10-Q 1 cpa182014q210-q.htm 10-Q CPA 18 2014 Q2 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 June 30, 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 99,119,728 shares of Class A common stock, $0.001 par value, and 9,061,156 shares of Class C common stock, $0.001 par value, outstanding at July 31, 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 6/30/2014 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)
 
June 30, 2014
 
December 31, 2013
Assets
 
 
 
Investments in real estate:
 
 
 
   Real estate, at cost
$
453,291

 
$
150,424

   Operating real estate, at cost
20,880

 

   Accumulated depreciation
(5,018
)
 
(824
)
Net investments in properties
469,153

 
149,600

Real estate under construction
182

 

Net investments in direct financing leases
44,025

 
22,064

Net investments in real estate
513,360

 
171,664

Cash and cash equivalents
695,086

 
109,061

In-place lease intangible assets, net
115,139

 
53,337

Below-market ground lease intangible assets, net
17,634

 
8,224

Other intangible assets, net
11,767

 

Other assets, net
27,521

 
13,384

Total assets
$
1,380,507

 
$
355,670

 
 
 
 
Liabilities and Equity
 
 
 
Liabilities:
 
 
 
Non-recourse debt
$
307,420

 
$
85,060

Bonds payable
51,712

 

Due to affiliate
12,688

 
5,149

Deferred income taxes
15,324

 
8,350

Distributions payable
12,772

 
1,821

Prepaid and deferred rental income
12,039

 
3,317

Accounts payable, accrued expenses and other liabilities
6,041

 
1,502

Total liabilities
417,996

 
105,199

 

 

Commitments and contingencies (Note 10)

 

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; 97,375,728 and 21,290,097 shares issued, respectively, and 97,371,724 and 21,290,097 shares outstanding, respectively
97

 
21

Class C common stock, $0.001 par value; 80,000,000 shares authorized; 7,576,489 and 2,776,001 shares issued and outstanding, respectively
8

 
3

Additional paid-in capital
938,975

 
215,371

Distributions and accumulated losses
(40,034
)
 
(2,567
)
Accumulated other comprehensive loss
(3,020
)
 
(94
)
Less: treasury stock at cost, 4,004 and 0 shares, respectively
(40
)
 

Total CPA®:18 – Global stockholders’ equity
895,986

 
212,734

Noncontrolling interests
66,525

 
37,737

Total equity
962,511

 
250,471

Total liabilities and equity
$
1,380,507

 
$
355,670


See Notes to Consolidated Financial Statements.

CPA®:18 – Global 6/30/2014 10-Q 2


CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except share and per share amounts) 
 
 
Three Months Ended June 30,

Six Months Ended June 30,
 
 
2014

2013

2014

2013
Revenues
 
 
 
 
 
 
 
 
Lease revenues:
 
 
 
 
 
 
 
 
Rental income
 
$
10,471

 
$

 
$
16,130

 
$

Interest income from direct financing leases
 
873

 

 
1,425

 

Total lease revenues
 
11,344

 

 
17,555

 

Other operating income
 
788

 

 
851

 

Other real estate income
 
515

 

 
936

 

 
 
12,647




19,342



Operating Expenses
 
 
 
 
 
 
 
 
Depreciation and amortization
 
5,123

 

 
7,838

 

Acquisition expenses (inclusive of $3,021, $0, $18,893, and $0, respectively, to a related party)
 
3,972

 

 
22,966

 

Property expenses (inclusive of $603, $0, $934, and $0, respectively, to a related party)
 
1,670

 

 
2,297

 

General and administrative (inclusive of $155, $65, $259, and $65, respectively, to a related party)
 
1,174

 
65

 
1,812

 
65

Other real estate expenses
 
160

 

 
277

 

 
 
12,099

 
65

 
35,190

 
65

Other Income and Expenses
 
 
 
 
 
 
 
 
Interest expense (inclusive of $34, $0, $54, and $0, respectively, to a related party)
 
(3,776
)
 

 
(5,852
)
 

Other income and (expenses)
 
733

 

 
962

 

 
 
(3,043
)
 

 
(4,890
)
 

Loss from continuing operations before income taxes
 
(2,495
)
 
(65
)
 
(20,738
)
 
