UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 20192020
or
☐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 | 45-4549771 | |||||||
| (State of incorporation) | (I.R.S. Employer Identification No.) | |||||||
| 10001 | ||||||||
| (Address of principal executive offices) | (Zip Code) | |||||||
Investor Relations (212) 492-8920
(Registrant’s telephone numbers, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of exchange on which registered | ||||||||||||
| Common Stock, $0.001 Par Value | WPC | New York Stock Exchange | ||||||||||||
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑
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 ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☑ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | ||||||||||||
| Smaller reporting company | ☐ | Emerging growth company | ☐ | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of last business day of the registrant’s most recently completed second fiscal quarter: $13.8$11.7 billion.
As of February 14, 20205, 2021, there were 172,278,242175,404,497 shares of Common Stock of registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant incorporates by reference its definitive Proxy Statement with respect to its 20202021 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of its fiscal year, into Part III of this Annual Report on Form 10-K.
INDEX
| Page No. | ||||||||
| PART I | ||||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 1B. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| PART II | ||||||||
| Item 5. | ||||||||
| Item 6. | ||||||||
| Item 7. | ||||||||
| Item 7A. | ||||||||
| Item 8. | ||||||||
| Item 9. | ||||||||
| Item 9A. | ||||||||
| Item 9B. | ||||||||
| PART III | ||||||||
| Item 10. | ||||||||
| Item 11. | ||||||||
| Item 12. | ||||||||
| Item 13. | ||||||||
| Item 14. | ||||||||
| PART IV | ||||||||
| Item 15. | ||||||||
| Item 16. | ||||||||
W. P. Carey | |||||
Forward-Looking Statements
This Annual Report on Form 10-K (the “Report”) including Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of Part II of this Report, contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. These forward-looking statements include, but are not limited to, statements regarding: our potential UPREIT Reorganization (both as discussed and defined herein); the amount and timing of any future dividends; statements regarding our corporate strategy and estimated or future economic performance and results, including the general economic outlook and our projected assets under management,expectations surrounding the continued impact of the novel coronavirus (“COVID-19”) pandemic on our business, financial condition, liquidity, results of operations, and prospects; underlying assumptions about our portfolio, (e.g., occupancy rate, lease terms,including tenant rent collections and tenant credit quality), possible new acquisitionsbankruptcies, as well as the estimated fair value of our investments and dispositions,properties; the amount and our international exposure (including the effectstiming of Brexit, as defined herein);any future dividends; our capital structure, future capital expenditure and leverage levels, (includingdebt service obligations, and any plans to fund our future liquidity needs), and future leverage and debt service obligations;needs; prospective statements regarding our access to the capital markets, including related to our credit ratings, and ability to sell shares under our “at-the-market” program (“ATM Program”), and the usesettlement of proceeds from that program;our forward equity offering; the outlook for the investment programs that we manage, including their earnings, as well as possible liquidity events for those programs; statements that we make regarding our ability to remain qualified for taxation as a real estate investment trust (“REIT”); and the impact of recently issued accounting pronouncements and other regulatory activity; and the general economic outlook. activity.
These statements are based on the current expectations of our management. It is important to note that our actual results could be materially different from those projected in such forward-looking statements. There are a number of risks and uncertainties that could cause actual results to differ materially from these forward-looking statements. Other unknown or unpredictable factorsrisks or uncertainties, like the risks related to the effects of pandemics and global outbreaks of contagious diseases (such as the current COVID-19 pandemic) or the fear of such outbreaks, could also have material adverse effects on our business, financial condition, liquidity, results of operations, and prospects. 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 (“SEC”), including but not limited to those described in Item 1A. Risk Factors and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operationsof this Report. Moreover, because we operate in a very competitive and rapidly changing environment, new risks are likely to emerge from time to time. Given these risks and uncertainties, potential investors are cautioned not to place undue reliance on these forward-looking statements as a prediction of future results, which speak only as of the date of this presentation, unless noted otherwise. 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 II, Item 8. Financial Statements and Supplementary Data.
W. P. Carey | |||||
PART I
Item 1. Business.
General Development of Business
W. P. Carey Inc. (“W. P. Carey”), together with our consolidated subsidiaries and predecessors, is an internally-managed diversified REIT and a leading owner of commercial real estate, net-leased to companies located primarily in the United States and Northern and Western Europe on a long-term basis. The vast majority of our revenues originate from lease revenue provided by our real estate portfolio, which is comprised primarily of single-tenant industrial, warehouse, office, retail, and self-storage facilities that are critical to our tenants’ operations. Our portfolio is comprised of 1,2141,243 properties, net-leased to 345350 tenants in 25 countries. As of December 31, 2019,2020, approximately 64%61% of our contractual minimum annualized base rent (“ABR”) was generated by properties located in the United States and approximately 34%37% was generated by properties located in Europe. As of that same date, our portfolio included 2120 operating properties, comprised of 19 self-storage properties and two hotels (one of which was sold in January 2020, see one hotel.
We also earn fees and other income by managing the portfolios of certain non-traded investment programs through our investment management business. On April 13, 2020, two of our former investment programs, Carey Watermark Investors Incorporated (“CWI 1”) and Carey Watermark Investors 2 Incorporated (“CWI 2”) (together, the “CWI REITs”), merged in an all-stock transaction (the “CWI 1 and CWI 2 Merger”). Following the close of the CWI 1 and CWI 2 Merger, our advisory agreements with CWI 1 and CWI 2 were terminated, CWI 2 was renamed Watermark Lodging Trust, Inc. (“WLT”), and we began to provide certain services to WLT pursuant to a transition services agreement (Note 4). We no longer sponsor new investment programs.
Founded in 1973, we originally operated as sponsor and advisor to a series of non-traded investment programs under the Corporate Property Associates (“CPA”) brand name. We became a publicly traded company listed on the New York Stock Exchange (“NYSE”) in 1998 and reorganized as a REIT in 2012. In June 2017, we exited non-traded retail fundraising activities and no longer sponsor new investment programs. On October 31, 2018, one of our former investment programs, Corporate Property Associates 17 – Global Incorporated (“CPA:17 – Global”), merged into one of our wholly-owned subsidiaries (the “CPA:17 Merger”), which added approximately $5.6 billion of assets to our portfolio.
Our shares of common stock are listed on the NYSE under the ticker symbol “WPC.” Headquartered in New York, we also have offices in Dallas, London, and Amsterdam. At December 31, 2019, we had 204 employees.For discussion of the impact of the COVID-19 pandemic on our business, see Item 1A. Risk Factors, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Significant Developments, and Note 2.
Narrative Description of Business
Business Objectives and Strategy
Our primary business objective is to increase long-term stockholder value through accretive acquisitions and proactive asset management of our real estate portfolio, enabling us to grow our dividend. Our business operates in two segments: Real Estate and Investment Management, as described below and in Note 1.
Our investment strategy primarily focuses on owning and actively managing a diverse portfolio of commercial real estate that is net-leased to credit-worthy companies. We believe that many companies prefer to lease rather than own their corporate real estate because it allows them to deploy their capital more effectively into their core competencies. We generally structure financing for companies in the form of sale-leaseback transactions, where we acquire a company’s critical real estate and then lease it back to them on a long-term, triple-net basis, which requires them to pay substantially all of the costs associated with operating and maintaining the property (such as real estate taxes, insurance, and facility maintenance). Compared to other types of real estate investments, sale-leaseback transactions typically produce a more predictable income stream and require minimal capital expenditures, which in turn generate revenues that provide our stockholders with a stable, growing source of income.
We actively manage our real estate portfolio to monitor tenant credit quality and lease renewal risks. We believe that diversification across property type, tenant, tenant industry, and geographic location, as well as diversification of our lease expirations and scheduled rent increases, are vital aspects of portfolio risk management and accordingly have constructed a portfolio of real estate that we believe is well-diversified across each of these categories.
In addition to our real estate portfolio, as of December 31, 2019,2020, we also managed assets, totaling approximately $7.5$2.8 billion, of the following entities: (i) Corporate Property Associates 18 – Global Incorporated (“CPA:18 – Global,” and together with CPA:17 – Global until October 31, 2018, the “CPA REITs”); (ii) two publicly owned, non-traded REITs that have invested in lodging and lodging-related properties: Carey Watermark Investors Incorporated (“CWI 1”Global”) and Carey Watermark Investors 2 Incorporated (“CWI 2,” and together with CWI 1, the “CWI REITs”); and (iii) a private limited partnership formed for the purpose of developing, owning, and operating student housing properties and similar investments in Europe:(ii) Carey European Student Housing Fund I, L.P. (“CESH”). On October 31, 2018, one of our former investment programs, Corporate Property Associates 17 – Global Incorporated (“CPA:17 – Global”), merged into one of our wholly-owned subsidiaries (the “CPA:17 Merger”) (Note 3). As used herein, “Managed REITs” refers to the CPA REITs and the CWI REITS, all of which have fully invested the funds raised in their offerings.
W. P. Carey | |||||
We intend to operate our business in a manner that is consistent with the maintenance of our status as a REIT for federal income tax purposes. In addition, we expect to manage our investments in order to maintain our exemption from registration as an investment company under the Investment Company Act of 1940, as amended.
Investment Strategies
When considering potential net-lease investments for our real estate portfolio, we review various aspects of a transaction to determine whether the investment and lease structure will satisfy our investment criteria. We generally analyze the following main aspects of each transaction:
Tenant/Borrower Evaluation — We evaluate each potential tenant or borrower for creditworthiness, typically considering factors such as management experience, industry position and fundamentals, operating history, and capital structure. We also rate each asset based on its market, liquidity, and criticality to the tenant’s operations, as well as other factors that may be unique to a particular investment. We seek opportunities where we believe the tenant may have a stable or improving credit profile or credit potential that has not been fully recognized by the market. We define creditworthiness as a risk-reward relationship appropriate to our investment strategies, which may or may not coincide with ratings issued by the credit rating agencies. We have a robust internal credit rating system and may designate a tenantsubsidiaries of non-guarantor parent companies with investment grade ratings as “implied investment grade” even if the credit rating agencies have not made a rating determination.grade.”
Properties Critical to Tenant/Borrower Operations — We generally focus on properties and facilities that we believe are critical to the ongoing operations of the tenant. We believe that these properties generally provide better protection, particularly in the event of a bankruptcy, since a tenant/borrower is less likely to risk the loss of a critically important lease or property in a bankruptcy proceeding or otherwise.
Diversification — We attempt to diversify our portfolio to avoid undue dependence on any one particular tenant, borrower, collateral type, geographic location, or industry. By diversifying our portfolio, we seek to reduce the adverse effect of a single underperforming investment or a downturn in any particular industry or geographic region. While we do not set any fixed diversity metrics in our portfolio, we believe that it is well-diversified.
Lease Terms — Generally, the net-leased properties we invest in are leased on a full-recourse basis to the tenants or their affiliates. In addition, the vast majority of our leases provide for scheduled rent increases over the term of the lease (see Our Portfolio below). These rent increases are either fixed (i.e., mandated on specific dates) or tied to increases in inflation indices (e.g., the Consumer Price Index (“CPI”) or similar indices in the jurisdiction where the property is located), but may contain caps or other limitations, either on an annual or overall basis. In the case of retail stores and hotels, the lease may provide for participation in the gross revenues of the tenant above a stated level, which we refer to as percentage rent.
Real Estate Evaluation — We review and evaluate the physical condition of the property and the market in which it is located. We consider a variety of factors, including current market rents, replacement cost, residual valuation, property operating history, demographic characteristics of the location and accessibility, competitive properties, and suitability for re-leasing. We obtain third-party environmental and engineering reports and market studies when required. When considering an investment outside the United States, we will also consider factors particular to a country or region, including geopolitical risk, in addition to the risks normally associated with real property investments. See Item 1A. Risk Factors.
Transaction Provisions to Enhance and Protect Value — When negotiating leases with potential tenants, we attempt to include provisions that we believe help to protect the investment from material changes in the tenant’s operating and financial characteristics, which may affect the tenant’s ability to satisfy its obligations to us or reduce the value of the investment. Such provisions include covenants requiring our consent for certain activities, requiring indemnification protections and/or security deposits, and requiring the tenant to satisfy specific operating tests. We may also seek to enhance the likelihood that a tenant will satisfy their lease obligations through a letter of credit or guaranty from the tenant’s parent or other entity. Such credit enhancements, if obtained, provide us with additional financial security. However, in markets where competition for net-lease transactions is strong, some or all of these lease provisions may be difficult to obtain. In addition, in some circumstances, tenants may retain the option to repurchase the property, typically at the greater of the contract purchase price or the fair market value of the property at the time the option is exercised.
W. P. Carey 2020 10-K– 4 | |||||
Competition — We face active competition from many sources, both domestically and internationally, for net-lease investment opportunities in commercial properties. In general, we believe that our management’s experience in real estate, credit underwriting, and transaction structuring will allow us to compete effectively for commercial properties. However, competitors may be willing to accept rates of return, lease terms, other transaction terms, or levels of risk that we find unacceptable.
Asset Management
We believe that proactive asset management is essential to maintaining and enhancing property values. Important aspects of asset management include entering into new or modified transactions to meet the evolving needs of current tenants, re-leasing properties, credit and real estate risk analysis, building expansions and redevelopments, sustainability and efficiency analysis and retrofits, and strategic dispositions. We regularly engage directly with our tenants and form long-term working relationships with their decision makers in order to provide proactive solutions and to obtain an in-depth, real-time understanding of tenant credit.
We monitor compliance by tenants with their lease obligations and other factors that could affect the financial performance of our real estate investments on an ongoing basis, which typically involves ensuring that each tenant has paid real estate taxes and other expenses relating to the properties it occupies and is maintaining appropriate insurance coverage. To ensure such compliance at our international properties, we often engage the expertise of third parties to complete property inspections. We also review tenant financial statements and undertake regular physical inspections of the properties to verify their condition and maintenance. Additionally, we periodically analyze each tenant’s financial condition, the industry in which each tenant operates, and each tenant’s relative strength in its industry. The in-depth understanding of our tenants’ businesses and direct relationships with their management teams provides strong visibility into potential issues. Our business intelligence platform provides real-time surveillance and early warning, allowing asset managers to work with tenants to enforce lease provisions, and where appropriate, consider lease modifications. Our proactive asset management philosophy has proven particularly applicable during the COVID-19 pandemic.
Financing Strategies
We believe in maintaining ample liquidity, a conservative capital structure, and access to multiple forms of capital. We preserve balance sheet flexibility and liquidity by maintaining significant capacity on our $1.8 billion unsecured revolving credit facility (the “Unsecured Revolving Credit Facility”), as well as aany amounts available to us under our term loan (“Term Loan”) and a delayed draw term loan (“Delayed Draw Term Loan”), which, together with our Unsecured Revolving Credit Facility, we refer to collectively as our “Senior Unsecured Credit Facility,Facility.” and which was amended and restated in February 2020 for a total capacity of $2.1 billion (our “Amended Credit Facility” (Note 20)). We generally use the Senior Unsecured Revolving Credit Facility to fund our immediate capital needs, including new acquisitions and the repayment of secured mortgage debt as we continue to unencumber our balance sheet.assets. We seek to replace short-term financing with more permanent forms of capital, including, but not limited to, common stock, unsecured debt securities, bank debt, and proceeds from asset sales. When evaluating which form of capital to pursue, we take into consideration multiple factors, including our corporate leverage levels and targets, and the most advantageous sourcesattractive source of capital available to us,us. We may choose to issue unsecured debt securities and the optimal timingbank debt denominated in foreign currencies in part to raise new capital.fund international acquisitions, unencumber assets, and mitigate our exposure to fluctuations in exchange rates. We strive to maintain an investment grade rating, thatwhich places limitations on the amount of leverage acceptable in our capital structure. Although we expect to continue to have access to a wide variety of capital sources and maintain our investment grade rating, there can be no assurance that we will be able to do so in the future.
Our Portfolio
At December 31, 2019,2020, our portfolio had the following characteristics:
•Number of properties — full or partial ownership interests in 1,2141,243 net-leased properties, 19 self-storage properties, and two hotels;one hotel;
•Total net-leased square footage — 140.0approximately 144 million; and
•Occupancy rate — approximately 98.8%98.5%.
For more information about our portfolio, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Portfolio Overview.
W. P. Carey 2020 10-K– 5 | |||||
Tenant/Lease Information
At December 31, 2019,2020, our tenants/leases had the following characteristics:
•Number of tenants — 345;350;
•Investment grade tenants as a percentage of total ABR — 22%;
•Implied investment grade tenants as a percentage of total ABR — 8%7%;
•Weighted-average lease term — 10.710.6 years;
•99% of our leases provide rent adjustments as follows:
◦CPI and similar — 62%
◦Fixed — 33%
◦Other — 4%
Human Capital
Investing in Our Employees
At December 31, 2020, we had 188 employees, 134 of which were located in the United States and 54 of which were located in Europe. We strive to make W. P. Carey a great place to work by attracting a diverse pool of the best and brightest applicants and making them feel supported and included as they progress and grow with the company. We offer various levels of training, including management training, executive training, skills training, and “Respect in the Workplace” training, in addition to our “Conversations at Carey” educational program. By engaging with our employees and investing in their careers through training and development, we are building a talented workforce capable of executing our business strategies.
Diversity
We believe that our success is dependent upon the diverse backgrounds and perspectives of our employees and directors. Diversity and inclusion is an organic part of who we are and is supported at all levels of the organization. W. P. Carey is an equal opportunity employer and considers qualified applicants regardless of race, color, religion, sexual orientation, gender, gender identity or expression, national origin, age, disability, military or veteran status, genetic information, or other statuses protected by applicable federal, state, and local law. In 2020, we launched our diversity and inclusion initiative, which is designed to facilitate conversations around race, sexual orientation and gender identity, national origin, creeds, and other important topics. These conversations, led by our Diversity & Inclusion Advisory Committee, provide a forum for us to translate our positions as a company into action in both our internal and external communities. We also signed the CEO Action Pledge for Diversity & Inclusion, furthering our commitment to fostering a more diverse and inclusive workforce.
Employee Wellness and Benefits
The health and wellness of our employees and their families are paramount and our comprehensive benefits package is designed to address the changing needs of employees and their dependents. In addition to robust health and wellness benefits, we also provide our employees with competitive compensation programs, with a focus on current compensation and retirement planning for their future.
In response to early reports of the suspected transmission of COVID-19 in both the United States and Europe in late February and early March 2020, we initiated steps to prioritize the health and safety of our employees. By mid-March 2020, we had fully transitioned all employees to working remotely and successfully executed our business continuity plan with no disruption to our core financial, operational, and telecommunications systems. To enhance transparency and maintain a sense of community, we communicated frequently through town halls, virtual seminars, and emails. We also reinforced the availability of our corporate benefits, including telemedicine and confidential counseling, and provided additional resources for managing stress, anxiety, and isolation.
Additional information regarding our human capital programs and initiatives is available in our annual ESG Report and Proxy Statement, which can be found on our company website. Information on our website, including our ESG Report, is not incorporated by reference into this Report.
Available Information
We will supply to any stockholder, upon written request and without charge, a copy of this Report as filed with the SEC. Our filings can also be obtained for free on the SEC’s website at http://www.sec.gov. All filings we make with the SEC, including this Report, our quarterly reports on Form 10-Q, and our current reports on Form 8-K, as well as any amendments to those reports, are available for free on the Investor Relations portion of our website http:(http://www.wpcarey.com,www.wpcarey.com), as soon as reasonably practicable after they are filed with or furnished to the SEC.
Our quarterly earnings conference call and investor presentations are accessible by the public. We generally announce via press release the dates and conference call details for upcoming scheduled quarterly earnings announcements and webcast investor presentations, which are also available in the Investor Relations section of our website approximately ten days prior to the event.
Our Code of Business Conduct and Ethics, which applies to all employees, including our chief executive officer and chief financial officer, is also available on our website. We intend to make available on our website any future amendments or waivers to our Code of Business Conduct and Ethics within four business days after any such amendments or waivers. We are providing our website address solely for the information of investors and do not intend for it to be an active link. We do not intend to incorporate the information contained on our website into this Report or other documents filed with or furnished to the SEC.
Item 1A. Risk Factors.
Our business, results of operations, financial condition, and ability to pay dividends could be materially adversely affected by various risks and uncertainties, including those enumerated below. These risk factors may have affected, and in the future could affect, our actual operating and financial results, andbelow, which could cause such results to differ materially from those in any forward-looking statements. You should not consider this list exhaustive. New risk factors emerge periodically and we cannot assure you that the factors described below list all risks that may become material to us at any later time.
Risks Related to Our BusinessPortfolio and Ownership of Real Estate
We face active competition for investments.
We face active competition for our investments from many sources, including credit companies, pension funds, private individuals, financial institutions, finance companies, and investment companies. These institutions may accept greater risk or lower returns, allowing them to offer more attractive terms to prospective tenants. We believe that the investment community remains risk averse and that the net lease financing market is perceived as a relatively conservative investment vehicle.
Accordingly, we expect increased competition for investments, both domestically and internationally. Further capital inflows into our marketplace will place additional pressure on the returns that we can generate from our investments, as well as our willingness and ability to execute transactions. In addition, the vast majority of our current investments are in single-tenant commercial properties that are subject to triple-net leases. Many factors, including changes in tax laws or accounting rules, may make these types of sale-leaseback transactions less attractive to potential sellers and lessees, which could negatively affect our ability to increase the amount of assets of this type under management.
We are not required to meet any diversification standards; therefore, our investments may become subject to concentration risks.
Subject to our intention to maintain our qualification as a REIT, we are not required to meet any diversification standards. Therefore, our investments may become concentrated in type or geographic location, which could subject us to significant risks with potentially adverse effects on our investment objectives.
We may incur substantial impairment charges.
We may incur substantial impairment charges, which could adversely affect our results of operations or limit our ability to dispose of assets at attractive prices and may reduce the availability of buyer financing. By their nature, the timing or extent of impairment charges are not predictable.
W. P. Carey 2020 10-K– 7 | |||||
Because we invest in properties located outside the United States, we are exposed to additional risks.
We have invested, and may continue to invest, in properties located outside the United States. At December 31, 2020, our real estate properties located outside of the United States represented 39% of our ABR. These investments may be affected by factors particular to the local jurisdiction where the property is located and may expose us to additional risks, including:
•enactment of laws relating to the foreign ownership of property (including expropriation of investments), or laws and regulations relating to our ability to repatriate invested capital, profits, or cash and cash equivalents back to the United States;
•legal systems where the ability to enforce contractual rights and remedies may be more limited than under U.S. law;
•difficulty in complying with conflicting obligations in various jurisdictions and the burden of observing a variety of evolving foreign laws, regulations, and governmental rules and policies, which may be more stringent than U.S. laws and regulations (including land use, zoning, environmental, financial, and privacy laws and regulations, such as the European Union’s General Data Protection Regulation);
•tax requirements vary by country and existing foreign tax laws and interpretations may change (e.g., the on-going implementation of the European Union’s Anti-Tax Avoidance Directives), which may result in additional taxes on our international investments;
•changes in operating expenses in particular countries or regions;
•economic conditions and regulatory changes following the United Kingdom’s exit from the European Union (“Brexit”), which may result in a material adverse effect on our business and results of operations; and
•geopolitical risk and adverse market conditions caused by changes in national or regional economic or political conditions (which may impact relative interest rates and the terms or availability of mortgage funds), including with regard to Brexit.
The failure of our compliance and internal control systems to properly mitigate such additional risks, or of our operating infrastructure to support such international investments, could result in operational failures, regulatory fines, or other governmental sanctions. We may engage third-party asset managers in international jurisdictions to monitor compliance with legal requirements and lending agreements. Failure to comply with applicable requirements may expose us, our operating subsidiaries, or the entities we manage to additional liabilities. Our operations in the United Kingdom, the European Economic Area, and other countries are subject to significant compliance, disclosure, and other obligations.
In addition, the lack of publicly available information in certain jurisdictions could impair our ability to analyze transactions and may cause us to forego an investment opportunity. It may also impair our ability to receive timely and accurate financial information from tenants necessary to meet reporting obligations to financial institutions or governmental and regulatory agencies. Certain of these risks may be greater in less developed countries. Further, our expertise to date is primarily in the United States and certain countries in Europe. We have less experience in other international markets and may not be as familiar with the potential risks to investments in these areas, which could cause us and the entities we manage to incur losses.
We are also subject to potential fluctuations in exchange rates between foreign currencies and the U.S. dollar because we translate revenue denominated in foreign currency into U.S. dollars for our financial statements (our principal exposure is to the euro). Our results of foreign operations are adversely affected by a stronger U.S. dollar relative to foreign currencies (i.e., absent other considerations, a stronger U.S. dollar will reduce both our revenues and our expenses).
A significant amount of our leases will expire within the next five years and we may have difficulty re-leasing or selling our properties if tenants do not renew their leases.
Within the next five years, approximately 24% of our leases, based on our ABR as of December 31, 2019,2020, are due to expire. If these leases are not renewed or if the properties cannot be re-leased on terms that yield comparable payments, our lease revenues could be substantially adversely affected. In addition, when attempting to re-lease such properties, we may incur significant costs and the terms of any new or renewed leases will depend on prevailing market conditions at that time. We may also seek to sell such properties and incur losses due to prevailing market conditions. Some of our properties are designed for the particular needs of a tenant; thus, we may be required to renovate or make rent concessions in order to lease the property to another tenant. If we need to sell such properties, we may have difficulty selling it to a third party due to the property’s unique design. Real estate investments are generally less liquid than many other financial assets, which may limit our ability to quickly adjust our portfolio in response to changes in economic or other conditions. These and other limitations may affect our ability to re-lease or sell properties without adversely affectingaffect returns to our stockholders.
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Under our existing leases, certain tenants have a right to repurchase the properties they lease from us. The purchase price may be a fixed price or it may be based on a formula or the market value at the time of exercise. If a tenant exercises its right to purchase the property and the property’s market value has increased beyond that price, we would not be able to fully realize the appreciation on that property. Additionally, if the price at which the tenant can purchase the property is less than our carrying value (e.g., where the purchase price is based on an appraised value), we may incur substantial impairment charges.a loss. In addition, we may also be unable to reinvest proceeds from these dispositions in investments with similar or better investment returns.
Our ability to fully control the management of our net-leased properties may be limited.
The tenants or managers of net-leased properties are responsible for maintenance and other day-to-day management of the properties. If a property is not adequately maintained in accordance with the terms of the applicable lease, we may incur expenses for deferred maintenance expenditures or other liabilities once the property becomes free of the lease. While our leases generally provide for recourse against the tenant in these instances, a bankrupt or financially troubled tenant may be more likely to defer maintenance and it may be more difficult to enforce remedies against such a tenant. Although we endeavor to monitor compliance by tenants with their lease obligations and other factors that could affect the financial performance of our properties on an ongoing basis, we may not always be able to ascertain or forestall deterioration in the condition of a property or the financial circumstances of a tenant.
In addition, our lack of control over our net-leased properties makes it difficult for us to collect property-level environmental metrics and to enforce sustainability initiatives, which may impact our ability to report to and comply with certain real estate sustainability standards. If we are unable to successfully engage with established real estate sustainability standards, our relationship with our investor base, our stock price, and even our access to capital may be negatively impacted.
The value of our real estate is subject to fluctuation.
We are subject to all of the general risks associated with the ownership of real estate, which include:
•adverse changes in general or local economic conditions, including changes in interest rates or foreign exchange rates;
•changes in the supply of, or demand for, similar or competing properties;
•competition for tenants and changes in market rental rates;
•inability to lease or sell properties upon termination of existing leases, or renewal of leases at lower rental rates;
•inability to collect rents from tenants due to financial hardship, including bankruptcy;
•changes in tax, real estate, zoning, or environmental laws that adversely impact the value of real estate;
•failure to comply with federal, state, and local legal and regulatory requirements, including the Americans with Disabilities Act and fire or life-safety requirements;
•uninsured property liability, property damage, or casualty losses;
•changes in operating expenses or unexpected expenditures for capital improvements;
•exposure to environmental losses; and
•force majeure and other factors beyond the control of our management.
While the revenues from our leases are not directly dependent upon the value of the real estate owned, significant declines in real estate values could adversely affect us in many ways, including a decline in the residual values of properties at lease expiration, possible lease abandonment by tenants, and a decline in the attractiveness of triple-net lease transactions to potential sellers. We also face the risk that lease revenue will be insufficient to cover all corporate operating expenses and the debt service payments we incur.
Because most of our properties are occupied by a single tenant, our success is materially dependent upon the tenant’s financial stability.
Most of our properties are occupied by a single tenant; therefore, the success of our investments is materially dependent on the financial stability of these tenants. Revenues from several of our tenants/guarantors constitute a significant percentage of our lease revenues. Our top ten tenants accounted for approximately 22% of total ABR at December 31, 2020. Lease payment defaults by tenants could negatively impact our net income and reduce the amounts available for distribution to stockholders.
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The bankruptcy or insolvency of tenants may incur substantial impairment charges, which we are requiredcause a reduction in our revenue and an increase in our expenses.
We have had, and may in the future have, tenants file for bankruptcy protection. Bankruptcy or insolvency of a tenant could lead to recognize: (i) whenever we sell a property for less than its carrying valuethe loss of lease or we determine thatinterest and principal payments, an increase in the carrying amountcost of the property, and litigation. If one or a series of bankruptcies or insolvencies is not recoverable and exceeds its fair value; (ii) for direct financing leases, whenever losses relatedsignificant enough (more likely during a period of economic downturn), it could lead to the collectability of receivables are both probable and reasonably estimable or there has been a permanent declinereduction in the current estimate of the residual value of the property; and (iii) for equity investments, whenever the estimated fair value of the investment’s underlying net assets in comparison with the carrying value of our interestshares and/or a decrease in our dividend. Under U.S. bankruptcy law, a tenant that is the subject of bankruptcy proceedings has the option of assuming or rejecting any unexpired lease. If the tenant rejects the lease, any resulting claim we have for breach of the lease (excluding collateral securing the claim) will be treated as a general unsecured claim and the maximum claim will be capped. In addition, due to the long-term nature of our leases and, in some cases, terms providing for the repurchase of a property by the tenant, a bankruptcy court could recharacterize a net lease transaction as a secured lending transaction. Insolvency laws outside the United States may be more or less favorable to reorganization or the protection of a debtor’s rights as in the investment has declined on an other-than-temporary basis. ByUnited States. In circumstances where the bankruptcy laws of the United States are considered to be more favorable to debtors and/or their nature, the timing or extent of impairment chargesreorganization, entities that are not predictable.ordinarily perceived as U.S. entities may seek to take advantage of U.S. bankruptcy laws.
Because we are subject to possible liabilities relating to environmental matters, we could alsoincur unexpected costs and our ability to sell or otherwise dispose of a property may be negatively impacted.
We have invested, and may in the future invest, in real properties historically or currently used for industrial, manufacturing, and other commercial purposes, and some of our tenants may handle hazardous or toxic substances, generate hazardous wastes, or discharge regulated pollutants to the environment. Buildings and structures on the properties we purchase may have known or suspected asbestos-containing building materials. We may invest in properties located in countries that have adopted laws or observe environmental management standards that are less stringent than those generally followed in the United States, which may pose a greater risk that releases of hazardous or toxic substances have occurred. We therefore may own properties that have known or potential environmental contamination as a result of historical or ongoing operations, which may expose us to liabilities under environmental laws. Some of these laws could impose the following on us:
•responsibility and liability for the cost of investigation and removal or remediation (including at appropriate disposal facilities) of hazardous or toxic substances in, on, or migrating from our property, generally without regard to our knowledge of, or responsibility for, the presence of these contaminants;
•liability for claims by third parties based on damages to natural resources or property, personal injuries, or costs of removal or remediation of hazardous or toxic substances in, on, or migrating from our property; and
•responsibility for managing asbestos-containing building materials and third-party claims for exposure to those materials.
Costs relating to investigation, remediation, or removal of hazardous or toxic substances, or for third-party claims for damages, may be substantial and could exceed any amounts estimated and recorded within our consolidated financial statements. The presence of hazardous or toxic substances at any of our properties, or the failure to properly remediate a contaminated property, could (i) give rise to a lien in favor of the government for costs it may incur to address the contamination or (ii) otherwise adversely affect our financial conditionability to sell or lease the property or to borrow using the property as collateral. In addition, environmental liabilities, or costs or operating limitations imposed on a tenant by environmental laws, could affect its ability to make rental payments to us. And although we endeavor to avoid doing so, we may be required, in connection with any future divestitures of property, to provide buyers with indemnifications against potential environmental liabilities.
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Risks Related to Our Liquidity and results of operations. We assess our goodwill and other intangible assets for impairment at least annually and more frequently when required by U.S. generally accepted accounting principles (“GAAP”). We are required to record an impairment charge if circumstances indicate that the asset carrying values exceed their fair values. Our assessment of goodwill or other intangible assets could indicate that an impairment of the carrying value of such assets may have occurred, resulting in a material, non-cash write-down of such assets, which could have a material adverse effect on our results of operations.Capital Resources
Our level of indebtedness could have significant adverse consequences and our cash flow may be insufficient to meet our debt service obligations.
Our consolidated indebtedness as of December 31, 20192020 was approximately $6.1$6.7 billion, representing a consolidated debt to gross assets ratio of approximately 40.3%42.0%. This consolidated indebtedness was comprised of (i) $4.4$5.1 billion in Senior Unsecured Notes (as defined in Note 11), (ii) $1.5$1.1 billion in non-recourse mortgage loans on various properties, and (iii) $201.3$404.3 million outstanding under our Senior Unsecured Credit Facility (as defined in Note 11). Our level of indebtedness could have significant adverse consequences on our business and operations, including the following:
•it may increase our vulnerability to changes in economic conditions (including increases in interest rates) and limit our flexibility in planning for, or reacting to, changes in our business and/or industry;
•we may be at a disadvantage compared to our competitors with comparatively less indebtedness;
•we may be unable to hedge our debt, or such hedges may fail or expire, leaving us exposed to potentially volatile interest or currency exchange rates;
•any default on our secured indebtedness may lead to foreclosures, creating taxable income that could hinder our ability to meet the REIT distribution requirements imposed by the Internal Revenue Code; and
•we may be unable to refinance our indebtedness or obtain additional financing as needed or on favorable terms.
Our ability to generate sufficient cash flow determines whether we will be able to (i) meet our existing or potential future debt service obligations; (ii) refinance our existing or potential future indebtedness; and (iii) fund our operations, working capital, acquisitions, capital expenditures, and other important business uses. Our future cash flow is subject to many factors beyond our control and we cannot assure you that our business will generate sufficient cash flow from operations, or that future sources of cash will be available to us on favorable terms, to meet all of our debt service obligations and fund our other important business uses or liquidity needs. As a result, we may be forced to take other actions to meet those obligations, such as selling properties, raising equity, or delaying capital expenditures, any of which may not be feasible or could have a material adverse effect on us. In addition, despite our substantial outstanding indebtedness and the restrictions in the agreements governing our indebtedness, we may incur significantly more indebtedness in the future, which would exacerbate the risks discussed above.
Restrictive covenants in our credit agreement and indentures may limit our ability to expand or fully pursue our business strategies.
The credit agreement for our Senior Unsecured Credit Facility and the indentures governing our Senior Unsecured Notes contain financial and operating covenants that, among other things, require us to meet specified financial ratios and may limit our ability to take specific actions, even if we believe them to be in our best interest (e.g., subject to certain exceptions, our ability to consummate a merger, consolidation, or a transfer of all or substantially all of our consolidated assets to another person is restricted). These covenants may restrict our ability to expand or fully pursue our business strategies. Our ability to comply with these and other provisions of our debt agreements may be affected by changes in our operating and financial performance, changes in general business and economic conditions, adverse regulatory developments, or other events beyond our control. The breach of any of these covenants could result in a default under our indebtedness, which could result in the acceleration of the maturity of such indebtedness and potentially other indebtedness. If any of our indebtedness is accelerated prior to maturity, we may not be able to repay such indebtedness or refinance such indebtedness on favorable terms, or at all.
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A downgrade in our credit ratings could materially adversely affect our business and financial condition as well as the market price of our Senior Unsecured Notes.
We plan to manage our operations to maintain investment grade status with a capital structure consistent with our current profile, but there can be no assurance that we will be able to maintain our current credit ratings. Our credit ratings could change based upon, among other things, our historical and projected business, financial condition, liquidity, results of operations, and prospects. These ratings are subject to ongoing evaluation by credit rating agencies and we cannot provide any assurance that our ratings will not be changed or withdrawn by a rating agency in the future. If any of the credit rating agencies downgrades or lowers our credit rating, or if any credit rating agency indicates that it has placed our rating on a “watch list” for a possible downgrading or lowering, or otherwise indicates that its outlook for our rating is negative, it could have a material adverse effect on our costs and availability of capital, which could in turn have a material adverse effect on us and on our ability to satisfy our debt service obligations (including those under our Senior Unsecured Credit Facility, our Senior Unsecured Notes, or other similar debt securities that we issue) and to pay dividends on our common stock. Furthermore, any such action could negatively impact the market price of our Senior Unsecured Notes.
Some of our properties are encumbered by mortgage debt, which could adversely affect our cash flow.
At December 31, 2019,2020, we had $1.5$1.1 billion of property-level mortgage debt on a non-recourse basis, which limits our exposure on any property to the amount of equity invested in the property. If we are unable to make our mortgage-related debt payments as required, a lender could foreclose on the property or properties securing its debt. Additionally, lenders for our international mortgage loan transactions typically incorporated various covenants and other provisions (including loan to value ratio, debt service coverage ratio, and material adverse changes in the borrower’s or tenant’s business) that can cause a technical loan default. Accordingly, if the real estate value declines or the tenant defaults, the lender would have the right to foreclose on its security. If any of these events were to occur, it could cause us to lose part or all of our investment, which could reduce the value of our portfolio and revenues available for distribution to our stockholders.
Some of our property-level financing may also require us to make a balloon payment at maturity. Our ability to make such balloon payments may depend upon our ability to refinance the obligation or sell the underlying property. When a balloon payment is due, however, we may be unable to refinance the balloon payment on terms as favorable as the original loan, make the payment with existing cash or cash resources, or sell the property at a price sufficient to cover the payment. Our ability to accomplish these goals will be affected by various factors existing at the relevant time, such as the state of national and regional economies, local real estate conditions, available mortgage or interest rates, availability of credit, our equity in the mortgaged properties, our financial condition, the operating history of the mortgaged properties, and tax laws. A refinancing or sale could affect the rate of return to stockholders and the projected disposition timeline of our assets.
We are subject to the volatility of the capital markets, which may impact our ability to deploy capital.
The trading volume and market price of our common stock may fluctuate significantly and be adversely impacted in response to a number of factors, therefore, our current or historical trading volume and share prices are not indicative of the number of shares of our common stock that will trade going forward or how the market will value shares of our common stock in the future. In addition, the capital markets may experience extreme volatility and disruption (e.g., during the COVID-19 pandemic), which could make it more difficult to raise capital. Since net-lease REITs must be able to deploy capital with agility and consistency, if we cannot access the capital markets upon favorable terms or at all, we may be required to liquidate one or more investments, including when an investment has not yet realized its maximum return, which could also result in adverse tax consequences and affect our ability to capitalize on acquisition opportunities and/or meet operational needs. Moreover, market turmoil could lead to decreased consumer confidence and widespread reduction of business activity, which may materially and adversely impact us, including our ability to acquire and dispose of properties.
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We may be affected by changesissue debt or equity securities or incur additional borrowings in the valuationfuture. Future issuances of debt securities would increase our interest costs and rank senior to our common stock upon our liquidation, and additional issuances of equity securities would dilute the Managed Programs’ portfolios (CPA:18 – Global has significant investments in triple-net leased properties substantially similar to those we hold and may be affected by the same market conditions and risks as the properties we own);
purposes of making distributions), both of which may negatively affect the market price of our common stock. However, our future growth will depend, in part, upon our ability to earn revenue relatedraise additional capital, including through the issuance of debt and equity securities. Because our decision to issue additional debt or equity securities or incur additional borrowings in the disposition of properties is primarily tied to providing liquidity events for the Managed Programs and our ability to do so under circumstances that will satisfy the applicable subordination requirementsfuture will depend on market conditions atand other factors beyond our control, we cannot predict or estimate the relevant time;amount, timing, nature, or success of our future capital raising efforts. Thus, common stockholders bear the risk that our future issuances of debt or equity securities, or our incurrence of additional borrowings, will negatively affect the market price of our common stock.
Our ability to continue to pay dividends in the two companies intendfuture may be adversely affected by the risk factors described in this Report. More specifically, while we expect to merge in an all-stock transaction. On January 13, 2020, the joint proxy statement/prospectus on Form S-4 previously filed with the SEC by CWI 1 and CWI 2 was declared effective. Each of CWI 1 and CWI 2 has scheduled a special meeting of stockholders for March 26, 2020; if the proposed transaction is approved, the merger is expected to close shortly thereafter. Immediately following the closing of the CWI 1 and CWI 2 Proposed Merger,continue our advisory agreements with the CWI REITs will terminate and the newly combined company will internalize the management services currently provided by us. During a transitional period,current dividend practices, we have agreed to provide the newly combined company with transitional services consistent with the servicescan give no assurance that we and our affiliates currently provide underwill be able to maintain dividend levels in the CWI REITs’ advisory agreements.future for various reasons, including the following:
•the amount of dividends that our failuresubsidiaries may distribute to do so could subject us to civil and/or criminal penalties.
