10-K 1 cpa182014q410-k.htm 10-K CPA 18 2014 Q4 10-K


 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
þ
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
For the annual period ended December 31, 2014
or
 
 
 
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
For the transition period from                     to                       

Commission File Number: 000-54970
CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
(Exact name of registrant as specified in its charter)
Maryland
 
90-0885534
(State of incorporation)
 
(I.R.S. Employer Identification No.)
 
 
 
50 Rockefeller Plaza
 
 
New York, New York
 
10020
(Address of principal executive offices)
 
(Zip Code)
Investor Relations (212) 492-8920
(212) 492-1100
(Registrant’s telephone numbers, including area code)
Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, Par Value $0.001 Per Share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

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 þ 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 þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
 
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 þ
Registrant has no active market for its common stock. Non-affiliates held 97,257,506 and 7,576,489 of Class A and Class C shares, respectively, of outstanding common stock at June 30, 2014.
As of March 23, 2015, there were 100,794,838 shares of Class A common stock and 27,266,757 shares of Class C common stock of registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant incorporates by reference its definitive Proxy Statement with respect to its 2015 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of its fiscal year, into Part III of this Annual Report on Form 10-K.





 
INDEX
 
 
 
Page No
PART I
 
 
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
 
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
 
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
 
 
Item 15.
 

Forward-Looking Statements

This Annual Report on Form 10-K, or this Report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of Part II 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 that 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 of this Report. 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 II, Item 8. Financial Statements and Supplementary Data.



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PART I

Item 1. Business.

General Development of Business

Overview

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, that invests in a diversified portfolio of income-producing commercial real estate properties and other real estate-related assets, both domestically and outside the United States. We qualified as a REIT for U.S. federal income tax purposes beginning with the taxable year ending December 31, 2013. We conduct substantially all of our investment activities and own all of our assets through CPA:18 Limited Partnership, a Delaware limited partnership, which is our Operating Partnership. In addition to being a general partner and a limited partner of the Operating Partnership, we also own a 99.97% capital interest in the 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 the remaining special general partner interest in the Operating Partnership.

On August 20, 2013, we acquired our first property. At December 31, 2014, our portfolio was comprised of full or partial ownership interests in 47 properties, the majority of which were fully-occupied and triple-net leased to 73 tenants totaling 7.4 million square feet. The remainder of our portfolio was comprised of our full ownership interests in 14 self-storage properties and two multi-family properties totaling 1.5 million square feet.

We are managed by WPC through its subsidiary, Carey Asset Management Corp., or the advisor. WPC is a publicly-traded REIT listed on the New York Stock Exchange under the symbol “WPC.” Pursuant to an advisory agreement with us, 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. The advisor also provides office space and other facilities for us. We pay asset management fees and certain transactional fees to the advisor and also reimburse the advisor for certain expenses incurred in providing services to us, including those fees associated with personnel provided for administration of our operations. The current advisory agreement is scheduled to expire on December 31, 2015, unless extended. As of December 31, 2014, the advisor also served in this capacity for Corporate Property Associates 17 – Global Incorporated, or CPA®:17 – Global, which, together with us, is referred to throughout this Report as the CPA® REITs; and Carey Watermark Investors Incorporated, or CWI, a publicly-owned, non-traded REIT that invests in lodging and lodging-related properties; which, together with the CPA® REITs is referred to as the Managed REITs. The advisor also currently serves in this capacity for Carey Watermark Investors Incorporated 2, or CWI 2, a new non-traded lodging REIT.

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, as amended. This Registration Statement covers our initial public offering of up to $1.0 billion of common stock, in any combination of Class A common stock and Class C common stock, at a price of $10.00 per Class A share of common stock and $9.35 per Class C share of common stock. The Registration Statement also covers the offering of up to $400.0 million in common stock, in any combination of Class A common stock and Class C common stock, pursuant to our distribution reinvestment and stock purchase plan 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, or Carey Financial, our dealer manager and an affiliate of the advisor, and selected other dealers. The per share amount of distributions on shares of Class A common stock and Class C common stock will likely differ because of different allocations of class-specific expenses. Specifically, distributions on shares of Class C common stock will likely 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, or the shareholder servicing fee (Note 3).

On July 25, 2013, aggregate subscription proceeds exceeded the minimum offering amount of $2.0 million and we began to admit stockholders. On May 1, 2014, in order to moderate the pace of our fundraising, our board of directors approved the discontinuation of the sale of Class A shares as of June 30, 2014. In order to facilitate the final sales of Class A shares as of June 30, 2014 and the continued sale of Class C shares, the board of directors also approved the reallocation to our initial public offering of up to $250.0 million of the shares that were initially allocated to sales of our stock through our distribution reinvestment and stock purchase plan. In June 2014, we reallocated the full $250.0 million in shares from the distribution reinvestment and stock purchase plan. We currently intend to sell Class C shares until on or about March 27, 2015, unless we sell all of the shares sooner; however, our board of directors may decide to extend the offering for up to an additional 18

CPA®:18 – Global 2014 10-K 2


months. Through March 23, 2015, we have raised gross offering proceeds for our Class A common stock and Class C common stock of $977.4 million and $251.2 million, respectively. The gross offering proceeds raised exclude reinvested distributions through the distribution reinvestment and stock purchase plan of $25.9 million and $3.5 million for our Class A common stock and Class C common stock, respectively. We intend to use substantially all of the net proceeds from the offering to continue to acquire and operate income-producing commercial real estate properties and other real estate-related assets, primarily consisting of properties that are leased to single tenants on a long-term, triple-net lease basis.

We have no employees. At December 31, 2014, the advisor employed 272 individuals who are available to perform services for us under our agreement with the advisor (Note 3).

Financial Information About Segments
 
We operate in one reportable segment, real estate ownership, with domestic and foreign investments. Refer to Note 13 for financial information about our segment and geographic concentrations.

Business Objectives and Strategy

Our investment objectives are to:

generate current income for our stockholders in the form of quarterly cash distributions;
realize attractive risk-adjusted returns, meaning returns that are attractive in light of the risk involved generating the returns; 
preserve and protect our stockholders’ investment in our company; and 
achieve capital appreciation.

We cannot assure investors that we will achieve these investment objectives. We intend to consider alternatives for providing additional liquidity for our stockholders beginning after the seventh anniversary of the closing of our initial public offering.

We believe the competitive strengths of our investment strategy, which may contribute to achievement of the objectives noted above, include: 

Sophisticated Risk Management — Each of our investments will undergo a review and approval process that has been in place since 1979, consisting of an in-depth fundamental credit analysis and asset valuation, and an independent investment committee review; 
Reputation and Track Record — We believe that WPC’s reputation and track record of sourcing, underwriting, and consummating investment opportunities, both directly and on behalf of us, as well as in managing similar companies through all phases of their life cycles, will benefit us as we seek to achieve our investment objectives;
Cash Flow Generation Focus — We intend to focus on investments that, when combined with our moderate leverage policy, should provide us with attractive levels of funds from operations and income over the long term; 
Prudent Use of Leverage — We will use leverage to enhance our potential returns, and will target a leverage strategy limited to the lesser of 75% of the total costs of our investments, or 300% of our net assets. We currently estimate that, on average, our portfolio will be approximately 50% leveraged; and 
Disciplined Investment Approach — We intend to rely on the advisor’s and its investment committee’s expertise, developed over more than 40 years of investing, in identifying investments that it believes will provide us with attractive risk adjusted returns. 

Our core investment strategy is to acquire, own, and manage a diversified portfolio of income producing commercial real estate properties, including the following:

commercial real estate properties leased to companies on a single-tenant, long-term, net-lease basis; 
equity investments in real properties that are not long-term net leased to a single tenant and may include partially-leased properties, multi-tenanted properties, vacant or undeveloped properties, properties subject to short-term net leases, multi-family residential properties, and self-storage properties, among others; 
mortgage loans secured by commercial real properties; and
equity and debt securities, loans, and other assets related to entities that are engaged in real estate-related businesses, including real estate funds and other REITs.


CPA®:18 – Global 2014 10-K 3


We currently expect that, for the foreseeable future, at least a majority of our investments will be in commercial real estate properties leased to single tenants under long-term, triple-net leases. Although not part of our core investment strategy, we may make non-real estate related investments from time to time, subject to our intention to maintain our REIT qualification. We may engage in securitization transactions with respect to the mortgage loans we purchase. We expect to make investments both domestically and outside the United States. To date, the advisor has made significant foreign investments on our behalf because foreign markets have presented attractive opportunities relative to U.S. real estate markets, which have seen significant increases in price for commercial real estate investments. The advisor will evaluate potential acquisitions on a case-by-case basis. We are unable to predict at this time what percentage of our assets may consist of other types of investments.

We intend our portfolio to be diversified by property type, geography, tenant, and industry. We are not required to meet any diversification standards and have no specific policies or restrictions regarding the geographic areas where we make investments, the industries in which our tenants or borrowers may conduct business, or the percentage of our capital that we may invest in a particular asset type.

Our Portfolio
 
At December 31, 2014, our portfolio was comprised of our full or partial ownership interests in 47 fully-occupied properties, most of which were triple-net leased to 73 tenants and totaled approximately 7.4 million square feet. The remainder of our portfolio was comprised of 14 self-storage properties and two multi-family properties that aggregate 1.5 million square feet. At December 31, 2014, our directly-owned real estate properties located outside of the United States represented 58% of consolidated contractual minimum annualized base rent, or ABR. See Management’s Discussion and Analysis of Financial Condition and Results of Operations — Portfolio Overview in Item 7 for more information about our portfolio.

Subsequent to December 31, 2014 and through March 23, 2015, we purchased 11 additional properties totaling approximately $244.3 million (excluding acquisition costs). Of these 11 properties, six are self-storage facilities, two are multi-family properties, two are build-to-suit projects, and one is an industrial site (Note 15).

Asset Management
 
The advisor is generally responsible for all aspects of our operations, including selecting our investments, formulating and evaluating the terms of each proposed acquisition, arranging for the acquisition of the investment, negotiating the terms of borrowings, managing our day-to-day operations, and arranging for and negotiating sales of assets. With respect to our net lease investments, asset management functions include restructuring transactions to meet the evolving needs of current tenants, re-leasing properties, refinancing debt, selling assets, and utilizing knowledge of the bankruptcy process.
 
The advisor monitors compliance by tenants with their lease obligations and other factors that could affect the financial performance of any of our properties. Monitoring involves verifying that each tenant has paid real estate taxes, assessments, and other expenses relating to the properties it occupies and confirming that appropriate insurance coverage is being maintained by the tenant. The advisor reviews the financial statements of our tenants and undertakes physical inspections of the condition and maintenance of our properties. Additionally, the advisor periodically analyzes each tenant’s financial condition, the industry in which each tenant operates, and each tenant’s relative strength in its industry. With respect to other real estate-related assets (e.g. self-storage properties, multi-tenant properties, mortgage loans, and mezzanine loans), asset management operations include evaluating potential borrowers’ creditworthiness, operating history, and capital structure. The advisor will also monitor our portfolio to ensure that investments in equity and debt securities of companies engaged in real estate activities do not require us to register as an “investment company.”
 
Our board of directors has authorized the advisor to retain one or more subadvisors with expertise in our target asset classes to assist the advisor with investment decisions and asset management. If the advisor retains any subadvisor, the advisor will pay the subadvisor a portion of the fees that it receives from us.

Holding Period

We generally intend to hold our investments in real property for an extended period, depending on the type of investment. We may dispose of other types of investments, such as investments in securities, more frequently. However, circumstances might arise that could result in the early sale of some assets. An asset may be sold before the end of the expected holding period if, in our judgment or in the judgment of the advisor, the sale of the asset is in the best interest of our stockholders.


CPA®:18 – Global 2014 10-K 4


We will consider the following relevant factors, among others, in making the determination of whether a particular asset should be sold or otherwise disposed of:

the prevailing economic conditions;
achieving maximum capital appreciation for our stockholders; and
avoiding increases in risk.

We intend to consider alternatives for providing liquidity to our stockholders beginning after the seventh anniversary of the closing of our initial public offering. A liquidity event could include sales of assets, either on a portfolio basis or individually, a listing of our shares on a stock exchange or inclusion in an automated quotation system, a merger (which may include a merger with one or more of the other Managed REITS, WPC or its affiliates), or another transaction approved by our board of directors.

Market conditions and other factors could cause us to delay the consideration or commencement of a liquidity event. We are under no obligation to conclude a liquidity event within a set time. While we are considering liquidity alternatives, we may choose to limit the making of new investments unless our board of directors, including a majority of our independent directors, determines that, in light of our expected life at that time, it is in our stockholders interests for us to continue making new investments.

Target Investments

Commercial Real Estate Properties

In executing our investment strategy, we intend to continue to invest primarily in income-producing commercial real estate properties that are, upon acquisition, improved or being developed or that are to be developed within a reasonable period after acquisition. Such properties may consist of office buildings, shopping malls, warehouse facilities, self-storage facilities, apartment buildings, and hotels and resorts, which we believe will retain their value and potentially increase in value for an extended period of time. We may make equity and debt investments.

We will continue to utilize the advisors expertise in credit and real estate underwriting and its more than 40 years of experience in evaluating fixed income and real estate investment opportunities to analyze opportunities for us. The advisor’s investment department, under the oversight of its chief investment officer, is primarily responsible for evaluating, negotiating, and structuring potential investment opportunities. In analyzing potential investment opportunities, the advisor will review all aspects of a transaction, including the credit metrics and underlying real estate fundamentals of the investment, to determine whether a potential acquisition satisfies our acquisition criteria.

Long-Term, Net-Leased Assets

We intend to continue to acquire long-term, net-leased assets through sale-leaseback transactions in which we acquire properties from companies that simultaneously lease the properties back from us. These sale-leaseback transactions provide the lessee company with a source of capital that is an alternative to other financing sources such as corporate borrowing, mortgaging real property, or selling shares of common stock. These leases generally require the tenant to pay substantially all of the costs associated with operating and maintaining the property such as maintenance, insurance, taxes, structural repairs, and other operating expenses (referred to as triple-net leases). We generally consider leases having a remaining term of seven years or more to be long-term leases, and those with a shorter term to be short-term leases. Sale-leasebacks may be in conjunction with acquisitions, recapitalizations, or other corporate transactions. We may act as one of several sources of financing for these transactions by purchasing real property from the seller and net leasing it to the company or its successor in interest (the lessee). Through the advisor, we actively seek such opportunities.

In analyzing potential investment opportunities, in addition to the items discussed above under Commercial Real Estate Properties, the advisor may also consider the following aspects specific to each net-lease transaction:

Tenant/Borrower Evaluation — The advisor will evaluate each potential tenant or borrower for its creditworthiness, typically considering factors such as management experience; industry position and fundamentals; operating history; and capital structure, as well as other factors that may be relevant to a particular investment. The advisor will seek opportunities in which it believes the tenant may have a stable or improving credit profile or credit potential that has not been recognized by the market. In evaluating a possible investment, the creditworthiness of a tenant or borrower is often a more significant factor than the value of the underlying real estate, particularly if the underlying property is specifically suited to the needs of the tenant; however, in

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certain circumstances where the real estate is attractively valued, the creditworthiness of the tenant may be a secondary consideration. Whether a prospective tenant or borrower is creditworthy will be determined by the advisor or the independent investment committee. We define creditworthiness as a risk-reward relationship appropriate to our investment strategies, which may or may not coincide with ratings issued by the credit rating agencies. As such, creditworthy does not mean “investment grade,” as defined by the credit rating agencies.