(65
)
Provision for income taxes
 
(486
)
 

 
(222
)
 

Net Loss
 
(2,981
)
 
(65
)
 
(20,960
)
 
(65
)
Net (income) loss attributable to noncontrolling interests (inclusive of Available Cash Distribution to a related party of ($537), $0, ($606), and $0, respectively)
 
(1,218
)
 

 
2,525

 

Net Loss Attributable to CPA®:18 – Global
 
$
(4,199
)

$
(65
)

$
(18,435
)

$
(65
)
 
 
 
 
 
 
 
 
 
Class A common stock:
 
 
 
 
 
 
 
 
Net loss attributable to CPA®:18 – Global
 
$
(3,760
)
 
$
(65
)
 
$
(16,761
)
 
$
(65
)
Weighted average shares outstanding
 
77,300,223

 
23,222

 
57,778,351

 
23,222

Net loss per share
 
$
(0.05
)
 
$
(2.81
)
 
$
(0.29
)
 
$
(2.81
)
Distributions Declared Per Share
 
$
0.1562

 
$

 
$
0.3125

 
$

 
 
 
 
 
 
 
 
 
Class C common stock:
 
 
 
 
 
 
 
 
Net loss attributable to CPA®:18 – Global
 
$
(439
)
 
$

 
$
(1,674
)
 
$

Weighted average shares outstanding
 
6,126,012

 

 
4,979,591

 

Net loss per share
 
$
(0.07
)
 
$

 
$
(0.34
)
 
$

Distributions Declared Per Share
 
$
0.1329

 
$

 
$
0.2657

 
$


See Notes to Consolidated Financial Statements.

CPA®:18 – Global 6/30/2014 10-Q 3


CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)
(in thousands) 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2014
 
2013
 
2014
 
2013
Net Loss
 
$
(2,981
)
 
$
(65
)
 
$
(20,960
)
 
$
(65
)
Other Comprehensive Loss:
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
(1,832
)
 

 
(2,293
)
 

Change in net unrealized loss on derivative instruments
 
(469
)
 

 
(1,132
)
 

 
 
(2,301
)
 

 
(3,425
)
 

Comprehensive Loss
 
(5,282
)
 
(65
)
 
(24,385
)
 
(65
)
 
 
 
 
 
 
 
 
 
Amounts Attributable to Noncontrolling Interests:
 
 
 
 
 
 
 
 
Net (income) loss
 
(1,218
)
 

 
2,525

 

Foreign currency translation adjustments
 
175

 

 
499

 

Comprehensive (income) loss attributable to noncontrolling interests
 
(1,043
)
 

 
3,024

 

Comprehensive Loss Attributable to CPA®:18 – Global
 
$
(6,325
)
 
$
(65
)
 
$
(21,361
)
 
$
(65
)
 
See Notes to Consolidated Financial Statements.


CPA®:18 – Global 6/30/2014 10-Q 4


CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
Six Months Ended June 30, 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
 
Treasury Stock
 
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
76,009,975

 
76

 
4,800,488

 
5

 

 

 
722,848

 

 

 

 
722,929

 

 
722,929

Shares issued to affiliate
75,656

 

 

 

 

 

 
756

 

 

 

 
756

 

 
756

Contributions from noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 
95,889

 
95,889

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 
(64,077
)
 
(64,077
)
Distributions declared ($0.3125 and $0.2657 per share to Class A and Class C, respectively)

 

 

 

 

 

 

 
(19,032
)
 

 

 
(19,032
)
 

 
(19,032
)
Net Loss

 

 

 

 

 

 

 
(18,435
)
 

 

 
(18,435
)
 
(2,525
)
 
(20,960
)
Other Comprehensive Loss:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Foreign currency translation adjustments

 

 

 

 

 

 

 

 
(1,794
)
 

 
(1,794
)
 
(499
)
 
(2,293
)
   Change in net unrealized loss on derivative instruments

 

 

 

 

 

 

 

 
(1,132
)
 

 
(1,132
)
 

 
(1,132
)
Repurchase of shares
(4,004
)
 

 

 

 

 

 

 

 

 
(40
)
 
(40
)
 

 
(40
)
Balance at June 30, 2014
97,371,724

 
$
97

 
7,576,489

 
$
8

 

 
$

 
$
938,975

 
$
(40,034
)
 
$
(3,020
)
 
$
(40
)
 
$
895,986

 
$
66,525

 
$
962,511


See Notes to Consolidated Financial Statements.