Risks Related to our Corporate Structure and Maryland Law
Our charter and Maryland law contain provisions that may delay or prevent a change of control transaction.
Our charter, subject to certain exceptions, authorizes our Board to take such actions as are necessary and desirable to limit any person to beneficial or constructive ownership of 9.8%, in either value or number of shares, whichever is more restrictive, of our aggregate outstanding shares of (i) common and preferred stock (excluding any outstanding shares of our common or preferred stock not treated as outstanding for federal income tax purposes) or (ii) common stock (excluding any of our outstanding shares of common stock not treated as outstanding for federal income tax purposes). Our Board, in its sole discretion, may exempt a person from such ownership limits, provided that they obtain such representations, covenants, and undertakings as appropriate to determine that the exemption would not affect our REIT status. Our Board may also increase or decrease the common stock ownership limit and/or the aggregate stock ownership limit, so long as the change would not result in five or fewer persons beneficially owning more than 49.9% in value of our outstanding stock. The ownership limits and other stock ownership restrictions contained in our charter may delay or prevent a transaction or change of control that might involve a premium price for our common stock or otherwise be in the best interests of our stockholders.
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Our Board may modify our authorized shares of stock of any class or series and may create and issue a class or series of common stock or preferred stock without stockholder approval.
Our charter empowers our Board to, without stockholder approval, increase or decrease the aggregate number of shares of our stock or the number of shares of stock of any class or series that we have authority to issue; classify any unissued shares of common stock or preferred stock; reclassify any previously classified, but unissued, shares of common stock or preferred stock into one or more classes or series of stock; and issue such shares of stock so classified or reclassified. Our Board may determine the relative rights, preferences, and privileges of any class or series of common stock or preferred stock issued. As a result, we may issue series or classes of common stock or preferred stock with preferences, dividends, powers, and rights (voting or otherwise) senior to the rights of current holders of our common stock. The issuance of any such classes or series of common stock or preferred stock could also have the effect of delaying or preventing a change of control transaction that might otherwise be in the best interests of our stockholders.
Certain provisions of Maryland law could inhibit changes in control.
Certain provisions of the Maryland General Corporation Law (“MGCL”) may have the effect of inhibiting a third party from making a proposal to acquire us or impeding a change of control that could provide our stockholders with the opportunity to realize a premium over the then-prevailing market price of our common stock, including:
•“business combination” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our outstanding voting stock), or an affiliate thereof, for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter imposes special appraisal rights and supermajority voting requirements on these combinations; and
•“control share” provisions that provide that holders of “control shares” of our company (defined as voting shares which, when aggregated with all other shares owned or controlled by the stockholder, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of issued and outstanding “control shares”) have no voting rights except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.
The statute permits various exemptions from its provisions, including business combinations that are exempted by a board of directors prior to the time that the “interested stockholder” becomes an interested stockholder. Our Board has, by resolution, exempted any business combination between us and any person who is an existing, or becomes in the future, an “interested stockholder.” Consequently, the five-year prohibition and the supermajority vote requirements will not apply to business combinations between us and any such person. As a result, such person may be able to enter into business combinations with us that may not be in the best interest of our stockholders, without compliance with the supermajority vote requirements and the other provisions of the statute. Additionally, this resolution may be altered, revoked, or repealed in whole or in part at any time and we may opt back into the business combination provisions of the MGCL. If this resolution is revoked or repealed, the statute may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer. In the
case of the control share provisions of the MGCL, we have elected to opt out of these provisions of the MGCL pursuant to a provision in our bylaws.
Additionally, Title 3, Subtitle 8 of the MGCL permits our Board, without stockholder approval and regardless of what is currently provided in our charter or our bylaws, to implement certain governance provisions, some of which we do not currently have. We have opted out of Section 3-803 of the MGCL, which permits a board of directors to be divided into classes pursuant to Title 3, Subtitle 8 of the MGCL. Any amendment or repeal of this resolution must be approved in the same manner as an amendment to our charter. The remaining provisions of Title 3, Subtitle 8 of the MGCL may have the effect of inhibiting a third party from making an acquisition proposal for our company or of delaying, deferring, or preventing a change in control of our company under circumstances that otherwise could provide the holders of our common stock with the opportunity to realize a premium over the then-current market price. Our charter, our bylaws, and Maryland law also contain other provisions that may delay, defer, or prevent a transaction or a change of control that might involve a premium price for our common stock or otherwise be in the best interests of our stockholders.
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Risks Related to REIT Structure
While we believe that we are properly organized as a REIT in accordance with applicable law, we cannot guarantee that the Internal Revenue Service will find that we have qualified as a REIT.
We believe that we are organized in conformity with the requirements for qualification as a REIT under the Internal Revenue Code beginning with our 2012 taxable year and that our current and anticipated investments and plan of operation will enable us to meet and continue to meet the requirements for qualification and taxation as a REIT. Investors should be aware, however, that the Internal Revenue Service or any court could take a position different from our own. Given the highly complex nature of the rules governing REITs, the ongoing importance of factual determinations, and the possibility of future changes in our circumstances, no assurance can be given that we will qualify as a REIT for any particular year.
Furthermore, our qualification and taxation as a REIT will depend on our satisfaction of certain asset, income, organizational, distribution, stockholder ownership, and other requirements on a continuing basis. Our ability to satisfy the quarterly asset tests under applicable Internal Revenue Code provisions and Treasury Regulations will depend on the fair market values of our assets, some of which are not susceptible to a precise determination. Our compliance with the REIT income and quarterly asset requirements also depends upon our ability to successfully manage the composition of our income and assets on an ongoing basis. While we believe that we will satisfy these tests, we cannot guarantee that this will be the case on a continuing basis.
If we fail to remain qualified as a REIT, we would be subject to federal income tax at corporate income tax rates and would not be able to deduct distributions to stockholders when computing our taxable income.
If, in any taxable year, we fail to qualify for taxation as a REIT and are not entitled to relief under the Internal Revenue Code, we will:
•not be allowed a deduction for distributions to stockholders in computing our taxable income;
•be subject to federal and state income tax, including any applicable alternative minimum tax (for taxable years ending prior to January 1, 2018), on our taxable income at regular corporate rates; and
•be barred from qualifying as a REIT for the four taxable years following the year when we were disqualified.
Any such corporate tax liability could be substantial and would reduce the amount of cash available for distributions to our stockholders, which in turn could have an adverse impact on the value of our common stock. This adverse impact could last for five or more years because, unless we are entitled to relief under certain statutory provisions, we will be taxed as a corporation beginning the year in which the failure occurs and for the following four years.
If we fail to qualify for taxation as a REIT, we may need to borrow funds or liquidate some investments to pay the additional tax liability. Were this to occur, funds available for investment would be reduced. REIT qualification involves the application of highly technical and complex provisions of the Internal Revenue Code to our operations, as well as various factual determinations concerning matters and circumstances not entirely within our control. There are limited judicial or administrative interpretations of these provisions. Although we plan to continue to operate in a manner consistent with the REIT qualification rules, we cannot assure you that we will qualify in a given year or remain so qualified.
If we fail to make required distributions, we may be subject to federal corporate income tax.
We intend to declare regular quarterly distributions, the amount of which will be determined, and is subject to adjustment, by our Board. To continue to qualify and be taxed as a REIT, we will generally be required to distribute at least 90% of our REIT taxable income (determined without regard to the dividends-paid deduction and excluding net capital gain) each year to our stockholders. Generally, we expect to distribute all, or substantially all, of our REIT taxable income. If our cash available for distribution falls short of our estimates, we may be unable to maintain the proposed quarterly distributions that approximate our taxable income and we may fail to qualify for taxation as a REIT. In addition, our cash flows from operations may be insufficient to fund required distributions as a result of differences in timing between the actual receipt of income and the recognition of income for federal income tax purposes or the effect of nondeductible expenditures (e.g., capital expenditures, payments of compensation for which Section 162(m) of the Internal Revenue Code denies a deduction, the creation of reserves, or required debt service or amortization payments). To the extent we satisfy the 90% distribution requirement, but distribute less than 100% of our REIT taxable income, we will be subject to federal corporate income tax on our undistributed taxable income. We will also be subject to a 4.0% nondeductible excise tax if the actual amount that we pay out to our stockholders for a calendar year is less than a minimum amount specified under the Internal Revenue Code. In addition, in order to continue to
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qualify as a REIT, any C-corporationC corporation earnings and profits to which we succeed must be distributed as of the close of the taxable year in which we accumulate or acquire such C-corporation’sC corporation’s earnings and profits.
Because certain covenants in our debt instruments may limit our ability to make required REIT distributions, we could be subject to taxation.
Our existing debt instruments include, and our future debt instruments may include, covenants that limit our ability to make required REIT distributions. If the limits set forth in these covenants prevent us from satisfying our REIT distribution requirements, we could fail to qualify for federal income tax purposes as a REIT. If the limits set forth in these covenants do not jeopardize our qualification for taxation as a REIT, but prevent us from distributing 100% of our REIT taxable income, we will be subject to federal corporate income tax, and potentially a nondeductible excise tax, on the retained amounts.
Because we are required to satisfy numerous requirements imposed upon REITs, we may be required to borrow funds, sell assets, or raise equity on terms that are not favorable to us.
In order to meet the REIT distribution requirements and maintain our qualification and taxation as a REIT, we may need to borrow funds, sell assets, or raise equity, even if the then-prevailing market conditions are not favorable for such transactions. If our cash flows are not sufficient to cover our REIT distribution requirements, it could adversely impact our ability to raise short- and long-term debt, sell assets, or offer equity securities in order to fund the distributions required to maintain our qualification and taxation as a REIT. Furthermore, the REIT distribution requirements may increase the financing we need to fund capital expenditures, future growth, and expansion initiatives, which would increase our total leverage.
In addition, if we fail to comply with certain asset ownership tests at the end of any calendar quarter, we must generally correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification. As a result, we may be required to liquidate otherwise attractive investments. These actions may reduce our income and amounts available for distribution to our stockholders.
Because the REIT rules require us to satisfy certain rules on an ongoing basis, our flexibility or ability to pursue otherwise attractive opportunities may be limited.
To qualify as a REIT for federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders, and the ownership of our common stock. Compliance with these tests will require us to refrain from certain activities and may hinder our ability to make certain attractive investments, including the purchase of non-qualifying assets, the expansion of non-real estate activities, and investments in the businesses to be conducted by our TRSs, thereby limiting our opportunities and the flexibility to change our business strategy. Furthermore, acquisition opportunities in domestic and international markets may be adversely affected if we need or require target companies to comply with certain REIT requirements prior to closing on acquisitions.
Because the REIT provisions of the Internal Revenue Code limit our ability to hedge effectively, the cost of our hedging may increase and we may incur tax liabilities.
The REIT provisions of the Internal Revenue Code limit our ability to hedge assets and liabilities that are not incurred to acquire or carry real estate. Generally, income from hedging transactions that have been properly identified for tax purposes (which we enter into to manage interest rate risk with respect to borrowings to acquire or carry real estate assets) and income from certain currency hedging transactions related to our non-U.S. operations, do not constitute “gross income” for purposes of the REIT gross income tests (such a hedging transaction is referred to as a “qualifying hedge”). In addition, if we enter into a qualifying hedge, but dispose of the underlying property (or a portion thereof) or the underlying debt (or a portion thereof) is extinguished, we can enter into a hedge of the original qualifying hedge, and income from the subsequent hedge will also not constitute “gross income” for purposes of the REIT gross income tests. To the extent that we enter into other types of hedging transactions, the income from those transactions is likely to be treated as non-qualifying income for purposes of the REIT gross income tests. As a result of these rules, we may need to limit our use of advantageous hedging techniques or implement those hedges through a TRS. This could increase the cost of our hedging activities because our TRSs could be subject to tax on income or gains resulting from such hedges or expose us to greater interest rate risks than we would otherwise want to bear. In addition, losses in any of our TRSs generally will not provide any tax benefit, except for being carried forward for use against future taxable income in the TRSs.
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We use TRSs, which may cause us to fail to qualify as a REIT.
To qualify as a REIT for federal income tax purposes, we hold our non-qualifying REIT assets and conduct our non-qualifying REIT income activities in or through one or more TRSs. The net income of our TRSs is not required to be distributed to us and income that is not distributed to us will generally not be subject to the REIT income distribution requirement. However, there may be limitations on our ability to accumulate earnings in our TRSs and the accumulation or reinvestment of significant earnings in our TRSs could result in adverse tax treatment. In particular, if the accumulation of cash in our TRSs causes the fair market value of our TRS interests and certain other non-qualifying assets to exceed 20% of the fair market value of our assets, we would lose tax efficiency and could potentially fail to qualify as a REIT.
Because the REIT rules limit our ability to receive distributions from TRSs, our ability to fund distribution payments using cash generated through our TRSs may be limited.
Our ability to receive distributions from our TRSs is limited by the rules we must comply with in order to maintain our REIT status. In particular, at least 75% of our gross income for each taxable year as a REIT must be derived from real estate-related sources, which principally includes gross income from the leasing of our properties. Consequently, no more than 25% of our gross income may consist of dividend income from our TRSs and other non-qualifying income types. Thus, our ability to receive distributions from our TRSs is limited and may impact our ability to fund distributions to our stockholders using cash flows from our TRSs. Specifically, if our TRSs become highly profitable, we might be limited in our ability to receive net income from our TRSs in an amount required to fund distributions to our stockholders commensurate with that profitability.
Transactions with our TRSs could cause us to be subject to a 100% penalty tax on certain income or deductions if those transactions are not conducted on an arm’s-length basis.
The Internal Revenue Code limits the deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation. The Internal Revenue Code also imposes a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm’s-length basis. We will monitor the value of investments in our TRSs in order to ensure compliance with TRS ownership limitations and will structure our transactions with our TRSs on terms that we believe are arm’s-length to avoid incurring the 100% excise tax described above. There can be no assurance, however, that we will be able to comply with the TRS ownership limitation or be able to avoid application of the 100% excise tax.
Because distributions payable by REITs generally do not qualify for reduced tax rates, the value of our common stock could be adversely affected.
Certain distributions payable by domestic or qualified foreign corporations to individuals, trusts, and estates in the United States are currently eligible for federal income tax at a maximum rate of 20%. Distributions payable by REITs, in contrast, are generally not eligible for this reduced rate, unless the distributions are attributable to dividends received by the REIT from other corporations that would otherwise be eligible for the reduced rate. This more favorable tax rate for regular corporate distributions could cause qualified investors to perceive investments in REITs to be less attractive than investments in the stock of corporations that pay distributions, which could adversely affect the value of REIT stocks, including our common stock.
Even if we continue to qualify as a REIT, certain of our business activities will be subject to corporate level income tax and foreign taxes, which will continue to reduce our cash flows, and we will have potential deferred and contingent tax liabilities.
Even if we qualify for taxation as a REIT, we may be subject to certain (i) federal, state, local, and foreign taxes on our income and assets (including alternative minimum taxes for taxable years ending prior to January 1, 2018); (ii) taxes on any undistributed income and state, local, or foreign income; and (iii) franchise, property, and transfer taxes. In addition, we could be required to pay an excise or penalty tax under certain circumstances in order to utilize one or more relief provisions under the Internal Revenue Code to maintain qualification for taxation as a REIT, which could be significant in amount.
Any TRS assets and operations would continue to be subject, as applicable, to federal and state corporate income taxes and to foreign taxes in the jurisdictions in which those assets and operations are located. Any of these taxes would decrease our earnings and our cash available for distributions to stockholders.
W. P. Carey 2020 10-K– 17 | |||||
We will also be subject to a federal corporate level tax at the highest regular corporate rate (currently 21%) on all or a portion of the gain recognized from a sale of assets formerly held by any C corporation that we acquire on a carry-over basis transaction occurring within a five-year period after we acquire such assets, to the extent the built-in gain based on the fair market value of those assets on the effective date of the REIT election is in excess of our then tax basis. The tax on subsequently sold assets will be based on the fair market value and built-in gain of those assets as of the beginning of our holding period. Gains from the sale of an asset occurring after the specified period will not be subject to this corporate level tax. We expect to have only a de minimis amount of assets subject to these corporate tax rules and do not expect to dispose of any significant assets subject to these corporate tax rules.
Because dividends received by foreign stockholders are generally taxable, we may be required to withhold a portion of our distributions to such persons.
Ordinary dividends received by foreign stockholders that are not effectively connected with the conduct of a U.S. trade or business are generally subject to U.S. withholding tax at a rate of 30%, unless reduced by an applicable income tax treaty. Additional rules with respect to certain capital gain distributions will apply to foreign stockholders that own more than 10% of our common stock.
The ability of our Board to revoke our REIT election, without stockholder approval, may cause adverse consequences for our stockholders.
Our organizational documents permit our Board to revoke or otherwise terminate our REIT election, without the approval of our stockholders, if it determines that it is no longer in our best interest to continue to qualify as a REIT. If we cease to be a REIT, we will not be allowed a deduction for dividends paid to stockholders in computing our taxable income and we will be subject to federal income tax at regular corporate rates and state and local taxes, which may have adverse consequences on the total return to our stockholders.
Federal and state income tax laws governing REITs and related interpretations may change at any time, and any such legislative or other actions affecting REITs could have a negative effect on us and our stockholders.
Federal and state income tax laws governing REITs or the administrative interpretations of those laws may be amended at any time. Federal, state, and foreign tax laws are under constant review by persons involved in the legislative process, at the Internal Revenue Service and the U.S. Department of the Treasury, and at various state and foreign tax authorities. Changes to tax laws, regulations, or administrative interpretations, which may be applied retroactively, could adversely affect us or our stockholders. We cannot predict whether, when, in what forms, or with what effective dates, the tax laws, regulations, and administrative interpretations applicable to us or our stockholders may be changed. Accordingly, we cannot assure you that any such change will not significantly affect our ability to qualify for taxation as a REIT or the federal income tax consequences to you or us.
Our accounting policies and methods are fundamental to how we record and report our business.financial position and results of operations, and they require management to make estimates, judgments, and assumptions about matters that are inherently uncertain.
W. P. Carey | |||||
Our future success depends in large part on our ability to hire and retain a REIT, we are requiredsufficient number of qualified and diverse personnel. Failure to distribute at least 90%recruit from a diverse pool of qualified candidates could negatively impact the dynamic growth of our taxable incomecompany. In addition, the nature of our executive officers’ experience and the extent of the relationships they have developed with real estate professionals and financial institutions are important to the success of our business. We cannot provide any assurances regarding their continued employment with us. The loss of the services of certain of our executive officers could detrimentally affect our business and prospects.
The occurrence of cyber incidents, or a deficiency in our cyber security, could negatively impact our business by causing a disruption to our shareholders annually. Asoperations, a resultcompromise or corruption of the changes to U.S. federal tax laws implemented by the Tax Cuts and Jobs Act, our taxable income and the amount of distributionsconfidential information, and/or damage to our stockholders requiredbusiness relationships, all of which could negatively impact our financial results.
A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity, or availability of our information resources, which could be an intentional attack or an unintentional accident or error. We use information technology and other computer resources to carry out important operational activities and to maintain our REIT status,business records. During the COVID-19 pandemic, we face heightened cybersecurity risks as our employees work remotely, leading to an increased dependence on the internet and greater exposure to the malware campaigns and phishing attacks preying on the uncertainties surrounding the pandemic. These heightened cybersecurity risks may increase our vulnerability to cyber-attacks and cause disruptions to our internal control procedures.
In addition, we may store or come into contact with sensitive information and data. If we or our third-party service providers fail to comply with applicable privacy or data security laws in handling this information, including the General Data Protection Regulation and the California Consumer Privacy Act, we could face significant legal and financial exposure to claims of governmental agencies and parties whose privacy is compromised, including sizable fines and penalties.
We have implemented processes, procedures, and controls intended to address ongoing and evolving cyber security risks, but these measures, as well as our relative tax advantage asincreased awareness of a REIT,risk of a cyber incident, do not guarantee that our financial results will not be negatively impacted by such an incident. The primary risks that could change.
Our business will continue to be adversely affected by the COVID-19 pandemic.
The COVID-19 pandemic lead to a pause in our investment activities for several months during 2020, which disrupted our pipeline and Jobs Actmaterially impacted our investment activities for the full-year 2020. In addition, the ongoing economic downturn and market volatility has already eroded the financial conditions of certain of our tenants and operating properties. Given the significant uncertainty around the duration and severity of the impact of the COVID-19 pandemic, we continue to face risks related to the ongoing COVID-19 pandemic, which has severely impacted, and is likely to continue to adversely impact, global economies.
We are unable to predict the impact that the COVID-19 pandemic will continue to have on our tenants’ ability to pay rent, therefore information provided regarding historical rent collections should not serve as an indication of expected future rent collections. We also cannot assure you that conditions in the bank lending, capital, and other financial markets will not negatively impact our operating results, financial condition, and future business operations.
W. P. Carey | |||||
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our principal corporate offices are located at 50 Rockefeller Plaza,One Manhattan West, 395 9th Avenue, 58th Floor, New York, NY 1002010001 and our international offices are located in London and Amsterdam. We have additional office space domestically in Dallas. We lease all of these offices and believe these leases are suitable for our operations for the foreseeable future.
See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Portfolio Overview — Net-Leased Portfolio for a discussion of the properties we hold for rental operations and Part II, Item 8. Financial Statements and Supplementary Data — Schedule III — Real Estate and Accumulated Depreciation for a detailed listing of such properties.
Item 3. Legal Proceedings.
Various claims and lawsuits arising in the normal course of business are pending against us. The results of these proceedings are not expected to have a material adverse effect on our consolidated financial position or results of operations.
Item 4. Mine Safety Disclosures.
Not applicable.
W. P. Carey | |||||
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock is listed on the NYSE under the ticker symbol “WPC.” At February 14, 20205, 2021 there were 9,2638,772 registered holders of record of our common stock. This figure does not reflect the beneficial ownership of shares of our common stock.
Stock Price Performance Graph
The graph below provides an indicator of cumulative total stockholder returns for our common stock for the period December 31, 20142015 to December 31, 2019,2020, as compared with the S&P 500 Index and the FTSE NAREIT Equity REITs Index. The graph assumes a $100 investment on December 31, 2014,2015, together with the reinvestment of all dividends.
| At December 31, | At December 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | |||||||||||||||||||||||||||||||||||||||||||||||
| W. P. Carey Inc. | $ | 100.00 | $ | 89.60 | $ | 95.46 | $ | 118.20 | $ | 119.38 | $ | 153.77 | W. P. Carey Inc. | $ | 100.00 | $ | 106.54 | $ | 131.92 | $ | 133.24 | $ | 171.62 | $ | 161.28 | |||||||||||||||||||||||||||||||||
| S&P 500 Index | 100.00 | 101.38 | 113.51 | 138.29 | 132.23 | 173.86 | S&P 500 Index | 100.00 | 111.96 | 136.40 | 130.42 | 171.49 | 203.04 | |||||||||||||||||||||||||||||||||||||||||||||
| FTSE NAREIT Equity REITs Index | 100.00 | 103.20 | 111.99 | 117.84 | 112.39 | 141.61 | FTSE NAREIT Equity REITs Index | 100.00 | 108.52 | 114.19 | 108.91 | 137.23 | 126.25 | |||||||||||||||||||||||||||||||||||||||||||||
The stock price performance included in this graph is not indicative of future stock price performance.
Dividends
We currently intend to continue paying cash dividends consistent with our historical practice; however, our Board determines the amount and timing of any future dividend payments to our stockholders based on a variety of factors.
Securities Authorized for Issuance Under Equity Compensation Plans
This information will be contained in our definitive proxy statement for the 20202021 Annual Meeting of Stockholders, to be filed within 120 days following the end of our fiscal year, and is incorporated herein by reference.
W. P. Carey | |||||
Item 6. Selected Financial Data.
The following selected financial data should be read in conjunction with the consolidated financial statements and related notes in Item 8 (in thousands, except per share data):
| Years Ended December 31, | Years Ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | 2020 | 2019 | 2018 | 2017 | 2016 | |||||||||||||||||||||||||||||||||||||||
| Operating Data | Operating Data | |||||||||||||||||||||||||||||||||||||||||||||||
Revenues (a) | $ | 1,232,766 | $ | 885,732 | $ | 848,302 | $ | 941,533 | $ | 938,383 | ||||||||||||||||||||||||||||||||||||||
Revenues (a) (b) | Revenues (a) (b) | $ | 1,209,319 | $ | 1,232,766 | $ | 885,732 | $ | 848,302 | $ | 941,533 | |||||||||||||||||||||||||||||||||||||
Net income (a) (b) (c) (d) | 306,544 | 424,341 | 285,083 | 274,807 | 185,227 | Net income (a) (b) (c) (d) | 465,955 | 306,544 | 424,341 | 285,083 | 274,807 | |||||||||||||||||||||||||||||||||||||
Net income attributable to noncontrolling interests (a) | (1,301 | ) | (12,775 | ) | (7,794 | ) | (7,060 | ) | (12,969 | ) | ||||||||||||||||||||||||||||||||||||||
Net income attributable to noncontrolling interests (b) | Net income attributable to noncontrolling interests (b) | (10,596) | (1,301) | (12,775) | (7,794) | (7,060) | ||||||||||||||||||||||||||||||||||||||||||
Net income attributable to W. P. Carey (a) (b) (c) (d) | 305,243 | 411,566 | 277,289 | 267,747 | 172,258 | Net income attributable to W. P. Carey (a) (b) (c) (d) | 455,359 | 305,243 | 411,566 | 277,289 | 267,747 | |||||||||||||||||||||||||||||||||||||
| Basic earnings per share | 1.78 | 3.50 | 2.56 | 2.50 | 1.62 | Basic earnings per share | 2.61 | 1.78 | 3.50 | 2.56 | 2.50 | |||||||||||||||||||||||||||||||||||||
| Diluted earnings per share | 1.78 | 3.49 | 2.56 | 2.49 | 1.61 | Diluted earnings per share | 2.60 | 1.78 | 3.49 | 2.56 | 2.49 | |||||||||||||||||||||||||||||||||||||
| Cash dividends declared per share | 4.1400 | 4.0900 | 4.0100 | 3.9292 | 3.8261 | Cash dividends declared per share | 4.1720 | 4.1400 | 4.0900 | 4.0100 | 3.9292 | |||||||||||||||||||||||||||||||||||||
| Balance Sheet Data | Balance Sheet Data | |||||||||||||||||||||||||||||||||||||||||||||||
| Total assets | $ | 14,060,918 | $ | 14,183,039 | $ | 8,231,402 | $ | 8,453,954 | $ | 8,742,089 | Total assets | $ | 14,707,636 | $ | 14,060,918 | $ | 14,183,039 | $ | 8,231,402 | $ | 8,453,954 | |||||||||||||||||||||||||||
| Net investments in real estate | 11,916,745 | 11,928,854 | 6,703,715 | 6,781,900 | 7,229,873 | Net investments in real estate | 12,362,429 | 11,916,745 | 11,928,854 | 6,703,715 | 6,781,900 | |||||||||||||||||||||||||||||||||||||
| Senior Unsecured Notes, net | 4,390,189 | 3,554,470 | 2,474,661 | 1,807,200 | 1,476,084 | Senior Unsecured Notes, net | 5,146,192 | 4,390,189 | 3,554,470 | 2,474,661 | 1,807,200 | |||||||||||||||||||||||||||||||||||||
| Senior credit facilities | 201,267 | 91,563 | 605,129 | 926,693 | 734,704 | Senior credit facilities | 404,252 | 201,267 | 91,563 | 605,129 | 926,693 | |||||||||||||||||||||||||||||||||||||
| Non-recourse mortgages, net | 1,462,487 | 2,732,658 | 1,185,477 | 1,706,921 | 2,269,421 | Non-recourse mortgages, net | 1,145,554 | 1,462,487 | 2,732,658 | 1,185,477 | 1,706,921 | |||||||||||||||||||||||||||||||||||||
__________
(a)Amounts from year to year will not be comparable primarily due to fluctuations in gains/losses recognized on the sale of real estate, lease termination and other income, foreign currency exchange rates, and impairment charges. (b)The years ended December 31, 2020, 2019, and 2018 reflect the impact of the CPA:17 Merger, which was completed on October 31, 2018 (Note 3). (c)Amounts for the years ended December 31, 2020 and 2019 include unrealized gains recognized on our investment in shares of Lineage Logistics (a cold storage REIT), totaling $48.3 million and $32.9 million, respectively (Note 9). (d)Amount for the year ended December 31, 2019 includes a loss on change in control of interests of $8.4 million recognized in connection with the CPA:17 Merger. Amount for the year ended December 31, 2018 includes a gain on change in control of interests of $47.8 million recognized in connection with the CPA:17 Merger (Note 3 |
W. P. Carey | |||||
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to assist in understanding our financial statements and the reasons for changes in certain key components of our financial statements from period to period. This item also provides our perspective on our financial position and liquidity, as well as certain other factors that may affect our future results. The discussion also breaks down the financial results of our business by segment to provide a better understanding of how these segments and their results affect our financial condition and results of operations.
The following discussion should be read in conjunction with our consolidated financial statements in Item 8 of this Report and the matters described under Item 1A. Risk Factors. Please see our Annual Report on Form 10-K for the year ended December 31, 20182019 for discussion of our financial condition and results of operations for the year ended December 31, 2017.2018. Refer to Item 1. Business for a description of our business.
Significant Developments
One of our core principles is our proactive approach to asset management. As such, we continue to actively engage in discussions with our tenants regarding the impact of the COVID-19 pandemic on their business operations, liquidity, and financial position. Through the date of this Report, we received from tenants approximately 99% of contractual base rent that was due during the fourth quarter of 2020 (based on contractual minimum annualized base rent (“ABR”) as of September 30, 2020) and approximately 98% of contractual base rent that was due in January 2021 (based on ABR as of December 31, 2020). Given the significant uncertainty around the duration and severity of the impact of the COVID-19 pandemic, we are unable to predict the impact it will have on our tenants’ continued ability to pay rent. Therefore, information provided in this Report regarding recent rent collections should not serve as an indication of expected future rent collections.
The potential impact of the COVID-19 pandemic on our tenants and properties could have a material adverse effect on our business, financial condition, liquidity, results of operations, and prospects. Please see our CurrentPart I, Item 1A. Risk Factors in this Report on Form 8-K dated October 22, 2019 for additional information.
Financial Highlights
During the year ended December 31, 2019,2020, we completed the following (as further described in the consolidated financial statements):
Real Estate
Investments
Dispositions
•As part of our active capital recycling program, we disposed of 22 properties for total proceeds, net of selling costs, of $366.5 million (inclusive of $4.7 million attributable to a noncontrolling interest). Disposition activity included the sale of |
W. P. Carey | |||||
Financing and Capital Markets Transactions
•On February 20, 2020, we amended and restated our Senior Unsecured Credit Facility to increase its capacity to $2.1 billion, which is comprised of a $1.8 billion Unsecured Revolving Credit Facility, a £150.0 million Term Loan, and a €96.5 million Delayed Draw Term Loan, all maturing in five years. On that date, we drew down our Term Loan in full by borrowing £150.0 million (equivalent to $193.1 million). On March 27, 2020, we drew down our Delayed Draw Term Loan in full by borrowing €96.5 million (equivalent to $105.9 million) (Note 11). •On June 17, 2020, we entered into certain forward sale agreements in connection with a public offering of 5,462,500 shares of common stock. During the year ended December 31, 2020, we settled a portion of the equity forwards by physically delivering 2,951,791 shares of common stock to certain forward purchasers for net proceeds of $199.7 million. As of December 31, 2020, 2,510,709 shares remained outstanding under the forward sale agreements, which we expect to settle by December 17, 2021 for cash proceeds of approximately $163.2 million (Note 13). •On October 14, 2020, we completed an underwritten public offering of $500.0 million of 2.400% Senior Notes due 2031, at a price of 99.099% of par value. These 2.400% Senior Notes due 2031 have a 10.3-year term and are scheduled to mature on February 1, 2031 (Note 11). •We reduced our mortgage debt outstanding by prepaying or repaying at or close to maturity a total of $294.4 million of non-recourse mortgage loans with a weighted-average interest rate of 5.1% (Note 11). |
Investment Management
CWI 1 and CWI 2 Merger
•In connection with the termination of our advisory agreements with CWI 1 and CWI 2, the operating partnerships of each of CWI 1 and CWI 2 redeemed the special general partner interests that we previously held, for which we received 1,300,000 shares of CWI 2 preferred stock with a fair value of $46.3 million and 2,840,549 shares in CWI 2 Class A common stock with a fair value of $11.6 million; in connection with this redemption, we recognized a non-cash net gain on sale of $33.0 million, which was included within Equity in (losses) earnings of equity method investments in the Managed Programs and real estate in the consolidated statements of income for the year ended December 31, 2020. The carrying value of our investment in WLT preferred stock (formerly CWI 2 preferred stock) was $46.3 million as of December 31, 2020, and is included within Other assets, net on our consolidated balance sheets as available-for-sale debt securities (Note 9).
•We exchanged our 6,074,046 shares of CWI 1 common stock for 5,531,025 shares of CWI 2 Class A common stock, based on the exchange ratio set forth in the merger agreement. In addition, prior to the closing of the CWI 1 and CWI 2 Merger, we owned 3,836,669 shares of CWI 2 Class A common stock. Together with the 2,840,549 shares in CWI 2 Class A common stock received (as described above), following the closing of the CWI 1 and CWI 2 Merger (and CWI 2 being renamed WLT), we own 12,208,243 shares of WLT Class A common stock, which we account for as an equity method investment and which had a carrying value of $44.2 million as of December 31, 2020 (Note 8). The aggregate carrying value of our investments in preferred shares and shares of common stock of WLT totaled approximately $90.5 million as of December 31, 2020.
Assets Under Management
•As of December 31, 2019,2020, we managed total assets of approximately $7.5$2.8 billion on behalf of CPA:18 – Global and CESH. We expect that the Managed Programs. Upon completionvast majority of the CPA:17 Merger (Note 3), we ceased earning advisoryour Investment Management earnings going forward will be generated from asset management fees and other income previously earned when we served as advisor toour ownership interests in CPA:17 – Global. During 2018, through the date of the CPA:17 Merger, such fees18 �� Global and other income from CPA:17 – Global totaled $58.8 million. We expect to receive lower structuring and other advisory revenue from the Managed Programs going forward since they are fully invested and we no longer raise capital for new or existing funds.CESH.
Dividends to Stockholders
We declared cash dividends totaling $4.140$4.172 per share, comprised of four quarterly dividends per share of $1.032, $1.034, $1.036,$1.040, $1.042, $1.044, and $1.038.$1.046.
W. P. Carey | |||||
Consolidated Results
(in thousands, except shares)
| Years Ended December 31, | Years Ended December 31, | |||||||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2020 | 2019 | 2018 | |||||||||||||||||||||||
| Revenues from Real Estate | $ | 1,172,863 | $ | 779,125 | $ | 687,208 | Revenues from Real Estate | $ | 1,177,997 | $ | 1,172,863 | $ | 779,125 | |||||||||||||||
| Revenues from Investment Management | 59,903 | 106,607 | 161,094 | Revenues from Investment Management | 31,322 | 59,903 | 106,607 | |||||||||||||||||||||
| Total revenues | 1,232,766 | 885,732 | 848,302 | Total revenues | 1,209,319 | 1,232,766 | 885,732 | |||||||||||||||||||||
| Net income from Real Estate attributable to W. P. Carey | 272,065 | 307,236 | 192,139 | Net income from Real Estate attributable to W. P. Carey | 459,512 | 272,065 | 307,236 | |||||||||||||||||||||
| Net income from Investment Management attributable to W. P. Carey | 33,178 | 104,330 | 85,150 | |||||||||||||||||||||||||
| Net (loss) income from Investment Management attributable to W. P. Carey | Net (loss) income from Investment Management attributable to W. P. Carey | (4,153) | 33,178 | 104,330 | ||||||||||||||||||||||||
| Net income attributable to W. P. Carey | 305,243 | 411,566 | 277,289 | Net income attributable to W. P. Carey | 455,359 | 305,243 | 411,566 | |||||||||||||||||||||
| Dividends declared | 713,588 | 502,819 | 433,834 | Dividends declared | 732,020 | 713,588 | 502,819 | |||||||||||||||||||||
| Net cash provided by operating activities | 812,077 | 509,166 | 520,659 | Net cash provided by operating activities | 801,538 | 812,077 | 509,166 | |||||||||||||||||||||
| Net cash (used in) provided by investing activities | (522,773 | ) | (266,132 | ) | 214,238 | |||||||||||||||||||||||
| Net cash used in investing activities | Net cash used in investing activities | (539,932) | (522,773) | (266,132) | ||||||||||||||||||||||||
| Net cash used in financing activities | (457,778 | ) | (24,292 | ) | (745,466 | ) | Net cash used in financing activities | (210,713) | (457,778) | (24,292) | ||||||||||||||||||
Supplemental financial measures (a): | Supplemental financial measures (a): | |||||||||||||||||||||||||||
| Adjusted funds from operations attributable to W. P. Carey (AFFO) — Real Estate | 811,193 | 516,502 | 456,865 | Adjusted funds from operations attributable to W. P. Carey (AFFO) — Real Estate | 804,175 | 811,193 | 516,502 | |||||||||||||||||||||
| Adjusted funds from operations attributable to W. P. Carey (AFFO) — Investment Management | 45,277 | 118,084 | 116,114 | Adjusted funds from operations attributable to W. P. Carey (AFFO) — Investment Management | 24,911 | 45,277 | 118,084 | |||||||||||||||||||||
| Adjusted funds from operations attributable to W. P. Carey (AFFO) | 856,470 | 634,586 | 572,979 | Adjusted funds from operations attributable to W. P. Carey (AFFO) | 829,086 | 856,470 | 634,586 | |||||||||||||||||||||
Diluted weighted-average shares outstanding (b) | 171,299,414 | 117,706,445 | 108,035,971 | |||||||||||||||||||||||||
| Diluted weighted-average shares outstanding | Diluted weighted-average shares outstanding | 174,839,428 | 171,299,414 | 117,706,445 | ||||||||||||||||||||||||
__________
(a)We consider Adjusted funds from operations (“AFFO”), a supplemental measure that is not defined by U.S. generally accepted accounting principles (“GAAP”) |
Revenues and Net Income Attributable to W. P. Carey
2020 vs. 20182019 — Total revenues increased in 2019 as compared to 2018, due to increases within our Real Estate segment, partially offset by decreases within our Investment Management segment. Real Estate revenue increased due to an increase in lease revenues and operating property revenues, primarily(primarily from the properties we acquired in the CPA:17 Merger on October 31, 2018 (Note 3) and other property acquisition activity, partially offset by the adverse impact of the COVID-19 pandemic and property dispositions. We also received proceedsdispositions), partially offset by lower revenues from a bankruptcy claim on a prior tenant during 2019hotel operating properties (we sold one hotel in January 2020 (Note 16) and our remaining hotel was adversely impacted by the COVID-19 pandemic) and lower lease termination income and other (Note 5). Investment Management revenue decreased primarily due to the cessation oflower asset management revenue and reimbursable costs earned from CPA:17 – Global after the CPA:17Managed Programs following the termination of our advisory agreements in connection with the closing of the CWI 1 and CWI 2 Merger on October 31, 2018April 13, 2020 (Note 34), as well as lower structuring and other advisory revenue earned from the Managed Programs.
W. P. Carey 2020 10-K– 25 | |||||
Net Income Attributable to W. P. Carey
2020vs.2019 — Net income from Real Estate attributable to W. P. Carey decreased in 2019 as compared to 2018,increased primarily due to decreases within botha higher gain on sale of real estate (Note 16), lower interest expense (substantially due to the reduction in our Investment Managementmortgage debt outstanding since January 1, 2019), and Real Estate segments.the impact of real estate acquisitions. In addition, we recognized a deferred tax benefit as a result of the release of a deferred tax liability relating to our investment in shares of Lineage Logistics (Note 15). These increases were partially offset by lower lease termination income and other (Note 5) and a non-cash net allowance for credit losses recognized during the current year (Note 6). Net income from Investment Management attributable to W. P. Carey decreased primarily due to the cessation of Investment Management revenues and distributions previously earned from CPA:17 – GlobalCWI 1 and CWI 2 (Note 34). In addition, during the current year, we recognized other-than-temporary impairment charges on our equity investments in CWI 1 and a gain on change in control of interests recognized during 2018 in connection with the CPA:17 MergerCWI 2 (Note 39), partially offset by tax benefitsa non-cash net gain recognized during 2019. Net income from Real Estate attributable to W. P. Carey decreased primarily due to a lower gain on salethe redemption of real estate recognized during 2019 as compared to 2018 (Note 17), as well as higher impairment charges (Note 9)our special general partner interests in CWI 1 and loss on extinguishment of debt (Note 11). We also recognized a loss on changeCWI 2 in control of interests during 2019 in
connection with the CPA:17 Merger, as compared to a gain on change in control of interests during 2018WLT management internalization (Note 34). These decreases were partially offset by the impact of real estate acquisitions and properties acquired in the CPA:17 Merger (Note 3), which we owned for a full year in 2019 as compared to two months in 2018. The increase in revenues from such properties was partially offset by corresponding increases in depreciation and amortization, interest expense, and property expenses. We also recognized significant merger expenses in 2018 related to the CPA:17 Merger (Note 3) and unrealized gains on our investment in shares of a cold storage operator during 2019 (Note 9), and received proceeds from a bankruptcy claim on a prior tenant during 2019 (Note 5).
