UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2013
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: 001-13779
W. P. CAREY INC.
(Exact name of registrant as specified in its charter)
|
Maryland |
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45-4549771 |
|
(State of incorporation) |
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(I.R.S. Employer Identification No.) |
|
|
|
|
|
50 Rockefeller Plaza |
|
|
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New York, New York |
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10020 |
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(Address of principal executive offices) |
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(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 þ |
Accelerated filer o |
Non-accelerated filer o |
Smaller reporting company o |
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(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 68,234,044 shares of common stock, $0.001 par value, outstanding at July 31, 2013.
Forward-Looking Statements
This Quarterly Report on Form 10-Q (the “Report”), including Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) in Item 2 of Part I of this Report, contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. It is important to note that our actual results could be materially different from those projected in such forward-looking statements. You should exercise caution in relying on forward-looking statements as they involve known and unknown risks, uncertainties and other factors that may materially affect our future results, performance, achievements or transactions. Information on factors which could impact actual results and cause them to differ from what is anticipated in the forward-looking statements contained herein is included in this Report as well as in our other filings with the Securities and Exchange Commission (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, 2012 as filed with the SEC on February 26, 2013 (the “2012 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.
Additionally, a description of our critical accounting estimates is included in the MD&A section of our 2012 Annual Report. There has been no significant change in our critical accounting estimates. 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).
W. P. CAREY INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share and per share amounts)
|
|
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June 30, 2013 |
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December 31, 2012 |
| ||
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Assets |
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|
|
|
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Investments in real estate: |
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|
|
|
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Real estate, at cost (inclusive of amounts attributable to consolidated variable interest entities (“VIEs”) of $78,745 and $78,745, respectively) |
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$ |
2,450,868 |
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$ |
2,334,488 |
|
|
Operating real estate, at cost |
|
98,756 |
|
99,703 |
| ||
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Accumulated depreciation (inclusive of amounts attributable to consolidated VIEs of $17,181 and $16,110, respectively) |
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(165,009) |
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(136,068) |
| ||
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Net investments in properties |
|
2,384,615 |
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2,298,123 |
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Net investments in direct financing leases (inclusive of amounts attributable to consolidated VIEs of $18,026 and $23,921, respectively) |
|
360,701 |
|
376,005 |
| ||
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Assets held for sale |
|
21,256 |
|
1,445 |
| ||
|
Equity investments in real estate and the Managed REITs |
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559,361 |
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565,626 |
| ||
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Net investments in real estate |
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3,325,933 |
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3,241,199 |
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Cash and cash equivalents (inclusive of amounts attributable to consolidated VIEs of $37 and $17, respectively) |
|
62,765 |
|
123,904 |
| ||
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Due from affiliates |
|
28,670 |
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36,002 |
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Goodwill |
|
328,011 |
|
329,132 |
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In-place lease intangible assets, net (inclusive of amounts attributable to consolidated VIEs of $3,600 and $3,823, respectively) |
|
465,931 |
|
447,278 |
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Above-market rent intangible assets, net (inclusive of amounts attributable to consolidated VIEs of $2,658 and $2,773, respectively) |
|
269,355 |
|
279,885 |
| ||
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Other intangible assets, net (inclusive of amounts attributable to consolidated VIEs of $279 and $297, respectively) |
|
12,256 |
|
10,200 |
| ||
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Other assets, net (inclusive of amounts attributable to consolidated VIEs of $4,628 and $4,232, respectively) |
|
142,439 |
|
141,442 |
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Total assets |
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$ |
4,635,360 |
|
$ |
4,609,042 |
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|
|
|
|
|
|
| ||
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Liabilities and Equity |
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|
|
|
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Liabilities: |
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|
|
|
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Non-recourse debt (inclusive of amounts attributable to consolidated VIEs of $29,638 and $30,326, respectively) |
|
$ |
1,686,155 |
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$ |
1,715,397 |
|
|
Senior credit facility |
|
385,000 |
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253,000 |
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Accounts payable, accrued expenses and other liabilities (inclusive of amounts attributable to consolidated VIEs of $7,172 and $7,659, respectively) (Note 3) |
|
272,595 |
|
265,132 |
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Income taxes, net |
|
13,458 |
|
24,959 |
| ||
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Distributions payable |
|
58,036 |
|
45,700 |
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|
Total liabilities |
|
2,415,244 |
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2,304,188 |
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Redeemable noncontrolling interest |
|
7,082 |
|
7,531 |
| ||
|
Redeemable securities - related party (Note 3) |
|
- |
|
40,000 |
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|
Commitments and contingencies (Note 11) |
|
|
|
|
| ||
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Equity: |
|
|
|
|
| ||
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W. P. Carey stockholders’ equity: |
|
|
|
|
| ||
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Common stock, $0.001 par value, 450,000,000 shares authorized; 69,250,568 and 68,901,933 shares issued, respectively; and 68,217,189 and 68,485,525 shares outstanding, respectively |
|
69 |
|
69 |
| ||
|
Preferred stock, $0.001 par value, 50,000,000 shares authorized; none issued |
|
- |
|
- |
| ||
|
Additional paid-in capital |
|
2,234,450 |
|
2,175,820 |
| ||
|
Distributions in excess of accumulated earnings |
|
(233,107) |
|
(172,182) |
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Deferred compensation obligation |
|
13,411 |
|
8,358 |
| ||
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Accumulated other comprehensive loss |
|
(2,984) |
|
(4,649) |
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Less, treasury stock at cost, 1,033,379 and 416,408 shares, respectively |
|
(60,270) |
|
(20,270) |
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Total W. P. Carey stockholders’ equity |
|
1,951,569 |
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1,987,146 |
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Noncontrolling interests |
|
261,465 |
|
270,177 |
| ||
|
Total equity |
|
2,213,034 |
|
2,257,323 |
| ||
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Total liabilities and equity |
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$ |
4,635,360 |
|
$ |
4,609,042 |
|
See Notes to Consolidated Financial Statements.
W. P. Carey 6/30/2013 10-Q — 2
W. P. CAREY INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except share and per share amounts)
|
|
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2013 |
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2012 |
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2013 |
