10-Q 1 cpa182015q110-q.htm 10-Q CPA 18 2015 Q1 10-Q


 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
For the quarterly period ended March 31, 2015
 
 
 
or
 
 
 
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
For the transition period from                     to                       

Commission File Number: 000-54970
CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
(Exact name of registrant as specified in its charter)
Maryland
 
90-0885534
(State of incorporation)
 
(I.R.S. Employer Identification No.)
 
 
 
50 Rockefeller Plaza
 
 
New York, New York
 
10020
(Address of principal executive offices)
 
(Zip Code)
Investor Relations (212) 492-8920
(212) 492-1100
(Registrant’s telephone numbers, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes 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 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 101,600,725 shares of Class A common stock, $0.001 par value, and 29,066,610 shares of Class C common stock, $0.001 par value, outstanding at May 8, 2015.





INDEX

Forward-Looking Statements

This Quarterly Report on Form 10-Q, or this Report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 2 of Part I of this Report, contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. It is important to note that our actual results could be materially different from those projected in such forward-looking statements. You should exercise caution in relying on forward-looking statements as they involve known and unknown risks, uncertainties and other factors that may materially affect our future results, performance, achievements, or transactions. Information on factors 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 in our Annual Report on Form 10-K for the year ended December 31, 2014 as filed with the SEC on March 27, 2015, or the 2014 Annual Report. Except as required by federal securities laws and the rules and regulations of the SEC, we do not undertake to revise or update any forward-looking statements.

All references to “Notes” throughout the document refer to the footnotes to the consolidated financial statements of the registrant in Part I, Item 1. Financial Statements (Unaudited).



                                                    CPA®:18 – Global 03/31/2015 10-Q 1


PART I
Item 1. Financial Statements.

CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share and per share amounts)
 
March 31, 2015
 
December 31, 2014
Assets
 
 
 
Investments in real estate:
 
 
 
   Real estate, at cost
$
705,283

 
$
743,735

   Operating real estate, at cost
233,983

 
133,596

   Accumulated depreciation
(17,253
)
 
(11,814
)
Net investments in properties
922,013

 
865,517

Real estate under construction (inclusive of $21,773 and $0, respectively, attributable to variable interest entities, or VIEs)
42,501

 
2,258

Net investments in direct financing leases
45,588

 
45,582

Note receivable
28,000

 
28,000

Net investments in real estate
1,038,102

 
941,357

Cash and cash equivalents (inclusive of $8,696 and $0, respectively, attributable to variable interest entities, or VIEs)
539,094

 
429,548

In-place lease intangible assets, net
159,320

 
167,635

Other intangible assets, net
23,017

 
25,667

Goodwill
8,770

 
9,692

Other assets, net (inclusive of $2,787 and $0, respectively, attributable to VIEs)
38,530

 
41,985

Total assets
$
1,806,833

 
$
1,615,884

Liabilities and Equity
 
 
 
Liabilities:
 
 
 
Non-recourse debt
$
578,973

 
$
430,462

Bonds payable
84,112

 
91,250

Deferred income taxes
26,220

 
28,753

Accounts payable, accrued expenses and other liabilities (inclusive of $411 and $0, respectively, attributable to VIEs)
33,525

 
26,911

Due to affiliate
24,751

 
20,651

Distributions payable
18,666

 
17,629

Total liabilities
766,247

 
615,656

Commitments and contingencies (Note 11)

 

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

 

Class A common stock, $0.001 par value; 320,000,000 shares authorized; 101,043,119 and 100,079,255 shares issued, respectively; and 100,713,608 and 99,924,009 shares outstanding, respectively
101

 
100

Class C common stock, $0.001 par value; 80,000,000 shares authorized; 28,667,196 and 18,026,013 shares issued, respectively; and 28,662,440 and 18,026,013 shares outstanding, respectively
29

 
18

Additional paid-in capital
1,161,196

 
1,056,862

Distributions and accumulated losses
(141,809
)
 
(111,878
)
Accumulated other comprehensive loss
(46,476
)
 
(20,941
)
Less: treasury stock at cost 334,267 and 155,246 shares, respectively
(3,222
)
 
(1,520
)
Total CPA®:18 – Global stockholders’ equity
969,819

 
922,641

Noncontrolling interests
70,767

 
77,587

Total equity
1,040,586

 
1,000,228

Total liabilities and equity
$
1,806,833

 
$
1,615,884

See Notes to Consolidated Financial Statements.

                                                    CPA®:18 – Global 03/31/2015 10-Q 2


CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except share and per share amounts) 
 
 
Three Months Ended March 31,
 
 
2015

2014
Revenues
 
 
 
 
Lease revenues:
 
 
 
 
Rental income
 
$
17,089

 
$
5,659

Interest income from direct financing leases
 
1,019

 
552

Total lease revenues
 
18,108

 
6,211

Other real estate income
 
6,133

 
421

Other operating income
 
2,231

 
62

Other interest income
 
700

 

 
 
27,172


6,694

Operating Expenses
 
 
 
 
Depreciation and amortization
 
12,119

 
2,715

Acquisition expenses (inclusive of $5,462 and $15,872, respectively, to a related party)
 
6,600

 
18,994

Property expenses (inclusive of $1,417 and $331, respectively, to a related party)
 
3,917

 
627

Other real estate expenses
 
2,593

 
117

General and administrative (inclusive of $658 and $104, respectively, to a related party)
 
1,884

 
638

 
 
27,113

 
23,091

Other Income and Expenses
 
 
 
 
Interest expense (inclusive of $77 and $20, respectively, to a related party)
 
(7,138
)
 
(2,076
)
Other (expenses) and income
 
(2,498
)
 
54

 
 
(9,636
)
 
(2,022
)
Loss before income taxes
 
(9,577
)
 
(18,419
)
Provision for income taxes
 
(327
)
 
(24
)
Net Loss
 
(9,904
)
 
(18,443
)
Net (income) loss attributable to noncontrolling interests (inclusive of Available Cash Distributions to a related party of $894 and $69, respectively)
 
(1,361
)
 
3,773

Net Loss Attributable to CPA®:18 – Global
 
$
(11,265
)

$
(14,670
)
 
 
 
 
 
Class A common stock
 
 
 
 
Net loss attributable to CPA®:18 – Global
 
$
(8,807
)
 
$
(13,250
)
Weighted-average shares outstanding
 
100,642,226

 
38,001,011

Loss per share
 
$
(0.09
)
 
$
(0.35
)
Distributions Declared Per Share
 
$
0.1562

 
$
0.1562

 
 
 
 
 
Class C common stock
 
 
 
 
Net loss attributable to CPA®:18 – Global
 
$
(2,458
)
 
$
(1,420
)
Weighted-average shares outstanding
 
22,381,181

 
3,820,432

Loss per share
 
$
(0.11
)
 
$
(0.37
)
Distributions Declared Per Share
 
$
0.1329

 
$
0.1329


See Notes to Consolidated Financial Statements.

                                                    CPA®:18 – Global 03/31/2015 10-Q 3


CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)
(in thousands) 
 
 
Three Months Ended March 31,
 
 
2015
 
2014
Net Loss
 
$
(9,904
)
 
$
(18,443
)
Other Comprehensive Loss
 
 
 
 
Foreign currency translation adjustments
 
(33,629
)
 
(285
)
Change in net unrealized gain (loss) on derivative instruments
 
2,026

 
(663
)
 
 
(31,603
)
 
(948
)
Comprehensive Loss
 
(41,507
)
 
(19,391
)
 
 
 
 
 
Amounts Attributable to Noncontrolling Interests
 
 
 
 
Net (income) loss
 
(1,361
)
 
3,773

Foreign currency translation adjustments
 
6,068

 
324

Comprehensive loss attributable to noncontrolling interests
 
4,707

 
4,097

Comprehensive Loss Attributable to CPA®:18 – Global
 
$
(36,800
)
 
$
(15,294
)
 
See Notes to Consolidated Financial Statements.