2020 vs. 20182019 — Net cash provided by operating activities increasedAFFO decreased in 20192020 as compared to 2018, primarily due to an increase in cash flow generated from properties acquired during 2018 and 2019, including properties acquired in the CPA:17 Merger, as well as proceeds from a bankruptcy claim on a prior tenant received during 2019 (Note 5), partially offset by merger expenses recognized in 2018 related to the CPA:17 Merger (Note 3) and a decrease in cash flow as a result of property dispositions during 2018 and 2019, as well as an increase in interest expense, primarily due to the assumptionadverse impact of non-recourse mortgage loans in the CPA:17 Merger and the issuance of senior unsecured notes in March 2018, October 2018, June 2019, and September 2019.
Portfolio Overview
Our portfolio is comprised of operationally-critical, commercial real estate assets net leased to tenants located primarily in the United States and Northern and Western Europe. We invest in high-quality single tenant industrial, warehouse, office, retail, and self-storage (net lease) properties subject to long-term leases with built-in rent escalators. Portfolio information is provided on a pro rata basis, unless otherwise noted below, to better illustrate the economic impact of our various net-leased jointly owned investments. See Terms and Definitions below for a description of pro rata amounts.
Portfolio Summary
| As of December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Number of net-leased properties | 1,243 | 1,214 | 1,163 | ||||||||||||||
Number of operating properties (a) | 20 | 21 | 48 | ||||||||||||||
| Number of tenants (net-leased properties) | 350 | 345 | 304 | ||||||||||||||
| Total square footage (net-leased properties, in thousands) | 144,259 | 139,982 | 130,956 | ||||||||||||||
| Occupancy (net-leased properties) | 98.5 | % | 98.8 | % | 98.3 | % | |||||||||||
| Weighted-average lease term (net-leased properties, in years) | 10.6 | 10.7 | 10.2 | ||||||||||||||
| Number of countries | 25 | 25 | 25 | ||||||||||||||
| Total assets (in thousands) | $ | 14,707,636 | $ | 14,060,918 | $ | 14,183,039 | |||||||||||
| Net investments in real estate (in thousands) | 12,362,429 | 11,916,745 | 11,928,854 | ||||||||||||||
| As of December 31, | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
Number of net-leased properties (a) | 1,214 | 1,163 | 887 | ||||||||
Number of operating properties (b) | 21 | 48 | 2 | ||||||||
| Number of tenants (net-leased properties) | 345 | 304 | 210 | ||||||||
Total square footage (net-leased properties, in thousands) (c) | 139,982 | 130,956 | 84,899 | ||||||||
| Occupancy (net-leased properties) | 98.8 | % | 98.3 | % | 99.8 | % | |||||
| Weighted-average lease term (net-leased properties, in years) | 10.7 | 10.2 | 9.6 | ||||||||
Number of countries (d) | 25 | 25 | 17 | ||||||||
| Total assets (in thousands) | $ | 14,060,918 | $ | 14,183,039 | $ | 8,231,402 | |||||
| Net investments in real estate (in thousands) | 11,916,745 | 11,928,854 | 6,703,715 | ||||||||
| Years Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
Acquisition volume (in millions) (b) | $ | 661.4 | $ | 737.5 | $ | 824.8 | |||||||||||
| Construction projects completed (in millions) | 171.2 | 122.5 | 102.5 | ||||||||||||||
| Average U.S. dollar/euro exchange rate | 1.1410 | 1.1196 | 1.1813 | ||||||||||||||
| Average U.S. dollar/British pound sterling exchange rate | 1.2834 | 1.2767 | 1.3356 | ||||||||||||||
Change in the U.S. CPI (c) | 1.4 | % | 2.3 | % | 1.9 | % | |||||||||||
Change in the Germany CPI (c) | (0.3) | % | 1.5 | % | 1.7 | % | |||||||||||
Change in the Spain CPI (c) | (0.5) | % | 0.8 | % | 1.2 | % | |||||||||||
Change in the Poland CPI (c) | 2.3 | % | 3.2 | % | 1.2 | % | |||||||||||
Change in the Netherlands CPI (c) | 1.0 | % | 2.7 | % | 2.0 | % | |||||||||||
W. P. Carey | |||||
| Years Ended December 31, | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
Acquisition volume (in millions) (e) | $ | 737.5 | $ | 824.8 | $ | 31.8 | |||||
Construction projects completed (in millions) (f) | 122.5 | 102.5 | 65.4 | ||||||||
| Average U.S. dollar/euro exchange rate | 1.1196 | 1.1813 | 1.1292 | ||||||||
| Average U.S. dollar/British pound sterling exchange rate | 1.2767 | 1.3356 | 1.2882 | ||||||||
Change in the U.S. CPI (g) | 2.3 | % | 1.9 | % | 2.1 | % | |||||
Change in the Germany CPI (g) | 1.5 | % | 1.7 | % | 1.7 | % | |||||
Change in the Poland CPI (g) | 3.2 | % | 1.2 | % | 2.2 | % | |||||
Change in the Netherlands CPI (g) | 2.7 | % | 2.0 | % | 1.3 | % | |||||
Change in the Spain CPI (g) | 0.8 | % | 1.2 | % | 1.1 | % | |||||
Net-Leased Portfolio
The tables below represent information about our net-leased portfolio at December 31, 20192020 on a pro rata basis and, accordingly, exclude all operating properties. See Terms and Definitions below for a description of pro rata amounts and ABR.
Top Ten Tenants by ABR
(dollars in thousands)
| Tenant/Lease Guarantor | Description | Number of Properties | ABR | ABR Percent | Weighted-Average Lease Term (Years) | Tenant/Lease Guarantor | Description | Number of Properties | ABR | ABR Percent | Weighted-Average Lease Term (Years) | ||||||||||||||||||||||||||||||||||||
| U-Haul Moving Partners Inc. and Mercury Partners, LP | Net lease self-storage properties in the U.S. | 78 | $ | 38,751 | 3.5 | % | 4.3 | U-Haul Moving Partners Inc. and Mercury Partners, LP | Net lease self-storage properties in the U.S. | 78 | $ | 38,751 | 3.3 | % | 3.3 | ||||||||||||||||||||||||||||||||
Hellweg Die Profi-Baumärkte GmbH & Co. KG (a) | Do-it-yourself retail properties in Germany | 42 | 33,338 | 3.0 | % | 17.2 | Hellweg Die Profi-Baumärkte GmbH & Co. KG (a) | Do-it-yourself retail properties in Germany | 42 | 36,579 | 3.1 | % | 16.2 | ||||||||||||||||||||||||||||||||||
State of Andalucía (a) | Government office properties in Spain | 70 | 28,393 | 2.5 | % | 15.0 | State of Andalucía (a) | Government office properties in Spain | 70 | 31,479 | 2.7 | % | 14.0 | ||||||||||||||||||||||||||||||||||
Metro Cash & Carry Italia S.p.A. (a) | Business-to-business wholesale stores in Italy and Germany | 20 | 27,119 | 2.4 | % | 7.3 | Metro Cash & Carry Italia S.p.A. (a) | Business-to-business wholesale stores in Italy and Germany | 20 | 29,723 | 2.5 | % | 6.3 | ||||||||||||||||||||||||||||||||||
Pendragon PLC (a) | Automotive dealerships in the United Kingdom | 69 | 22,449 | 2.0 | % | 10.4 | Pendragon PLC (a) | Automotive dealerships in the United Kingdom | 69 | 23,531 | 2.0 | % | 9.4 | ||||||||||||||||||||||||||||||||||
| Extra Space Storage, Inc. | Extra Space Storage, Inc. | Net lease self-storage properties in the U.S. | 27 | 20,332 | 1.7 | % | 23.3 | ||||||||||||||||||||||||||||||||||||||||
| Marriott Corporation | Net lease hotel properties in the U.S. | 18 | 20,065 | 1.8 | % | 3.9 | Marriott Corporation | Net lease hotel properties in the U.S. | 18 | 20,065 | 1.7 | % | 2.9 | ||||||||||||||||||||||||||||||||||
| Extra Space Storage, Inc. | Net lease self-storage properties in the U.S. | 27 | 19,519 | 1.7 | % | 24.3 | |||||||||||||||||||||||||||||||||||||||||
Eroski Sociedad Cooperativa (a) | Eroski Sociedad Cooperativa (a) | Grocery stores and warehouses in Spain | 58 | 19,589 | 1.6 | % | 15.2 | ||||||||||||||||||||||||||||||||||||||||
| Nord Anglia Education, Inc. | K-12 private schools in the U.S. | 3 | 18,734 | 1.7 | % | 23.7 | Nord Anglia Education, Inc. | K-12 private schools in the U.S. | 3 | 19,138 | 1.6 | % | 22.7 | ||||||||||||||||||||||||||||||||||
Forterra, Inc. (a) (b) | Industrial properties in the U.S. and Canada | 27 | 18,394 | 1.7 | % | 23.5 | Forterra, Inc. (a) (b) | Industrial properties in the U.S. and Canada | 27 | 18,781 | 1.6 | % | 22.5 | ||||||||||||||||||||||||||||||||||
| Advance Auto Parts, Inc. | Distribution facilities in the U.S. | 30 | 18,345 | 1.6 | % | 13.1 | |||||||||||||||||||||||||||||||||||||||||
| Total | 384 | $ | 245,107 | 21.9 | % | 13.3 | Total | 412 | $ | 257,968 | 21.8 | % | 12.6 | ||||||||||||||||||||||||||||||||||
__________
(b)Of the 27 properties leased to Forterra, Inc., 25 are located in the United States and two are located in Canada.
W. P. Carey | |||||
Portfolio Diversification by Geography
(in thousands, except percentages)
| Region | ABR | ABR Percent | Square Footage (a) | Square Footage Percent | |||||||||
| United States | |||||||||||||
| South | |||||||||||||
| Texas | $ | 99,611 | 8.9 | % | 11,411 | 8.2 | % | ||||||
| Florida | 47,079 | 4.2 | % | 4,060 | 2.9 | % | |||||||
| Georgia | 28,197 | 2.5 | % | 4,024 | 2.9 | % | |||||||
| Tennessee | 15,721 | 1.4 | % | 2,260 | 1.6 | % | |||||||
| Alabama | 15,273 | 1.4 | % | 2,397 | 1.7 | % | |||||||
Other (b) | 12,622 | 1.1 | % | 2,263 | 1.6 | % | |||||||
| Total South | 218,503 | 19.5 | % | 26,415 | 18.9 | % | |||||||
| East | |||||||||||||
| North Carolina | 32,648 | 2.9 | % | 8,052 | 5.7 | % | |||||||
| Pennsylvania | 25,079 | 2.3 | % | 3,609 | 2.6 | % | |||||||
| Massachusetts | 21,395 | 1.9 | % | 1,397 | 1.0 | % | |||||||
| New Jersey | 19,330 | 1.7 | % | 1,100 | 0.8 | % | |||||||
| South Carolina | 15,570 | 1.4 | % | 4,437 | 3.2 | % | |||||||
| Virginia | 13,449 | 1.2 | % | 1,430 | 1.0 | % | |||||||
| New York | 12,919 | 1.2 | % | 1,392 | 1.0 | % | |||||||
| Kentucky | 11,220 | 1.0 | % | 3,063 | 2.2 | % | |||||||
Other (b) | 22,818 | 2.0 | % | 3,531 | 2.5 | % | |||||||
| Total East | 174,428 | 15.6 | % | 28,011 | 20.0 | % | |||||||
| Midwest | |||||||||||||
| Illinois | 51,385 | 4.6 | % | 5,974 | 4.3 | % | |||||||
| Minnesota | 25,652 | 2.3 | % | 2,362 | 1.7 | % | |||||||
| Indiana | 18,002 | 1.6 | % | 2,827 | 2.0 | % | |||||||
| Wisconsin | 15,874 | 1.4 | % | 2,984 | 2.1 | % | |||||||
| Ohio | 15,125 | 1.4 | % | 3,153 | 2.2 | % | |||||||
| Michigan | 13,898 | 1.2 | % | 2,132 | 1.5 | % | |||||||
Other (b) | 27,471 | 2.5 | % | 4,697 | 3.4 | % | |||||||
| Total Midwest | 167,407 | 15.0 | % | 24,129 | 17.2 | % | |||||||
| West | |||||||||||||
| California | 60,393 | 5.4 | % | 5,162 | 3.7 | % | |||||||
| Arizona | 33,826 | 3.0 | % | 3,648 | 2.6 | % | |||||||
| Colorado | 11,413 | 1.0 | % | 1,008 | 0.7 | % | |||||||
Other (b) | 44,575 | 4.0 | % | 4,210 | 3.0 | % | |||||||
| Total West | 150,207 | 13.4 | % | 14,028 | 10.0 | % | |||||||
| United States Total | 710,545 | 63.5 | % | 92,583 | 66.1 | % | |||||||
| International | |||||||||||||
| Germany | 62,653 | 5.6 | % | 6,769 | 4.8 | % | |||||||
| Poland | 52,066 | 4.6 | % | 7,215 | 5.1 | % | |||||||
| The Netherlands | 50,698 | 4.5 | % | 6,862 | 4.9 | % | |||||||
| Spain | 49,089 | 4.4 | % | 4,226 | 3.0 | % | |||||||
| United Kingdom | 42,592 | 3.8 | % | 3,309 | 2.4 | % | |||||||
| Italy | 25,513 | 2.3 | % | 2,386 | 1.7 | % | |||||||
| Croatia | 16,513 | 1.5 | % | 1,794 | 1.3 | % | |||||||
| Denmark | 13,991 | 1.3 | % | 2,320 | 1.7 | % | |||||||
| France | 13,336 | 1.2 | % | 1,359 | 1.0 | % | |||||||
| Canada | 12,867 | 1.2 | % | 2,103 | 1.5 | % | |||||||
| Finland | 11,376 | 1.0 | % | 949 | 0.7 | % | |||||||
Other (c) | 57,280 | 5.1 | % | 8,107 | 5.8 | % | |||||||
| International Total | 407,974 | 36.5 | % | 47,399 | 33.9 | % | |||||||
| Total | $ | 1,118,519 | 100.0 | % | 139,982 | 100.0 | % | ||||||
| Region | ABR | ABR Percent | Square Footage (a) | Square Footage Percent | ||||||||||||||||||||||
| United States | ||||||||||||||||||||||||||
| South | ||||||||||||||||||||||||||
| Texas | $ | 102,253 | 8.7 | % | 12,035 | 8.3 | % | |||||||||||||||||||
| Florida | 48,650 | 4.1 | % | 4,487 | 3.1 | % | ||||||||||||||||||||
| Georgia | 24,057 | 2.0 | % | 3,527 | 2.4 | % | ||||||||||||||||||||
| Tennessee | 19,351 | 1.6 | % | 2,875 | 2.0 | % | ||||||||||||||||||||
| Alabama | 15,151 | 1.3 | % | 2,382 | 1.7 | % | ||||||||||||||||||||
Other (b) | 11,602 | 1.0 | % | 2,263 | 1.6 | % | ||||||||||||||||||||
| Total South | 221,064 | 18.7 | % | 27,569 | 19.1 | % | ||||||||||||||||||||
| Midwest | ||||||||||||||||||||||||||
| Illinois | 57,030 | 4.8 | % | 7,036 | 4.9 | % | ||||||||||||||||||||
| Minnesota | 29,210 | 2.5 | % | 2,728 | 1.9 | % | ||||||||||||||||||||
| Indiana | 21,472 | 1.8 | % | 3,198 | 2.2 | % | ||||||||||||||||||||
| Wisconsin | 15,854 | 1.4 | % | 3,245 | 2.2 | % | ||||||||||||||||||||
| Ohio | 15,389 | 1.3 | % | 3,271 | 2.3 | % | ||||||||||||||||||||
| Michigan | 14,279 | 1.2 | % | 2,112 | 1.4 | % | ||||||||||||||||||||
Other (b) | 28,765 | 2.4 | % | 4,877 | 3.4 | % | ||||||||||||||||||||
| Total Midwest | 181,999 | 15.4 | % | 26,467 | 18.3 | % | ||||||||||||||||||||
| East | ||||||||||||||||||||||||||
| North Carolina | 33,439 | 2.8 | % | 8,102 | 5.6 | % | ||||||||||||||||||||
| Pennsylvania | 26,648 | 2.3 | % | 3,437 | 2.4 | % | ||||||||||||||||||||
| Massachusetts | 21,832 | 1.8 | % | 1,407 | 1.0 | % | ||||||||||||||||||||
| New Jersey | 19,707 | 1.7 | % | 1,100 | 0.7 | % | ||||||||||||||||||||
| South Carolina | 15,469 | 1.3 | % | 4,321 | 3.0 | % | ||||||||||||||||||||
| Virginia | 13,776 | 1.2 | % | 1,430 | 1.0 | % | ||||||||||||||||||||
| New York | 13,356 | 1.1 | % | 1,392 | 1.0 | % | ||||||||||||||||||||
Other (b) | 34,320 | 2.9 | % | 6,594 | 4.6 | % | ||||||||||||||||||||
| Total East | 178,547 | 15.1 | % | 27,783 | 19.3 | % | ||||||||||||||||||||
| West | ||||||||||||||||||||||||||
| California | 60,680 | 5.1 | % | 5,195 | 3.6 | % | ||||||||||||||||||||
| Arizona | 30,814 | 2.6 | % | 3,365 | 2.3 | % | ||||||||||||||||||||
Other (b) | 53,317 | 4.5 | % | 5,588 | 3.9 | % | ||||||||||||||||||||
| Total West | 144,811 | 12.2 | % | 14,148 | 9.8 | % | ||||||||||||||||||||
| United States Total | 726,421 | 61.4 | % | 95,967 | 66.5 | % | ||||||||||||||||||||
| International | ||||||||||||||||||||||||||
| Germany | 68,637 | 5.8 | % | 6,645 | 4.6 | % | ||||||||||||||||||||
| Spain | 60,139 | 5.1 | % | 4,708 | 3.3 | % | ||||||||||||||||||||
| Poland | 57,598 | 4.9 | % | 7,214 | 5.0 | % | ||||||||||||||||||||
| The Netherlands | 53,432 | 4.5 | % | 6,389 | 4.4 | % | ||||||||||||||||||||
| United Kingdom | 51,097 | 4.3 | % | 4,035 | 2.8 | % | ||||||||||||||||||||
| Italy | 27,969 | 2.4 | % | 2,386 | 1.7 | % | ||||||||||||||||||||
| Croatia | 18,348 | 1.5 | % | 1,784 | 1.2 | % | ||||||||||||||||||||
| Denmark | 16,311 | 1.4 | % | 2,408 | 1.7 | % | ||||||||||||||||||||
| France | 14,486 | 1.2 | % | 1,270 | 0.9 | % | ||||||||||||||||||||
| Canada | 13,142 | 1.1 | % | 2,103 | 1.5 | % | ||||||||||||||||||||
| Lithuania | 12,089 | 1.0 | % | 1,640 | 1.1 | % | ||||||||||||||||||||
Other (c) | 63,548 | 5.4 | % | 7,710 | 5.3 | % | ||||||||||||||||||||
| International Total | 456,796 | 38.6 | % | 48,292 | 33.5 | % | ||||||||||||||||||||
| Total | $ | 1,183,217 | 100.0 | % | 144,259 | 100.0 | % | |||||||||||||||||||
W. P. Carey | |||||
Portfolio Diversification by Property Type
(in thousands, except percentages)
| Property Type | ABR | ABR Percent | Square Footage (a) | Square Footage Percent | ||||||||||||||||||||||
| Industrial | $ | 293,878 | 24.8 | % | 51,230 | 35.5 | % | |||||||||||||||||||
| Office | 266,776 | 22.5 | % | 17,023 | 11.8 | % | ||||||||||||||||||||
| Warehouse | 257,386 | 21.8 | % | 46,950 | 32.6 | % | ||||||||||||||||||||
Retail (d) | 214,249 | 18.1 | % | 17,936 | 12.4 | % | ||||||||||||||||||||
| Self Storage (net lease) | 59,083 | 5.0 | % | 5,810 | 4.0 | % | ||||||||||||||||||||
Other (e) | 91,845 | 7.8 | % | 5,310 | 3.7 | % | ||||||||||||||||||||
| Total | $ | 1,183,217 | 100.0 | % | 144,259 | 100.0 | % | |||||||||||||||||||
| Property Type | ABR | ABR Percent | Square Footage (a) | Square Footage Percent | |||||||||
| Industrial | $ | 268,434 | 24.0 | % | 47,996 | 34.3 | % | ||||||
| Office | 251,519 | 22.5 | % | 16,894 | 12.1 | % | |||||||
| Warehouse | 240,200 | 21.5 | % | 46,169 | 33.0 | % | |||||||
Retail (d) | 198,686 | 17.7 | % | 17,556 | 12.5 | % | |||||||
| Self Storage (net lease) | 58,270 | 5.2 | % | 5,810 | 4.1 | % | |||||||
Other (e) | 101,410 | 9.1 | % | 5,557 | 4.0 | % | |||||||
| Total | $ | 1,118,519 | 100.0 | % | 139,982 | 100.0 | % | ||||||
(c)Includes assets in Finland, Norway, Mexico, Hungary, Portugal, the Czech Republic, Austria, Sweden, Japan, Slovakia, Latvia, Belgium, and Estonia.
(d)Includes automotive dealerships.
(e)Includes ABR from tenants with the following property types: education facility, hotel (net lease), laboratory, fitness facility, student housing (net lease), theater, and restaurant.
W. P. Carey | |||||
Portfolio Diversification by Tenant Industry
(in thousands, except percentages)
| Industry Type | ABR | ABR Percent | Square Footage | Square Footage Percent | Industry Type | ABR | ABR Percent | Square Footage | Square Footage Percent | ||||||||||||||||||||||||||||||
Retail Stores (a) | $ | 233,346 | 20.9 | % | 30,993 | 22.1 | % | Retail Stores (a) | $ | 264,551 | 22.4 | % | 31,755 | 22.0 | % | ||||||||||||||||||||||||
| Consumer Services | 113,588 | 10.1 | % | 8,429 | 6.0 | % | Consumer Services | 97,014 | 8.2 | % | 7,737 | 5.4 | % | ||||||||||||||||||||||||||
| Automotive | 72,679 | 6.5 | % | 12,166 | 8.7 | % | Automotive | 75,753 | 6.4 | % | 12,091 | 8.4 | % | ||||||||||||||||||||||||||
| Grocery | Grocery | 69,919 | 5.9 | % | 7,318 | 5.1 | % | ||||||||||||||||||||||||||||||||
| Cargo Transportation | 60,211 | 5.4 | % | 9,345 | 6.7 | % | Cargo Transportation | 63,764 | 5.4 | % | 9,013 | 6.2 | % | ||||||||||||||||||||||||||
| Healthcare and Pharmaceuticals | Healthcare and Pharmaceuticals | 57,048 | 4.8 | % | 4,976 | 3.5 | % | ||||||||||||||||||||||||||||||||
| Business Services | 60,073 | 5.4 | % | 5,272 | 3.8 | % | Business Services | 55,596 | 4.7 | % | 4,715 | 3.3 | % | ||||||||||||||||||||||||||
| Grocery | 56,574 | 5.1 | % | 6,549 | 4.7 | % | |||||||||||||||||||||||||||||||||
| Healthcare and Pharmaceuticals | 51,010 | 4.6 | % | 4,281 | 3.1 | % | |||||||||||||||||||||||||||||||||
| Hotel, Gaming, and Leisure | 43,663 | 3.9 | % | 2,423 | 1.7 | % | |||||||||||||||||||||||||||||||||
| Beverage and Food | Beverage and Food | 52,682 | 4.4 | % | 5,930 | 4.1 | % | ||||||||||||||||||||||||||||||||
| Construction and Building | 42,290 | 3.8 | % | 7,673 | 5.5 | % | Construction and Building | 49,738 | 4.2 | % | 9,156 | 6.3 | % | ||||||||||||||||||||||||||
| Sovereign and Public Finance | Sovereign and Public Finance | 43,376 | 3.7 | % | 3,364 | 2.3 | % | ||||||||||||||||||||||||||||||||
| Capital Equipment | 39,686 | 3.5 | % | 6,550 | 4.7 | % | Capital Equipment | 43,246 | 3.7 | % | 6,932 | 4.8 | % | ||||||||||||||||||||||||||
| Sovereign and Public Finance | 39,259 | 3.5 | % | 3,364 | 2.4 | % | |||||||||||||||||||||||||||||||||
| Beverage, Food, and Tobacco | 37,825 | 3.4 | % | 4,862 | 3.5 | % | |||||||||||||||||||||||||||||||||
| Containers, Packaging, and Glass | 35,718 | 3.2 | % | 6,186 | 4.4 | % | Containers, Packaging, and Glass | 36,114 | 3.0 | % | 6,186 | 4.3 | % | ||||||||||||||||||||||||||
| Hotel and Leisure | Hotel and Leisure | 35,206 | 3.0 | % | 2,197 | 1.5 | % | ||||||||||||||||||||||||||||||||
| Durable Consumer Goods | Durable Consumer Goods | 35,201 | 3.0 | % | 8,170 | 5.7 | % | ||||||||||||||||||||||||||||||||
| High Tech Industries | 30,444 | 2.7 | % | 3,384 | 2.4 | % | High Tech Industries | 29,568 | 2.5 | % | 3,236 | 2.2 | % | ||||||||||||||||||||||||||
| Durable Consumer Goods | 30,214 | 2.7 | % | 6,870 | 4.9 | % | |||||||||||||||||||||||||||||||||
| Insurance | 24,875 | 2.2 | % | 1,759 | 1.3 | % | Insurance | 25,372 | 2.1 | % | 1,749 | 1.2 | % | ||||||||||||||||||||||||||
| Banking | 19,239 | 1.7 | % | 1,247 | 0.9 | % | Banking | 20,326 | 1.7 | % | 1,247 | 0.9 | % | ||||||||||||||||||||||||||
| Telecommunications | 18,803 | 1.7 | % | 1,732 | 1.2 | % | Telecommunications | 17,516 | 1.5 | % | 1,571 | 1.1 | % | ||||||||||||||||||||||||||
| Non-Durable Consumer Goods | 15,088 | 1.3 | % | 5,194 | 3.7 | % | |||||||||||||||||||||||||||||||||
| Media: Advertising, Printing, and Publishing | 14,785 | 1.3 | % | 1,435 | 1.0 | % | |||||||||||||||||||||||||||||||||
| Aerospace and Defense | 13,539 | 1.2 | % | 1,279 | 0.9 | % | Aerospace and Defense | 16,602 | 1.4 | % | 1,504 | 1.0 | % | ||||||||||||||||||||||||||
| Media: Broadcasting and Subscription | 12,787 | 1.1 | % | 784 | 0.6 | % | Media: Broadcasting and Subscription | 13,679 | 1.2 | % | 784 | 0.5 | % | ||||||||||||||||||||||||||
| Media: Advertising, Printing, and Publishing | Media: Advertising, Printing, and Publishing | 13,535 | 1.1 | % | 1,001 | 0.7 | % | ||||||||||||||||||||||||||||||||
| Chemicals, Plastics, and Rubber | Chemicals, Plastics, and Rubber | 12,917 | 1.1 | % | 1,584 | 1.1 | % | ||||||||||||||||||||||||||||||||
| Wholesale | 12,206 | 1.1 | % | 2,005 | 1.4 | % | Wholesale | 12,755 | 1.1 | % | 2,005 | 1.4 | % | ||||||||||||||||||||||||||
| Chemicals, Plastics, and Rubber | 12,037 | 1.1 | % | 1,403 | 1.0 | % | |||||||||||||||||||||||||||||||||
| Non-Durable Consumer Goods | Non-Durable Consumer Goods | 12,370 | 1.0 | % | 4,685 | 3.3 | % | ||||||||||||||||||||||||||||||||
Other (b) | 28,580 | 2.6 | % | 4,797 | 3.4 | % | Other (b) | 29,369 | 2.5 | % | 5,353 | 3.7 | % | ||||||||||||||||||||||||||
| Total | $ | 1,118,519 | 100.0 | % | 139,982 | 100.0 | % | Total | $ | 1,183,217 | 100.0 | % | 144,259 | 100.0 | % | ||||||||||||||||||||||||
__________
(b)Includes ABR from tenants in the following industries: metals and mining, oil and gas, environmental industries, electricity, consumer transportation, forest products and paper, real estate, and finance. Also includes square footage for vacant properties.
W. P. Carey | |||||
Lease Expirations
(dollars and square footage in thousands, except percentages and number of leases)thousands)
Year of Lease Expiration (a) | Number of Leases Expiring | Number of Tenants with Leases Expiring | ABR | ABR Percent | Square Footage | Square Footage Percent | Year of Lease Expiration (a) | Number of Leases Expiring | Number of Tenants with Leases Expiring | ABR | ABR Percent | Square Footage | Square Footage Percent | ||||||||||||||||||||||||||||||||||||||||||||
| 2020 | 25 | 22 | $ | 19,294 | 1.7 | % | 2,050 | 1.5 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| 2021 | 77 | 23 | 33,967 | 3.0 | % | 3,899 | 2.8 | % | 2021 | 26 | 24 | $ | 20,326 | 1.7 | % | 1,903 | 1.3 | % | |||||||||||||||||||||||||||||||||||||||
| 2022 | 41 | 32 | 58,261 | 5.2 | % | 5,377 | 3.8 | % | 2022 | 27 | 26 | 40,314 | 3.4 | % | 3,001 | 2.1 | % | ||||||||||||||||||||||||||||||||||||||||
| 2023 | 31 | 28 | 46,954 | 4.2 | % | 5,919 | 4.2 | % | 2023 | 38 | 32 | 51,921 | 4.4 | % | 6,305 | 4.4 | % | ||||||||||||||||||||||||||||||||||||||||
| 2024 | 76 | 49 | 111,646 | 10.0 | % | 13,961 | 10.0 | % | 2024 | 77 | 50 | 112,828 | 9.5 | % | 14,025 | 9.7 | % | ||||||||||||||||||||||||||||||||||||||||
| 2025 | 61 | 30 | 58,023 | 5.2 | % | 7,194 | 5.1 | % | 2025 | 62 | 30 | 62,991 | 5.3 | % | 7,307 | 5.1 | % | ||||||||||||||||||||||||||||||||||||||||
| 2026 | 32 | 20 | 49,824 | 4.5 | % | 7,354 | 5.2 | % | 2026 | 42 | 28 | 62,501 | 5.3 | % | 8,608 | 6.0 | % | ||||||||||||||||||||||||||||||||||||||||
| 2027 | 45 | 27 | 71,604 | 6.4 | % | 8,237 | 5.9 | % | 2027 | 44 | 27 | 73,143 | 6.2 | % | 8,068 | 5.6 | % | ||||||||||||||||||||||||||||||||||||||||
| 2028 | 43 | 25 | 61,774 | 5.5 | % | 4,867 | 3.5 | % | 2028 | 42 | 24 | 63,776 | 5.4 | % | 4,829 | 3.3 | % | ||||||||||||||||||||||||||||||||||||||||
| 2029 | 31 | 18 | 36,289 | 3.2 | % | 4,561 | 3.3 | % | 2029 | 32 | 19 | 39,820 | 3.4 | % | 4,946 | 3.4 | % | ||||||||||||||||||||||||||||||||||||||||
| 2030 | 28 | 22 | 73,580 | 6.6 | % | 6,638 | 4.7 | % | 2030 | 27 | 22 | 70,282 | 5.9 | % | 5,737 | 4.0 | % | ||||||||||||||||||||||||||||||||||||||||
| 2031 | 66 | 16 | 68,973 | 6.2 | % | 8,155 | 5.8 | % | 2031 | 66 | 16 | 71,202 | 6.0 | % | 8,154 | 5.6 | % | ||||||||||||||||||||||||||||||||||||||||
| 2032 | 35 | 14 | 43,105 | 3.9 | % | 5,914 | 4.2 | % | 2032 | 35 | 15 | 47,362 | 4.0 | % | 6,625 | 4.6 | % | ||||||||||||||||||||||||||||||||||||||||
| 2033 | 19 | 13 | 48,275 | 4.3 | % | 6,672 | 4.8 | % | 2033 | 23 | 17 | 64,678 | 5.5 | % | 8,192 | 5.7 | % | ||||||||||||||||||||||||||||||||||||||||
| Thereafter (>2033) | 172 | 84 | 336,950 | 30.1 | % | 47,554 | 34.0 | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| 2034 | 2034 | 47 | 15 | 77,836 | 6.6 | % | 7,765 | 5.4 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Thereafter (>2034) | Thereafter (>2034) | 185 | 83 | 324,237 | 27.4 | % | 46,560 | 32.3 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Vacant | — | — | — | — | % | 1,630 | 1.2 | % | Vacant | — | — | — | — | % | 2,234 | 1.5 | % | ||||||||||||||||||||||||||||||||||||||||
| Total | 782 | $ | 1,118,519 | 100.0 | % | 139,982 | 100.0 | % | Total | 773 | $ | 1,183,217 | 100.0 | % | 144,259 | 100.0 | % | ||||||||||||||||||||||||||||||||||||||||
__________
(a)Assumes tenants do not exercise any renewal options or purchase options.
Terms and Definitions
Pro Rata Metrics —The portfolio information above contains certain metrics prepared under the pro rata consolidation method.We refer to these metrics as pro rata metrics. We have a number of investments, usually with our affiliates, in which our economic ownership is less than 100%. Under the full consolidation method, we report 100% of the assets, liabilities, revenues, and expenses of those investments that are deemed to be under our control or for which we are deemed to be the primary beneficiary, even if our ownership is less than 100%. Also, for all other jointly owned investments, which we do not control, we report our net investment and our net income or loss from that investment. Under the pro rata consolidation method, we present our proportionate share, based on our economic ownership of these jointly owned investments, of the portfolio metrics of those investments. Multiplying each of our jointly owned investments’ financial statement line items by our percentage ownership and adding or subtracting those amounts from our totals, as applicable, may not accurately depict the legal and economic implications of holding an ownership interest of less than 100% in our jointly owned investments.
ABR — ABR represents contractual minimum annualized base rent for our net-leased properties, net of receivable reserves as determined by GAAP, and reflects exchange rates as of December 31, 2019.2020. If there is a rent abatement, we annualize the first monthly contractual base rent following the free rent period. ABR is not applicable to operating properties.
Results of Operations
We operate in two reportable segments: Real Estate and Investment Management. We evaluate our results of operations with a primary focus on increasing and enhancing the value, quality, and number of properties in our Real Estate segment. We focus our efforts on accretive investing and improving portfolio quality through re-leasing efforts, including negotiation of lease renewals, or selectively selling assets in order to increase value in our real estate portfolio. Through our Investment Management segment, we expect to continue to earn fees and other income from the management of the portfolios of the remaining Managed Programs until those programs reach the end of their respective life cycles.