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2012 |
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Revenues |
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Lease revenues: |
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|
|
|
|
|
|
|
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Rental income |
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$ |
66,498 |
|
$ |
14,554 |
|
$ |
131,417 |
|
$ |
29,188 |
| ||||
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Interest income from direct financing leases |
|
|
9,412 |
|
|
1,913 |
|
|
18,924 |
|
|
4,038 |
| ||||
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Total lease revenues |
|
75,910 |
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16,467 |
|
150,341 |
|
33,226 |
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Asset management revenue from affiliates |
|
10,355 |
|
15,636 |
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20,369 |
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31,238 |
| ||||||||
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Structuring revenue from affiliates |
|
6,422 |
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3,622 |
|
12,764 |
|
11,260 |
| ||||||||
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Dealer manager fees |
|
2,320 |
|
4,080 |
|
3,542 |
|
7,867 |
| ||||||||
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Reimbursed costs from affiliates |
|
15,467 |
|
20,484 |
|
27,435 |
|
39,221 |
| ||||||||
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Other real estate income |
|
8,582 |
|
6,810 |
|
17,110 |
|
12,569 |
| ||||||||
|
|
|
119,056 |
|
67,099 |
|
231,561 |
|
135,381 |
| ||||||||
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Operating Expenses |
|
|
|
|
|
|
|
|
| ||||||||
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General and administrative |
|
30,250 |
|
26,581 |
|
59,223 |
|
53,491 |
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Reimbursable costs |
|
15,467 |
|
20,484 |
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27,435 |
|
39,221 |
| ||||||||
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Depreciation and amortization |
|
30,927 |
|
6,424 |
|
61,454 |
|
12,881 |
| ||||||||
|
Property expenses |
|
5,531 |
|
3,025 |
|
10,602 |
|
5,055 |
| ||||||||
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Other real estate expenses |
|
2,782 |
|
2,431 |
|
5,515 |
|
4,930 |
| ||||||||
|
Impairment charges |
|
- |
|
- |
|
1,071 |
|
- |
| ||||||||
|
|
|
84,957 |
|
58,945 |
|
165,300 |
|
115,578 |
| ||||||||
|
Other Income and Expenses |
|
|
|
|
|
|
|
|
| ||||||||
|
Other interest income |
|
316 |
|
155 |
|
686 |
|
658 |
| ||||||||
|
Net income from equity investments in real estate and the Managed REITs |
|
32,541 |
|
28,345 |
|
43,197 |
|
42,331 |
| ||||||||
|
Other income and (expenses) |
|
1,877 |
|
1,216 |
|
2,969 |
|
1,524 |
| ||||||||
|
Interest expense |
|
(26,912) |
|
(7,128) |
|
(53,706) |
|
(14,408) |
| ||||||||
|
|
|
7,822 |
|
22,588 |
|
(6,854) |
|
30,105 |
| ||||||||
|
Income from continuing operations before income taxes |
|
41,921 |
|
30,742 |
|
59,407 |
|
49,908 |
| ||||||||
|
Benefit from income taxes |
|
1,122 |
|
1,882 |
|
2,355 |
|
187 |
| ||||||||
|
Income from continuing operations |
|
43,043 |
|
32,624 |
|
61,762 |
|
50,095 |
| ||||||||
|
Discontinued Operations |
|
|
|
|
|
|
|
|
| ||||||||
|
Income (loss) from operations of discontinued properties |
|
3,118 |
|
(93) |
|
3,306 |
|
11 |
| ||||||||
|
Gain (loss) on sale of real estate |
|
1,313 |
|
(298) |
|
382 |
|
(479) |
| ||||||||
|
Gain on extinguishment of debt |
|
13 |
|
- |
|
84 |
|
- |
| ||||||||
|
Impairment charges |
|
(1,671) |
|
(1,003) |
|
(3,879) |
|
(6,728) |
| ||||||||
|
Income (loss) from discontinued operations, net of tax |
|
2,773 |
|
(1,394) |
|
(107) |
|
(7,196) |
| ||||||||
|
Net Income |
|
45,816 |
|
31,230 |
|
61,655 |
|
42,899 |
| ||||||||
|
Net (income) loss attributable to noncontrolling interests |
|
(2,692) |
|
480 |
|
(4,400) |
|
1,058 |
| ||||||||
|
Add: Net loss attributable to redeemable noncontrolling interest |
|
43 |
|
67 |
|
93 |
|
110 |
| ||||||||
|
Net Income Attributable to W. P. Carey |
|
$ |
43,167 |
|
$ |
31,777 |
|
$ |
57,348 |
|
$ |
44,067 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Basic Earnings Per Share |
|
|
|
|
|
|
|
|
| ||||||||
|
Income from continuing operations attributable to W. P. Carey |
|
$ |
0.59 |
|
$ |
0.82 |
|
$ |
0.83 |
|
$ |
1.26 |
| ||||
|
Income (loss) from discontinued operations attributable to W. P. Carey |
|
0.04 |
|
(0.04) |
|
- |
|
(0.18) |
| ||||||||
|
Net income attributable to W. P. Carey |
|
$ |
0.63 |
|
$ |
0.78 |
|
$ |
0.83 |
|
$ |
1.08 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Diluted Earnings Per Share |
|
|
|
|
|
|
|
|
| ||||||||
|
Income from continuing operations attributable to W. P. Carey |
|
$ |
0.58 |
|
$ |
0.80 |
|
$ |
0.82 |
|
$ |
1.23 |
| ||||
|
Income (loss) from discontinued operations attributable to W. P. Carey |
|
0.04 |
|
(0.03) |
|
(0.01) |
|
(0.17) |
| ||||||||
|
Net income attributable to W. P. Carey |
|
$ |
0.62 |
|
$ |
0.77 |
|
$ |
0.81 |
|
$ |
1.06 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Weighted Average Shares Outstanding |
|
|
|
|
|
|
|
|
| ||||||||
|
Basic |
|
68,406,771 |
|
40,047,220 |
|
68,776,108 |
|
40,218,677 |
| ||||||||
|
Diluted |
|
69,493,902 |
|
40,757,055 |
|
69,870,849 |
|
40,828,646 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Amounts Attributable to W. P. Carey |
|
|
|
|
|
|
|
|
| ||||||||
|
Income from continuing operations, net of tax |
|
$ |
40,419 |
|
$ |
33,171 |
|
$ |
57,506 |
|
$ |
51,263 |
| ||||
|
Income (loss) from discontinued operations, net of tax |
|
2,748 |
|
(1,394) |
|
(158) |
|
(7,196) |
| ||||||||
|
Net income attributable to W. P. Carey |
|
$ |
43,167 |
|
$ |
31,777 |
|
$ |
57,348 |
|
$ |
44,067 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Distributions Declared Per Share |
|
$ |
0.840 |
|
$ |
0.567 |
|
$ |
1.660 |
|
$ |
1.132 |
| ||||
See Notes to Consolidated Financial Statements.
W. P. Carey 6/30/2013 10-Q — 3
W. P. CAREY INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in thousands)
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
| ||||||||
|
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
Net Income |
|
$ |
45,816 |
|
$ |
31,230 |
|
$ |
61,655 |
|
$ |
42,899 |
|
|
Other Comprehensive Income (Loss) |
|
|
|
|
|
|
|
|
| ||||
|
Foreign currency translation adjustments |
|
5,094 |
|
(4,823) |
|
(4,658) |
|
(2,305) |
| ||||
|
Realized and unrealized gain (loss) on derivative instruments |
|
2,080 |
|
(937) |
|
5,255 |
|
(581) |
| ||||
|
Change in unrealized depreciation on marketable securities |
|
- |
|
(2) |
|
- |
|
(5) |
| ||||
|
|
|
7,174 |
|
(5,762) |
|
597 |
|
(2,891) |
| ||||
|
Comprehensive Income |
|
52,990 |
|
25,468 |
|
62,252 |
|
40,008 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Amounts Attributable to Noncontrolling Interests |
|
|
|
|
|
|
|
|
| ||||
|
Net (income) loss |
|
(2,692) |
|
480 |
|
(4,400) |
|
1,058 |
| ||||
|
Foreign currency translation adjustments |
|
(742) |
|
628 |
|
1,047 |
|
297 |
| ||||
|
Comprehensive (income) loss attributable to noncontrolling interests |
|
(3,434) |
|
1,108 |
|
(3,353) |
|
1,355 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Amounts Attributable to Redeemable Noncontrolling Interest |
|
|
|
|
|
|
|
|
| ||||
|
Net loss |
|
43 |
|
67 |
|
93 |
|
110 |
| ||||
|
Foreign currency translation adjustments |
|
(2) |
|
14 |
|
21 |
|
5 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Comprehensive loss attributable to redeemable noncontrolling interest |
|
41 |
|
81 |
|
114 |
|
115 |
| ||||
|
Comprehensive Income Attributable to W. P. Carey |
|
$ |
49,597 |
|
$ |
26,657 |
|
$ |
59,013 |
|
$ |
41,478 |
|
See Notes to Consolidated Financial Statements.
W. P. Carey 6/30/2013 10-Q — 4
W. P. CAREY INC.
CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
For the Six Months Ended June 30, 2013 and the Year Ended December 31, 2012
(in thousands, except share and per share amounts)
|
|
|
W. P. Carey Stockholders |
|
|
|
|
| ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
Distributions |
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
Common Stock |
|
Additional |
|
in Excess of |
|
Deferred |
|
Other |
|
|
|
Total |
|
|
|
|
| ||||||||||||||
|
|
|
No Par Value |
|
$0.001 Par Value |
|
Paid-in |
|
Accumulated |
|
Compensation |
|
Comprehensive |
|
Treasury |
|
W. P. Carey |
|
Noncontrolling |
|
|
| ||||||||||||
|
|
|
Shares |
|
Shares |
|
Amount |
|
Capital |
|
Earnings |
|
Obligation |
|
Loss |
|
Stock |
|
Stockholders |
|
Interests |
|
Total |
| ||||||||||
|
Balance at January 1, 2012 |
|
39,729,018 |
|
- |
|
$ |
- |
|
$ |
779,071 |
|
$ |
(95,046) |
|
$ |
7,063 |
|
$ |
(8,507) |
|
$ |
- |
|
$ |
682,581 |
|
$ |
33,821 |
|
$ |
716,402 |
| |
|
Exchange of shares of W. P. Carey & Co. LLC for shares of |
|
(39,834,827) |
|
39,834,827 |
|
40 |
|
(40) |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
| ||||||||||
|
Shares issued to stockholders of CPA®:15 in connection with the CPA®:15 Merger |
|
- |
|
28,170,643 |
|
28 |
|
1,380,333 |
|
- |
|
- |
|
- |
|
- |
|
1,380,361 |
|
- |
|
1,380,361 |
| ||||||||||
|
Purchase of noncontrolling interests in connection with the CPA®:15 Merger |