CPA®:18 – Global 6/30/2014 10-Q 5


CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
 
 
Six Months Ended June 30,
 
 
2014
 
2013
Cash Flows — Operating Activities
 

 
 
Net loss
 
$
(20,960
)
 
$
(65
)
Adjustments to net loss:
 
 
 
 
Depreciation and amortization, including intangible assets and deferred financing costs
 
8,265

 

Straight-line rent adjustment and amortization of rent-related intangibles
 
(892
)
 

Loss on foreign currency transactions and other
 
(190
)
 

Net change in operating assets and liabilities
 
10,832

 
65

Net Cash Used in Operating Activities
 
(2,945
)
 

 
 
 
 
 
Cash Flows — Investing Activities
 
 
 
 
Acquisitions of real estate and direct financing leases, net of cash acquired
 
(421,900
)
 

Value added taxes, or VAT, refunded in connection with acquisition of real estate
 
36,472

 

VAT paid in connection with acquisition of real estate
 
(34,844
)
 

Funds placed in escrow
 
(10,536
)
 

Funds released from escrow
 
5,330

 

Payment of deferred acquisition fees to an affiliate
 
(782
)
 

Net Cash Used in Investing Activities
 
(426,260
)
 

 
 
 
 
 
Cash Flows — Financing Activities
 
 
 
 
Proceeds from issuance of shares, net of issuance costs
 
715,293

 

Proceeds from mortgage financing
 
223,651

 

Contributions from noncontrolling interests
 
95,889

 

Distributions to noncontrolling interests
 
(64,077
)
 

Proceeds from bond financing
 
52,066

 

Distributions paid
 
(8,080
)
 

Receipt of tenant security deposits
 
4,072

 

Payment of deferred financing costs and mortgage deposits
 
(2,919
)
 

Scheduled payments of mortgage principal
 
(738
)
 

Purchase of treasury stock
 
(40
)
 

Net Cash Provided by Financing Activities
 
1,015,117

 

 
 
 
 
 
Change in Cash and Cash Equivalents During the Period
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
 
113

 

Net increase in cash and cash equivalents
 
586,025

 

Cash and cash equivalents, beginning of period
 
109,061

 
209

Cash and cash equivalents, end of period
 
$
695,086

 
$
209


See Notes to Consolidated Financial Statements.

CPA®:18 – Global 6/30/2014 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 June 30, 2014, our portfolio was comprised of full or partial ownership interests in 24 properties, all of which were fully occupied and triple-net leased to 18 tenants totaling 5.3 million square feet. In addition, our portfolio was comprised of our full ownership interests in two self-storage properties totaling 0.3 million square feet.

We are managed by WPC through Carey Asset Management Corp., 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.

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 other selected 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). 

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. 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 as of June 30, 2014. 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 to our initial public offering of up to $250.0 million of the shares that were initially allocated to sales of our stock through our DRIP.  In June 2014, we reallocated the full $250.0 million in shares from the DRIP. Through June 30, 2014, we raised gross offering proceeds for our Class A common stock and Class C common stock of $964.9 million and $70.1 million, respectively. The gross offering proceeds raised exclude reinvested distributions through the DRIP of $3.9 million and $0.6 million for our Class A common stock and Class C common stock, respectively.

CPA®:18 – Global 6/30/2014 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 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.

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 six months ended June 30, 2014, we made several new investments (Note 4) that we evaluated for VIE purposes. We have concluded that none of our investments through June 30, 2014 qualify as a VIE.

For an entity that is not considered to be a VIE, but rather a voting interest entity, 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.

Recent Accounting Requirements

The following Accounting Standards Updates, or ASUs, promulgated by the Financial Accounting Standards Board are applicable to us:

ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. ASU 2014-09 does not apply to our lease revenues, but will apply to reimbursed tenant costs and revenues generated from our operating properties. Additionally, this guidance modifies

CPA®:18 – Global 6/30/2014 10-Q 8


Notes to Consolidated Financial Statements (Unaudited)


disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. ASU 2014-09 is effective for us in 2017, and early adoption is not permitted. In adopting ASU 2014-09, companies may use either a full retrospective or a modified retrospective approach. We are currently evaluating the impact of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which we will adopt the standard in 2017.