W. P. Carey | |||||
Real Estate — Property Level Contribution
The following table presents the Property level contribution for our consolidated net-leased and operating properties within our Real Estate segment, as well as a reconciliation to Net income from Real Estate attributable to W. P. Carey (in thousands):
| Years Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2020 | 2019 | Change | 2019 | 2018 | Change | ||||||||||||||||||||||||||||||
| Existing Net-Leased Properties | |||||||||||||||||||||||||||||||||||
| Lease revenues | $ | 633,177 | $ | 622,490 | $ | 10,687 | $ | 622,490 | $ | 612,460 | $ | 10,030 | |||||||||||||||||||||||
| Depreciation and amortization | (216,800) | (217,272) | 472 | (217,272) | (223,982) | 6,710 | |||||||||||||||||||||||||||||
| Reimbursable tenant costs | (25,969) | (25,566) | (403) | (25,566) | (21,204) | (4,362) | |||||||||||||||||||||||||||||
| Property expenses | (24,159) | (18,956) | (5,203) | (18,956) | (16,868) | (2,088) | |||||||||||||||||||||||||||||
| Property level contribution | 366,249 | 360,696 | 5,553 | 360,696 | 350,406 | 10,290 | |||||||||||||||||||||||||||||
| Net-Leased Properties Acquired in the CPA:17 Merger | |||||||||||||||||||||||||||||||||||
| Lease revenues | 356,166 | 344,606 | 11,560 | 344,606 | 54,585 | 290,021 | |||||||||||||||||||||||||||||
| Depreciation and amortization | (149,688) | (150,866) | 1,178 | (150,866) | (21,820) | (129,046) | |||||||||||||||||||||||||||||
| Reimbursable tenant costs | (27,193) | (27,618) | 425 | (27,618) | (5,062) | (22,556) | |||||||||||||||||||||||||||||
| Property expenses | (16,388) | (15,457) | (931) | (15,457) | (2,685) | (12,772) | |||||||||||||||||||||||||||||
| Property level contribution | 162,897 | 150,665 | 12,232 | 150,665 | 25,018 | 125,647 | |||||||||||||||||||||||||||||
| Recently Acquired Net-Leased Properties | |||||||||||||||||||||||||||||||||||
| Lease revenues | 149,218 | 87,414 | 61,804 | 87,414 | 26,374 | 61,040 | |||||||||||||||||||||||||||||
| Depreciation and amortization | (61,246) | (36,059) | (25,187) | (36,059) | (11,465) | (24,594) | |||||||||||||||||||||||||||||
| Reimbursable tenant costs | (3,052) | (1,909) | (1,143) | (1,909) | (396) | (1,513) | |||||||||||||||||||||||||||||
| Property expenses | (2,347) | (1,360) | (987) | (1,360) | (385) | (975) | |||||||||||||||||||||||||||||
| Property level contribution | 82,573 | 48,086 | 34,487 | 48,086 | 14,128 | 33,958 | |||||||||||||||||||||||||||||
| Existing Operating Property | |||||||||||||||||||||||||||||||||||
| Operating property revenues | 3,967 | 15,001 | (11,034) | 15,001 | 15,179 | (178) | |||||||||||||||||||||||||||||
| Depreciation and amortization | (1,547) | (1,515) | (32) | (1,515) | (1,947) | 432 | |||||||||||||||||||||||||||||
| Operating property expenses | (5,722) | (11,742) | 6,020 | (11,742) | (11,607) | (135) | |||||||||||||||||||||||||||||
| Property level contribution | (3,302) | 1,744 | (5,046) | 1,744 | 1,625 | 119 | |||||||||||||||||||||||||||||
| Operating Properties Acquired in the CPA:17 Merger | |||||||||||||||||||||||||||||||||||
| Operating property revenues | 5,542 | 20,787 | (15,245) | 20,787 | 6,391 | 14,396 | |||||||||||||||||||||||||||||
| Depreciation and amortization | (2,470) | (19,502) | 17,032 | (19,502) | (6,040) | (13,462) | |||||||||||||||||||||||||||||
| Operating property expenses | (2,275) | (8,205) | 5,930 | (8,205) | (2,258) | (5,947) | |||||||||||||||||||||||||||||
| Property level contribution | 797 | (6,920) | 7,717 | (6,920) | (1,907) | (5,013) | |||||||||||||||||||||||||||||
| Properties Sold or Held for Sale | |||||||||||||||||||||||||||||||||||
| Lease revenues | 15,943 | 31,865 | (15,922) | 31,865 | 51,079 | (19,214) | |||||||||||||||||||||||||||||
| Operating property revenues | 1,890 | 14,432 | (12,542) | 14,432 | 6,502 | 7,930 | |||||||||||||||||||||||||||||
| Depreciation and amortization | (6,095) | (16,855) | 10,760 | (16,855) | (20,918) | 4,063 | |||||||||||||||||||||||||||||
| Reimbursable tenant costs | (195) | (483) | 288 | (483) | (1,414) | 931 | |||||||||||||||||||||||||||||
| Property expenses | (1,173) | (3,772) | 2,599 | (3,772) | (2,835) | (937) | |||||||||||||||||||||||||||||
| Operating property expenses | (1,904) | (18,068) | 16,164 | (18,068) | (6,285) | (11,783) | |||||||||||||||||||||||||||||
| Property level contribution | 8,466 | 7,119 | 1,347 | 7,119 | 26,129 | (19,010) | |||||||||||||||||||||||||||||
| Property Level Contribution | 617,680 | 561,390 | 56,290 | 561,390 | 415,399 | 145,991 | |||||||||||||||||||||||||||||
| Add: Lease termination income and other | 12,094 | 36,268 | (24,174) | 36,268 | 6,555 | 29,713 | |||||||||||||||||||||||||||||
| Less other expenses: | |||||||||||||||||||||||||||||||||||
| General and administrative | (70,127) | (56,796) | (13,331) | (56,796) | (47,210) | (9,586) | |||||||||||||||||||||||||||||
| Impairment charges | (35,830) | (32,539) | (3,291) | (32,539) | (4,790) | (27,749) | |||||||||||||||||||||||||||||
| Stock-based compensation expense | (15,247) | (13,248) | (1,999) | (13,248) | (10,450) | (2,798) | |||||||||||||||||||||||||||||
| Corporate depreciation and amortization | (4,102) | (1,231) | (2,871) | (1,231) | (1,289) | 58 | |||||||||||||||||||||||||||||
| Merger and other expenses | 937 | (101) | 1,038 | (101) | (41,426) | 41,325 | |||||||||||||||||||||||||||||
| Other Income and Expenses | |||||||||||||||||||||||||||||||||||
| Interest expense | (210,087) | (233,325) | 23,238 | (233,325) | (178,375) | (54,950) | |||||||||||||||||||||||||||||
| Gain on sale of real estate, net | 109,370 | 18,143 | 91,227 | 18,143 | 118,605 | (100,462) | |||||||||||||||||||||||||||||
| Other gains and (losses) | 46,074 | 30,251 | 15,823 | 30,251 | 30,015 | 236 | |||||||||||||||||||||||||||||
| Equity in (losses) earnings of equity method investments in real estate | (9,017) | 2,361 | (11,378) | 2,361 | 13,341 | (10,980) | |||||||||||||||||||||||||||||
| (Loss) gain on change in control of interests | — | (8,416) | 8,416 | (8,416) | 18,792 | (27,208) | |||||||||||||||||||||||||||||
| (63,660) | (190,986) | 127,326 | (190,986) | 2,378 | (193,364) | ||||||||||||||||||||||||||||||
| Income before income taxes | 441,745 | 302,757 | 138,988 | 302,757 | 319,167 | (16,410) | |||||||||||||||||||||||||||||
| Benefit from (provision for) income taxes | 18,498 | (30,802) | 49,300 | (30,802) | 844 | (31,646) | |||||||||||||||||||||||||||||
| Net Income from Real Estate | 460,243 | 271,955 | 188,288 | 271,955 | 320,011 | (48,056) | |||||||||||||||||||||||||||||
| Net (income) loss attributable to noncontrolling interests | (731) | 110 | (841) | 110 | (12,775) | 12,885 | |||||||||||||||||||||||||||||
| Net Income from Real Estate Attributable to W. P. Carey | $ | 459,512 | $ | 272,065 | $ | 187,447 | $ | 272,065 | $ | 307,236 | $ | (35,171) | |||||||||||||||||||||||
| Years Ended December 31, | |||||||||||||||||||||||
| 2019 | 2018 | Change | 2018 | 2017 | Change | ||||||||||||||||||
| Existing Net-Leased Properties | |||||||||||||||||||||||
| Lease revenues | $ | 634,557 | $ | 624,698 | $ | 9,859 | $ | 624,698 | $ | 603,889 | $ | 20,809 | |||||||||||
| Depreciation and amortization | (221,176 | ) | (228,060 | ) | 6,884 | (228,060 | ) | (222,308 | ) | (5,752 | ) | ||||||||||||
| Reimbursable tenant costs | (25,800 | ) | (21,445 | ) | (4,355 | ) | (21,445 | ) | (19,590 | ) | (1,855 | ) | |||||||||||
| Property expenses | (19,373 | ) | (17,201 | ) | (2,172 | ) | (17,201 | ) | (14,223 | ) | (2,978 | ) | |||||||||||
| Property level contribution | 368,208 | 357,992 | 10,216 | 357,992 | 347,768 | 10,224 | |||||||||||||||||
| Net-Leased Properties Acquired in the CPA:17 Merger | |||||||||||||||||||||||
| Lease revenues | 349,518 | 55,403 | 294,115 | 55,403 | — | 55,403 | |||||||||||||||||
| Depreciation and amortization | (152,757 | ) | (22,136 | ) | (130,621 | ) | (22,136 | ) | — | (22,136 | ) | ||||||||||||
| Reimbursable tenant costs | (27,618 | ) | (5,062 | ) | (22,556 | ) | (5,062 | ) | — | (5,062 | ) | ||||||||||||
| Property expenses | (15,454 | ) | (2,685 | ) | (12,769 | ) | (2,685 | ) | — | (2,685 | ) | ||||||||||||
| Property level contribution | 153,689 | 25,520 | 128,169 | 25,520 | — | 25,520 | |||||||||||||||||
| Recently Acquired Net-Leased Properties | |||||||||||||||||||||||
| Lease revenues | 90,382 | 29,198 | 61,184 | 29,198 | 495 | 28,703 | |||||||||||||||||
| Depreciation and amortization | (37,438 | ) | (12,730 | ) | (24,708 | ) | (12,730 | ) | (174 | ) | (12,556 | ) | |||||||||||
| Reimbursable tenant costs | (1,928 | ) | (406 | ) | (1,522 | ) | (406 | ) | (3 | ) | (403 | ) | |||||||||||
| Property expenses | (1,367 | ) | (400 | ) | (967 | ) | (400 | ) | (78 | ) | (322 | ) | |||||||||||
| Property level contribution | 49,649 | 15,662 | 33,987 | 15,662 | 240 | 15,422 | |||||||||||||||||
| Existing Operating Property | |||||||||||||||||||||||
| Operating property revenues | 15,001 | 15,179 | (178 | ) | 15,179 | 14,554 | 625 | ||||||||||||||||
| Depreciation and amortization | (1,515 | ) | (1,947 | ) | 432 | (1,947 | ) | (1,714 | ) | (233 | ) | ||||||||||||
| Operating property expenses | (11,742 | ) | (11,607 | ) | (135 | ) | (11,607 | ) | (11,358 | ) | (249 | ) | |||||||||||
| Property level contribution | 1,744 | 1,625 | 119 | 1,625 | 1,482 | 143 | |||||||||||||||||
| Operating Properties Acquired in the CPA:17 Merger | |||||||||||||||||||||||
| Operating property revenues | 20,787 | 6,391 | 14,396 | 6,391 | — | 6,391 | |||||||||||||||||
| Depreciation and amortization | (19,502 | ) | (6,040 | ) | (13,462 | ) | (6,040 | ) | — | (6,040 | ) | ||||||||||||
| Operating property expenses | (8,205 | ) | (2,258 | ) | (5,947 | ) | (2,258 | ) | — | (2,258 | ) | ||||||||||||
| Property level contribution | (6,920 | ) | (1,907 | ) | (5,013 | ) | (1,907 | ) | — | (1,907 | ) | ||||||||||||
| Properties Sold or Held for Sale | |||||||||||||||||||||||
| Lease revenues | 11,918 | 35,199 | (23,281 | ) | 35,199 | 47,513 | (12,314 | ) | |||||||||||||||
| Operating property revenues | 14,432 | 6,502 | 7,930 | 6,502 | 16,008 | (9,506 | ) | ||||||||||||||||
| Depreciation and amortization | (9,681 | ) | (15,259 | ) | 5,578 | (15,259 | ) | (23,947 | ) | 8,688 | |||||||||||||
| Reimbursable tenant costs | (230 | ) | (1,163 | ) | 933 | (1,163 | ) | (1,931 | ) | 768 | |||||||||||||
| Property expenses | (3,351 | ) | (2,487 | ) | (864 | ) | (2,487 | ) | (3,029 | ) | 542 | ||||||||||||
| Operating property expenses | (18,068 | ) | (6,285 | ) | (11,783 | ) | (6,285 | ) | (12,068 | ) | 5,783 | ||||||||||||
| Property level contribution | (4,980 | ) | 16,507 | (21,487 | ) | 16,507 | 22,546 | (6,039 | ) | ||||||||||||||
| Property Level Contribution | 561,390 | 415,399 | 145,991 | 415,399 | 372,036 | 43,363 | |||||||||||||||||
| Add: Lease termination income and other | 36,268 | 6,555 | 29,713 | 6,555 | 4,749 | 1,806 | |||||||||||||||||
| Less other expenses: | |||||||||||||||||||||||
| General and administrative | (56,796 | ) | (47,210 | ) | (9,586 | ) | (47,210 | ) | (39,002 | ) | (8,208 | ) | |||||||||||
| Impairment charges | (32,539 | ) | (4,790 | ) | (27,749 | ) | (4,790 | ) | (2,769 | ) | (2,021 | ) | |||||||||||
| Stock-based compensation expense | (13,248 | ) | (10,450 | ) | (2,798 | ) | (10,450 | ) | (6,960 | ) | (3,490 | ) | |||||||||||
| Corporate depreciation and amortization | (1,231 | ) | (1,289 | ) | 58 | (1,289 | ) | (1,289 | ) | — | |||||||||||||
| Merger and other expenses | (101 | ) | (41,426 | ) | 41,325 | (41,426 | ) | (605 | ) | (40,821 | ) | ||||||||||||
| Other Income and Expenses | |||||||||||||||||||||||
| Interest expense | (233,325 | ) | (178,375 | ) | (54,950 | ) | (178,375 | ) | (165,775 | ) | (12,600 | ) | |||||||||||
| Other gains and (losses) | 30,251 | 30,015 | 236 | 30,015 | (5,655 | ) | 35,670 | ||||||||||||||||
| Gain on sale of real estate, net | 18,143 | 118,605 | (100,462 | ) | 118,605 | 33,878 | 84,727 | ||||||||||||||||
| (Loss) gain on change in control of interests | (8,416 | ) | 18,792 | (27,208 | ) | 18,792 | — | 18,792 | |||||||||||||||
| Equity in earnings of equity method investments in real estate | 2,361 | 13,341 | (10,980 | ) | 13,341 | 13,068 | 273 | ||||||||||||||||
| (190,986 | ) | 2,378 | (193,364 | ) | 2,378 | (124,484 | ) | 126,862 | |||||||||||||||
| Income before income taxes | 302,757 | 319,167 | (16,410 | ) | 319,167 | 201,676 | 117,491 | ||||||||||||||||
| (Provision for) benefit from income taxes | (30,802 | ) | 844 | (31,646 | ) | 844 | (1,743 | ) | 2,587 | ||||||||||||||
| Net Income from Real Estate | 271,955 | 320,011 | (48,056 | ) | 320,011 | 199,933 | 120,078 | ||||||||||||||||
| Net loss (income) attributable to noncontrolling interests | 110 | (12,775 | ) | 12,885 | (12,775 | ) | (7,794 | ) | (4,981 | ) | |||||||||||||
| Net Income from Real Estate Attributable to W. P. Carey | $ | 272,065 | $ | 307,236 | $ | (35,171 | ) | $ | 307,236 | $ | 192,139 | $ | 115,097 | ||||||||||
W. P. Carey | |||||
Property level contribution is a non-GAAP measure that we believe to be a useful supplemental measure for management and investors in evaluating and analyzing the financial results of our net-leased and operating properties included in our Real Estate segment over time. Property level contribution presents our lease and operating property revenues, less property expenses, reimbursable tenant costs, and depreciation and amortization. Reimbursable tenant costs (within Real Estate revenues) are now included within Lease revenues in the consolidated statements of income (Note 2). We believe that Property level contribution allows for meaningful comparison between periods of the direct costs of owning and operating our net-leased assets and operating properties. While we believe that Property level contribution is a useful supplemental measure, it should not be considered as an alternative to Net income from Real Estate attributable to W. P. Carey as an indication of our operating performance.
Existing Net-Leased Properties
Existing net-leased properties are those that we acquired or placed into service prior to January 1, 20172018 and that were not sold or held for sale during the periods presented. For the periods presented, there were 787766 existing net-leased properties.
Property expenses from existing net-leased properties increased primarily due to tenant vacancies during 20182019 and 2019, which2020 (which resulted in property expenses no longer being reimbursable.reimbursable), and certain reimbursable expenses being deemed not collectible as a result of the COVID-19 pandemic.
Net-Leased Properties Acquired in the CPA:17 Merger
Net-leased properties acquired in the CPA:17 Merger on October 31, 2018 (Note 3) consisted of 275272 net-leased properties, as well as one property placed into service during the first quarter of 2019, which was an active build-to-suit project at the time of acquisition in the CPA:17 Merger. The 275272 net-leased properties included 27 self-storage properties acquired in the CPA:17 Merger, which were reclassified from operating properties to net-leased properties during the year ended December 31, 2019 as a result of entering into net-lease agreements during the second quarter of 2019 (Note 5). Net-leasedFor the year ended December 31, 2020 as compared to 2019, for these 27 properties, acquiredlease revenues increased by $10.3 million, depreciation and amortization decreased by $2.0 million (due to the in-place lease intangible assets recorded on certain of these 27 properties becoming fully amortized during 2020), and property expenses increased by $0.1 million, which is all captured within Net-Leased Properties Acquired in the CPA:17 Merger contributed lease revenue, depreciation and amortization, and property expenses for a full year during 2019, as compared to two months during 2018.Merger.
Recently Acquired Net-Leased Properties
Recently acquired net-leased properties are those that we acquired or placed into service subsequent to December 31, 2016,2017, excluding properties acquired in the CPA:17 Merger, and that were not sold or held for sale during the periods presented. Since January 1, 2017,2018, we acquired 4052 investments, comprised of 121169 properties, (two of which we acquired in 2017, 75 of which we acquired in 2018, and 44 of which we acquired in 2019), and placed threefour properties into service (two in 2018 and one in 2019).
Existing Operating Property
We have one hotel operating property with results of operations reflected in all periods presented. In AprilWe exclude two self-storage properties acquired in 2018 we sold another hotel operating property, which is included in Properties Sold or Heldfrom this section since they are accounted for Sale below.under the equity method.
For the year ended December 31, 20192020 as compared to 2018, property level contribution from2019, for our existing operating property, was substantially unchanged.revenues decreased by $11.0 million and expenses decreased by $6.0 million due to the adverse effect of the COVID-19 pandemic on the hotel’s operations.
W. P. Carey 2020 10-K– 33 | |||||
Operating Properties Acquired in the CPA:17 Merger
Operating properties acquired in the CPA:17 Merger (Note 3) consisted of ten self-storage properties (which excludes seven self-storage properties acquired in the CPA:17 Merger accounted for under the equity method). Aside from these ten operating properties, we acquired 27 self-storage properties in the CPA:17 Merger, which were reclassified from operating properties to net-leased properties during the year ended December 31, 2019, as described in Net-Leased Properties Acquired in the CPA:17 Merger above. AtFor the year ended December 31, 2020 as compared to 2019, for these 27 properties, operating property revenues decreased by $14.9 million, depreciation and amortization decreased by $14.5 million, and operating property expenses decreased by $6.0 million, which is all captured within Operating Properties Acquired in the CPA:17 Merger. In January 2020, we had onesold a hotel operating property, classified as held for sale (Note 5), which was acquired in the CPA:17 Merger and is included in Properties Sold or Held for Salebelow. Operating properties acquired in the CPA:17 Merger contributed operating property revenues, depreciation and amortization, and operating property expenses for a full year during 2019, as compared to two months during 2018.
Properties Sold or Held for Sale
During the year ended December 31, 2020, we disposed of 22 properties, including the sale of one of our two hotel operating properties in January 2020. At December 31, 2020, we had four properties classified as held for sale (Note 5), one of which was sold in January 2021 (Note 19).
During the year ended December 31, 2019, we disposed of 22 properties, including the repayment of a loan receivable in June 2019 (Note 6). At December 31, 2019, we had one hotel operating property classified as held for sale (Note 5), which we acquired in the CPA:17 Merger and sold in January 2020 (Note 20).receivable.
In addition to the impact on property level contribution related to properties we sold or classified as held for sale during the periods presented, we recognized gain (loss) on sale of real estate, lease termination income, impairment charges, and gain (loss) on extinguishment of debt. The impact of these transactions is described in further detail below and in Note 1716.
Other Revenues and Expenses
Lease Termination Income and Other
General and Administrative and Corporate Depreciation and Amortization
2020 vs. 20182019 — For the year ended December 31, 20192020 as compared to 2018,2019, general and administrative expenses in our Real Estate segment increased by $9.6$13.3 million, primarily due to an increasethe change in estimated time spent by management and personnel onmethodology for allocation of expenses between our Real Estate segment activities following the CPA:17 Merger (Note 3).and Investment Management segments discussed above.
Impairment Charges
Stock-based Compensation Expense
For a description of our equity plans and awards, please see Note 1514. Beginning with the second quarter of 2020, stock-based compensation expense is fully recognized within our Real Estate segment. In light of the termination of the advisory agreements with CWI 1 and CWI 2 in connection with the WLT management internalization (Note 4), we believe that this allocation methodology is appropriate, as described above (Note 2). This change between the segments had no impact on our consolidated financial statements.
2020vs.2019 — For the year ended December 31, 2018, merger and other expenses were primarily comprised of costs incurred in connection with the CPA:17 Merger, including advisory fees, transfer taxes, and legal, accounting, and tax-related professional fees (Note 1, Note 3).
Gain on Sale of Real Estate, Net
Gain on sale of real estate, net, consists of gain on the sale of properties that were disposed of during the reporting period. Our dispositions are more fully described in Note 16.
Other Gains and (Losses)
Other gains and (losses) primarily consists of gains and losses on foreign currency transactions, derivative instruments, and extinguishment of debt. ForAll of our foreign currency-denominated unsecured debt instruments were designated as net investment hedges during the yearyears ended December 31, 2018,2020 and 2019. Therefore, no gains and losses on foreign currency transactions were recognized on the remeasurement of certain of our euro-denominated unsecured debt instruments that were not designated as net investment hedges; such instruments were all designated as net investment hedges during the year ended December 31, 2019those periods (Note 10). We also make certain foreign currency-denominated intercompany loans to a number of our foreign subsidiaries, most of which do not have the U.S. dollar as their functional currency. Remeasurement of foreign currency
intercompany transactions that are scheduled for settlement, consisting primarily of accrued interest and short-term loans, are included in the determination of net income. We recognize allowances for credit losses on finance receivables within Other gains and (losses) (Note 2, Note 6). In addition, we have certain derivative instruments, including common stock warrants, and foreign currency forward and collar contracts, that are not designated as hedges for accounting purposes, for which realized and unrealized gains and losses are included in earnings. We also recognize unrealized gains and losses on movements in the fair value of certain investments within Other gains and (losses). The timing and amount of such gains or losses cannot always be estimated and are subject to fluctuation.
2020 — For the year ended December 31, 2020, net other gains were $46.1 million. During the year, we recognized non-cash unrealized gains of $48.3 million related to an increase in the fair value of our investment in shares of Lineage Logistics (Note 9), unrealized gains of $11.0 million on foreign currency transactions as a result of changes in foreign currency exchange rates, and realized gains of $8.2 million related to the settlement of foreign currency forward contracts and foreign currency collars. These gains were partially offset by a non-cash net allowance for credit losses of $22.3 million (Note 6).
2019 — For the year ended December 31, 2019, net other gains were $30.3 million. During the year, we recognized non-cash unrealized gains of $32.9 million related to an increase in the fair value of our investment in shares of a cold storage operatorLineage Logistics (Note 9) and realized gains of $16.4 million related to the settlement of foreign currency forward contracts and foreign currency collars. These gains were partially offset by a net loss on extinguishment of debt totaling $14.8 million related to the prepayment of mortgage loans (primarily comprised of prepayment penalties) (Note 11) and net realized and unrealized losses of $4.9 million on foreign currency transactions as a result of changes in foreign currency exchange rates.
W. P. Carey 2020 10-K– 35 | |||||
Equity in (Losses) Earnings of Equity Method Investments in Real Estate
(Loss) Gain on Change in Control of Interests
2019 — During the third quarter of 2019, we identified certain measurement period adjustments that impacted the provisional accounting for an investment we acquired in the CPA:17 Merger (Note 3), in which we had a joint interest and accounted for under the equity method pre-merger. As a result, we recorded a loss on change in control of interests of $8.4 million during the year ended December 31, 2019, reflecting adjustments to the difference between our carrying value and the preliminary estimated fair value of this former equity interest on October 31, 2018 (Note 6)(the date of the CPA:17 Merger). Subsequent to the CPA:17 Merger, we consolidated this wholly owned investment.
| Years Ended December 31, | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Equity in earnings of equity method investments in real estate: | |||||||||||
| Equity investments acquired in the CPA:17 Merger | $ | 2,510 | $ | 342 | $ | — | |||||
| Recently acquired equity investment | (409 | ) | (115 | ) | — | ||||||
| Retired equity investment | 260 | 1,275 | 1,275 | ||||||||
| Equity investments consolidated after the CPA:17 Merger | — | 11,839 | 11,793 | ||||||||
| Equity in earnings of equity method investments in real estate | $ | 2,361 | $ | 13,341 | $ | 13,068 | |||||
Investment Management
We earn revenue as the advisor to the Managed Programs. For the periods presented, we acted as advisor to the following affiliated Managed Programs: CPA:17 – Global (through October 31, 2018), CPA:18 – Global, CWI 1 (through April 13, 2020), CWI 2 CCIF (through September 10, 2017)April 13, 2020), and CESH. The CWI 1 and CWI 2 Proposed Merger is expected to close in the first quarter ofclosed on April 13, 2020, subject to the approval of stockholders of each of CWI 1 and CWI 2, among other conditions. Each of CWI 1 and CWI 2 has scheduledas a special meeting of stockholders for March 26, 2020. Immediately following the closing of the CWI 1 and CWI 2 Proposed Merger,result, the advisory agreements with each of CWI 1 and CWI 2 will terminateterminated and CWI 2 will internalize the managementwas renamed Watermark Lodging Trust, Inc., for which we provide certain services currently provided by uspursuant to a transition services agreement (Note 4).
W. P. Carey | |||||
Below is a summary of comparative results of our Investment Management segment (in thousands):
| Years Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2020 | 2019 | Change | 2019 | 2018 | Change | ||||||||||||||||||||||||||||||
| Revenues | |||||||||||||||||||||||||||||||||||
| Asset management revenue | |||||||||||||||||||||||||||||||||||
| CPA:17 – Global | $ | — | $ | — | $ | — | $ | — | $ | 24,884 | $ | (24,884) | |||||||||||||||||||||||
| CPA:18 – Global | 11,914 | 11,539 | 375 | 11,539 | 12,087 | (548) | |||||||||||||||||||||||||||||
| CWI 1 | 3,795 | 14,052 | (10,257) | 14,052 | 14,136 | (84) | |||||||||||||||||||||||||||||
| CWI 2 | 3,071 | 10,734 | (7,663) | 10,734 | 10,400 | 334 | |||||||||||||||||||||||||||||
| CESH | 3,193 | 2,807 | 386 | 2,807 | 2,049 | 758 | |||||||||||||||||||||||||||||
| 21,973 | 39,132 | (17,159) | 39,132 | 63,556 | (24,424) | ||||||||||||||||||||||||||||||
| Reimbursable costs from affiliates | |||||||||||||||||||||||||||||||||||
| CPA:17 – Global | — | — | — | — | 6,233 | (6,233) | |||||||||||||||||||||||||||||
| CPA:18 – Global | 2,854 | 3,934 | (1,080) | 3,934 | 4,207 | (273) | |||||||||||||||||||||||||||||
| CWI 1 | 1,867 | 6,936 | (5,069) | 6,936 | 6,653 | 283 | |||||||||||||||||||||||||||||
| CWI 2 | 1,301 | 4,364 | (3,063) | 4,364 | 4,171 | 193 | |||||||||||||||||||||||||||||
| CESH | 1,170 | 1,313 | (143) | 1,313 | 661 | 652 | |||||||||||||||||||||||||||||
| WLT | 1,663 | — | 1,663 | — | — | — | |||||||||||||||||||||||||||||
| 8,855 | 16,547 | (7,692) | 16,547 | 21,925 | (5,378) | ||||||||||||||||||||||||||||||
| Structuring and other advisory revenue | |||||||||||||||||||||||||||||||||||
| CPA:17 – Global | — | — | — | — | 1,184 | (1,184) | |||||||||||||||||||||||||||||
| CPA:18 – Global | 198 | 2,322 | (2,124) | 2,322 | 18,900 | (16,578) | |||||||||||||||||||||||||||||
| CWI 1 | — | 1,365 | (1,365) | 1,365 | 953 | 412 | |||||||||||||||||||||||||||||
| CWI 2 | 296 | 225 | 71 | 225 | 245 | (20) | |||||||||||||||||||||||||||||
| CESH | — | 312 | (312) | 312 | (156) | 468 | |||||||||||||||||||||||||||||
| 494 | 4,224 | (3,730) | 4,224 | 21,126 | (16,902) | ||||||||||||||||||||||||||||||
| 31,322 | 59,903 | (28,581) | 59,903 | 106,607 | (46,704) | ||||||||||||||||||||||||||||||
| Operating Expenses | |||||||||||||||||||||||||||||||||||
| Reimbursable costs from affiliates | 8,855 | 16,547 | (7,692) | 16,547 | 21,925 | (5,378) | |||||||||||||||||||||||||||||
| General and administrative | 5,823 | 18,497 | (12,674) | 18,497 | 21,127 | (2,630) | |||||||||||||||||||||||||||||
| Subadvisor fees | 1,469 | 7,579 | (6,110) | 7,579 | 9,240 | (1,661) | |||||||||||||||||||||||||||||
| Merger and other expenses | 1,184 | — | 1,184 | — | — | — | |||||||||||||||||||||||||||||
| Depreciation and amortization | 987 | 3,835 | (2,848) | 3,835 | 3,979 | (144) | |||||||||||||||||||||||||||||
| Stock-based compensation expense | 691 | 5,539 | (4,848) | 5,539 | 7,844 | (2,305) | |||||||||||||||||||||||||||||
| 19,009 | 51,997 | (32,988) | 51,997 | 64,115 | (12,118) | ||||||||||||||||||||||||||||||
| Other Income and Expenses | |||||||||||||||||||||||||||||||||||
| Equity in (losses) earnings of equity method investments in the Managed Programs | (9,540) | 20,868 | (30,408) | 20,868 | 48,173 | (27,305) | |||||||||||||||||||||||||||||
| Other gains and (losses) | 678 | 1,224 | (546) | 1,224 | (102) | 1,326 | |||||||||||||||||||||||||||||
| Gain on change in control of interests | — | — | — | — | 29,022 | (29,022) | |||||||||||||||||||||||||||||
| (8,862) | 22,092 | (30,954) | 22,092 | 77,093 | (55,001) | ||||||||||||||||||||||||||||||
| Income before income taxes | 3,451 | 29,998 | (26,547) | 29,998 | 119,585 | (89,587) | |||||||||||||||||||||||||||||
| Benefit from (provision for) income taxes | 2,261 | 4,591 | (2,330) | 4,591 | (15,255) | 19,846 | |||||||||||||||||||||||||||||
| Net Income from Investment Management | 5,712 | 34,589 | (28,877) | 34,589 | 104,330 | (69,741) | |||||||||||||||||||||||||||||
| Net income attributable to noncontrolling interests | (9,865) | (1,411) | (8,454) | (1,411) | — | (1,411) | |||||||||||||||||||||||||||||
| Net (Loss) Income from Investment Management Attributable to W. P. Carey | $ | (4,153) | $ | 33,178 | $ | (37,331) | $ | 33,178 | $ | 104,330 | $ | (71,152) | |||||||||||||||||||||||
| Years Ended December 31, | |||||||||||||||||||||||
| 2019 | 2018 | Change | 2018 | 2017 | Change | ||||||||||||||||||
| Revenues | |||||||||||||||||||||||
| Asset management revenue | |||||||||||||||||||||||
| CPA:17 – Global | $ | — | $ | 24,884 | $ | (24,884 | ) | $ | 24,884 | $ | 29,363 | $ | (4,479 | ) | |||||||||
| CPA:18 – Global | 11,539 | 12,087 | (548 | ) | 12,087 | 11,293 | 794 | ||||||||||||||||
| CWI 1 | 14,052 | 14,136 | (84 | ) | 14,136 | 14,499 | (363 | ) | |||||||||||||||
| CWI 2 | 10,734 | 10,400 | 334 | 10,400 | 8,669 | 1,731 | |||||||||||||||||
| CCIF | — | — | — | — | 5,229 | (5,229 | ) | ||||||||||||||||
| CESH | 2,807 | 2,049 | 758 | 2,049 | 1,072 | 977 | |||||||||||||||||
| 39,132 | 63,556 | (24,424 | ) | 63,556 | 70,125 | (6,569 | ) | ||||||||||||||||
| Reimbursable costs from affiliates | |||||||||||||||||||||||
| CPA:17 – Global | — | 6,233 | (6,233 | ) | 6,233 | 9,775 | (3,542 | ) | |||||||||||||||
| CPA:18 – Global | 3,934 | 4,207 | (273 | ) | 4,207 | 4,055 | 152 | ||||||||||||||||
| CWI 1 | 6,936 | 6,653 | 283 | 6,653 | 6,039 | 614 | |||||||||||||||||
| CWI 2 | 4,364 | 4,171 | 193 | 4,171 | 22,331 | (18,160 | ) | ||||||||||||||||
| CCIF | — | — | — | — | 6,591 | (6,591 | ) | ||||||||||||||||
| CESH | 1,313 | 661 | 652 | 661 | 2,654 | (1,993 | ) | ||||||||||||||||
| 16,547 | 21,925 | (5,378 | ) | 21,925 | 51,445 | (29,520 | ) | ||||||||||||||||
| Structuring and other advisory revenue | |||||||||||||||||||||||
| CPA:17 – Global | — | 1,184 | (1,184 | ) | 1,184 | 9,103 | (7,919 | ) | |||||||||||||||
| CPA:18 – Global | 2,322 | 18,900 | (16,578 | ) | 18,900 | 3,999 | 14,901 | ||||||||||||||||
| CWI 1 | 1,365 | 953 | 412 | 953 | 4,976 | (4,023 | ) | ||||||||||||||||
| CWI 2 | 225 | 245 | (20 | ) | 245 | 10,889 | (10,644 | ) | |||||||||||||||
| CESH | 312 | (156 | ) | 468 | (156 | ) | 6,127 | (6,283 | ) | ||||||||||||||
| 4,224 | 21,126 | (16,902 | ) | 21,126 | 35,094 | (13,968 | ) | ||||||||||||||||
| Dealer manager fees | — | — | — | — | 4,430 | (4,430 | ) | ||||||||||||||||
| 59,903 | 106,607 | (46,704 | ) | 106,607 | 161,094 | (54,487 | ) | ||||||||||||||||
| Operating Expenses | |||||||||||||||||||||||
| General and administrative | 18,497 | 21,127 | (2,630 | ) | 21,127 | 31,889 | (10,762 | ) | |||||||||||||||
| Reimbursable costs from affiliates | 16,547 | 21,925 | (5,378 | ) | 21,925 | 51,445 | (29,520 | ) | |||||||||||||||
| Subadvisor fees | 7,579 | 9,240 | (1,661 | ) | 9,240 | 13,600 | (4,360 | ) | |||||||||||||||
| Stock-based compensation expense | 5,539 | 7,844 | (2,305 | ) | 7,844 | 11,957 | (4,113 | ) | |||||||||||||||
| Depreciation and amortization | 3,835 | 3,979 | (144 | ) | 3,979 | 3,902 | 77 | ||||||||||||||||
| Restructuring and other compensation | — | — | — | — | 9,363 | (9,363 | ) | ||||||||||||||||
| Dealer manager fees and expenses | — | — | — | — | 6,544 | (6,544 | ) | ||||||||||||||||
| 51,997 | 64,115 | (12,118 | ) | 64,115 | 128,700 | (64,585 | ) | ||||||||||||||||
| Other Income and Expenses | |||||||||||||||||||||||
| Equity in earnings of equity method investments in the Managed Programs | 20,868 | 48,173 | (27,305 | ) | 48,173 | 51,682 | (3,509 | ) | |||||||||||||||
| Other gains and (losses) | 1,224 | (102 | ) | 1,326 | (102 | ) | 2,042 | (2,144 | ) | ||||||||||||||
| Gain on change in control of interests | — | 29,022 | (29,022 | ) | 29,022 | — | 29,022 | ||||||||||||||||
| 22,092 | 77,093 | (55,001 | ) | 77,093 | 53,724 | 23,369 | |||||||||||||||||
| Income before income taxes | 29,998 | 119,585 | (89,587 | ) | 119,585 | 86,118 | 33,467 | ||||||||||||||||
| Benefit from (provision for) income taxes | 4,591 | (15,255 | ) | 19,846 | (15,255 | ) | (968 | ) | (14,287 | ) | |||||||||||||
| Net Income from Investment Management | 34,589 | 104,330 | (69,741 | ) | 104,330 | 85,150 | 19,180 | ||||||||||||||||
| Net income attributable to noncontrolling interests | (1,411 | ) | — | (1,411 | ) | — | — | — | |||||||||||||||
| Net Income from Investment Management Attributable to W. P. Carey | $ | 33,178 | $ | 104,330 | $ | (71,152 | ) | $ | 104,330 | $ | 85,150 | $ | 19,180 | ||||||||||
W. P. Carey | |||||
Asset Management Revenue
During the periods presented, we earned asset management revenue from (i) CPA:17 – Global, prior to the CPA:17 Merger, and CPA:18 – Global based on the value of their real estate-related assets under management, (ii) the CWI REITs, prior to the CWI 1 and CWI 2 Merger, based on the value of their lodging-related assets under management, and (iii) CESH based on its gross assets under management at fair value. We also earned asset management revenue from CCIF, prior to our resignation as its advisor in the third quarter of 2017, based on the average of its gross assets under management at fair value, which was payable in cash. Asset management revenue may increase or decrease depending upon changes in the Managed Programs’ asset bases as a result of purchases, sales, or changes in the appraised value of the real estate-related and lodging-related assets in their investment portfolios. For 2019,2020, (i) we received asset management fees from CPA:18 – Global 50% in cash and 50% in shares of its common stock through March 31, 2020; effective as of April 1, 2020, we receive asset management fees from CPA:18 – Global in shares of its common stock, (ii) we primarily received asset management fees from the CWI REITs in shares of their common stock through April 13, 2020 (the date of the CWI 1 and CWI 2 Merger), and (iii) we received asset management fees from CESH in cash. As a result of the CPA:17 Merger (Note 3), we no longer receive asset management revenue from CPA:17 – Global.
Structuring and Other Advisory Revenue
We earn structuring and other advisory revenue when we structure new investments and debt placement transactions foron behalf of the Managed Programs. Structuring revenue is dependent on investment activity, which is subject to significant period-to-period variation, and is expected to continue to decline on an annual basis in future periods because the Managed Programs are fully invested,Since we no longer raise capital for new or existing funds, and we no longer serve as a result of the CPA:17 Merger. Going forward, investment activity for the Managed Programs willadvisor to CWI 1 and CWI 2 (Note 4), structuring and other advisory revenue is expected to be generally limited to capital recycling. In addition, we may earn disposition revenue when we complete dispositions for the Managed Programs.insignificant going forward.
General and Administrative, Depreciation and Amortization, and Stock-based Compensation Expense
As discussed in Note 4, certain personnel costs and overhead costs are charged to CPA:18 – Global based on the trailing 12-month reported revenues of theremaining Managed Programs and us. We allocate certain personnel and overhead costsreimbursed to us in accordance with their respective advisory agreements. In addition, following the closing of the CWI REITs1 and CESH basedCWI 2 Merger on the time incurred by our personnel.
Subadvisor Fees
Pursuant to the terms of the subadvisory agreements we havehad with the third-party subadvisors in connection with both CWI 1 and CWI 2, we paypaid a subadvisory fee equal to 20% of the amount of fees paid to us by CWI 1 and 25% of the amount of fees paid to us by CWI 2, including but not limited to: acquisition fees, asset management fees, loan refinancing fees, property management fees, and subordinated disposition fees, each as defined in the advisory agreements we havehad with each of CWI 1 and CWI 2. We also paypaid to each subadvisor 20% and 25% of the net proceeds resulting from any sale, financing, or recapitalization or sale of securities of CWI 1 and CWI 2, respectively, by us, the advisor. In addition, in connection withUpon completion of the CWI 1 and CWI 2 Merger on April 13, 2020 (Note 4), the subadvisory agreements were terminated, and we no longer pay subadvisory fees.
W. P. Carey | |||||
Equity in (Losses) Earnings of Equity Method Investments in the Managed Programs
Equity in (losses) earnings of equity method investments in the Managed Programs is recognized in accordance with GAAP (Note 8). In addition, we are entitled to receive distributions of Available Cash (Note 4) from the operating partnershipspartnership of each of the Managed REITs.CPA:18 – Global. The net income of our unconsolidated investments fluctuates based on the timing of transactions, such as new leases and property sales, as well as the level of impairment charges. The following table presents the details of our Equity in (losses) earnings of equity method investments in the Managed Programs (in thousands):
| Years Ended December 31, | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Equity in earnings of equity method investments in the Managed Programs: | |||||||||||
Equity in (losses) earnings of equity method investments in the Managed Programs (a) | $ | (621 | ) | $ | 1,564 | $ | 3,820 | ||||
Distributions of Available Cash: (b) | |||||||||||
CPA:17 – Global (a) | — | 26,308 | 26,675 | ||||||||
| CPA:18 – Global | 8,132 | 9,692 | 8,650 | ||||||||
| CWI 1 | 7,095 | 5,142 | 7,459 | ||||||||
| CWI 2 | 6,262 | 5,467 | 5,078 | ||||||||
| Equity in earnings of equity method investments in the Managed Programs | $ | 20,868 | $ | 48,173 | $ | 51,682 | |||||
| Years Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Equity in (losses) earnings of equity method investments in the Managed Programs: | |||||||||||||||||
Other-than-temporary impairment charges on our equity method investments in CWI 1 and CWI 2 (a) | $ | (47,112) | $ | — | $ | — | |||||||||||
Gain on redemption of special general partner interests in CWI 1 and CWI 2, net (b) | 33,009 | — | — | ||||||||||||||
Equity in (losses) earnings of equity method investments in the Managed Programs (c) | (2,662) | (621) | 1,564 | ||||||||||||||
Distributions of Available Cash: (d) | |||||||||||||||||
CPA:17 – Global (e) | — | — | 26,308 | ||||||||||||||
| CPA:18 – Global | 7,225 | 8,132 | 9,692 | ||||||||||||||
| CWI 1 | — | 7,095 | 5,142 | ||||||||||||||
| CWI 2 | — | 6,262 | 5,467 | ||||||||||||||
| Equity in (losses) earnings of equity method investments in the Managed Programs | $ | (9,540) | $ | 20,868 | $ | 48,173 | |||||||||||
__________
(c)Decrease for the year ended December 31, 2020 as compared to 2019 was due to decreases of $29.0$0.7 million, within$0.7 million, and $0.6 million from our Investment Management segment related to the difference between the carrying value and the preliminary estimated fair value of our previously held equity interestinvestments in shares of CWI 2, CWI 1, and CPA:18 – Global common stock, respectively.
(d)We are entitled to receive distributions of up to 10% of the Available Cash from the operating partnership of CPA:18 – Global, as defined in its operating partnership agreement (Note 4). We no longer receive distributions of Available Cash from CWI 1 and CWI 2 as a result of the closing of the CWI 1 and CWI 2 Merger on April 13, 2020 (Note 4), prior to which we were required to pay 20% and 25% of such distributions to the subadvisors of CWI 1 and CWI 2, respectively. Distributions of Available Cash received and earned from the Managed REITs fluctuate based on the timing of certain events, including acquisitions and dispositions.
(e)As a result of the completion of the CPA:17 Merger on October 31, 2018 (Note 3), we no longer recognize equity income from our investment in shares of common stock of CPA:17 – Global’s common stock (Note 3).Global or receive distributions of Available Cash from CPA: 17 – Global.
Benefit from (Provision for) Income Taxes
W. P. Carey 2020 10-K– 39 | |||||
Net Income Attributable to Noncontrolling Interests
2020 —For the prior year uponended December 31, 2020, net income attributable to noncontrolling interests within our Investment Management segment was comprised of a gain of $9.9 million recognized on the recognitionredemption of taxable income associated with the accelerated vesting of sharesnoncontrolling interest in the special general partner interests previously issuedheld by CPA:17 – Global to usthe respective subadvisors for asset management services performed,CWI 1 and CWI 2 in connection with the CPA:17 Merger.CWI 1 and CWI 2 Merger (Note 4).
