10-Q 1 cpa182014q310-q.htm 10-Q CPA 18 2014 Q3 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 September 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 99,981,167 shares of Class A common stock, $0.001 par value, and 14,428,864 shares of Class C common stock, $0.001 par value, outstanding at October 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 9/30/2014 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)
 
September 30, 2014
 
December 31, 2013
Assets
 
 
 
Investments in real estate:
 
 
 
   Real estate, at cost
$
471,769

 
$
150,424

   Operating real estate, at cost
46,864

 

   Accumulated depreciation
(7,844
)
 
(824
)
Net investments in properties
510,789

 
149,600

Real estate under construction
5,725

 

Net investments in direct financing leases
44,067

 
22,064

Note receivable
28,000

 

Net investments in real estate
588,581

 
171,664

Cash and cash equivalents
652,128

 
109,061

In-place lease intangible assets, net
118,869

 
53,337

Other intangible assets, net
30,232

 
8,224

Other assets, net
18,161

 
13,384

Total assets
$
1,407,971

 
$
355,670

Liabilities and Equity
 
 
 
Liabilities:
 
 
 
Non-recourse debt
$
313,334

 
$
85,060

Bonds payable
49,226

 

Due to affiliate
12,257

 
5,149

Deferred income taxes
14,161

 
8,350

Distributions payable
16,784

 
1,821

Prepaid and deferred rental income
12,176

 
3,317

Accounts payable, accrued expenses and other liabilities
9,212

 
1,502

Total liabilities
427,150

 
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; 99,170,039 and 21,290,097 shares issued, respectively, and 99,132,878 and 21,290,097 shares outstanding, respectively
99

 
21

Class C common stock, $0.001 par value; 80,000,000 shares authorized; 12,242,048 and 2,776,001 shares issued and outstanding, respectively
12

 
3

Additional paid-in capital
996,722

 
215,371

Distributions and accumulated losses
(64,467
)
 
(2,567
)
Accumulated other comprehensive loss
(12,275
)
 
(94
)
Less: treasury stock at cost, 37,160 and 0 shares, respectively
(371
)
 

Total CPA®:18 – Global stockholders’ equity
919,720

 
212,734

Noncontrolling interests
61,101

 
37,737

Total equity
980,821

 
250,471

Total liabilities and equity
$
1,407,971

 
$
355,670

See Notes to Consolidated Financial Statements.


CPA®:18 – Global 9/30/2014 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 September 30,

Nine Months Ended September 30,
 
 
2014

2013

2014

2013
Revenues
 
 
 
 
 
 
 
 
Lease revenues:
 
 
 
 
 
 
 
 
Rental income
 
$
11,163

 
$
941

 
$
27,293

 
$
941

Interest income from direct financing leases
 
1,012

 

 
2,437

 

Total lease revenues
 
12,175

 
941

 
29,730

 
941

Other operating income
 
1,103

 
6

 
1,954

 
6

Other real estate income
 
1,052

 

 
1,988

 

Other interest income
 
552

 

 
552

 

 
 
14,882


947


34,224


947

Operating Expenses
 
 
 
 
 
 
 
 
Acquisition expenses (inclusive of $4,915, $0, $23,808, and $0, respectively, to a related party)
 
8,861

 
33

 
31,827

 
33

Depreciation and amortization
 
5,647

 
378

 
13,485

 
378

Property expenses (inclusive of $713, $32, $1,647, and $32, respectively, to a related party)
 
2,166

 
32

 
4,463

 
32

General and administrative (inclusive of $287, $68, $546, and $68, respectively, to a related party)
 
1,517

 
161

 
3,329

 
226

Other real estate expenses
 
389

 

 
666

 

 
 
18,580

 
604

 
53,770

 
669

Other Income and Expenses
 
 
 
 
 
 
 
 
Interest expense (inclusive of $43, $34, $97, and $34, respectively, to a related party)
 
(4,311
)
 
(416
)
 
(10,163
)
 
(416
)
Other income and (expenses)
 
852

 
1

 
1,814

 
1

 
 
(3,459
)
 
(415
)
 
(8,349
)
 
(415
)
Loss from continuing operations before income taxes
 
(7,157
)
 
(72
)
 
(27,895
)
 
(137
)
Benefit from income taxes
 
644

 

 
422

 

Net Loss
 
(6,513
)
 