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 financial statements, 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.

ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit when a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. ASU 2013-11 requires an entity to present an unrecognized tax benefit relating to a net operating loss carryforward, a similar tax loss or a tax credit carryforward as a reduction to a deferred tax asset except in certain situations. To the extent the net operating loss carryforward, similar tax loss or tax credit carryforward is not available as of the reporting date under the governing tax law to settle any additional income taxes that would result from the disallowance of the tax position or the governing tax law does not require the entity to use and the entity does not intend to use the deferred tax asset for such purpose, the unrecognized tax benefit should be presented as a liability and should not net with a deferred tax asset. ASU 2013-11 is effective for us at the beginning of 2014. The adoption of ASU 2013-11 did not have a material impact on our financial condition or results of operations.

CPA®:18 – Global 6/30/2014 10-Q 9


Notes to Consolidated Financial Statements (Unaudited)



Note 3. Agreements and Transactions with Related Parties

We have an advisory agreement with the advisor whereby the advisor performs 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 June 30,
 
Six Months Ended June 30,
 
 
2014
 
2013
 
2014
 
2013
Amounts Included in the Consolidated Statements of Operations:
 
 
 
 
 
 
 
 
Acquisition expenses
 
$
3,021

 
$

 
$
18,893

 
$

Asset management fees
 
603

 

 
934

 

Available Cash Distribution
 
537

 

 
606

 

Shareholder servicing fee
 
141

 

 
229

 

Interest expense on deferred acquisition fees
 
34

 

 
54

 

Personnel and overhead reimbursements
 
14

 

 
30

 

Costs incurred by the advisor
 

 
141

 

 
141

Excess operating expenses charged back to the advisor
 

 
(76
)
 

 
(76
)
 
 
$
4,350

 
$
65

 
$
20,746

 
$
65

 
 
 
 
 
 
 
 
 
Other Transaction Fees Incurred:
 
 
 
 
 
 
 
 
Selling commissions and dealer manager fees
 
$
38,561

 
$

 
$
99,431

 
$

Current acquisition fees
 
736

 

 
1,251

 

Deferred acquisition fees
 
589

 

 
1,000

 

Offering costs
 
1,188

 

 
1,986

 

 
 
$
41,074

 
$

 
$
103,668

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
June 30, 2014
 
December 31, 2013
Due to Affiliate:
 
 
 
 
 
 
 
 
Deferred acquisition fees, including interest
 
 
 
 
 
$
8,999

 
$
2,705

Accounts payable
 
 
 
 
 
3,471

 
2,406

Asset management fees payable
 
 
 
 
 
216

 
38

Reimbursable costs
 
 
 
 
 
2

 

 
 
 
 
 
 
$
12,688

 
$
5,149


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 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 June 30, 2014, the advisor has incurred organization and offering costs of $0.1 million and $7.0 million, respectively, on our behalf, of which we repaid $6.4 million. We recorded a liability to the advisor for the remaining unpaid offering costs based on our estimate of expected gross offering proceeds. During the six months ended June 30, 2014, we charged $4.6 million of deferred offering costs to stockholder’s equity.


CPA®:18 – Global 6/30/2014 10-Q 10


Notes to Consolidated Financial Statements (Unaudited)


Loans 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 either the three or six months ended June 30, 2014 nor do we have any amounts outstanding at June 30, 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 June 30, 2014, the advisor owned 106,781 shares, or 0.1%, of our outstanding Class A common stock. Asset management fees are included in Property expenses in the consolidated financial statements.

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 is 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 and six months ended June 30, 2014 was $0.1 million and $0.2 million, respectively, and is included in General and administrative expenses in the consolidated financial statements.

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 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 in which a property was purchased. Unpaid deferred acquisition fees are included in Due to affiliate in the consolidated financial statements. The total acquisition fees to be paid (initial and subordinated, and including interest thereon) may 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®

CPA®:18 – Global 6/30/2014 10-Q 11


Notes to Consolidated Financial Statements (Unaudited)


REITs, and Carey Watermark Investors Incorporated, or CWI. The advisor allocates these expenses on the basis of our trailing four quarters of reported revenues and those of WPC, the CPA® REITs, and CWI.