                                                    CPA®:18 – Global 03/31/2015 10-Q 4


CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
Three Months Ended March 31, 2015 and 2014
(in thousands, except share and per share amounts) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CPA®:18 – Global Stockholders
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional Paid-In Capital
 
Distributions
and
Accumulated
Losses
 
Accumulated
Other Comprehensive Loss
 
Treasury Stock
 
Total CPA®:18 – Global Stockholders
 
Noncontrolling Interests
 
 
 
Common Stock
 
 
 
 
 
 
 
 
 
Class A
 
Class C
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
 
 
Total
Balance at January 1, 2015
99,924,009

 
$
100

 
18,026,013

 
$
18

 
$
1,056,862

 
$
(111,878
)
 
$
(20,941
)
 
$
(1,520
)
 
$
922,641

 
$
77,587

 
$
1,000,228

Shares issued, net of offering costs
833,103

 
1

 
10,641,183

 
11

 
103,027

 

 

 

 
103,039

 

 
103,039

Shares issued to affiliate
130,761

 

 

 

 
1,307

 

 

 

 
1,307

 

 
1,307

Contributions from noncontrolling interests

 

 

 

 

 

 

 

 

 
646

 
646

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 
(2,759
)
 
(2,759
)
Distributions declared ($0.1562 and $0.1329 per share to Class A and Class C, respectively)

 

 

 

 

 
(18,666
)
 

 

 
(18,666
)
 

 
(18,666
)
Net Loss

 

 

 

 

 
(11,265
)
 

 

 
(11,265
)
 
1,361

 
(9,904
)
Other Comprehensive Loss:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 

   Foreign currency translation adjustments

 

 

 

 

 

 
(27,561
)
 

 
(27,561
)
 
(6,068
)
 
(33,629
)
   Change in net unrealized gain on derivative instruments

 

 

 

 

 

 
2,026

 

 
2,026

 

 
2,026

Repurchase of shares
(174,265
)
 

 
(4,756
)
 

 

 

 

 
(1,702
)
 
(1,702
)
 

 
(1,702
)
Balance at March 31, 2015
100,713,608

 
$
101

 
28,662,440

 
$
29

 
$
1,161,196

 
$
(141,809
)
 
$
(46,476
)
 
$
(3,222
)
 
$
969,819

 
$
70,767

 
$
1,040,586

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2014
21,290,097

 
$
21

 
2,776,001

 
$
3

 
$
215,371

 
$
(2,567
)
 
$
(94
)
 
$

 
$
212,734

 
$
37,737

 
$
250,471

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

 
38

 
2,218,382

 
2

 
359,512

 

 

 

 
359,552

 

 
359,552

Shares issued to affiliate
21,540

 

 

 

 
215

 

 

 

 
215

 

 
215

Contributions from noncontrolling interests

 

 

 

 

 

 

 

 

 
95,889

 
95,889

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

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

 

 

 

 

 
(6,259
)
 

 

 
(6,259
)
 

 
(6,259
)
Net Loss

 

 

 

 

 
(14,670
)
 

 

 
(14,670
)
 
(3,773
)
 
(18,443
)
Other Comprehensive Loss:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 

   Foreign currency translation adjustments

 

 

 

 

 

 
39

 

 
39

 
(324
)
 
(285
)
   Change in net unrealized loss on derivative instruments

 

 

 

 

 

 
(663
)
 

 
(663
)
 

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

 
$
59

 
4,994,383

 
$
5

 
$
575,098

 
$
(23,496
)
 
$
(718
)
 
$

 
$
550,948

 
$
121,172

 
$
672,120


See Notes to Consolidated Financial Statements.

                                                    CPA®:18 – Global 03/31/2015 10-Q 5


CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
 
 
Three Months Ended March 31,
 
 
2015
 
2014
Cash Flows — Operating Activities
 

 
 
Net Cash Provided by (Used in) Operating Activities
 
$
9,586

 
$
(131
)
 
 
 
 
 
Cash Flows — Investing Activities
 
 
 
 
Acquisitions of real estate and direct financing leases, net of cash acquired
 
(147,423
)
 
(350,937
)
Change in investing restricted cash
 
7,884

 
(5,707
)
Value added taxes paid in connection with acquisition of real estate
 
(2,564
)
 
(34,071
)
Funding for build-to-suit projects
 
(2,137
)
 

Payment of deferred acquisition fees to an affiliate
 
(1,069
)
 
(644
)
Value added taxes refunded in connection with acquisition of real estate
 

 
2,672

Net Cash Used in Investing Activities
 
(145,309
)
 
(388,687
)
 
 
 
 
 
Cash Flows — Financing Activities
 
 
 
 
Proceeds from issuance of shares, net of issuance costs
 
104,920

 
357,447

Proceeds from mortgage financing
 
185,616

 
115,883

Scheduled payments of mortgage principal
 
(18,295
)
 
(328
)
Distributions paid
 
(17,631
)
 
(1,821
)
Distributions to noncontrolling interests
 
(2,759
)
 
(8,357
)
Payment of deferred financing costs and mortgage deposits
 
(2,562
)
 
(1,794
)
Purchase of treasury stock
 
(1,702
)
 

Contributions from noncontrolling interests
 
646

 
95,889

Receipt of tenant security deposits
 
7

 
4,072

Proceeds from bond financing
 

 
52,066

Net Cash Provided by Financing Activities
 
248,240

 
613,057

 
 
 
 
 
Change in Cash and Cash Equivalents During the Period
 
 
 
 
       Effect of exchange rate changes on cash and cash equivalents
 
(2,971
)
 
299

Net increase in cash and cash equivalents
 
109,546

 
224,538

Cash and cash equivalents, beginning of period
 
429,548

 
109,061

Cash and cash equivalents, end of period
 
$
539,094

 
$
333,599


See Notes to Consolidated Financial Statements.

                                                    CPA®:18 – Global 03/31/2015 10-Q 6


CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1. Organization and Offering

Organization

Corporate Property Associates 18 – Global Incorporated, or CPA®:18 – Global, and, together with its consolidated subsidiaries, we, us, or our, is a publicly-owned, non-listed real estate investment trust, or REIT, formed in 2012 for the purpose of investing primarily in a diversified portfolio of income-producing commercial real estate properties and other real estate related assets, both domestically and outside the United States. As a REIT, we are not subject to U.S federal income taxation as long as we satisfy certain requirements, principally relating to the nature of our income, the level of our distributions, and other factors. We earn revenue principally by leasing the properties we own to single corporate tenants, primarily on a triple-net lease basis, which requires the tenant to pay substantially all of the costs associated with operating and maintaining the property. Revenue is subject to fluctuation because of the timing of new lease transactions, lease terminations, lease expirations, contractual rent adjustments, tenant defaults, sales of properties, and changes in foreign currency exchange rates.

Substantially all of our assets and liabilities are held by CPA:18 Limited Partnership, a Delaware limited partnership, which is our Operating Partnership, and at March 31, 2015 we owned 99.97% of general and limited partnership interests in the Operating Partnership. The remaining interest in the Operating Partnership is held by a subsidiary of our sponsor, W. P. Carey Inc., or WPC.

