurred on January 1, 2014, nor does it purport to represent the results of operations for future periods.

(Dollars in thousands, except share and per share amounts)
 
 
Three Months Ended 
 March 31, 2014
Pro forma total revenues
 
$
10,011

Pro forma net loss
 
(18,019
)
Loss attributable to noncontrolling interests
 
3,608

Pro forma net loss attributable to CPA®:18 – Global
 
$
(14,411
)
 
 
 
Pro forma net loss per Class A share:
 
 
Net loss Attributable to CPA®:18 – Global
 
$
(13,015
)
Weighted average shares outstanding
 
38,001,011

Net loss per share
 
$
(0.34
)
 

 
Pro forma net loss per Class C share:
 
 
Net loss Attributable to CPA®:18 – Global
 
$
(1,396
)
Weighted average shares outstanding
 
3,820,432

Net loss per share
 
$
(0.37
)

Note 5. Finance Receivable
 
Assets representing rights to receive money on demand or at fixed or determinable dates are referred to as finance receivables. Our finance receivable portfolio consists of our Net investment in the direct financing lease described below. Operating leases are not included in finance receivables as such amounts are not recognized as an asset in the consolidated balance sheets.

Crowne Group Investment

On March 7, 2014, we entered into a domestic net lease financing transaction with a subsidiary of Crowne Group from which we acquired two industrial facilities located in Michigan. The total cost was $8.0 million, including land of $1.0 million, building of $6.8 million and transaction costs of $0.2 million that were capitalized. This is a follow-on transaction to the acquisition that we completed with Crowne Group in December 2013. We amended the existing lease with Crowne Group to include the two new properties in Michigan. The amended lease now encompasses a total of five properties, all of which are leased for a 25-year term. Crowne Group will continue to serve as the guarantor under the lease.
 
Net investment in direct financing lease is summarized as follows (in thousands):
 
 
March 31, 2014
 
December 31, 2013
Minimum lease payments receivable
 
$
67,144

 
$
50,006

Unguaranteed residual value
 
30,107

 
22,064

 
 
97,251

 
72,070

Less: unearned income
 
(67,144
)
 
(50,006
)
 
 
$
30,107

 
$
22,064


Credit Quality of Finance Receivables
 
We generally seek investments in facilities that we believe are critical to a tenant’s business and that we believe have a low risk of tenant defaults. At both March 31, 2014 and December 31, 2013, the balance of our only finance receivable was not past due and we had not established any allowances for credit losses. We evaluate the credit quality of our finance receivables utilizing an internal five-point credit rating scale, with one representing the highest credit quality and five representing the lowest. The credit quality evaluation


CPA®:18 – Global 3/31/2014 10-Q 15


Notes to Consolidated Financial Statements (Unaudited)


of our finance receivables was last updated in the first quarter of 2014. At both March 31, 2014 and December 31, 2013, our sole finance receivable had an internal credit rating of three.

At March 31, 2014, Other assets, net included $0.2 million of accounts receivable related to amounts billed under this direct financing lease. We did not have any outstanding account receivables related to the aforementioned direct financing lease at December 31, 2013.

Note 6. Cash Flow Information

Supplemental Non-cash Investing and Financing Activities:

A summary of our non-cash investing and financing activities for the periods presented is as follows (in thousands):
 
 
Three Months Ended 
 March 31, 2014
Deferred tax liability (Note 4) (a)
 
$
6,936

Deferred acquisition costs (a)
 
412

Deferred offering costs (Note 3) (a)
 
798

Seller paid costs capitalized
 
228

Due to affiliates (Note 3)
 
1,209

Unsettled sales of common stock (Note 12)
 
7,805

Deferred offering costs equity charge (a)
 
2,507

Deferred financing costs (a)
 
127

Asset management fees settled in Class A shares (Note 3) (a)
 
215

First quarter distributions declared (a)
 
6,259

___________

(a)
Represents items that would be negative if they were to appear within investing and financing activities on consolidated statement of cash flows.

Note 7. Intangible Assets and Liabilities

In connection with our acquisitions of properties (Note 4), we have recorded net lease intangibles that are being amortized over periods ranging from two years to 20 years. In addition, we have ground leases with that are being amortized over periods of up to 99 years. In-place lease intangibles are included in In-place lease intangible assets, net in the consolidated balance sheets. Below-market ground lease intangibles are included in Below-market ground lease intangible asset, net on the consolidated balance sheets. Above-market rent intangibles are included in Other intangible assets, net on the consolidated balance sheets. Below-market rent intangibles are included in Prepaid and deferred rental income on the consolidated balance sheets.