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 second 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 and six months ended June 30, 2014, we made $0.5 million and $0.6 million of such distributions, respectively. Available Cash Distributions are included in Net (income) loss attributable to noncontrolling interests in the consolidated financial statements.

Jointly-Owned Investments and Other Transactions with our Affiliate

At June 30, 2014, we owned interests ranging from 50% to 80% in three jointly-owned investments, with the remaining interests held by 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.

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):
 
June 30, 2014
 
December 31, 2013
Land
$
77,815

 
$
36,636

Building
375,476

 
113,788

Less: Accumulated depreciation
(4,839
)
 
(824
)
 
$
448,452

 
$
149,600


Operating Real Estate
 
Operating real estate, which consists of our self-storage operations, at cost, is summarized as follows (in thousands):
 
June 30, 2014
 
December 31, 2013
Land
$
6,564

 
$

Building
14,316

 

Less: Accumulated depreciation
(179
)
 

 
$
20,701

 
$



CPA®:18 – Global 6/30/2014 10-Q 12


Notes to Consolidated Financial Statements (Unaudited)


2014 Acquisitions

During the six months ended June 30, 2014, we acquired 17 properties leased to 15 tenants. Of these properties, five were deemed to be asset acquisitions, four were deemed to be direct financing leases (Note 5) and the remainder were considered to be business combinations.

Real Estate Asset Acquisitions

During the six months ended June 30, 2014, we entered into the following domestic investments, which were deemed to be real estate asset acquisitions because we entered into new leases in connection with the acquisitions, at a total cost of $34.6 million, including lease intangible assets of $8.2 million (Note 6), and acquisition-related costs and fees of $2.0 million, which were capitalized:

an industrial building in Temple, Georgia and a manufacturing facility in Surprise, Arizona for $14.4 million leased to the same tenant;
an industrial facility in Columbus, Georgia for $8.5 million;
a warehouse facility in Streetsboro, Ohio for $5.9 million; and
an office building in Norcross, Georgia for $5.8 million.

A portion of the transaction fees capitalized include current and deferred acquisition fees paid and payable to our advisor, respectively (Note 3).

In connection with these investments, at June 30, 2014, we have unfunded commitments of $2.4 million related to building improvements.

Business Combinations - Net-Leased Properties

Belk — On June 4, 2014, we acquired a fulfillment center located in Jonesville, South Carolina from an unaffiliated third party for $20.5 million. The property is leased to Belk, Inc., or Belk. In addition, we will fund the development of an expansion of Belk’s existing facility (see Real Estate Under Construction below). This triple-net lease expires on May 31, 2023 and has a 15-year renewal option upon the completion of the expansion. 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 $2.0 million, which include acquisition fees paid to the advisor (Note 3).

AT&T Investment — On May 19, 2014, we acquired an industrial warehouse and the land on which the building is located in Chicago, Illinois from an unaffiliated third party for $11.6 million. The property is leased to Illinois Bell Telephone Company, or AT&T. 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 $0.6 million, which include acquisition fees paid to the advisor (Note 3). In accordance with GAAP, we have accounted for the land, which constituted more than 25% of the fair value of the leased property, as a business combination and the building as a direct financing lease (Note 5). On June 2, 2014, we entered into a mortgage loan encumbering this property in the amount of $8.0 million (Note 9).

North American Lighting — On May 6, 2014, we acquired an office building located in Farmington Hills, Michigan from an unaffiliated third party for $8.4 million. The property is leased to North American Lighting, Inc., or North American Lighting. This triple-net lease expires on March 31, 2026, has one five-year renewal option 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 $1.1 million, which include acquisition fees paid to the advisor (Note 3). Simultaneously, we entered into a mortgage loan in the amount of $7.3 million (Note 9).

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 increase 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

CPA®:18 – Global 6/30/2014 10-Q 13


Notes to Consolidated Financial Statements (Unaudited)


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). 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 be unable to recover this asset. On May 21, 2014, this jointly-owned investment obtained a €53.4 million, or $73.1 million, mortgage loan (Note 9).