(72
)
 
(27,473
)
 
(137
)
Net (income) loss attributable to noncontrolling interests (inclusive of Available Cash Distribution to a related party of $590, $0, $1,196, and $0, respectively)
 
(1,136
)
 
(66
)
 
1,389

 
(66
)
Net Loss Attributable to CPA®:18 – Global
 
$
(7,649
)

$
(138
)

$
(26,084
)

$
(203
)
 
 
 
 
 
 
 
 
 
Class A common stock:
 
 
 
 
 
 
 
 
Net loss attributable to CPA®:18 – Global
 
$
(6,743
)
 
$
(108
)
 
$
(23,451
)
 
$
(163
)
Weighted-average shares outstanding
 
99,007,256

 
616,292

 
71,680,784

 
223,085

Loss per share
 
$
(0.07
)
 
$
(0.18
)
 
$
(0.33
)
 
$
(0.73
)
Distributions Declared Per Share
 
$
0.1562

 
$
0.1155

 
$
0.4687

 
$
0.1155

 
 
 
 
 
 
 
 
 
Class C common stock:
 
 
 
 
 
 
 
 
Net loss attributable to CPA®:18 – Global
 
$
(906
)
 
$
(30
)
 
$
(2,633
)
 
$
(40
)
Weighted-average shares outstanding
 
9,925,481

 
149,294

 
6,646,337

 
50,311

Loss per share
 
$
(0.09
)
 
$
(0.20
)
 
$
(0.40
)
 
$
(0.80
)
Distributions Declared Per Share
 
$
0.1329

 
$
0.0982

 
$
0.3986

 
$
0.0982


See Notes to Consolidated Financial Statements.


CPA®:18 – Global 9/30/2014 10-Q 3


CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)
(in thousands) 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
2014
 
2013
Net Loss
 
$
(6,513
)
 
$
(72
)
 
$
(27,473
)
 
$
(137
)
Other Comprehensive Loss
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
(14,395
)
 

 
(16,688
)
 

Change in net unrealized gain on derivative instruments
 
1,888

 

 
756

 

 
 
(12,507
)
 

 
(15,932
)
 

Comprehensive Loss
 
(19,020
)
 
(72
)
 
(43,405
)
 
(137
)
 
 
 
 
 
 
 
 
 
Amounts Attributable to Noncontrolling Interests
 
 
 
 
 
 
 
 
Net (income) loss
 
(1,136
)
 
(66
)
 
1,389

 
(66
)
Foreign currency translation adjustments
 
3,252

 

 
3,751

 

Comprehensive loss (income) attributable to noncontrolling interests
 
2,116

 
(66
)
 
5,140

 
(66
)
Comprehensive Loss Attributable to CPA®:18 – Global
 
$
(16,904
)
 
$
(138
)
 
$
(38,265
)
 
$
(203
)
 
See Notes to Consolidated Financial Statements.



CPA®:18 – Global 9/30/2014 10-Q 4


CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
Nine Months Ended September 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
77,725,349

 
78

 
9,466,047

 
9

 

 

 
779,817

 

 

 

 
779,904

 

 
779,904

Shares issued to affiliate
143,482

 

 

 

 

 

 
1,435

 

 

 

 
1,435

 

 
1,435

Stock-based compensation
11,110

 

 

 

 

 

 
99

 

 

 

 
99

 

 
99

Contributions from noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 
95,889

 
95,889

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 
(67,385
)
 
(67,385
)
Distributions declared ($0.4687 and $0.3986 per share to Class A and Class C, respectively)

 

 

 

 

 

 

 
(35,816
)
 

 

 
(35,816
)
 

 
(35,816
)
Net Loss

 

 

 

 

 

 

 
(26,084
)
 

 

 
(26,084
)
 
(1,389
)
 
(27,473
)
Other Comprehensive Loss:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Foreign currency translation adjustments

 

 

 

 

 

 

 

 
(12,937
)
 

 
(12,937
)
 
(3,751
)
 
(16,688
)
   Change in net unrealized gain on derivative instruments

 

 

 

 

 

 

 

 
756

 

 
756

 

 
756

Repurchase of shares
(37,160
)
 

 

 

 

 

 

 

 

 
(371
)
 
(371
)
 

 
(371
)
Balance at September 30, 2014
99,132,878

 
$
99

 
12,242,048

 
$
12

 

 
$

 
$
996,722

 
$
(64,467
)
 
$
(12,275
)
 
$
(371
)
 
$
919,720

 
$
61,101

 
$
980,821


See Notes to Consolidated Financial Statements.


