Net Investments in Properties and Real Estate Under Construction

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):



	December 31,
	2014			2013
Land	$	104,604		$	36,636
Buildings	639,131			113,788
Less: Accumulated depreciation	(10,875		)	(824		)
	$	732,860		$	149,600

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 year ended December 31, 2014 was a $44.5 million decrease from December 31, 2013 to December 31, 2014.

Operating Real Estate

Operating real estate, which consists of our 14 self-storage properties and two multi-family properties, at cost, is summarized as follows (in thousands):



	December 31,
	2014			2013
Land	$	28,040		$	—
Buildings	105,556			—
Less: Accumulated depreciation	(939		)	—
	$	132,657		$	—

Scheduled Future Minimum Rents

Scheduled future minimum rents, exclusive of renewals and expenses paid by tenants and future CPI-based adjustments, under non-cancelable operating leases at December 31, 2014 are as follows (in thousands):



Years Ending December 31,	Total
2015	$	67,598
2016	67,022
2017	68,474
2018	69,199
2019	69,437
Thereafter	542,259
Total	$	883,989

2014 Acquisitions

During the year ended December 31, 2014, we acquired 54 properties leased to 70 tenants. Of these properties, 12 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). In connection with certain of our acquisitions during 2014, we paid value added taxes and substantially all of such payments have since been refunded to us.

Real Estate Asset Acquisitions

During the year ended December 31, 2014, we entered into the following investments, which were deemed to be real estate asset acquisitions because we acquired the sellers’ properties and then entered into new leases in connection with these acquisitions, at a total cost of $152.2 million, including lease intangibles of $29.4 million (Note 6) and acquisition-related costs and fees of $9.2 million, which were capitalized:


•	$5.9 million for a warehouse/distribution facility in Streetsboro, Ohio on January 16, 2014;


•	$5.8 million for an office building in Norcross, Georgia on February 7, 2014;


•	$8.5 million for an industrial facility in Columbus, Georgia on April 21, 2014;


•	$14.4 million for an industrial facility in Temple, Georgia, a manufacturing facility in Surprise, Arizona, and a parcel of land in Houston, Texas on May 16, 2014;


•	$7.7 million for five industrial facilities in Dallas and Fort Worth, Texas on November 14, 2014; and


•	$1.6 million for a 22-acre parcel of land in Grand Rapids, Michigan on November 21, 2014 related to a build-to-suit transaction (see Real Estate Under Construction below).

We also acquired a 51% controlling interest in a jointly-owned investment, co-owned by our affiliate, CPA^®:17 – Global (Note 3), which acquired an office building in Stavanger, Norway on October 31, 2014. The property is leased to Apply AS. The jointly-owned investment acquired real estate assets and intangibles of $108.3 million, with our portion of the investment totaling $55.2 million. CPA^®:17 – Global’s equity investment was $53.1 million, which we account for as a noncontrolling interest. Amounts are based on the exchange rate of the Norwegian krone at the date of acquisition. Because we acquired stock to complete the acquisition, this investment is 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 $12.5 million.

A portion of the transaction fees capitalized include current and deferred acquisition fees paid and payable, respectively, to the advisor (Note 3). During the year ended December 31, 2014, in connection with certain of investments listed above, we entered into mortgage loans totaling $85.0 million. At December 31, 2014, we had unfunded commitments of $1.7 million related to building improvements.

Business Combinations — Net-Leased Properties

During the year ended December 31, 2014, we acquired the following investments that were deemed to be business combinations because we assumed the existing leases on the properties, for which the sellers were not the lessees, and expensed aggregate acquisition costs of $48.1 million, which included acquisition fees paid to the advisor (Note 3).

Albion Resorts — On December 30, 2014, we acquired a 266-room holiday resort leased to a single-tenant located in Albion, Mauritius from an unaffiliated third party for $61.7 million, which is based on the exchange rate of the euro on the date of acquisition. We acquired this property by purchasing 100% of the shares of Albion Resorts. We assumed the existing mortgages on the property totaling $19.3 million, which is based on the exchange rate of the euro on the date of acquisition (Note 9). We acquired stock to complete the acquisition, 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 $4.4 million and goodwill in the same amount.

Craigentinny — On December 22, 2014, we acquired a retail site located in Edinburgh, United Kingdom from an unaffiliated third party for $4.4 million, which is based on the exchange rate of the British pound sterling on the date of acquisition. The retail site includes one single-tenant warehouse and one multi-tenant warehouse. We intend to engage an unaffiliated third party to act as the asset manager for this property.