Siemens AS — On February 27, 2014, we acquired the office headquarters of Siemens AS, or Siemens, 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, all of which Siemens leases except for a portion of the parking area. These triple-net leases expire on December 14, 2025 with two ten-year renewal options and rent increases subject to annual Norwegian krone, or NOK, consumer price index, or CPI. 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 9). 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 five-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 9).

Business Combinations - Operating Properties

St. Petersburg Self-Storage Facility — On January 23, 2014, we acquired a self-storage facility located in St. Petersburg, Florida from an unaffiliated third party for $11.6 million. We refer to this investment 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 9).

Kissimmee Self-Storage Facility — On January 22, 2014, we acquired a self-storage facility located in Kissimmee, Florida from an unaffiliated third party for $12.0 million. We refer to this investment 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). On April 30, 2014, we acquired an additional ground lease connected to this facility for the amount of $0.2 million.


CPA®:18 – Global 6/30/2014 10-Q 14


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 June 30, 2014 (in thousands):
 
 
2014 Business Combinations (a)
 
 
Belk
 
AT&T
 
Bank Pekao
 
Siemens
 
Solo Cup
 
St. Petersburg Self Storage
 
Kissimmee Self Storage
Cash Consideration
 
$
20,451

 
$
3,036

 
$
73,952

 
$
82,019

 
$
80,650

 
$
11,550

 
$
11,960

Assets acquired at fair value:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Land
 
$
2,995

 
$
3,036

 
$

 
$
14,362

 
$
13,748

 
$
3,258

 
$
3,306

Building
 
14,645

 

 
112,676

 
59,219

 
52,135

 
7,128

 
7,187

In-place lease intangibles assets
 
3,393

 

 
23,471

 
10,528

 
15,394

 
1,201

 
1,221

Above-market rent intangible assets
 

 

 
3,014

 

 
773

 

 

Below-market ground lease
 

 

 
9,456

 

 

 

 
225

Other assets assumed
 

 

 

 
2,820

 

 
7

 
24

 
 
21,033

 
3,036

 
148,617

 
86,929

 
82,050

 
11,594

 
11,963

Liabilities assumed at fair value:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Below-market rent intangible liabilities
 
(582
)
 

 
(713
)
 

 
(1,400
)
 

 

Deferred income taxes
 

 

 

 
(6,982
)
 

 

 

Other liabilities assumed
 

 

 

 
(4,910
)
 

 
(44
)
 
(3
)
 
 
(582
)
 

 
(713
)
 
(11,892
)
 
(1,400
)
 
(44
)
 
(3
)
Total identifiable net assets
 
20,451

 
3,036

 
147,904

 
75,037

 
80,650

 
11,550

 
11,960

Amounts attributable to noncontrolling interests
 

 

 
(73,952
)
 

 

 

 

Goodwill
 

 

 

 
6,982

 

 

 

 
 
$
20,451

 
$
3,036

 
$
73,952

 
$
82,019

 
$
80,650

 
$
11,550

 
$
11,960


 
 
For the Period from
 
 
June 4, 2014 through
June 30, 2014
 
May 19, 2014 through
June 30, 2014
 
March 31, 2014 through
June 30, 2014
 
February 27, 2014 through
June 30, 2014
 
February 3, 2014 through
June 30, 2014
 
January 23, 2014 through
June 30, 2014
 
January 22, 2014 through
June 30, 2014
Revenues
 
$
160

 
$
161

 
$
3,122

 
$
2,223

 
$
2,495

 
$
458

 
$
478

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
 
$
(1,945
)
 
$
(548
)
 
$
(10,205
)
 
$
(5,722
)
 
$
(3,954
)
 
$
(797
)
 
$
(772
)
Net loss attributable to noncontrolling interests
 

 

 
3,756

 

 

 

 

Net loss attributable to CPA®:18 – Global stockholders
 
$
(1,945
)
 
$
(548
)
 
$
(6,449
)
 
$
(5,722
)
 
$
(3,954
)
 
$
(797
)
 
$
(772
)
___________

(a)
The purchase price for each transaction 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 acquisitions that were deemed business combinations were completed during the three and six months ended June 30, 2014, and any new financings related to these acquisitions, had occurred on January 1, 2013. The pro forma information below includes all significant business combinations. 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, 2013, nor does it purport to represent the results of operations for future periods.