Properties Critical to Tenant/Borrower Operations — The advisor will generally focus on properties that it believes are critical to the ongoing operations of the tenant. The advisor believes that these properties provide better protection in the event of a bankruptcy, since a tenant/borrower is less likely to risk the loss of a mission critical lease or property in a bankruptcy proceeding.

Lease Terms — Generally, the net-leased properties in which we invest will be leased on a full-recourse basis to our tenants or their affiliates. In addition, the advisor will seek to include a clause in each lease that provides for increases in rent over the term of the lease. These increases are fixed or tied generally to increases in indices such as the Consumer Price Index, or CPI, or other similar index in the jurisdiction in which the property is located, but may contain caps or other limitations, either on an annual or overall basis. In the case of retail stores and hotels, the lease may provide for participation in gross revenues above a stated level. Alternatively, a lease may provide for mandated rental increases on specific dates or other methods.

Diversification  The advisor will attempt to diversify our portfolio to avoid dependence on any one particular property type, geographic location, investment size, or investment risk and to generate risk adjusted returns. By diversifying our portfolio, the advisor tries to reduce the adverse effect of a single under-performing investment or a downturn in any particular industry or geographic region.

Transaction Provisions that Enhance and Protect Value — The advisor will attempt to include provisions in its leases that require our consent to specified activity, require the tenant to provide indemnification protections, or require the tenant to satisfy specific operating tests. These provisions may help protect our investment from changes in the operating and financial characteristics of a tenant that may affect its ability to satisfy its obligations to us or reduce the value of our investment. The advisor may also seek to enhance the likelihood of a tenants lease obligations being satisfied through a guaranty of obligations from the tenant’s corporate parent or other entity, security deposits, or through a letter of credit. This credit enhancement, if obtained, provides us with additional financial security. However, in markets where competition for net-lease transactions is strong, some or all of these provisions may be difficult to obtain. In addition, in some circumstances, tenants may require a right to purchase the property leased by the tenant. The option purchase price is generally the greater of the contract purchase price and the fair market value of the property at the time the option is exercised.

Other Equity Enhancements — The advisor may attempt to obtain equity enhancements in connection with transactions. These equity enhancements may involve warrants exercisable at a future time to purchase stock of the tenant or borrower or their parent. If warrants are obtained and become exercisable, and if the value of the stock subsequently exceeds the exercise price of the warrant, equity enhancements can help us to achieve our goal of increasing investor returns.

Real Estate-Related Assets — We believe there may be opportunities to purchase non-long-term, net-leased real estate assets from companies and other owners due to the advisor’s significant presence in the corporate real estate marketplace. These assets may differ significantly in character from long-term, net-leased real estate assets: short-term net leases, vacant property, land, multi-tenanted property, non-commercial property, property leased to non-related tenants, etc. However, we believe we may find attractive opportunities to make investments in these assets as they may either be part of a larger sale-leaseback transaction, an existing relationship with the owner, or from some other source where our market presence and reputation may give us an advantage over certain other investors.

Self-Storage Investments — The advisor has a team of professionals dedicated to investments in the self-storage sector. The team, which was formed in 2006, combines a rigorous underwriting process and an active management of property managers with a goal to generate attractive risk-adjusted returns. We had full or partial ownership interests in 14 self-storage properties at December 31, 2014.


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Transactions with Affiliates
 
We have entered, and expect in the future to enter, into transactions with our affiliates, including the other Managed REITs and the advisor or its affiliates, if we believe that doing so is consistent with our investment objectives and we comply with our investment policies and procedures. These transactions typically take the form of equity investments in jointly-owned entities, direct purchases of assets, mergers, or another type of transaction. Joint ventures with our affiliates are permitted only if:

a majority of our directors (including a majority of our independent directors) not otherwise interested in the transaction approve the allocation of the transaction among the affiliates as being fair and reasonable to us; and
the affiliate makes its investment on substantially the same terms and conditions as us.

Our transactions with affiliates and jointly-owned investments are discussed in Note 3.

Investment Decisions

The advisor’s investment department, under the oversight of its chief investment officer, is primarily responsible for evaluating, negotiating, and structuring potential investment opportunities for the CPA® REITs and WPC. The advisor also has an investment committee that provides services to the CPA® REITs and WPC. Before an investment is made, the transaction is reviewed by the advisor’s independent investment committee, except under limited circumstances described below. The independent investment committee is not directly involved in originating or negotiating potential investments, but instead functions as a separate and final step in the acquisition process. The advisor places special emphasis on having experienced individuals serve on its investment committee. Subject to limited exceptions, the advisor generally will not invest in a transaction on our behalf unless it is approved by the investment committee.

The investment committee has developed policies that permit some investments to be made without committee approval. Under current policy, certain investments may be approved by either the Chairman of the investment committee or the chief investment officer. Additional such delegations may be made in the future at the discretion of the investment committee.

The advisor is required to use its best efforts to present a continuing and suitable investment program to us but is not required to present to us any particular investment opportunity, even if it is of a character that, if presented, could be taken by us.

Competition

In raising funds for investment, we face competition from other funds with similar investment objectives that seek to raise funds from investors through publicly registered, non-traded funds, publicly-traded funds, and private funds. This competition, as well as any change in the attractiveness to investors of an investment in the types of assets held by us, relative to other types of investments, could adversely affect our ability to raise funds for future investments. We face competition for the acquisition of commercial properties and real estate-related assets from insurance companies, credit companies, pension funds, private individuals, investment companies, and other REITs. We also face competition from institutions that provide or arrange for other types of commercial financing through private or public offerings of equity or debt or traditional bank financings. These institutions may accept greater risk or lower returns, allowing them to offer more attractive terms to prospective tenants. In addition, the advisors evaluation of the acceptability of rates of return on our behalf will be affected by our relative cost of capital. Thus, to the extent our fee structure and cost of fundraising is higher than our competitors, we may be limited in the amount of new acquisitions we are able to make.

We may also compete for investment opportunities with WPC, the other Managed REITs, and entities that may in the future be managed by the advisor. The advisor has undertaken in the advisory agreement to use its best efforts to present investment opportunities to us and to provide us with a continuing and suitable investment program. The advisor follows allocation guidelines set forth in the advisory agreement when allocating investments among us, WPC, the other Managed REITs, and entities that may in the future be managed by the advisor. Each quarter, our independent directors review the allocations made by the advisor during the most recently-completed quarter. Compliance with the allocation guidelines is one of the factors that our independent directors consider when determining whether to renew the advisory agreement each year.

Financing Strategies

Consistent with our investment policies, we use leverage when available on terms we believe are favorable. We will generally borrow in the same currency that is used to pay rent on the property. This enables us to hedge a portion of our currency risk on international investments. We, through the subsidiaries we form to make investments, generally will seek to borrow on a non-

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recourse basis and in amounts that we believe will maximize the return to our stockholders. The use of non-recourse financing may allow us to improve returns to our stockholders and to limit our exposure on any investment to the amount invested. Non-recourse indebtedness means the indebtedness of the borrower or its subsidiaries that is secured only by the assets to which such indebtedness relates, without recourse to the borrower or any of its subsidiaries (other than in case of customary carve-outs for which the borrower or its subsidiaries acts as guarantor in connection with such indebtedness, such as fraud, misappropriation, misapplication of funds, environmental conditions and material misrepresentation). Since non-recourse financing generally restricts the lenders claim on the assets of the borrower, the lender generally may only take back the asset securing the debt, which protects our other assets. In some cases, particularly with respect to non-U.S. investments, the lenders may require that they have recourse to other assets owned by a subsidiary borrower, in addition to the asset securing the debt. Such recourse generally would not extend to the assets of our other subsidiaries. Lenders typically seek to include change of control provisions in the terms of a loan making the termination or replacement of the advisor, or the dissolution of the advisor, events of default or events requiring the immediate repayment of the full outstanding balance of the loan. While we will attempt to negotiate to not include such provisions, lenders may require them.

We currently estimate that we will borrow, on average, up to 50% of the purchase price of our properties; however, there is no limitation on the amount we may borrow against any single property. Our aggregate borrowings, secured and unsecured, will be reasonable in relation to our net assets and will be reviewed by our board of directors at least quarterly. Aggregate borrowings as of the time that the net proceeds of the offering have been fully invested and at the time of each subsequent borrowing may not exceed on average the lesser of 75% of the total costs of all investments, or 300% of our net assets, unless the excess is approved by a majority of our independent directors and disclosed to stockholders in our next quarterly report, along with justification for the excess. Net assets are our total assets (other than intangibles), valued at cost before deducting depreciation, reserves for bad debts and other non-cash reserves, less total liabilities.

Environmental Matters

We have invested in, and expect to continue to invest in, properties currently or historically used as industrial, manufacturing, and commercial properties. Under various federal, state, and local environmental laws and regulations, current and former owners and operators of property may have liability for the cost of investigating, cleaning-up, or disposing of hazardous materials released at, on, under, in, or from the property. These laws typically impose responsibility and liability without regard to whether the owner or operator knew of or was responsible for the presence of hazardous materials or contamination, and liability under these laws is often joint and several. Third parties may also make claims against owners or operators of properties for personal injuries and property damage associated with releases of hazardous materials. As part of our efforts to mitigate these risks, we typically engage third parties to perform assessments of potential environmental risks when evaluating a new acquisition of property, and we frequently require sellers to address them before closing or obtain contractual protection (indemnities, cash reserves, letters of credit, or other instruments) from property sellers, tenants, a tenant’s parent company, or another third party to address known or potential environmental issues. With respect to our self-storage investments, which are not subject to net-lease arrangements, there is no tenant of the property to provide indemnification, so we may be liable for costs associated with environmental contamination in the event any such circumstances arise after we acquire the property.

Financial Information About Geographic Areas
 
See Management’s Discussion and Analysis of Financial Condition and Results of Operations — Portfolio Overview in Item 7 and Note 13 for financial information pertaining to our geographic operations.

Available Information
 
All filings we make with the SEC, including this Report, our quarterly reports on Form 10-Q, and our current reports on Form 8-K, and any amendments to those reports, are available for free on our website, http://www.cpa18global.com, as soon as reasonably practicable after they are filed or furnished to the SEC. Our SEC filings are available to be read or copied at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information regarding the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. Our filings can also be obtained for free on the SEC’s website at http://www.sec.gov. We are providing our website address solely for the information of investors. We do not intend our website to be an active link or to otherwise incorporate the information contained on our website into this Report or other filings with the SEC. Our Code of Business Conduct and Ethics, which applies to all employees, including our Chief Executive Officer and Chief Financial Officer, is available on our website, http://www.cpa18global.com. We intend to make available on our website any future amendments or waivers to our Code of Business Conduct and Ethics within four business days after any such amendments or waivers. We will supply to any stockholder, upon written request and without charge, a copy of this Report as filed with the SEC.

Item 1A. Risk Factors.

Our business, results of operations, financial condition, and ability to pay distributions at the current rate could be materially adversely affected by various risks and uncertainties, including those enumerated below. These risk factors may have affected, and in the future could affect, our actual operating and financial results and could cause such results to differ materially from those in any forward-looking statements. You should not consider this list exhaustive. New risk factors emerge periodically and we cannot assure you that the factors described below list all risks that may become material to us at any later time.

We are newly formed and have limited operating history; therefore, there is no assurance that we will be able to achieve our investment objectives.

We are newly formed and have limited operating history. We are subject to all of the business risks and uncertainties associated with any new business, including the risk that we will not achieve our investment objectives as described in this Report and that the value of your investment could decline substantially. Our financial condition and results of operations will depend on many factors, including the availability of opportunities for the acquisition of assets, readily accessible short and long-term financing, conditions in the financial markets, economic conditions generally, and the performance of the advisor. There can be no assurance that we will be able to generate sufficient cash flow over time to pay our operating expenses and make distributions to stockholders.

The offering prices for shares being offered in our initial public offering and through our distribution reinvestment and stock purchase plan were arbitrarily determined by our board of directors and may not be indicative of the prices at which the shares would trade if they were listed on an exchange or were actively traded by brokers.

The offering prices of the shares being offered in our initial public offering and through our distribution reinvestment and stock purchase plan were arbitrarily determined by our board of directors in the exercise of its business judgment. These prices may not be indicative of the price at which shares would trade if they were listed on an exchange or actively traded by brokers, the proceeds that a stockholder would receive if we were liquidated or dissolved, or the value of our portfolio at the time you purchase shares.

A delay in investing funds may adversely affect or cause a delay in our ability to deliver expected returns to investors and may adversely affect our performance.

We have not yet identified all of the assets to be purchased with the proceeds of the initial public offering and our distribution reinvestment and stock purchase plan; therefore, there could be a substantial delay between the time stockholders invest in our shares and the time substantially all the proceeds are invested by us. We currently expect that, if the entire offering is subscribed for, it may take up to two years after commencement of the offering or one year after the termination of the initial public offering, if later, until our capital is substantially invested. Pending investment, the balance of the proceeds of the initial public offering will be invested in permitted temporary investments, which include short-term U.S. government securities, bank certificates of deposit, and other short-term liquid investments. The rate of return on those investments, which affects the amount of cash available to make distributions to stockholders, has been extremely low in recent years and most likely will be less than the return obtainable from real property or other investments. Therefore, delays in our ability to invest the proceeds of the initial public offering could adversely affect our ability to pay distributions to our stockholders and adversely affect their total return. If we fail to timely invest the net proceeds of this offering or to invest in quality assets, our ability to achieve our investment objectives could be materially adversely affected.

We may be unable to pay or maintain cash distributions or increase distributions over time.

The amount of cash available for distributions is affected by many factors, such as the performance of the advisor in selecting investments for us to make, selecting tenants for our properties and securing financing arrangements, our ability to buy properties as offering proceeds become available, rental income from our properties, and our operating expense levels, as well as many other variables. We may not always be in a position to pay distributions to you and any distributions we do make may not increase over time. In addition, our actual results may differ significantly from the assumptions used by our board of directors in establishing the distribution rate to our stockholders. There also is a risk that we may not have sufficient cash from operations to make a distribution required to maintain our REIT status.


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Before we substantially invest the net proceeds of our initial public offering, our distributions are likely to exceed our funds (used in) from operations, or FFO, and may be paid from offering proceeds, borrowings, and other sources, without limitation.

Over the life of our company, the regular quarterly cash distributions we pay are expected to be principally sourced by our FFO. However, before we substantially invest the net proceeds of our initial public offering, our distributions may exceed our FFO. As such, we have funded, and we may in the future fund, our cash distributions, in whole or in part, using net proceeds from the initial public offering, and we may also use borrowings and other sources, without limitation, to do so. Through December 31, 2014, approximately 99.8% of our distributions have been funded with offering proceeds. If our properties are not generating sufficient cash flow or our other expenses require it, we may need to sell properties or other assets, incur indebtedness, or use offering proceeds if necessary to satisfy the REIT requirement that we distribute at least 90% of our REIT net taxable income, excluding net capital gains, and to avoid the payment of federal income tax. If we fund distributions from financings, then such financings will need to be repaid, and if we fund distributions from offering proceeds, then we will have fewer funds available for the acquisition of properties, which may affect our ability to generate future cash flows from operations and, therefore, reduce stockholders’ overall return. These risks will be greater for persons who acquire our shares relatively early in this offering, before a significant portion of the offering proceeds have been invested.