Vopak — On December 17, 2014, we acquired an office building leased to Vopak and an adjacent multi-tenant high rise tower located in Rotterdam, Netherlands from an unaffiliated third party for $76.1 million, which is based on the exchange rate of the euro on the date of acquisition.

UK Auto — On November 20, 2014, we acquired two automotive dealerships sites located in Durham, United Kingdom and Dunfermline, United Kingdom from an unaffiliated third party for $10.0 million, which is based on the exchange rate of the British pound sterling on the date of acquisition. The Durham site is leased to a single auto dealer and the Dunfermline site is leased to five auto dealers, one industrial trade park, and one service facility. We intend to engage an unaffiliated third party to act as the asset manager for these properties.

ATK — On November 13, 2014, we acquired an office building located in Plymouth, Minnesota from an unaffiliated third party for $41.0 million. The property is leased to ATK. On December 18, 2014, we entered into a mortgage loan in the amount of $27.7 million for this property (Note 9).

MISO — On November 3, 2014, we acquired an office building located in Eagan, Minnesota from an unaffiliated third party for $14.4 million. The property is leased to MISO.

Cooper Tire — On October 31, 2014, we acquired a distribution center located in Albany, Georgia from an unaffiliated third party for $9.9 million. The property is leased to Cooper Tire. Simultaneously, we entered into a mortgage loan in the amount of $6.7 million (Note 9).

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. 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 British pound sterling on the date of acquisition. The property is leased to three tenants. 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 British pound sterling on the date of acquisition. These properties are leased to 24 tenants. 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. On December 11, 2014, we obtained an $11.5 million mortgage loan on the Truffle and Oakbank properties, which is based on the exchange rate of the British pound sterling on the same date (Note 9).

Belk Inc. — 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. In addition, we funded the development of an expansion of the existing facility of Belk Inc. (see Real Estate Under Construction below).

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 AT&T. 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 Inc. — 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. 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, co-owned by our affiliate, CPA^®:17 – Global (Note 3), which acquired the 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 Harmonized Index of Consumer Prices, which is an indicator of inflation and price stability for the European Central Bank. 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 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 AS — On February 27, 2014, we acquired the office headquarters of Siemens AS, located in Oslo, Norway from an unaffiliated third party for $82.0 million, which is based on the exchange rate of the Norwegian krone on the date of acquisition. This facility consists of an office building and three underground parking floors, all of which Siemens AS leases except for a portion of the parking area. 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 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. Simultaneously, we entered into a mortgage loan in the amount of $47.3 million (Note 9).

Business Combinations — Operating Properties

During the year ended December 31, 2014, we entered into 14 self-storage investments and two multi-family investments that are considered to be operating properties, at a total cost of $146.0 million, including lease intangible assets of $13.2 million (Note 6).

Self-Storage Properties

We acquired the following self-storage properties aggregating $103.9 million during the year ended December 31, 2014, which we refer to as our 2014 Self Storage Acquisitions:

•

$11.7 million for a facility located in Kissimmee, Florida 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 and Kissimmee facilities, which are jointly and severally liable for any possible defaults on the loan (Note 9);


•	$11.5 million for a facility located in St. Petersburg, Florida on January 23, 2014;


•	$4.2 million for a facility located in Corpus Christi, Texas on July 22, 2014;


•	$5.8 million for a facility located in Kailua-Kona, Hawaii on July 31, 2014;


•	$4.5 million for a facility located in Miami, Florida on August 5, 2014;


•	$10.5 million for a facility located in Palm Desert, California on August 11, 2014;


•	$4.5 million for a facility located in Columbia, South Carolina on September 18, 2014;


•	$5.7 million for a facility located in Kailua-Kona, Hawaii on October 9, 2014. We simultaneously obtained a mortgage loan for $23.0 million, which was allocated to the six self-storage properties purchased from July 22, 2014 through October 9, 2014 as described above;


•	$4.7 million for a facility located in Pompano Beach, Florida on October 28, 2014;


•	$8.6 million for a facility located in Jensen Beach, Florida on November 13, 2014;


•	$9.9 million for a facility located in Dickinson, Texas on December 10, 2014;


•	$7.8 million for a facility located in Humble, Texas on December 15, 2014;


•	$10.0 million for a facility located in Temecula, California on December 16, 2014; and


•	$4.4 million for a facility located in Cumming, Georgia on December 17, 2014.