In connection with our investment activity during the three months ended March 31, 2014, we have recorded net lease intangibles comprised as follows (life in years, dollars in thousands):
 
Weighted-Average Life
 
Amount
Amortizable Intangible Assets
 
 
 

In-place lease
9.8
 
$
54,577

Below-market ground lease
76.0
 
9,455

Above-market rent
9.2
 
3,787

Total intangible assets
 
 
$
67,819

Amortizable Intangible Liabilities
 
 
 

Below-market rent
16.1
 
$
(2,112
)



CPA®:18 – Global 3/31/2014 10-Q 16


Notes to Consolidated Financial Statements (Unaudited)


Goodwill is included in Other intangible assets, net on the consolidated balance sheets. The following table presents a reconciliation of our goodwill (in thousands):
 
 
Total
Balance at January 1, 2014
 
$

Acquisition of Siemens (a)
 
6,982

Balance at March 31, 2014
 
$
6,982

___________
(a)
Represents the consideration exceeding the fair value of the assets acquired and liabilities assumed in our Siemens acquisition (Note 4).

Intangible assets and liabilities are summarized as follows (in thousands):
 
March 31, 2014
 
December 31, 2013
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
Amortizable Intangible Assets
 
 
 
 
 
 
 
 
 
 
 
Lease intangibles:
 
 
 
 
 
 
 
 
 
 
 
In-place lease
$
108,441

 
$
(1,762
)
 
$
106,679

 
$
53,832

 
$
(495
)
 
$
53,337

Below-market ground lease
17,675

 
(24
)
 
17,651

 
8,227

 
(3
)
 
8,224

Above-market rent
3,787

 
(7
)
 
3,780

 

 

 

 
129,903

 
(1,793
)
 
128,110

 
62,059

 
(498
)
 
61,561

 
 
 
 
 
 
 
 
 
 
 
 
Unamortizable Intangible Assets
 
 
 
 
 
 
 
 
 
 
 
Goodwill
6,982

 

 
6,982

 

 

 

Total intangible assets
$
136,885

 
$
(1,793
)
 
$
135,092

 
$
62,059

 
$
(498
)
 
$
61,561

 
 
 
 
 
 
 
 
 
 
 
 
Amortizable Intangible Liabilities
 
 
 
 
 
 
 
 
 
 
 
Below-market rent
$
(3,759
)
 
$
80

 
$
(3,679
)
 
$
(1,647
)
 
$
40

 
$
(1,607
)

Net amortization of intangibles, including the effect of foreign currency translation, was $1.3 million for the three months ended March 31, 2014. Amortization of below-market and above-market rent is recorded as an adjustment to Lease revenues on the consolidated statement of operations. We amortize in-place lease intangibles to Depreciation and amortization expense on the consolidated statement of operations over the remaining initial term of each lease. Amortization of below-market ground lease intangibles is included in Property expenses on the consolidated statement of operations.

Based on the intangible assets and liabilities recorded at March 31, 2014, scheduled annual net amortization of intangibles for the remainder of 2014, each of the next four calendar years following December 31, 2014, and thereafter is as follows (in thousands):
Years Ending December 31,
 
Net Decrease (Increase) in Rental Revenue
 
Increase to Amortization/Property Expense
 
Net
2014 (remaining)
 
$
98

 
$
6,895

 
$
6,993

2015
 
130

 
9,194

 
9,324

2016
 
121

 
9,194

 
9,315

2017
 
102

 
6,933

 
7,035

2018
 
102

 
8,426

 
8,528

Thereafter
 
(452
)
 
83,688

 
83,236

 
 
$
101

 
$
124,330

 
$
124,431




CPA®:18 – Global 3/31/2014 10-Q 17


Notes to Consolidated Financial Statements (Unaudited)


Note 8. Fair Value Measurements
 
The fair value of an asset is defined as the exit price, which is the amount that would either be received when an asset is sold or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance establishes a three-tier fair value hierarchy based on the inputs used in measuring fair value. These tiers are: Level 1, for which quoted market prices for identical instruments are available in active markets, such as money market funds, equity securities, and U.S. Treasury securities; Level 2, for which there are inputs other than quoted prices included within Level 1 that are observable for the instrument, such as certain derivative instruments including an interest rate cap and swaps; and Level 3, for securities and other derivative assets that do not fall into Level 1 or Level 2 and for which little or no market data exists, therefore requiring us to develop our own assumptions.