Because we have paid, and may continue to pay, distributions from sources other than our FFO, distributions at any point in time may not reflect the current performance of our properties or our current operating cash flows.

Our charter permits us to make distributions from any source, including the sources described in the risk factor above. Because the amount we pay out in distributions has exceeded, and may in the future continue to exceed, our FFO, distributions may not reflect the current performance of our properties or our current operating cash flows. To the extent distributions exceed cash flow from operations, distributions may be treated as a return of your investment and could reduce your basis in our stock. A reduction in a stockholder’s basis in our stock could result in the stockholder recognizing more gain upon the disposition of his or her shares, which in turn could result in greater taxable income to such stockholder.

Stockholders’ equity interests may be diluted.

Our stockholders do not have preemptive rights to any shares of common stock issued by us in the future. Therefore, if we (i) sell shares of common stock in the future, including those issued pursuant to our distribution reinvestment and stock purchase plan, (ii) sell securities that are convertible into our common stock, (iii) issue common stock in a private placement to institutional investors, or (iv) issue shares of common stock to our directors or to WPC and its affiliates for payment of fees in lieu of cash, then existing stockholders and investors purchasing shares in the initial public offering will experience dilution of their percentage ownership in us. Depending on the terms of such transactions, most notably the offering price per share, which may be less than the price paid per share in our initial public offering, and the value of our properties and our other investments, existing stockholders might also experience a dilution in the book value per share of their investment in us.

We are not required to meet any diversification standards; therefore, our investments may become subject to concentration of risk.

Subject to our intention to maintain our qualification as a REIT, there are no limitations on the number or value of particular types of investments that we may make. We are not required to meet any diversification standards, including geographic diversification standards. Our investments may become concentrated in type or geographic location, which could subject us to significant concentration of risk with potentially adverse effects on our investment objectives. At December 31, 2014, the leases for Bank Pekao S.A., or Bank Pekao, State Farm Automobile Company, or State Farm, and Konzum d. d., or Agrokor, each represented consolidated ABR of greater than 10%, for an aggregate of 33.9% of our consolidated ABR. A failure by any one of these tenants to meet their obligations to us could have a material adverse effect on our financial condition and results of operations and on our ability to pay distributions to our stockholders.

Our board of directors may change our investment policies without stockholder approval, which could materially adversely affect our ability to achieve our investment objectives.

Our charter requires that our independent directors review our investment policies at least annually to determine that the policies we are following are in the best interest of our stockholders. These policies may change over time. The methods of implementing our investment policies may also vary, as new investment techniques are developed. Our investment policies, the methods for their implementation, and our other objectives, policies, and procedures may be altered by a majority of the directors (which must include a majority of the independent directors), without the approval of our stockholders. A change in

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our investment strategy may, among other things, increase our exposure to interest rate risk, default risk, and commercial real property market fluctuations, all of which could materially adversely affect our ability to achieve our investment objectives.

We are an “emerging growth company” under the federal securities laws and will be subject to reduced public company reporting requirements.

In April 2012, President Obama signed into law the JOBS Act. We are an “emerging growth company,” as defined in the JOBS Act, and therefore are eligible to take advantage of certain exemptions from, or reduced disclosure obligations relating to, various reporting requirements that normally are applicable to public companies. For so long as we remain an emerging growth company, we will not be required to (i) comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, (ii) submit certain executive compensation matters to stockholder advisory votes pursuant to the “say on frequency” and “say on pay” provisions of Section 14A(a) of the Exchange Act (requiring a non-binding stockholder vote to approve compensation of certain executive officers) and the “say on golden parachute” provisions of Section 14A(b) of the Exchange Act (requiring a non-binding stockholder vote to approve golden parachute arrangements for certain executive officers in connection with mergers and certain other business combinations), (iii) disclose more than two years of audited financial statements in a registration statement filed with the SEC, (iv) disclose selected financial data pursuant to the rules and regulations of the Securities Act of 1933 (requiring selected financial data for the past five years or for the life of the issuer, if less than five years) in our periodic reports filed with the SEC for any period prior to the earliest audited period presented in this registration statement, and (v) disclose certain executive compensation related items, such as the correlation between executive compensation and performance and comparisons of the chief executive officers compensation to median employee compensation as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. We have not yet made a decision whether to take advantage of any of or all such exemptions. If we decide to take advantage of any of these exemptions, some investors may find our shares of common stock a less attractive investment as a result.

We will remain an “emerging growth company” for up to five years, although we will lose that status sooner if our annual gross revenues exceed $1.0 billion, if we issue more than $1.0 billion in non-convertible debt in a three-year period, or if market value of our common stock that is held by non-affiliates equals or exceeds $700.0 million after we have been publicly reporting for at least 12 months and have filed at least one annual report on Form 10-K with the SEC.

Our success is dependent on the performance of the advisor, but the past performance of other programs managed by the advisor may not be indicative of success.

Our ability to achieve our investment objectives and to pay distributions is largely dependent upon the performance of the advisor in the selection and acquisition of investments, the determination of any financing arrangements, and the management of our assets. The advisory agreement currently in effect is scheduled to expire on December 31, 2015 and may be renewed upon expiration.

The past performance of partnerships and CPA® REITs managed by the advisor may not be indicative of the advisor’s performance with respect to us. We cannot guarantee that the advisor will be able to successfully manage and achieve liquidity for us to the extent it has done so for prior programs.

We may invest in assets outside the advisor’s core expertise and incur losses as a result.

We are not restricted in the types of investments we may make, and we may invest in assets outside the advisor’s core expertise of long-term, net-leased properties. The advisor may not be as familiar with the potential risks of investments outside net-leased properties and self storage. If we invest in assets outside the advisor’s core expertise, such as our investments in multi-family properties, the fact that the advisor does not have the same level of experience in evaluating investments outside its core business could result in such investments performing more poorly than long-term net-lease investments and self storage, which in turn could adversely affect our revenues, estimated net asset values, and distributions to our stockholders.

WPC and our dealer manager are parties to a settlement agreement with the SEC and are subject to a federal court injunction as well as a consent order with the Maryland Division of Securities.

In 2008, WPC and Carey Financial settled all matters relating to an investigation by the SEC, including matters relating to payments by certain CPA® REITs other than us during 2000-2003 to broker-dealers that distributed their shares, which were alleged by the SEC to be undisclosed underwriting compensation, which WPC and Carey Financial neither admitted nor denied. In connection with implementing the settlement, a federal court injunction was entered against WPC and Carey Financial enjoining them from violating a number of provisions of the federal securities laws. Any further violation of these laws by WPC

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or Carey Financial could result in civil remedies, including sanctions, fines, and penalties, which may be more severe than if the violation had occurred without the injunction being in place. Additionally, if WPC or Carey Financial breaches the terms of the injunction, the SEC may petition the court to vacate the settlement and restore the SEC’s original action to the active docket for all purposes.

In 2012, Corporate Property Associates 15 Incorporated, which was also a non-traded REIT advised by WPC and Carey Financial, settled all matters relating to an investigation by the state of Maryland regarding the sale of unregistered securities of Corporate Property Associates 15 Incorporated in 2002 and 2003. Under the consent order, Corporate Property Associates 15 Incorporated, WPC, and Carey Financial agreed, without admitting or denying liability, to cease and desist from any further violations of selling unregistered securities in Maryland. Contemporaneous with the issuance of the consent order, Corporate Property Associates 15 Incorporated, WPC, and Carey Financial paid the Maryland Division of Securities a civil penalty of $10,000.

Additional regulatory action, litigation, or governmental proceedings could adversely affect us by, among other things, distracting WPC and Carey Financial from their duties to us, resulting in significant monetary damages to WPC and Carey Financial, which could adversely affect their ability to perform services for us, or resulting in injunctions or other restrictions on WPC’s or Carey Financial’s ability to act as the advisor and dealer manager, respectively, in the United States or in one or more states.

Exercising our right to repurchase all or a portion of CPA®:18 Holdings’ special general partner interest in our Operating Partnership upon certain termination events could be prohibitively expensive and could deter us from terminating the advisory agreement.

The termination of Carey Asset Management Corp., a subsidiary of WPC, as the advisor, including by non-renewal of the advisory agreement and replacement with an entity that is not an affiliate of Carey Asset Management Corp., or the resignation of the advisor, all after two years from the start of operations of our Operating Partnership, would give our Operating Partnership the right, but not the obligation, to repurchase all or a portion of CPA®:18 Holdings’ special general partner interest in our Operating Partnership at a value based on the lesser of: (i) five times the amount of the last completed fiscal year’s special general partner distributions; and (ii) the discounted present value of the estimated future special general partner distributions until March 2025. This repurchase could be prohibitively expensive, could require the Operating Partnership to sell assets in order to raise sufficient funds to complete the repurchase, and could discourage or deter us from terminating the advisory agreement. Alternatively, if our Operating Partnership does not exercise its repurchase right and CPA®:18 Holdings’ interest is converted into a special limited partnership interest, we might be unable to find another entity that would be willing to act as the advisor while CPA®:18 Holdings owns a significant interest in the Operating Partnership. If we do find another entity to act as the advisor, we may be subject to higher fees than the fees charged by Carey Asset Management Corp.

The repurchase of CPA®:18 Holdings’ special general partner interest in our Operating Partnership upon the termination of Carey Asset Management Corp. as the advisor may discourage certain business combination transactions.

In the event of a merger in which our advisory agreement is terminated and Carey Asset Management Corp. is not replaced by an affiliate of Carey Asset Management Corp. as the advisor, the Operating Partnership must either repurchase all or a portion of CPA®:18 Holdings’ special general partner interest in our Operating Partnership at the value described in the immediately preceding risk factor or obtain the consent of CPA®:18 Holdings to the merger. This obligation may deter a transaction that could result in a merger in which we are not the acquiring entity. This deterrence may limit the opportunity for stockholders to receive a premium for their shares of common stock that might otherwise exist if a third party attempted to acquire us through a merger.

The termination or replacement of the advisor could trigger a default or repayment event under our financing arrangements for some of our assets.

Lenders for certain of our assets may request change of control provisions in the loan documentation that would make the termination or replacement of WPC or its affiliates as the advisor an event of default or an event requiring the immediate repayment of the full outstanding balance of the loan. If an event of default or repayment event occurs with respect to any of our assets, our revenues and distributions to our stockholders may be adversely affected.


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Payment of fees to the advisor and distributions to our special general partner will reduce cash available for investment and distribution.

The advisor performs services for us in connection with the offer and sale of our shares, the selection and acquisition of our investments, the management, and leasing of our properties, and the administration of our other investments. Unless the advisor elects to receive our common stock in lieu of cash compensation, and our board of directors approves such election, we will pay the advisor substantial cash fees for these services. In addition, our special general partner is entitled to certain distributions from our Operating Partnership. The payment of these fees and distributions will reduce the amount of cash available for investments or distribution to our stockholders.

The advisor and its affiliates are subject to conflicts of interest.

The advisor manages our business and selects our investments. The advisor and its affiliates have conflicts of interest in their dealings with us. Circumstances under which a conflict could arise between us and the advisor and its affiliates include:

the receipt of compensation by the advisor for acquisitions of investments, leases, sales, and financing for us, which may cause the advisor to engage in transactions that generate higher fees, rather than transactions that are more appropriate or beneficial for our business;
agreements between us and the advisor, including agreements regarding compensation, will not be negotiated on an arm’s-length basis, as would occur if the agreements were with unaffiliated third parties; 
acquisitions of single assets or portfolios of assets from affiliates, including another CPA® REIT, subject to our investment policies and procedures, which may take the form of a direct purchase of assets, a merger, or another type of transaction; 
competition with WPC and entities managed by it for investment acquisitions, which are resolved by the advisor, present conflicts of interest, which may not be resolved in the manner that is most favorable to our interests);
a decision by the advisor (on our behalf) of whether to hold or sell an asset, which could impact the timing and amount of fees payable to the advisor, as well as allocations and distributions payable to CPA®:18 Holdings pursuant to its special general partner interests (e.g. the advisor receives asset management fees and may decide not to sell an asset, however, CPA®:18 Holdings will be entitled to certain profit allocations and cash distributions based upon sales of assets as a result of its Operating Partnership profits interest);
business combination transactions, including mergers, with WPC or another CPA® REIT; 
decisions regarding liquidity events, which may entitle the advisor and its affiliates to receive additional fees and distributions in respect of the liquidations; 
a recommendation by the advisor that we declare distributions at a particular rate because the advisor and CPA®:18 Holdings may begin collecting subordinated fees once the applicable preferred return rate has been met;
disposition fees based on the sale price of assets and interests in disposition proceeds based on net cash proceeds from the sale, exchange, or other disposition of assets cause a conflict between the advisor’s desire to sell an asset and our plans to hold or sell the asset; and
the termination of the advisory agreement and other agreements with the advisor and its affiliates.

We delegate our management functions to the advisor.

We delegate our management functions to the advisor, for which it earns fees pursuant to an advisory agreement. Although at least a majority of our board of directors must be independent, because the advisor earns fees from us and has an ownership interest in us, we have limited independence from the advisor.

We face competition from affiliates of the advisor in the purchase, sale, lease, and operation of properties.

WPC and its affiliates specialize in providing lease financing services to corporations and in sponsoring funds that invest in real estate, such as CPA®:17 – Global and, to a lesser extent, CWI and CWI 2. WPC and CPA®:17 – Global have investment policies and return objectives that are similar to ours and they, CWI, and CWI 2 are currently actively seeking opportunities to invest capital. Therefore, WPC and its affiliates, including CPA®:17 – Global, CWI, CWI 2, and future entities advised by WPC, may compete with us with respect to properties, potential purchasers, sellers, and lessees of properties, and mortgage financing for properties. We do not have a non-competition agreement with WPC, CPA®:17 – Global, CWI, or CWI 2, and there are no restrictions on WPC’s ability to sponsor or manage funds or other investment vehicles that may compete with us in the future. Some of the entities formed and managed by WPC may be focused specifically on particular types of investments and receive preference in the allocation of those types of investments.


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The advisor may in the future hire subadvisors in areas where the advisor is seeking additional expertise. Stockholders will not be able to review these subadvisors and the advisor may not have sufficient expertise to monitor the subadvisors.

The advisor has the right to appoint one or more subadvisors with expertise in our target asset classes to assist the advisor with investment decisions and asset management. We do not have control over which subadvisors the advisor may choose and the advisor may not have the necessary expertise to effectively monitor the subadvisors’ investment decisions.

If we internalize our management functions, the percentage of our outstanding common stock owned by our other stockholders could be reduced and we could incur other significant costs associated with being self-managed.

In the future, our board of directors may consider internalizing the functions currently performed for us by the advisor by, among other methods, acquiring the advisor’s assets. The method by which we could internalize these functions could take many forms. There is no assurance that internalizing our management functions will be beneficial to us and our stockholders. There is also no assurance that the key employees of the advisor who perform services for us would elect to work directly for us, instead of remaining with the advisor or another affiliate of WPC. An acquisition of the advisor could also result in dilution of your interests as a stockholder and could reduce earnings per share and FFO per share. Additionally, we may not realize the perceived benefits, be able to properly integrate a new staff of managers and employees, or be able to effectively replicate the services provided previously by the advisor. Internalization transactions, including without limitation transactions involving the acquisition of advisors or property managers affiliated with entity sponsors, have also, in some cases, been the subject of litigation. Even if these claims are without merit, we could be forced to spend significant amounts of money defending claims, which would reduce the amount of funds available for us to invest in properties or other investments and to pay distributions. All of these factors could have a material adverse effect on our results of operations, financial condition, and ability to pay distributions.