|
- |
|
- |
|
- |
|
(154) |
|
- |
|
- |
|
- |
|
- |
|
(154) |
|
237,513 |
|
237,359 |
| ||||||||||
|
Reclassification of Estate shareholders shares |
|
- |
|
- |
|
- |
|
(40,000) |
|
- |
|
- |
|
- |
|
- |
|
(40,000) |
|
- |
|
(40,000) |
| ||||||||||
|
Exercise of stock options and employee purchase under the employee share purchase plan |
|
30,993 |
|
13,768 |
|
- |
|
1,553 |
|
- |
|
- |
|
- |
|
- |
|
1,553 |
|
- |
|
1,553 |
| ||||||||||
|
Cash proceeds on issuance of shares to third party, net |
|
- |
|
937,500 |
|
1 |
|
44,999 |
|
- |
|
- |
|
- |
|
- |
|
45,000 |
|
- |
|
45,000 |
| ||||||||||
|
Grants issued in connection with services rendered |
|
427,425 |
|
3,822 |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
| ||||||||||
|
Shares issued under share incentive plans |
|
238,728 |
|
27,044 |
|
- |
|
646 |
|
- |
|
- |
|
- |
|
- |
|
646 |
|
- |
|
646 |
| ||||||||||
|
Contributions from noncontrolling interests |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
3,291 |
|
3,291 |
| ||||||||||
|
Forfeitures of shares |
|
(29,919) |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
| ||||||||||
|
Windfall tax benefits - share incentive plans |
|
- |
|
- |
|
- |
|
10,185 |
|
- |
|
- |
|
- |
|
- |
|
10,185 |
|
- |
|
10,185 |
| ||||||||||
|
Stock-based compensation expense |
|
- |
|
- |
|
- |
|
25,067 |
|
- |
|
971 |
|
- |
|
- |
|
26,038 |
|
- |
|
26,038 |
| ||||||||||
|
Redemption value adjustment |
|
- |
|
- |
|
- |
|
(840) |
|
- |
|
- |
|
- |
|
- |
|
(840) |
|
- |
|
(840) |
| ||||||||||
|
Distributions to noncontrolling interests |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
(6,649) |
|
(6,649) |
| ||||||||||
|
Distributions declared ($2.44 per share) |
|
- |
|
- |
|
- |
|
- |
|
(139,268) |
|
324 |
|
- |
|
- |
|
(138,944) |
|
- |
|
(138,944) |
| ||||||||||
|
Purchase of treasury stock from related parties (Note 3) |
|
(561,418) |
|
(416,408) |
|
- |
|
- |
|
- |
|
- |
|
- |
|
(45,270) |
|
(45,270) |
|
- |
|
(45,270) |
| ||||||||||
|
Cancelation of shares |
|
- |
|
(85,671) |
|
- |
|
(25,000) |
|
- |
|
- |
|
- |
|
25,000 |
|
- |
|
- |
|
- |
| ||||||||||
|
Net income |
|
- |
|
- |
|
- |
|
- |
|
62,132 |
|
- |
|
- |
|
- |
|
62,132 |
|
607 |
|
62,739 |
| ||||||||||
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
Foreign currency translation adjustments |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
6,127 |
|
- |
|
6,127 |
|
1,594 |
|
7,721 |
| ||||||||||
|
Unrealized loss on derivative instruments |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
(2,262) |
|
- |
|
(2,262) |
|
- |
|
(2,262) |
| ||||||||||
|
Change in unrealized appreciation on marketable securities |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
(7) |
|
- |
|
(7) |
|
- |
|
(7) |
| ||||||||||
|
Balance at December 31, 2012 |
|
- |
|
68,485,525 |
|
69 |
|
2,175,820 |
|
(172,182) |
|
8,358 |
|
(4,649) |
|
(20,270) |
|
1,987,146 |
|
270,177 |
|
2,257,323 |
| ||||||||||
|
Reclassification of Estate shareholders shares |
|
- |
|
- |
|
|
|
40,000 |
|
- |
|
- |
|
- |
|
- |
|
40,000 |
|
- |
|
40,000 |
| ||||||||||
|
Exercise of stock options and employee purchase under the employee share purchase plan |
|
- |
|
49,054 |
|
- |
|
1,970 |
|
- |
|
- |
|
- |
|
- |
|
1,970 |
|
- |
|
1,970 |
| ||||||||||
|
Shares issued under share incentive plans |
|
- |
|
299,581 |
|
- |
|
(7,958) |
|
- |
|
- |
|
- |
|
- |
|
(7,958) |
|
- |
|
(7,958) |
| ||||||||||
|
Contributions from noncontrolling interests |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
2,830 |
|
2,830 |
| ||||||||||
|
Windfall tax benefits - share incentive plans |
|
- |
|
- |
|
- |
|
11,556 |
|
- |
|
- |
|
- |
|
- |
|
11,556 |
|
- |
|
11,556 |
| ||||||||||
|
Stock-based compensation expense |
|
- |
|
- |
|
- |
|
13,062 |
|
- |
|
4,516 |
|
- |
|
- |
|
17,578 |
|
- |
|
17,578 |
| ||||||||||
|
Distributions to noncontrolling interests |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
(14,913) |
|
(14,913) |
| ||||||||||
|
Distributions declared ($1.66 per share) |
|
- |
|
- |
|
- |
|
- |
|
(118,273) |
|
537 |
|
- |
|
- |
|
(117,736) |
|
- |
|
(117,736) |
| ||||||||||
|
Purchase of treasury stock from related party (Note 3) |
|
- |
|
(616,971) |
|
- |
|
- |
|
- |
|
- |
|
- |
|
(40,000) |
|
(40,000) |
|
- |
|
(40,000) |
| ||||||||||
|
Foreign currency translation |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
18 |
|
18 |
| ||||||||||
|
Net income |
|
- |
|
- |
|
- |
|
- |
|
57,348 |
|
- |
|
- |
|
- |
|
57,348 |
|
4,400 |
|
61,748 |
| ||||||||||
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
Foreign currency translation adjustments |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
(3,590) |
|
- |
|
(3,590) |
|
(1,047) |
|
(4,637) |
| ||||||||||
|
Unrealized gain on derivative instruments |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
5,255 |
|
- |
|
5,255 |
|
- |
|
5,255 |
| ||||||||||
|
Balance at June 30, 2013 |
|
- |
|
68,217,189 |
|
$ |
69 |
|
$ |
2,234,450 |
|
$ |
(233,107) |
|
$ |
13,411 |
|
$ |
(2,984) |
|
$ |
(60,270) |
|
$ |
1,951,569 |
|
$ |
261,465 |
|
$ |
2,213,034 |
| |
See Notes to Consolidated Financial Statements.
W. P. Carey 6/30/2013 10-Q — 5
W. P. CAREY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
|
|
|
Six Months Ended June 30, | ||||
|
|
|
2013 |
|
2012 | ||
|
Cash Flows — Operating Activities |
|
|
|
| ||
|
Net income |
|
$ |
61,655 |
|
$ |
42,899 |
|
Adjustments to net income: |
|
|
|
| ||
|
Depreciation and amortization, including intangible assets and deferred financing costs |
|
67,658 |
|
15,054 | ||
|
Income from equity investments in real estate and the Managed REITs in excess of distributions received |
|
(22,338) |
|
(17,013) | ||
|
Straight-line rent and amortization of rent-related intangibles |
|
9,646 |
|
(2,016) | ||
|
Amortization of deferred revenue |
|
(4,718) |
|
(4,718) | ||
|
Gain on sale of real estate |
|
(50) |
|
(1,505) | ||
|
Unrealized (gain) loss on foreign currency transactions and others |
|
(3,220) |
|
23 | ||
|
Realized loss on foreign currency transactions and other |
|
181 |
|
535 | ||
|
Management income received in shares of Managed REITs |
|
(20,215) |
|
(14,005) | ||
|
Impairment charges |
|
4,950 |
|
6,728 | ||
|
Stock-based compensation expense |
|
17,578 |
|
9,755 | ||
|
Deferred acquisition revenue received |
|
12,402 |
|
13,322 | ||
|
Increase in structuring revenue receivable |
|
(2,285) |
|
(4,906) | ||
|
Decrease in income taxes, net |
|
(11,507) |
|
(7,186) | ||
|
Increase in prepaid taxes |
|
(16,143) |
|
(5,020) | ||
|
Payments for withholding taxes upon delivery of equity-based awards and exercises of stock options |
|
(10,435) |
|
(4,396) | ||
|
Net changes in other operating assets and liabilities |
|
(11,706) |
|
(15,746) | ||
|
Net Cash Provided by Operating Activities |
|
71,453 |
|
11,805 | ||
|
|
|
|
|
| ||
|
Cash Flows — Investing Activities |
|
|
|
| ||
|
Distributions received from equity investments in real estate and the Managed REITs in excess of equity income |
|
21,907 |
|
15,909 | ||
|
Capital contributions to equity investments |
|
(1,455) |
|
(180) | ||
|
Purchases of real estate |
|
(183,554) |
|
- | ||
|
Capital expenditures |
|
(5,806) |
|
(1,812) | ||
|
Proceeds from sale of real estate and equity investments |
|
48,902 |
|
25,195 | ||
|
Funds placed in escrow |
|
(73,993) |
|
(5,577) | ||
|
Funds released from escrow |
|
95,536 |
|
7,647 | ||
|
Other investing activities, net |
|
(176) |
|
198 | ||
|
Net Cash (Used in) Provided by Investing Activities |
|
(98,639) |
|
41,380 | ||
|
|
|
|
|
| ||
|
Cash Flows — Financing Activities |
|
|
|
| ||
|
Distributions paid |
|
(102,923) |
|
(46,013) | ||
|
Contributions from noncontrolling interests |
|
2,830 |
|
1,480 | ||
|
Distributions paid to noncontrolling interests |
|
(15,228) |
|
(1,165) | ||
|
Purchase of treasury stock from related party (Note 3) |
|
(40,000) |
|
- | ||
|
Scheduled payments of mortgage principal |
|
(121,836) |
|
(10,262) | ||
|
Proceeds from mortgage financing |
|
99,000 |
|
1,250 | ||
|
Proceeds from senior credit facility |
|
230,000 |
|
15,000 | ||
|
Repayments of senior credit facility |
|
(98,000) |
|
(15,000) | ||
|
Funds released from escrow |
|
(463) |
|
- | ||
|
Payment of financing costs and mortgage deposits, net of deposits refunded |
|
(305) |
|
(123) | ||
|
Proceeds from exercise of stock options and employee purchase under the employee share purchase plan |
|
1,970 |
|
5,692 | ||
|
Windfall tax benefit associated with stock-based compensation awards |
|
11,556 |
|
6,607 | ||
|
Net Cash Used in Financing Activities |
|
(33,399) |
|
(42,534) | ||
|
|
|
|
|
| ||
|
Change in Cash and Cash Equivalents During the Period |
|
|
|
| ||
|
Effect of exchange rate changes on cash |
|
(554) |
|
(148) | ||
|
Net (decrease) increase in cash and cash equivalents |
|
(61,139) |
|
10,503 | ||
|
Cash and cash equivalents, beginning of period |
|
123,904 |
|
29,297 | ||
|
Cash and cash equivalents, end of period |
|
$ |
62,765 |
|
$ |
39,800 |
(Continued)
W. P. CAREY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Continued)
Supplemental non-cash investing and financing activities:
During the six months ended June 30, 2013, we reclassified $5.6 million of properties from Net investment in direct financing leases to Real estate in connection with the restructuring of two leases (Note 4).