CPA®:18 – Global 6/30/2014 10-Q 15


Notes to Consolidated Financial Statements (Unaudited)


(Dollars in thousands, except share and per share amounts)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2014
 
2013
 
2014
 
2013
Pro forma total revenues
 
$
13,206

 
$
7,635

 
$
25,496

 
$
15,252

Pro forma net (loss) income
 
(299
)
 
579

 
1,259

 
(20,580
)
Net (income) loss attributable to noncontrolling interests
 
(1,036
)
 
(168
)
 
(1,663
)
 
3,855

Pro forma net (loss) income attributable to CPA®:18 – Global
 
$
(1,335
)
 
$
411

 
$
(404
)
 
$
(16,725
)
 
 
 
 
 
 
 
 
 
Pro forma net (loss) income per Class A share:
 
 
 
 
 
 
 
 
Net (loss) income attributable to CPA®:18 – Global
 
$
(1,108
)
 
$
411

 
$
(163
)
 
$
(16,725
)
Weighted average shares outstanding
 
79,143,058

 
14,928,391

 
63,941,148

 
14,928,391

Net (loss) income per share
 
$
(0.01
)
 
$
0.03

 
$

 
$
(1.12
)
 

 
 
 
 
 
 
 
Pro forma net loss per Class C share:
 
 
 
 
 
 
 
 
Net loss attributable to CPA®:18 – Global
 
$
(227
)
 
$

 
$
(241
)
 
$

Weighted average shares outstanding
 
6,126,012

 

 
4,979,591

 

Net loss per share
 
$
(0.04
)
 
$

 
$
(0.05
)
 
$

___________

(a)
Pro forma total revenues includes revenues from lease contracts based on the terms in place at June 30, 2014 and does not include adjustments to contingent rental amounts.
(b)
The pro forma weighted average shares outstanding were determined as if the number of shares issued in our initial public offering in order to raise the funds used for our significant business combinations were issued on January 1, 2013. We assumed that we would only issue Class A shares to raise such funds. All acquisition costs for our acquisitions completed during the six months ended June 30, 2014 are presented as if they were incurred on January 1, 2013.

Real Estate Under Construction

In conjunction with our acquisition of the property leased to Belk, we also will fund the development of an expansion to their existing facility located in Spartanburg, South Carolina, which is expected to complete in December 2014. Belk will continue to pay base rent on the existing facility during construction. At June 30, 2014, we have capitalized funds of $0.2 million as real estate under construction and have an unfunded commitment of $20.4 million remaining on this project.

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 which we acquired on August 20, 2013, December 18, 2013 and December 30, 2013, respectively. The State Farm and Agrokor properties were considered to be asset acquisitions and the Crowne Group transaction was considered to be a direct financing lease.

Note 5. Finance Receivables
 
Assets representing rights to receive money on demand or at fixed or determinable dates are referred to as finance receivables. Our finance receivables portfolio consists of the Net investments in direct financing leases described below. Operating leases are not included in finance receivables as such amounts are not recognized as an asset in the consolidated financial statements.

AT&T Investment

As discussed in Note 4, on May 19, 2014, in conjunction with the transaction with AT&T, we entered into a domestic net lease financing transaction in which we acquired an industrial warehouse located in Chicago, Illinois. The total cost of the building was $8.6 million.

Janus Investment

On May 16, 2014, we acquired an office building and two manufacturing facilities from Janus International, or Janus. One property, located in Houston, Texas, was considered to be a domestic net lease financing transaction with a total cost of $1.6 million and the other two properties were considered to be acquisitions of real estate properties (Note 4).


CPA®:18 – Global 6/30/2014 10-Q 16


Notes to Consolidated Financial Statements (Unaudited)


Swift Spinning

On April 21, 2014, we acquired two industrial facilities from Swift Spinning, Inc., or Swift Spinning. One property, located in Columbus, Georgia, was considered to be a domestic net lease financing transaction (total cost of $3.4 million) and the other property was considered to be a real estate property acquisition (Note 4).