We could be adversely affected if the advisor completed an internalization with another Managed REIT.

If WPC were to sell or otherwise transfer its advisory business to another Managed REIT, we could be adversely affected because the advisor could be incentivized to make decisions regarding investment allocation, asset management, liquidity transactions, and other matters that are more favorable to its Managed REIT owner than to us. If we terminate the advisory agreement and repurchase the special general partner’s interest in our Operating Partnership, which we would have the right to do in such circumstances, the costs to us could be substantial and we may have difficulty finding a replacement advisor that would perform at a level at least as high as that of the advisor.

We intend to invest primarily in commercial real estate-related assets; therefore, our results will be affected by factors that affect the commercial real estate industry, including volatility in economic conditions and fluctuations in interest rates.

Our operating results will be subject to risks generally incident to the ownership of commercial real estate, including:

volatility in general economic conditions;
changes in supply of or demand for similar or competing properties in a geographic area; 
changes in interest rates and availability of permanent mortgage funds that may render the sale of a property difficult or unattractive;
the illiquidity of real estate investments generally; 
changes in tax, real estate, environmental, and zoning laws; and 
periods of high interest rates and tight money supply.

For these and other reasons, we cannot assure you that we will be profitable or that we will realize growth in the value of our commercial real estate properties.

We may have difficulty selling or re-leasing our properties, and this lack of liquidity may limit our ability to quickly change our portfolio in response to changes in economic or other conditions.

Real estate investments generally have less liquidity compared to other financial assets and this lack of liquidity may limit our ability to quickly change our portfolio in response to changes in economic or other conditions. The leases we may enter into or acquire may be for properties that are specially suited to the particular needs of our tenant. With these properties, if the current lease is terminated or not renewed, we may be required to renovate the property or to make rent concessions in order to lease

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the property to another tenant. In addition, if we are forced to sell the property, we may have difficulty selling it to a party other than the tenant due to the special purpose for which the property may have been designed. These and other limitations may affect our ability to sell properties without adversely affecting returns to our stockholders.

Adverse changes in general economic conditions can adversely affect our business.

Our success is dependent upon economic conditions in the United States generally and in the geographic areas internationally in which our investments are located. Adverse changes in national economic conditions or in the economic conditions of the international regions in which we conduct substantial business would likely have an adverse effect on real estate values and, accordingly, our financial performance, and our ability to pay distributions.

We may recognize substantial impairment charges on our properties.

We may incur substantial impairment charges, which we are required to recognize whenever we sell a property for less than its carrying value or we determine that the carrying amount of the property is not recoverable and exceeds its fair value (or, for direct financing leases, that the unguaranteed residual value of the underlying property has declined). By their nature, the timing or extent of impairment charges are not predictable. Impairment charges reduce our net income, although they do not necessarily affect our FFO, which is the metric we use to evaluate our distribution coverage.

Liability for uninsured losses could adversely affect our financial condition.

Losses from disaster-type occurrences (such as wars, terrorist activities, floods, or earthquakes) may be either uninsurable or not insurable on economically-viable terms. Should an uninsured loss or a loss in excess of the limits of our insurance occur, we could lose our capital investment and/or anticipated profits and cash flow from one or more investments, which in turn could cause the value of the shares and distributions to our stockholders to be reduced.

A potential change in U.S. accounting standards regarding operating leases may make the leasing of facilities less attractive to our potential domestic tenants, which could reduce overall demand for our leasing services.

A lease is classified by a tenant as a capital lease if the significant risks and rewards of ownership are considered to reside with the tenant. This situation is considered to be met if, among other things, the non-cancelable lease term is more than 75% of the useful life of the asset or if the present value of the minimum lease payments equals 90% or more of the leased property’s fair value. Under capital lease accounting for a tenant, both the leased asset and liability are reflected on their balance sheet. If the lease does not meet any of the criteria for a capital lease, the lease is considered an operating lease by the tenant and the obligation does not appear on the tenant’s balance sheet; rather, the contractual future minimum payment obligations are only disclosed in the footnotes thereto. Thus, entering into an operating lease can appear to enhance a tenant’s balance sheet in comparison to direct ownership. In response to concerns caused by a 2005 SEC study that the current model does not have sufficient transparency, the Financial Accounting Standards Board and the International Accounting Standards Board issued an Exposure Draft on a joint proposal that would dramatically transform lease accounting from the existing model. In May 2013, the Financial Accounting Standards Board and International Accounting Standards Board issued a revised exposure draft for public comment and the comment period ended in September 2013. As of the date of this Report, the Financial Accounting Standards Board and International Accounting Standards Board continue their redeliberations of the proposals included in the May 2013 Exposure Draft based on the comments received and, as of the date of this Report, the proposed guidance has not yet been finalized. Changes to the accounting guidance could affect our accounting for leases, as well as that of our tenants. These changes would impact most companies but are particularly applicable to those that are significant users of real estate. The proposal outlines a completely new model for accounting by lessees, whereby their rights and obligations under all leases, existing and new, would be capitalized and recorded on the balance sheet. For some companies, the new accounting guidance may influence whether or not, or the extent to which, they may enter into the type of sale-leaseback transactions in which we specialize.

Our ability to control the management of our net-leased properties may be limited.

The tenants or managers of net-leased properties are responsible for maintenance and other day-to-day management of the properties. If a property is not adequately maintained in accordance with the terms of the applicable lease, we may incur expenses for deferred maintenance expenditures or other liabilities once the property becomes free of the lease. A bankrupt or financially-troubled tenant may be more likely to defer maintenance and it may be more difficult to enforce remedies, including those provided in the applicable lease, against such a tenant. In addition, to the extent tenants are unable to conduct their operation of the property on a financially-successful basis, their ability to pay rent may be adversely affected. Monitoring of

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compliance by tenants with their lease obligations and other factors that could affect the financial performance of our properties may not in all circumstances ascertain or forestall deterioration either in the condition of a property or the financial circumstances of a tenant.

Our participation in joint ventures creates additional risk.

From time to time, we may participate in joint ventures and purchase assets jointly with the other CPA® REITs and/or WPC and other entities managed by it, and may do so as well with third parties. There are additional risks involved in joint venture transactions. As a co-investor in a joint venture, we may not be in a position to exercise sole decision-making authority relating to the property, joint venture, or our investment partner. In addition, there is the potential that our joint venture partner may become bankrupt or that we may have diverging or inconsistent economic or business interests. These diverging interests could, among other things, expose us to liabilities in the joint venture in excess of our proportionate share of these liabilities. The partition rights of each owner in a jointly-owned property could reduce the value of each portion of the divided property. In addition, the fiduciary obligation that the advisor or members of our board of directors may owe to our partner in an affiliated transaction may make it more difficult for us to enforce our rights.

Our operations could be restricted if we become subject to the Investment Company Act and your investment return, if any, may be reduced if we are required to register as an investment company under the Investment Company Act.

A person will generally be deemed to be an “investment company” for purposes of the Investment Company Act of 1940, or the Investment Company Act, if:

it is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, or trading in securities; or
it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis, which is referred to as the “40% test.”

We believe that we and our subsidiaries are engaged primarily in the business of acquiring and owning interests in real estate. We hold ourselves out as a real estate firm and do not engage primarily in the business of investing, reinvesting, or trading in securities. Accordingly, we do not believe that we are an investment company as defined in section 3(a)(1)(A) of the Investment Company Act and described in the first bullet point above. Excepted from the term “investment securities” for purposes of the 40% test described in the second bullet point above are securities issued by majority-owned subsidiaries, such as our operating partnership, that are not themselves investment companies and are not relying on the exception from the definition of investment company set forth in Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act.

Our operating partnership generally expects to satisfy the 40% test, however, depending on the nature of its investments, our operating partnership may rely upon the exclusion from registration as an investment company pursuant to Section 3(c)(5)(C) of the Investment Company Act, which is available for entities “primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.” This exclusion generally requires that at least 55% of the operating partnership's assets must be comprised of qualifying real estate assets and at least 80% of its portfolio must be comprised of qualifying real estate assets and real estate-related assets. Qualifying assets for this purpose include mortgage loans and other assets, including certain mezzanine loans and B notes, that the SEC staff in various no-action letters has affirmed can be treated as qualifying assets. We treat the following as real estate-related assets: commercial mortgage-backed securities, debt and equity securities of companies primarily engaged in real estate businesses, and securities issued by pass through entities of which substantially all the assets consist of qualifying assets and/or real estate-related assets. We rely on guidance published by the SEC staff or on our analyses of guidance published with respect to other types of assets to determine which assets are qualifying real estate assets and real estate-related assets. In August 2011, the SEC issued a concept release soliciting public comment on a wide range of issues relating to Section (3)(c)(5)(C), including the nature of the assets that qualify for purposes of the exemption and whether mortgage REITs should be regulated in a manner similar to investment companies. There can be no assurance that the laws and regulations governing the Investment Company Act status of REITs, including the guidance of the SEC or its staff regarding this exclusion, will not change in a manner that adversely affects our operations. To the extent that the SEC staff publishes new or different guidance with respect to these matters, we may be required to adjust our strategy accordingly. In addition, we may be limited in our ability to make certain investments and these limitations could result in the operating partnership holding assets we might wish to sell or selling assets we might wish to hold.

To maintain compliance with an Investment Company Act exemption or exclusion, we may be unable to sell assets we would otherwise want to sell and may need to sell assets we would otherwise wish to retain. In addition, we may have to acquire

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additional income or loss generating assets that we might not otherwise have acquired or may have to forego opportunities to acquire interests in companies that we would otherwise want to acquire and would be important to our investment strategy. If we were required to register as an investment company, we would be prohibited from engaging in our business as currently contemplated because the Investment Company Act imposes significant limitations on leverage. In addition, we would have to seek to restructure the advisory agreement because the compensation that it contemplates would not comply with the Investment Company Act. If we fail to comply with the Investment Company Act, criminal and civil actions could be brought against us, our contracts could be unenforceable unless a court were to require enforcement, and a court could appoint a receiver to take control of us and liquidate our business.

Because the operating partnership is not an investment company and does not rely on the exclusion from investment company registration provided by Section 3(c)(1) or 3(c)(7), and the operating partnership is our majority-owned subsidiary, our interests in the operating partnership do not constitute investment securities for purposes of the 40% test. Our interest in the operating partnership is our only material asset; therefore, we believe that we satisfy the 40% test.

We use derivative financial instruments to hedge against interest rate and currency fluctuations, which could reduce the overall returns on your investment.

We use derivative financial instruments to hedge exposures to changes in interest rates and currency rates. These instruments involve risk, such as the risk that counterparties may fail to perform under the terms of the derivative contract or that such arrangements may not be effective in reducing our exposure to interest rate changes. In addition, the possible use of such instruments may reduce the overall return on our investments. These instruments may also generate income that may not be treated as qualifying REIT income for purposes of the 75% or 95% REIT income test.

Because we invest in properties located outside the United States, we are exposed to additional risks.
 
We have invested in and may continue to invest in properties located outside the United States. At December 31, 2014, our directly-owned real estate properties located outside of the United States represented 58% of consolidated ABR. These investments may be affected by factors particular to the laws of the jurisdiction in which the property is located and may expose us to risks that are different from, and in addition to, those commonly found in the United States, including:
 
changing governmental rules and policies;
enactment of laws relating to the foreign ownership of property and laws relating to the ability of foreign entities to remove invested capital or profits earned from activities within the country to the United States;
expropriation of investments;
legal systems under which our ability to enforce contractual rights and remedies may be more limited than would be the case under U.S. law;
difficulty in conforming obligations in other countries and the burden of complying with a wide variety of foreign laws, which may be more stringent than U.S. laws, including tax requirements and land use, zoning, and environmental laws, as well as changes in such laws;
adverse market conditions caused by changes in national or local economic or political conditions;
tax requirements vary by country and we may be subject to additional taxes as a result of our international investments;
changes in relative interest rates;
changes in the availability, cost, and terms of mortgage funds resulting from varying national economic policies;
changes in real estate and other tax rates and other operating expenses in particular countries;
changes in land use and zoning laws;
more stringent environmental laws or changes in such laws; and
restrictions and/or significant costs in repatriating cash and cash equivalents held in foreign bank accounts.
 
In addition, the lack of publicly-available information in certain jurisdictions in accordance with accounting principles generally accepted in the United States, or GAAP, could impair our ability to analyze transactions and may cause us to forego an investment opportunity. It may also impair our ability to receive timely and accurate financial information from tenants necessary to meet our reporting obligations to financial institutions or governmental or regulatory agencies. Certain of these risks may be greater in emerging markets and less developed countries. The advisor’s expertise to date has primarily been in the United States and certain countries in Europe and Asia, and the advisor has less experience in other international markets. The advisor may not be as familiar with the potential risks to our investments outside these markets, and we could incur losses as a result.
 

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Also, we may engage third-party asset managers in international jurisdictions to monitor compliance with legal requirements and lending agreements with respect to properties we own. Failure to comply with applicable requirements may expose us or our operating subsidiaries to additional liabilities.
 
Moreover, we are subject to changes in foreign exchange rates due to potential fluctuations in exchange rates between foreign currencies and the U.S. dollar. Our principal foreign currency exposures are to the euro and, to the lesser extent, the Norwegian krone and British pound sterling. We attempt to mitigate a portion of the risk of currency fluctuation by financing our properties in the local currency denominations, although there can be no assurance that this will be effective. Because we generally place both our debt obligation to the lender and the tenant’s rental obligation to us in the same currency, the results of our foreign operations benefit from a weaker U.S. dollar and are adversely affected by a stronger U.S. dollar relative to foreign currencies (i.e., absent other considerations, a weaker U.S. dollar will tend to increase both our revenues and our expenses, while a stronger U.S. dollar will tend to reduce both our revenues and our expenses).

Because most of our properties are occupied by a single tenant, our success is materially dependent upon the financial stability of our tenants.
 
Most of our commercial real estate properties are occupied by a single tenant; therefore, the success of our investments is materially dependent on the financial stability of these tenants. Revenues from several of our tenants/guarantors constitute a significant percentage of our lease revenues. Our five largest tenants/guarantors represented approximately 51% of consolidated ABR at December 31, 2014. Lease payment defaults by tenants could negatively impact our net income and reduce the amounts available for distributions to our stockholders. A tenant default on lease payments to us could cause us to lose the revenue from the property and, if the property is subject to a mortgage, require us to find an alternative source of revenue to meet any mortgage payment and prevent a foreclosure. In the event of a default, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and re-leasing our property. If a lease is terminated, there is no assurance that we will be able to re-lease the property for the rent previously received or sell the property without incurring a loss.

The bankruptcy or insolvency of tenants or borrowers may cause a reduction in our revenue and an increase in our expenses. 

Bankruptcy or insolvency of a tenant or borrower could cause: 

the loss of lease or interest and principal payments;
an increase in the costs incurred to carry the asset;
litigation;
a reduction in the value of our shares; and
a decrease in distributions to our stockholders.