During the six months ended June 30, 2013, we reclassified $20.0 million of Real estate, net and $1.3 million of net lease intangible assets to Assets held for sale in connection with anticipated sales of properties (Note 4).
During the second quarter of 2013 and 2012, we declared distributions totaling $58.0 million and $23.0 million, respectively, which were paid on July 15, 2013 and July 16, 2012, respectively.
See Notes to Consolidated Financial Statements.
W. P. CAREY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Business and Organization
W. P. Carey Inc. (“W. P. Carey” and, together with its consolidated subsidiaries and predecessors, “we”, “us” or “our”) is a real estate investment trust (“REIT”) that seeks to achieve superior, risk-adjusted returns by providing long-term net-lease financing via sale-leaseback and build-to-suit transactions for companies worldwide. We invest primarily in commercial properties domestically and internationally. We earn revenue principally by leasing the properties we own to single corporate tenants, primarily on a triple-net leased basis, which requires each tenant to pay substantially all of the costs associated with operating and maintaining the property. We also earn revenue as the advisor to publicly-owned, non-listed REITs.
We have sponsored a series of sixteen income-generating funds that invest in commercial real estate, under the Corporate Property Associates brand name (the “CPA® REITs”). We are currently the advisor to Corporate Property Associates 16 – Global Incorporated (“CPA®:16 – Global”), Corporate Property Associates 17 – Global Incorporated (“CPA®:17 – Global”) and Corporate Property Associates 18 – Global Incorporated (“CPA®:18 – Global”). We are also the advisor to Carey Watermark Investors Incorporated (“CWI” and, together with CPA®:16 – Global and CPA®:17 – Global, the “Managed REITs”), which invests in lodging and lodging-related properties.
We were formed as a corporation under the laws of Maryland on February 15, 2012. On September 28, 2012, Corporate Property Associates 15 Incorporated (“CPA®:15”) merged with and into us, with CPA®:15 surviving as an indirect, wholly-owned subsidiary of ours (the “CPA®:15 Merger”). In connection with the CPA®:15 Merger, W. P. Carey & Co. LLC, our predecessor, which was formed under the laws of Delaware on July 15, 1996, completed an internal reorganization whereby our predecessor and its subsidiaries merged with and into us with W. P. Carey as the surviving corporation, succeeding to and continuing to operate the existing business of our predecessor (“REIT Reorganization”). Upon completion of the CPA®:15 Merger and the REIT Reorganization, the shares of our predecessor were delisted from the New York Stock Exchange (“NYSE”) and canceled, and our common stock became listed on the NYSE under the same symbol, “WPC.”
Primary Reportable Segments
Real Estate Ownership — We own and invest in commercial properties primarily in the United States (“U.S.”) and Europe that are leased to companies, primarily on a triple-net lease basis. At June 30, 2013, our portfolio was comprised of our full or partial ownership interest in 423 properties. Substantially all of these properties, totaling approximately 39.5 million square feet, were net leased to 123 tenants, with an occupancy rate of approximately 98.9%. Collectively, at June 30, 2013, the Managed REITs owned all or a portion of over 700 properties, including certain properties in which we have an ownership interest. Substantially all of these properties, totaling approximately 77.3 million square feet, were net leased to 216 tenants, with an average occupancy rate of approximately 98.8%.
We earn lease revenues from our wholly-owned and co-owned real estate investments. In addition, we generate equity income through our investments in the shares of the Managed REITs (Note 6). Through our special member interests in the operating partnerships of the Managed REITs, we also participate in their cash flows (Note 3). Lastly, we earn other real estate revenues through our investments in self-storage facilities and a hotel in the U.S.
Investment Management — We earn revenue as the advisor to the Managed REITs. Under the respective advisory agreements with each of the Managed REITs, we perform various services, including the day-to-day management of the Managed REITs and transaction-related services. We structure and negotiate investments and debt placement transactions for the Managed REITs, for which we earn structuring revenue, and manage their portfolios of real estate investments, for which we earn asset management revenue.
We generate acquisition revenue when we structure and negotiate investments and related financing for the Managed REITs. We may also be entitled, subject to the approval by the boards of directors of certain of the Managed REITs, to fees for structuring loan refinancings. This loan refinancing revenue, together with the acquisition revenue, is referred to as structuring revenue. We earn ongoing asset management revenue from each Managed REIT, which is based on average invested assets and is calculated according to the advisory agreement for each Managed REIT. We may also earn revenue related to the disposition of properties, subject to subordination provisions, which will only be recognized as the relevant conditions are met. Such revenue may include subordinated disposition revenue when assets are sold as well as a percentage of the net cash proceeds distributable to stockholders from the disposition of properties, after recoupment by stockholders of their initial investment plus a specified preferred return. We may earn incentive or termination revenue in connection with providing liquidity to the stockholders of the Managed REITs, although these
W. P. Carey 6/30/2013 10-Q — 8
Notes to Consolidated Financial Statements
events do not occur every year. However, in the event they do occur, we may waive the incentive or termination fee we would have been entitled to receive from the Managed REITs pursuant to the terms of our advisory agreements with the Managed REITs, which was the case in the CPA®:15 Merger and will be the case under the terms of the merger agreement between us and CPA®:16 – Global (Note 15). We will not receive a termination payment in circumstances where we receive incentive revenue.
Note 2. Basis of Presentation
Our interim consolidated financial statements have been prepared, without audit, in accordance with the instructions to Form 10-Q and, therefore, do not necessarily include all information and footnotes necessary for a fair statement of our consolidated financial position, results of operations and cash flows in accordance with accounting principles generally accepted in the U.S. (“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 results of operations, financial position 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, 2012, which are included in the 2012 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 fiscal 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. The unaudited consolidated financial statements included in this Report have been retrospectively adjusted to reflect the disposition (or planned disposition) of certain properties as discontinued operations for all periods presented. Certain prior period amounts have been reclassified to conform to the current period presentation.
Basis of Consolidation
The consolidated financial statements reflect all of our accounts, including those of our controlled subsidiaries and our tenancy-in-common interests as described below. 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.
We have investments in tenancy-in-common interests in various domestic and international properties. Consolidation of these investments is not required as such interests do not qualify as VIEs and do not meet the control requirement required for consolidation. Accordingly, we account for these investments using the equity method of accounting. We use the equity method of accounting because the shared decision-making involved in a tenancy-in-common interest investment provides us with significant influence on the operating and financial decisions of these investments.
We apply accounting guidance for consolidation of VIEs to certain entities in which the equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. Fixed price purchase and renewal options within a lease as well as certain decision-making rights within a loan can cause us to consider an entity a VIE. During the six months ended June 30, 2013, we did not identify any new VIEs.
Additionally, we own interests in single-tenant net leased properties leased to companies through noncontrolling interests in partnerships and limited liability companies that we do not control but over which we exercise significant influence. We account for these investments under the equity method of accounting. At times, the carrying value of our equity investments may fall below zero for certain investments. We intend to fund our share of the investments’ future operating deficits should the need arise. However, we have no legal obligation to pay for any of the liabilities of such investments nor do we have any legal obligation to fund operating deficits.
In November 2012, we filed a registration statement with the SEC to sell up to $1.0 billion of common stock of CPA®:18 – Global in an initial public offering plus up to an additional $400.0 million of its common stock under a dividend reinvestment plan. This registration statement was declared effective by the SEC on May 7, 2013. Through June 30, 2013, the financial activity of CPA®:18 – Global, which had no significant assets, liabilities or operations, was included in our consolidated financial statements. On July 25, 2013, upon CPA®:18 – Global reaching its minimum offering proceeds and admitting new stockholders, we deconsolidated CPA®:18 – Global and began to account for our interests in it under the equity method (Note 15).
W. P. Carey 6/30/2013 10-Q — 9
Notes to Consolidated Financial Statements
Accounting Policy
Internal-Use Software Development Costs-In accordance with Accounting Standards Codification 350-40-25, we expense costs associated with the assessment stage of software development projects. Upon completion of the preliminary project assessment stage, we capitalize internal and external costs associated with the application development stage, including the costs associated with software that allows for the conversion of our old data to our new system. We expense the costs of training and data conversion. We also expense costs associated with the post-implementation and operation stage, including maintenance and specified upgrades; however, we capitalize internal and external costs associated with significant upgrades to existing systems that result in additional functionality. Capitalized costs are amortized on a straight-line basis over the software’s estimated useful life, which is three to five years. Periodically, we reassess the useful life considering technology, obsolescence and other factors.