CPA®:18 – Global 9/30/2014 10-Q 5


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

 
 
Net loss
 
$
(27,473
)
 
$
(137
)
Adjustments to net loss:
 
 
 
 
Depreciation and amortization, including intangible assets and deferred financing costs
 
14,248

 
380

Straight-line rent adjustment and amortization of rent-related intangibles
 
(1,551
)
 
(137
)
Stock-based compensation expense
 
99

 
67

Gain on foreign currency transactions and other
 
(10
)
 

Organizational costs paid by affiliate
 

 
65

Net change in operating assets and liabilities
 
14,276

 
936

Net Cash (Used in) Provided by Operating Activities
 
(411
)
 
1,174


 
 
 
 
Cash Flows — Investing Activities
 
 
 
 
Acquisitions of real estate and direct financing leases, net of cash acquired
 
(487,672
)
 
(111,627
)
Value added taxes, or VAT, refunded in connection with acquisition of real estate
 
36,472

 

VAT paid in connection with acquisition of real estate
 
(35,136
)
 

Investment in note receivable
 
(28,000
)
 

Change in investing restricted cash
 
(4,897
)
 

Payment of deferred acquisition fees to an affiliate
 
(978
)
 

Net Cash Used in Investing Activities
 
(520,211
)
 
(111,627
)
 
 
 
 
 
Cash Flows — Financing Activities
 
 
 
 
Proceeds from issuance of shares, net of issuance costs
 
785,518

 
18,075

Proceeds from mortgage financing
 
223,651

 
72,800

Contributions from noncontrolling interests
 
95,889

 
19,129

Distributions to noncontrolling interests
 
(67,385
)
 
(292
)
Proceeds from bond financing
 
52,066

 

Distributions paid
 
(20,852
)
 

Receipt of tenant security deposits
 
4,072

 

Payment of deferred financing costs and mortgage deposits
 
(2,954
)
 
(220
)
Scheduled payments of mortgage principal
 
(1,163
)
 

Purchase of treasury stock
 
(371
)
 

Note payable proceeds from affiliate
 

 
15,000

Net Cash Provided by Financing Activities
 
1,068,471

 
124,492

 
 
 
 
 
Change in Cash and Cash Equivalents During the Period
 
 
 
 
       Effect of exchange rate changes on cash and cash equivalents
 
(4,782
)
 

Net increase in cash and cash equivalents
 
543,067

 
14,039

Cash and cash equivalents, beginning of period
 
109,061

 
209

Cash and cash equivalents, end of period
 
$
652,128

 
$
14,248


See Notes to Consolidated Financial Statements.


CPA®:18 – Global 9/30/2014 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 publicly-owned, non-listed real estate investment trust, or REIT, 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 U.S. 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 September 30, 2014, our portfolio was comprised of full or partial ownership interests in 32 properties, the majority of which were fully-occupied and triple-net leased to 48 tenants totaling 5.7 million square feet. The remainder of our portfolio was comprised of our full ownership interests in seven self-storage properties totaling 0.6 million square feet.

We are managed by WPC through Carey Asset Management Corp., or the advisor. The 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 the 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. The Registration Statement relates to our initial public offering of up to $1.0 billion of common stock, in any combination of Class A common stock, at a price of $10.00 per share, and Class C common stock, at a price of $9.35 per share. 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 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 September 30, 2014, we raised gross offering proceeds for our Class A common stock and Class C common stock of $977.4 million and $113.2 million, respectively. The gross offering proceeds raised exclude reinvested distributions through the DRIP of $10.0 million and $1.2 million for our Class A common stock and Class C common stock, respectively.



CPA®:18 – Global 9/30/2014 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 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 nine months ended September 30, 2014, we made several new investments (Note 4) that we evaluated for VIE purposes. We have concluded that none of our investments at September 30, 2014 qualified 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 (i) the substantive ability to dissolve or liquidate the limited partnership or otherwise remove the general partners without cause or (ii) 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.

Reclassifications 

Certain prior period amounts have been reclassified to conform to the current period presentation.