Under U.S. bankruptcy law, a tenant that is the subject of bankruptcy proceedings has the option of assuming or rejecting any unexpired lease. If the tenant rejects the lease, any resulting claim we have for breach of the lease (excluding collateral securing the claim) will be treated as a general unsecured claim. The maximum claim will be capped at the amount owed for unpaid rent prior to the bankruptcy unrelated to the termination, plus the greater of one year’s lease payments or 15% of the remaining lease payments payable under the lease (but no more than three years’ lease payments). In addition, due to the long-term nature of our leases and, in some cases, terms providing for the repurchase of a property by the tenant, a bankruptcy court could recharacterize a net-lease transaction as a secured lending transaction. If that were to occur, we would not be treated as the owner of the property, but we might have rights as a secured creditor. Those rights would not include a right to compel the tenant to timely perform its obligations under the lease but may instead entitle us to “adequate protection,” a bankruptcy concept that applies to protect against a decrease in the value of the property if the value of the property is less than the balance owed to us. 

Insolvency laws outside of the United States may not be as favorable to reorganization or to the protection of a debtor’s rights as tenants under a lease. Our rights to terminate a lease for default may be more likely to be enforceable in countries other than the United States, in which a debtor/tenant or its insolvency representative may be less likely to have rights to force continuation of a lease without our consent. Nonetheless, such laws may permit a tenant or an appointed insolvency representative to terminate a lease if it so chooses. 

However, in circumstances where the bankruptcy laws of the United States are considered to be more favorable to debtors and to their reorganization, entities that are not ordinarily perceived as U.S. entities may seek to take advantage of the U.S.

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bankruptcy laws if they are eligible. An entity would be eligible to be a debtor under the U.S. bankruptcy laws if it had a domicile (state of incorporation or registration), place of business or assets in the United States. If a tenant became a debtor under the U.S. bankruptcy laws, then it would have the option of assuming or rejecting any unexpired lease. As a general matter, after the commencement of bankruptcy proceedings and prior to assumption or rejection of an expired lease, U.S. bankruptcy laws provide that until an unexpired lease is assumed or rejected, the tenant (or its trustee if one has been appointed) must timely perform obligations of the tenant under the lease. However, under certain circumstances, the time period for performance of such obligations may be extended by an order of the bankruptcy court. 

CPA®:17 – Global and several other non-traded REITs previously managed by the advisor have had tenants (including several international tenants) file for bankruptcy protection in the past and have been involved in bankruptcy-related litigation. Four prior programs managed by the advisor reduced the rate of distributions to their investors as a result of adverse developments involving tenants.

Similarly, if a borrower under one of our loan transactions declares bankruptcy, there may not be sufficient funds to satisfy its payment obligations to us, which may adversely affect our revenue and distributions to our stockholders. The mortgage loans in which we may invest may be subject to delinquency, foreclosure, and loss, which could result in losses to us.

Highly-leveraged tenants may have a higher possibility of filing for bankruptcy or insolvency.
 
Highly-leveraged tenants that experience downturns in their operating results due to adverse changes to their business or economic conditions may have a higher possibility of filing for bankruptcy or insolvency. In bankruptcy or insolvency, a tenant may have the option of vacating a property instead of paying rent. Until such a property is released from bankruptcy, our revenues may be reduced and could cause us to reduce distributions to stockholders.

We will incur debt to finance our operations, which may subject us to an increased risk of loss.

We will incur debt to finance our operations. The leverage we employ will vary depending on our ability to obtain credit facilities, the loan-to-value and debt service coverage ratios of our assets, the yield on our assets, the targeted leveraged return we expect from our investment portfolio, and our ability to meet ongoing covenants related to our asset mix and financial performance. Our return on our investments and cash available for distribution to our stockholders may be reduced to the extent that changes in market conditions cause the cost of our financing to increase relative to the income that we can derive from the assets we acquire.

Debt service payments will reduce the net income available for distributions to our stockholders. Moreover, we may not be able to meet our debt service obligations and, to the extent that we cannot, we risk the loss of some or all of our assets to foreclosure or sale to satisfy our debt obligations. Our charter or bylaws do not restrict the form of indebtedness we may incur.

The credit profiles of our tenants may create a higher risk of lease defaults and therefore lower revenues.
 
Generally, no credit rating agencies evaluate or rank the debt or the credit risk of many of our tenants, as we seek tenants that we believe will have stable or improving credit profiles that have not been recognized by the traditional credit market. Our long-term leases with certain of these tenants may therefore pose a higher risk of default than would long-term leases with tenants whose credit is rated highly by a rating agency.

We may incur costs to finish build-to-suit properties.
 
We may acquire undeveloped land or partially developed buildings for the purpose of owning to-be-built facilities for a prospective tenant. The primary risks of a build-to-suit project are potential for failing to meet an agreed-upon delivery schedule and cost-overruns, which may among other things, cause the total project costs to exceed the original appraisal. In some cases, the prospective tenant will bear these risks. However, in other instances we may be required to bear these risks, which means that we may have to advance funds to cover cost-overruns that we would not be able to recover through increased rent payments or that we may experience delays in the project that delay commencement of rent. We will attempt to minimize these risks through guaranteed maximum price contracts, review of contractor financials, and completed plans and specifications prior to commencement of construction. The incurrence of the costs described above or any non-occupancy by the tenant upon completion may reduce the project’s and our portfolio’s returns or result in losses to us.


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A decrease in demand for self-storage space would likely have an adverse effect on our revenues from operating real estate.

A decrease in the demand for self-storage space would have an adverse effect on our revenues from our operating real estate. Demand for self-storage space has been and could be adversely affected by ongoing weakness in the national, regional, and local economies, changes in supply of, or demand for, similar or competing self-storage facilities in an area and the excess amount of self-storage space in a particular market. To the extent that any of these conditions occur, they are likely to affect market rents for self-storage space, which could cause a decrease in our revenues.

Short-term leases may expose us to the effects of declining market rent.

Certain types of the properties we own and may acquire, such as self-storage and multi-family properties, typically have short-term leases, generally one year or less, with tenants. There is no assurance that we will be able to renew these leases as they expire or attract replacement tenants on comparable terms, if at all.

We are subject, in part, to the risks of real estate ownership, which could reduce the value of our properties.

Our performance and asset value is, in part, subject to risks incident to the ownership and operation of real estate, including:

changes in the general economic climate;
changes in local conditions such as an oversupply of space or reduction in demand for real estate;
changes in interest rates and the availability of financing; and
changes in laws and governmental regulations, including those governing real estate usage, zoning, and taxes.

Potential liability for environmental matters could adversely affect our financial condition.

We expect to continue to invest in real properties historically used for industrial, manufacturing, and commercial purposes. We therefore may own properties that have known or potential environmental contamination as a result of historical or ongoing operations. Buildings and structures on the properties we purchase may have known or suspected asbestos-containing building materials. We may invest in properties located in countries that have adopted laws or observe environmental management standards that are less stringent than those generally followed in the United States, which may pose a greater risk that releases of hazardous or toxic substances have occurred. Leasing properties to tenants that engage in these activities, and owning properties historically and currently used for industrial, manufacturing, and commercial purposes, will cause us to be subject to the risk of liabilities under environmental laws. Some of these laws could impose the following on us:

responsibility and liability for the costs of investigation, removal, or remediation of hazardous or toxic substances released on or from our real property, generally without regard to our knowledge of, or responsibility for, the presence of these contaminants; 
liability for the costs of investigation and removal or remediation of hazardous substances at disposal facilities for persons who arrange for the disposal or treatment of such substances;
liability for claims by third parties based on damages to natural resources or property, personal injuries, or costs of removal or remediation of hazardous or toxic substances in, on, or migrating from our property; and 
responsibility for managing asbestos-containing building materials, and third-party claims for exposure to those materials.

Our costs of investigation, remediation, or removal of hazardous or toxic substances, or for third-party claims for damages, may be substantial. The presence of hazardous or toxic substances on one of our properties, or the failure to properly remediate a contaminated property, could give rise to a lien in favor of the government for costs it may incur to address the contamination, or otherwise adversely affect our ability to sell or lease the property or to borrow using the property as collateral. In addition, environmental liabilities, or costs or operating limitations imposed on a tenant to comply with environmental laws, could affect its ability to make rental payments to us. Also, we may be required, in connection with any future divestitures of property, to provide buyers with indemnification against potential environmental liabilities.

We and our independent property operators will rely on information technology in our operations, and any material failure, inadequacy, interruption or security failure of that technology could harm our business.

We and our independent property operators will rely on information technology networks and systems, including the internet, to process, transmit, and store electronic information, and to manage or support a variety of business processes, including financial

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transactions and records, personal identifying information, reservations, billing, and operating data. We will purchase some of our information technology from vendors, on whom our systems depend. We rely on commercially available systems, software, tools, and monitoring to provide security for processing, transmission, and storage of confidential customer information, such as individually identifiable information, including information relating to financial accounts. It is possible that our safety and security measures will not be able to prevent the systems' improper functioning or damage, or the improper access or disclosure of personally identifiable information such as in the event of cyber-attacks. Security breaches, including physical or electronic break-ins, computer viruses, attacks by hackers, and similar breaches, can create system disruptions, shutdowns, or unauthorized disclosure of confidential information. Any failure to maintain proper function, security, and availability of our information systems could interrupt our operations, damage our reputation, subject us to liability claims or regulatory penalties, and could have a material adverse effect on our business, financial condition, and results of operations.

We face active competition for the funds we raise and the investments we make.

We face active competition for the acquisition of commercial properties and real estate-related assets from insurance companies, credit companies, pension funds, private individuals, investment companies, and other REITs. We also face competition from institutions that provide or arrange for other types of commercial financing through private or public offerings of equity or debt or traditional bank financings. These institutions may accept greater risk or lower returns, allowing them to offer more attractive terms to prospective tenants. In addition, the advisor’s evaluation of the acceptability of rates of return on our behalf will be affected by our relative cost of capital. Also, to the extent our fee structure and cost of fundraising is higher than our competitors, we may be limited in the amount of new acquisitions we are able to make.

Valuations that we obtain may include leases in place on the property being appraised, and if the leases terminate, the value of the property may become significantly lower.

The valuations that we obtain on our properties may be based on the value of the properties when the properties are leased. If the leases on the properties terminate, the value of the properties may fall significantly below the appraised value.

The mortgage loans in which we may invest will be subject to delinquency, foreclosure, and loss, which could result in losses to us.

The ability of a borrower to repay a loan secured by an income-producing property typically is dependent primarily upon the successful operation of the property rather than upon the existence of independent income or assets of the borrower. If the net operating income of the property is reduced, the borrower’s ability to repay the loan may be impaired. Net operating income of an income-producing property can be affected by the risks particular to real property described above, as well as, among other things:

tenant mix; 
success of tenant businesses; 
property management decisions; 
property location and condition; 
competition from comparable types of properties; 
changes in specific industry segments; 
declines in regional or local real estate values, or rental or occupancy rates; and 
increases in interest rates, real estate tax rates, and other operating expenses.

In the event of any default under a mortgage loan (or any financing lease or net lease that is recharacterized as a mortgage loan) held directly by us, we will bear a risk of loss of principal to the extent of any deficiency between the value of the collateral and the principal and accrued interest of the mortgage loan, which could have a material adverse effect on our ability to achieve our investment objectives, including, without limitation, diversification of our commercial real estate properties portfolio by property type and location, moderate financial leverage, low to moderate operating risk, and an attractive level of current income. In the event of the bankruptcy of a mortgage loan borrower (or any tenant under a financing lease or a net lease that is recharacterized as a mortgage loan), the mortgage loan (or any financing lease or net lease that is recharacterized as a mortgage loan) to that borrower will be deemed to be secured only to the extent of the value of the underlying collateral at the time of bankruptcy (as determined by the bankruptcy court), and the lien securing the mortgage loan will be subject to the avoidance powers of the bankruptcy trustee or debtor-in-possession to the extent the lien is unenforceable under state law. Foreclosure of a mortgage loan (or any financing lease or net lease that is recharacterized as a mortgage loan) can be an expensive and lengthy process that could have a substantial negative effect on our anticipated return on the foreclosed mortgage loan.


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Investment in non-conforming and non-investment grade loans may involve increased risk of loss.

We may acquire or originate certain loans that do not conform to conventional loan criteria applied by traditional lenders and are not rated or are rated as non-investment grade (i.e., lower than Baa3 for investments rated by Moody’s Investors Service and BBB- or below for Standard & Poor’s Rating Services). The non-investment grade ratings for these loans typically result from the overall leverage of the loans, the lack of a strong operating history for the properties underlying the loans, the borrowers’ credit history, the properties’ underlying cash flow, or other factors. As a result, these loans have a higher risk of default and loss than conventional loans. Any loss we incur may reduce distributions to our stockholders. There are no limits on the percentage of unrated or non-investment grade assets we may hold in our portfolio.

Investments in mezzanine loans involve greater risks of loss than senior loans secured by income-producing properties. 

We may invest in mezzanine loans. Investments in mezzanine loans take the form of subordinated loans secured by second mortgages on the underlying property or loans secured by a pledge of the ownership interests in the entity that directly or indirectly owns the property. These types of investments involve a higher degree of risk than a senior mortgage loan because the investment may become unsecured as a result of foreclosure by the senior lender. In the event of a bankruptcy of the entity providing the pledge of its ownership interests as security, we may not have full recourse to the assets of the property owning entity, or the assets of the entity may not be sufficient to satisfy our mezzanine loan. If a borrower defaults on our mezzanine loan or debt senior to our loan, or in the event of a borrower bankruptcy, our mezzanine loan will be satisfied only after the senior debt is paid in full. As a result, we may not recover some or all of our investment, which could result in losses. In addition, mezzanine loans may have higher loan-to-value ratios than conventional mortgage loans, resulting in less equity in the property and increasing the risk of loss of principal.

Our investments in debt securities are subject to specific risks relating to the particular issuer of securities and to the general risks of investing in subordinated real estate securities.

Our investments in debt securities involve special risks. REITs generally are required to invest substantially in real estate or real estate-related assets and are subject to the inherent risks associated with real estate-related investments discussed in this Report. Our investments in debt are subject to the risks described above with respect to mortgage loans and mortgage-backed securities and similar risks, including:

risks of delinquency and foreclosure, and risks of loss in the event thereof;
the dependence upon the successful operation of and net income from real property;
risks generally incident to interests in real property; and
risk that may be presented by the type and use of a particular commercial property.

Debt securities are generally unsecured and may also be subordinated to other obligations of the issuer. We may also invest in debt securities that are rated below investment grade. As a result, investment in debt securities are also subject to risks of:

limited liquidity in the secondary trading market;
substantial market price volatility resulting from changes in prevailing interest rates;
subordination to the prior claims of banks and other senior lenders to the issuer;
the operation of mandatory sinking fund or call/redemption provisions during periods of declining interest rates that could cause the issuer to reinvest premature redemption proceeds in lower yielding assets; 
the possibility that earnings of the debt security issuer may be insufficient to meet its debt service; and 
the declining creditworthiness and potential for insolvency of the issuer of such debt securities during periods of rising interest rates and economic downturn.

The risks may adversely affect the value of outstanding debt securities and the ability of the issuers thereof to repay principal and interest.

Investments in loans collateralized by non-real estate assets create additional risk and may adversely affect our REIT qualification.

We may invest in secured corporate loans, which are loans collateralized by real property, personal property connected to real property (i.e., fixtures), and/or personal property, on which another lender may hold a first priority lien. If a default occurs, the value of the collateral may not be sufficient to repay all of the lenders that have an interest in the collateral. Our rights in bankruptcy will be different for these loans than typical net lease transactions. To the extent that loans are collateralized by

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personal property only, or to the extent the value of the real estate collateral is less than the aggregate amount of our loans and equal or higher-priority loans secured by the real estate collateral, that portion of the loan will not be considered a “real estate asset” for purposes of the 75% REIT asset test. Also, income from that portion of such a loan will not qualify under the 75% REIT income test for REIT qualification.