Liquidity and Capital Resources
Sources and Uses of Cash During the Year
We use the cash flow generated from our investments primarily to meet our operating expenses, service debt, and fund dividends to stockholders. Our cash flows fluctuate periodically due to a number of factors, which may include, among other things: the timing of our equity and debt offerings; the timing of purchases and sales of real estate; the timing of the repayment of mortgage loans and receipt of lease revenues; the timing and amount of other lease-related payments; the timing of settlement of foreign currency transactions; changes in foreign currency exchange rates; the receipt of the asset management fees in either shares of the common stock or limited partnership units of the Managed ProgramsCPA:18 – Global or cash; the timing of distributions from equity investments in the Managed Programs and real estate; and the receipt of distributions of Available Cash from the Managed REITs; the timing of settlement of foreign currency transactions; and changes in foreign currency exchange rates. We no longer receive certain fees and distributions from CPA:1718 – Global following the completion of the CPA:17 Merger on October 31, 2018 (Note 3).Global. Despite these fluctuations, we believe that we will generate sufficient cash from operations to meet our normal recurring short-term and long-term liquidity needs. We may also use existing cash resources, available capacity under our AmendedSenior Unsecured Credit Facility, proceeds from dispositions of properties, net contributions from noncontrolling interests, and the issuance of additional debt or equity securities, such as salesissuances of ourcommon stock through our forward sale agreements and ATM Program (Note 13), in order to meet these needs. We assess our ability to access capital on an ongoing basis. Our sources and uses of cash during the period are described below.
Operating Activities — Net cash provided by operating activities decreased by $11.5$10.5 million during 20182020 as compared to 2017,2019, primarily due to merger expenses recognized in 2018 related to the CPA:17 Mergeradverse impact of the COVID-19 pandemic on rent collections, proceeds from a bankruptcy claim on a prior tenant received during 2019, and the cessation of distributions of Available Cash from CWI 1 and CWI 2 following the WLT management internalization (Note 34), partially offset by a decrease in structuring revenue received from the Managed Programs as a result of their lower investment volume during 2018, an increase in interest expense, and a decrease in cash flow as a result of property dispositions during 2017 and 2018. These decreases were partially offset by an increase in cash flow generated from properties acquired during 2017net investment activity, and 2018, including properties acquired in the CPA:17 Merger (Note 3).scheduled rent increases at existing properties.
Investing Activities — Our investing activities are generally comprised of real estate-related transactions (purchases and sales) and capitalized property-related costs. In connection withaddition to these types of transactions, during the CPA:17 Merger,year ended December 31, 2020, we acquired $113.6 million of cash and restricted cash, and paid $1.7 million in cash for the fractionalpurchased additional shares of CPA:17 – Global.
Financing Activities — During 2018, grossOur financing activities are generally comprised of borrowings under our Senior Unsecured Credit Facility were $1.4 billion, including amounts borrowed to repay in full $180.3 million outstanding under CPA:17 – Global’s senior credit facility in connection with the CPA:17 Merger (Note 3), and repayments were $2.1 billion (Note 11). We received the equivalent of approximately $1.2 billion in aggregate net proceeds from the issuance of (i) €500.0 million of 2.125% Senior Notes due 2027 in March 2018 and (ii) €500.0 million of 2.250% Senior Notes due 2026 in October 2018, which we used to repay in full the outstanding balance on our euro-denominated unsecured term loans in March 2018, prepay certain euro-denominated non-recourse mortgage loans, and pay down the euro-denominated outstanding balance under our Unsecured Revolving Credit Facility, at the respective times (Note 11). In connection with the issuances of thesethe Senior Unsecured Notes, payments and prepayments of non-recourse mortgage loans, and payments of dividends to stockholders. In addition to these types of transactions, during the year ended December 31, 2020, we drew down $299.0 million under our Unsecured Term Loans (Note 11), we. We incurred financing costs totaling $8.1 million. Additionally, we paid dividends to stockholders totaling $440.4$14.2 million related toin connection with the fourth quarteramendment and restatement of 2017our Senior Unsecured Credit Facility in February 2020 and the first, second, and third quartersissuance of 2018; andthe 2.400% Senior Notes due 2031 in October 2020 (Note 11). We also paid distributions of $18.2 million to affiliates that hold noncontrolling interests in various entities with us. We received $287.5$199.7 million in net proceeds from the issuance of sharescommon stock under our ATM Programforward sale agreements (Note 1413). We also made scheduled and prepaid non-recourse mortgage loan principal payments of $100.4 million and $207.5 million, respectively.
W. P. Carey | |||||
Summary of Financing
The table below summarizes our Senior Unsecured Notes, our non-recourse mortgages, and our Senior Unsecured Credit Facility (dollars in thousands):
| December 31, | December 31, | |||||||||||||||||
| 2019 | 2018 | 2020 | 2019 | |||||||||||||||
| Carrying Value | Carrying Value | |||||||||||||||||
| Fixed rate: | Fixed rate: | |||||||||||||||||
Senior Unsecured Notes (a) | $ | 4,390,189 | $ | 3,554,470 | Senior Unsecured Notes (a) | $ | 5,146,192 | $ | 4,390,189 | |||||||||
Non-recourse mortgages (a) | 1,232,898 | 1,795,460 | Non-recourse mortgages (a) | 920,378 | 1,232,898 | |||||||||||||
| 5,623,087 | 5,349,930 | 6,066,570 | 5,623,087 | |||||||||||||||
| Variable rate: | Variable rate: | |||||||||||||||||
Unsecured Term Loans (a) | Unsecured Term Loans (a) | 321,971 | — | |||||||||||||||
| Unsecured Revolving Credit Facility | 201,267 | 91,563 | Unsecured Revolving Credit Facility | 82,281 | 201,267 | |||||||||||||
Non-recourse mortgages (a): | Non-recourse mortgages (a): | |||||||||||||||||
| Amount subject to interest rate swaps and caps | 157,518 | 561,959 | Amount subject to interest rate swaps and caps | 147,094 | 157,518 | |||||||||||||
| Floating interest rate mortgage loans | 72,071 | 375,239 | Floating interest rate mortgage loans | 78,082 | 72,071 | |||||||||||||
| 430,856 | 1,028,761 | 629,428 | 430,856 | |||||||||||||||
| $ | 6,053,943 | $ | 6,378,691 | $ | 6,695,998 | $ | 6,053,943 | |||||||||||
| Percent of Total Debt | Percent of Total Debt | |||||||||||||||||
| Fixed rate | 93 | % | 84 | % | Fixed rate | 91 | % | 93 | % | |||||||||
| Variable rate | 7 | % | 16 | % | Variable rate | 9 | % | 7 | % | |||||||||
| 100 | % | 100 | % | 100 | % | 100 | % | |||||||||||
| Weighted-Average Interest Rate at End of Year | Weighted-Average Interest Rate at End of Year | |||||||||||||||||
| Fixed rate | 3.3 | % | 3.7 | % | Fixed rate | 3.0 | % | 3.3 | % | |||||||||
Variable rate (b) | 2.1 | % | 3.4 | % | Variable rate (b) | 1.6 | % | 2.1 | % | |||||||||
| Total debt | 3.2 | % | 3.6 | % | Total debt | 2.9 | % | 3.2 | % | |||||||||
____________
Cash Resources
At December 31, 2019,2020, our cash resources consisted of the following:
•cash and cash equivalents totaling $196.0$248.7 million. Of this amount, $94.9$103.0 million, at then-current exchange rates, was held in foreign subsidiaries, and we could be subject to restrictions or significant costs should we decide to repatriate these amounts;
•our Unsecured Revolving Credit Facility, with available capacity of $1.3 billion;$1.7 billion (net of amounts reserved for standby letters of credit totaling $20.9 million); and
•unleveraged properties that had an aggregate asset carrying value of $8.8$10.1 billion at December 31, 2019,2020, although there can be no assurance that we would be able to obtain financing for these properties.
W. P. Carey 2020 10-K– 41 | |||||
available proceeds under our forward sale agreements and $616.5 million remained available for issuance under our current ATM Program (Note 1413).
Our cash resources can be used for working capital needs and other commitments and may be used for future investments.
Cash Requirements and Liquidity
As of December 31, 2020, we had $248.7 million of cash and cash equivalents, approximately $1.7 billion of available capacity under our Unsecured Revolving Credit Facility (net of amounts reserved for standby letters of credit totaling $20.9 million), and available proceeds under our forward sale agreements of approximately $163.2 million (based on 2,510,709 remaining shares outstanding and a net offering price of $65.02 as of that date). Our Senior Unsecured Credit Facility, which we amended and restated on February 20, 2020, includes a $1.8 billion Unsecured Revolving Credit Facility and Unsecured Term Loans outstanding totaling $322.0 million as of December 31, 2020 (Note 11), and is scheduled to mature on February 20, 2025. As of December 31, 2020, scheduled debt principal payments total $90.6 million through December 31, 2021 and $447.6 million through December 31, 2022, and our Senior Unsecured Notes do not start to mature until January 2023 (Note 11).
During the next 12 months following the date of this Report, we expect that our cash requirements will include: payments to acquire new investments;include funding capital commitments such as construction projects; paying dividends to our stockholders; paying distributions to our affiliates that hold noncontrolling interests in entities we control; making scheduled interest payments on the Senior Unsecured Notes and scheduled principal and balloon payments on our mortgage loan obligations, and prepayments of certain of our mortgage loan obligations; making loans to certain of the Managed Programs (Note 4); and other normal recurring operating expenses. We expect to fund these cash requirements through cash generated from operations, cash received from dispositions of properties, the use of our cash reserves or unused amounts on our Unsecured Revolving Credit Facility (as described above), issuances of sharescommon stock through our forward sale agreements and/or ATM Program and/(Note 13), and potential issuances of additional debt or additional equity or debt offerings. On February 20, 2020, we entered into our Amended Credit Facilitysecurities. We may also choose to pursue the acquisitions of new investments and increased the capacityprepayments of certain of our unsecured line of credit to $2.1 billion, which is comprised of a $1.8 billion revolving line of credit, a £150.0 million termnon-recourse mortgage loan obligations, depending on our capital needs and a $105.0 million delayed draw term loan, all of which will matureimprovements in five years (Note 20).current market conditions.
Our liquidity wouldcould be adversely affected by unanticipated costs, and greater-than-anticipated operating expenses.expenses, and the adverse impact of the COVID-19 pandemic. To the extent that our working capital reserve is insufficient to satisfy our cash requirements, additional funds may be provided from cash from operations to meet our normal recurring short-term and long-term liquidity needs. We may also use existing cash resources, available capacity under our Unsecured Revolving Credit Facility, net contributions from noncontrolling interests, mortgage loan proceeds, and the issuance of additional debt or equity securities such as through our ATM Program, to meet these needs. The extent to which the COVID-19 pandemic impacts our liquidity and debt covenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence. The potential impact of the COVID-19 pandemic on our tenants and properties could also have a material adverse effect on our liquidity and debt covenants.
Off-Balance Sheet Arrangements and Contractual Obligations
The table below summarizes our debt, off-balance sheet arrangements, and other contractual obligations (primarily our capital commitments) at December 31, 20192020 and the effect that these arrangements and obligations are expected to have on our liquidity and cash flow in the specified future periods (in thousands):
| Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | |||||||||||||||||||||||||||||||||||||||
Senior Unsecured Notes — principal (a) (b) | $ | 4,433,500 | $ | — | $ | — | $ | 1,623,400 | $ | 2,810,100 | Senior Unsecured Notes — principal (a) (b) | $ | 5,192,749 | $ | — | $ | 613,550 | $ | 1,563,550 | $ | 3,015,649 | |||||||||||||||||||||||||||
Non-recourse mortgages — principal (a) | 1,469,250 | 164,682 | 704,587 | 460,895 | 139,086 | Non-recourse mortgages — principal (a) | 1,150,424 | 90,624 | 796,131 | 222,228 | 41,441 | |||||||||||||||||||||||||||||||||||||
Senior Unsecured Credit Facility — principal (c) | 201,267 | — | 201,267 | — | — | Senior Unsecured Credit Facility — principal (c) | 405,433 | — | — | 405,433 | — | |||||||||||||||||||||||||||||||||||||
Interest on borrowings (d) | 935,444 | 193,812 | 343,555 | 233,263 | 164,814 | Interest on borrowings (d) | 895,821 | 194,938 | 339,668 | 201,617 | 159,598 | |||||||||||||||||||||||||||||||||||||
Capital commitments and tenant expansion allowances (e) | 367,001 | 271,876 | 85,607 | 3,000 | 6,518 | Capital commitments and tenant expansion allowances (e) | 124,240 | 96,713 | 19,509 | 3,000 | 5,018 | |||||||||||||||||||||||||||||||||||||
Lease commitments (f) | 96,147 | — | 10,469 | 11,965 | 73,713 | |||||||||||||||||||||||||||||||||||||||||||
| $ | 7,502,609 | $ | 630,370 | $ | 1,345,485 | $ | 2,332,523 | $ | 3,194,231 | $ | 7,768,667 | $ | 382,275 | $ | 1,768,858 | $ | 2,395,828 | $ | 3,221,706 | |||||||||||||||||||||||||||||
___________
(a)Excludes unamortized deferred financing costs totaling $24.3 million, the unamortized discount on the Senior Unsecured Notes of $22.5 million in aggregate, and the aggregate unamortized fair market value discount of $4.5 million, primarily resulting from the assumption of property-level debt in connection with business combinations, including the CPA:17 Merger (Note 3). |
W. P. Carey | |||||
(d)Interest on unhedged variable-rate debt obligations was calculated using the applicable annual variable interest rates and balances outstanding at December 31, 2020.
(e)Capital commitments include (i) $81.8 million related to build-to-suit projects, including $11.5 million related to projects for which the tenant has not exercised the associated construction option, and (ii) $42.4 million related to unfunded tenant improvements, including certain discretionary commitments.
Amounts in the table above that relate to our foreign operations are based on the exchange rate of the local currencies at December 31, 2019,2020, which consisted primarily of the euro. At December 31, 2019,2020, we had no material capital lease obligations for which we were the lessee, either individually or in the aggregate.
Environmental Obligations
In connection with the purchase of many of our properties, we required the sellers to perform environmental reviews. We believe, based on the results of these reviews, that our properties were in substantial compliance with federal, state, and foreign environmental statutes at the time the properties were acquired. However, portions of certain properties have been subject to some degree of contamination, principally in connection with leakage from underground storage tanks, surface spills, or other on-site activities. In most instances where contamination has been identified, tenants are actively engaged in the remediation process and addressing identified conditions. Sellers are generally subject to environmental statutes and regulations regarding the discharge of hazardous materials and any related remediation obligations, and we frequently require sellers to address them before closing or obtain contractual protection (e.g., indemnities, cash reserves, letters of credit, or other instruments) from sellers when we acquire a property. In addition, certain of our leases require tenants to indemnify us from all liabilities and losses related to the leased properties and the provisions of such indemnifications specifically address environmental matters. Such leases generally include provisions that allow for periodic environmental assessments, paid for by the tenant, and allow us to extend leases until such time as a tenant has satisfied its environmental obligations. Certain of our leases allow us to require financial assurances from tenants, such as performance bonds or letters of credit, if the costs of remediating environmental conditions are, in our estimation, in excess of specified amounts. With respect to our operating properties or vacant net lease properties, which are not subject to net lease arrangements, there is no tenant to provide for indemnification, so we may be liable for costs associated with environmental contamination in the event any such circumstances arise. However, weWe believe that the ultimate resolution of any environmental matters should not have a material adverse effect on our financial condition, liquidity, or results of operations. We record environmental obligations within Accounts payable, accrued expenses and other liabilities in the consolidated financial statements. See Item 1A. Risk Factors for further discussion of potential environmental risks.
Critical Accounting Estimates
Our significant accounting policies are described in Note 2. Many of these accounting policies require judgment and the use of estimates and assumptions when applying these policies in the preparation of our consolidated financial statements. On a quarterly basis, we evaluate these estimates and judgments based on historical experience as well as other factors that we believe to be reasonable under the circumstances. These estimates are subject to change in the future if underlying assumptions or factors change. Certain accounting policies, while significant, may not require the use of estimates. Those accounting policies that require significant estimation and/or judgment are described under Critical Accounting Policies and Estimates in Note 2. The proposed accounting changes that may potentially impact our business are described under Recent Accounting Pronouncements in Note 2.
Supplemental Financial Measures
In the real estate industry, analysts and investors employ certain non-GAAP supplemental financial measures in order to facilitate meaningful comparisons between periods and among peer companies. Additionally, in the formulation of our goals and in the evaluation of the effectiveness of our strategies, we use Funds from Operations (“FFO”) and AFFO, which are non-GAAP measures defined by our management. We believe that these measures are useful to investors to consider because they may assist them to better understand and measure the performance of our business over time and against similar companies. A description of FFO and AFFO and reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are provided below.
Funds from Operations and Adjusted Funds from Operations
Due to certain unique operating characteristics of real estate companies, as discussed below, the National Association of Real Estate Investment Trusts, Inc. (“NAREIT”), an industry trade group, has promulgated a non-GAAP measure known as FFO, which we believe to be an appropriate supplemental measure, when used in addition to and in conjunction with results presented in accordance with GAAP, to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplemental non-GAAP measure. FFO is not equivalent to, nor a substitute for, net income or loss as determined under GAAP.
We define FFO, a non-GAAP measure, consistent with the standards established by the White Paper on FFO approved by the Board of Governors of NAREIT, as restated in December 2018. The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding gains or losses from sales of property, impairment charges on real estate, gains or losses on changes in control of interests in real estate, and depreciation and amortization from real estate assets; and after adjustments
W. P. Carey 2020 10-K– 43 | |||||
for unconsolidated partnerships and jointly owned investments. Adjustments for unconsolidated partnerships and jointly owned investments are calculated to reflect FFO.
We also modify the NAREIT computation of FFO to adjust GAAP net income for certain non-cash charges, such as amortization of real estate-related intangibles, deferred income tax benefits and expenses, straight-line rent and related reserves, other non-cash rent adjustments, non-cash allowance for credit losses on loans receivable and direct financing leases, stock-based compensation, non-cash environmental accretion expense, and amortization of deferred financing costs. Our assessment of our operations is focused on long-term sustainability and not on such non-cash items, which may cause short-term fluctuations in net income but have no impact on cash flows. Additionally, we exclude non-core income and expenses, such as gains or losses from extinguishment of debt, restructuring and other compensation-related expenses, and merger and acquisition expenses. We also exclude realized and unrealized gains/losses on foreign currency exchange transactions (other than those realized on the settlement of foreign currency derivatives), which are not considered fundamental attributes of our business plan and do not affect our overall long-term operating performance. We refer to our modified definition of FFO as AFFO. We exclude these items from GAAP net income to arrive at AFFO as they are not the primary drivers in our decision-making process and excluding these items provides investors a view of our portfolio performance over time and makes it more comparable to other REITs that are currently not engaged in acquisitions, mergers, and restructuring, which are not part of our normal business operations. AFFO also reflects adjustments for unconsolidated partnerships and jointly owned investments. We use AFFO as one measure of our operating performance when we formulate corporate goals, evaluate the effectiveness of our strategies, and determine executive compensation.
We believe that AFFO is a useful supplemental measure for investors to consider as we believe it will help them to better assess the sustainability of our operating performance without the potentially distorting impact of these short-term fluctuations. However, there are limits on the usefulness of AFFO to investors. For example, impairment charges and unrealized foreign currency losses that we exclude may become actual realized losses upon the ultimate disposition of the properties in the form of lower cash proceeds or other considerations. We use our FFO and AFFO measures as supplemental financial measures of operating performance. We do not use our FFO and AFFO measures as, nor should they be considered to be, alternatives to net income computed under GAAP, or as alternatives to net cash provided by operating activities computed under GAAP, or as indicators of our ability to fund our cash needs.
W. P. Carey | |||||
Consolidated FFO and AFFO were as follows (in thousands):
| Years Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Net income attributable to W. P. Carey | $ | 455,359 | $ | 305,243 | $ | 411,566 | |||||||||||
| Adjustments: | |||||||||||||||||
| Depreciation and amortization of real property | 437,885 | 442,096 | 286,164 | ||||||||||||||
| Gain on sale of real estate, net | (109,370) | (18,143) | (118,605) | ||||||||||||||
| Impairment charges | 35,830 | 32,539 | 4,790 | ||||||||||||||
Loss (gain) on change in control of interests (a) | — | 8,416 | (47,814) | ||||||||||||||
Proportionate share of adjustments to equity in net income of partially owned entities (b) (c) (d) (e) | 46,679 | 15,826 | 4,728 | ||||||||||||||
Proportionate share of adjustments for noncontrolling interests (f) | (18) | (69) | (8,966) | ||||||||||||||
| Total adjustments | 411,006 | 480,665 | 120,297 | ||||||||||||||
| FFO (as defined by NAREIT) attributable to W. P. Carey | 866,365 | 785,908 | 531,863 | ||||||||||||||
| Adjustments: | |||||||||||||||||
Tax (benefit) expense — deferred and other (g) (h) (i) (j) | (48,835) | 5,974 | 1,079 | ||||||||||||||
| Above- and below-market rent intangible lease amortization, net | 48,712 | 64,383 | 52,314 | ||||||||||||||
Straight-line and other rent adjustments (k) | (41,498) | (31,787) | (14,460) | ||||||||||||||
Other (gains) and losses (l) | (37,165) | (8,924) | (15,704) | ||||||||||||||
| Stock-based compensation | 15,938 | 18,787 | 18,294 | ||||||||||||||
| Amortization of deferred financing costs | 12,223 | 11,714 | 6,184 | ||||||||||||||
| Other amortization and non-cash items | 1,864 | 3,198 | 920 | ||||||||||||||
| Merger and other expenses | 247 | 101 | 41,426 | ||||||||||||||
Proportionate share of adjustments to equity in net income of partially owned entities (e) (m) | 10,821 | 7,165 | 12,439 | ||||||||||||||
Proportionate share of adjustments for noncontrolling interests (f) | 414 | (49) | 231 | ||||||||||||||
| Total adjustments | (37,279) | 70,562 | 102,723 | ||||||||||||||
| AFFO attributable to W. P. Carey | $ | 829,086 | $ | 856,470 | $ | 634,586 | |||||||||||
| Summary | |||||||||||||||||
| FFO (as defined by NAREIT) attributable to W. P. Carey | $ | 866,365 | $ | 785,908 | $ | 531,863 | |||||||||||
| AFFO attributable to W. P. Carey | $ | 829,086 | $ | 856,470 | $ | 634,586 | |||||||||||
| Years Ended December 31, | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Net income attributable to W. P. Carey | $ | 305,243 | $ | 411,566 | $ | 277,289 | |||||
| Adjustments: | |||||||||||
| Depreciation and amortization of real property | 442,096 | 286,164 | 248,042 | ||||||||
| Impairment charges | 32,539 | 4,790 | 2,769 | ||||||||
| Gain on sale of real estate, net | (18,143 | ) | (118,605 | ) | (33,878 | ) | |||||
Loss (gain) on change in control of interests (a) (b) | 8,416 | (47,814 | ) | — | |||||||
Proportionate share of adjustments to equity in net income of partially owned entities (c) | 15,826 | 4,728 | 5,293 | ||||||||
Proportionate share of adjustments for noncontrolling interests (d) | (69 | ) | (8,966 | ) | (10,491 | ) | |||||
| Total adjustments | 480,665 | 120,297 | 211,735 | ||||||||
| FFO (as defined by NAREIT) attributable to W. P. Carey | 785,908 | 531,863 | 489,024 | ||||||||
| Adjustments: | |||||||||||
| Above- and below-market rent intangible lease amortization, net | 64,383 | 52,314 | 55,195 | ||||||||
Straight-line and other rent adjustments (e) | (31,787 | ) | (14,460 | ) | (11,679 | ) | |||||
| Stock-based compensation | 18,787 | 18,294 | 18,917 | ||||||||
| Amortization of deferred financing costs | 11,714 | 6,184 | 8,169 | ||||||||
Other (gains) and losses (f) | (8,924 | ) | (15,704 | ) | 17,163 | ||||||
Tax expense (benefit) — deferred and other (g) (h) | 5,974 | 1,079 | (18,664 | ) | |||||||
| Other amortization and non-cash items | 3,198 | 920 | (912 | ) | |||||||
Merger and other expenses (i) | 101 | 41,426 | 605 | ||||||||
| Restructuring and other compensation | — | — | 9,363 | ||||||||
Proportionate share of adjustments to equity in net income of partially owned entities (c) | 7,165 | 12,439 | 8,476 | ||||||||
Proportionate share of adjustments for noncontrolling interests (d) | (49 | ) | 231 | (2,678 | ) | ||||||
| Total adjustments | 70,562 | 102,723 | 83,955 | ||||||||
| AFFO attributable to W. P. Carey | $ | 856,470 | $ | 634,586 | $ | 572,979 | |||||
| Summary | |||||||||||
| FFO (as defined by NAREIT) attributable to W. P. Carey | $ | 785,908 | $ | 531,863 | $ | 489,024 | |||||
| AFFO attributable to W. P. Carey | $ | 856,470 | $ | 634,586 | $ | 572,979 | |||||
W. P. Carey | |||||
FFO and AFFO from Real Estate were as follows (in thousands):
| Years Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Net income from Real Estate attributable to W. P. Carey | $ | 459,512 | $ | 272,065 | $ | 307,236 | |||||||||||
| Adjustments: | |||||||||||||||||
| Depreciation and amortization of real property | 437,885 | 442,096 | 286,164 | ||||||||||||||
| Gain on sale of real estate, net | (109,370) | (18,143) | (118,605) | ||||||||||||||
| Impairment charges | 35,830 | 32,539 | 4,790 | ||||||||||||||
Loss (gain) on change in control of interests (a) | — | 8,416 | (18,792) | ||||||||||||||
Proportionate share of adjustments to equity in net income of partially owned entities (d) (e) | 22,036 | 15,826 | 4,728 | ||||||||||||||
Proportionate share of adjustments for noncontrolling interests (f) | (18) | (69) | (8,966) | ||||||||||||||
| Total adjustments | 386,363 | 480,665 | 149,319 | ||||||||||||||
| FFO (as defined by NAREIT) attributable to W. P. Carey — Real Estate | 845,875 | 752,730 | 456,555 | ||||||||||||||
| Adjustments: | |||||||||||||||||
| Above- and below-market rent intangible lease amortization, net | 48,712 | 64,383 | 52,314 | ||||||||||||||
Tax (benefit) expense — deferred and other (h) | (45,511) | 7,971 | (18,790) | ||||||||||||||
Straight-line and other rent adjustments (k) | (41,498) | (31,787) | (14,460) | ||||||||||||||
Other (gains) and losses (l) | (37,104) | (9,773) | (18,025) | ||||||||||||||
| Stock-based compensation | 15,247 | 13,248 | 10,450 | ||||||||||||||
| Amortization of deferred financing costs | 12,223 | 11,714 | 6,184 | ||||||||||||||
| Other amortization and non-cash items | 1,665 | 2,540 | 330 | ||||||||||||||
| Merger and other expenses | (937) | 101 | 41,426 | ||||||||||||||
Proportionate share of adjustments to equity in net income of partially owned entities (e) (m) | 5,089 | 115 | 287 | ||||||||||||||
Proportionate share of adjustments for noncontrolling interests (f) | 414 | (49) | 231 | ||||||||||||||
| Total adjustments | (41,700) | 58,463 | 59,947 | ||||||||||||||
| AFFO attributable to W. P. Carey — Real Estate | $ | 804,175 | $ | 811,193 | $ | 516,502 | |||||||||||
| Summary | |||||||||||||||||
| FFO (as defined by NAREIT) attributable to W. P. Carey — Real Estate | $ | 845,875 | $ | 752,730 | $ | 456,555 | |||||||||||
| AFFO attributable to W. P. Carey — Real Estate | $ | 804,175 | $ | 811,193 | $ | 516,502 | |||||||||||
| Years Ended December 31, | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Net income from Real Estate attributable to W. P. Carey | $ | 272,065 | $ | 307,236 | $ | 192,139 | |||||
| Adjustments: | |||||||||||
| Depreciation and amortization of real property | 442,096 | 286,164 | 248,042 | ||||||||
| Impairment charges | 32,539 | 4,790 | 2,769 | ||||||||
| Gain on sale of real estate, net | (18,143 | ) | (118,605 | ) | (33,878 | ) | |||||
Loss (gain) on change in control of interests (a) | 8,416 | (18,792 | ) | — | |||||||
Proportionate share of adjustments to equity in net income of partially owned entities (c) | 15,826 | 4,728 | 5,293 | ||||||||
Proportionate share of adjustments for noncontrolling interests (d) | (69 | ) | (8,966 | ) | (10,491 | ) | |||||
| Total adjustments | 480,665 | 149,319 | 211,735 | ||||||||
| FFO (as defined by NAREIT) attributable to W. P. Carey — Real Estate | 752,730 | 456,555 | 403,874 | ||||||||
| Adjustments: | |||||||||||
| Above- and below-market rent intangible lease amortization, net | 64,383 | 52,314 | 55,195 | ||||||||
Straight-line and other rent adjustments (e) | (31,787 | ) | (14,460 | ) | (11,679 | ) | |||||
| Stock-based compensation | 13,248 | 10,450 | 6,960 | ||||||||
| Amortization of deferred financing costs | 11,714 | 6,184 | 8,169 | ||||||||
Other (gains) and losses (f) | (9,773 | ) | (18,025 | ) | 18,063 | ||||||
| Tax expense (benefit) — deferred and other | 7,971 | (18,790 | ) | (20,168 | ) | ||||||
| Other amortization and non-cash items | 2,540 | 330 | (912 | ) | |||||||
Merger and other expenses (i) | 101 | 41,426 | 605 | ||||||||
Proportionate share of adjustments to equity in net income of partially owned entities (c) | 115 | 287 | (564 | ) | |||||||
Proportionate share of adjustments for noncontrolling interests (d) | (49 | ) | 231 | (2,678 | ) | ||||||
| Total adjustments | 58,463 | 59,947 | 52,991 | ||||||||
| AFFO attributable to W. P. Carey — Real Estate | $ | 811,193 | $ | 516,502 | $ | 456,865 | |||||
| Summary | |||||||||||
| FFO (as defined by NAREIT) attributable to W. P. Carey — Real Estate | $ | 752,730 | $ | 456,555 | $ | 403,874 | |||||
| AFFO attributable to W. P. Carey — Real Estate | $ | 811,193 | $ | 516,502 | $ | 456,865 | |||||
W. P. Carey | |||||
FFO and AFFO from Investment Management were as follows (in thousands):
| Years Ended December 31, | ||||||||||||||||||||||||||||
| Years Ended December 31, | 2020 | 2019 | 2018 | |||||||||||||||||||||||||
| 2019 | 2018 | 2017 | ||||||||||||||||||||||||||
| Net income from Investment Management attributable to W. P. Carey | $ | 33,178 | $ | 104,330 | $ | 85,150 | ||||||||||||||||||||||
| Net (loss) income from Investment Management attributable to W. P. Carey | Net (loss) income from Investment Management attributable to W. P. Carey | $ | (4,153) | $ | 33,178 | $ | 104,330 | |||||||||||||||||||||
| Adjustments: | Adjustments: | |||||||||||||||||||||||||||
Gain on change in control of interests (b) | — | (29,022 | ) | — | ||||||||||||||||||||||||
| Gain on change in control of interests | Gain on change in control of interests | — | — | (29,022) | ||||||||||||||||||||||||
Proportionate share of adjustments to equity in net income of partially owned entities (b) (c) (e) | Proportionate share of adjustments to equity in net income of partially owned entities (b) (c) (e) | 24,643 | — | — | ||||||||||||||||||||||||
| Total adjustments | — | (29,022 | ) | — | Total adjustments | 24,643 | — | (29,022) | ||||||||||||||||||||
| FFO (as defined by NAREIT) attributable to W. P. Carey — Investment Management | 33,178 | 75,308 | 85,150 | FFO (as defined by NAREIT) attributable to W. P. Carey — Investment Management | 20,490 | 33,178 | 75,308 | |||||||||||||||||||||
| Adjustments: | Adjustments: | |||||||||||||||||||||||||||
Tax (benefit) expense — deferred and other (g) (i) (j) | Tax (benefit) expense — deferred and other (g) (i) (j) | (3,324) | (1,997) | 19,869 | ||||||||||||||||||||||||
| Merger and other expenses | Merger and other expenses | 1,184 | — | — | ||||||||||||||||||||||||
| Stock-based compensation | 5,539 | 7,844 | 11,957 | Stock-based compensation | 691 | 5,539 | 7,844 | |||||||||||||||||||||
Tax (benefit) expense — deferred and other (g) (h) | (1,997 | ) | 19,869 | 1,504 | ||||||||||||||||||||||||
Other (gains) and losses (f) | 849 | 2,321 | (900 | ) | ||||||||||||||||||||||||
| Other amortization and non-cash items | 658 | 590 | — | Other amortization and non-cash items | 199 | 658 | 590 | |||||||||||||||||||||
| Restructuring and other compensation | — | — | 9,363 | |||||||||||||||||||||||||
Proportionate share of adjustments to equity in net income of partially owned entities (c) | 7,050 | 12,152 | 9,040 | |||||||||||||||||||||||||
Other (gains) and losses (l) | Other (gains) and losses (l) | (61) | 849 | 2,321 | ||||||||||||||||||||||||
Proportionate share of adjustments to equity in net income of partially owned entities (e) (m) | Proportionate share of adjustments to equity in net income of partially owned entities (e) (m) | 5,732 | 7,050 | 12,152 | ||||||||||||||||||||||||
| Total adjustments | 12,099 | 42,776 | 30,964 | Total adjustments | 4,421 | 12,099 | 42,776 | |||||||||||||||||||||
| AFFO attributable to W. P. Carey — Investment Management | $ | 45,277 | $ | 118,084 | $ | 116,114 | AFFO attributable to W. P. Carey — Investment Management | $ | 24,911 | $ | 45,277 | $ | 118,084 | |||||||||||||||
| Summary | Summary | |||||||||||||||||||||||||||
| FFO (as defined by NAREIT) attributable to W. P. Carey — Investment Management | $ | 33,178 | $ | 75,308 | $ | 85,150 | FFO (as defined by NAREIT) attributable to W. P. Carey — Investment Management | $ | 20,490 | $ | 33,178 | $ | 75,308 | |||||||||||||||
| AFFO attributable to W. P. Carey — Investment Management | $ | 45,277 | $ | 118,084 | $ | 116,114 | AFFO attributable to W. P. Carey — Investment Management | $ | 24,911 | $ | 45,277 | $ | 118,084 | |||||||||||||||
__________
(a)Amount for the year ended December 31, 2019 represents a loss recognized on the purchase of the remaining interest in a real estate investment from CPA:17 – Global in the CPA:17 Merger, which we had previously accounted for under the equity method. We recognized this loss because we identified certain measurement period adjustments during the third quarter of 2019 that impacted the provisional accounting for this investment (Note 3, Note 6). (b)Amount for the year ended December 31, 2020 includes a non-cash net gain of $33.0 million (inclusive of $9.9 million attributable to the redemption of a noncontrolling interest that the former subadvisors for CWI 1 and CWI 2 held in the special general partner interests) recognized in connection with consideration received at closing of the CWI 1 and CWI 2 Merger (Note 4, Note 7). (c)Amount for the year ended December 31, 2020 includes non-cash other-than-temporary impairment charges totaling $47.1 million recognized on our equity investments in CWI 1 and CWI 2 (Note 9). (d)Amount for the year ended December 31, 2020 includes a non-cash other-than-temporary impairment charge of $8.3 million recognized on an equity method investment in real estate (Note 8, Note 9). (e)Equity income, including amounts that are not typically recognized for FFO and AFFO, is recognized within Equity in (losses) earnings of equity method investments in the Managed Programs and real estate on the consolidated statements of income. This represents adjustments to equity income to reflect FFO and AFFO on a pro rata basis. (f)Adjustments disclosed elsewhere in this reconciliation are on a consolidated basis. This adjustment reflects our FFO or AFFO on a pro rata basis. (g)Amount for the year ended December 31, 2020 includes one-time taxes incurred upon the recognition of taxable income associated with the accelerated vesting of shares previously issued by CWI 1 and CWI 2 to us for asset management services performed, in connection with the CWI 1 and CWI 2 Merger. (h)Amount for the year ended December 31, 2020 includes a non-cash deferred tax benefit of $37.2 million as a result of the release of a deferred tax liability relating to our investment in shares of Lineage Logistics, which converted to a REIT during the current year and is therefore no longer subject to federal and state income taxes (Note 15). In addition, amount for the year ended December 31, 2019 includes deferred tax expenses totaling approximately $8.6 million as a result of the increase in the fair value of our investment in shares of Lineage Logistics (Note 9). (i)Amount for the year ended December 31, 2020 includes a one-time tax benefit of $4.7 million as a result of carrying back certain net operating losses in accordance with the CARES Act, which was enacted on March 27, 2020 (Note 15 |
W. P. Carey | |||||
(k)Amount for the year ended December 31, 2019 includes a straight-line rent adjustment of $16.8 million for a property that was sold in December 2019 and an adjustment to exclude $6.2 million of non-cash lease termination revenue, which will be collected and reflected within AFFO over the remaining master lease term ($1.6 million was recognized in 2020).
(l)Primarily comprised of unrealized gains and losses on derivatives, non-cash allowance for credit losses on loans receivable and direct financing leases, and gains and losses from foreign currency movements, extinguishment of debt, and marketable securities. Amounts from period to period will not be comparable due to unpredictable fluctuations in these gains and losses.
(m)Beginning with the first quarter of 2020, this adjustment includes distributions received from CWI 1 and CWI 2 for both AFFO attributable to W. P. Carey and AFFO attributable to W. P. Carey — Investment Management (through April 13, 2020, the closing date of the CWI 1 and CWI 2 Merger) and from WLT for both AFFO attributable to W. P. Carey and AFFO attributable to W. P. Carey — Real Estate (after April 13, 2020) in place of our pro rata share of net income from our ownership of shares of CWI 1, CWI 2, and WLT, as applicable. We did not receive any such distributions during the second, third, or fourth quarters of 2020, due to the adverse effect of the COVID-19 pandemic.
While we believe that FFO and AFFO are important supplemental measures, they should not be considered as alternatives to net income as an indication of a company’s operating performance. These non-GAAP measures should be used in conjunction with net income as defined by GAAP. FFO and AFFO, or similarly titled measures disclosed by other REITs, may not be comparable to our FFO and AFFO measures.
W. P. Carey | |||||
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Market Risk
Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, and equity prices. The primary market risks that we are exposed to are interest rate risk and foreign currency exchange risk. risk; however, we do not use derivative instruments to hedge credit/market risks or for speculative purposes. From time to time, we may enter into foreign currency collars to hedge our foreign currency cash flow exposures.
The impact of the COVID-19 pandemic both in the Unites States and globally continues to cause uncertainty and volatility in financial markets, including interest rates and foreign currency exchange rates. The outbreak is expected to have a continued adverse impact on market conditions for the foreseeable future and has triggered a period of global economic slowdown with no known duration. At December 31, 2020, our net-lease portfolio (which excludes operating properties) had the following concentrations (as a percentage of our ABR) for property types with heightened risk as a result of the COVID-19 pandemic:
•18.1% related to retail facilities (primarily from do-it-yourself, grocery, convenience, and wholesale stores);
•1.7% related to hotel (net lease) properties; and
•1.3% related to fitness facilities, theaters, and restaurants.
There may be an impact across all industries and geographic regions in which our tenants operate as a result of the COVID-19 pandemic. Given the significant uncertainty around the duration and severity of the COVID-19 pandemic, we are unable to predict the impact it will have on our tenants’ continued ability to pay rent.
We are also exposed to further market risk as a result of tenant concentrations in certain industries and/or geographic regions, since adverse market factors (such as the COVID-19 pandemic) can affect the ability of tenants in a particular industry/region to meet their respective lease obligations. In order to manage this risk, we view our collective tenant roster as a portfolio and we attempt to diversify such portfolio so that we are not overexposed to a particular industry or geographic region.
Interest Rate Risk
The values of our real estate and related fixed-rate debt obligations, as well as the values of our unsecured debt obligations, are subject to fluctuations based on changes in interest rates. The value of our real estate is also subject to fluctuations based on local and regional economic conditions (including the ongoing impact of the COVID-19 pandemic) and changes in the creditworthiness of lessees, which may affect our ability to refinance property-level mortgage debt when balloon payments are scheduled, if we do not choose to repay the debt when due. Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political conditions, and other factors beyond our control. An increase in interest rates would likely cause the fair value of our owned and managed assets to decrease, which would create lower revenues from managed assets and lower investment performance for the Managed REITs.Programs. Increases in interest rates may also have an impact on the credit profile of certain tenants.
We are exposed to the impact of interest rate changes primarily through our borrowing activities. To limit this exposure, we generally seek long-term debt financing on a fixed-rate basis. However, from time to time, we or our joint investment partners obtained, and may in the future obtain, variable-rate non-recourse mortgage loans and, as a result, we have entered into, and may continue to enter into, interest rate swap agreements or interest rate cap agreements with counterparties. See Note 10 for additional information on our interest rate swaps and caps.