Items Measured at Fair Value on a Recurring Basis

The methods and assumptions described below were used to estimate the fair value of each class of financial instrument. For significant Level 3 items, we have also provided the unobservable inputs along with their weighted-average ranges.

Derivative Assets — Our derivative assets, which are included in Other assets, net in the consolidated financial statements, are comprised of foreign currency forward contracts (Note 9). These derivatives were measured at fair value using readily observable market inputs, such as quotations on interest rates, and were classified as Level 2 as these instruments are custom, over-the-counter contracts with various bank counterparties that are not traded in an active market.

Derivative Liabilities — Our derivative liabilities, which are included in Accounts payable, accrued expenses and other liabilities in the consolidated financial statements, are comprised of interest rate swaps and foreign currency forward contracts (Note 9). These derivatives were measured at fair value using readily observable market inputs, such as quotations on interest rates, and were classified as Level 2 because they are custom, over-the-counter contracts with various bank counterparties that are not traded in an active market.
 
We did not have any transfers into or out of Level 1, Level 2, or Level 3 measurements during the three months ended March 31, 2014. Gains and losses (realized and unrealized) included in earnings are reported in Other income and (expenses) in the consolidated financial statements.
 
Our other financial instruments had the following carrying values and fair values as of the dates shown (in thousands):
 
 
 
March 31, 2014
 
December 31, 2013
 
Level
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Debt (a)
3
 
$
253,165

 
$
254,014

 
$
85,060

 
$
85,060

Deferred acquisition fees payable (b)
3
 
9,546

 
9,139

 
2,705

 
2,705

___________
(a)
We determined the estimated fair value of these financial instruments using a discounted cash flow model with rates that take into account the credit of the tenant/obligor and interest rate risk. We also considered the value of the underlying collateral taking into account the quality of the collateral, the credit quality of the tenant/obligor, the time until maturity and the current market interest rate.
(b)
We determined the estimated fair value of our deferred acquisition fees based on an estimate of discounted cash flows using two significant unobservable inputs, which are the leverage adjusted unsecured spread and an illiquidity adjustment of 120 basis points and 75 basis points, respectively. Significant increases or decreases to these inputs in isolation would result in a significant change in the fair value measurement.

We estimated that our other financial assets and liabilities (excluding net investments in direct financing leases) had fair values that approximated their carrying values at both March 31, 2014 and December 31, 2013.



CPA®:18 – Global 3/31/2014 10-Q 18


Notes to Consolidated Financial Statements (Unaudited)


Note 9. Risk Management and Use of Derivative Financial Instruments
 
Risk Management
 
In the normal course of our ongoing business operations, we encounter economic risk. There are three main components of economic risk that impact us: interest rate risk, credit risk and market risk. We are primarily subject to interest rate risk on our interest-bearing assets and liabilities. Credit risk is the risk of default on our operations and our tenants’ inability or unwillingness to make contractually required payments. Market risk includes changes in the value of our properties and related loans as well as changes in the value of our other investments due to changes in interest rates or other market factors. In addition, we own investments in Europe and are subject to the risks associated with changing foreign currency exchange rates.
 
Derivative Financial Instruments
 
When we use derivative instruments, it is generally to reduce our exposure to fluctuations in interest rates and foreign currency exchange rate movements. We have not entered, and do not plan to enter, into financial instruments for trading or speculative purposes. In addition to derivative instruments that we entered into on our own behalf, we may also be a party to derivative instruments that are embedded in other contracts, and we may own common stock warrants, granted to us by lessees when structuring lease transactions, which are considered to be derivative instruments. The primary risks related to our use of derivative instruments include default by a counterparty to a hedging arrangement on its obligation and a downgrade in the credit quality of a counterparty to such an extent that our ability to sell or assign our side of the hedging transaction is impaired. While we seek to mitigate these risks by entering into hedging arrangements with counterparties that are large financial institutions that we deem to be creditworthy, it is possible that our hedging transactions, which are intended to limit losses, could adversely affect our earnings. Furthermore, if we terminate a hedging arrangement, we may be obligated to pay certain costs, such as transaction or breakage fees. We have established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities.
 