At March 31, 2015, the majority of our portfolio was comprised of full or partial ownership interests in 49 properties, the majority of which were fully-occupied and triple-net leased to 77 tenants totaling 7.8 million square feet. The remainder of our portfolio was comprised of our full or partial ownership interests in 20 self-storage properties and five multi-family properties totaling 2.6 million square feet.

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

Public Offering

On May 7, 2013, our registration statement on Form S-11 (File No. 333-185111), or the Registration Statement, was declared effective by the SEC under the Securities Act of 1933, or the Securities Act, and we commenced our initial public offering of up to $1.4 billion in shares of our common stock, in any combination of Class A and Class C shares, including $150.0 million in shares of common stock through our distribution reinvestment and stock purchase plan, or DRIP, at a price of $9.60 per share of Class A common stock and $8.98 per share of Class C common stock. The per share amount of distributions on shares of Class A and C common stock will likely differ because of different allocations of class-specific expenses. Specifically, distributions on shares of Class C common stock will be lower than distributions on shares of Class A common stock because shares of Class C common stock are subject to ongoing distribution and shareholder servicing fees (Note 4). 

We ceased accepting new orders for shares of Class A and Class C common stock on June 30, 2014 and March 27, 2015, respectively. We closed our offering on April 2, 2015. Through March 31, 2015, we raised gross offering proceeds for our Class A common stock and Class C common stock of $977.4 million and $264.9 million, respectively. The gross offering proceeds raised exclude reinvested distributions through the DRIP of $25.9 million and $3.5 million for our Class A common stock and Class C common stock, respectively.


                                                    CPA®:18 – Global 03/31/2015 10-Q 7


Notes to Consolidated Financial Statements (Unaudited)


Note 2. Revision of Prior Period Financial Statements

Description of the Errors and Revisions

In the course of preparing our consolidated financial statements for the 2014 Annual Report, we discovered an error related to our accounting for a subsidiary’s functional currency, which was incorrectly designated as the euro instead of the U.S. dollar, and as a result the applicable financial results of this entity were being translated when they should have been remeasured. The correction of this error resulted in the increase of foreign currency losses within the consolidated statement of operations and a decrease of foreign currency losses in the consolidated statements of comprehensive loss for the same amounts. We concluded that these revision adjustments, summarized in the tables below, were not material to our financial position or results of operations the prior period presented and revised the prior period presented herein to reflect the correction of this error.

We corrected this error, and one other error previously recorded as an out-of-period adjustment, and revised our consolidated financial statements for all prior periods impacted. Accordingly, our financial results for the prior period presented herein have been revised for the correction of such errors as follows (in thousands, except share and per share amounts):

Consolidated Statement of Operations
 
 
Three Months Ended March 31, 2014
 
 
As Reported
 
Revisions
 
As Revised
Revenues
 
 
 
 
 
 
Total revenues
 
$
6,694

 
$

 
$
6,694

Operating Expenses
 
 
 
 
 
 
Total operating expenses
 
23,091

 

 
23,091

Other Income and Expenses
 
 
 
 
 
 
Other income and (expenses) (b)
 
230

 
(176
)
 
54

 
 
(1,846
)
 
(176
)
 
(2,022
)
Loss before income taxes
 
(18,243
)
 
(176
)
 
(18,419
)
Benefit from (provision for) income taxes (a)
 
263

 
(287
)
 
(24
)
Net Loss
 
(17,980
)
 
(463
)
 
(18,443
)
Net loss attributable to noncontrolling interests (a)
 
3,743

 
30

 
3,773

Net Loss Attributable to CPA®:18 – Global
 
$
(14,237
)
 
$
(433
)
 
$
(14,670
)
 
 
 
 
 
 
 
Class A common stock
 
 
 
 
 
 
Net loss attributable to CPA®:18 – Global
 
$
(12,856
)
 
$
(394
)
 
$
(13,250
)
Weighted-average shares outstanding
 
38,001,011

 

 
38,001,011

Loss per share
 
$
(0.34
)
 
$
(0.01
)
 
$
(0.35
)
 
 
 
 
 
 
 
Class C common stock
 
 
 
 
 
 
Net loss attributable to CPA®:18 – Global
 
$
(1,381
)
 
$
(39
)
 
$
(1,420
)
Weighted-average shares outstanding
 
3,820,432

 

 
3,820,432

Loss per share
 
$
(0.36
)
 
$
(0.01
)
 
$
(0.37
)


                                                    CPA®:18 – Global 03/31/2015 10-Q 8


Notes to Consolidated Financial Statements (Unaudited)


Consolidated Statement of Comprehensive Loss
 
 
Three Months Ended March 31, 2014
 
 
As Reported
 
Revisions
 
As Revised
Net Loss (a) (b)
 
$
(17,980
)
 
$
(463
)
 
$
(18,443
)
Other Comprehensive Loss
 
 
 
 
 
 
Foreign currency translation adjustments (b)
 
(461
)
 
176

 
(285
)
Change in net unrealized loss on derivative instruments
 
(663
)
 

 
(663
)
 
 
(1,124
)
 
176

 
(948
)
Comprehensive Loss
 
(19,104
)
 
(287
)
 
(19,391
)
 
 
 
 
 
 
 
Amounts Attributable to Noncontrolling Interests
 
 
 
 
 
 
Net loss (a)
 
3,743

 
30

 
3,773

Foreign currency translation adjustments
 
324

 

 
324

Comprehensive loss attributable to noncontrolling interests
 
4,067

 
30

 
4,097

Comprehensive Loss Attributable to CPA®:18 – Global
 
$
(15,037
)
 
$
(257
)
 
$
(15,294
)

Consolidated Statement of Equity
 
CPA®:18 – Global Stockholders
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional Paid-In Capital
 
Distributions
and
Accumulated
Losses (a) (b)
 
Accumulated
Other Comprehensive Loss (b)
 
Total CPA®:18 – Global Stockholders
 
Noncontrolling Interests (a)
 
 
 
Common Stock
 
 
 
 
 
 
 
 
Class A
 
Class C
 
 
 
 
 
 
 
Balance at
March 31, 2014
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
 
Total
As Reported
59,314,868

 
$
59

 
4,994,383

 
$
5

 
$
575,098

 
$
(23,063
)
 
$
(894
)
 
$
551,205

 
$
121,202

 
$
672,407

Revisions

 

 

 

 

 
(433
)
 
176

 
(257
)
 
(30
)
 
(287
)
As Revised
59,314,868

 
$
59

 
4,994,383

 
$
5

 
$
575,098

 
$
(23,496
)
 
$
(718
)
 
$
550,948

 
$
121,172

 
$
672,120

___________
(a)
In connection with the error identified above, we also made an adjustment to reflect the correction of one other out-of-period adjustment that was identified during 2014 and recorded this adjustment in the prior period presented. This adjustment related to the initial recognition of deferred tax balances related to the misinterpretation of tax requirements in the corresponding foreign jurisdictions, and as a result we did not recognize a deferred tax liability and corresponding deferred tax expense within the correct reporting period. 
(b)
These adjustments are the result of the error we identified related to foreign currency matters, as discussed above.

Statement of Cash Flows

These revisions had no net impact on Net cash used in operating activities, Net cash used in investing activities, or Net cash provided by financing activities in the statement of cash flows for the three months ended March 31, 2014.


                                                    CPA®:18 – Global 03/31/2015 10-Q 9


Notes to Consolidated Financial Statements (Unaudited)


Note 3. Basis of Presentation

Basis of Presentation

Our interim consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not necessarily include all information and footnotes necessary for a fair statement of our consolidated financial position, results of operations, and cash flows in accordance with accounting principles generally accepted in the United States, or GAAP.
 