Investments in securities of REITs, real estate operating companies, and companies with significant real estate assets will expose us to many of the same general risks associated with direct real property ownership.

Investments we may make in other REITs, real estate operating companies, and companies with significant real estate assets, directly or indirectly through other real estate funds, will be subject to many of the same general risks associated with direct real property ownership. In particular, equity REITs may be affected by changes in the value of the underlying property owned by such REITs, while mortgage REITs may be affected by the quality of any credit extended. Since REIT investments, however, are securities, they also may be exposed to market risk and price volatility due to changes in financial market conditions and changes as discussed below.

The value of the equity securities of companies engaged in real estate activities that we may invest in may be volatile and may decline.

The value of equity securities of companies engaged in real estate activities, including those of REITs, fluctuates in response to issuer, political, market, and economic developments. In the short term, equity prices can fluctuate dramatically in response to these developments. Different parts of the market and different types of equity securities can react differently to these developments and they can affect a single issuer, multiple issuers within an industry, economic sector, or geographic region, or the market as a whole. These fluctuations in value could result in significant gains or losses being reported in our financial statements because we will be required to mark such investments to market periodically.

The real estate industry is sensitive to economic downturns. The value of securities of companies engaged in real estate activities can be adversely affected by changes in real estate values and rental income, property taxes, interest rates, and tax and regulatory requirements. In addition, the value of a REIT’s equity securities can depend on the structure and amount of cash flow generated by the REIT. It is possible that our investments in securities may decline in value even though the obligor on the securities is not in default of its obligations to us.

The lack of an active public trading market for our shares combined with the limit on the number of our shares a person may own may discourage a takeover and make it difficult for stockholders to sell shares quickly.
 
There is no active public trading market for our shares and we do not expect there ever will be one. Moreover, we are not required to complete a liquidity event by a specified date. To assist us in meeting the REIT qualification rules, among other things, our charter also prohibits the ownership by one person or affiliated group of more than 9.8% in value of our stock or more than 9.8% in value or number, whichever is more restrictive, of our outstanding shares of common stock, unless exempted by our board of directors. This ownership limitation may discourage third parties from making a potentially financially attractive tender offer for your shares, thereby inhibiting a change of control in us. Moreover, you should not rely on our redemption plan as a method to sell shares promptly because our redemption plan includes numerous restrictions that limit your ability to sell your shares to us, and our board of directors may amend, suspend, or terminate our redemption plan without giving you advance notice. In particular, the redemption plan provides that we may redeem shares only if we have sufficient funds available for redemption and to the extent the total number of shares for which redemption is requested in any quarter, together with the aggregate number of shares redeemed in the preceding three fiscal quarters, does not exceed five percent of the total number of our shares outstanding as of the last day of the immediately preceding fiscal quarter. Therefore, it may be difficult for you to sell your shares promptly or at all. In addition, the price received for any shares sold prior to a liquidity event is likely to be less than the proportionate value of the real estate we own. Investor suitability standards imposed by certain states may also make it more difficult to sell your shares to someone in those states. As a result, our shares should only be purchased as a long-term investment.
 

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Failing to qualify as a REIT would adversely affect our operations and ability to make distributions.

If we fail to qualify as a REIT in any taxable year, we would be subject to U.S. federal income tax on our net taxable income at corporate rates. In addition, we would generally be disqualified from treatment as a REIT for the four taxable years following the year we lost our REIT qualification. Losing our REIT qualification would reduce our net earnings available for investment or distribution to stockholders because of the additional tax liability, and we would no longer be required to make distributions. We might be required to borrow funds or liquidate some investments in order to pay the applicable tax.

Qualification as a REIT involves the application of highly technical and complex provisions under the Internal Revenue Code for which there are only limited judicial and administrative interpretations. The determination of various factual matters and circumstances not entirely within our control may affect our ability to qualify as a REIT. In order to qualify as a REIT, we must satisfy a number of requirements regarding the composition of our assets and the sources of our gross income. Also, we must make distributions to our stockholders aggregating annually at least 90% of our REIT net taxable income, excluding net capital gains. Because we intend to make investments in foreign real property, we are subject to foreign currency gains and losses. Foreign currency gains may or may not be taken into account for purposes of the REIT income requirements. In addition, legislation, new regulations, administrative interpretations, or court decisions may adversely affect our investors, our ability to qualify as a REIT for U.S. federal income tax purposes, or the desirability of an investment in a REIT relative to other investments.

The Internal Revenue Service may treat sale-leaseback transactions as loans, which could jeopardize our REIT qualification.

The Internal Revenue Service may take the position that specific sale-leaseback transactions that we treat as true leases are not true leases for U.S. federal income tax purposes but are, instead, financing arrangements or loans. If a sale-leaseback transaction were so recharacterized, we might fail to satisfy the qualification requirements applicable to REITs.

Distributions payable by REITs generally do not qualify for reduced U.S. federal income tax rates because qualifying REITs do not pay U.S. federal income tax on their distributed net income.

The maximum U.S. federal income tax rate for distributions payable by domestic corporations to taxable U.S. stockholders is 20% under current law. Distributions payable by REITs, however, are generally not eligible for the reduced rates, except to the extent that they are attributable to distributions paid by a taxable REIT subsidiary, or TRS, a C corporation, or relate to certain other activities. This is because qualifying REITs receive an entity level tax benefit from not having to pay U.S. federal income tax on their distributed net income. As a result, the more favorable rates applicable to regular corporate distributions could cause stockholders who are individuals to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay distributions, which could adversely affect the value of the stock of REITs, including our common stock. In addition, the relative attractiveness of real estate in general may be adversely affected by the reduced U.S. federal income tax rates applicable to corporate distributions, which could negatively affect the value of our properties.

If we were considered to actually or constructively pay a “preferential dividend” to certain of our stockholders, our status as a REIT could be adversely affected.

In order to qualify as a REIT, we must distribute to our stockholders at least 90% of our annual REIT taxable income (excluding net capital gain), determined without regard to the deduction for dividends paid. In order for distributions to be counted as satisfying the annual distribution requirements for REITs, and to provide us with a REIT-level tax deduction, the distributions must not be “preferential dividends.” A dividend is not a preferential dividend if the distribution is pro rata among all outstanding shares of stock within a particular class, and in accordance with the preferences among different classes of stock as set forth in our organizational documents. There is no de minimis exception with respect to preferential dividends; therefore, if the Internal Revenue Service were to take the position that we paid a preferential dividend, we may be deemed to have failed the 90% distribution test, and our status as a REIT could be terminated for the year in which such determination is made if we were unable to cure such failure. We have received a private letter ruling from the Internal Revenue Service concluding that the differences in the dividends distributed to holders of Class A shares and holders of Class C shares due to the class-specific fee allocations, as described in the ruling, will not cause such dividends to be preferential dividends. We may change the way our fees and expenses are incurred and allocated to different classes of stockholders if the tax rules applicable to REITs change such that we could do so without adverse tax consequences.


CPA®:18 – Global 2014 10-K 23


Our board of directors may revoke our REIT election without stockholder approval, which may cause adverse consequences to our stockholders.

Our organizational documents permit our board of directors to revoke or otherwise terminate our REIT election, without the approval of our stockholders, if the board determines that it is not in our best interest to qualify as a REIT. In such a case, we would become subject to U.S. federal income tax on our net taxable income and we would no longer be required to distribute most of our net taxable income to our stockholders, which may have adverse consequences on the total return to our stockholders.

Conflicts of interest may arise between holders of our common stock and holders of partnership interests in our Operating Partnership.

Our directors and officers have duties to us and to our stockholders under Maryland law in connection with their management of us. At the same time, we as general partner have fiduciary duties under Delaware law to our Operating Partnership and to the limited partners in connection with the management of our Operating Partnership. Our duties as general partner of our Operating Partnership may come into conflict with the duties of our directors and officers to us and our stockholders.

Under Delaware law, a general partner of a Delaware limited partnership owes its limited partners the duties of good faith and fair dealing. Other duties, including fiduciary duties, may be modified or eliminated in the partnership’s partnership agreement. The partnership agreement of our Operating Partnership provides that, for so long as we own a controlling interest in our Operating Partnership, any conflict that cannot be resolved in a manner not adverse to either our stockholders or the limited partners will be resolved in favor of our stockholders.

Additionally, the partnership agreement expressly limits our liability by providing that we and our officers, directors, employees, and designees will not be liable or accountable to our Operating Partnership for losses sustained, liabilities incurred, or benefits not derived if we or our officers, directors, agents, employees, or designees, as the case may be, acted in good faith. In addition, our Operating Partnership is required to indemnify us and our officers, directors, agents, employees, and designees to the extent permitted by applicable law from and against any and all claims arising from operations of our Operating Partnership, unless it is established that: (i) the act or omission was committed in bad faith, was fraudulent, or was the result of active and deliberate dishonesty; (ii) the indemnified party actually received an improper personal benefit in money, property, or services; or (iii) in the case of a criminal proceeding, the indemnified person had reasonable cause to believe that the act or omission was unlawful. These limitations on liability do not supersede the indemnification provisions of our charter.

The provisions of Delaware law that allow the fiduciary duties of a general partner to be modified by a partnership agreement have not been tested in a court of law, and we have not obtained an opinion of counsel covering the provisions set forth in the partnership agreement that purport to waive or restrict our fiduciary duties.

Maryland law could restrict changes in control, which could have the effect of inhibiting a change in control even if a change in control were in our stockholders interest.

Provisions of Maryland law applicable to us prohibit business combinations with:

any person who beneficially owns 10% or more of the voting power of our outstanding voting stock, referred to as an interested stockholder; 
an affiliate or associate who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of our outstanding stock, also referred to as an interested stockholder; or 
an affiliate of an interested stockholder.

These prohibitions last for five years after the most recent date on which the interested stockholder became an interested stockholder. Thereafter, any business combination must be recommended by our board of directors and approved by the affirmative vote of at least 80% of the votes entitled to be cast by holders of our outstanding voting stock and two-thirds of the votes entitled to be cast by holders of our voting stock (other than voting stock held by the interested stockholder or by an affiliate or associate of the interested stockholder). These requirements could have the effect of inhibiting a change in control even if a change in control were in our stockholders’ interest. These provisions of Maryland law do not apply, however, to business combinations that are approved or exempted by our board of directors prior to the time that someone becomes an interested stockholder. In addition, a person is not an interested stockholder if the board of directors approved in advance the transaction by which he or she otherwise would have become an interested stockholder. However, in approving a transaction,

CPA®:18 – Global 2014 10-K 24


the board of directors may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the board.

Our charter permits our board of directors to issue stock with terms that may subordinate the rights of the holders of our current common stock or discourage a third party from acquiring us.

Our board of directors may classify or reclassify any unissued stock into other classes or series of stock and establish the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications, and terms or conditions of redemption of any such stock. Thus, our board of directors could authorize the issuance of such stock with terms and conditions that could subordinate the rights of the holders of our common stock or have the effect of delaying, deferring, or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer, or sale of all or substantially all of our assets) that might provide a premium price for holders of our common stock. However, the issuance of preferred stock must also be approved by a majority of independent directors not otherwise interested in the transaction, who will have access at our expense to our legal counsel or to independent legal counsel. In addition, the board of directors, with the approval of a majority of the entire board and without any action by the stockholders, may amend our charter from time to time to increase or decrease the aggregate number of shares or the number of shares of any class or series that we have authority to issue. If our board of directors determines to take any such action, it will do so in accordance with the duties it owes to holders of our common stock.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

Our principal corporate offices are located in the offices of the advisor at 50 Rockefeller Plaza, New York, NY 10020. The advisor also has primary international investment offices located in London and Amsterdam, as well as additional office space domestically in New York and Dallas, Texas and internationally in Hong Kong and Shanghai. The advisor leases all of these offices and believes these leases are suitable for our operations for the foreseeable future.

See Item 1. Business — Our Portfolio for a discussion of the properties we hold for rental operations and Part II, Item 8. Financial Statements and Supplementary Data — Schedule III — Real Estate and Accumulated Depreciation for a detailed listing of such properties.

Item 3. Legal Proceedings.
 
At December 31, 2014, we were not involved in any material litigation.

Various claims and lawsuits arising in the normal course of business may be pending against us. The results of these proceedings are not expected to have a material adverse effect on our consolidated financial position or results of operations.

Item 4. Mine Safety Disclosures.
 
Not applicable.

CPA®:18 – Global 2014 10-K 25


PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Unlisted Shares and Distributions

There is no active public trading market for our shares. At March 23, 2015, there were 29,270 holders of record of our shares of common stock.
 
We are required to distribute annually at least 90% of our distributable REIT net taxable income to maintain our status as a REIT. Quarterly distributions per share for the past two years, which are calculated and paid based on a declared daily rate, are as follows:
 
Years Ended December 31,
 
2014
 
2013
 
Class A
 
Class C
 
Class A
 
Class C
First quarter
$
0.1562

 
$
0.1329

 
$

 
$

Second quarter
0.1562

 
0.1329

 

 

Third quarter (a)
0.1562

 
0.1329

 
0.1155

 
0.0982

Fourth quarter
0.1562

 
0.1329

 
0.1562

 
0.1329

 
$
0.6248

 
$
0.5316

 
$
0.2717

 
$
0.2311

__________
(a)
On July 25, 2013, the aggregate subscription proceeds for our Class A and Class C common stock exceeded the minimum offering amount of $2.0 million and we began to admit stockholders.

Unregistered Sales of Equity Securities

During the three months ended December 31, 2014, we issued 85,905 shares of our Class A common stock to the advisor as consideration for asset management fees. These shares were issued at $10.00 per share, which is the price at which shares of our Class A common stock were sold in our initial public offering. Since this transaction was not considered to have involved a “public offering” within the meaning of Section 4(a)(2) of the Securities Act of 1933, the shares issued were deemed to be exempt from registration. In acquiring our shares, the advisor represented that such interests were being acquired by it for the purposes of investment and not with a view to the distribution thereof. From September 7, 2012, or the date of inception, and through December 31, 2014, we have issued 237,290 shares of our Class A common stock to the advisor as aggregate consideration for asset management fees.

All prior sales of unregistered securities have been reported in our previously filed quarterly reports on Form 10-Q.


CPA®:18 – Global 2014 10-K 26


Use of Offering Proceeds

Our Registration Statement (File No. 333-185111) for our initial public offering was declared effective by the SEC on May 7, 2013. As of December 31, 2014, the cumulative use of proceeds from our initial public offering was as follows (dollars in thousands):
 
Common Stock
 
 
 
Class A
 
Class C
 
Total
Shares registered (a)
100,000,000

 
26,737,968

 
126,737,968

Aggregate price of offering amount registered (a)
$
1,000,000

 
$
250,000

 
$
1,250,000

Shares sold (b)
97,936,653

 
17,721,984

 
115,658,637

Aggregated offering price of amount sold
$
977,410

 
$
165,701

 
$
1,143,111

Direct or indirect payments to directors, officers, general partners
of the issuer or their associates; to persons owning ten percent or more
of any class of equity securities of the issuer; and to affiliates of the issuer
(72,914
)
 
(3,569
)
 
(76,483
)
Direct or indirect payments to others
(31,258
)
 
(3,741
)
 
(34,999
)
Net offering proceeds to the issuer after deducting expenses
$
873,238

 
$
158,391

 
1,031,629

Purchases of real estate, net of financing and noncontrolling interests
 
 
 
 
(567,910
)
Cash distributions paid to stockholders
 
 
 
 
(37,618
)
Repayment of mortgage financing
 
 
 
 
(1,668
)
Repurchase of shares
 
 
 
 
(1,520
)
Working capital (c)
 
 
 
 
6,635

Temporary investments in cash and cash equivalents
 
 
 
 
$
429,548

__________
(a)
These amounts are based on the assumption that the shares sold in our initial public offering will be composed of 80% Class A common stock and 20% Class C common stock.
(b)
Excludes shares issued to affiliates, including the advisor, and shares issued pursuant to our distribution reinvestment and stock purchase plan. We terminated the offering of shares of Class A common stock on June 30, 2014.
(c)
Working capital has been reduced to reflect $59.2 million of acquisition expenses.