Out-of-Period Adjustment
During the second quarter of 2012, we identified an error in the consolidated financial statements related to the misapplication of accounting guidance on the expropriation of land related to two investments. We concluded that this adjustment was not material, individually or in the aggregate, to our results for this or any of the prior periods, and as such, we recorded an out-of-period adjustment to increase our income from operations by $1.8 million within continuing operations primarily attributable to an increase in Other income and (expenses) of $2.0 million in the consolidated statements of income for the three and six months ended June 30, 2012.
New Accounting Requirements
The following Accounting Standards Updates (“ASUs”) promulgated by the Financial Accounting Standards Board (“FASB”) are applicable to us as indicated:
ASU 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities — In January 2013, the FASB issued an update to ASU 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. ASU 2013-01 clarifies that the scope of ASU 2011-11 applies to derivatives accounted for in accordance with Topic 815, Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting or similar arrangement. These amendments did not have a significant impact on our financial position or results of operations and are applicable to us for our interim and annual reports beginning in 2013 and has been applied retrospectively.
ASU 2013-02, Other Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income — In February 2013, the FASB issued ASU 2013-02 requiring entities to disclose additional information about items reclassified out of accumulated other comprehensive income. This ASU impacts the form of our disclosures only, is applicable to us for our interim and annual reports beginning in 2013 and has been applied retrospectively. The related additional disclosures are located in Note 12.
ASU 2013-04, Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date, a Consensus of the FASB Emerging Issues Task Force — In February 2013, the FASB issued ASU 2013-04, which requires entities to measure obligations resulting from joint and several liability arrangements (in our case, tenancy-in-common arrangements, Note 6) for which the total amount of the obligation is fixed as the sum of the amount the entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. This ASU is applicable to us for our interim and annual reports beginning in 2014 and shall be applied retrospectively; however, we elected to adopt this ASU early in 2013 and it did not have a significant impact on our financial position or results of operations for any of the periods presented.
ASU 2013-05, Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity — In March 2013, the FASB issued ASU 2013-05, which indicates that a cumulative translation adjustment (“CTA”) is attached to the parent’s investment in a foreign entity and should be released in a manner consistent with the derecognition guidance on investments in entities. Therefore, the entire amount of the CTA associated with the foreign entity would be released into earnings when there has been a sale of a foreign subsidiary or group of assets within a foreign subsidiary, a loss of a controlling financial interest upon deconsolidation of an investment in a foreign entity or a step acquisition in a foreign entity. This ASU will be applicable to us for derecognition transactions after December 31, 2013.
W. P. Carey 6/30/2013 10-Q — 10
Notes to Consolidated Financial Statements
ASU 2013-10, Derivatives and Hedging (Topic 815): Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes, a Consensus of the FASB Emerging Issues Task Force — In July 2013, the FASB issued ASU 2013-10, which permits the Fed Funds Effective Swap Rate, also referred to as the “Overnight Index Swap Rate,” to be used as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815, in addition to the U.S. government and London Interbank Offered Rate (“LIBOR”) swap rate. The update also removes the restriction on the use of different benchmark rates for similar hedges. This ASU will be applicable to us for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013.
Note 3. Agreements and Transactions with Related Parties
Advisory Agreements with the Managed REITs
We have advisory agreements with each of the Managed REITs pursuant to which we earn fees and are entitled to receive cash distributions. These agreements are scheduled to expire on September 30, 2013 unless otherwise renewed pursuant to their terms. The following tables present a summary of revenue earned and/or cash received from the Managed REITs included in the consolidated statements of income (in thousands):
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
| ||||||||
|
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
Asset management revenue (a) |
|
$ |
10,335 |
|
$ |
15,611 |
|
$ |
20,328 |
|
$ |
31,192 |
|
|
Structuring revenue |
|
6,422 |
|
3,622 |
|
12,764 |
|
11,260 |
| ||||
|
Dealer manager fees |
|
2,320 |
|
4,080 |
|
3,542 |
|
7,867 |
| ||||
|
Reimbursed costs from affiliates (a) |
|
15,467 |
|
20,300 |
|
27,435 |
|
38,817 |
| ||||
|
Distributions of Available Cash |
|
8,677 |
|
7,463 |
|
16,568 |
|
14,437 |
| ||||
|
Deferred revenue earned |
|
2,123 |
|
2,123 |
|
4,246 |
|
4,246 |
| ||||
|
|
|
$ |
45,344 |
|
$ |
53,199 |
|
$ |
84,883 |
|
$ |
107,819 |
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
| ||||||||
|
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
CPA®:15 |
|
$ |
- |
|
$ |
7,049 |
|
$ |
- |
|
$ |
14,417 |
|
|
CPA®:16 – Global |
|
12,667 |
|
12,424 |
|
26,591 |
|
25,548 |
| ||||
|
CPA®:17 – Global |
|
13,858 |
|
30,439 |
|
28,613 |
|
63,421 |
| ||||
|
CWI |
|
18,819 |
|
3,287 |
|
29,679 |
|
4,433 |
| ||||
|
|
|
$ |
45,344 |
|
$ |
53,199 |
|
$ |
84,883 |
|
$ |
107,819 |
|
___________
(a) Excludes amounts received from third-parties.
The following table presents a summary of Due from affiliates (in thousands):
|
|
|
June 30, 2013 |
|
December 31, 2012 |
| ||
|
Deferred acquisition fees receivable |
|
$ |
18,537 |
|
$ |
28,654 |
|
|
Reimbursable costs |
|
905 |
|
1,457 |
| ||
|
Organization and offering costs |
|
6,721 |
|
4,920 |
| ||
|
Accounts receivable |
|
2,459 |
|
182 |
| ||
|
Asset management fee receivable |
|
48 |
|
789 |
| ||
|
|
|
$ |
28,670 |
|
$ |
36,002 |
|
Asset Management Revenue
We earn asset management revenue from each Managed REIT, which is based on average invested assets and is calculated according to the advisory agreement for each Managed REIT. For CPA®:15 prior to the CPA®:15 Merger, this revenue generally totaled 1% per annum, with a portion of this revenue, or 0.5%, contingent upon the achievement of specific performance criteria. For CPA®:16 – Global, we earn asset management revenue of 0.5% of average invested assets. For CPA®:17 – Global, we earn asset management
W. P. Carey 6/30/2013 10-Q — 11
Notes to Consolidated Financial Statements
revenue ranging from 0.5% of the average market value for long-term net leases and certain other types of real estate investments up to 1.75% of average equity value for certain types of securities. For CWI, we earn asset management revenue of 0.5% of the average market value of lodging-related investments. We also receive up to 10% of distributions of Available Cash, as defined in the respective advisory agreements, from the operating partnerships of each of the Managed REITs.
Under the terms of the advisory agreements, we may elect to receive cash or shares of stock for asset management revenue due from each Managed REIT. In 2013, we elected to receive all asset management revenue from each Managed REIT in its respective shares. For 2012, we elected to receive all asset management revenue from CPA®:15 prior to the CPA®:15 Merger in cash, 50% of asset management revenue from CPA®:16 – Global in its shares with the remaining 50% payable in cash and all asset management revenue from CPA®:17 – Global and CWI in their respective shares.
Structuring Revenue
Under the terms of the advisory agreements, we earn revenue in connection with structuring and negotiating investments and related financing for the Managed REITs, which we call acquisition revenue. We may receive acquisition revenue of 4.5% of the total aggregate cost of long-term net lease investments made by each CPA® REIT. A portion of this revenue (generally 2.5%) is paid when the transaction is completed, while the remainder (generally 2%) is payable in annual installments ranging from three to eight years, provided the relevant CPA® REIT meets its performance criterion. For certain types of non-long term net lease investments acquired on behalf of CPA®:17 – Global, initial acquisition revenue may range from 0% to 1.75% of the equity invested plus the related acquisition revenue, with no deferred acquisition revenue being earned. For CWI, we earn initial acquisition revenue of 2.5% of the total investment cost of the properties acquired and loans originated by us not to exceed 6% of the aggregate contract purchase price of all investments and loans with no deferred acquisition revenue being earned. We may also be entitled to fees for structuring loan refinancings of up to 1% of the principal amount. This loan refinancing revenue, together with the acquisition revenue, is referred to as structuring revenue.
Unpaid transaction fees, including accrued interest, are included in Due from affiliates in the consolidated financial statements. Unpaid transaction fees bear interest at annual rates ranging from 5% to 7%.
Reimbursed Costs from Affiliates and Dealer Manager Fees
The Managed REITs reimburse us for certain costs, primarily broker/dealer commissions paid on behalf of the Managed REITs and marketing and personnel costs. Since October 1, 2012, when advisory agreements with CPA®:16 – Global and CPA®:17 – Global were amended, personnel costs are allocated based on the revenues of each of the Managed REITs rather than the method utilized before that date, which involved an allocation of time charges incurred by our personnel for such CPA® REIT. In addition, we earned a selling commission of up to $0.65 per share sold and a dealer manager fee of up to $0.35 per share sold from CPA®:17 – Global through its public offering, which was terminated in January 2013. We also receive a selling commission of up to $0.70 per share sold and a dealer manager fee of up to $0.30 per share sold from CWI. We re-allow all or a portion of the dealer manager fees to selected dealers in the offerings. Dealer manager fees that are not re-allowed are classified as Dealer manager fees.