In the opinion of management, the unaudited financial information for the interim periods presented in this Report reflects all normal and recurring adjustments necessary for a fair statement of financial position, results of operations, and cash flows. Our interim consolidated financial statements should be read in conjunction with our audited consolidated financial statements and accompanying notes for the year ended December 31, 2014, which are included in the 2014 Annual Report, as certain disclosures that would substantially duplicate those contained in the audited consolidated financial statements have not been included in this Report. Operating results for interim periods are not necessarily indicative of operating results for an entire year.
 
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in our consolidated financial statements and the accompanying notes. Actual results could differ from those estimates.

Basis of Consolidation

Our consolidated financial statements reflect all of our accounts, including those of our controlled subsidiaries. The portion of equity in a consolidated subsidiary that is not attributable, directly or indirectly, to us is presented as noncontrolling interests. All significant intercompany accounts and transactions have been eliminated.

When we obtain an economic interest in an entity, we evaluate the entity to determine if it is deemed to be a VIE, and, if so, whether we are deemed to be the primary beneficiary and are therefore required to consolidate the entity. Significant judgment is required to determine whether a VIE should be consolidated. We review the contractual arrangements provided for in the partnership agreement or other related contracts to determine whether the entity is considered a VIE, and to establish whether we have any variable interests in the VIE. We then compare our variable interests, if any, to those of the other variable interest holders to determine which party is the primary beneficiary of a VIE based on whether the entity (i) has the power to direct the activities that most significantly impact the economic performance of the VIE, and (ii) has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. We performed an analysis on all of our subsidiary entities to determine whether they qualify as VIEs and whether they should be consolidated or accounted for as equity investments in an unconsolidated venture. As a result of our assessment, we have concluded that one of our subsidiaries qualified as a VIE. All of our subsidiaries are consolidated.

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


                                                    CPA®:18 – Global 03/31/2015 10-Q 10


Notes to Consolidated Financial Statements (Unaudited)


Recent Accounting Requirements

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

ASU 2015-03, Interest-Imputation of Interest (Subtopic 835-30).  ASU 2015-03, changes the presentation of debt issuance costs, which are currently recognized as a deferred charge (that is, an asset) and requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts.  ASU 2015-03 does not affect the recognition and measurement guidance for debt issuance costs. ASU 2015-03 is effective for periods beginning after December 15, 2015, early adoption is permitted and retrospective application is required. We are currently evaluating the impact of ASU 2015-03 on our consolidated financial statements.

ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. ASU 2014-09 does not apply to our lease revenues, but will apply to reimbursed tenant costs and revenues generated from our operating properties. Additionally, this guidance modifies disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In April 2015, the Financial Accounting Standards Board issued a proposed ASU to defer the effective date of ASU 2014-09 by one year. Under the proposal, ASU 2014-09 would be effective beginning in 2018, and early adoption is permitted but not before 2017, the original public company effective date. We are currently evaluating the impact of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which we will adopt the standard.

Note 4. Agreements and Transactions with Related Parties

Transactions with the Advisor

We have an advisory agreement with the advisor whereby the advisor performs certain services for us under a fee arrangement, including the identification, evaluation, negotiation, purchase, and disposition of real estate and related assets and mortgage loans, day-to-day management, and the performance of certain administrative duties. The current advisory agreement is scheduled to expire on December 31, 2015 and is scheduled to renew annually thereafter with our approval.


                                                    CPA®:18 – Global 03/31/2015 10-Q 11


Notes to Consolidated Financial Statements (Unaudited)


The following tables present a summary of fees we paid and expenses we reimbursed to the advisor and other affiliates in accordance with the terms of the related agreements (in thousands):
 
 
Three Months Ended March 31,
 
 
2015
 
2014
Amounts Included in the Consolidated Statements of Operations
 
 
 
 
Acquisition expenses
 
$
5,462

 
$
15,872

Asset management fees
 
1,417

 
331

Available Cash Distribution
 
894

 
69

Shareholder servicing fee
 
500

 
88

Personnel and overhead reimbursements
 
158

 
16

Interest expense on deferred acquisition fees
 
77

 
20

 
 
$
8,508

 
$
16,396

 
 
 
 
 
Other Transaction Fees Incurred
 
 
 
 
Selling commissions and dealer manager fees
 
$
3,678

 
$
38,670

Current acquisition fees
 
3,466

 
484

Deferred acquisition fees
 
2,773

 
798

Offering costs
 
453

 
471

 
 
$
10,370

 
$
40,423

 
 
 
 
 
 
 
March 31, 2015
 
December 31, 2014
Due to Affiliate
 
 
 
 
Deferred acquisition fees, including interest
 
$
18,947

 
$
17,525

Current acquisition fees
 
3,636

 

Accounts payable
 
874

 
2,702

Reimbursable costs
 
806

 
46

Asset management fees payable
 
488

 
378

 
 
$
24,751

 
$
20,651


Organization and Offering Costs

Pursuant to the advisory agreement with the advisor, we are liable for certain expenses related to our initial public offering, which include filing, legal, accounting, printing, advertising, transfer agent, and escrow fees, and are to be deducted from the gross proceeds of the offering. We will reimburse Carey Financial LLC, or Carey Financial, our dealer manager and an affiliate of our advisor, or selected dealers for reasonable bona fide due diligence expenses incurred that are supported by a detailed and itemized invoice. The total underwriting compensation to Carey Financial and selected dealers in connection with the offering cannot exceed limitations prescribed by the Financial Industry Regulatory Authority, Inc. The advisor has agreed to be responsible for the repayment of organization and offering expenses (excluding selling commissions and dealer manager fees paid to Carey Financial and selected dealers and fees paid and expenses reimbursed to selected dealers) that exceed in the aggregate 1.5% of the gross proceeds from the initial public offering. From inception and through March 31, 2015, the advisor has incurred organization and offering costs of $8.5 million on our behalf, of which we repaid $8.4 million. We recorded a liability to the advisor for the remaining unpaid offering costs based on our estimate of expected gross offering proceeds. From inception and through March 31, 2015, we charged $8.1 million of deferred offering costs to stockholder’s equity.


                                                    CPA®:18 – Global 03/31/2015 10-Q 12


Notes to Consolidated Financial Statements (Unaudited)


Loans from WPC

Our board of directors and the board of directors of WPC have approved unsecured loans from WPC to us of up to $100.0 million, in the aggregate, at a rate equal to the rate at which WPC is able to borrow funds under its senior credit facility, for the purpose of facilitating acquisitions approved by the advisor’s investment committee that we would not otherwise have sufficient available funds to complete, with any loans to be made solely at the discretion of the management of WPC. We did not borrow any funds from WPC during the three months ended March 31, 2015 and 2014 nor did we have any amounts outstanding at March 31, 2015 and December 31, 2014.

Asset Management Fees

Pursuant to the advisory agreement, the advisor is entitled to an annual asset management fee ranging from 0.5% to 1.5%, depending on the type of investment and based on the average market value or average equity value, as applicable, of our investments. The asset management fees are payable in cash or shares of our Class A common stock at our option, after consultation with of the advisor. If the advisor receives all or a portion of its fees in shares, the number of shares issued is determined by dividing the dollar amount of fees by our most recently published estimated net asset value per share, or, if net asset values have not yet been published, as currently is the case, $10.00 per share, which is the price at which our Class A shares were being sold in our initial public offering. For 2015, we elected to pay the advisor in shares of our Class A common stock. For both the three months ended March 31, 2015 and 2014, the advisor received its asset management fees in shares of our Class A common stock. At March 31, 2015, the advisor owned 391,273 shares, or 0.4%, of our outstanding Class A common stock. Asset management fees are included in Property expenses in the consolidated financial statements.