Issuer Purchases of Equity Securities
2014 Period
 
Total number of Class A
shares purchased
(a)
 
Average price
paid per share
 
Total number of shares
purchased as part of
publicly announced plans or program 
(a)
 
Maximum number (or
approximate dollar value)
of shares that may yet be
purchased under the plans or program 
(a)
October
 

 
$

 
N/A
 
N/A
November
 

 

 
N/A
 
N/A
December
 
118,086

 
9.73

 
N/A
 
N/A
Total
 
118,086

 
 
 
 
 
 
___________
(a)
Represents shares of our Class A common stock repurchased under our redemption plan, pursuant to which we may elect to redeem shares at the request of our stockholders who have held their shares for at least one year from the date of their issuance, subject to certain exceptions, conditions, and limitations. The maximum amount of shares purchasable by us in any period depends on a number of factors and is at the discretion of our board of directors. We satisfied all of the above redemption requests received during the three months ended December 31, 2014. The redemption plan will terminate if and when our shares are listed on a national securities market or upon the occurrence of a liquidity event. We generally receive fees in connection with share redemptions.




CPA®:18 – Global 2014 10-K 27


Item 6. Selected Financial Data.
 
The following selected financial data should be read in conjunction with the consolidated financial statements and related notes in Item 8 (in thousands, except per share data):
 
Years Ended December 31,
 
2014
 
2013
Operating Data (a)
 
 
 
Total revenues
$
54,317

 
$
3,292

Net loss
(56,556
)
 
(241
)
Net loss (income) attributable to noncontrolling interests
689

 
(390
)
Net loss attributable to CPA®:18 – Global
(55,867
)
 
(631
)
 
 
 

Loss per share:
 
 

Net loss attributable to CPA®:18 – Global Class A
(0.63
)
 
(0.18
)
Net loss attributable to CPA®:18 – Global Class C
(0.72
)
 
(0.27
)
 
 
 

Distributions per share declared to CPA®:18 – Global Class A
0.6248

 
0.2717

Distributions per share declared to CPA®:18 – Global Class C
0.5316

 
0.2311

Balance Sheet Data
 
 

Total assets
1,615,884

 
355,670

Net investments in real estate (b)
941,357

 
171,664

Long-term obligations (c)
539,503

 
87,765

Other Information
 
 

Net cash (used in) provided by operating activities
(9,914
)
 
2,262

Cash distributions paid
37,636

 
115

Payments of mortgage principal (d)
1,668

 

___________
(a)
For the period from the date of inception to December 31, 2012, we had no significant assets, cash flows, or results of operations, and accordingly periods prior to January 1, 2013 are not presented.
(b)
Net investments in real estate consists of Net investments in properties, Net investments in direct financing leases, Real estate under construction, and Note receivable, as applicable.
(c)
Represents non-recourse mortgage obligations, bonds payable, and deferred acquisition fee installments, including interest.
(d)
Represents scheduled mortgage principal payments.


CPA®:18 – Global 2014 10-K 28




Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide the reader with information that will assist in understanding our financial statements and the reasons for changes in certain key components of our financial statements from period to period. Management’s Discussion and Analysis of Financial Condition and Results of Operations also provides the reader with our perspective on our financial position and liquidity, as well as certain other factors that may affect our future results.

The following discussion should be read in conjunction with our consolidated financial statements included in Item 8 of this Report and the matters described under Item 1A. Risk Factors.

Business Overview

We were formed in September 2012, and we qualified as a REIT beginning with the taxable year ended December 31, 2013. On May 7, 2013, our Registration Statement was declared effective by the SEC, and on July 25, 2013, aggregate subscription proceeds exceeded the minimum offering amount of $2.0 million and we began to admit stockholders. The Registration Statement relates to our initial public offering, which is being made on a “best efforts” basis by our dealer manager and selected other dealers, and covers up to $1.0 billion of common stock, in any combination of Class A common stock and Class C common stock at a price of $10.00 per share of Class A common stock and $9.35 per share of Class C common stock. The Registration Statement also covers the offering of up to $400.0 million in common stock, in any combination of Class A common stock and Class C common stock, pursuant to our distribution reinvestment and stock purchase plan at a price of $9.60 per share of Class A common stock and $8.98 per share of Class C common stock. See Significant Developments below.

Based on our investment pipeline and an assessment of the environment for investment opportunities, we believed it was in our best interest to reduce our sales of shares after June 30, 2014. On May 1, 2014, our board of directors approved the discontinuation of the sale of Class A shares after June 30, 2014 in order to moderate the pace of our fundraising. In order to facilitate the final sales of Class A shares as of June 30, 2014 and the continued sale of Class C shares, the board of directors also approved the reallocation up to $250.0 million of the shares that were initially allocated to sales of our stock through our distribution reinvestment and stock purchase plan to our initial public offering. In June 2014, we reallocated the full $250.0 million in shares from the distribution reinvestment and stock purchase plan. We currently intend to sell Class C shares until March 27, 2015, unless we sell all of our shares sooner.

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

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

Economic Overview

In the United States, the overall economic environment continued to improve in 2014. Gross domestic product growth outpaced 2013 levels, and the unemployment rate fell to its lowest mark since 2008. General business conditions continued to recover, and the Federal Reserve completed the tapering of its bond-buying stimulus program in October. Despite the sharp increase in long-term rates in May 2013, interest rates declined over the course of 2014 and remain at historic lows. The interest rate environment contributed to a lower cost of capital for investors purchasing commercial properties. A low cost of capital in conjunction with moderate new supply and strong demand resulted in commercial property yields, or capitalization rates, declining over the course of the year as competition for assets, including net-leased properties, in the United States remained high. In addition, interest rate sensitive stocks, such as REITs, outperformed in 2014. The decline in energy prices in 2014 had a negative impact on the CPI, a useful measure of economic growth and inflation, which experienced 0.8% growth.

In Europe, the economic environment continued to be mixed in 2014. Conditions in most countries across northern and western Europe generally remained stable with some countries, including the United Kingdom and Germany, experiencing modest

CPA®:18 – Global 2014 10-K 29




economic growth rates and lower relative unemployment rates. However, many European countries, including those considered emerging economies, continued to operate at recessionary levels and have negative economic growth and high unemployment. The strengthening and stability of the euro relative to the dollar reversed course in 2014 as the euro / dollar exchange rate reached multi-year lows, and interest rates remain at historically low levels. In addition, the Harmonized Index of Consumer Prices, an indicator of inflation and price stability in the European Union, decreased 0.2% during the year. In an effort to prevent deflation and combat economic weakness, the European Central Bank cut key interest rates in 2014 and, more recently, announced an approximately €1.1 trillion “quantitative easing” program to buy financial assets, including sovereign bonds. Attractive borrowing rates, in conjunction with higher capitalization rates on commercial properties with similar risk profiles to those in the United States contributed to a favorable climate for investing in net-lease assets in Europe.

Significant Developments

Investor Capital Inflows — Through December 31, 2014, we raised gross offering proceeds from the sale of our Class A common stock and Class C common stock of $977.4 million and $165.7 million, respectively. The gross offering proceeds raised exclude reinvested distributions through our distribution reinvestment and stock purchase plan of $17.9 million and $2.2 million for our Class A and Class C common stock, respectively. We terminated sales of our Class A common stock on June 30, 2014. We currently intend to sell shares of our Class C common stock until March 27, 2015.

Acquisition Activity — During 2014, we entered into 41 investments at a total cost of approximately $911.7 million, including $441.4 million for international investments, which we refer to collectively as our 2014 Acquisitions. Amounts are based on the exchange rate of the foreign currency at the date of acquisition, as applicable. Subsequent to December 31, 2014 and through March 23, 2015, we purchased 11 additional properties totaling approximately $244.3 million (excluding acquisition costs). Of these 11 properties, six are self-storage facilities, two are multi-family, two are build-to-suit projects, and one is an industrial site (Note 15).

Financing Activity — During 2014, we obtained non-recourse mortgage and bond financing totaling $394.2 million with a weighted-average annual interest rate and term of 4.3% and 8.5 years, respectively. Amounts are based on the exchange rate of the foreign currency at the date of financing, as applicable. Subsequent to December 31, 2014 and through March 23, 2015, we obtained approximately $158.5 million of new financing related to the properties acquired in 2014 and 2015 (Note 15).

Distributions — We distributed $0.6248 per Class A share and $0.5316 per Class C share for the year ended December 31, 2014 and $0.1155 per Class A share and $0.0982 per Class C share from July 25, 2013, when we began admitting shareholders, to December 31, 2013.


CPA®:18 – Global 2014 10-K 30




Portfolio Overview

We intend to continue to acquire a diversified portfolio of income-producing commercial properties and other real estate-related assets. We expect to make these investments both domestically and outside of the United States. We acquired our first three investments on August 20, 2013, December 18, 2013, and December 30, 2013, which we refer to collectively as the 2013 Acquisitions. See below for more details regarding our portfolio at December 31, 2014 and 2013. Portfolio information is provided on a consolidated basis to facilitate the review of our accompanying consolidated financial statements. In addition, we provide such information on a pro rata basis to better illustrate the economic impact of our various net-leased, jointly-owned investments.

Portfolio Summary
 
 
December 31,
 
 
2014
 
2013
Number of net-leased properties
 
47

 
9

Number of operating properties (a)
 
16

 

Number of tenants (b)
 
73

 
3

Total square footage (in thousands) (c)
 
8,942

 
1,339

Occupancy — Single-tenant (b) (c)
 
100.0
%
 
100.0
%
Occupancy — Multi-tenant (c) (d)
 
91.0
%
 
N/A

Weighted-average lease term — Single-tenant properties (in years) (b) (c)
 
13.2

 
19.3

Weighted-average lease term — Multi-tenant properties (in years) (c) (d)
 
8.3

 
N/A

Number of countries
 
8

 
2

Total assets (in thousands)
 
$
1,615,884

 
$
355,670

Net investments in real estate (in thousands)
 
941,357

 
171,664

Funds raised — cumulative to date (in thousands)
 
1,143,111

 
237,307


 
 
Years Ended December 31,
(dollars in thousands, except exchange rate)
 
2014
 
2013
Acquisition volume — consolidated (e)
 
$
1,044,234

 
$
235,459

Acquisition volume — pro rata (c) (e)
 
911,699

 
158,266

Financing obtained — consolidated
 
466,354

 
85,060

Financing obtained — pro rata (c)
 
394,193

 
48,660

Average U.S. dollar/euro exchange rate (f)
 
1.3295

 
N/A

Increase in the U.S. CPI (g)
 
0.8
 %
 
N/A

Decrease in the Harmonized Index of Consumer Prices (g)
 
(0.2
)%
 
N/A

Increase in the Norwegian CPI (g)
 
2.1
 %
 
N/A

__________
(a)
At December 31, 2014, our operating portfolio consisted of 14 wholly-owned self-storage properties and two multi-family properties.
(b)
Represents our single-tenant properties within our net-leased portfolio and, accordingly, excludes all operating properties. Also includes certain multi-tenant properties that each have a single tenant that comprises over 75% of ABR for the property.
(c)
Represents pro rata basis. See Terms and Definitions below for a description of pro rata metrics.
(d)
Represents our multi-tenant properties within our net-leased portfolio and, accordingly, excludes all operating properties. We consider a property to be multi-tenant if it does not have a single tenant that comprises more than 75% of ABR for the property.
(e)
The amount for the year ended December 31, 2014 includes acquisition-related costs, which were included in Acquisition expenses in the consolidated financial statements.
(f)
The average conversion rate for the U.S. dollar in relation to the euro increased during the year ended December 31, 2014 as compared to 2013, resulting in a positive impact on earnings in the current year period for our euro-denominated investments.

CPA®:18 – Global 2014 10-K 31




(g)
Many of our lease agreements include contractual increases indexed to changes in the CPI or other similar indices.

 
 
 
 
 
 
 
 
Consolidated
 
Pro Rata (a)
 
Remaining Lease Term (in years)
 
 
Tenant/Lease Guarantor
 
Location
 
Property Type

Acquisition Date
 
Square Footage
 
Purchase Price (b)
 
Square Footage

Purchase Price (b)

 
Percent Owned
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net-Leased Properties (c)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
State Farm (d)
 
Austin, TX
 
Office
 
8/20/2013
 
479,411

 
$
115,604

 
239,706

 
$
57,802

 
13.7

 
50
%
Agrokor (d)
 
Split, Zadar, Zagreb (3), Croatia
 
Retail
 
12/18/2013
 
564,578

 
96,957

 
451,662

 
77,566

 
19.0

 
80
%
Crowne Group Inc. (d)
 
Logansport, IN
Madison, IN
Marion, SC
Frasier, MI
Warren, MI
 
Industrial
 
12/30/2013
3/7/2014
 
859,701

 
30,940

 
859,701

 
30,940

 
24.3

 
100
%
Air Enterprises Acquisition, or Air Enterprises
 
Streetsboro, OH
 
Industrial
 
1/16/2014
 
178,180

 
5,901

 
178,180

 
5,901

 
14.2

 
100
%
Solo Cup Operating Property, or Solo Cup (d) (e)
 
University Park, IL
 
Warehouse/Distribution
 
2/3/2014
 
1,552,475

 
84,588

 
1,552,475

 
84,588

 
8.8

 
100
%
Automobile Protection Corporation
 
Norcross, GA
 
Office
 
2/7/2014
 
50,600

 
5,822

 
50,600

 
5,822

 
14.2

 
100
%
Siemens AS (d) (e) (f)
 
Oslo, Norway
 
Office
 
2/27/2014
 
165,905

 
89,327

 
165,905

 
89,327

 
11.0

 
100
%
Bank Pekao (d) (e) (f)
 
Warsaw, Poland
 
Office
 
3/31/2014
 
423,818

 
156,282

 
211,909

 
78,141

 
8.4

 
50
%
Swift Spinning, Inc.
 