CPA®:18 – Global 9/30/2014 10-Q 8


Notes to Consolidated Financial Statements (Unaudited)


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 disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. ASU 2014-09 is effective beginning 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. 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 became 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 9/30/2014 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 current form of the advisory agreement is scheduled to expire on December 31, 2014, unless renewed pursuant to its terms.

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 September 30,
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
2014
 
2013
Amounts Included in the Consolidated Statements of Operations
 
 
 
 
 
 
 
 
Acquisition expenses
 
$
4,915

 
$

 
$
23,808

 
$

Asset management fees
 
713

 
32

 
1,647

 
32

Available Cash Distribution
 
590

 

 
1,196

 

Shareholder servicing fee
 
230

 
3

 
459

 
3

Personnel and overhead reimbursements
 
57

 

 
87

 

Interest expense on deferred acquisition fees and note payable
 
43

 
34

 
97

 
34

Costs incurred by the advisor
 

 
141

 

 
141

Excess operating expenses charged back to the advisor
 

 
(76
)
 

 
(76
)
 
 
$
6,548

 
$
134

 
$
27,294

 
$
134

 
 
 
 
 
 
 
 
 
Other Transaction Fees Incurred
 
 
 
 
 
 
 
 
Selling commissions and dealer manager fees
 
$
2,695

 
$
1,860

 
$
102,126

 
$
1,860

Offering costs
 
640

 
853

 
2,626

 
3,933

Current acquisition fees
 

 
1,442

 
1,251

 
1,442

Deferred acquisition fees
 

 
1,154

 
1,000

 
1,154

 
 
$
3,335

 
$
5,309

 
$
107,003

 
$
8,389

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2014
 
December 31, 2013
Due to Affiliate
 
 
 
 
 
 
 
 
Deferred acquisition fees, including interest
 
 
 
 
 
$
10,564

 
$
2,705

Accounts payable
 
 
 
 
 
1,396

 
2,406

Asset management fees payable
 
 
 
 
 
250

 
38

Reimbursable costs
 
 
 
 
 
47

 

 
 
 
 
 
 
$
12,257

 
$
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 September 30, 2014, the advisor has incurred organization and offering costs of $0.1 million and $7.7 million, respectively, on our behalf, of which we repaid $7.4 million. Organization costs were expensed as incurred and are included in


CPA®:18 – Global 9/30/2014 10-Q 10


Notes to Consolidated Financial Statements (Unaudited)


General and administrative expenses in the consolidated financial statements. We recorded a liability to the advisor for the remaining unpaid offering costs based on our estimate of expected gross offering proceeds. During the nine months ended September 30, 2014, we charged $5.5 million of deferred offering costs to stockholder’s equity.

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 the 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. During the three months ended September 30, 2013, we borrowed $15.0 million from WPC at a rate of 30-day London Interbank Offered Rate plus 1.75% and a maturity date of August 20, 2014. On October 4, 2013, we repaid this note in full with accrued interest and we do not have any amounts outstanding at September 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 were 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 September 30, 2014, the advisor owned 174,607 shares, or 0.2%, 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

Pursuant to our 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 nine months ended September 30, 2014 was $0.2 million and $0.5 million, respectively, and is included in General and administrative expenses in the consolidated financial statements.



CPA®:18 – Global 9/30/2014 10-Q 11


Notes to Consolidated Financial Statements (Unaudited)


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 the advisor under the Corporate Property Associates brand name, or the CPA® REITs, and Carey Watermark Investors Incorporated, or CWI. The advisor allocates these expenses based on the average 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 nine months ended September 30, 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 most recent four trailing quarters, 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 nine months ended September 30, 2014, we made $0.6 million and $1.2 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 September 30, 2014, we owned interests ranging from 50% to 80% in three jointly-owned investments, with the remaining interests held by our affiliate Corporate Property Associates 17 – Global Incorporated, or CPA®:17 – Global, which is also managed by the advisor. We consolidate all of these investments and we account for CPA®:17 – Global’s equity investments as noncontrolling interests.

On March 31, 2014, we and CPA®:17 – Global acquired an office facility located in Warsaw, Poland through a jointly-owned investment for $147.9 million, of which our share was $74.0 million. This office facility is subject to multiple leases, of which Bank Pekao S.A. is the largest tenant and accounts for 98% of the facility’s contractual rent. We account for this investment as a business combination (Note 4).