Pursuant to its advisory agreement, CWI is obligated to reimburse us for all organization costs and a portion of offering costs incurred in connection with its offering, up to a maximum amount (excluding selling commissions and the dealer manager fee) of 2% of the gross proceeds of its offering and distribution reinvestment plan. Through June 30, 2013, we have incurred organization and offering costs on behalf of CWI of approximately $8.8 million. However, at June 30, 2013, CWI was only obligated to reimburse us $7.3 million of these costs because of the 2% limitation described above, and $5.5 million had been reimbursed as of that date.
Distributions of Available Cash and Deferred Revenue Earned
We are entitled to receive distributions of our proportionate share of earnings up to 10% of the Available Cash from the Managed REITs, as defined in the respective advisory agreements, from their operating partnerships. In connection with the merger in the second quarter of 2011 between Corporate Property Associates 14 Incorporated (“CPA®:14”) and CPA®:16 – Global, we acquired a special member interest (“Special Member Interest”) in CPA®:16 – Global’s operating partnership. We initially recorded this Special Member Interest at its fair value, which is amortized into earnings over the expected period of performance considering the estimated life of the entity. Cash distributions of our proportionate share of earnings from the CPA®:16 – Global and CPA®:17 – Global operating partnerships as well as deferred revenue earned from our Special Member Interest in CPA®:16 – Global’s operating partnership are recorded as Income from equity investments in real estate and the Managed REITs within the Real Estate Ownership segment. We have not yet earned or received any distributions of our proportionate share of earnings from CWI’s operating partnership.
W. P. Carey 6/30/2013 10-Q — 12
Notes to Consolidated Financial Statements
CPA®:18 – Global
Effective May 7, 2013, we entered into an advisory agreement with CPA®:18 – Global pursuant to which we perform certain services for CPA®:18 – Global under a fee arrangement, including managing the offering, the identification, evaluation, negotiation, purchase, and disposition of real estate and related assets, day-to-day management, and the performance of certain administrative duties. We will also receive acquisition fees, a portion of which is payable upon acquisition of an investment and a portion that is subordinated to achieving a preferred return on the investment. The initial acquisition fee is equal to 2.5% of the aggregate total cost of an investment. The subordinated acquisition fee is equal to 2.0% of the aggregate total cost of an investment. We will not receive any acquisition fees for investments in readily-marketable real estate securities purchased in the secondary market. The total acquisition fees to be received (current and subordinated, and including interest thereon) will not exceed 6% of the aggregate contract purchase price of all investments and loans. Pursuant to the advisory agreement, we will also be 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. In addition, pursuant to the advisory agreement, we may be entitled to receive a disposition fee in an amount equal to the lesser of (i) 50% of the brokerage commission paid or (ii) 3.0% of the contract sales price of the investment being sold.
Pursuant to the advisory agreement, CPA®:18 – Global will reimburse us for organization and offering costs incurred in connection with its offering. Reimbursement of such costs was contingent on the commencement of the offering, which occurred on May 7, 2013. Through June 30, 2013, we have incurred organization and offering costs on behalf of CPA®:18 – Global totaling approximately $3.6 million. However, at June 30, 2013, CPA®:18 – Global was not obligated to reimburse us for these costs because, as of that date, it had not reached a minimum of $2.0 million in shares sold.
Effective May 7, 2013, we entered into a dealer manager agreement with CPA®:18 – Global whereby we will receive selling commissions, depending on the class of common stock sold, of up to $0.70 or $0.14 per share sold, and a dealer manager fee of up to $0.30 or $0.21 per share sold, for its class A and class C shares, respectively. We will also receive an annual distribution and shareholder servicing fee (“Shareholder Servicing Fee”) paid in connection with investor purchases of the class C shares. The amount of the Shareholder Servicing Fee will be 1.0% of the purchase price per share (or, once reported, the amount of the estimated net asset value per share) for the class C shares sold in the offering. The Shareholder Servicing Fee will accrue daily and be payable quarterly in arrears. CPA®:18 – Global will cease paying the Shareholder Servicing Fee 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 us, equals 10% of the gross proceeds from the offering.
Pursuant to the partnership agreement of the CPA®:18 – Global operating partnership, we own a special general partnership interest in CPA®:18 – Global, entitling us to receive 10% of distributions of Available Cash (as defined in the advisory agreement) of its operating partnership for its investments, other than readily-marketable real estate securities purchased in the secondary market, for which we will not receive any distributions of Available Cash.
Other Transactions with Affiliates
Transactions with the Estate of Wm. Polk Carey
As discussed in the 2012 Annual Report, we entered into a share purchase agreement with the Estate of Wm. Polk Carey and its affiliated entities (collectively, the “Estate”) pursuant to which we agreed to repurchase up to an aggregate amount of $85.0 million of our common stock beneficially owned by the Estate, in three transactions between August 6, 2012 and March 31, 2013. As of December 31, 2012, we completed two transactions totaling $45.0 million. On March 28, 2013, we received an irrevocable notice (the “Notice”) from the Estate to exercise the final sale option. On April 4, 2013, we repurchased 616,971 shares of our common stock for $40.0 million from the Estate at a price of $64.83 per share at which time it was recorded as Treasury stock on our consolidated balance sheets.
The following table presents a reconciliation of our Redeemable securities – related party (in thousands):
|
|
|
Six Months Ended |
| |
|
|
|
June 30, 2013 |
| |
|
Balance - beginning of period |
|
$ |
40,000 |
|
|
Redemption of securities |
|
(40,000) |
| |
|
Balance - end of period |
|
$ |
- |
|
Notes to Consolidated Financial Statements
CPA®:15 Merger
On September 28, 2012, CPA®:15 merged with and into us with CPA®:15 surviving as our indirect, wholly-owned subsidiary. In the CPA®:15 Merger, we acquired CPA®:15’s portfolio, which was comprised of full or partial ownership in 305 properties, substantially all of which were triple-net leased to 76 tenants, and totaled approximately 27.0 million square feet, with an occupancy rate of approximately 99%.
We accounted for the CPA®:15 Merger as a business combination under the acquisition method of accounting. The purchase price was allocated to the assets acquired and liabilities assumed, based upon their fair values. The fair values of the lease intangibles acquired were measured in a manner consistent with our purchase price allocation policy described in the 2012 Annual Report.
Other
We own interests in entities ranging from 3% to 95%, as well as jointly-controlled tenancy-in-common interests in properties, with the remaining interests generally held by affiliates, and own common stock in each of the Managed REITs. We consolidate certain of these investments and account for the remainder under the equity method of accounting.
Family members of one of our directors have an ownership interest in certain companies that own noncontrolling interests in one of our French majority-owned subsidiaries. These ownership interests are subject to substantially the same terms as all other ownership interests in the subsidiary companies.
During 2013, our board of directors approved loans to CWI and CPA®:18 – Global of up to $50.0 million and up to $100.0 million, respectively, at a rate of LIBOR plus 1.75%, for the purpose of funding acquisitions approved by their respective investment committee, with any loans to be made solely at our discretion. To date, we have not made any loans to CWI or CPA®:18 – Global pursuant to such authorizations.
Note 4. Net Investments in Properties
Real Estate
Real estate, which consists of land and buildings leased to others under operating leases and are carried at cost, is summarized as follows (in thousands):
|
|
|
June 30, 2013 |
|
December 31, 2012 |
| ||
|
Land |
|
$ |
532,425 |
|
$ |
509,530 |
|
|
Buildings |
|
1,918,443 |
|
1,824,958 |
| ||
|
Less: Accumulated depreciation |
|
(143,756) |
|
(116,075) |
| ||
|
|
|
$ |
2,307,112 |
|
$ |
2,218,413 |
|
During the six months ended June 30, 2013, we entered into the following investments, which were deemed to be real estate asset acquisitions because we entered into new leases with the sellers, at a total cost of $124.4 million, including net lease intangibles of $26.5 million (Note 7) and acquisition-related costs of $0.1 million, which were capitalized:
· a domestic investment for $72.4 million for an office building, which we funded in part with the escrowed proceeds of $25.3 million from a sale of property in December 2012 in an exchange transaction under Section 1031 of the Internal Revenue Code of 1986, as amended (the “Code”), and non-recourse mortgage financing of $36.5 million (Note 10); and
· an investment in Finland for $52.0 million for an office and research and development facility.
During the six months ended June 30, 2013, we also entered into the following investments, which were deemed to be business combinations because we assumed the existing leases on the properties, at a total cost of $60.8 million, including land of $12.5 million, buildings of $40.1 million and net lease intangibles of $8.2 million (Note 7):
· an investment in the Netherlands for $35.3 million for a logistics facility; and
· a domestic investment for $25.5 million for an office building, which we funded with the escrowed proceeds from the sale of the U. S. Airways Group, Inc. (“U. S. Airways”) investment in an exchange transaction under Section 1031 of the Code (Note 6).
W. P. Carey 6/30/2013 10-Q — 14
Notes to Consolidated Financial Statements
In connection with these business combinations, we expensed aggregate acquisition-related costs of $2.9 million, which are included in General and administrative expenses in the consolidated financial statements.
Dollar amounts above are based on the exchange rate of the euro on the dates of acquisition, as applicable.