Columbus, GA (2)
 
Industrial
 
4/21/2014
 
432,769

 
11,931

 
432,769

 
11,931

 
19.3

 
100
%
North American Lighting, Inc. (e)
 
Farmington Hills, MI
 
Office
 
5/6/2014
 
75,286

 
9,489

 
75,286

 
9,489

 
11.3

 
100
%
Janus International, or Janus
 
Temple, GA
Houston, TX
Surprise, AZ
 
Industrial
 
5/16/2014
 
330,306

 
15,953

 
330,306

 
15,953

 
19.3

 
100
%
Bell Telephone Company, or AT&T (e)
 
Chicago, IL
 
Warehouse/Distribution
 
5/19/2014
 
206,000

 
12,248

 
206,000

 
12,248

 
12.8

 
100
%
Belk Inc. (e) (g)
 
Jonesville, SC
 
Warehouse/Distribution
 
6/4/2014
 
515,279

 
44,021

 
515,279

 
44,021

 
8.4

 
100
%
Truffle Portfolio (e) (h)
 
Ayr, Bathgate, Dundee, Dunfermline, Invergordon, Livingston, United Kingdom
 
Industrial
 
8/19/2014
 
229,417

 
19,837

 
229,417

 
19,837

 
8.7

 
100
%
Oakbank Portfolio (e) (h)
 
Livingston, United Kingdom
 
Industrial
 
9/26/2014
 
76,573

 
4,632

 
76,573

 
4,632

 
4.3

 
100
%
Infineon Technologies AG, or Infineon (e)
 
Warstein, Germany
 
Office
 
9/30/2014
 
120,384

 
25,020

 
120,384

 
25,020

 
16.9

 
100
%
Cooper Tire & Rubber Company, or Cooper Tire (e)
 
Albany, GA
 
Warehouse/Distribution
 
10/31/2014
 
653,082

 
10,435

 
653,082

 
10,435

 
9.8

 
100
%
Apply Sorco AS, or Apply AS
 
Stavanger, Norway
 
Office
 
10/31/2014
 
223,394

 
108,281

 
113,931

 
55,223

 
14.0

 
51
%
Midcontinent Independent System Operator, Inc., or MISO (e)
 
Eagan, MN
 
Office
 
11/3/2014
 
60,463

 
15,196

 
60,463

 
15,196

 
11.2

 
100
%
Alliant Techsystems Inc.,
or ATK (e)
 
Plymouth, MN
 
Office
 
11/13/2014
 
191,336

 
43,066

 
191,336

 
43,066

 
9.9

 
100
%
Barnsco, Inc.
 
Dallas (4) and Fort Worth, TX
 
Industrial
 
11/14/2014
 
131,690

 
7,657

 
131,690

 
7,657

 
14.9

 
100
%
UK Auto (e) (h)
 
Durham and Dunfermline, United Kingdom
 
Industrial
 
11/20/2014
 
71,094

 
11,126

 
71,094

 
11,126

 
9.5

 
100
%
USF Holland (e) (i)
 
Byron Center, MI
 
Warehouse/Distribution
 
11/21/2014
 

 
11,942

 

 
11,942

 
15.7

 
100
%
Royal Vopak NV, or Vopak (d) (e)
 
Rotterdam, Netherlands
 
Office
 
12/17/2014
 
164,591

 
85,004

 
164,591

 
85,004

 
12.4

 
100
%
Craigentinny (e) (h)
 
Edinburgh, United Kingdom
 
Industrial
 
12/22/2014
 
25,089

 
4,941

 
25,089

 
4,941

 
8.6

 
100
%
Club Med Albion Resorts, or Albion Resorts (d) (e)
 
Albion, Mauritius
 
Hotel
 
12/30/2014
 
296,716

 
69,225

 
296,716

 
69,225

 
14.3

 
100
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

CPA®:18 – Global 2014 10-K 32




 
 
 
 
 
 
 
 
Consolidated
 
Pro Rata (a)
 
Remaining Lease Term (in years)
 
 
Tenant/Lease Guarantor
 
Location
 
Property Type

Acquisition Date
 
Square Footage
 
Purchase Price (b)
 
Square Footage

Purchase Price (b)

 
Percent Owned
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Properties (e)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Self-Storage Properties
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Self-storage facility
 
Kissimmee, FL
 
Self-storage
 
1/22/2014
 
184,456

 
12,610

 
184,456

 
12,610

 
N/A

 
100
%
Self-storage facility
 
St. Petersburg, FL
 
Self-storage
 
1/23/2014
 
84,700

 
12,270

 
84,700

 
12,270

 
N/A

 
100
%
Self-storage facility
 
Corpus Christi, TX
 
Self-storage
 
7/22/2014
 
100,100

 
4,501

 
100,100

 
4,501

 
N/A

 
100
%
Self-storage facility
 
Kailua-Kona, HI
 
Self-storage
 
7/31/2014
 
39,500

 
6,146

 
39,500

 
6,146

 
N/A

 
100
%
Self-storage facility
 
Miami, FL
 
Self-storage
 
8/5/2014
 
57,240

 
4,874

 
57,240

 
4,874

 
N/A

 
100
%
Self-storage facility
 
Palm Desert, CA
 
Self-storage
 
8/11/2014
 
93,097

 
11,160

 
93,097

 
11,160

 
N/A

 
100
%
Self-storage facility
 
Columbia, SC
 
Self-storage
 
9/18/2014
 
63,121

 
4,821

 
63,121

 
4,821

 
N/A

 
100
%
Self-storage facility
 
Kailua-Kona, HI
 
Self-storage
 
10/9/2014
 
56,352

 
6,258

 
56,352

 
6,258

 
N/A

 
100
%
Self-storage facility
 
Pompano Beach, FL
 
Self-storage
 
10/28/2014
 
74,927

 
4,936

 
74,927

 
4,936

 
N/A

 
100
%
Self-storage facility
 
Jensen Beach, FL
 
Self-storage
 
11/13/2014
 
63,650

 
9,079

 
63,650

 
9,079

 
N/A

 
100
%
Self-storage facility
 
Dickinson, TX
 
Self-storage
 
12/10/2014
 
76,800

 
10,457

 
76,800

 
10,457

 
N/A

 
100
%
Self-storage facility
 
Humble, TX
 
Self-storage
 
12/15/2014
 
59,325

 
8,176

 
59,325

 
8,176

 
N/A

 
100
%
Self-storage facility
 
Temecula, CA
 
Self-storage
 
12/16/2014
 
89,228

 
10,508

 
89,228

 
10,508

 
N/A

 
100
%
Self-storage facility
 
Cumming, GA
 
Self-storage
 
12/17/2014
 
73,237

 
4,646

 
73,237

 
4,646

 
N/A

 
100
%
Multi-Family Properties
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dupont Place Apartments, or Dupont
 
Tucker, GA
 
Residential
 
10/28/2014
 
200,363

 
22,235

 
194,352

 
21,568

 
N/A

 
97
%
Gentry’s Walk, or Gentry
 
Atlanta, GA
 
Residential
 
10/28/2014
 
221,257

 
22,234

 
214,619

 
21,567

 
N/A

 
97
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cipriani (j)
 
New York, NY
 
Retail
 
7/21/2014
 

 
29,348

 

 
29,348

 
 
 
 
 
 
 
 
 
 
 
 
9,615,490

 
$
1,279,684

 
8,928,848

 
$
1,069,958

 
 
 
 
__________
(a)
Represents pro rata basis. See Terms and Definitions below for a description of pro rata metrics.
(b)
Purchase price represents the contractual purchase price, including acquisition fees and transaction closing costs, based on the exchange rate, as applicable.
(c)
All properties are considered to be single-tenant unless otherwise noted.
(d)
Reflects tenants that exceed 5% of pro rata ABR as of December 31, 2014. See Terms and Definitions below for a description of pro rata metrics and ABR.
(e)
Represents business combinations in which acquisition fees are expensed in purchase accounting. Such acquisition fees are included in the purchase price listed above to depict the total cost of each respective investment.
(f)
Represents net-leased properties that have more than one tenant. However, each property includes one tenant that comprised over 75% of its respective total ABR as of December 31, 2014.
(g)
The purchase price includes $18.5 million related to our funding commitment to develop an expansion to the existing facility of Belk Inc. located in Spartanburg, South Carolina, which was completed in December 2014 (Note 4).
(h)
Represents multi-tenant properties.
(i)
The purchase price includes $9.7 million related to our funding commitment to develop an expansion to USF Holland’s facility located in Grand Rapids, Michigan, which is currently expected to be completed in the third quarter of 2015 (Note 4).
(j)
Represents an investment in a note receivable (Note 5).


CPA®:18 – Global 2014 10-K 33




Net-Leased Portfolio

The tables below represent information about our net-leased portfolio on a consolidated and pro rata basis and, accordingly, exclude all operating properties at December 31, 2014. See Terms and Definitions below for a description of pro rata metrics and ABR.

Portfolio Diversification by Geography and Property Type
(in thousands, except percentages)
 
 
Consolidated

Pro Rata
Region
 
ABR

Percent

ABR

Percent
United States
 
 
 
 
 
 
 
 
Midwest (a)
 
$
14,888

 
21
%
 
$
14,888

 
25
%
South (b)
 
11,265

 
16
%
 
7,716

 
13
%
East
 
2,774

 
4
%
 
2,774

 
5
%
West
 
396

 
1
%
 
396

 
1
%
United States Total
 
29,323

 
42
%
 
25,774

 
44
%
International
 
 
 
 
 
 
 
 
Norway
 
10,827

 
15
%
 
7,983

 
14
%
Poland
 
9,244

 
12
%
 
4,621

 
8
%
Croatia
 
6,838

 
10
%
 
5,470

 
9
%
Mauritius
 
5,294

 
7
%
 
5,294

 
9
%
Netherlands
 
4,738

 
7
%
 
4,738

 
8
%
United Kingdom (c)
 
3,285

 
5
%
 
3,285

 
5
%
Germany
 
1,601

 
2
%
 
1,601

 
3
%
International Total
 
41,827

 
58
%
 
32,992

 
56
%
Total
 
$
71,150

 
100
%
 
$
58,766

 
100
%
 
 
 
 
 
 
 
 
 
 
 
Consolidated
 
Pro Rata
Property Type
 
ABR
 
Percent
 
ABR
 
Percent
Office
 
$
39,016

 
55
%
 
$
28,000

 
48
%
Warehouse/Distribution
 
10,370

 
15
%
 
10,370

 
18
%
Retail
 
6,838

 
10
%
 
5,470

 
9
%
Industrial
 
6,347

 
9
%
 
6,347

 
11
%
Hotel
 
5,294

 
6
%
 
5,294

 
9
%
Multi-tenant (c)
 
3,285

 
5
%
 
3,285

 
5
%
 
 
$
71,150

 
100
%
 
$
58,766

 
100
%
__________
(a)
Pro rata ABR for the Midwest region contains a concentration of 8% for our Solo Cup investment located in Illinois.
(b)
Pro rata ABR for the South region contains a concentration of 5% for our State Farm investment located in Texas.
(c)
Represents the multi-tenant properties within our net-lease portfolio.


CPA®:18 – Global 2014 10-K 34




Portfolio Diversification by Tenant Industry
(in thousands, except percentages)
 
 
Consolidated
 
Pro Rata
Industry Type
 
ABR
 
Percent
 
ABR
 
Percent
Oil and Gas
 
$
9,905

 
14
%
 
$
7,060

 
12
%
Banking
 
9,103

 
13
%
 
4,552

 
8
%
Insurance
 
7,578

 
11
%
 
4,029

 
7
%
Grocery
 
6,838

 
10
%
 
5,470

 
9
%
Chemicals, Plastics, Rubber, and Glass
 
6,596

 
9
%
 
6,596

 
11
%
Electronics
 
6,325

 
9
%
 
6,325

 
11
%
Leisure, Amusement, and Entertainment
 
5,381

 
8
%
 
5,338

 
9
%
Automobile
 
3,523

 
5
%
 
3,523

 
6
%
Multi-tenant (a)
 
3,285

 
5
%
 
3,285

 
6
%
Mining, Metals, and Primary Metal Industries
 
3,199

 
4
%
 
3,199

 
5
%
Construction and Building
 
1,983

 
3
%
 
1,983

 
3
%
Retail Stores
 
1,907

 
3
%
 
1,907

 
3
%
Textiles, Leather, and Apparel
 
1,150

 
1
%
 
1,150

 
2
%
Telecommunications
 
994

 
1
%
 
966

 
2
%
Utilities
 
982

 
1
%
 
982

 
2
%
Transportation - Cargo
 
914

 
1
%
 
914

 
1
%
Other (b)
 
1,487

 
2
%
 
1,487

 
3
%
 
 
$
71,150

 
100
%
 
$
58,766

 
100
%
__________
(a)
Represents the multi-tenant properties within our net-lease portfolio.
(b)
Includes ABR from tenants in the following industries: machinery; and business and commercial services.

Lease Expirations
(in thousands, except number of leases and percentages)
 
 
Consolidated (a)
 
Pro Rata (a)
Year of Lease Expiration (b)
 
Number of Leases Expiring
 
ABR
 
Percent
 
Number of Leases Expiring
 
ABR
 
Percent
2015
 
5

 
$
164

 
%
 
5

 
$
162

 
%
2016
 
4

 
260

 
%
 
4

 
217

 
%
2017
 
2

 
215

 
%
 
2

 
215

 
%
2018
 
7

 
297

 
%
 
7

 
272

 
1
%
2019
 
6

 
357

 
1
%
 
6

 
357

 
1
%
2020
 
6

 
831

 
1
%
 
6

 
831

 
1
%
2021
 
2

 
241

 
%
 
2

 
241

 
1
%
2022
 
3

 
193

 
%
 
3

 
193

 
%
2023
 
9

 
16,745

 
24
%
 
9

 
12,193

 
21
%
2024
 
9

 
4,700

 
7
%
 
9

 
4,700

 
8
%
2025
 
3

 
5,117

 
7
%
 
3

 
5,117

 
9
%
2026
 
2

 
1,829

 
3
%
 
2

 
1,829

 
3
%
2027
 
7

 
5,052

 
7
%
 
7

 
5,052

 
9
%
2028
 
3

 
13,030

 
18
%
 
3

 
6,637

 
11
%
Thereafter
 
35

 
22,119

 
32
%
 
35

 
20,750

 
35
%
 
 
103

 
$
71,150

 
100
%
 
103

 
$
58,766

 
100
%
__________

CPA®:18 – Global 2014 10-K 35




(a)
Assumes tenant does not exercise renewal option.
(b)
These maturities also include our multi-tenant properties, which generally have a shorter duration than our single-tenant properties, and on a combined basis represent both consolidated and pro rata ABR of $3.3 million. All the years listed above include multi-tenant properties, except 2026.

Operating Properties

At December 31, 2014, our operating portfolio consisted of 14 wholly-owned self-storage properties and two multi-family properties, which had an average occupancy rate of 85% and 91%, respectively. As of December 31, 2014, our operating portfolio was comprised as follows (square footage in thousands):
State
 
Number of Properties
 
Square Footage
Florida
 
5

 
465

Georgia (a)
 
3

 
495

Texas
 
3

 
236

California
 
2

 
182

Hawaii
 
2

 
96

South Carolina
 
1

 
63

Total
 
16

 
1,537

__________
(a)
Includes our two multi-family properties.

Terms and Definitions

Pro Rata Metrics — The portfolio information above contains certain metrics prepared under the pro rata consolidation method. We refer to these metrics as pro rata metrics. We have a number of investments, usually with our affiliates, in which our economic ownership is less than 100%. Under the full consolidation method, we report 100% of the assets, liabilities, revenues, and expenses of those investments that are deemed to be under our control or for which we are deemed to be the primary beneficiary, as applicable, even if our ownership is less than 100%. Under the pro rata consolidation method, we present our proportionate share, based on our economic ownership of these jointly-owned investments, of the assets, liabilities, revenues, and expenses of those investments.

ABR ABR represents contractual minimum annualized base rent for our net-leased properties. ABR is not applicable to operating properties.

Financial Highlights
(in thousands)
 
 
Years Ended December 31,
 
 
2014
 
2013 (a)
Total revenues
 
$
54,317

<