Selling Commissions and Dealer Manager Fees

Pursuant to our dealer manager agreement with Carey Financial, Carey Financial received a selling commission, depending on the class of common stock sold, of $0.70 and $0.14 per share sold and a dealer manager fee of $0.30 and $0.21 per share sold for the Class A and Class C common stock, respectively. These amounts were recorded in Additional paid-in capital in the consolidated financial statements.

Carey Financial also receives an annual distribution and shareholder servicing fee in connection with our Class C common stock, which it may reallow to selected dealers. The amount of the shareholder servicing fee is 1.0% of the selling price per share (or, once published, the amount of our net asset values) for the Class C common stock in our initial public offering. The shareholder servicing fee accrues daily and is payable quarterly in arrears. We will no longer incur the shareholder servicing fee beginning on the date at which, in the aggregate, underwriting compensation from all sources, including the shareholder servicing fee, any organizational and offering fee paid for underwriting and underwriting compensation paid by WPC and its affiliates, equals 10.0% of the gross proceeds from our initial public offering, which we have not yet reached. The shareholder servicing fee for the three months ended March 31, 2015 and 2014 was $0.5 million and $0.1 million, respectively, and is included in General and administrative expenses in the consolidated financial statements.

Acquisition and Disposition Fees

The advisor receives acquisition fees, a portion of which is payable upon acquisition and the payment of the remaining portion is subordinated to a preferred return of a non-compounded cumulative distribution of 5.0% per annum (based initially on our invested capital). The initial acquisition fee and subordinated acquisition fee are 2.5% and 2.0%, respectively, of the aggregate total cost of our portion of each investment for all investments other than those in readily-marketable real estate securities purchased in the secondary market, for which the advisor will not receive any acquisition fees. Deferred acquisition fees are scheduled to be paid in three equal annual installments following the quarter in which a property was purchased. Unpaid deferred acquisition fees are included in Due to affiliate in the consolidated financial statements. The total acquisition fees to be paid (initial and subordinated, and including interest thereon) may not exceed 6.0% of the aggregate contract purchase price of all investments and loans.

In addition, pursuant to the advisory agreement, the advisor may be entitled to receive a disposition fee in an amount equal to the lesser of (i) 50.0% of the competitive real estate commission (as defined in the advisory agreement) or (ii) 3.0% of the contract sales price of the investment being sold.


                                                    CPA®:18 – Global 03/31/2015 10-Q 13


Notes to Consolidated Financial Statements (Unaudited)


Personnel and Overhead Reimbursements

Under the terms of the advisory agreement, the advisor allocates a portion of its personnel and overhead expenses to us and other publicly-owned, non-listed REITs that are managed by the advisor, including Corporate Property Associates 17 – Global Incorporated, or CPA®:17 – Global, and, together with us, as the CPA® REITs, and Carey Watermark Investors Incorporated, or CWI. The advisor allocates these expenses to us based on the average of the trailing four quarters of reported revenues of WPC, the CPA® REITs, and CWI.

We reimburse the advisor for various expenses it incurs in the course of providing services to us. We reimburse certain third-party expenses paid by the advisor on our behalf, including property-specific costs, professional fees, office expenses, and business development expenses. In addition, we reimburse the advisor for the allocated costs of personnel and overhead in managing our day-to-day operations, including accounting services, stockholder services, corporate management, and property management and operations. We do not reimburse the advisor for the cost of personnel if these personnel provide services for transactions for which the advisor receives a transaction fee, such as acquisitions and dispositions. Under the revised advisory agreement, in 2015 and 2016, the amount of personnel costs excluding costs related to the advisor’s legal transaction group allocated to us is capped at 2.4% and 2.2%, respectively, of pro rata lease revenues for each year. Beginning in 2017, the cap decreases to 2.0% of pro rata lease revenues for that year. Costs related to the legal transactions group are based on a schedule of expenses for different types of transactions, including 0.25% of the total investment cost of an acquisition. Personnel and overhead reimbursements are included in General and administrative expenses in the consolidated financial statements.

Excess Operating Expenses
 
The advisory agreement provides that, for any four trailing quarters (with quoted variables as defined in the advisory agreement), “operating expenses” may not exceed the greater of 2.0% of our “average invested assets” or 25.0% of our “adjusted net income.” For the most recent four trailing quarters, our operating expenses were below the 2.0%/25.0% threshold.

Available Cash Distributions

CPA®:18 Holdings’ interest in the Operating Partnership entitles it to receive distributions of 10.0% of the available cash generated by the Operating Partnership, referred to as the Available Cash Distribution, which is defined as cash generated from operations, excluding capital proceeds, as reduced by operating expenses and debt service, excluding prepayments and balloon payments. During the three months ended March 31, 2015 and 2014, we made $0.9 million and $0.1 million of such distributions, respectively. Available cash distributions are included in Net (income) loss attributable to noncontrolling interests in the consolidated financial statements.

Jointly-Owned Investments and Other Transactions with our Affiliate

At March 31, 2015, we owned interests in four jointly-owned investments, with the remaining interests held by our affiliate CPA®:17 – Global, which is also managed by the advisor, as follows:

$108.3 million, of which our share was $55.2 million, or 51%, for an office facility located in Stavanger, Norway on October 31, 2014;
$147.9 million, of which our share was $74.0 million, or 50%, for an office facility located in Warsaw, Poland on March 31, 2014;
$97.0 million, of which our share was $77.6 million, or 80%, for a retail portfolio consisting of five properties located in Croatia on December 18, 2013; and
$115.6 million, of which our share was $57.8 million, or 50%, for an office facility located in Austin, Texas on August 20, 2013.

We consolidate all of the above joint ventures because we are either the majority equity holder and/or control the significant activities of the ventures. Additionally, no other parties, including CPA®:17 – Global, hold any rights that overcome our control. We account for CPA®:17 – Global’s investments as noncontrolling interests. The amounts listed above are the original investment amounts at the closing of each respective investment.


                                                    CPA®:18 – Global 03/31/2015 10-Q 14


Notes to Consolidated Financial Statements (Unaudited)


Note 5. Net Investments in Properties

Real Estate

Real estate, which consists of land and buildings leased to others, at cost, and which are subject to operating leases, is summarized as follows (in thousands):
 
March 31, 2015
 
December 31, 2014
Land
$
102,158

 
$
104,604

Buildings
603,125

 
639,131

Less: Accumulated depreciation
(14,928
)
 
(10,875
)
 
$
690,355

 
$
732,860


The impact on the carrying value of our Real estate due to the strengthening of the U.S. dollar relative to foreign currencies during the three months ended March 31, 2015 was a $45.3 million decrease from December 31, 2014 to March 31, 2015.

Operating Real Estate
 
Operating real estate, which consists of our domestic self-storage and multi-family properties, at cost, is summarized as follows (in thousands):
 
March 31, 2015
 
December 31, 2014
Land
$
48,205

 
$
28,040

Buildings
185,778

 
105,556

Less: Accumulated depreciation
(2,325
)
 
(939
)
 
$
231,658

 
$
132,657


During the three months ended March 31, 2015, we acquired 11 new investments. Of these investments, two were deemed to be asset acquisitions and nine were considered to be business combinations. We refer to these investments as our 2015 Acquisitions.