Multi-Family Properties

Gentry — On October 28, 2014, we acquired a 97% controlling interest in Gentry, a 227-unit multi-family property located in Atlanta, Georgia for $21.9 million. The deal was closed in partnership with two joint venture partners. One of the venture partners has been engaged to be the property manager. Simultaneously, we entered into a mortgage loan in the amount of $15.3 million (Note 9).

Dupont — On October 28, 2014, we acquired a 97% controlling interest in Dupont, a 217-unit multi-family property located in Tucker, Georgia for $20.2 million. The deal was closed in partnership with two joint venture partners. One of the venture partners has been engaged to be the property manager. Simultaneously, we entered into a mortgage loan in the amount of $14.1 million (Note 9).

For both Dupont and Gentry, the property manager will receive 3% of certain rent collections related to these properties as a management fee. We also entered into an agreement with the second venture partner under which it will be eligible to receive a one-time fee equal to 7.5% of our “adjusted distributions” for the joint venture above an 8.5% internal rate of return hurdle based on our initial investment.

In connection with our operating property transactions, we incurred acquisition expenses totaling $8.5 million, which are included in Acquisition expenses in the consolidated financial statements.

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 December 31, 2014 (in thousands):



	2014 Business Combinations ^(a)
	Vopak			Bank Pekao			Siemens AS			Solo Cup			Other Business Combinations ^(b)			Total
Cash consideration	$	76,134		$	73,952		$	82,019		$	80,650		$	337,724		$	650,479
Assets acquired at fair value:
Land	$	4,493		$	—		$	14,362		$	13,748		$	52,439		$	85,042
Buildings	54,286			112,676			59,219			52,135			275,609			553,925
In-place lease intangible assets	16,376			23,471			10,528			15,394			42,145			107,914
Above-market rent intangible assets	1,156			3,014			—			773			3,467			8,410
Below-market ground lease intangible assets	—			9,456			—			—			—			9,456
Other assets acquired ^(c)	—			—			3,538			—			105			3,643
	76,311			148,617			87,647			82,050			373,765			768,390
Liabilities assumed at fair value:
Mortgages assumed	—			—			—			—			(33,758		)	(33,758		)
Below-market rent intangible liabilities	(177		)	(713		)	—			(1,400		)	(1,499		)	(3,789		)
Above-market ground lease intangible liabilities	—			—			—			—			(133		)	(133		)
Deferred tax liability	—			—			(6,982		)	—			(4,058		)	(11,040		)
Other liabilities assumed ^(c)	—			—			(5,628		)	—			(651		)	(6,279		)
	(177		)	(713		)	(12,610		)	(1,400		)	(40,099		)	(54,999		)
Total identifiable net assets	76,134			147,904			75,037			80,650			333,666			713,391
Amounts attributable to noncontrolling interest	—			(73,952		)	—			—			—			(73,952		)
Goodwill	—			—			6,982			—			4,058			11,040
	$	76,134		$	73,952		$	82,019		$	80,650		$	337,724		$	650,479



	Vopak			Bank Pekao			Siemens AS			Solo Cup			Other Business Combinations ^(b)
	December 17, 2014 through December 31, 2014			March 31, 2014 through December 31, 2014			February 27, 2014 through December 31, 2014			February 3, 2014 through December 31, 2014			Respective Acquisition Dates through December 31, 2014			Total
Revenues	$	217		$	9,586		$	5,437		$	5,489		$	9,872		$	30,601

Net loss	$	(7,864	)	$	(12,920	)	$	(6,487	)	$	(4,004	)	$	(30,101	)	$	(61,376	)
Net loss attributable to noncontrolling interests	—			3,349			—			—			32			3,381
Net loss attributable to CPA^®:18 – Global	$	(7,864	)	$	(9,571	)	$	(6,487	)	$	(4,004	)	$	(30,069	)	$	(57,995	)

___________

(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: Albion Resorts, Craigentinny, UK Auto, ATK, MISO, Cooper Tire, Gentry, Dupont, Infineon, Oakbank Portfolio, Truffle Portfolio, Belk Inc., AT&T, North American Lighting Inc., and our 2014 Self Storage Acquisitions.