We measure derivative instruments at fair value and record them as assets or liabilities, depending on our rights or obligations under the applicable derivative contract. Derivatives that are not designated as hedges must be adjusted to fair value through earnings. For a derivative designated and that qualified as a cash flow hedge, the effective portion of the change in fair value of the derivative is recognized in Other comprehensive loss until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value is immediately recognized in earnings. The ineffective portion of the change in fair value of the derivative is recognized directly in earnings. Amounts are reclassified out of Other comprehensive loss into earnings when the hedged investment is either sold or substantially liquidated.
 
The following table sets forth certain information regarding our derivative instruments (in thousands):
 
 
 
 
Asset Derivatives Fair Value at
 
Liability Derivatives Fair Value at
Derivative Designated as Hedging Instruments
 
Balance Sheet Location
 
March 31, 2014
 
December 31, 2013
 
March 31, 2014
 
December 31, 2013
Foreign currency forward contracts
 
Other assets, net
 
$
5

 
$

 
$

 
$

Foreign currency forward contracts
 
Accounts payable, accrued expenses and other liabilities
 

 

 
(296
)
 

Interest rate swaps
 
Accounts payable, accrued expenses and other liabilities
 

 

 
(591
)
 
(219
)
 
 
 
 
$
5

 
$

 
$
(887
)
 
$
(219
)

All derivative transactions with an individual counterparty are governed by a master International Swap and Derivatives Association agreement, which can be considered as a master netting arrangement; however, we report all our derivative instruments on a gross basis on our consolidated balance sheets. At both March 31, 2014 and December 31, 2013, no cash collateral had been posted or received for any of our derivative positions.



CPA®:18 – Global 3/31/2014 10-Q 19


Notes to Consolidated Financial Statements (Unaudited)


The following tables present the impact of our derivative instruments on the consolidated financial statements (in thousands):
 
 
Amount of Loss 
Recognized in
Other Comprehensive 
Loss on 
Derivatives (Effective 
Portion)
Derivatives in Cash Flow Hedging Relationships 
 
Three Months Ended 
 March 31, 2014
Interest rate swaps
 
$
372

Foreign currency forward contracts
 
291

Total
 
$
663


During the three months ended March 31, 2014, we reclassified $0.1 million from other comprehensive loss into our consolidated statement of operations related to our interest rate swaps.

Interest Rate Swap 

We are exposed to the impact of interest rate changes primarily through our borrowing activities. To limit this exposure, we attempt to obtain mortgage financing on a long-term, fixed-rate basis. However, from time to time, we or our investment partners may obtain non-recourse variable-rate mortgage loans and, as a result, may enter into interest rate swap agreements with counterparties. Interest rate swaps, which effectively convert the variable-rate debt service obligations of the loan to a fixed rate, are agreements in which one party exchanges a stream of interest payments for a counterparty’s stream of cash flow over a specific period. The notional, or face, amount on which the swaps are based is not exchanged.
 
The interest rate swaps that we had outstanding on our consolidated subsidiaries at March 31, 2014 are summarized as follows (dollars in thousands):
 
 
Number of Instruments
 
Notional
Amount
 
Fair Value at
March 31, 2014 
Interest rate swaps
 
3
 
$
20,099

 
$
(591
)

Foreign Currency Contracts
 
We are exposed to foreign currency exchange rate movements, primarily in the euro and, to a lesser extent, the NOK. We manage foreign currency exchange rate movements by generally placing our debt service obligation on an investment in the same currency as the tenant’s rental obligation to us. This reduces our overall exposure to the net cash flow from that investment. However, we are subject to foreign currency exchange rate movements to the extent of the difference in the timing and amount of the rental obligation and the debt service. Realized and unrealized gains and losses recognized in earnings related to foreign currency transactions are included in Other income and (expenses) in the consolidated financial statements.

In order to hedge certain of our foreign currency cash flow exposures, we enter into foreign currency forward contracts. A foreign currency forward contract is a commitment to deliver a certain amount of currency at a certain price on a specific date in the future. By entering into forward contracts and holding them to maturity, we are locked into a future currency exchange rate for the term of the contract. This instrument locks the range in which the foreign currency exchange rate may fluctuate.