Asset Acquisitions

During the three months ended March 31, 2015, we entered into two build-to-suit investments, which were deemed to be asset acquisitions because we acquired the seller’s properties and simultaneously entered into new leases in connection with the acquisitions, at a total cost of $39.0 million, including acquisition-related costs and fees of $6.2 million, which were capitalized.

Rabobank — On March 20, 2015, we closed and funded the first draw of a build-to-suit joint venture with a third party on a site located in Eindhoven, the Netherlands for $21.7 million, which is based on the exchange rate of the euro on the date of acquisition. This acquisition includes the development of an office building (including parking spaces) in two phases, which is due for completion in April 2017 and March 2019. We will acquire additional equity of the entity developing the building in stages throughout the construction period. We consolidate this joint venture as we are expected to fund all of the construction activities, we control the related activities, and we will fully own this property upon completion.

Reading — On February 19, 2015, we closed a build-to-suit joint venture with a third party on a student housing development site located in Reading, United Kingdom for $17.3 million, which is based on the exchange rate of the British pound sterling on the date of acquisition. We acquired 96% of the equity of this investment at closing. This acquisition includes an existing office building and its redevelopment into a student housing facility, which is due for completion in August 2016.

See the Real Estate Under Construction section below for more information regarding our build-to-suit investments.

A portion of the transaction fees capitalized include current and deferred acquisition fees paid and payable, respectively, to the advisor (Note 4).




                                                    CPA®:18 – Global 03/31/2015 10-Q 15


Notes to Consolidated Financial Statements (Unaudited)


Business Combinations

Business Combinations Net-Leased Property

Broadfold — On March 24, 2015, we acquired a light industrial site located in Aberdeen, United Kingdom from an unaffiliated third party for $6.8 million, which is based on the exchange rate of the British pound sterling on the date of acquisition. The site is fully occupied by three tenants. We intend to engage an unaffiliated third party to act as the asset manager for this property. We deemed this to be a business combination because we assumed the seller’s lease on the property, for which the seller was not the lessee, and expensed acquisition costs of $0.7 million.

Business Combinations Operating Properties

During the three months ended March 31, 2015, we entered into six self-storage investments and two multi-family investments that are considered to be operating properties, at a total cost of $106.9 million.

Self-Storage Properties

We acquired the following self-storage properties, aggregating $45.4 million, during the three months ended March 31, 2015, which we refer to as our 2015 Self Storage Acquisitions:

$4.0 million for a facility in Panama City Beach, Florida on March 10, 2015;
$6.0 million for a facility in Lady Lake, Florida on February 25, 2015;
$3.0 million for a facility in Sebastian, Florida on February 18, 2015;
$7.5 million for a facility in Tallahassee, Florida on February 4, 2015;
$9.2 million for a facility in Valrico, Florida on January 29, 2015; and
$15.6 million for a facility in Naples, Florida on January 28, 2015.

In connection with these self-storage property transactions, we incurred acquisition expenses totaling $2.5 million, which are included in Acquisition expenses in the consolidated financial statements.

We acquired the following multi-family properties aggregating $61.5 million.

Pinnacle Ridge — On January 15, 2015, we acquired a 97% controlling interest in Pinnacle Ridge Apartments, or Pinnacle Ridge, a 350-unit multi-family property located in Durham, North Carolina, for $34.3 million. The deal was completed in partnership with two joint venture partners. One of the venture partners has been engaged to be the property manager. Simultaneously, we entered into a mortgage loan in the amount of $24.0 million (Note 9).

Brantley Pines — On January 15, 2015, we acquired a 97% controlling interest in Brantley Pines Apartments, or Brantley Pines, a 296-unit multi-family property located in Fort Myers, Florida, for $27.2 million. The deal was completed in partnership with two joint venture partners. One of the venture partners has been engaged to be the property manager. Simultaneously, we entered into a mortgage loan in the amount of $19.0 million (Note 9).

In connection with our multi-family property transactions, we incurred acquisition expenses totaling $3.3 million, which are included in Acquisition expenses in the consolidated financial statements.



                                                    CPA®:18 – Global 03/31/2015 10-Q 16


Notes to Consolidated Financial Statements (Unaudited)


The following tables present a summary of assets acquired and liabilities assumed in these business combinations, each at the date of acquisition, and revenues and earnings thereon, since their respective dates of acquisition through March 31, 2015 (in thousands):
 
 
2015 Business Combinations (a)
 
 
Net-Leased Property
 
Operating Properties
 
Total
Cash consideration
 
$
6,821

 
$
105,029

 
$
111,850

Assets acquired at fair value:
 
 
 
 
 
 
Land
 
$
1,022

 
$
20,166

 
$
21,188

Buildings
 
4,815

 
79,796

 
84,611

In-place lease intangible assets
 
984

 
7,095

 
8,079

Above-market rent intangible assets
 

 
137

 
137

Other assets assumed
 

 
5

 
5

 
 
6,821

 
107,199

 
114,020

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

 
(85
)
 
(85
)
Other liabilities assumed
 

 
(240
)
 
(240
)
 
 

 
(325
)
 
(325
)
Total identifiable net assets
 
6,821

 
106,874

 
113,695

Amounts attributable to noncontrolling interest
 

 
(1,845
)
 
(1,845
)
 
 
$
6,821

 
$
105,029

 
$
111,850


 
 
Net-Leased Property
 
Operating Properties
 
 
 
 
March 24, 2015 through
March 31, 2015
 
Respective Acquisition Dates through
March 31, 2015
 
Total
Revenues
 
$
15

 
$
3,401

 
$
3,416

 
 
 
 
 
 
 
Net loss
 
$
(731
)
 
$
(4,445
)
 
$
(5,176
)
Net loss attributable to noncontrolling interest
 

 
11

 
11

Net loss attributable to CPA®:18 – Global stockholders
 
$
(731
)
 
$
(4,434
)
 
$
(5,165
)
___________

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


                                                    CPA®:18 – Global 03/31/2015 10-Q 17


Notes to Consolidated Financial Statements (Unaudited)


Pro Forma Financial Information
 
The following unaudited consolidated pro forma financial information presents our financial results as if the significant acquisitions deemed business combinations that we completed during the three months ended March 31, 2015 and 2014, and any new financings related to these acquisitions, had occurred on January 1, 2014. The pro forma information below includes all business combinations. The pro forma financial information is not necessarily indicative of what the actual results would have been had the acquisitions actually occurred on January 1, 2014, nor does it purport to represent the results of operations for future periods.

(Dollars in thousands, except share and per share amounts)
 
 
Three Months Ended March 31,
 
 
2015
 
2014
Pro forma total revenues (a)
 
$
27,564

 
$
12,194

Pro forma net loss (b)
 
(5,813
)
 
(22,733
)
Pro forma net (income) loss attributable to noncontrolling interests
 
(1,361
)
 
3,608

Pro forma net loss attributable to CPA®:18 – Global
 
$
(7,174
)
 
$
(19,125
)
 
 
 
 
 
Pro forma loss per Class A share:
 
 
 
 
Net loss attributable to CPA®:18 – Global
 
$
(5,460
)
 
$
(17,218
)
Weighted-average shares outstanding
 
100,642,226

 
38,001,011

Loss per share
 
$
(0.05
)
 
$
(0.45
)
 

 
 
 
Pro forma loss per Class C share:
 
 
 
 
Net loss attributable to CPA®:18 – Global
 
$
(1,714
)
 
$
(1,907
)
Weighted-average shares outstanding
 
22,381,181

 
3,820,432

Loss per share
 
$
(0.08
)
 
$
(0.50
)
___________

(a)
Pro forma total revenues includes revenues from lease contracts based on the terms in place at March 31, 2015 and does not include adjustments to contingent rental amounts.
(b)
The pro forma table above presents acquisition expenses related to our significant business combinations of $4.2 million as if they were incurred on January 1, 2014.