CPA®:18 – Global 9/30/2014 10-Q 12


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):
 
September 30, 2014
 
December 31, 2013
Land
$
79,977

 
$
36,636

Buildings
391,792

 
113,788

Less: Accumulated depreciation
(7,467
)
 
(824
)
 
$
464,302

 
$
149,600


Operating Real Estate
 
Operating real estate, which consists of our self-storage operations, at cost, is summarized as follows (in thousands):
 
September 30, 2014
 
December 31, 2013
Land
$
11,909

 
$

Buildings
34,955

 

Less: Accumulated depreciation
(377
)
 

 
$
46,487

 
$


2014 Acquisitions

During the nine months ended September 30, 2014, we acquired 30 properties leased to 45 tenants. Of these properties, five were deemed to be asset acquisitions, five were deemed to be direct financing leases (Note 5), and the remainder were considered to be business combinations. We also acquired a note receivable (Note 5). We refer to these investments as our 2014 Acquisitions.

Real Estate Asset Acquisitions

During the nine months ended September 30, 2014, we entered into the investments listed below, 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. We also we entered into mortgage loans (Note 9) in conjunction with the following investments:

an industrial building in Temple, Georgia and a manufacturing facility in Surprise, Arizona for $14.4 million on May 16, 2014;
an industrial facility in Columbus, Georgia for $8.5 million on April 21, 2014;
an office building in Norcross, Georgia for $5.8 million on February 7, 2014; and
a warehouse/distribution facility in Streetsboro, Ohio for $5.9 million on January 16, 2014.

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

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

Business Combinations Net-Leased Properties

Infineon — On September 30, 2014, we acquired an office/research and development facility located in Warstein, Germany from an unaffiliated third party for $22.2 million, which is based on the exchange rate of the euro on the date of acquisition. The property is leased to Infineon Technologies AG, or Infineon. 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 $2.8 million, which include acquisition fees paid to the advisor (Note


CPA®:18 – Global 9/30/2014 10-Q 13


Notes to Consolidated Financial Statements (Unaudited)


3). We assumed the existing mortgage on the facility for the amount of $14.4 million, which is based on the exchange rate of the euro on the date of acquisition (Note 9).

Oakbank Portfolio — On September 26, 2014, we acquired one industrial trade park located in Livingston, United Kingdom from an unaffiliated third party for a total cost of $4.1 million, which is based on the exchange rate of the pound on the date of acquisition. We refer to this investment as our Oakbank Portfolio. The property is leased to three tenants. Because we assumed the seller’s leases, we account for this acquisition as a business combination, and as a result, we expensed acquisition costs of $0.5 million, which include acquisition fees paid to the advisor (Note 3). We have engaged an unaffiliated third party to act as the asset manager for this property. The asset manager will receive 5% of certain net-lease income related to this portfolio as a management fee and will be eligible to receive a one-time fee equal to 20% of the disposition proceeds above a 12% internal rate of return hurdle based on our initial investment. If we do not dispose of the property and trigger this one-time fee through a disposition, the asset manager may elect to receive the aforementioned one-time fee in 2019 by requesting us to perform an agreed upon valuation of the property, after which the asset manager will receive 20% of the hypothetical proceeds above a 12% internal rate of return hurdle based on our initial investment.

Truffle Portfolio — On August 19, 2014, we acquired six industrial trade parks located in Livingston, Ayr, Bathgate, Dundee, Dunfermline, and Invergordon, United Kingdom from an unaffiliated third party for a total cost of $17.6 million, which is based on the exchange rate of the pound on the date of acquisition. We refer to this investment as our Truffle Portfolio. These properties are leased to 24 tenants. 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 $2.2 million, which include acquisition fees paid to the advisor (Note 3). We have engaged an unaffiliated third party to act as the asset manager for these properties. The asset manager will receive 5% of certain net-lease income related to this portfolio as a management fee and will be eligible to receive a one-time fee equal to 20% of the disposition proceeds above a 12% internal rate of return hurdle based on our initial investment. If we do not dispose of the properties and trigger this one-time fee through dispositions, the asset manager may elect to receive the aforementioned one-time fee in 2019 by requesting us to perform an agreed upon valuation of the properties, after which the asset manager will receive 20% of the hypothetical proceeds above a 12% internal rate of return hurdle based on our initial investment.