The following table presents the foreign currency derivative contracts we had outstanding and their designations at March 31, 2014 (currency in thousands):
Foreign Currency Derivatives
 
Number of Instruments
 
Notional
Amount
 
Fair Value at
March 31, 2014 
(a)
Designated as Cash Flow Hedging Instruments
 
 
 
 
 
 
Foreign currency forward contracts (b)
 
48
 
18,335

 
$
(187
)
Foreign currency forward contracts (c)
 
19
 
kr
47,540

 
(104
)
 
 
 
 
 
 
$
(291
)
___________


CPA®:18 – Global 3/31/2014 10-Q 20


Notes to Consolidated Financial Statements (Unaudited)


(a)
Fair value amounts are based on the applicable exchange rate of the euro or the NOK as applicable at March 31, 2014.
(b)
On January 16, 2014 and March 31, 2014, we entered into a series of forward contracts to exchange euro for U.S. dollars for each quarter through April 2020, which was intended to protect our then projected revenue collections against possible exchange rate fluctuations in the euro.
(c)
On February 27, 2014, in conjunction with our Siemens investment (Note 4), we entered into a series of forward contracts to exchange NOK for U.S. dollars for each quarter through January 2019, which was intended to protect our then projected revenue collections from this investment against possible exchange rate fluctuations in NOK.

Other

Amounts reported in Other comprehensive loss related to our interest rate swap will be reclassified to Interest expense as interest payments are made on our variable-rate debt. Amounts reported in Other comprehensive income (loss) related to foreign currency derivative contracts will be reclassified to Other income and (expenses) when the hedged foreign currency proceeds from foreign operations are repatriated to the U.S. At March 31, 2014, we estimate that an additional $0.6 million will be reclassified as interest expense and other income during the next 12 months.

We measure our credit exposure on a counterparty basis as the positive aggregate estimated fair value of our derivatives, net of collateral received, if any. No collateral was received as of March 31, 2014. At March 31, 2014, we did not have any credit exposure with a counterparty.

Portfolio Concentration Risk

Concentrations of credit risk arise when a number of tenants are engaged in similar business activities or have similar economic risks or conditions that could cause them to default on their lease obligations to us. We currently have concentrations of credit risk in our portfolio as we have a limited number of investments. We intend to regularly monitor our portfolio to assess potential concentrations of credit risk as we make additional investments. As we invest the proceeds of our initial public offering, we will seek to ensure that our portfolio is reasonably well diversified and does not contain any unusual concentration of credit risks. At March 31, 2014, our net lease portfolio, which excludes our self-storage facilities, had the following significant property and lease characteristics (percentages based on the percentage of our annualized contractual minimum base rent for the first quarter of 2014), which does contain concentrations in excess of 10% in certain areas, as follows:

40% related to domestic properties, which include concentrations in Texas and Illinois of 17% and 14%, respectively;
60% related to international properties, which include concentrations in Poland, Croatia, and Norway of 26%, 19%, and 15%, respectively;
59% related to office properties, 19% related to retail properties, and 14% related to warehouse/distribution properties; and
25% related to the banking industry, 19% related to the grocery industry, 18% related to the insurance industry, 15% related to the electronics industry, and 14% related to the chemical, plastics, rubber, and glass industry.



CPA®:18 – Global 3/31/2014 10-Q 21


Notes to Consolidated Financial Statements (Unaudited)


Information about Geographic Areas
 
Our portfolio is comprised of domestic and international investments. At March 31, 2014, our international investments were comprised of investments in Europe. Foreign currency exposure and risk management are discussed above. The following tables present information about our investments on a geographic basis (in thousands):
 
 
 
Three Months Ended 
 March 31, 2014
Domestic
 
 
 
Revenues (a)
 
 
$
4,227

Loss from continuing operations before income taxes
 
 
(3,978
)
Net income attributable to noncontrolling interests
 
 
(287
)
Net loss attributable to CPA®:18 – Global
 
 
(4,266
)
International
 
 
 
Revenues (b)
 
 
$
2,467

Loss from continuing operations before income taxes
 
 
(14,265
)
Net loss attributable to noncontrolling interests
 
 
4,030

Net loss attributable to CPA®:18 – Global
 
 
(9,971
)
Total
 
 
 
Revenues
 
 
$
6,694

Loss from continuing operations before income taxes
 
 
(18,243
)
Net loss attributable to noncontrolling interests
 
 
3,743

Net loss attributable to CPA®:18 – Global
 
 
(14,237
)
 
 
 
 
 