Assets disposed of and reclassified as held-for-sale during the six months ended June 30, 2013 are discussed in Note 13. Impairment charges recognized on these properties are discussed in Note 8. During this period, the U.S. dollar strengthened against the euro, as the end-of-period rate for the U.S. dollar in relation to the euro at June 30, 2013 decreased by 1.6% to $1.3013 from $1.3218 at December 31, 2012. The impact of this strengthening was a $7.6 million decrease in the carrying value of Real estate from December 31, 2012 to June 30, 2013. In connection with restructuring two leases, we reclassified $5.6 million of properties from Net investment in direct financing leases to Real estate during the six months ended June 30, 2013 (Note 5). In connection with anticipated sales of properties during the six months ended June 30, 2013, we reclassified three domestic properties with an aggregate carrying value of $21.3 million to Assets held for sale, which includes real estate, net of $20.0 million and net lease intangibles of $1.3 million (Note 13).
Operating Real Estate
Operating real estate, which consists of our investments in 21 self-storage properties through our Carey Storage Management LLC (“Carey Storage”) subsidiary and our Livho Inc. (“Livho”) hotel subsidiary, at cost, is summarized as follows (in thousands):
|
|
|
June 30, 2013 |
|
December 31, 2012 |
| ||
|
Land |
|
$ |
21,962 |
|
$ |
22,158 |
|
|
Buildings |
|
76,794 |
|
77,545 |
| ||
|
Less: Accumulated depreciation |
|
(21,253) |
|
(19,993) |
| ||
|
|
|
$ |
77,503 |
|
$ |
79,710 |
|
During the six months ended June 30, 2013, we recognized an impairment charge of $1.1 million on our hotel property to write down the property’s carrying value to its estimated fair value (Note 8) in connection with a potential sale.
Note 5. Finance Receivables
Assets representing rights to receive money on demand or at fixed or determinable dates are referred to as finance receivables. Our finance receivable portfolios consist of our Net investments in direct financing leases and deferred acquisition fees. Operating leases are not included in finance receivables as such amounts are not recognized as an asset in the consolidated balance sheets.
Deferred Acquisition Fees Receivable
As described in Note 3, a portion of our structuring revenue is due in equal annual installments ranging from three to eight years, provided the CPA® REITs meet their respective performance criteria. Unpaid deferred installments, including accrued interest, from all of the CPA® REITs were included in Due from affiliates in the consolidated financial statements.
Credit Quality of Finance Receivables
We generally seek investments in facilities that we believe are critical to a tenant’s business and that we believe have a low risk of tenant defaults. At both June 30, 2013 and December 31, 2012, none of our finance receivables were past due and we had not established any allowances for credit losses. There were no modifications of finance receivables for the six months ended June 30, 2013 or for the year ended December 31, 2012. We evaluate the credit quality of our tenant receivables utilizing an internal 5-point credit rating scale, with 1 representing the highest credit quality and 5 representing the lowest. The credit quality evaluation of our tenant receivables was last updated in the second quarter of 2013. We believe the credit quality of our deferred acquisition fees receivable falls under category 1, as the CPA® REITs are expected to have the available cash to make such payments.
W. P. Carey 6/30/2013 10-Q — 15
Notes to Consolidated Financial Statements
A summary of our finance receivables by internal credit quality rating is as follows (dollars in thousands):
|
|
|
Number of Tenants at |
|
Net Investments in Direct Financing Leases at |
| ||||||
|
Internal Credit Quality Indicator |
|
June 30, 2013 |
|
December 31, 2012 |
|
June 30, 2013 |
|
December 31, 2012 |
| ||
|
1 |
|
3 |
|
3 |
|
$ |
46,376 |
|
$ |
46,398 |
|
|
2 |
|
3 |
|
4 |
|
28,092 |
|
49,764 |
| ||
|
3 |
|
9 |
|
8 |
|
278,394 |
|
257,281 |
| ||
|
4 |
|
1 |
|
4 |
|
7,839 |
|
22,562 |
| ||
|
5 |
|
- |
|
- |
|
- |
|
- |
| ||
|
|
|
|
|
|
|
$ |
360,701 |
|
$ |
376,005 |
|
During the six months ended June 30, 2013, we reclassified $5.6 million of properties from Net investment in direct financing leases to Real estate (Note 4) in connection with the restructuring of two leases. Additionally, during the six months ended June 30, 2013, we sold our net investment in a direct financing lease, which we acquired in the CPA®:15 Merger, for $5.5 million, net of selling costs, and recognized a loss on the sale of $0.3 million.
Note 6. Equity Investments in Real Estate and the Managed REITs
We own interests in certain unconsolidated real estate investments and the Managed REITs. We account for our interests in these investments under the equity method of accounting (i.e., at cost, increased or decreased by our share of earnings or losses, less distributions, plus contributions and other adjustments required by equity method accounting, such as basis differences from other-than-temporary impairments). The following table presents net income from equity investments in real estate and the Managed REITs, which represents our proportionate share of the income or losses of these investments as well as certain adjustments related to other-than-temporary impairment charges and amortization of basis differences related to purchase accounting adjustments (in thousands):
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
| ||||||||
|
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
Equity earnings from equity investments in the Managed REITs |
|
$ |
1,062 |
|
$ |
3,648 |
|
$ |
1,084 |
|
$ |
5,496 |
|
|
Other-than-temporary impairment charges on the Special Member Interest in CPA®:16 – Global’s operating partnership |
|
(2,844) |
|
(3,234) |
|
(5,528) |
|
(3,532) |
| ||||
|
Distributions of Available Cash (Note 3) |
|
8,677 |
|
7,463 |
|
16,568 |
|
14,437 |
| ||||
|
Deferred revenue earned (Note 3) |
|
2,123 |
|
2,123 |
|
4,246 |
|
4,246 |
| ||||
|
Equity in net income from the Managed REITs |
|
9,018 |
|
10,000 |
|
16,370 |
|
20,647 |
| ||||
|
Equity in net earnings from other equity investments |
|
23,523 |
|
18,345 |
|
26,827 |
|
21,684 |
| ||||
|
Total net income from equity investments in real estate and the Managed REITs |
|
$ |
32,541 |
|
$ |
28,345 |
|
$ |
43,197 |
|
$ |
42,331 |
|
Managed REITs
We own interests in the Managed REITs and account for these interests under the equity method because, as their advisor and through our ownership in their common stock, we do not exert control over, but we do have the ability to exercise significant influence on, the Managed REITs.
W. P. Carey 6/30/2013 10-Q — 16
Notes to Consolidated Financial Statements
The following table sets forth certain information about our investments in the Managed REITs (dollars in thousands):
|
|
|
% of Outstanding Shares Owned at |
|
Carrying Amount of Investment at |
| ||||||
|
Fund |
|
June 30, 2013 |
|
December 31, 2012 |
|
June 30, 2013 (a) |
|
December 31, 2012 |
| ||
|
CPA®:16 – Global (b) |
|
18.553% |
|
18.330% |
|
$ |
293,498 |
|
$ |
296,301 |
|
|
CPA®:16 – Global operating partnership (c) |
|
0.015% |
|
0.015% |
|
11,140 |
|
17,140 |
| ||
|
CPA®:17 – Global (d) |
|
1.586% |
|
1.290% |
|
48,072 |
|
38,977 |
| ||
|
CPA®:17 – Global operating partnership (e) |
|
0.015% |
|
0.015% |
|
- |
|
- |
| ||
|
CWI |
|
0.407% |
|
0.400% |
|
1,615 |
|
774 |
| ||
|
CWI operating partnership |
|
0.015% |
|
0.015% |
|
(47) |
|
(47) |
| ||
|
|
|
|
|
|
|
$ |
354,278 |
|
$ |
353,145 |
|
(a) Includes asset management fees receivable, for which 170,547 shares, 176,621 shares and 23,129 shares of CPA®:16 – Global, CPA®:17 – Global and CWI, respectively, were issued during the third quarter of 2013.
(b) We received distributions of $12.5 million and $12.1 million from this investment during the six months ended June 30, 2013 and 2012, respectively.
(c) During the six months ended June 30, 2013 and 2012, we recognized other-than-temporary impairment charges of $5.5 million and $3.5 million, respectively, on this investment to reduce the carrying value of our interest in the investment to its estimated fair value (Note 8). In addition, we received distributions of $7.4 million and $7.9 million from this investment during the six months ended June 30, 2013 and 2012, respectively.
(d) We received distributions of $1.3 million and $0.6 million from this investment during the six months ended June 30, 2013 and 2012, respectively.
(e) We received distributions of $9.1 million and $6.6 million from this investment during the six months ended June 30, 2013 and 2012, respectively.