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). 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 — 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 in the amount of $8.0 million for this property (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. 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 — 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. Amounts are based on the exchange rate of the euro at the date of acquisition. 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. 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 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


CPA®:18 – Global 9/30/2014 10-Q 14


Notes to Consolidated Financial Statements (Unaudited)


as we currently estimate that it is more likely than not that we will be unable to realize this asset. On May 21, 2014, this jointly-owned investment obtained a $73.1 million mortgage loan on the property, which is based on the exchange rate of the euro on the same date (Note 9).

Siemens — 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, which is based on the exchange rate of the Norwegian krone, or NOK, on the date of acquisition. 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. 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). We incurred debt at closing through the issuance of privately-placed bonds indexed to inflation in the amount of $52.1 million, which is based on the exchange rate of the Norwegian krone on the date of acquisition (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 historical tax basis of the property owned by 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. 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).

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 nine months ended September 30, 2014 was a $17.5 million decrease for the nine months ended September 30, 2014.

Business Combinations Operating Properties

During the nine months ended September 30, 2014, we entered into the following self-storage investments that are considered to be operating properties, at a total cost of $52.9 million, including lease intangible assets of $6.4 million (Note 6):

a facility located in Columbia, South Carolina for $4.5 million, or Monster Self Storage, on September 18, 2014
a facility located in Palm Desert, California for $10.5 million, or Desert Gateway Self Storage, on August 11, 2014;
a facility located in Miami, Florida for $4.5 million, or Doral Self Storage, on August 5, 2014;
a facility located in Kailua-Kona, Hawaii for $5.8 million, or Kaloko Self Storage, on July 31, 2014;
a facility located in Corpus Christi, Texas for $4.2 million, or AAA Self Storage, on July 22, 2014;
a facility located in St. Petersburg, Florida for $11.5 million, or St. Petersburg Self Storage, on January 23, 2014; and
a facility located in Kissimmee, Florida for $11.7 million, or Kissimmee Self Storage, on January 22, 2014. On April 30, 2014, we acquired an additional ground lease connected to this facility for the amount of $0.2 million. On January 23, 2014, we entered into a mortgage loan in the amount of $14.5 million that we allocated between St. Petersburg Self Storage and Kissimmee Self Storage, which are jointly and severally liable for any possible defaults on the loan (Note 9).

In connection with these transactions, we incurred acquisition expenses totaling $3.1 million, which are included in Acquisition expenses in the consolidated financial statements.



CPA®:18 – Global 9/30/2014 10-Q 15


Notes to Consolidated Financial Statements (Unaudited)


The following tables present a summary of assets acquired and liabilities assumed in the business combinations listed above, each at the date of acquisition, and revenues and earnings thereon, since their respective dates of acquisition through September 30, 2014 (in thousands):
 
 
2014 Business Combinations (a)
 
 
Bank Pekao
 
Siemens
 
Solo Cup
 
Other Business Combinations (b)
 
Total
Cash consideration
 
$
73,952

 
$
82,019

 
$
80,650

 
$
122,518

 
$
359,139

Assets acquired at fair value:
 
 
 
 
 
 
 
 
 
 
Land
 
$

 
$
14,362

 
$
13,748

 
$
23,635

 
$
51,745

Buildings
 
112,676

 
59,219

 
52,135

 
92,320

 
316,350

In-place lease intangible assets
 
23,471

 
10,528

 
15,394

 
19,673

 
69,066

Above-market rent intangible assets
 
3,014

 

 
773

 
2,792

 
6,579

Below-market ground lease intangible assets
 
9,456

 

 

 

 
9,456

Other assets assumed (c)
 

 
3,538

 

 
105

 
3,643

 
 
148,617

 
87,647

 
82,050

 
138,525

 
456,839

Liabilities assumed at fair value:
 
 
 
 
 
 
 
 
 
 
Mortgages assumed
 

 

 

 
(14,448
)
 
(14,448
)
Below-market rent intangible liabilities
 
(713
)
 

 
(1,400
)
 
(788
)
 
(2,901
)
Above-market ground lease intangible liabilities
 

 

 

 
(133
)
 
(133
)
Deferred tax liability
 

 
(6,982
)
 

 

 
(6,982
)
Other liabilities assumed (c)
 