March 31, 2014
 
December 31, 2013
Domestic
 
 
 
Long-lived assets (c) (d)
$
222,124

 
$
119,336

Non-recourse debt and bonds payable
157,949

 
85,060

International
 
 
 
Long-lived assets (c) (e)
$
238,544

 
$
52,328

Non-recourse debt and bonds payable
95,216

 

Total
 
 
 
Long-lived assets (c)
$
460,668

 
$
171,664

Non-recourse debt and bonds payable
253,165

 
85,060

___________
(a)
For the three months ended March 31, 2014, domestic revenue contains concentrations above 10% related to State Farm, ($2.1 million) and Solo Cup ($1.0 million) properties, which are located in Texas and Illinois, respectively.
(b)
For the three months ended March 31, 2014, international revenue contains concentrations above 10% related to Agrokor, properties ($1.9 million) that are located in Croatia.
(c)
Consists of Net investments in real estate. 
(d)
At March 31, 2014, domestic long-lived assets contain concentrations above 10% related to our State Farm ($95.9 million) and Solo Cup ($65.6 million) properties, which are located in Texas and Illinois, respectively.
(e)
At March 31, 2014, foreign long-lived assets contain concentrations above 10% related to our Bank Pekao ($112.7 million), Siemens ($73.9 million), and Agrokor ($51.9 million) properties, which are located in Poland, Norway and Croatia, respectively. At December 31, 2013, foreign long-lived assets only pertained to our Agrokor properties located in Croatia.



CPA®:18 – Global 3/31/2014 10-Q 22


Notes to Consolidated Financial Statements (Unaudited)


Note 10. Debt

Non-Recourse Debt

Non-recourse debt consists of mortgage notes payable, which are collateralized by the assignment of real estate properties with an aggregate carrying value of $200.7 million and $85.1 million at March 31, 2014 and December 31, 2013, respectively. At March 31, 2014, our mortgage notes payable bore interest at fixed annual rates ranging from 4.5% to 5.8% and variable contractual annual rates, which have effectively been converted to a fixed rate through the use of interest rate swaps, ranging from 5.1% to 5.6% with maturity dates ranging from 2020 to 2039.

The following table presents information regarding the non-recourse mortgage loans on our real estate property investments (dollars in thousands):
 
 
 
 
 
 
 
 
Carrying Amount at
Investment
 
Interest Rate
 
Rate Type
 
Maturity Date
 
March 31, 2014
 
December 31, 2013
Agrokor (a)
 
5.8
%
 
Fixed
 
12/31/2020
 
$
42,713

 
$

State Farm (b)
 
4.5
%
 
Fixed
 
9/10/2023
 
72,800

 
72,800

Crowne Group (c)
 
5.6
%
 
Variable
 
12/30/2023
 
12,209

 
12,260

Crowne Group (a) (c)
 
5.4
%
 
Variable
 
12/31/2023
 
4,063

 

Self-Storage properties (a) (d)
 
4.9
%
 
Fixed
 
2/1/2024
 
14,500

 

Automobile Protection Corporation, or APCO (a) (c)
 
5.1
%
 
Variable
 
2/5/2024
 
3,827

 

Solo Cup (a) (b)
 
5.1
%
 
Fixed
 
2/6/2024
 
47,250

 

Air Enterprises Acquisition, LLC, or Air Enterprises(a)
 
5.3
%
 
Fixed
 
4/1/2039
 
3,300

 

 
 
 
 
 
 
 
 
$
200,662

 
$
85,060

__________
(a)
These mortgage loans were entered into in conjunction with the 2014 Acquisitions as described in Note 4. During the three months ended March 31, 2014, we capitalized $1.2 million of deferred financing costs related to these loans. We amortize deferred financing costs over the term of the related mortgage loan using the straight-line method, which approximates the effective interest method.
(b)
These mortgage loans have payments that are interest-only until their respective maturity dates.
(c)
These mortgage loans have variable interest rates, which have been effectively converted to fixed rates through the use of interest rate swaps (Note 9). The interest rates presented for these mortgage loans reflect interest rate swaps in effect at March 31, 2014.
(d)
On January 23, 2014, we entered into a mortgage loan that we allocate between our two self-storage properties, which are jointly and severally liable for any possible defaults on the loan.