At December 31, 2019,2020, a significant portion (approximately 95.5%92.8%) of our long-term debt either bore interest at fixed rates or was swapped or capped to a fixed rate. Our debt obligations are more fully described in Note 11 and Liquidity and Capital Resources — Summary of Financing in Item 7 above. The following table presents principal cash flows based upon expected maturity dates of our debt obligations outstanding at December 31, 20192020 (in thousands):
| 2020 | 2021 | 2022 | 2023 | 2024 | Thereafter | Total | Fair value | 2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | Total | Fair value | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fixed-rate debt (a) (b) | $ | 152,812 | $ | 213,087 | $ | 406,785 | $ | 801,170 | $ | 1,148,989 | $ | 2,949,186 | $ | 5,672,029 | $ | 5,941,459 | Fixed-rate debt (a) (b) | $ | 63,318 | $ | 393,476 | $ | 853,898 | $ | 1,199,068 | $ | 550,334 | $ | 3,057,090 | $ | 6,117,184 | $ | 6,566,571 | |||||||||||||||||||||||||||||||||||||||||||||
Variable-rate debt (a) | $ | 11,870 | $ | 232,382 | $ | 53,600 | $ | 99,118 | $ | 35,018 | $ | — | $ | 431,988 | $ | 430,132 | Variable-rate debt (a) | $ | 27,306 | $ | 54,099 | $ | 108,208 | $ | 36,376 | $ | 405,433 | $ | — | $ | 631,422 | $ | 625,818 | |||||||||||||||||||||||||||||||||||||||||||||
__________
(a)Amounts are based on the exchange rate at December 31, 2020, as applicable.
(b)Amounts after 2022 are primarily comprised of principal payments for our Senior Unsecured Notes (Note 11).
The estimated fair value of our fixed-rate debt and our variable-rate debt that currently bears interest at fixed rates or has effectively been converted to a fixed rate through the use of interest rate swaps, or that has been subject to interest rate caps, is affected by changes in interest rates. Annual interest expense on our unhedged variable-rate debt that does not bear interest at fixed rates at December 31, 20192020 would increase or decrease by $1.9$2.4 million for our euro-denominated debt, by $0.6$2.2 million for our British pound sterling-denominated debt, and by $0.2 million for our Japanese yen-denominated debt for each respective 1% change in annual interest rates.
Foreign Currency Exchange Rate Risk
We own international investments, primarily in Europe, Canada, and Japan, and as a result are subject to risk from the effects of exchange rate movements in various foreign currencies, primarily the euro, the British pound sterling, the Danish krone, the Canadian dollar, and the Japanese yen, which may affect future costs and cash flows. We have obtained, and may in the future obtain, non-recourse mortgage financing in the local currency. We have also completed five offerings of euro-denominated
senior notes, and have borrowed under our Senior Unsecured Revolving Credit Facility and Amended Credit Facility (Note 20) in foreign currencies, including the euro, British pound sterling, and Japanese yen (Note 11). To the extent that currency fluctuations increase or decrease rental revenues, as translated to U.S. dollars, the change in debt service (comprised of principal and interest, excluding balloon payments), as translated to U.S. dollars, will partially offset the effect of fluctuations in revenue and, to some extent, mitigate the risk from changes in foreign currency exchange rates. We estimate that, for a 1% increase or decrease in the exchange rate between the euro, British pound sterling, or Japanese yen and the U.S. dollar, there would be a corresponding change in the projected estimated cash flow (scheduled future rental revenues, net of scheduled future debt service payments for the next 12 months) for our consolidated foreign operations at December 31, 2020 of $2.6 million, $0.5 million, and less than $0.1 million, respectively, excluding the impact of our derivative instruments.
In addition, we may use currency hedging to further reduce the exposure to our equity cash flow. We are generally a net receiver of these currencies (we receive more cash than we pay out), and therefore our foreign operations benefit from a weaker U.S. dollar and are adversely affected by a stronger U.S. dollar, relative to the foreign currency.
We enter into foreign currency forward contracts and collars to hedge certain of our foreign currency cash flow exposures. See Note 10 for additional information on our foreign currency forward contracts and collars.
Lease Revenues (a) | 2020 | 2021 | 2022 | 2023 | 2024 | Thereafter | Total | |||||||||||||||||||||
Euro (b) | $ | 302,124 | $ | 299,176 | $ | 289,400 | $ | 287,769 | $ | 268,269 | $ | 1,757,899 | $ | 3,204,637 | ||||||||||||||
British pound sterling (c) | 42,332 | 43,057 | 43,194 | 43,612 | 44,011 | 268,970 | 485,176 | |||||||||||||||||||||
Japanese yen (d) | 2,816 | 2,809 | 677 | — | — | — | 6,302 | |||||||||||||||||||||
Other foreign currencies (e) | 25,583 | 25,933 | 25,860 | 26,286 | 26,569 | 278,207 | 408,438 | |||||||||||||||||||||
| $ | 372,855 | $ | 370,975 | $ | 359,131 | $ | 357,667 | $ | 338,849 | $ | 2,305,076 | $ | 4,104,553 | |||||||||||||||
Debt Service (a) (f) | 2020 | 2021 | 2022 | 2023 | 2024 | Thereafter | Total | |||||||||||||||||||||
Euro (b) | $ | 132,907 | $ | 204,384 | $ | 73,801 | $ | 754,706 | $ | 618,274 | $ | 1,780,284 | $ | 3,564,356 | ||||||||||||||
British pound sterling (c) | 2,098 | 65,717 | 829 | 829 | 829 | 8,949 | 79,251 | |||||||||||||||||||||
Japanese yen (d) | 224 | 22,327 | — | — | — | — | 22,551 | |||||||||||||||||||||
| $ | 135,229 | $ | 292,428 | $ | 74,630 | $ | 755,535 | $ | 619,103 | $ | 1,789,233 | $ | 3,666,158 | |||||||||||||||
Concentration of Credit Risk
Concentrations of credit risk arise when a number of tenants are engaged in similar business activities or have similar economic risks or conditions that could cause them to default on their lease obligations to us. We regularly monitor our portfolio to assess potential concentrations of credit risk. While we believe our portfolio is well-diversified, it does contain concentrations in certain areas.
For the year ended December 31, 2019,2020, our consolidated portfolio had the following significant characteristics in excess of 10%, based on the percentage of our consolidated total revenues:
At December 31, 2019,2020, our net-lease portfolio, which excludes our operating properties, had the following significant property and lease characteristics in excess of 10% in certain areas, based on the percentage of our ABR as of that date:
W. P. Carey | |||||
Item 8. Financial Statements and Supplementary Data.
| TABLE OF CONTENTS | Page No. | ||||
Financial statement schedules other than those listed above are omitted because the required information is given in the financial statements, including the notes thereto, or because the conditions requiring their filing do not exist.
W. P. Carey | |||||
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of W. P. Carey Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of W. P. Carey Inc. and its subsidiaries (the “Company”) as of December 31, 20192020 and 2018,2019, and the related consolidated statements of income, of comprehensive income, of equity and of cash flows for each of the three years in the period ended December 31, 2019,2020, including the related notes and financial statement schedules listed in the accompanying index (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2019,2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20192020 and 20182019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 20192020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019,2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
W. P. Carey | |||||
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit mattermatters communicated below is a matterare matters arising from the current period audit of the consolidated financial statements that waswere communicated or required to be communicated to the audit committee and that (i) relatesrelate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit mattermatters below, providing a separate opinionopinions on the critical audit mattermatters or on the accounts or disclosures to which it relates.they relate.
Purchase Price Allocation for Acquisitions
As described in Notes 2 and 5 to the consolidated financial statements, the Company completed real estate acquisitions for total consideration of $737.5$661.4 million during the year ended December 31, 2019.2020. For acquired properties with leases classified as operating leases, management allocated the purchase price to the tangible and intangible assets and liabilities based on their estimated fair values. Management determines the fair value of real estate (i) primarily by reference to portfolio appraisals, which determines their values on a property level, by applying a discounted cash flow analysis to the estimated net operating income for each property in the portfolio during the remaining anticipated lease term, and (ii) by the estimated residual value, which is based on a hypothetical sale of the property upon expiration of a lease factoring in the re-tenanting of such property at estimated current market rental rates, and applying a selected capitalization rate, and deducting estimated costs of sale. Managementrate. For any acquisitions that do not qualify as sale-leaseback transactions, management records above- and below-market lease intangible assets and liabilities for acquired properties based on the present value, using a discount rate reflecting the risks associated with the leases acquired. For acquired properties with tenants in place, management records in-place lease intangible assets based on the estimated value ascribed to the avoidance of costs of leasing the properties for the remaining primary in-place lease terms.
The principal considerations for our determination that performing procedures relating to the purchase price allocation for acquisitions is a critical audit matter are (i) there wasthe significant judgment by management to developdetermine the fair value measurements of tangible and intangible assets and liabilities to allocate the purchase price, which resulted in a high degree of auditor judgment and subjectivity in performing procedures relating to these fair value measurements; (ii) significant auditauditor judgment, subjectivity and effort was necessary in evaluating audit evidence related to the significant assumptions relating toused in the fair value measurement of the tangible and intangible assets and liabilities, such asspecifically the projected cash flows, capitalization rates, market rental rates and discount rates; (iii) significant auditor judgment was necessary in evaluating audit evidence related to tangible and intangible assets acquired and liabilities assumed; and (iv)(iii) the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing the procedures and evaluating the audit evidence obtained.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to purchase price allocations for acquisitions, including controls over management’s valuation of the tangible and intangiblesintangible assets and liabilities and controls over developmentthe review of the assumptions related to the valuation of tangible and intangible assets and liabilities, including projected cash flows, capitalization rates, market rental rates and discount rates.rates assumptions. These procedures alsoincluded, among others, for a sample of acquisitions (i) reading the executed purchase agreements and leasing documents; (ii) using professionals with specialized skill and knowledge to assist in testing management’s process for estimating the fair value of tangible and intangible assets and liabilities by evaluating the appropriateness of the valuation methods and the reasonableness of the significant assumptions includingrelating to the projected cash flows, capitalization rates, market rental rates and discount rates, which involved considering comparable market data and other industry factors; (iii) evaluating the accuracy of the purchase price allocation; and (iv) testing the completeness and accuracy of data provided by management.
CWI 1 and CWI 2 Merger — Investment in Preferred Stock of WLT
As described in Notes 4 and 9 to the consolidated financial statements, on April 13, 2020, two of the non-traded REITs that the Company advised, Carey Watermark Investors Incorporated (“CWI 1”) and Carey Watermark Investors 2 Incorporated (“CWI 2”), merged in an all-stock transaction, with CWI 2 as the surviving entity (the “CWI 1 and CWI 2 Merger”). CWI 2 was then renamed Watermark Lodging Trust, Inc. (“WLT”). On the date of the merger, the Company received 1,300,000 shares of WLT preferred stock with a liquidation preference of $50.00 per share, in conjunction with the redemption of the special general partner interests previously held in the operating partnerships of each of CWI 1 and CWI 2. The Company accounts for the tangibleinvestment in the shares of WLT preferred stock as available-for-sale debt securities at fair value of $46.3 million as of December 31, 2020, which is included in Other assets, net. The fair value was primarily determined by a discounted cash flow
W. P. Carey 2020 10-K– 53 | |||||
approach using significant assumptions related to a discounted rate of 15% and intangible assetsa weighted-average probability analysis of certain redemption options.
The principal considerations for our determination that performing procedures relating to the CWI 1 and liabilities,CWI 2 Merger – investment in preferred stock of WLT is a critical audit matter are (i) the significant judgment by management to determine the fair value measurement of the investment in preferred stock of WLT, which resulted in a high degree of auditor judgment and subjectivity in performing procedures relating to this fair value measurement; (ii) significant auditor judgment, subjectivity and effort in evaluating audit evidence related to the significant assumptions relating to the investment in preferred stock of WLT, specifically the discount rate and weighted probabilities of certain redemption options; (iii) significant audit effort in evaluating the accounting treatment of the investment in preferred stock of WLT as available-for-sale debt securities at fair value; and (iv) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the merger, including controls over management’s valuation of the investment in preferred stock of WLT, controls over the development of the discount rate and weighted probability assumptions, and controls over the determination of the accounting treatment of the investment in preferred stock of WLT as available-for-sale debt securities at fair value. These procedures also included, among others (i) reading the executed internalization agreement; (ii) testing management’s process for estimating the fair value of the investment in preferred stock of WLT by evaluating the appropriateness of the valuation methods, evaluating the reasonableness of the significant assumptions relating to the discount rate and probability weightings, and testing the completeness and accuracy of data provided by management; (iii) evaluating the accuracy of the valuation calculation; and (iv) using professionals with specialized skill and knowledge to assist in doing so; (iii) evaluating management’s accounting for the accuracyinvestment in preferred stock of the valuation model output; and (iv) performing procedures to test the completeness and accuracy of data provided by management.WLT as available-for-sale debt securities at fair value. Evaluating the reasonableness of the capitalization rates, market rental rates, and discount ratesrate involved considering comparable market data and other industry factors.
/s/ PricewaterhouseCoopers LLP
New York, New York
February 21, 202012, 2021
We have served as the Company’s auditor since 1973, which includes periods before the Company became subject to SEC reporting requirements.
W. P. Carey | |||||
W. P. CAREY INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
| December 31, | December 31, | |||||||||||||||||
| 2019 | 2018 | 2020 | 2019 | |||||||||||||||
| Assets | Assets | |||||||||||||||||
| Investments in real estate: | Investments in real estate: | |||||||||||||||||
| Land, buildings and improvements | $ | 9,856,191 | $ | 9,251,396 | Land, buildings and improvements | $ | 10,939,619 | $ | 9,856,191 | |||||||||
| Net investments in direct financing leases | 896,549 | 1,306,215 | Net investments in direct financing leases | 711,974 | 896,549 | |||||||||||||
| In-place lease intangible assets and other | 2,186,851 | 2,009,628 | In-place lease intangible assets and other | 2,301,174 | 2,186,851 | |||||||||||||
| Above-market rent intangible assets | 909,139 | 925,797 | Above-market rent intangible assets | 881,159 | 909,139 | |||||||||||||
| Investments in real estate | 13,848,730 | 13,493,036 | Investments in real estate | 14,833,926 | 13,848,730 | |||||||||||||
| Accumulated depreciation and amortization | (2,035,995 | ) | (1,564,182 | ) | Accumulated depreciation and amortization | (2,490,087) | (2,035,995) | |||||||||||
| Assets held for sale, net | 104,010 | — | Assets held for sale, net | 18,590 | 104,010 | |||||||||||||
| Net investments in real estate | 11,916,745 | 11,928,854 | Net investments in real estate | 12,362,429 | 11,916,745 | |||||||||||||
| Equity investments in the Managed Programs and real estate | 324,004 | 329,248 | Equity investments in the Managed Programs and real estate | 283,446 | 324,004 | |||||||||||||
| Cash and cash equivalents | 196,028 | 217,644 | Cash and cash equivalents | 248,662 | 196,028 | |||||||||||||
| Due from affiliates | 57,816 | 74,842 | Due from affiliates | 26,257 | 57,816 | |||||||||||||
| Other assets, net | 631,637 | 711,507 | Other assets, net | 876,024 | 631,637 | |||||||||||||
| Goodwill | 934,688 | 920,944 | Goodwill | 910,818 | 934,688 | |||||||||||||
Total assets (a) | $ | 14,060,918 | $ | 14,183,039 | Total assets (a) | $ | 14,707,636 | $ | 14,060,918 | |||||||||
| Liabilities and Equity | Liabilities and Equity | |||||||||||||||||
| Debt: | Debt: | |||||||||||||||||
| Senior unsecured notes, net | $ | 4,390,189 | $ | 3,554,470 | Senior unsecured notes, net | $ | 5,146,192 | $ | 4,390,189 | |||||||||
| Unsecured term loans, net | Unsecured term loans, net | 321,971 | 0 | |||||||||||||||
| Unsecured revolving credit facility | 201,267 | 91,563 | Unsecured revolving credit facility | 82,281 | 201,267 | |||||||||||||
| Non-recourse mortgages, net | 1,462,487 | 2,732,658 | Non-recourse mortgages, net | 1,145,554 | 1,462,487 | |||||||||||||
| Debt, net | 6,053,943 | 6,378,691 | Debt, net | 6,695,998 | 6,053,943 | |||||||||||||
| Accounts payable, accrued expenses and other liabilities | 487,405 | 403,896 | Accounts payable, accrued expenses and other liabilities | 603,663 | 487,405 | |||||||||||||
| Below-market rent and other intangible liabilities, net | 210,742 | 225,128 | Below-market rent and other intangible liabilities, net | 197,248 | 210,742 | |||||||||||||
| Deferred income taxes | 179,309 | 173,115 | Deferred income taxes | 145,844 | 179,309 | |||||||||||||
| Dividends payable | 181,346 | 172,154 | Dividends payable | 186,514 | 181,346 | |||||||||||||
Total liabilities (a) | 7,112,745 | 7,352,984 | Total liabilities (a) | 7,829,267 | 7,112,745 | |||||||||||||
| 0 | 0 | |||||||||||||||||
| Preferred stock, $0.001 par value, 50,000,000 shares authorized; none issued | — | — | ||||||||||||||||
| Common stock, $0.001 par value, 450,000,000 shares authorized; 172,278,242 and 165,279,642 shares, respectively, issued and outstanding | 172 | 165 | ||||||||||||||||
| Preferred stock, $0.001 par value, 50,000,000 shares authorized; NaN issued | Preferred stock, $0.001 par value, 50,000,000 shares authorized; NaN issued | 0 | 0 | |||||||||||||||
| Common stock, $0.001 par value, 450,000,000 shares authorized; 175,401,757 and 172,278,242 shares, respectively, issued and outstanding | Common stock, $0.001 par value, 450,000,000 shares authorized; 175,401,757 and 172,278,242 shares, respectively, issued and outstanding | 175 | 172 | |||||||||||||||
| Additional paid-in capital | 8,717,535 | 8,187,335 | Additional paid-in capital | 8,925,365 | 8,717,535 | |||||||||||||
| Distributions in excess of accumulated earnings | (1,557,374 | ) | (1,143,992 | ) | Distributions in excess of accumulated earnings | (1,850,935) | (1,557,374) | |||||||||||
| Deferred compensation obligation | 37,263 | 35,766 | Deferred compensation obligation | 42,014 | 37,263 | |||||||||||||
| Accumulated other comprehensive loss | (255,667 | ) | (254,996 | ) | Accumulated other comprehensive loss | (239,906) | (255,667) | |||||||||||
| Total stockholders’ equity | 6,941,929 | 6,824,278 | Total stockholders’ equity | 6,876,713 | 6,941,929 | |||||||||||||
| Noncontrolling interests | 6,244 | 5,777 | Noncontrolling interests | 1,656 | 6,244 | |||||||||||||
| Total equity | 6,948,173 | 6,830,055 | Total equity | 6,878,369 | 6,948,173 | |||||||||||||
| Total liabilities and equity | $ | 14,060,918 | $ | 14,183,039 | Total liabilities and equity | $ | 14,707,636 | $ | 14,060,918 | |||||||||
__________
See Notes to Consolidated Financial Statements.
W. P. Carey | |||||
W. P. CAREY INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share amounts)
| Years Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Revenues | |||||||||||||||||
| Real Estate: | |||||||||||||||||
| Lease revenues | $ | 1,154,504 | $ | 1,086,375 | $ | 744,498 | |||||||||||
| Lease termination income and other | 12,094 | 36,268 | 6,555 | ||||||||||||||
| Operating property revenues | 11,399 | 50,220 | 28,072 | ||||||||||||||
| 1,177,997 | 1,172,863 | 779,125 | |||||||||||||||
| Investment Management: | |||||||||||||||||
| Asset management revenue | 21,973 | 39,132 | 63,556 | ||||||||||||||
| Reimbursable costs from affiliates | 8,855 | 16,547 | 21,925 | ||||||||||||||
| Structuring and other advisory revenue | 494 | 4,224 | 21,126 | ||||||||||||||
| 31,322 | 59,903 | 106,607 | |||||||||||||||
| 1,209,319 | 1,232,766 | 885,732 | |||||||||||||||
| Operating Expenses | |||||||||||||||||
| Depreciation and amortization | 442,935 | 447,135 | 291,440 | ||||||||||||||
| General and administrative | 75,950 | 75,293 | 68,337 | ||||||||||||||
| Reimbursable tenant costs | 56,409 | 55,576 | 28,076 | ||||||||||||||
| Property expenses, excluding reimbursable tenant costs | 44,067 | 39,545 | 22,773 | ||||||||||||||
| Impairment charges | 35,830 | 32,539 | 4,790 | ||||||||||||||
| Stock-based compensation expense | 15,938 | 18,787 | 18,294 | ||||||||||||||
| Operating property expenses | 9,901 | 38,015 | 20,150 | ||||||||||||||
| Reimbursable costs from affiliates | 8,855 | 16,547 | 21,925 | ||||||||||||||
| Subadvisor fees | 1,469 | 7,579 | 9,240 | ||||||||||||||
| Merger and other expenses | 247 | 101 | 41,426 | ||||||||||||||
| 691,601 | 731,117 | 526,451 | |||||||||||||||
| Other Income and Expenses | |||||||||||||||||
| Interest expense | (210,087) | (233,325) | (178,375) | ||||||||||||||
| Gain on sale of real estate, net | 109,370 | 18,143 | 118,605 | ||||||||||||||
| Other gains and (losses) | 46,752 | 31,475 | 29,913 | ||||||||||||||
| Equity in (losses) earnings of equity method investments in the Managed Programs and real estate | (18,557) | 23,229 | 61,514 | ||||||||||||||
| (Loss) gain on change in control of interests | 0 | (8,416) | 47,814 | ||||||||||||||
| (72,522) | (168,894) | 79,471 | |||||||||||||||
| Income before income taxes | 445,196 | 332,755 | 438,752 | ||||||||||||||
| Benefit from (provision for) income taxes | 20,759 | (26,211) | (14,411) | ||||||||||||||
| Net Income | 465,955 | 306,544 | 424,341 | ||||||||||||||
| Net income attributable to noncontrolling interests | (10,596) | (1,301) | (12,775) | ||||||||||||||
| Net Income Attributable to W. P. Carey | $ | 455,359 | $ | 305,243 | $ | 411,566 | |||||||||||
| Basic Earnings Per Share | $ | 2.61 | $ | 1.78 | $ | 3.50 | |||||||||||
| Diluted Earnings Per Share | $ | 2.60 | $ | 1.78 | $ | 3.49 | |||||||||||
| Weighted-Average Shares Outstanding | |||||||||||||||||
| Basic | 174,504,406 | 171,001,430 | 117,494,969 | ||||||||||||||
| Diluted | 174,839,428 | 171,299,414 | 117,706,445 | ||||||||||||||
| Years Ended December 31, | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Revenues | |||||||||||
| Real Estate: | |||||||||||
| Lease revenues | $ | 1,086,375 | $ | 744,498 | $ | 651,897 | |||||
| Operating property revenues | 50,220 | 28,072 | 30,562 | ||||||||
| Lease termination income and other | 36,268 | 6,555 | 4,749 | ||||||||
| 1,172,863 | 779,125 | 687,208 | |||||||||
| Investment Management: | |||||||||||
| Asset management revenue | 39,132 | 63,556 | 70,125 | ||||||||
| Reimbursable costs from affiliates | 16,547 | 21,925 | 51,445 | ||||||||
| Structuring and other advisory revenue | 4,224 | 21,126 | 35,094 | ||||||||
| Dealer manager fees | — | — | 4,430 | ||||||||
| 59,903 | 106,607 | 161,094 | |||||||||
| 1,232,766 | 885,732 | 848,302 | |||||||||
| Operating Expenses | |||||||||||
| Depreciation and amortization | 447,135 | 291,440 | 253,334 | ||||||||
| General and administrative | 75,293 | 68,337 | 70,891 | ||||||||
| Reimbursable tenant costs | 55,576 | 28,076 | 21,524 | ||||||||
| Property expenses, excluding reimbursable tenant costs | 39,545 | 22,773 | 17,330 | ||||||||
| Operating property expenses | 38,015 | 20,150 | 23,426 | ||||||||
| Impairment charges | 32,539 | 4,790 | 2,769 | ||||||||
| Stock-based compensation expense | 18,787 | 18,294 | 18,917 | ||||||||
| Reimbursable costs from affiliates | 16,547 | 21,925 | 51,445 | ||||||||
| Subadvisor fees | 7,579 | 9,240 | 13,600 | ||||||||
| Merger and other expenses | 101 | 41,426 | 605 | ||||||||
| Restructuring and other compensation | — | — | 9,363 | ||||||||
| Dealer manager fees and expenses | — | — | 6,544 | ||||||||
| 731,117 | 526,451 | 489,748 | |||||||||
| Other Income and Expenses | |||||||||||
| Interest expense | (233,325 | ) | (178,375 | ) | (165,775 | ) | |||||
| Other gains and (losses) | 31,475 | 29,913 | (3,613 | ) | |||||||
| Equity in earnings of equity method investments in the Managed Programs and real estate | 23,229 | 61,514 | 64,750 | ||||||||
| Gain on sale of real estate, net | 18,143 | 118,605 | 33,878 | ||||||||
| (Loss) gain on change in control of interests | (8,416 | ) | 47,814 | — | |||||||
| (168,894 | ) | 79,471 | (70,760 | ) | |||||||
| Income before income taxes | 332,755 | 438,752 | 287,794 | ||||||||
| Provision for income taxes | (26,211 | ) | (14,411 | ) | (2,711 | ) | |||||
| Net Income | 306,544 | 424,341 | 285,083 | ||||||||
| Net income attributable to noncontrolling interests | (1,301 | ) | (12,775 | ) | (7,794 | ) | |||||
| Net Income Attributable to W. P. Carey | $ | 305,243 | $ | 411,566 | $ | 277,289 | |||||
| Basic Earnings Per Share | $ | 1.78 | $ | 3.50 | $ | 2.56 | |||||
| Diluted Earnings Per Share | $ | 1.78 | $ | 3.49 | $ | 2.56 | |||||
| Weighted-Average Shares Outstanding | |||||||||||
| Basic | 171,001,430 | 117,494,969 | 107,824,738 | ||||||||
| Diluted | 171,299,414 | 117,706,445 | 108,035,971 | ||||||||
See Notes to Consolidated Financial Statements.
W. P. Carey | |||||
W. P. CAREY INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
| Years Ended December 31, | Years Ended December 31, | |||||||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2020 | 2019 | 2018 | |||||||||||||||||||||||
| Net Income | $ | 306,544 | $ | 424,341 | $ | 285,083 | Net Income | $ | 465,955 | $ | 306,544 | $ | 424,341 | |||||||||||||||
| Other Comprehensive (Loss) Income | ||||||||||||||||||||||||||||
| Other Comprehensive Income (Loss) | Other Comprehensive Income (Loss) | |||||||||||||||||||||||||||
| Foreign currency translation adjustments | Foreign currency translation adjustments | 47,746 | 376 | (31,843) | ||||||||||||||||||||||||
| Unrealized (loss) gain on derivative instruments | (1,054 | ) | 4,923 | (37,778 | ) | Unrealized (loss) gain on derivative instruments | (31,978) | (1,054) | 4,923 | |||||||||||||||||||
| Foreign currency translation adjustments | 376 | (31,843 | ) | 72,428 | ||||||||||||||||||||||||
| Unrealized gain (loss) on investments | 7 | 154 | (71 | ) | ||||||||||||||||||||||||
| Unrealized gain on investments | Unrealized gain on investments | 0 | 7 | 154 | ||||||||||||||||||||||||
| (671 | ) | (26,766 | ) | 34,579 | 15,768 | (671) | (26,766) | |||||||||||||||||||||
| Comprehensive Income | 305,873 | 397,575 | 319,662 | Comprehensive Income | 481,723 | 305,873 | 397,575 | |||||||||||||||||||||
| Amounts Attributable to Noncontrolling Interests | Amounts Attributable to Noncontrolling Interests | |||||||||||||||||||||||||||
| Net income | (1,301 | ) | (12,775 | ) | (7,794 | ) | Net income | (10,596) | (1,301) | (12,775) | ||||||||||||||||||
| Unrealized (gain) loss on derivative instruments | Unrealized (gain) loss on derivative instruments | (7) | 0 | 7 | ||||||||||||||||||||||||
| Foreign currency translation adjustments | — | 7,774 | (16,120 | ) | Foreign currency translation adjustments | 0 | 0 | 7,774 | ||||||||||||||||||||
| Unrealized loss on derivative instruments | — | 7 | 15 | |||||||||||||||||||||||||
| Comprehensive income attributable to noncontrolling interests | (1,301 | ) | (4,994 | ) | (23,899 | ) | Comprehensive income attributable to noncontrolling interests | (10,603) | (1,301) | (4,994) | ||||||||||||||||||
| Comprehensive Income Attributable to W. P. Carey | $ | 304,572 | $ | 392,581 | $ | 295,763 | Comprehensive Income Attributable to W. P. Carey | $ | 471,120 | $ | 304,572 | $ | 392,581 | |||||||||||||||
See Notes to Consolidated Financial Statements.
W. P. Carey | |||||
W. P. CAREY INC.
CONSOLIDATED STATEMENTS OF EQUITY
(in thousands, except share and per share amounts)
| W. P. Carey Stockholders | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions | Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional | in Excess of | Deferred | Other | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| $0.001 Par Value | Paid-in | Accumulated | Compensation | Comprehensive | W. P. Carey | Noncontrolling | |||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Capital | Earnings | Obligation | Loss | Stockholders | Interests | Total | |||||||||||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2020 | 172,278,242 | $ | 172 | $ | 8,717,535 | $ | (1,557,374) | $ | 37,263 | $ | (255,667) | $ | 6,941,929 | $ | 6,244 | $ | 6,948,173 | ||||||||||||||||||||||||||||||||||||
Cumulative-effect adjustment for the adoption of ASU 2016-13, Financial Instruments — Credit Losses (Note 2) | (14,812) | (14,812) | (14,812) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued under forward sale agreements, net | 2,951,791 | 3 | 199,478 | 199,481 | 199,481 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued upon delivery of vested restricted share awards | 162,331 | — | (5,372) | (5,372) | (5,372) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued upon purchases under employee share purchase plan | 6,893 | — | 389 | 389 | 389 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued under “at-the-market” offering, net | 2,500 | — | 60 | 60 | 60 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of stock-based compensation expense | 15,938 | 15,938 | 15,938 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Deferral of vested shares, net | (3,854) | 3,854 | — | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | — | (5,326) | (5,326) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared ($4.17 per share) | 1,191 | (734,108) | 897 | (732,020) | (732,020) | ||||||||||||||||||||||||||||||||||||||||||||||||
| — | (9,865) | (9,865) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | 455,359 | 455,359 | 10,596 | 465,955 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | 47,746 | 47,746 | 47,746 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized loss on derivative instruments | (31,985) | (31,985) | 7 | (31,978) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | 175,401,757 | $ | 175 | $ | 8,925,365 | $ | (1,850,935) | $ | 42,014 | $ | (239,906) | $ | 6,876,713 | $ | 1,656 | $ | 6,878,369 | ||||||||||||||||||||||||||||||||||||
| W. P. Carey Stockholders | ||||||||||||||||||||||||||||||||||
| Distributions | Accumulated | |||||||||||||||||||||||||||||||||
| Common Stock | Additional | in Excess of | Deferred | Other | Total | |||||||||||||||||||||||||||||
| $0.001 Par Value | Paid-in | Accumulated | Compensation | Comprehensive | W. P. Carey | Noncontrolling | ||||||||||||||||||||||||||||
| Shares | Amount | Capital | Earnings | Obligation | Loss | Stockholders | Interests | Total | ||||||||||||||||||||||||||
| Balance at January 1, 2019 | 165,279,642 | $ | 165 | $ | 8,187,335 | $ | (1,143,992 | ) | $ | 35,766 | $ | (254,996 | ) | $ | 6,824,278 | $ | 5,777 | $ | 6,830,055 | |||||||||||||||
| Shares issued under “at-the-market” offering, net | 6,672,412 | 6 | 523,387 | 523,393 | 523,393 | |||||||||||||||||||||||||||||
| Shares issued upon delivery of vested restricted share awards | 322,831 | 1 | (15,766 | ) | (15,765 | ) | (15,765 | ) | ||||||||||||||||||||||||||
| Shares issued upon purchases under employee share purchase plan | 3,357 | — | 252 | 252 | 252 | |||||||||||||||||||||||||||||
| Deferral of vested shares, net | (1,445 | ) | 1,445 | — | — | |||||||||||||||||||||||||||||
| Amortization of stock-based compensation expense | 18,787 | 18,787 | 18,787 | |||||||||||||||||||||||||||||||
| Contributions from noncontrolling interests | — | 849 | 849 | |||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | — | (1,683 | ) | (1,683 | ) | |||||||||||||||||||||||||||||
| Dividends declared ($4.14 per share) | 4,985 | (718,625 | ) | 52 | (713,588 | ) | (713,588 | ) | ||||||||||||||||||||||||||
| Net income | 305,243 | 305,243 | 1,301 | 306,544 | ||||||||||||||||||||||||||||||
| Other comprehensive loss: | ||||||||||||||||||||||||||||||||||
| Unrealized loss on derivative instruments | (1,054 | ) | (1,054 | ) | (1,054 | ) | ||||||||||||||||||||||||||||
| Foreign currency translation adjustments | 376 | 376 | 376 | |||||||||||||||||||||||||||||||
| Unrealized gain on investments | 7 | 7 | 7 | |||||||||||||||||||||||||||||||
| Balance at December 31, 2019 | 172,278,242 | $ | 172 | $ | 8,717,535 | $ | (1,557,374 | ) | $ | 37,263 | $ | (255,667 | ) | $ | 6,941,929 | $ | 6,244 | $ | 6,948,173 | |||||||||||||||
(Continued)
W. P. Carey | |||||
W. P. CAREY INC.
CONSOLIDATED STATEMENTS OF EQUITY
(Continued)
(in thousands, except share and per share amounts)
| W. P. Carey Stockholders | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions | Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional | in Excess of | Deferred | Other | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| $0.001 Par Value | Paid-in | Accumulated | Compensation | Comprehensive | W. P. Carey | Noncontrolling | |||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Capital | Earnings | Obligation | Loss | Stockholders | Interests | Total | |||||||||||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2019 | 165,279,642 | $ | 165 | $ | 8,187,335 | $ | (1,143,992) | $ | 35,766 | $ | (254,996) | $ | 6,824,278 | $ | 5,777 | $ | 6,830,055 | ||||||||||||||||||||||||||||||||||||
| Shares issued under “at-the-market” offering, net | 6,672,412 | 6 | 523,387 | 523,393 | 523,393 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued upon delivery of vested restricted share awards | 322,831 | 1 | (15,766) | (15,765) | (15,765) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued upon purchases under employee share purchase plan | 3,357 | — | 252 | 252 | 252 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Deferral of vested shares, net | (1,445) | 1,445 | — | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of stock-based compensation expense | 18,787 | 18,787 | 18,787 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Contributions from noncontrolling interests | — | 849 | 849 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | — | (1,683) | (1,683) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared ($4.14 per share) | 4,985 | (718,625) | 52 | (713,588) | (713,588) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | 305,243 | 305,243 | 1,301 | 306,544 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized loss on derivative instruments | (1,054) | (1,054) | (1,054) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | 376 | 376 | 376 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized gain on investments | 7 | 7 | 7 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2019 | 172,278,242 | $ | 172 | $ | 8,717,535 | $ | (1,557,374) | $ | 37,263 | $ | (255,667) | $ | 6,941,929 | $ | 6,244 | $ | 6,948,173 | ||||||||||||||||||||||||||||||||||||
| W. P. Carey Stockholders | ||||||||||||||||||||||||||||||||||
| Distributions | Accumulated | |||||||||||||||||||||||||||||||||
| Common Stock | Additional | in Excess of | Deferred | Other | Total | |||||||||||||||||||||||||||||
| $0.001 Par Value | Paid-in | Accumulated | Compensation | Comprehensive | W. P. Carey | Noncontrolling | ||||||||||||||||||||||||||||
| Shares | Amount | Capital | Earnings | Obligation | Loss | Stockholders | Interests | Total | ||||||||||||||||||||||||||
| Balance at January 1, 2018 | 106,922,616 | $ | 107 | $ | 4,433,573 | $ | (1,052,064 | ) | $ | 46,656 | $ | (236,011 | ) | $ | 3,192,261 | $ | 219,124 | $ | 3,411,385 | |||||||||||||||
| Shares issued to stockholders of CPA:17 – Global in connection with CPA:17 Merger | 53,849,087 | 54 | 3,554,524 | 3,554,578 | 3,554,578 | |||||||||||||||||||||||||||||
| Shares issued under “at-the-market” offering, net | 4,229,285 | 4 | 287,433 | 287,437 | 287,437 | |||||||||||||||||||||||||||||
| Shares issued upon delivery of vested restricted share awards | 293,481 | — | (13,644 | ) | (13,644 | ) | (13,644 | ) | ||||||||||||||||||||||||||
| Shares issued upon purchases under employee share purchase plan | 2,951 | — | 178 | 178 | 178 | |||||||||||||||||||||||||||||
| Delivery of deferred vested shares, net | 10,890 | (10,890 | ) | — | — | |||||||||||||||||||||||||||||
| Amortization of stock-based compensation expense | 18,294 | 18,294 | 18,294 | |||||||||||||||||||||||||||||||
| Acquisition of remaining noncontrolling interests in investments that we already consolidate in connection with the CPA:17 Merger | (103,075 | ) | (103,075 | ) | (206,516 | ) | (309,591 | ) | ||||||||||||||||||||||||||
| Acquisition of noncontrolling interests in connection with the CPA:17 Merger | — | 5,039 | 5,039 | |||||||||||||||||||||||||||||||
| Contributions from noncontrolling interests | — | 71 | 71 | |||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | — | (16,935 | ) | (16,935 | ) | |||||||||||||||||||||||||||||
| Redemption value adjustment | (335 | ) | (335 | ) | (335 | ) | ||||||||||||||||||||||||||||
| Dividends declared ($4.09 per share) | 675 | (503,494 | ) | — | (502,819 | ) | (502,819 | ) | ||||||||||||||||||||||||||
| Repurchase of shares in connection with CPA:17 Merger | (17,778 | ) | — | (1,178 | ) | (1,178 | ) | (1,178 | ) | |||||||||||||||||||||||||
| Net income | 411,566 | 411,566 | 12,775 | 424,341 | ||||||||||||||||||||||||||||||
| Other comprehensive loss: | ||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | (24,069 | ) | (24,069 | ) | (7,774 | ) | (31,843 | ) | ||||||||||||||||||||||||||
| Unrealized gain on derivative instruments | 4,930 | 4,930 | (7 | ) | 4,923 | |||||||||||||||||||||||||||||
| Unrealized gain on investments | 154 | 154 | 154 | |||||||||||||||||||||||||||||||
| Balance at December 31, 2018 | 165,279,642 | $ | 165 | $ | 8,187,335 | $ | (1,143,992 | ) | $ | 35,766 | $ | (254,996 | ) | $ | 6,824,278 | $ | 5,777 | $ | 6,830,055 | |||||||||||||||
(Continued)
W. P. Carey | |||||
W. P. CAREY INC.
CONSOLIDATED STATEMENTS OF EQUITY
(Continued)
(in thousands, except share and per share amounts)
| W. P. Carey Stockholders | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions | Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional | in Excess of | Deferred | Other | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| $0.001 Par Value | Paid-in | Accumulated | Compensation | Comprehensive | W. P. Carey | Noncontrolling | |||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Capital | Earnings | Obligation | Loss | Stockholders | Interests | Total | |||||||||||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2018 | 106,922,616 | $ | 107 | $ | 4,433,573 | $ | (1,052,064) | $ | 46,656 | $ | (236,011) | $ | 3,192,261 | $ | 219,124 | $ | 3,411,385 | ||||||||||||||||||||||||||||||||||||
| Shares issued to stockholders of CPA:17 – Global in connection with CPA:17 Merger | 53,849,087 | 54 | 3,554,524 | 3,554,578 | 3,554,578 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued under “at-the-market” offering, net | 4,229,285 | 4 | 287,433 | 287,437 | 287,437 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued upon delivery of vested restricted share awards | 293,481 | — | (13,644) | (13,644) | (13,644) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued upon purchases under employee share purchase plan | 2,951 | — | 178 | 178 | 178 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Delivery of deferred vested shares, net | 10,890 | (10,890) | — | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of stock-based compensation expense | 18,294 | 18,294 | 18,294 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisition of remaining noncontrolling interests in investments that we already consolidate in connection with the CPA:17 Merger | (103,075) | (103,075) | (206,516) | (309,591) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisition of noncontrolling interests in connection with the CPA:17 Merger | — | 5,039 | 5,039 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Contributions from noncontrolling interests | — | 71 | 71 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | — | (16,935) | (16,935) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Redemption value adjustment | (335) | (335) | (335) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared ($4.09 per share) | 675 | (503,494) | — | (502,819) | (502,819) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of shares in connection with CPA:17 Merger | (17,778) | — | (1,178) | (1,178) | (1,178) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | 411,566 | 411,566 | 12,775 | 424,341 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | (24,069) | (24,069) | (7,774) | (31,843) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized gain on derivative instruments | 4,930 | 4,930 | (7) | 4,923 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized gain on investments | 154 | 154 | 154 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2018 | 165,279,642 | $ | 165 | $ | 8,187,335 | $ | (1,143,992) | $ | 35,766 | $ | (254,996) | $ | 6,824,278 | $ | 5,777 | $ | 6,830,055 | ||||||||||||||||||||||||||||||||||||
| W. P. Carey Stockholders | ||||||||||||||||||||||||||||||||||
| Distributions | Accumulated | |||||||||||||||||||||||||||||||||
| Common Stock | Additional | in Excess of | Deferred | Other | Total | |||||||||||||||||||||||||||||
| $0.001 Par Value | Paid-in | Accumulated | Compensation | Comprehensive | W. P. Carey | Noncontrolling | ||||||||||||||||||||||||||||
| Shares | Amount | Capital | Earnings | Obligation | Loss | Stockholders | Interests | Total | ||||||||||||||||||||||||||
| Balance at January 1, 2017 | 106,294,162 | $ | 106 | $ | 4,399,961 | $ | (894,137 | ) | $ | 50,222 | $ | (254,485 | ) | $ | 3,301,667 | $ | 123,473 | $ | 3,425,140 | |||||||||||||||
| Shares issued under “at-the-market” offering, net | 345,253 | 1 | 22,885 | 22,886 | 22,886 | |||||||||||||||||||||||||||||
| Shares issued to a third party in connection with a legal settlement | 11,077 | — | 772 | 772 | 772 | |||||||||||||||||||||||||||||
| Shares issued upon delivery of vested restricted share awards | 229,121 | — | (10,385 | ) | (10,385 | ) | (10,385 | ) | ||||||||||||||||||||||||||
| Shares issued upon exercise of stock options and purchases under employee share purchase plan | 43,003 | — | (1,680 | ) | (1,680 | ) | (1,680 | ) | ||||||||||||||||||||||||||
| Delivery of deferred vested shares, net | 3,790 | (3,790 | ) | — | — | |||||||||||||||||||||||||||||
| Amortization of stock-based compensation expense | 18,917 | 18,917 | 18,917 | |||||||||||||||||||||||||||||||
| Acquisition of noncontrolling interest | (1,845 | ) | (1,845 | ) | 1,845 | — | ||||||||||||||||||||||||||||
| Contributions from noncontrolling interests | — | 90,550 | 90,550 | |||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | — | (20,643 | ) | (20,643 | ) | |||||||||||||||||||||||||||||
| Dividends declared ($4.01 per share) | 1,158 | (435,216 | ) | 224 | (433,834 | ) | (433,834 | ) | ||||||||||||||||||||||||||
| Net income | 277,289 | 277,289 | 7,794 | 285,083 | ||||||||||||||||||||||||||||||
| Other comprehensive income: | ||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | 56,308 | 56,308 | 16,120 | 72,428 | ||||||||||||||||||||||||||||||
| Unrealized loss on derivative instruments | (37,763 | ) | (37,763 | ) | (15 | ) | (37,778 | ) | ||||||||||||||||||||||||||
| Unrealized loss on investments | (71 | ) | (71 | ) | (71 | ) | ||||||||||||||||||||||||||||
| Balance at December 31, 2017 | 106,922,616 | $ | 107 | $ | 4,433,573 | $ | (1,052,064 | ) | $ | 46,656 | $ | (236,011 | ) | $ | 3,192,261 | $ | 219,124 | $ | 3,411,385 | |||||||||||||||
See Notes to Consolidated Financial Statements.