 
(5,628
)
 

 
(638
)
 
(6,266
)
 
 
(713
)
 
(12,610
)
 
(1,400
)
 
(16,007
)
 
(30,730
)
Total identifiable net assets
 
147,904

 
75,037

 
80,650

 
122,518

 
426,109

Amounts attributable to noncontrolling interest
 
(73,952
)
 

 

 

 
(73,952
)
Goodwill
 

 
6,982

 

 

 
6,982

 
 
$
73,952

 
$
82,019

 
$
80,650

 
$
122,518

 
$
359,139


 
 
Bank Pekao
 
Siemens
 
Solo Cup
 
Other Business Combinations (b)
 
 
 
 
March 31, 2014 through
September 30, 2014
 
February 27, 2014 through
September 30, 2014
 
February 3, 2014 through
September 30, 2014
 
Respective Acquisition Dates through
September 30, 2014
 
Total
Revenues
 
$
6,386

 
$
3,850

 
$
3,992

 
$
3,738

 
$
17,966

 
 
 
 
 
 
 
 
 
 
 
Net loss
 
$
(11,321
)
 
$
(5,993
)
 
$
(3,984
)
 
$
(11,759
)
 
$
(33,057
)
Net loss attributable to noncontrolling interest
 
3,534

 

 

 

 
3,534

Net loss attributable to CPA®:18 – Global stockholders
 
$
(7,787
)
 
$
(5,993
)
 
$
(3,984
)
 
$
(11,759
)
 
$
(29,523
)
___________

(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.
(b)
Other business combinations include: Infineon, Oakbank Portfolio, Monster Self Storage, Truffle Portfolio, Desert Gateway Self Storage, Doral Self Storage, Kalako Self Storage, AAA Self Storage, Belk, AT&T, North American Lighting, St. Petersburg Self Storage, and Kissimmee Self Storage.
(c)
During the three months ended September 30, 2014, we recorded a measurement period adjustment related to our Siemens purchase price allocation. This adjustment, which was made as a result of new information that became available, included a


CPA®:18 – Global 9/30/2014 10-Q 16


Notes to Consolidated Financial Statements (Unaudited)


increase of $0.7 million to other liabilities assumed and other assets assumed. No other adjustment was needed to retrospectively record this measurement period adjustment as if the accounting was completed at the acquisition date.

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 nine months ended September 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.

(Dollars in thousands, except share and per share amounts)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
2014
 
2013
Pro forma total revenues (a)
 
$
16,065

 
$
10,725

 
$
45,560

 
$
29,960

Pro forma net income (loss) (b)
 
497

 
398

 
2,635

 
(27,930
)
Pro forma net (income) loss attributable to noncontrolling interests
 
(1,136
)
 
(170
)
 
(2,668
)
 
3,639

Pro forma net (loss) income attributable to CPA®:18 – Global
 
$
(639
)
 
$
228

 
$
(33
)
 
$
(24,291
)
 
 
 
 
 
 
 
 
 
Pro forma (loss) earnings per Class A share:
 
 
 
 
 
 
 
 
Net (loss) income attributable to CPA®:18 – Global
 
$
(373
)
 
$
229

 
$
394

 
$
(24,232
)
Weighted-average shares outstanding (c)
 
102,897,057

 
22,325,135

 
81,570,722

 
21,955,150

Earnings (loss) per share
 
$

 
$
0.01

 
$

 
$
(1.10
)
 

 
 
 
 
 
 
 
Pro forma loss per Class C share:
 
 
 
 
 
 
 
 
Net loss attributable to CPA®:18 – Global
 
$
(266
)
 
$
(1
)
 
$
(427
)
 
$
(59
)
Weighted-average shares outstanding (c)
 
9,925,481

 
149,294

 
6,646,337

 
50,311

Loss per share
 
$
(0.03
)
 
$
(0.01
)
 
$
(0.06
)
 
$
(1.17
)
___________

(a)
Pro forma total revenues includes revenues from lease contracts based on the terms in place at September 30, 2014 and does not include adjustments to contingent rental amounts.
(b)
During the three and nine months ended September 30, 2014, we incurred $7.4 million and $29.9 million of acquisition expenses, respectively, related our 2014 Acquisitions that were deemed to be business combinations. The pro forma table above presents such acquisition expenses as if they were incurred on January 1, 2013.
(c)
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 issue 21.7 million Class A shares to raise such funds.