The following tables present estimated combined summarized financial information for the Managed REITs. Certain prior year amounts have been retrospectively adjusted to reflect the disposition (or planned disposition) of certain properties as discontinued operations. Amounts provided are expected total amounts attributable to the Managed REITs and do not represent our proportionate share (in thousands):
|
|
|
June 30, 2013 |
|
December 31, 2012 |
| ||
|
Real estate, net |
|
$ |
6,351,851 |
|
$ |
6,049,926 |
|
|
Other assets |
|
2,022,069 |
|
2,002,620 |
| ||
|
Total assets |
|
8,373,920 |
|
8,052,546 |
| ||
|
Debt |
|
(3,729,749) |
|
(3,509,394) |
| ||
|
Accounts payable, accrued expenses and other liabilities |
|
(452,421) |
|
(450,362) |
| ||
|
Total liabilities |
|
(4,182,170) |
|
(3,959,756) |
| ||
|
Redeemable noncontrolling interests |
|
(21,399) |
|
(21,747) |
| ||
|
Noncontrolling interests |
|
(166,615) |
|
(170,140) |
| ||
|
Stockholders’ equity |
|
$ |
4,003,736 |
|
$ |
3,900,903 |
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
| ||||||||
|
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
Revenues |
|
$ |
191,171 |
|
$ |
208,029 |
|
$ |
369,003 |
|
$ |
418,417 |
|
|
Expenses |
|
(180,018) |
|
(163,612) |
|
(340,649) |
|
(336,666) |
| ||||
|
Net income from continuing operations |
|
$ |
11,153 |
|
$ |
44,417 |
|
$ |
28,354 |
|
$ |
81,751 |
|
|
Net income attributable to the Managed REITs (a) (b) |
|
$ |
16,099 |
|
$ |
59,722 |
|
$ |
26,721 |
|
$ |
92,919 |
|
(a) Inclusive of impairment charges recognized by the Managed REITs totaling $12.4 million during the three months ended June 30, 2013, and $21.7 million and $2.5 million during the six months ended June 30, 2013 and 2012, respectively. These impairment charges reduced our income earned from these investments by approximately $2.3 million during the three months ended June 30,
W. P. Carey 6/30/2013 10-Q — 17
Notes to Consolidated Financial Statements
2013, and $4.0 million and $0.1 million during the six months ended June 30, 2013 and 2012, respectively. The Managed REITs did not recognize any impairment charges during the three months ended June 30, 2012.
(b) Amounts included net losses on sale of real estate recorded by the Managed REITs totaling $16.7 million and $14.0 million during the three and six months ended June 30, 2013, respectively, and net gains totaling $34.3 million and $31.9 million during the three and six months ended June 30, 2012, respectively.
Interests in Unconsolidated Real Estate Investments
We own equity interests in single-tenant net leased properties that are generally leased to companies through noncontrolling interests (i) in partnerships and limited liability companies that we do not control but over which we exercise significant influence or (ii) as tenants-in-common subject to common control. Generally, the underlying investments are jointly-owned with affiliates. We account for these investments under the equity method of accounting (i.e., recorded initially at cost, subsequently adjusted for cash contributions, distributions and other adjustments required by equity method accounting, such as basis differences from acquisitions of certain investments). Earnings for each investment are recognized in accordance with each respective investment agreement. Investments in unconsolidated investments are required to be evaluated periodically. We periodically compare an investment’s carrying value to its estimated fair value and recognize an impairment charge to the extent that the carrying value exceeds fair value and such decline is determined to be other than temporary.
The following table sets forth our ownership interests in our equity investments in real estate, excluding the Managed REITs, and their respective carrying values (dollars in thousands):
|
|
|
Ownership Interest |
|
Carrying Value at |
| ||||
|
Lessee |
|
at June 30, 2013 |
|
June 30, 2013 |
|
December 31, 2012 |
| ||
|
Schuler A.G. (a) (b) (d) |
|
67% |
|
$ |
64,821 |
|
$ |
62,006 |
|
|
Hellweg Die Profi-Baumärkte GmbH & Co. KG (Hellweg 2) (a) (e) |
|
40% |
|
39,968 |
|
42,387 |
| ||
|
Advanced Micro Devices (c) (d) |
|
33% |
|
23,394 |
|
23,667 |
| ||
|
The New York Times Company (e) |
|
18% |
|
21,076 |
|
20,584 |
| ||
|
C1000 Logistiek Vastgoed B.V. (a) (c) (f) |
|
15% |
|
14,009 |
|
14,929 |
| ||
|
The Talaria Company (Hinckley) (d) |
|
30% |
|
7,999 |
|
7,702 |
| ||
|
Del Monte Corporation (c) (d) |
|
50% |
|
7,696 |
|
8,318 |
| ||
|
The Upper Deck Company (d) |
|
50% |
|
7,518 |
|
7,198 |
| ||
|
Waldaschaff Automotive GmbH and Wagon Automotive Nagold GmbH (a) (f) |
|
33% |
|
6,314 |
|
6,323 |
| ||
|
Builders FirstSource, Inc. (d) |
|
40% |
|
5,053 |
|
5,138 |
| ||
|
PetSmart, Inc. (d) |
|
30% |
|
3,840 |
|
3,808 |
| ||
|
Consolidated Systems, Inc. (c) (d) |
|
60% |
|
3,234 |
|
3,278 |
| ||
|
Wanbishi Archives Co. Ltd. (a) (f) (g) (h) |
|
3% |
|
500 |
|
(736) |
| ||
|
U. S. Airways Group, Inc.(i) |
|
75% |
|
- |
|
7,995 |
| ||
|
SaarOTEC (a) (d) (h) |
|
50% |
|
(339) |
|
(116) |
| ||
|
|
|
|
|
$ |
205,083 |
|
$ |
212,481 |
|
(a) The carrying value of the investment is affected by the impact of fluctuations in the exchange rate of the foreign currency.
(b) Represents a tenancy-in-common interest, under which the investment is under common control by us and our investment partner.
(c) These investments are tenancy-in-common interests whereby the property is encumbered by debt for which we are jointly and severally liable. The co-obligors include certain of our Managed REITs, and the aggregate amount due under the arrangements was approximately $167.6 million. Of this amount, $62.2 million represents the aggregate amount we agreed to pay and is included within the carrying value of each of these investments, where applicable.
(d) This investment is jointly-owned with CPA®:16 – Global.
(e) This investment is jointly-owned with CPA®:16 – Global and CPA®:17 – Global.
(f) This investment is jointly-owned with CPA®:17 – Global.
(g) We acquired our interest in this investment in December 2012. In January 2013, we made a purchase accounting adjustment of $1.3 million to this investment.
W. P. Carey 6/30/2013 10-Q — 18
Notes to Consolidated Financial Statements
(h) At June 30, 2013 and December 31, 2012, as applicable, we intended to fund our share of the investment’s future operating deficits if the need arose. However, we had no legal obligation to pay for any of the investment’s liabilities nor did we have any legal obligation to fund operating deficits.
(i) We sold our interest in this investment in June 2013. Please see Disposition of Unconsolidated Real Estate Investment below for more information.
Disposition of Unconsolidated Real Estate Investment
In June 2013, we contributed $2.9 million to the U.S. Airways investment to partially pay off its existing $17.1 million mortgage loan. We refinanced the remaining mortgage loan with new financing of $13.9 million. Immediately after the refinancing, we sold our interest in the investment to a third party for $28.4 million, net of closing costs and our contribution made to partially pay off the loan, and recognized a gain on sale of $19.5 million. The proceeds were placed into escrow for the purpose of executing an exchange transaction under Section 1031 of the Code. The gain was included in Net income from equity investments in real estate and the Managed REITs in the consolidated financial statements.
Note 7. Intangible Assets and Liabilities and Goodwill
In connection with our acquisitions of properties, we have recorded net lease intangibles that are being amortized over periods ranging from one year to 48 years. In-place lease and above-market rent are included in In-place lease intangible assets, net and Above-market rent intangible assets, net, respectively, in the consolidated financial statements. Tenant relationship, below-market ground lease (as lessee), trade name, management contracts and software license intangibles are included in Other intangible assets, net in the consolidated financial statements. Below-market rent, above-market ground lease (as lessor), and below-market purchase option intangibles are included in Accounts payable, accrued expenses and other liabilities in the consolidated financial statements.
In connection with our investment activity during the six months ended June 30, 2013, we have recorded net lease intangibles comprised as follows (life in years, dollars in thousands):
|
|
|
Weighted-Average |
|
|
| |
|
|
|
Life |
|
Amount |
| |
|
Amortizable Intangible Assets |
|
|
|
|
| |
|
In-place lease |
|
10.9 |
|
$ |
54,921 |
|
|
Above-market rent |
|
17.5 |
|
10,195 |
| |
|
Below-market ground lease |
|
48.3 |
|
725 |
| |
|
|
|
|
|
$ |
65,841 |
|
|
|
|
|
|
|
| |
|
Amortizable Intangible Liabilities |
|
|
|
|
| |
|
Below-market rent |
|
20.3 |
|
$ |
(31,098) |
|
The following table presents a reconciliation of our goodwill (in thousands):
|
|
|
Six Months Ended June 30, 2013 |
| |||||||
|
|
|
Real Estate |
|
Investment |
|
|
| |||
|
|
|
Ownership |
|
Management |
|
Total |
| |||
|
Balance - beginning of period |
|
$ |
265,525 |
|
$ |
63,607 |
|
$ |
329,132 |
|
|
Allocation of goodwill to properties sold within the reporting unit (a) |
|
(729) |
|
- |
|
(729) |
| |||
|
Impairment charges associated with properties classified as held for sale (a) |
|
(392) |
|
- |
|
(392) |
| |||
|
Balance - end of period |
|
$ |
264,404 |
|
$ |
63,607 |
|
$ |
328,011 |
|
(a) Amount is included in Gain (loss) on sale of real estate and Impairment charges within discontinued operations (Note 13).
W. P. Carey 6/30/2013 10-Q — 19
Notes to Consolidated Financial Statements
Intangible assets and liabilities and goodwill are summarized as follows (in thousands):
|
|
|