W. P. Carey | |||||
W. P. CAREY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| Years Ended December 31, | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Cash Flows — Operating Activities | |||||||||||
| Net income | $ | 306,544 | $ | 424,341 | $ | 285,083 | |||||
| Adjustments to net income: | |||||||||||
| Depreciation and amortization, including intangible assets and deferred financing costs | 460,030 | 298,166 | 261,415 | ||||||||
| Amortization of rent-related intangibles and deferred rental revenue | 84,878 | 51,132 | 55,051 | ||||||||
| Straight-line rent adjustments | (46,260 | ) | (21,994 | ) | (16,980 | ) | |||||
| Impairment charges | 32,539 | 4,790 | 2,769 | ||||||||
| Investment Management revenue received in shares of Managed REITs and other | (30,555 | ) | (49,110 | ) | (69,658 | ) | |||||
| Distributions of earnings from equity method investments | 26,772 | 62,015 | 66,259 | ||||||||
| Equity in earnings of equity method investments in the Managed Programs and real estate | (23,229 | ) | (61,514 | ) | (64,750 | ) | |||||
| Stock-based compensation expense | 18,787 | 18,294 | 18,917 | ||||||||
| Gain on sale of real estate, net | (18,143 | ) | (118,605 | ) | (33,878 | ) | |||||
| Loss (gain) on change in control of interests | 8,416 | (47,814 | ) | — | |||||||
| Deferred income tax expense (benefit) | 9,255 | (6,279 | ) | (20,013 | ) | ||||||
| Realized and unrealized (gains) losses on foreign currency transactions, derivatives, and other | (466 | ) | (17,644 | ) | 16,879 | ||||||
| Changes in assets and liabilities: | |||||||||||
| Net changes in other operating assets and liabilities | (20,783 | ) | (28,054 | ) | 9,390 | ||||||
| Deferred structuring revenue received | 4,913 | 9,456 | 16,705 | ||||||||
| Increase in deferred structuring revenue receivable | (621 | ) | (8,014 | ) | (6,530 | ) | |||||
| Net Cash Provided by Operating Activities | 812,077 | 509,166 | 520,659 | ||||||||
| Cash Flows — Investing Activities | |||||||||||
| Purchases of real estate | (717,666 | ) | (719,548 | ) | (31,842 | ) | |||||
| Proceeds from sales of real estate | 307,959 | 431,626 | 159,933 | ||||||||
| Funding for real estate construction, redevelopments, and other capital expenditures on real estate | (165,490 | ) | (107,684 | ) | (78,367 | ) | |||||
| Proceeds from repayment of short-term loans to affiliates | 46,637 | 37,000 | 277,894 | ||||||||
| Funding of short-term loans to affiliates | (36,808 | ) | (10,000 | ) | (123,492 | ) | |||||
| Return of capital from equity method investments | 34,365 | 16,382 | 10,085 | ||||||||
| Proceeds from repayment of loans receivable | 19,707 | 488 | 436 | ||||||||
| Other investing activities, net | (8,882 | ) | (8,169 | ) | 882 | ||||||
| Capital contributions to equity method investments | (2,595 | ) | (18,173 | ) | (1,291 | ) | |||||
| Cash and restricted cash acquired in connection with the CPA:17 Merger | — | 113,634 | — | ||||||||
| Cash paid to stockholders of CPA:17 – Global in the CPA:17 Merger | — | (1,688 | ) | — | |||||||
| Net Cash (Used in) Provided by Investing Activities | (522,773 | ) | (266,132 | ) | 214,238 | ||||||
| Cash Flows — Financing Activities | |||||||||||
| Proceeds from Senior Unsecured Credit Facility | 1,336,824 | 1,403,254 | 1,302,463 | ||||||||
| Repayments of Senior Unsecured Credit Facility | (1,227,153 | ) | (2,108,629 | ) | (1,680,198 | ) | |||||
| Prepayments of mortgage principal | (1,028,795 | ) | (207,450 | ) | (193,434 | ) | |||||
| Proceeds from issuance of Senior Unsecured Notes | 870,635 | 1,183,828 | 530,456 | ||||||||
| Dividends paid | (704,396 | ) | (440,431 | ) | (431,182 | ) | |||||
| Proceeds from shares issued under “at-the-market” offering, net of selling costs | 523,287 | 287,544 | 22,824 | ||||||||
| Scheduled payments of mortgage principal | (210,414 | ) | (100,433 | ) | (344,440 | ) | |||||
| Payments for withholding taxes upon delivery of equity-based awards and exercises of stock options | (15,766 | ) | (13,985 | ) | (11,969 | ) | |||||
| Payment of financing costs | (6,716 | ) | (8,059 | ) | (12,675 | ) | |||||
| Other financing activities, net | 5,550 | (1,465 | ) | (1,301 | ) | ||||||
| Distributions paid to noncontrolling interests | (1,683 | ) | (18,216 | ) | (20,643 | ) | |||||
| Contributions from noncontrolling interests | 849 | 71 | 90,550 | ||||||||
| Repurchase of shares in connection with CPA:17 Merger | — | (1,178 | ) | — | |||||||
| Proceeds from mortgage financing | — | 857 | 4,083 | ||||||||
| Net Cash Used in Financing Activities | (457,778 | ) | (24,292 | ) | (745,466 | ) | |||||
| Change in Cash and Cash Equivalents and Restricted Cash During the Year | |||||||||||
| Effect of exchange rate changes on cash and cash equivalents and restricted cash | (4,071 | ) | (4,355 | ) | 9,514 | ||||||
| Net (decrease) increase in cash and cash equivalents and restricted cash | (172,545 | ) | 214,387 | (1,055 | ) | ||||||
| Cash and cash equivalents and restricted cash, beginning of year | 424,063 | 209,676 | 210,731 | ||||||||
| Cash and cash equivalents and restricted cash, end of year | $ | 251,518 | $ | 424,063 | $ | 209,676 | |||||
| Years Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Cash Flows — Operating Activities | |||||||||||||||||
| Net income | $ | 465,955 | $ | 306,544 | $ | 424,341 | |||||||||||
| Adjustments to net income: | |||||||||||||||||
| Depreciation and amortization, including intangible assets and deferred financing costs | 456,210 | 460,030 | 298,166 | ||||||||||||||
| Gain on sale of real estate, net | (109,370) | (18,143) | (118,605) | ||||||||||||||
| Realized and unrealized gains on foreign currency transactions, derivatives, and other | (55,810) | (466) | (17,644) | ||||||||||||||
| Amortization of rent-related intangibles and deferred rental revenue | 52,736 | 84,878 | 51,132 | ||||||||||||||
| Straight-line rent adjustments | (50,299) | (46,260) | (21,994) | ||||||||||||||
| Deferred income tax (benefit) expense | (49,076) | 9,255 | (6,279) | ||||||||||||||
| Impairment charges | 35,830 | 32,539 | 4,790 | ||||||||||||||
| Allowance for credit losses | 22,259 | 0 | 0 | ||||||||||||||
| Equity in losses (earnings) of equity method investments in the Managed Programs and real estate | 18,557 | (23,229) | (61,514) | ||||||||||||||
| Asset management revenue received in shares of Managed REITs | (16,642) | (30,555) | (49,110) | ||||||||||||||
| Stock-based compensation expense | 15,938 | 18,787 | 18,294 | ||||||||||||||
| Distributions of earnings from equity method investments | 9,419 | 26,772 | 62,015 | ||||||||||||||
| Loss (gain) on change in control of interests | 0 | 8,416 | (47,814) | ||||||||||||||
| Changes in assets and liabilities: | |||||||||||||||||
| Net changes in other operating assets and liabilities | 3,239 | (20,783) | (28,054) | ||||||||||||||
| Deferred structuring revenue received | 2,680 | 4,913 | 9,456 | ||||||||||||||
| Increase in deferred structuring revenue receivable | (88) | (621) | (8,014) | ||||||||||||||
| Net Cash Provided by Operating Activities | 801,538 | 812,077 | 509,166 | ||||||||||||||
| Cash Flows — Investing Activities | |||||||||||||||||
| Purchases of real estate | (656,313) | (717,666) | (719,548) | ||||||||||||||
| Proceeds from sales of real estate | 366,532 | 307,959 | 431,626 | ||||||||||||||
| Funding for real estate construction, redevelopments, and other capital expenditures on real estate | (207,256) | (165,490) | (107,684) | ||||||||||||||
| Purchases of securities | (95,511) | 0 | 0 | ||||||||||||||
| Proceeds from repayment of short-term loans to affiliates | 51,702 | 46,637 | 37,000 | ||||||||||||||
| Funding of short-term loans to affiliates | (26,481) | (36,808) | (10,000) | ||||||||||||||
| Return of capital from equity method investments | 19,483 | 34,365 | 16,382 | ||||||||||||||
| Proceeds from repayment of loans receivable | 11,000 | 19,707 | 488 | ||||||||||||||
| Capital contributions to equity method investments | (4,253) | (2,595) | (18,173) | ||||||||||||||
| Other investing activities, net | 1,165 | (8,882) | (8,169) | ||||||||||||||
| Cash and restricted cash acquired in connection with the CPA:17 Merger | 0 | 0 | 113,634 | ||||||||||||||
| Cash paid to stockholders of CPA:17 – Global in the CPA:17 Merger | 0 | 0 | (1,688) | ||||||||||||||
| Net Cash Used in Investing Activities | (539,932) | (522,773) | (266,132) | ||||||||||||||
| Cash Flows — Financing Activities | |||||||||||||||||
| Repayments of Unsecured Revolving Credit Facility | (1,137,026) | (1,227,153) | (1,655,076) | ||||||||||||||
| Proceeds from Unsecured Revolving Credit Facility | 1,019,158 | 1,336,824 | 1,403,254 | ||||||||||||||
| Dividends paid | (726,955) | (704,396) | (440,431) | ||||||||||||||
| Proceeds from issuance of Senior Unsecured Notes | 495,495 | 870,635 | 1,183,828 | ||||||||||||||
| Proceeds from Unsecured Term Loans | 298,974 | 0 | 0 | ||||||||||||||
| Scheduled payments of mortgage principal | (275,746) | (210,414) | (100,433) | ||||||||||||||
| Proceeds from shares issued under forward sale agreements, net of selling costs | 199,716 | 0 | 0 | ||||||||||||||
| Prepayments of mortgage principal | (68,501) | (1,028,795) | (207,450) | ||||||||||||||
| Payment of financing costs | (14,205) | (6,716) | (8,059) | ||||||||||||||
| Other financing activities, net | 8,917 | 5,550 | (608) | ||||||||||||||
| Payments for withholding taxes upon delivery of equity-based awards | (5,372) | (15,766) | (13,985) | ||||||||||||||
| Distributions paid to noncontrolling interests | (5,326) | (1,683) | (18,216) | ||||||||||||||
| Proceeds from shares issued under ATM Program, net of selling costs | 158 | 523,287 | 287,544 | ||||||||||||||
| Contributions from noncontrolling interests | 0 | 849 | 71 | ||||||||||||||
| Repayments of term loans | 0 | 0 | (453,553) | ||||||||||||||
| Repurchase of shares in connection with CPA:17 Merger | 0 | 0 | (1,178) | ||||||||||||||
| Net Cash Used in Financing Activities | (210,713) | (457,778) | (24,292) | ||||||||||||||
| Change in Cash and Cash Equivalents and Restricted Cash During the Year | |||||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents and restricted cash | 9,368 | (4,071) | (4,355) | ||||||||||||||
| Net increase (decrease) in cash and cash equivalents and restricted cash | 60,261 | (172,545) | 214,387 | ||||||||||||||
| Cash and cash equivalents and restricted cash, beginning of year | 251,518 | 424,063 | 209,676 | ||||||||||||||
| Cash and cash equivalents and restricted cash, end of year | $ | 311,779 | $ | 251,518 | $ | 424,063 | |||||||||||
See Notes to Consolidated Financial Statements.
W. P. Carey | |||||
W. P. CAREY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
Supplemental Non-Cash Investing and Financing Activities:
2018 —On October 31, 2018, CPA:17 – Global merged with and into us in the CPA:17 Merger (Note 3). The following table summarizes estimated fair values of the assets acquired and liabilities assumed in the CPA:17 Merger, which reflects measurement period adjustments since the date of acquisition (in thousands):
| Total Consideration | |||||
| Fair value of W. P. Carey shares of common stock issued | $ | 3,554,578 | |||
| Cash paid for fractional shares | 1,688 | ||||
| Fair value of our equity interest in CPA:17 – Global prior to the CPA:17 Merger | 157,594 | ||||
| Fair value of our equity interest in jointly owned investments with CPA:17 – Global prior to the CPA:17 Merger | 132,661 | ||||
| Fair value of noncontrolling interests acquired | (308,891) | ||||
| 3,537,630 | |||||
| Assets Acquired at Fair Value | |||||
| Land, buildings and improvements — operating leases | 2,948,347 | ||||
| Land, buildings and improvements — operating properties | 426,758 | ||||
| Net investments in direct financing leases | 604,998 | ||||
| In-place lease and other intangible assets | 793,463 | ||||
| Above-market rent intangible assets | 298,180 | ||||
| Equity investments in real estate | 192,322 | ||||
| Goodwill | 296,108 | ||||
| Other assets, net (excluding restricted cash) | 228,194 | ||||
| Liabilities Assumed at Fair Value | |||||
| Non-recourse mortgages, net | 1,849,177 | ||||
| Senior Credit Facility, net | 180,331 | ||||
| Accounts payable, accrued expenses and other liabilities | 141,750 | ||||
| Below-market rent and other intangible liabilities | 112,721 | ||||
| Deferred income taxes | 75,356 | ||||
| Amounts attributable to noncontrolling interests | 5,039 | ||||
| Net assets acquired excluding cash and restricted cash | 3,423,996 | ||||
| Cash and restricted cash acquired | $ | 113,634 | |||
| Total Consideration | |||
| Fair value of W. P. Carey shares of common stock issued | $ | 3,554,578 | |
| Cash paid for fractional shares | 1,688 | ||
| Fair value of our equity interest in CPA:17 – Global prior to the CPA:17 Merger | 157,594 | ||
| Fair value of our equity interest in jointly owned investments with CPA:17 – Global prior to the CPA:17 Merger | 132,661 | ||
| Fair value of noncontrolling interests acquired | (308,891 | ) | |
| 3,537,630 | |||
| Assets Acquired at Fair Value | |||
| Land, buildings and improvements — operating leases | 2,948,347 | ||
| Land, buildings and improvements — operating properties | 426,758 | ||
| Net investments in direct financing leases | 604,998 | ||
| In-place lease and other intangible assets | 793,463 | ||
| Above-market rent intangible assets | 298,180 | ||
| Equity investments in real estate | 192,322 | ||
| Goodwill | 296,108 | ||
| Other assets, net (excluding restricted cash) | 228,194 | ||
| Liabilities Assumed at Fair Value | |||
| Non-recourse mortgages, net | 1,849,177 | ||
| Senior Credit Facility, net | 180,331 | ||
| Accounts payable, accrued expenses and other liabilities | 141,750 | ||
| Below-market rent and other intangible liabilities | 112,721 | ||
| Deferred income taxes | 75,356 | ||
| Amounts attributable to noncontrolling interests | 5,039 | ||
| Net assets acquired excluding cash and restricted cash | 3,423,996 | ||
| Cash and restricted cash acquired | $ | 113,634 | |
See Notes to Consolidated Financial Statements.
W. P. Carey | |||||
W. P. CAREY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Business and Organization
W. P. Carey Inc. (“W. P. Carey”) is a real estate investment trust (“REIT”) that, together with our consolidated subsidiaries, invests primarily in operationally-critical, single-tenant commercial real estate properties located in the United States and Northern and Western Europe on a long-term basis. We earn revenue principally by leasing the properties we own to companies on a triple-net lease basis, which generally requires each tenant to pay the costs associated with operating and maintaining the property.
Founded in 1973, our shares of common stock are listed on the New York Stock Exchange under the symbol “WPC.”
We elected to be taxed as a REIT under Section 856 through 860 of the Internal Revenue Code effective as of February 15, 2012. As a REIT, we are not subject to federal income taxes on income and gains that we distribute to our stockholders as long as we satisfy certain requirements, principally relating to the nature of our income and the level of our distributions, as well as other factors. We also own real property in jurisdictions outside the United States through foreign subsidiaries and are subject to income taxes on our pre-tax income earned from properties in such countries. Through our taxable REIT subsidiaries (“TRSs”), we also earn revenue as the advisor to certain publicly owned, non-traded investment programs. We hold all of our real estate assets attributable to our Real Estate segment under the REIT structure, while the activities conducted by our Investment Management segment subsidiaries have been organized under TRSs.
On October 31, 2018, one of the non-traded REITs that we advised, Corporate Property Associates 17 – Global Incorporated (“CPA:17 – Global”), merged with and into one of our wholly owned subsidiaries (the “CPA:17 Merger”) (Note 3). In addition, on April 13, 2020, two of the non-traded REITs that we advised, Carey Watermark Investors Incorporated (“CWI 1”) and Carey Watermark Investors 2 Incorporated (“CWI 2”) (together, the “CWI REITs”), merged in an all-stock transaction, with CWI 2 as the surviving entity (the “CWI 1 and CWI 2 Merger”). Following the close of the CWI 1 and CWI 2 Merger, our advisory agreements with CWI 1 and CWI 2 were terminated, CWI 2 was renamed Watermark Lodging Trust, Inc. (“WLT”), and we began to provide certain services to WLT pursuant to a transition services agreement. As a result, at December 31, 2019,2020, we were the advisor to the following entities:entities (Note 4):
•Corporate Property Associates 18 – Global Incorporated (“CPA:18 – Global”), a publicly owned, non-traded REIT that primarily invests in commercial real estate properties; we refer to CPA:17 – Global, (until the closing of the CPA:17 Merger on October 31, 2018) and CPA:18 – Global, togetherand the CWI REITs as the “CPA REITs;”
We no longer raise capital for new or existing funds, but currently expect to continue managing our existing Managed ProgramsCPA:18 – Global and CESH through the end of their respective life cycles (Note 4). On October 22, 2019, CWI 1 and CWI 2 announced that they had entered into a definitive merger agreement under which the two companies intend to merge in an all-stock transaction (the “CWI 1 and CWI 2 Proposed Merger”). On January 13, 2020, the joint proxy statement/prospectus on Form S-4 previously filed with the Securities and Exchange Commission (“SEC”) by CWI 1 and CWI 2 was declared effective. Each of CWI 1 and CWI 2 has scheduled a special meeting of stockholders for March 26, 2020; if the proposed transaction is approved, the merger is expected to close shortly thereafter. Following the close of the merger, the combined company intends to internalize the management services currently provided by one of our subsidiaries (Note 4).
Reportable Segments
Real Estate — Lease revenues from our real estate investments generate the vast majority of our earnings. We invest primarily in commercial properties located in the United States and Northern and Western Europe, which are leased to companies on a triple-net lease basis. At December 31, 2019,2020, our owned portfolio was comprised of our full or partial ownership interests in 1,2141,243 properties, totaling approximately 140.0144 million square feet (unaudited), substantially all of which were net leased to 345350 tenants, with a weighted-average lease term of 10.710.6 years and an occupancy rate of 98.8%98.5%. In addition, at December 31, 2019,2020, our portfolio was comprised of full or partial ownership interests in 2120 operating properties, including 19 self-storage properties and 2 hotels (one of which was sold in January 2020, see Note 20),1 hotel, totaling approximately 1.61.4 million square feet.feet (unaudited).
W. P. Carey 2020 10-K– 63 | |||||
Notes to Consolidated Financial Statements
Investment Management — Through our TRSs, we structure and negotiate investments and debt placement transactionsmanage the real estate investment portfolios for the Managed Programs, for which we earn structuring revenue, and manage their portfolios of real estate investments, for which we earn asset management revenue. We may earn disposition revenue when we negotiate and structure the sale of properties on behalf of the Managed REITs, and we may also earn incentive revenue and receive other compensation through our advisory agreements with certain of the Managed Programs, including in connection with providing liquidity events for the Managed REITs’CPA:18 – Global’s stockholders. In addition, we include equity income generated through our (i) ownership of shares and limited partnership units of the Managed Programs (Note 8) and (ii) special general partner interestsinterest in the operating partnershipspartnership of the Managed REITs,CPA:18 – Global, through which we participate in theirits cash flows (Note 4), in our Investment Management segment.
At December 31, 2019,2020, the Managed Programs owned all or a portion of 4953 net-leased properties (including certain properties in which we also have an ownership interest), totaling approximately 9.810.7 million square feet (unaudited), substantially all of which were leased to 6265 tenants, with an occupancy rate of approximately 99.4%98.7%. The Managed Programs also had interests in 12269 operating properties (including 16 active build-to-suit projects), totaling(totaling approximately 15.25.6 million square feet (unaudited), in the aggregate.aggregate) and 10 active build-to-suit projects at the same date.
Note 2. Summary of Significant Accounting Policies
Critical Accounting Policies and Estimates
Accounting for Acquisitions
In accordance with the guidance for business combinations, we determine whether a transaction or other event is a business combination, which requires that the assets acquired and liabilities assumed constitute a business. Each business combination is then accounted for by applying the acquisition method. If the assets acquired are not a business, we account for the transaction or other event as an asset acquisition. Under both methods, we recognize the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired entity. In addition, for transactions that are business combinations, we evaluate the existence of goodwill or a gain from a bargain purchase. We capitalize acquisition-related costs and fees associated with asset acquisitions. We immediately expense acquisition-related costs and fees associated with business combinations. All transaction costs incurred during the years ended December 31, 2020, 2019, 2018, and 20172018 were capitalized since our acquisitions during the years were classified as asset acquisitions (excluding the CPA:17 Merger). Most of our future acquisitions are likely to be classified as asset acquisitions.
Purchase Price Allocation of Tangible Assets —When we acquire properties with leases classified as operating leases, we allocate the purchase price to the tangible and intangible assets and liabilities acquired based on their estimated fair values. The tangible assets consist of land, buildings, and site improvements. The intangible assets include the above- and below-market value of leases and the in-place leases, which includes the value of tenant relationships. Land is typically valued utilizing the sales comparison (or market) approach. Buildings are valued, as if vacant, using the cost and/or income approach. The fair value of real estate is determined (i) primarily by reference to portfolio appraisals, which determines their values on a property level, by applying a discounted cash flow analysis to the estimated net operating income for each property in the portfolio during the remaining anticipated lease term, and (ii) by the estimated residual value, which is based on a hypothetical sale of the property upon expiration of a lease factoring in the re-tenanting of such property at estimated current market rental rates, and applying a selected capitalization rate, and deducting estimated costs of sale.rate.
Assumptions used in the model are property-specific where this information is available; however, when certain necessary information is not available, we use available regional and property-type information. Assumptions and estimates include the following:
•a discount rate or internal rate of return;
•market rents, and growth factors of these rents;rents, and
•a capitalization rate to be applied to an estimate of market rent at the end of the market lease term.term;
•the marketing period necessary to put a lease in place;
•carrying costs during the marketing period; and
•leasing commissions and tenant improvement allowances.
The discount rates and residual capitalization rates used to value the properties are selected based on several factors, including:
•the creditworthiness of the lessees;
•industry surveys;
•property type;
•property location and age;
•current lease rates relative to market lease rates; and
W. P. Carey 2020 10-K– 64 | |||||
Notes to Consolidated Financial Statements
•anticipated lease duration.
In the case where a tenant has a purchase option deemed to be favorable to the tenant, or the tenant has long-term renewal options at rental rates below estimated market rental rates, we generally include the value of the exercise of such purchase option or long-term renewal options in the determination of residual value.
The remaining economic life of leased assets is estimated by relying in part upon third-party appraisals of the leased assets and industry standards, and based on our experience.standards. Different estimates of remaining economic life will affect the depreciation expense that is recorded.
Purchase Price Allocation of Intangible Assets and Liabilities —We record above- and below-market lease intangible assets and liabilities for acquired properties based on the present value (using a discount rate reflecting the risks associated with the leases acquired including consideration of the credit of the lessee) of the difference between (i) the contractual rents to be paid pursuant to the leases negotiated or in place at the time of acquisition of the properties and (ii) our estimate of fair market lease rates for the property or equivalent property, both of which are measured over the estimated lease term, which includes renewal options that have rental rates below estimated market rental rates. We discount the difference between the estimated market rent and contractual rent to a present value using an interest rate reflecting our current assessment of the risk associated with the lease acquired, which includes a consideration of the credit of the lessee. Estimates of market rent are generally determined by us relying in part upon a third-party appraisal obtained in connection with the property acquisition and can include estimates of market rent increase factors, which are generally provided in the appraisal or by local real estate brokers. When we enter into sale-leaseback transactions with above- or below-market leases, the intangibles will be accounted for as loan receivables or prepaid rent liabilities, respectively. We measure the fair value of below-market purchase option liabilities we acquire as the excess of the present value of the fair value of the real estate over the present value of the tenant’s exercise price at the option date. We determine these values using our estimates or by relying in part upon third-party appraisalsvaluations conducted by independent appraisal firms.
We amortize the above-market lease intangible as a reduction of lease revenue over the remaining contractual lease term. We amortize the below-market lease intangible as an increase to lease revenue over the initial term and any renewal periods in the respective leases. We include the value of below-market leases in Below-market rent and other intangible liabilities in the consolidated financial statements.
The value of any in-place lease is estimated to be equal to the acquirer’s avoidance of costs as a result of having tenants in place, that would be necessary to lease the property for a lease term equal to the remaining primary in-place lease term and the value of investment grade tenancy. The cost avoidance is derived first by determining the in-place lease term on the subject lease. Then, based on our review of the market, the cost to be borne by a property owner to replicate a market lease to the remaining in-place term is estimated. These costs consist of: (i) rent lost during downtime (i.e., assumed periods of vacancy), (ii) estimated expenses that would be incurred by the property owner during periods of vacancy, (iii) rent concessions (i.e. free rent), (iv) leasing commissions, and (v) tenant improvements allowances given to tenants. We determine these values using our estimates or by relying in part upon third-party appraisals.valuations. We amortize the value of in-place lease intangibles to depreciation
and amortization expense over the remaining initial term of each lease. The amortization period for intangibles does not exceed the remaining depreciable life of the building.
If a lease is terminated, we charge the unamortized portion of above- and below-market lease values to rental income and in-place lease values to amortization expense. If a lease is amended, we will determine whether the economics of the amended lease continue to support the existence of the above- or below-market lease intangibles.
Purchase Price Allocation of Debt —When we acquire leveraged properties, the fair value of the related debt instruments is determined using a discounted cash flow model with rates that take into account the credit of the tenants, where applicable, and interest rate risk. Such resulting premium or discount is amortized over the remaining term of the obligation. We also consider the value of the underlying collateral, taking into account the quality of the collateral, the credit quality of the tenant, the time until maturity and the current interest rate.
Purchase Price Allocation of Goodwill —In the case of a business combination, after identifying all tangible and intangible assets and liabilities, the excess consideration paid over the fair value of the assets and liabilities acquired and assumed, respectively, represents goodwill. We allocate goodwill to the respective reporting units in which such goodwill arises. Goodwill acquired in certain business combinations, including the CPA:17 Merger, was attributed to the Real Estate segment which comprises 1 reporting unit. In the event we dispose of a property or an investment that constitutes a business under U.S. generally accepted accounting principles (“GAAP”) from a reporting unit with goodwill, we allocate a portion of the reporting unit’s goodwill to that business in determining the gain or loss on the disposal of the business. The amount of goodwill allocated to the business is based on the relative fair value of the business to the fair value of the reporting unit. As part of purchase accounting for a business, we record any deferred tax assets and/or liabilities resulting from the difference
W. P. Carey 2020 10-K– 65 | |||||
Notes to Consolidated Financial Statements
between the tax basis and GAAP basis of the investment in the taxing jurisdiction. Such deferred tax amount will be included in purchase accounting and may impact the amount of goodwill recorded depending on the fair value of all of the other assets and liabilities and the amounts paid.
Impairments
Real Estate —We periodically assess whether there are any indicators that the value of our long-lived real estate and related intangible assets may be impaired or that their carrying value may not be recoverable. These impairment indicators include, but are not limited to, vacancies, an upcoming lease expiration, a tenant with credit difficulty, the termination of a lease by a tenant, or a likely disposition of the property.
For real estate assets held for investment and related intangible assets in which an impairment indicator is identified, we follow a two-step process to determine whether an asset is impaired and to determine the amount of the charge. First, we compare the carrying value of the property’s asset group to the estimated future net undiscounted cash flow that we expect the property’s asset group will generate, including any estimated proceeds from the eventual sale of the property’s asset group. The undiscounted cash flow analysis requires us to make our best estimate of market rents, residual values, and holding periods. We estimate market rents and residual values using market information from outside sources such as third-party market research, external appraisals, broker quotes, or recent comparable sales.
As our investment objective is to hold properties on a long-term basis, holding periods used in the undiscounted cash flow analysis are generally ten years, but may be less if our intent is to hold a property for less than ten years. Depending on the assumptions made and estimates used, the future cash flow projected in the evaluation of long-lived assets and associated intangible assets can vary within a range of outcomes. We consider the likelihood of possible outcomes in determining our estimate of future cash flows and, if warranted, we apply a probability-weighted method to the different possible scenarios. If the future net undiscounted cash flow of the property’s asset group is less than the carrying value, the carrying value of the property’s asset group is considered not recoverable. We then measure the impairment loss as the excess of the carrying value of the property’s asset group over its estimated fair value.
Assets Held for Sale —We generally classify real estate assets that are subject to operating leases or direct financing leases as held for sale when we have entered into a contract to sell the property, all material due diligence requirements have been satisfied, we received a non-refundable deposit, and we believe it is probable that the disposition will occur within one year. When we classify an asset as held for sale, we compare the asset’s fair value less estimated cost to sell to its carrying value, and if the fair value less estimated cost to sell is less than the property’s carrying value, we reduce the carrying value to the fair value less estimated cost to sell. We base the fair value on the contract and the estimated cost to sell on information provided by brokers and legal counsel. We then compare the asset’s fair value (less estimated cost to sell) to its carrying value, and if the fair value, less estimated cost to sell, is less than the property’s carrying value, we reduce the carrying value to the fair value, less
estimated cost to sell. We will continue to review the property for subsequent changes in the fair value, and may recognize an additional impairment charge, if warranted.
Direct Financing Leases — WeThis policy was superseded by ASU 2016-13, Financial Instruments — Credit Losses, which we adopted on January 1, 2020 and which is described below under Recently Adopted Accounting Pronouncements. Prior to this adoption, we periodically assessassessed whether there arewere any indicators that the value of our net investments in direct financing leases may behave been impaired. When determining a possible impairment, we take into considerationconsidered the collectabilitycollectibility of direct financing lease receivables for which a reserve would behave been required if any losses arewere both probable and reasonably estimable. In addition, we determinedetermined whether there hashad been a permanent decline in the current estimate of the residual value of the property. If this review indicatesindicated a permanent decline in the fair value of the asset below its carrying value, we recognizerecognized an impairment charge.
Equity Investments in the Managed Programs and Real Estate —We evaluate our equity investments in the Managed Programs and real estate on a periodic basis to determine if there are any indicators that the value of our equity investment may be impaired and whether or not that impairment is other-than-temporary. To the extent an impairment has occurred and is determined to be other-than-temporary, we measure the charge as the excess of the carrying value of our investment over its estimated fair value, which is determined by calculating our share of the estimated fair market value of the underlying net assets based on the terms of the applicable partnership or joint venture agreement. For certain investments in the Managed REITs, we calculate the estimated fair value of our investment using the most recently published net asset value per share (“NAV”) of each Managed REIT multiplied by the number of shares owned. For our equity investments in real estate, we calculate the estimated fair value of the underlying investment’s real estate or net investment in direct financing lease as described in Real Estate and
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Notes to Consolidated Financial Statements
Direct Financing Leases above. The fair value of the underlying investment’s debt, if any, is calculated based on market interest rates and other market information. The fair value of the underlying investment’s other financial assets and liabilities (excluding net investment in direct financing leases) have fair values that generally approximate their carrying values.
Goodwill —We evaluate goodwill for possible impairment at least annually or upon the occurrence of a triggering event. Such a triggering event within our Investment Management segment depends on the timing and form of liquidity events for the Managed Programs (Note 4). To identify any impairment, we first assess qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. This assessment is used as a basis to determine whether it is necessary to calculate reporting unit fair values. If necessary, we calculate the estimated fair value of the Investment Management reporting unit by utilizing a discounted cash flow analysis methodology and available NAVs. We calculate the estimated fair value of the Real Estate reporting unit by utilizing our market capitalization and the aforementioned fair value of the Investment Management segment. Impairments, if any, will be the difference between the reporting unit’s fair value and carrying amount, not to exceed the carrying amount of goodwill.
Other Accounting Policies
Basis of Consolidation —Our consolidated financial statements reflect all of our accounts, including those of our controlled subsidiaries. The portions of equity in consolidated subsidiaries that are not attributable, directly or indirectly, to us are 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 should be deemed a VIE and, if so, whether we are the primary beneficiary and are therefore required to consolidate the entity. 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 or joint-venture agreement, can cause us to consider an entity a VIE. Limited partnerships and other similar entities that operate as a partnership will be considered a VIE unless the limited partners hold substantive kick-out rights or participation rights. 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 the 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. The liabilities of these VIEs are non-recourse to us and can only be satisfied from each VIE’s respective assets.
During the year ended December 31, 2019,2020, we had a net decrease of 136 entities considered to be consolidated VIEs, primarily related to disposition activity and certain lease amendments. In addition, during the year ended December 31, 2019, we received a full repayment of our preferred equity interest in an unconsolidated VIE entity. As a result, this preferred equity interest is now retired and is no longer considered a VIE (Note 8).
At December 31, 20192020 and 2018,2019, we considered 1812 and 3218 entities to be VIEs, respectively, of which we consolidated 115 and 24,11, respectively, as we are considered the primary beneficiary. The following table presents a summary of selected financial data of the consolidated VIEs included in our consolidated balance sheets (in thousands):
| December 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Land, buildings and improvements | $ | 423,333 | $ | 493,714 | |||||||
| Net investments in direct financing leases | 15,242 | 15,584 | |||||||||
| In-place lease intangible assets and other | 41,997 | 56,915 | |||||||||
| Above-market rent intangible assets | 26,720 | 34,576 | |||||||||
| Accumulated depreciation and amortization | (137,827) | (151,017) | |||||||||
| Assets held for sale, net | 0 | 104,010 | |||||||||
| Total assets | 381,953 | 596,168 | |||||||||
| Non-recourse mortgages, net | $ | 3,508 | $ | 32,622 | |||||||
| Total liabilities | 48,971 | 98,671 | |||||||||
| December 31, | |||||||
| 2019 | 2018 | ||||||
| Land, buildings and improvements | $ | 493,714 | $ | 781,347 | |||
| Net investments in direct financing leases | 15,584 | 305,493 | |||||
| In-place lease intangible assets and other | 56,915 | 84,870 | |||||
| Above-market rent intangible assets | 34,576 | 45,754 | |||||
| Accumulated depreciation and amortization | (151,017 | ) | (164,942 | ) | |||
| Assets held for sale, net | 104,010 | — | |||||
| Total assets | 596,168 | 1,112,984 | |||||
| Non-recourse mortgages, net | $ | 32,622 | $ | 157,955 | |||
| Total liabilities | 98,671 | 227,461 | |||||
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Notes to Consolidated Financial Statements
At both December 31, 20192020 and 2018,2019, our 7 and 8 unconsolidated VIEs respectively, included our interests in 5 and 6 unconsolidated real estate investments, respectively, which we account for under the equity method of accounting, and 2 unconsolidated entities, which we account for at fair value. We do not consolidate these entities because we are not the primary beneficiary and the nature of our involvement in the activities of these entities allows us to exercise significant influence on, but does not give us power over, decisions that significantly affect the economic performance of these entities. As of December 31, 20192020 and 2018,2019, the net carrying amount of our investments in these entities was $298.3$425.3 million and $301.6$298.3 million, respectively, and our maximum exposure to loss in these entities was limited to our investments.
Leases
We adopted guidance under Accounting Standards Codification (“ASC”) 842, Leases for our interim and annual periods beginning January 1, 2019.
As a Lessee: Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments under the lease. We determine if an arrangement contains a lease at contract inception and determine the classification of the lease at commencement. Operating lease ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. We do not include renewal options in the lease term when calculating the lease liability unless we are reasonably certain we will exercise the option. Variable lease payments are excluded from the ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. Our variable lease payments consist of increases as a result of the CPI or other comparable indices, taxes, and maintenance costs. Lease expense for lease payments is recognized on a straight-line basis over the term of the lease.
The implicit rate within our operating leases is generally not determinable and, as a result, we use our incremental borrowing rate at the lease commencement date to determine the present value of lease payments. The determination of our incremental borrowing rate requires judgment. We determine our incremental borrowing rate for each lease using estimated baseline mortgage rates. These baseline rates are determined based on a review of current mortgage debt market activity for benchmark securities across domestic and international markets, utilizing a yield curve. The rates are then adjusted for various factors, including level of collateralization and lease term.
As a Lessor: We combine non-lease components (lease arrangements that include common area maintenance services) with related lease components (lease revenues), since both the timing and pattern of transfer are the same for the non-lease component and related lease component, the lease component is the predominant component, and the lease component would otherwise be classified as an operating lease. For (i) operating lease arrangements involving real estate that include common area maintenance services and (ii) all real estate arrangements that include real estate taxes and insurance costs, we present these amounts within lease revenues in our consolidated statements of income. We record amounts reimbursed by the lessee in the period in which the applicable expenses are incurred, if the reimbursements are deemed collectible.