Real Estate Under Construction

The following table provides the activity of our Real estate under construction (in thousands):
 
March 31, 2015
 
December 31, 2014
Beginning balance
$
2,258

 
$

Capitalized funds
41,421

 
20,617

Foreign currency translation adjustments, building improvements and other
(901
)
 

Placed into service
(311
)
 
(18,502
)
Capitalized interest
34

 
143

Ending balance
$
42,501

 
$
2,258


Capitalized Funds

During the three months ended March 31, 2015, total capitalized funds were comprised primarily of $36.9 million for the initial funding related to the Rabobank and Reading build-to-suit projects and construction draws of $3.6 million.


                                                    CPA®:18 – Global 03/31/2015 10-Q 18


Notes to Consolidated Financial Statements (Unaudited)


Placed into Service

During the three months ended March 31, 2015, we placed $0.3 million into service related to one build-to-suit project.

Ending Balance

At March 31, 2015 and December 31, 2014, we had four and two open build-to-suit projects, respectively, with aggregate unfunded commitment totaling approximately $108.2 million and $9.7 million, respectively.

Note 6. Finance Receivables
 
Assets representing rights to receive money on demand or at fixed or determinable dates are referred to as finance receivables. Our finance receivables portfolio consists of our Net investments in direct financing leases and our Note receivable. Operating leases are not included in finance receivables as such amounts are not recognized as an asset in the consolidated financial statements.

Net Investments in Direct Financing Leases

Net investments in direct financing leases is summarized as follows (in thousands):
 
 
March 31, 2015
 
December 31, 2014
Minimum lease payments receivable
 
$
89,613

 
$
86,338

Unguaranteed residual value
 
45,473

 
45,473

 
 
135,086

 
131,811

Less: unearned income
 
(89,498
)
 
(86,229
)
 
 
$
45,588

 
$
45,582


Interest income from direct financing leases, which was included in Lease revenues in the consolidated financial statements, was $1.0 million and $0.6 million for the three months ended March 31, 2015 and 2014, respectively. At March 31, 2015, Other assets, net included $0.2 million of accounts receivable related to amounts billed under our direct financing leases. We did not have any outstanding receivables related to the aforementioned direct financing lease at December 31, 2014.

Note Receivable

On July 21, 2014, we acquired a $28.0 million mezzanine tranche of 10-year commercial mortgage-backed securities originated by Cantor Fitzgerald on the Cipriani banquet halls in New York, New York. The mezzanine tranche is subordinated to a $60.0 million senior loan on the properties. We will receive interest-only payments at a rate of 10% per annum. At both March 31, 2015 and December 31, 2014, the balance for this note receivable was $28.0 million.

Credit Quality of Finance Receivables
 
We generally seek investments in facilities that we believe are critical to a tenant’s business and that we believe have a low risk of tenant default. At both March 31, 2015 and December 31, 2014, none of the balances of our finance receivables were past due and we had not established any allowances for credit losses. Additionally, there were no modifications of finance receivables during the three months ended March 31, 2015 or the year ended December 31, 2014. We evaluate the credit quality of our finance receivables utilizing an internal five-point credit rating scale, with one representing the highest credit quality and five representing the lowest. The credit quality evaluation of our finance receivables was last updated in the first quarter of 2015.


                                                    CPA®:18 – Global 03/31/2015 10-Q 19


Notes to Consolidated Financial Statements (Unaudited)


A summary of our finance receivables by internal credit quality rating is as follows (dollars in thousands):
 
 
Number of Tenants/Obligors at
 
Carrying Value at
Internal Credit Quality Indicator
 
March 31, 2015
 
December 31, 2014
 
March 31, 2015
 
December 31, 2014
1
 
 
 
$

 
$

2
 
1
 
1
 
8,988

 
8,962

3
 
4
 
4
 
64,600

 
64,620

4
 
 
 

 

5
 
 
 

 

 
 
0
 
 
 
$
73,588

 
$
73,582


Note 7. Intangible Assets and Liabilities

In connection with our acquisitions of properties (Note 5), we have recorded net lease intangibles that are being amortized over periods ranging from one year to 30 years. In addition, we have ground lease intangibles that are being amortized over periods of up to 99 years. In-place lease intangibles are included in In-place lease intangible assets, net in the consolidated financial statements. Below-market ground lease intangibles and above-market rent intangibles are included in Other intangible assets, net in the consolidated financial statements. Below-market rent intangibles and above-market ground lease intangibles are included in Accounts payable, accrued expenses and other liabilities in the consolidated financial statements.

In connection with our investment activity during the three months ended March 31, 2015, we recorded net lease intangibles comprised as follows (life in years, dollars in thousands):
 
Weighted-Average Life
 
Amount
Amortizable Intangible Assets
 
 
 
In-place lease
1.6
 
$
8,079

Above-market rent
3.8
 
137

 
 
 
$
8,216

Amortizable Intangible Liabilities
 
 
 
Below-market rent
6.9
 
$
(85
)

Goodwill is included in the consolidated financial statements. The following table presents a reconciliation of our goodwill (in thousands):
 
 
Total
Balance at January 1, 2015
 
$
9,692

Foreign currency translation
 
(922
)
Balance at March 31, 2015
 
$
8,770



                                                    CPA®:18 – Global 03/31/2015 10-Q 20


Notes to Consolidated Financial Statements (Unaudited)


Intangible assets and liabilities are summarized as follows (in thousands):
 
March 31, 2015
 
December 31, 2014
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
Amortizable Intangible Assets
 
 
 
 
 
 
 
 
 
 
 
In-place lease
$
175,121

 
$
(15,801
)
 
$
159,320

 
$
177,970

 
$
(10,335
)
 
$
167,635

Below-market ground lease
13,995

 
(191
)
 
13,804

 
15,790

 
(167
)
 
15,623

Above-market rent
9,769

 
(556
)
 
9,213

 
10,424

 
(380
)
 
10,044

 
198,885

 
(16,548
)
 
182,337

 
204,184

 
(10,882
)
 
193,302

Unamortizable Intangible Assets
 
 
 
 
 
 
 
 
 
 
 
Goodwill
8,770

 

 
8,770

 
9,692

 

 
9,692

Total intangible assets
$
207,655

 
$
(16,548
)
 
$
191,107

 
$
213,876

 
$
(10,882
)
 
$
202,994

 
 
 
 
 
 
 
 
 
 
 
 
Amortizable Intangible Liabilities
 
 
 
 
 
 
 
 
 
 
 
Below-market rent
$
(6,255
)
 
$
457

 
$
(5,798
)
 
$
(6,276
)
 
$
347

 
$
(5,929
)
Above-market ground lease
(121
)
 
1

 
(120
)
 
(127
)
 

 
(127
)
Total intangible liabilities
$
(6,376
)
 
$
458

 
$
(5,918
)
 
$
(6,403
)
 
$
347

 
$
(6,056
)

Net amortization of intangibles, including the effect of foreign currency translation, was $6.1 million and $1.3 million for the three months ended March 31, 2015 and 2014, respectively. Amortization of below-market and above-market rent intangibles is recorded as an adjustment to Rental income; amortization of below-market and above-market ground lease intangibles is included in Property expenses; amortization of in-place lease intangibles is included in Depreciation and amortization expense.