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 investments in direct financing leases is summarized as follows (in thousands):
 
 
June 30, 2014
 
December 31, 2013
Minimum lease payments receivable
 
$
91,763

 
$
50,006

Unguaranteed residual value
 
44,003

 
22,064

 
 
135,766

 
72,070

Less: unearned income
 
(91,741
)
 
(50,006
)
 
 
$
44,025

 
$
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 June 30, 2014 and December 31, 2013, none of the balances of our finance receivables were past due and we had not established any allowances for credit losses. Additionally, there were no modifications of finance receivables during the six months ended June 30, 2014 or the year ended December 31, 2013. 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 of our finance receivables was last updated in the second quarter of 2014.

A summary of our finance receivables by internal credit quality rating is as follows (dollars in thousands):
 
 
Number of Tenants
 
Net Investments in Direct Financing Leases at
Internal Credit Quality Indicator
 
June 30, 2014
 
December 31, 2013
 
June 30, 2014
 
December 31, 2013
1
 
 
 
$

 
$

2
 
1
 
 
8,905

 

3
 
2
 
1
 
31,685

 
22,064

4
 
1
 
 
3,435

 

5
 
 
 

 

 
 
 
 
 
 
$
44,025

 
$
22,064


At June 30, 2014, Other assets, net included less than $0.1 million of accounts receivable related to amounts billed under our direct financing leases. We did not have any outstanding account receivables related to the aforementioned direct financing lease at December 31, 2013.

CPA®:18 – Global 6/30/2014 10-Q 17


Notes to Consolidated Financial Statements (Unaudited)



Note 6. 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 30 years. In addition, we have ground lease intangibles 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 financial statements. Below-market ground lease intangibles are included in Below-market ground lease intangible assets, net in the consolidated financial statements. Above-market rent intangibles are included in Other intangible assets, net in the consolidated financial statements. Below-market rent intangibles are included in Prepaid and deferred rental income in the consolidated financial statements.

In connection with our investment activity during the six months ended June 30, 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
10.7
 
$
66,024

Below-market ground lease
74.9
 
9,625

Above-market rent
15.1
 
5,043

Total intangible assets
 
 
$
80,692

Amortizable Intangible Liabilities
 
 
 

Below-market rent
18.3
 
$
(3,768
)

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

Acquisition of Siemens (a)
 
6,982

Foreign currency translation
 
(125
)
Balance at June 30, 2014
 
$
6,857

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

Intangible assets and liabilities are summarized as follows (in thousands):
 
June 30, 2014
 
December 31, 2013
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
Amortizable Intangible Assets
 
 
 
 
 
 
 
 
 
 
 
In-place lease
$
119,250

 
$
(4,111
)
 
$
115,139

 
$
53,832

 
$
(495
)
 
$
53,337

Below-market ground lease
17,711

 
(77
)
 
17,634

 
8,227

 
(3
)
 
8,224

Above-market rent
5,021

 
(111
)
 
4,910

 

 

 

 
141,982

 
(4,299
)
 
137,683

 
62,059

 
(498
)
 
61,561

Unamortizable Intangible Assets
 
 
 
 
 
 
 
 
 
 
 
Goodwill
6,857

 

 
6,857

 

 

 

Total intangible assets
$
148,839

 
$
(4,299
)
 
$
144,540

 
$
62,059

 
$
(498
)
 
$
61,561

 
 
 
 
 
 
 
 
 
 
 
 
Amortizable Intangible Liabilities
 
 
 
 
 
 
 
 
 
 
 
Below-market rent
$
(5,410
)
 
$
155

 
$
(5,255
)
 
$
(1,647
)
 
$
40

 
$
(1,607
)


CPA®:18 – Global 6/30/2014 10-Q 18


Notes to Consolidated Financial Statements (Unaudited)


Net amortization of intangibles, including the effect of foreign currency translation, was $2.4 million and $3.7 million for the three and six months ended June 30, 2014, respectively. Amortization of below-market and above-market rent is recorded as an adjustment to Rental income on the consolidated financial statements. We amortize in-place lease intangibles to Depreciation and amortization expense in the consolidated financial statements over the remaining initial term of each lease. Amortization of below-market ground lease intangibles is included in Property expenses in the consolidated financial statements.

Based on the intangible assets and liabilities recorded at June 30, 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 Income
 
Increase to Amortization/Property Expense
 
Net