(c)

During the year ended December 31, 2014, we recorded a measurement period adjustment related to our Siemens AS purchase price allocation, which we acquired in February 2014. This adjustment, which was made as a result of new information that became available to us later in the year, included an increase of $0.7 million to both other liabilities assumed and other assets acquired. 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 that we completed during the year ended December 31, 2014, and any new financings related to these acquisitions, had occurred on January 1, 2013. The pro forma information below includes all 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)



	Years Ended December 31,
	2014			2013
Pro forma total revenues ^(a)	$	92,486		$	72,168
Pro forma net income (loss) ^{(b) (c)}	1,261			(53,893		)
Pro forma net (income) loss attributable to noncontrolling interests	(3,207		)	3,769
Pro forma net loss attributable to CPA^®:18 – Global	$	(1,946	)	$	(50,124	)

Pro forma loss per Class A share:
Net loss attributable to CPA^®:18 – Global ^(d)	$	(1,046	)	$	(49,544	)
Weighted-average shares outstanding ^(e)	107,420,043			46,215,482
Loss per share	$	(0.01	)	$	(1.07	)

Pro forma loss per Class C share:
Net loss attributable to CPA^®:18 – Global	$	(900	)	$	(580	)
Weighted-average shares outstanding ^(e)	8,847,966			497,725
Loss per share	$	(0.10	)	$	(1.16	)

___________


(a)	Pro forma total revenues includes revenues from lease contracts based on the terms in place at December 31, 2014 and does not include adjustments to contingent rental amounts.


(b)	During the year ended December 31, 2014, we incurred $56.6 million of acquisition expenses related to 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)	During the year ended December 31, 2014, we incurred $1.6 million of one-time tax expenses related to our 2014 Acquisitions that were deemed to be business combinations. The pro forma table above presents such tax expenses as if they were incurred on January 1, 2013.


(d)	For the years ended December 31, 2014 and 2013, the allocation for the Class A common stock excludes the shareholder servicing fee of $0.8 million and less than $0.1 million, respectively, which is only applicable to holders of Class C common stock (Note 3).


(e)	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 business combinations were issued on January 1, 2013. We assumed that we would have issued 43,399,504 Class A shares to raise such funds.

2013 Acquisitions

During 2013, we entered into the following 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 $212.6 million, including noncontrolling interests of $77.2 million, net lease intangible assets of $60.4 million (Note 6), and acquisition-related costs and fees of $11.9 million, which were capitalized:


•	$115.6 million for a 50% controlling interest in a jointly-owned investment on August 20, 2013, co-owned by our affiliate, CPA^®:17 – Global (Note 3), which acquired an office facility from State Farm located in Austin, Texas; and


•	$97.0 million for a 80% controlling interest in a jointly-owned investment on December 18, 2013, co-owned by our affiliate, CPA^®:17 – Global (Note 3), which acquired a retail portfolio from Agrokor consisting of five properties located in Croatia.

In connection with certain of our acquisitions during 2013, we paid value added taxes and such payments have since been refunded to us.

Real Estate Under Construction

The following table provides the activity of our Real estate under construction (in thousands):



	Years Ended December 31,
	2014			2013
Beginning balance	$	—		$	—
Capitalized funds	20,617			—
Placed into service	(18,502		)	—
Capitalized interest	143			—
Ending balance	$	2,258		$	—

Capitalized Funds

During the year ended December 31, 2014, total capitalized funds were primarily comprised of construction draws related to the Belk Inc. and UFS Holland build-to-suit projects, both of which were initiated in 2014.

Placed Into Service

During the year ended December 31, 2014, the Belk Inc. build-to-suit project was placed into service for the amount of $18.5 million, which was then reclassified to Real estate, at cost.

Ending Balance

At December 31, 2014, we had one open build-to-suit project related to our USF Holland investment. The aggregate unfunded commitment on this remaining project totaled $9.7 million.

Asset Retirement Obligations

We have recorded asset retirement obligations totaling $2.0 million for the removal of asbestos and environmental waste in connection with certain of our acquisitions. We estimated the fair value of the asset retirement obligations based on the estimated economic lives of the properties and the estimated removal costs provided by the inspectors. The liability was discounted using the weighted-average interest rate on the associated fixed-rate mortgage loans at the time the liability was incurred. We include asset retirement obligations in Accounts payable, accrued expenses and other liabilities in the consolidated financial statements.