Bonds Payable

In conjunction with our Siemens investment (Note 4), on February 27, 2014, we issued privately placed bonds of $52.1 million (NOK 315 million) with a coupon of 3.5%. These bonds are collateralized by the Siemens property. The bonds are coterminous with the lease and mature in December, 2025. The bonds are inflation-linked to the Norwegian CPI and the annual principal balance and coupon payment will increase as the inflation index increases. Coupon payments will be made annually in arrears on December 15. At March 31, 2014, these bonds had a carrying value of $52.5 million. During the three months ended March 31, 2014, we capitalized $0.5 million of deferred financing costs related to these loans.

The bond agreement has a covenant that requires a valuation for compliance of the “loan to value,” or LTV, in the fourth quarter of each year. If we breach this covenant, we would be required to either provide additional collateral or make an offer to the bondholders to redeem the aggregate amount of bonds necessary to cure the LTV breach.



CPA®:18 – Global 3/31/2014 10-Q 23


Notes to Consolidated Financial Statements (Unaudited)


Scheduled Debt Principal Payments
 
Scheduled debt principal payments during the remainder of 2014, each of the next four calendar years following December 31, 2014 and thereafter are as follows (in thousands):
Years Ending December 31,
 
Total
2014 (remaining)
 
$
1,230

2015
 
1,650

2016
 
1,654

2017
 
1,832

2018
 
1,877

Thereafter through 2039
 
244,922

Total
 
$
253,165


Note 11. Commitments and Contingencies

At March 31, 2014, we were not involved in any material litigation.

Note 12. Loss Per Share and Equity

The following tables depict loss per share for the period presented (in thousands, except share and per share amounts):
 
Three Months Ended March 31, 2014
 
Weighted-Average
Shares Outstanding 
 
Allocation of Net Loss (a) 
 
Loss
Per Share 
Class A common stock
38,001,011

 
$
(12,856
)
 
$
(0.34
)
Class C common stock
3,820,432

 
(1,381
)
 
(0.36
)
Net loss attributable to CPA®:18 – Global

 
$
(14,237
)
 

__________
(a)
The allocation of Net loss attributable to CPA®:18 – Global is calculated based on the weighted-average shares outstanding for Class A common stock and Class C common stock for the three months ended March 31, 2014. The allocation for the Class A common stock excludes the shareholder servicing fee of less than $0.1 million during the three months ended March 31, 2014 that is only applicable to holders of Class C common stock (Note 3).

Subsequent to March 31, 2014 and through April 30, 2014, we issued an additional 11,026,641 shares of Class A common stock and an additional 656,963 shares of Class C common stock in our initial public offering.

Proceeds from certain of the shares that we sold are held in escrow and considered unsettled until such time as all contingencies have been removed and the buyer has voting rights, or approximately three days. At March 31, 2014, 1,108,388 of the Class A shares that were sold remained unsettled.

Distributions

On March 19, 2014, our board of directors declared distributions at a daily rate of $0.0017170 for the Class A common stock and $0.0014601 for the Class C common stock for the quarter ending June 30, 2014, payable on or about July 15, 2014 to stockholders of record on each day of the quarter.

Distributions are declared at the discretion of our board of directors and are not guaranteed. Until we substantially invest the net proceeds of our initial public offering, distributions will be paid primarily from offering proceeds, which reduces amounts available to invest in properties and could lower our overall return.



CPA®:18 – Global 3/31/2014 10-Q 24


Notes to Consolidated Financial Statements (Unaudited)


Reclassifications Out of Accumulated Other Comprehensive Loss

The following tables present a reconciliation of changes in accumulated other comprehensive loss by component for the periods presented (in thousands):
 
Three Months Ended March 31, 2014
 
Unrealized
Gains (Losses)
on Derivative Instruments
 
Foreign Currency Translation Adjustments
 
Total
Beginning balance
$
(219
)
 
$
125

 
$
(94
)
Other comprehensive income (loss) before reclassifications
(774
)
 
(461
)
 
(1,235
)
Amounts reclassified from accumulated other comprehensive loss to:
 
 
 
 
 
Interest expense
111

 

 
111

Net current-period Other comprehensive income
(663
)
 
(461
)
 
(1,124
)
Net current-period Other comprehensive (income) loss attributable to noncontrolling interests

 
324

 
324

Ending balance
$
(882
)
 
$
(12
)
 
$
(894
)

Note 13. Subsequent Events

Discontinuation of the Sale of Class A Shares

On May 1, 2014, in order to moderate the pace of our fundraising, our board of directors approved the discontinuation of the sale of Class A shares after June 30, 2014. We intend to continue to sell shares of Class C shares after that date. In order to facilitate the final sales of Class A shares as of June 30, 2014 and the continued sale of Class C shares, the board of directors also approved the reallocation up to $250.0 million of the shares that were initially allocated to sales of our stock through our DRIP to our initial public offering.