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 its 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 that is operating during construction. At September 30, 2014, we have capitalized funds of $5.7 million and capitalized interest of less than $0.1 million as Real estate under construction in the consolidated financial statements and have an unfunded commitment of $16.1 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,


CPA®:18 – Global 9/30/2014 10-Q 17


Notes to Consolidated Financial Statements (Unaudited)


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. We refer to these investments as our 2013 Acquisitions.

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 our Net investments in direct financing leases and our Note receivable described below. Operating leases are not included in finance receivables as such amounts are not recognized as an asset in the consolidated financial statements.

Net Investments in Direct Financing Leases

Net investments in direct financing leases is summarized as follows (in thousands):
 
 
September 30, 2014
 
December 31, 2013
Minimum lease payments receivable
 
$
87,183

 
$
50,006

Unguaranteed residual value
 
43,999

 
22,064

 
 
131,182

 
72,070

Less: unearned income
 
(87,115
)
 
(50,006
)
 
 
$
44,067

 
$
22,064


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 real estate asset acquisitions (Note 4).

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, with a total cost of $3.4 million, and the other property was considered to be a real estate asset 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.



CPA®:18 – Global 9/30/2014 10-Q 18


Notes to Consolidated Financial Statements (Unaudited)


Note Receivable

On July 21, 2014, we acquired a $28.0 million mezzanine tranche of 10-year commercial mortgage-backed securities originated by Cantor Fitzgerald on the Cipriani banquet halls in New York, New York. The mezzanine tranche is subordinated to a $60.0 million senior loan on the properties. We will receive interest-only payments at a rate of 10% per annum. The collateral for the loan is comprised of the banquet halls as well as certain other cash flows. In connection with this transaction, we expensed acquisition costs of $1.3 million. Earnings related to this investment are reported in Other interest income in the consolidated financial statements.

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 default. At both September 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 nine months ended September 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 third quarter of 2014.

A summary of our finance receivables by internal credit quality rating is as follows (dollars in thousands):
 
 
Number of Tenants at
 
Carrying Value at
Internal Credit Quality Indicator
 
September 30, 2014
 
December 31, 2013
 
September 30, 2014
 
December 31, 2013
1
 
 
 
$

 
$

2
 
1
 
 
8,936

 

3
 
4
 
1
 
63,131

 
22,064

4
 
 
 

 

5
 
 
 

 

 
 
 
 
 
 
$
72,067

 
$
22,064


At September 30, 2014, Other assets, net included $0.2 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.

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 and above-market rent intangibles are included in Other intangible assets, net in the consolidated financial statements. Below-market rent intangibles and above-market ground lease intangibles are included in Prepaid and deferred rental income in the consolidated financial statements.



CPA®:18 – Global 9/30/2014 10-Q 19


Notes to Consolidated Financial Statements (Unaudited)


In connection with our investment activity during the nine months ended September 30, 2014, we recorded net lease intangibles comprised as follows (life in years, dollars in thousands):
 
Weighted-Average Life
 
Amount
Amortizable Intangible Assets
 
 
 

In-place lease
10.6
 
$
77,007

Below-market ground lease
74.9
 
9,625

Above-market rent
12.6
 
7,835

Total intangible assets
 
 
$
94,467

Amortizable Intangible Liabilities
 
 
 

Below-market rent
18.1
 
$
(3,834
)
Above-market ground lease
81.1
 
(133
)
 
 
 
$
(3,967
)

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
 
(478
)
Balance at September 30, 2014
 
$
6,504

___________
(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):
 
September 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
$
125,409

 
$
(6,540
)
 
$
118,869

 
$
53,832

 
$
(495
)
 
$
53,337

Below-market ground lease
16,473

 
(122
)
 
16,351

 
8,227

 
(3
)
 
8,224

Above-market rent
7,586

 
(209
)
 
7,377

 

 

 

 
149,468

 
(6,871
)
 
142,597

 
62,059

 
(498
)
 
61,561

Unamortizable Intangible Assets
 
 
 
 
 
 
 
 
 
 
 
Goodwill
6,504

 

 
6,504

 

 

 

Total intangible assets
$
155,972

 
$
(6,871
)
 
$
149,101

 
$
62,059

 
$
(498
)
 
$
61,561