Based on the intangible assets and liabilities recorded at March 31, 2015, scheduled annual net amortization of intangibles for the remainder of 2015, each of the next four calendar years following December 31, 2015, and thereafter is as follows (in thousands):
Years Ending December 31,
 
Net Decrease in Rental Income
 
Increase to Amortization/Property Expense
 
Net
2015 (remaining)
 
$
274

 
$
15,980

 
$
16,254

2016
 
356

 
19,019

 
19,375

2017
 
313

 
13,967

 
14,280

2018
 
266

 
12,676

 
12,942

2019
 
256

 
12,173

 
12,429

Thereafter
 
1,950

 
99,189

 
101,139

 
 
$
3,415

 
$
173,004

 
$
176,419


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


                                                    CPA®:18 – Global 03/31/2015 10-Q 21


Notes to Consolidated Financial Statements (Unaudited)


Items Measured at Fair Value on a Recurring Basis

The methods and assumptions described below were used to estimate the fair value of each class of financial instrument.

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

Derivative Liabilities — Our derivative liabilities, which are included in Accounts payable, accrued expenses and other liabilities in the consolidated financial statements, are comprised of interest rate swaps (Note 9). These derivatives were measured at fair value using readily observable market inputs, such as quotations on interest rates, and were classified as Level 2 because they are custom, over-the-counter contracts with various bank counterparties that are not traded in an active market.
 
We did not have any transfers into or out of Level 1, Level 2, and Level 3 measurements during the three months ended March 31, 2015 and 2014. Gains and losses (realized and unrealized) included in earnings are reported in Other income and (expenses) in the consolidated financial statements.
 
Our other financial instruments had the following carrying values and fair values as of the dates shown (dollars in thousands):
 
 
 
March 31, 2015
 
December 31, 2014
 
Level
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Debt (a)
3
 
$
663,085

 
$
684,910

 
$
521,712

 
$
540,577

Note receivable (b)
3
 
28,000

 
28,000

 
28,000

 
28,000

Deferred acquisition fees payable (c)
3
 
18,947

 
18,934

 
17,525

 
17,520

___________
(a)
We determined the estimated fair value of these financial instruments using a discounted cash flow model with rates that take into account the credit of the tenant/obligor and interest rate risk. We also considered the value of the underlying collateral taking into account the quality of the collateral, the credit quality of the tenant/obligor, the time until maturity, and the current market interest rate.
(b)
We estimated that the fair value of the note receivable approximated its carrying value.
(c)
We determined the estimated fair value of our deferred acquisition fees based on an estimate of discounted cash flows using two significant unobservable inputs, which are the leverage adjusted unsecured spread and an illiquidity adjustment of 107 basis points and 75 basis points, respectively. Significant increases or decreases to these inputs in isolation would result in a significant change in the fair value measurement.

We estimated that our other financial assets and liabilities (excluding net investments in direct financing leases) had fair values that approximated their carrying values at both March 31, 2015 and December 31, 2014.

Note 9. Risk Management and Use of Derivative Financial Instruments
 
Risk Management
 
In the normal course of our ongoing business operations, we encounter economic risk. There are four main components of economic risk that impact us: interest rate risk, credit risk, market risk, and foreign currency risk. We are primarily subject to interest rate risk on our interest-bearing assets and liabilities. Credit risk is the risk of default on our operations and our tenants’ inability or unwillingness to make contractually required payments. Market risk includes changes in the value of our properties and related loans as well as changes in the value of our other investments due to changes in interest rates or other market factors. We own international investments primarily in Europe and are subject to the risks associated with changing foreign currency exchange rates.
 

                                                    CPA®:18 – Global 03/31/2015 10-Q 22


Notes to Consolidated Financial Statements (Unaudited)


Derivative Financial Instruments
 
When we use derivative instruments, it is generally to reduce our exposure to fluctuations in interest rates and foreign currency exchange rate movements. We have not entered into, and do not plan to enter into financial instruments for trading or speculative purposes. In addition to derivative instruments that we entered into on our own behalf, we may also be a party to derivative instruments that are embedded in other contracts, and we may own common stock warrants, granted to us by lessees when structuring lease transactions, which are considered to be derivative instruments. The primary risks related to our use of derivative instruments include default by a counterparty to a hedging arrangement on its obligation and a downgrade in the credit quality of a counterparty to such an extent that our ability to sell or assign our side of the hedging transaction is impaired. While we seek to mitigate these risks by entering into hedging arrangements with counterparties that are large financial institutions that we deem to be creditworthy, it is possible that our hedging transactions, which are intended to limit losses, could adversely affect our earnings. Furthermore, if we terminate a hedging arrangement, we may be obligated to pay certain costs, such as transaction or breakage fees. We have established policies and procedures for risk assessment and the approval, reporting, and monitoring of derivative financial instrument activities.
 
We measure derivative instruments at fair value and record them as assets or liabilities, depending on our rights or obligations under the applicable derivative contract. Derivatives that are not designated as hedges must be adjusted to fair value through earnings. For a derivative designated and that qualified as a cash flow hedge, the effective portion of the change in fair value of the derivative is recognized in Other comprehensive loss until the hedged item is recognized in earnings. For a derivative designated and qualified as a net investment hedge, the effective portion of the change in its fair value and/or the net settlement of the derivative are reported in Other comprehensive loss as part of the cumulative foreign currency translation adjustment.
Amounts are reclassified out of Other comprehensive loss into earnings when the hedged investment is either sold or substantially liquidated. The ineffective portion of a derivative’s change in fair value is immediately recognized in earnings.

All derivative transactions with an individual counterparty are governed by a master International Swap and Derivatives Association agreement, which can be considered as a master netting arrangement; however, we report all our derivative instruments on a gross basis on our consolidated financial statements. At both March 31, 2015 and December 31, 2014, no cash collateral had been posted or received for any of our derivative positions.

The following table sets forth certain information regarding our derivative instruments (in thousands):
Derivatives Designated as Hedging Instruments
 
Balance Sheet Location
 
Asset Derivatives Fair Value at
 
Liability Derivatives Fair Value at
 
 
March 31, 2015
 
December 31, 2014
 
March 31, 2015
 
December 31, 2014
Foreign currency forward contracts
 
Other assets, net
 
$
6,552

 
$
3,664

 
$

 
$

Interest rate swaps
 
Accounts payable, accrued expenses and other liabilities
 

 

 
(3,283
)
 
(2,501
)
 
 
 
 
$
6,552

 
$
3,664

 
$
(3,283
)
 
$
(2,501
)


                                                    CPA®:18 – Global 03/31/2015 10-Q 23


Notes to Consolidated Financial Statements (Unaudited)


The following tables present the impact of our derivative instruments in the consolidated financial statements (in thousands):
 
 
Amount of Gain (Loss) Recognized in
Other Comprehensive Loss on Derivatives
(Effective Portion)
 
 
Three Months Ended March 31,
Derivatives in Cash Flow Hedging Relationships 
 
2015
 
2014 (a)
Interest rate swaps
 
$
(782
)
 
$
(372
)
Foreign currency forward contracts
 
2,808

 
(291
)
Derivatives in Net Investment Hedging Relationship (b)
 
 
 
 
Foreign currency forward contracts
 
80

 

Total
 
$
2,106

 
$
(663
)
___________
(a)
When originally filed, the amounts included in this column for the three months ended March 31, 2014 included amounts with the signs reversed. These amounts are revised to present the correct sign designation.
(b)
The effective portion of the change in fair value and the settlement of these contracts are reported in the foreign currency translation adjustment section of Other comprehensive loss until the underlying investment is sold, at which time we reclassify the gain or loss to earnings.

The following tables present the impact of our derivative instruments in the consolidated financial statements (in thousand