CPA®:18 – Global 3/31/2014 10-Q 25




Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
MD&A is intended to provide the reader with information that will assist in understanding our financial statements and the reasons for changes in certain key components of our financial statements from period to period. MD&A also provides the reader with our perspective on our financial position and liquidity, as well as certain other factors that may affect our future results. Our MD&A should be read in conjunction with our 2013 Annual Report.

Business Overview

As described in more detail in Item 1 in our 2013 Annual Report, we were formed in September 2012, and we intend to qualify as a REIT for the taxable year ended December 31, 2013. On May 7, 2013, our Registration Statement was declared effective by the SEC, and on July 25, 2013, aggregate subscription proceeds exceeded the minimum offering amount of $2.0 million and we began to admit stockholders. The Registration Statement relates to our initial public offering, which is being made on a “best efforts” basis by our dealer manager and selected other dealers, and covers up to $1.0 billion of common stock, in any combination of Class A common stock and Class C common stock at a price of $10.00 per share of Class A common stock and $9.35 per share of Class C common stock. The Registration Statement also covers the offering of up to $400.0 million in common stock, in any combination of Class A common stock and Class C common stock, pursuant to our DRIP at a price of $9.60 per share of Class A common stock and $8.98 per share of Class C common stock. On May 1, 2014, in order to moderate the pace of our fundraising, our board of directors approved the discontinuation of the sale of Class A shares after June 30, 2014. We intend to continue to sell shares of Class C shares after that date. In order to facilitate the final sales of Class A shares as of June 30, 2014 and the continued sale of Class C shares, the board of directors also approved the reallocation up to $250.0 million of the shares that were initially allocated to sales of our stock through our DRIP to our initial public offering.

We have no paid employees and are externally advised and managed by our advisor. We intend to use substantially all of the net proceeds from our offering to invest primarily in a diversified portfolio of income-producing commercial real estate properties and other real estate related assets, both domestically and outside the U.S. We currently expect that, for the foreseeable future, at least a majority of our investments will be in commercial real estate properties leased to single tenants on a long-term triple-net lease basis.

Our operating results and cash flows are primarily influenced by rental income from our commercial properties, interest expense on our property indebtedness and acquisition and operating expenses. Revenue is subject to fluctuation because of the timing of new lease transactions and foreign currency exchange rates. We may also experience lease terminations, lease expirations, contractual rent adjustments, tenant defaults, and sales of properties in future periods. 



CPA®:18 – Global 3/31/2014 10-Q 26




Portfolio Overview

We acquired our first investment on August 20, 2013, and as of March 31, 2014, we owned 16 net-leased properties occupied by 13 tenants with a weighted-average remaining lease term of 14.1 years. We also own two self-storage properties, which are considered to be operating properties and, as a result, are not included in the table below.

At March 31, 2014, our net-leased portfolio had the following property and lease characteristics (dollars in thousands):
Lessee (Guarantor)
 
Acquisition Date
 
Ownership Interest
 
Annualized Contractual Minimum Base Rent (a)
 
Square Feet
 
Property
Location(s)
 
Property Type
 
Tenant Industry (b)
 
Date of Lease Expiration
State Farm (c)
 
8/20/13
 
50
%
 
$
6,958

 
479,411

 
Austin, TX
 
Office
 
Insurance
 
8/31/28
Agrokor
 
12/18/13
 
80
%
 
7,736

 
564,577

 
Split, Zadar, Zagreb (3), Croatia
 
Retail
 
Grocery
 
12/31/33
Crowne Group (d) 
 
12/30/13
 
100
%
 
2,676

 
859,702

 
Logansport, IN, Madison, IN, Marion, SC
Frasier, MI
Warren, MI
 
Industrial
 
Automobile
 
3/31/39
Air Enterprises
 
1/16/14
 
100
%
 
553

 
178,180

 
Streetsboro, OH
 
Industrial
 
Machinery
 
2/28/29
Solo Cup
 
2/3/14
 
100
%
 
5,646