Reclassifications — Certain prior period amounts have been reclassified to conform to the current period presentation. Structuring revenue and other advisory revenue were previously presented separately, but are now included within Structuring and other advisory revenue in the consolidated statements of income.
Restricted Cash — Restricted cash primarily consists of security deposits and amounts required to be reserved pursuant to lender agreements for debt service, capital improvements, and real estate taxes. The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets to the consolidated statements of cash flows (in thousands):
| December 31, | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Cash and cash equivalents | $ | 196,028 | $ | 217,644 | $ | 162,312 | |||||
Restricted cash (a) | 55,490 | 206,419 | 47,364 | ||||||||
| Total cash and cash equivalents and restricted cash | $ | 251,518 | $ | 424,063 | $ | 209,676 | |||||
| December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Cash and cash equivalents | $ | 248,662 | $ | 196,028 | $ | 217,644 | |||||||||||
Restricted cash (a) | 63,117 | 55,490 | 206,419 | ||||||||||||||
| Total cash and cash equivalents and restricted cash | $ | 311,779 | $ | 251,518 | $ | 424,063 | |||||||||||
__________
(a)Restricted cash is included within Other assets, net in our consolidated balance sheets. The amount as of December 31, 2018 includes $145.7 million of proceeds from the sale of a portfolio of Australian properties in December 2018. These funds were transferred from a restricted cash account to us in January 2019.
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Notes to Consolidated Financial Statements
Land, Buildings and Improvements —We carry land, buildings, and personal propertyimprovements at cost less accumulated depreciation. We capitalize improvements and significant renovations that extend the useful life of the properties, while we expense maintenance and repairs that do not improve or extend the lives of the respective assets as incurred.
Gain/Loss on Sale —We recognize gains and losses on the sale of properties when the transaction meets the definition of a contract, criteria are met for the sale of one or more distinct assets, and control of the properties is transferred.
Cash and Cash Equivalents —We consider all short-term, highly liquid investments that are both readily convertible to cash and have a maturity of three months or less at the time of purchase to be cash equivalents. Items classified as cash equivalents include commercial paper and money market funds. Our cash and cash equivalents are held in the custody of several financial institutions, and these balances, at times, exceed federally insurable limits. We seek to mitigate this risk by depositing funds only with major financial institutions.
Internal-Use Software Development Costs —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 personnel-related 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 isthree to seven years. Periodically, we reassess the useful life considering technology, obsolescence, and other factors.
Other Assets and Liabilities —We include prepaid expenses, deferred rental income, tenant receivables, deferred charges, escrow balances held by lenders, restricted cash balances, marketable securities, derivative assets, other intangible assets, corporate fixed assets, our investment in shares of aLineage Logistics (a cold storage operatorREIT) (Note 9), our investment in shares of GCIF (Note 9), office lease ROU assets, and our loans receivable in Other assets, net. We include derivative liabilities, amounts held on behalf of tenants, operating lease liabilities, and deferred revenue in Accounts payable, accrued expenses and other liabilities.
Revenue Recognition, Real Estate Leased to Others —We lease real estate to others primarily on a triple-net leased basis, whereby the tenant is generally responsible for operating expenses relating to the property, including property taxes, insurance, maintenance, repairs, and improvements.
Substantially all of our leases provide for either scheduled rent increases, periodic rent adjustments based on formulas indexed to changes in the Consumer Price Index (“CPI”) or similar indices, or percentage rents. CPI-based adjustments are contingent on future events and are therefore not included as minimum rent in straight-line rent calculations. We recognize rents from percentage rents as reported by the lessees, which is after the level of sales requiring a rental payment to us is reached. Percentage rents were insignificant for the periods presented.
For our operating leases, we recognize future minimum rental revenue on a straight-line basis over the non-cancelable lease term of the related leases and charge expenses to operations as incurred (Note 5). We record leases accounted for under the direct financing method as a net investment in direct financing leases (Note 6). The net investment is equal to the cost of the leased assets. The difference between the cost and the gross investment, which includes the residual value of the leased asset and the future minimum rents, is unearned income. We defer and amortize unearned income to income over the lease term so as to produce a constant periodic rate of return on our net investment in the lease.
Revenue from contracts under Accounting Standards Codification (“ASC”)ASC 606,Revenue from Contracts with Customers is recognized when, or as, control of promised goods or services is transferred to customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. At contract inception, we assess the services promised in our contracts with customers and identify a performance obligation for each promise to transfer to the customer a good or service (or bundle of goods or services) that is distinct. To identify the performance obligations, we consider all of the services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices. ASC 606 does not apply to our lease revenues, which constitute a majority of our revenues, but primarily applies to revenues generated from our hotel operating properties and our Investment Management segment.
Revenue from contracts for our Real Estate segment primarily represented operating property revenues of $5.9 million, $29.4 million, $21.7 million, and $30.6$21.7 million for the years ended December 31, 2020, 2019, 2018, and 2017,2018, respectively. Such operating property
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Notes to Consolidated Financial Statements
revenues are primarily comprised of revenues from room rentals and from food and beverage services at our hotel operating
properties during those years. We identified a single performance obligation for each distinct service. Performance obligations are typically satisfied at a point in time, at the time of sale, or at the rendering of the service. Fees are generally determined to be fixed. Payment is typically due immediately following the delivery of the service. Revenue from contracts under ASC 606 from our Investment Management segment is discussed in Note 4.
Lease revenue (including straight-line lease revenue) is only recognized when deemed probable of collection. Collectibility is assessed for each tenant receivable using various criteria including credit ratings (Note 6), guarantees, past collection issues, and the current economic and business environment affecting the tenant. If collectibility of the contractual rent stream is not deemed probable, revenue will only be recognized upon receipt of cash from the tenant.
For the year ended December 31, 2020, approximately $15.7 million of rent was not collected as a result of the COVID-19 pandemic, which reduced lease revenues in our consolidated statements of income. These amounts include $8.4 million of rent that has been contractually deferred to future periods. In addition, for the year ended December 31, 2020 as compared to 2019, for our remaining hotel operating property, revenues decreased by $11.0 million and expenses decreased by $6.0 million due to the adverse effect of the COVID-19 pandemic on the hotel’s operations.
Revenue Recognition, Investment Management Operations — We earn structuring revenue and asset management revenue in connection with providing services to the Managed Programs. We earn structuring revenue for services we provide in connection with the analysis, negotiation, and structuring of transactions, including acquisitions and dispositions and the placement of mortgage financing obtained by the Managed Programs. We earn asset management revenue from property management, leasing, and advisory services performed. In addition, we earn subordinated incentive and disposition revenue related to the disposition of properties. We may also earn termination revenue in connection with a liquidity event and/or the termination of the advisory agreements for the Managed REITs.
Asset Retirement Obligations — Asset retirement obligations relate to the legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development, and/or normal operation of a long-lived asset. The fair value of a liability for an asset retirement obligation is recorded in the period in which it is incurred or at the point of acquisition of an asset with an assumed asset retirement obligation, and the cost of such liability is recorded as an increase in the carrying amount of the related long-lived asset by the same amount. The liability is accreted each period and the capitalized cost is depreciated over the estimated remaining life of the related long-lived asset. Revisions to estimated retirement obligations result in adjustments to the related capitalized asset and corresponding liability.
In order to determine the fair value of the asset retirement obligations, we make certain estimates and assumptions including, among other things, projected cash flows, the borrowing interest rate, and an assessment of market conditions that could significantly impact the estimated fair value. These estimates and assumptions are subjective.
Depreciation —We compute depreciation of building and related improvements using the straight-line method over the estimated remaining useful lives of the properties (not to exceed 40 years) and furniture, fixtures, and equipment. We compute depreciation of tenant improvements using the straight-line method over the lesser of the remaining term of the lease or the estimated useful life.
Stock-Based Compensation —We have granted stock options, restricted share awards (“RSAs”), restricted share units (“RSUs”), and performance share units (“PSUs”) to certain employees, independent directors, and nonemployees. Grants were awarded in the name of the recipient subject to certain restrictions of transferability and a risk of forfeiture. Stock-based compensation expense for all equity-classified stock-based compensation awards is based on the grant date fair value estimated in accordance with current accounting guidance for share-based payments, which includes awards granted to certain nonemployees, upon our adoption of ASUAccounting Standards Update (“ASU”) 2018-07 on January 1, 2019, as described below.2019. We recognize these compensation costs for only those shares expected to vest on a straight-line basis over the requisite service or performance period of the award. We include stock-based compensation within Additional paid-in capital in the consolidated statements of equity and Stock-based compensation expense in the consolidated statements of income.
W. P. Carey | |||||
Notes to Consolidated Financial Statements
Foreign Currency Translation and Transaction Gains and Losses —We have interests in international real estate investments primarily in Europe, Canada, and Japan, and the primary functional currencies for those investments are the euro, the British pound sterling, the Danish krone, the Canadian dollar, and the Japanese yen. We perform the translation from these currencies to the U.S. dollar for assets and liabilities using current exchange rates in effect at the balance sheet date and for revenue and expense accounts using a weighted-averagethe average exchange rate during the year.month in which the transaction occurs. We report the gains and losses resulting from such translation as a component of other comprehensive income in equity. These translation gains and losses are released to net income (within Gain on sale of real estate, net, in the consolidated statements of income) when we have substantially exited from all investments in the related currency (Note 10, Note 1413, Note 1716).
A transaction gain or loss (measured from the transaction date or the most recent intervening balance sheet date, whichever is later), realized upon settlement of a foreign currency transaction generally will be included in net income for the period in which the transaction is settled. Also, foreign currency intercompany transactions that are scheduled for settlement, consisting primarily of accrued interest and the translation to the reporting currency of short-term subordinated intercompany debt that is short-term or debt withhas scheduled principal payments, are included in the determination of net income (within Other gains and (losses) in the statements of income).
Derivative Instruments —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 derivatives designated and that qualify as cash flow hedges, the change in fair value of the derivative is recognized in Other comprehensive income (loss) income until the hedged transaction affects earnings. Gains and losses on the cash flow hedges representing hedge components excluded from the assessment of effectiveness are recognized in earnings over the life of the hedge on a systematic and rational basis, as documented at hedge inception in accordance with our accounting policy election. Such gains and losses are recorded within Other gains and (losses) or Interest expense in our consolidated statements of income. The earnings recognition of excluded components is presented in the same line item as the hedged transactions. For derivatives designated and that qualify as a net investment hedge, the change in the fair value and/or the net settlement of the derivative is reported in Other comprehensive income (loss) income as part of the cumulative foreign currency translation adjustment. Amounts are reclassified out of Other comprehensive income (loss) income into earnings (within Gain on sale of real estate, net, in our consolidated statements of income) when the hedged investment is either sold or substantially liquidated. In accordance with fair value measurement guidance, counterparty credit risk is measured on a net portfolio position basis.
In addition, our investments in WLT, and income recognized from our investments in WLT, are included within our Real Estate segment, since we are not the advisor to that company. Previously, our investments in CWI 1 and CWI 2, and income recognized from our investments in CWI 1 and CWI 2, were included within our Investment Management segment (Note 4).
Income Taxes —We conduct business in various states and municipalities primarily within North America and Europe, and as a result, we or one or more of our subsidiaries file income tax returns in the United States federal jurisdiction and various state and foreign jurisdictions. We derive most of our REIT income from our real estate operations under our Real Estate segment. Our domestic real estate operations are generally not subject to federal tax, and accordingly, no provision has been made for U.S. federal income taxes in the consolidated financial statements for these operations. These operations may be subject to certain state and local taxes, as applicable. We conduct our Investment Management operations primarily through TRSs. In
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Notes to Consolidated Financial Statements
general, a TRS may perform additional services for our tenants and generally may engage in any real estate or non-real estate-related business. These operations are subject to federal, state, local, and foreign taxes, as applicable. Our financial statements are prepared on a consolidated basis including these TRSs and include a provision for current and deferred taxes on these operations.
Significant judgment is required in determining our tax provision and in evaluating our tax positions. We establish tax reserves based on a benefit recognition model, which could result in a greater amount of benefit (and a lower amount of reserve) being initially recognized in certain circumstances. Provided that the tax position is deemed more likely than not of being sustained, we recognize the largest amount of tax benefit that is greater than 50% likely of being ultimately realized upon settlement. We derecognize the tax position when it is no longer more likely than not of being sustained.
Our earnings and profits, which determine the taxability of distributions to stockholders, differ from net income reported for financial reporting purposes due primarily to differences in depreciation, including hotel properties, and timing differences of rent recognition and certain expense deductions, for federal income tax purposes.
We recognize deferred income taxes in certain of our subsidiaries taxable in the United States or in foreign jurisdictions. Deferred income taxes are generally the result of temporary differences (items that are treated differently for tax purposes than for GAAP purposes as described in Note 1615). In addition, deferred tax assets arise from unutilized tax net operating losses, generated in prior years. Deferred income taxes are computed under the asset and liability method. The asset and liability method requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between tax bases and financial bases of assets and liabilities. We provide a valuation allowance against our deferred income tax assets when we believe that it is more likely than not that all or some portion of the deferred income tax asset may not be realized. Whenever a change in circumstances causes a change in the estimated realizability of the related deferred income tax asset, the resulting increase or decrease in the valuation allowance is included in deferred income tax expense (benefit).
Earnings Per Share —Basic earnings per share is calculated by dividing net income available to common stockholders, as adjusted for unallocated earnings attributable to the nonvested RSUs by the weighted-average number of shares of common stock outstanding during the year. Diluted earnings per share reflects potentially dilutive securities (RSAs, RSUs, PSUs, and options)shares available for issuance under our forward sale agreements) using the treasury stock method, except when the effect would be anti-dilutive.
Use of Estimates —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.
In FebruaryJune 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 modifies the principles for the recognition, measurement, presentation, and disclosure of leases for both parties to a contract: the lessee and the lessor. ASU 2016-02 provides new guidelines that change the accounting for leasing arrangements for lessees, whereby their rights and obligations under substantially all leases, existing and new, are capitalized and recorded on the balance sheet. For lessors, however, the new standard remains generally consistent with existing guidance, but has been updated to align with certain changes to the lessee model and ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”).
We will adoptadopted ASU 2016-13 for our interim and annual periods beginningon January 1, 2020 using the modified retrospective method, under which requires applying changes in reserves throughwe recorded a cumulative-effect adjustment as a charge to retained earnings of $14.8 million, which is reflected within our consolidated statement of equity.
The allowance for credit losses, which is recorded as a reduction to Net investments in direct financing leases on our consolidated balance sheets, was measured on a pool basis by credit ratings (Note 5), using a probability of January 1, 2020.default method based on the lessees’ respective credit ratings, the expected value of the underlying collateral upon its repossession, and our historical loss experience related to other direct financing leases. Included in our model are factors that incorporate forward-looking information. Allowance for credit losses is included in our consolidated statements of income within Other gains and (losses).
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Notes to Consolidated Financial Statements
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 contains practical expedients for reference rate reform-related activities that impact debt, leases, derivatives, and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. During the first quarter of 2020, we elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future London Interbank Offered Rate (“LIBOR”) indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The adoption of this standard isdid not expected to have a material impact on our consolidated financial statements.
Note 3. Merger with CPA:17 – Global
CPA:17 Merger
On June 17, 2018, we and certain of our subsidiaries entered into a merger agreement with CPA:17 – Global, pursuant to which CPA:17 – Global would merge with and into one of our subsidiaries in exchange for shares of our common stock, subject to approvals of our stockholders and the stockholders of CPA:17 – Global. The CPA:17 Merger and related transactions were approved by both sets of stockholders on October 29, 2018 and completed on October 31, 2018.
At the effective time of the CPA:17 Merger, each share of CPA:17 – Global common stock issued and outstanding immediately prior to the effective time of the CPA:17 Merger was canceled and the rights attaching to such share were converted automatically into the right to receive 0.160 shares of our common stock. Each share of CPA:17 – Global common stock owned by us or any of our subsidiaries immediately prior to the effective time of the CPA:17 Merger was automatically canceled and retired, and ceased to exist, for no consideration. In exchange for the 336,715,969 shares of CPA:17 – Global common stock that we and our affiliates did not previously own, we paid total merger consideration of approximately $3.6 billion, consisting of (i) the issuance of 53,849,087 shares of our common stock with a fair value of $3.6 billion, based on the closing price of our common stock on October 31, 2018 of $66.01 per share and (ii) cash of $1.7 million paid in lieu of issuing any fractional shares of our common stock. As a condition of the CPA:17 Merger, we waived certain back-end fees that we would have otherwise been entitled to receive from CPA:17 – Global upon its liquidation pursuant to the terms of our advisory agreement with CPA:17 – Global.
Immediately prior to the closing of the CPA:17 Merger, CPA:17 – Global’s portfolio was comprised of full or partial ownership interests in 410 leased properties (including 137 properties in which we already owned a partial ownership interest), substantially all of which were triple-net leased with a weighted-average lease term of 11.0 years, an occupancy rate of 97.4% (unaudited), and an estimated contractual minimum annualized base rent totaling $364.4 million, as well as 44 self-storage operating properties and 1 hotel operating property totaling 3.1 million square feet.feet (unaudited). The related property-level debt was comprised of non-recourse mortgage loans with an aggregate consolidated fair value of approximately $1.85 billion with a weighted-average annual interest rate of 4.3% as of October 31, 2018. We acquired equity interests in 7 unconsolidated investments in the CPA:17 Merger, 4 of which were consolidated by CPA:18 – Global and 3 of which were jointly owned with a third party. These investments owned a total of 28 net-lease properties (which are included in the 410 leased properties described above) and 7 self-storage properties (which are included in the 44 self-storage operating properties described above). The debt related to these equity investments was comprised of non-recourse mortgage loans with an aggregate fair value of approximately $467.1 million, of which our proportionate share was $208.2 million, with a weighted-average annual interest rate of 3.6% as of October 31, 2018. From the date of the CPA:17 Merger through December 31, 2018, lease revenues, operating property revenues, and net income from properties acquired were $52.8 million, $8.0 million, and $13.7 million, respectively.
CPA:17 – Global had a senior credit facility (comprised of a term loan and unsecured revolving credit facility) with an outstanding balance of approximately $180.3 million on October 31, 2018, the date of the closing of the CPA:17 Merger. On that date, we repaid in full all amounts outstanding under CPA:17 – Global’s senior credit facility, using funds borrowed under our Unsecured Revolving Credit Facility (Note 11).
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Notes to Consolidated Financial Statements
Purchase Price Allocation
We accounted for the CPA:17 Merger as a business combination under the acquisition method of accounting. After consideration of all applicable factors pursuant to the business combination accounting rules, we were considered the “accounting acquirer” due to various factors, including the fact that our stockholders held the largest portion of the voting rights in us upon completion of the CPA:17 Merger. Costs related to the CPA:17 Merger have been expensed as incurred and classified within Merger and other expenses in the consolidated statements of income, totaling $41.8 million and $0.4 million for the yearsyear ended December 31, 2018 and 2017, respectively.2018.
Initially, the purchase price was allocated to the assets acquired and liabilities assumed, based upon their preliminary fair values at October 31, 2018. During 2019, we identified certain measurement period adjustments that impacted the provisional accounting, which decreased the total consideration by $8.4 million and decreased total identifiable net assets by $24.2 million, resulting in a $15.8 million increase in goodwill. The following tables summarizeSee Consolidated Statements of Cash Flows — Supplemental Non-Cash Investing and Financing Activities for a summary of the estimated fair values of the assets acquired and liabilities assumed in the CPA:17 Merger, which reflects measurement period adjustments since the date of acquisition.
| Initially Reported at December 31, 2018 | Measurement Period Adjustments | As Revised at December 31, 2019 | |||||||||
| Total Consideration | |||||||||||
| Fair value of W. P. Carey shares of common stock issued | $ | 3,554,578 | $ | — | $ | 3,554,578 | |||||
| Cash paid for fractional shares | 1,688 | — | 1,688 | ||||||||
| Merger Consideration | 3,556,266 | — | 3,556,266 | ||||||||
| Fair value of our equity interest in CPA:17 – Global prior to the CPA:17 Merger | 157,594 | — | 157,594 | ||||||||
| Fair value of our equity interest in jointly owned investments with CPA:17 – Global prior to the CPA:17 Merger | 141,077 | (8,416 | ) | 132,661 | |||||||
| Fair value of noncontrolling interests acquired | (308,891 | ) | — | (308,891 | ) | ||||||
| $ | 3,546,046 | $ | (8,416 | ) | $ | 3,537,630 | |||||
| Initially Reported at December 31, 2018 | Measurement Period Adjustments | As Revised at December 31, 2019 | |||||||||
| Assets | |||||||||||
| Land, buildings and improvements — operating leases | $ | 2,954,034 | $ | (5,687 | ) | $ | 2,948,347 | ||||
| Land, buildings and improvements — operating properties | 426,758 | — | 426,758 | ||||||||
| Net investments in direct financing leases | 626,038 | (21,040 | ) | 604,998 | |||||||
| In-place lease and other intangible assets | 793,463 | — | 793,463 | ||||||||
| Above-market rent intangible assets | 298,180 | — | 298,180 | ||||||||
| Equity investments in real estate | 189,756 | 2,566 | 192,322 | ||||||||
| Cash and cash equivalents and restricted cash | 113,634 | — | 113,634 | ||||||||
| Other assets, net (excluding restricted cash) | 228,980 | (786 | ) | 228,194 | |||||||
| Total assets | 5,630,843 | (24,947 | ) | 5,605,896 | |||||||
| Liabilities | |||||||||||
| Non-recourse mortgages, net | 1,849,177 | — | 1,849,177 | ||||||||
| Senior Credit Facility, net | 180,331 | — | 180,331 | ||||||||
| Accounts payable, accrued expenses and other liabilities | 141,750 | — | 141,750 | ||||||||
| Below-market rent and other intangible liabilities | 112,721 | — | 112,721 | ||||||||
| Deferred income taxes | 76,085 | (729 | ) | 75,356 | |||||||
| Total liabilities | 2,360,064 | (729 | ) | 2,359,335 | |||||||
| Total identifiable net assets | 3,270,779 | (24,218 | ) | 3,246,561 | |||||||
| Noncontrolling interests | (5,039 | ) | — | (5,039 | ) | ||||||
| Goodwill | 280,306 | 15,802 | 296,108 | ||||||||
| $ | 3,546,046 | $ | (8,416 | ) | $ | 3,537,630 | |||||
Goodwill
The $296.1 million of goodwill recorded in the CPA:17 Merger was primarily due to the premium we paid over CPA:17 – Global’s estimated fair value. Management believes the premium is supported by several factors, including that: the CPA:17 Merger (i) improves our earnings quality, (ii) accelerates our strategy to further simplify our business, (iii) adds a high-quality diversified portfolio of net lease assets that is well-aligned with our existing portfolio, (iv) enhances our overall portfolio metrics, (v) significantly increases our size, scale, and market prominence, and (vi) enhances our overall credit profile.
The fair value of the 53,849,087 shares of our common stock issued in the CPA:17 Merger as part of the consideration paid for CPA:17 – Global of $3.6 billion was derived from the closing market price of our common stock on the acquisition date. As required by GAAP, the fair value related to the assets acquired and liabilities assumed, as well as the shares exchanged, has been computed as of the date we gained control, which was the closing date of the CPA:17 Merger, in a manner consistent with the methodology described above.
Goodwill is not deductible for income tax purposes.
Equity Investments and Noncontrolling Interests
During the fourth quarter of 2018, we recognized a gain on change in control of interests of approximately $29.0 million, which was the difference between the carrying value of approximately $128.7 million and the fair value of approximately $157.6 million of our previously held equity interest in 16,131,967 shares of CPA:17 – Global’s common stock.
The CPA:17 Merger also resulted in our acquisition of the remaining interests in 6 investments in which we already had a joint interest and accounted for under the equity method. Upon acquiring the remaining interests in these investments, we owned 100% of these investments and thus accounted for the acquisitions of these interests utilizing the purchase method of accounting. Due to the change in control of the 6 jointly owned investments that occurred, we recorded a gain on change in control of interests of approximately $18.8 million during the year ended December 31, 2018, which was the difference between our carrying values and the fair values of our previously held equity interests on October 31, 2018 of approximately $122.3 million and approximately $141.1 million, respectively. Subsequent to the CPA:17 Merger, we consolidate these wholly owned investments. We recorded a loss on change in control of interests of $8.4 million during the year ended December 31, 2019, reflecting adjustments to the difference between our carrying value and the preliminary estimated fair value of one of these former equity interests on October 31, 2018 (Note 6), as a result of a decrease in the purchase price allocated to the investment.
In connection with the CPA:17 Merger, we also acquired the remaining interests in 6 less-than-wholly-owned investments that we already consolidated and recorded an adjustment to additional paid-in-capital of approximately $102.7 million related to the difference between our carrying values and the fair values of our previously held noncontrolling interests on October 31, 2018 of approximately $206.2 million and approximately $308.9 million, respectively.
W. P. Carey | |||||
Notes to Consolidated Financial Statements
Pro Forma Financial Information (Unaudited)
The following unaudited consolidated pro forma financial information has been presented as if the CPA:17 Merger had occurred on January 1, 2017 for the yearsyear ended December 31, 2018 and 2017.2018. The pro forma financial information is not necessarily indicative of what the actual results would have been had the CPA:17 Merger on that date, nor does it purport to represent the results of operations for future periods.
(in thousands)
| Years Ended December 31, | |||||||
| 2018 | 2017 | ||||||
| Pro forma total revenues | $ | 1,207,820 | $ | 1,228,909 | |||
| Pro forma net income | $ | 405,659 | $ | 275,634 | |||
| Pro forma net loss (income) attributable to noncontrolling interests | 1,301 | (429 | ) | ||||
Pro forma net income attributable to W. P. Carey (a) | $ | 406,960 | $ | 275,205 | |||
| Year Ended December 31, 2018 | |||||
| Pro forma total revenues | $ | 1,207,820 | |||
| 405,659 | |||||
| Pro forma net loss attributable to noncontrolling interests | 1,301 | ||||
Pro forma net income attributable to W. P. Carey | $ | 406,960 | |||
(a)The pro forma net income attributable to W. P. Carey through the year ended December 31, 2018 reflects the following income and expenses related to the CPA:17 Merger as if the CPA:17 Merger had taken place on January 1, 2017: (i) combined merger expenses of $58.9 million through December 31, 2018 and (ii) an aggregate gain on change in control of interests of $47.8 million.
Note 4. Agreements and Transactions with Related Parties
CWI 1 and CWI 2 Proposed Merger
Background and Closing
On October 22, 2019, CWI 1 and CWI 2 announced that they had entered into a definitive merger agreement under which the two companies intendintended to merge in an all-stock transaction, with CWI 2 as the surviving entity. On January 13, 2020, the joint proxy statement/prospectus on Form S-4 previously filed with the SEC byThe CWI 1 and CWI 2 Merger was declared effective. Eachapproved by the stockholders of CWI 1 and CWI 2 has scheduled a special meeting of stockholders for March 26, 2020; if the proposed transaction is approved, the merger is expected to close shortly thereafter. on April 8, 2020 and closed on April 13, 2020. Subsequently, CWI 2 was renamed WLT, as described in Note 1.
In connection with the CWI 1 and CWI 2 Proposed Merger, we have entered into an internalization agreement and a transition services agreement.agreement, which were filed by us as exhibits to a Form 8-K filed with the SEC on October 22, 2019. Immediately following the closing of the CWI 1 and CWI 2 Proposed Merger:Merger, (i) the advisory agreements with each of CWI 1 and CWI 2 and each of their respective operating partnerships terminated, (ii) the subadvisory agreements with the subadvisors for CWI 1 and CWI 2 were terminated, (iii) pursuant to the internalization agreement, two of our representatives were appointed to the board of directors of WLT (however both representatives resigned from the board of directors of WLT on April 29, 2020), and (iv) we provide certain transition services at cost to WLT for, what is currently expected to be, a period of approximately 12 months from closing, pursuant to a transition services agreement.
Consideration Received
In accordance with the merger agreement, at the effective time of the CWI 1 and CWI 2 Merger, each issued and outstanding share of CWI 1’s common stock (or fraction thereof), was converted into the right to receive 0.9106 shares (the “exchange ratio”) of CWI 2 Class A common stock. As a result, we exchanged 6,074,046 shares of CWI 1 common stock for 5,531,025 shares of CWI 2 Class A common stock.
W. P. Carey 2020 10-K– 75 | |||||
Notes to Consolidated Financial Statements
Pursuant to the internalization agreement, the operating partnerships of each of CWI 1 and CWI 2 redeemed the special general partner interests that we previously held, for which we received 1,300,000 shares of CWI 2 preferred stock with a liquidation preference of $50.00 per share and 2,840,549 shares in CWI 2 Class A common stock (which was a non-cash investing activity). In connection with this redemption, we recognized a non-cash net gain on sale of $33.0 million, which was included within Equity in (losses) earnings of equity method investments in the Managed Programs and real estate in the consolidated statements of income for the year ended December 31, 2020. This net gain on sale was recorded based on:
•a fair value of $46.3 million for the 1,300,000 shares of CWI 2 preferred stock that we received (Note 9);
•a fair value of $11.6 million for the 2,840,549 shares in CWI 2 common stock that we received (Note 8);
•a gain recognized on the redemption of the noncontrolling interest in the special general partner interests previously held by the respective subadvisors for CWI 1 and CWI 2 of $9.9 million (which is included within Net income attributable to noncontrolling interests in our consolidated statements of income and Redemption of noncontrolling interest in our consolidated statements of equity);
•an allocation of $34.3 million of goodwill within our Investment Management segment in accordance with ASC 350, Intangibles—goodwill and other, since the WLT management internalization resulted in a sale of a portion of our Investment Management business (the allocation of goodwill was based on the relative fair value of the portion of the Investment Management business sold) (Note 7); and
•the carrying value of our previously held equity investments in the operating partnerships of CWI 1 and CWI 2 (Note 8), which totaled $0.5 million on the date of the merger.
We account for our investment in shares of WLT (formerly CWI 2) preferred stock as available-for-sale debt securities, which is included in Other assets, net in the consolidated financial statements, at fair value. We classified this investment as Level 3 because we primarily used a discounted cash flow valuation model that incorporates unobservable inputs to determine its fair value. The fair value of our investment in preferred shares of WLT approximated its carrying value, which was $46.3 million as of December 31, 2020 (Note 9). We will accrue and record dividend income on these preferred shares of 5% per annum, pursuant to the internalization agreement, only recognizing such income when deemed collectible. We did not record dividend income on our investment in preferred shares of WLT during the year ended December 31, 2020.
Prior to the closing of the CWI 1 and CWI 2 Merger, we owned 3,836,669 shares of CWI 2 Class A common stock. Following the closing of the CWI 1 and CWI 2 Merger, execution of the internalization agreement, and CWI 2 being renamed WLT, we own 12,208,243 shares of WLT common stock, which we account for as an equity method investment. We follow the hypothetical liquidation at book value (“HLBV”) model and recognize within equity income our proportionate share of WLT’s earnings based on our ownership of common stock of WLT, after giving effect to preferred dividends owed by WLT. We record our investment in shares of common stock of WLT on a one quarter lag. Our investment in shares of common stock of WLT, which is included in Equity investments in the Managed Programs and real estate in the consolidated financial statements (as an equity method investment in real estate), had a carrying value of $44.2 million as of December 31, 2020 (Note 8).
Advisory Agreements and Partnership Agreements with the Managed Programs
We currently have advisory agreements with each of the existing Managed Programs,CPA:18 – Global and CESH, pursuant to which we earn fees and are entitled to receive reimbursement for certain fund management expenses. Upon completion of the CPA:17 Merger on October 31, 2018 (Note 3), our advisory agreements with CPA:17 – Global were terminated, and we no longer receive fees or reimbursements from CPA:17 – Global. TheUpon completion of the CWI 1 and CWI 2 Merger on April 13, 2020, as described above, our advisory agreements also entitle us to fees for serving as the dealer manager for the offerings of the Managed Programs. However, as previously noted, we ceased all active non-traded retail fundraising activities as of June 30, 2017with CWI 1 and facilitated the orderly processing of sales for CWI 2 were terminated, and CESH until their offerings closed on July 31, 2017, at which point we no longer received dealer manager fees. In addition, we resigned as CCIF’s advisor in August 2017receive fees, reimbursements, or distributions of Available Cash from CWI 1 and our advisory agreement with CCIF was terminated effective as of September 11, 2017, at which point we no longer earned any fees from CCIF.CWI 2. We no longer raise capital for new or existing funds, but we currently expect to continue to manage all existing Managed ProgramsCPA:18 – Global and CESH and earn various fees (as described below) through the end of their respective life cycles (Note 1).
cycles. We have partnership agreements with each of the Managed Programs,CPA:18 – Global and CESH, and under the partnership agreementsagreement with the Managed REITs,CPA:18 – Global, we are entitled to receive certain cash distributions from their respectiveits operating partnerships. Pursuantpartnership.
W. P. Carey 2020 10-K– 76 | |||||
Notes to the partnership agreement with CESH, we received limited partnership units of CESH equal to 2.5% of its gross offering proceeds in lieu of reimbursement of certain organizational expenses prior to the closing of CESH’s offering on July 31, 2017.Consolidated Financial Statements
The following tables present a summary of revenue earned, reimbursable costs, and Distributionsdistributions of Available Cash receivedreceived/accrued from the Managed Programs and WLT for the periods indicated, included in the consolidated financial statements (in thousands):
| Years Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
Asset management revenue (a) | $ | 21,973 | $ | 39,132 | $ | 63,556 | |||||||||||
Reimbursable costs from affiliates (a) | 8,855 | 16,547 | 21,925 | ||||||||||||||
Distributions of Available Cash (b) | 7,225 | 21,489 | 46,609 | ||||||||||||||
Structuring and other advisory revenue (a) | 494 | 4,224 | 21,126 | ||||||||||||||
Interest income on deferred acquisition fees and loans to affiliates (c) | 369 | 2,237 | 2,055 | ||||||||||||||
| $ | 38,916 | $ | 83,629 | $ | 155,271 | ||||||||||||
| Years Ended December 31, | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
Asset management revenue (a) | $ | 39,132 | $ | 63,556 | $ | 70,125 | |||||
Distributions of Available Cash (b) | 21,489 | 46,609 | 47,862 | ||||||||
Reimbursable costs from affiliates (a) | 16,547 | 21,925 | 51,445 | ||||||||
Structuring and other advisory revenue (a) | 4,224 | 21,126 | 35,094 | ||||||||
Interest income on deferred acquisition fees and loans to affiliates (c) | 2,237 | 2,055 | 2,103 | ||||||||
Dealer manager fees (a) | — | — | 4,430 | ||||||||
| $ | 83,629 | $ | 155,271 | $ | 211,059 | ||||||
| Years Ended December 31, | ||||||||||||||||||||||||||||
| Years Ended December 31, | 2020 | 2019 | 2018 | |||||||||||||||||||||||||
| 2019 | 2018 | 2017 | ||||||||||||||||||||||||||
CPA:17 – Global (d) | $ | — | $ | 58,788 | $ | 75,188 | ||||||||||||||||||||||
| CPA:17 – Global | CPA:17 – Global | $ | 0 | $ | 0 | $ | 58,788 | |||||||||||||||||||||
| CPA:18 – Global | 26,039 | 44,969 | 28,683 | CPA:18 – Global | 22,200 | 26,039 | 44,969 | |||||||||||||||||||||
| CWI 1 | 30,770 | 28,243 | 33,691 | CWI 1 | 5,662 | 30,770 | 28,243 | |||||||||||||||||||||
| CWI 2 | 21,584 | 20,283 | 50,189 | CWI 2 | 4,668 | 21,584 | 20,283 | |||||||||||||||||||||
| CCIF | — | — | 12,787 | |||||||||||||||||||||||||
| CESH | 5,236 | 2,988 | 10,521 | CESH | 4,723 | 5,236 | 2,988 | |||||||||||||||||||||
| WLT (reimbursed transition services) | WLT (reimbursed transition services) | 1,663 | 0 | 0 | ||||||||||||||||||||||||
| $ | 83,629 | $ | 155,271 | $ | 211,059 | $ | 38,916 | $ | 83,629 | $ | 155,271 | |||||||||||||||||
__________
(a)Amounts represent revenues from contracts under ASC 606. (b)Included within Equity in (losses) earnings of equity method investments in the Managed Programs and real estate in the consolidated statements of income. (c)Included within Other gains and (losses) in the consolidated statements of income. |
The following table presents a summary of amounts included in Due from affiliates in the consolidated financial statements (in thousands):
| December 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Short-term loans to affiliates, including accrued interest | $ | 21,144 | $ | 47,721 | |||||||
| Deferred acquisition fees receivable, including accrued interest | 1,858 | 4,450 | |||||||||
| Reimbursable costs | 1,760 | 3,129 | |||||||||
| Asset management fees receivable | 1,054 | 1,267 | |||||||||
| Accounts receivable | 305 | 1,118 | |||||||||
| Current acquisition fees receivable | 136 | 131 | |||||||||
| $ | 26,257 | $ | 57,816 | ||||||||
| December 31, | |||||||
| 2019 | 2018 | ||||||
| Short-term loans to affiliates, including accrued interest | $ | 47,721 | $ | 58,824 | |||
| Deferred acquisition fees receivable, including accrued interest | 4,450 | 8,697 | |||||
| Reimbursable costs | 3,129 | 3,227 | |||||
| Asset management fees receivable | 1,267 | 563 | |||||
| Accounts receivable | 1,118 | 1,425 | |||||
| Current acquisition fees receivable | 131 | 2,106 | |||||
| $ | 57,816 | $ | 74,842 | ||||
Performance Obligations and Significant Judgments
The fees earned pursuant to our advisory agreements are considered variable consideration. For the agreements that include multiple performance obligations, including asset management and investment structuring services, revenue is allocated to each performance obligation based on estimates of the price that we would charge for each promised service if it were sold on a standalone basis.
Judgment is applied in assessing whether there should be a constraint on the amount of fees recognized, such as amounts in excess of certain threshold limits with respect to the contract price or any potential clawback provisions included in certain of our arrangements. We exclude fees subject to such constraints to the extent it is probable that a significant reversal of those amounts will occur.
W. P. Carey 2020 10-K– 77 | |||||
Notes to Consolidated Financial Statements
Asset Management Revenue
Under the advisory agreements with the Managed Programs, we earn asset management revenue for managing their investment portfolios. The following table presents a summary of our asset management fee arrangements with the existingremaining Managed Programs:
| Managed Program | Rate | Payable | Description | |||||||||||||||||
| CPA:18 – Global | 0.5% – 1.5% | In shares of its Class A common stock and/or cash, at the option of CPA:18 – Global; payable in shares of its Class A common stock for 2018; payable 50% in cash and 50% in shares of its Class A common stock for | Rate depends on the type of investment and is based on the average market or average equity value, as applicable | |||||||||||||||||
| In cash | Based on gross assets at fair value | |||||||||||||||||||
The performance obligation for asset management services is satisfied over time as services are rendered. The time-based output method is used to measure progress over time, as this is representative of the transfer of the services. We are compensated for our services on a monthly or quarterly basis. However, these services represent a series of distinct daily services under ASU 2014-09.ASC 606, Revenue from Contracts with Customers. Accordingly, we satisfy the performance obligation and resolve the variability associated with our fees on a daily basis. We apply the practical expedient and, as a result, do not disclose variable consideration attributable to wholly or partially unsatisfied performance obligations as of the end of the reporting period.
In providing asset management services, we are reimbursed for certain costs. Direct reimbursement of these costs does not represent a separate performance obligation. Payment for asset management services is typically due on the first business day following the month of the delivery of the service.
Structuring and Other Advisory Revenue
Under the terms of the advisory agreements with the Managed Programs, we earn revenue for structuring and negotiating investments. For CPA:18 – Global and CESH, we may earn fees of 4.5% and 2.0%, respectively, of the total aggregate cost of the investments or commitments made. For CWI 1 and CWI 2 (prior to the closing of the CWI 1 and CWI 2 Merger on April 13, 2020), we were entitled to fees for structuring investments and related financing. Forloan refinancings. We were required to pay 20% and 25% of such fees to the Managed REITs, the combined totalsubadvisors of acquisition feesCWI 1 and other acquisition expenses are limited to 6% of the contract prices in aggregate. The following table presents a summary of our structuring fee arrangements with the existing Managed Programs:CWI 2, respectively.
The performance obligation for investment structuring services is satisfied at a point in time upon the closing of an investment acquisition, when there is an enforceable right to payment, and control (as well as the risks and rewards) has been transferred. Determining when control transfers requires management to make judgments that affect the timing of revenue recognized. Payment is due either on the day of acquisition (current portion) or deferred, as described above (Note 6). We do not believe the deferral of the fees represents a significant financing component.
W. P. Carey 2020 10-K– 78 | |||||
Notes to Consolidated Financial Statements
Reimbursable Costs from Affiliates
The existing Managed Programs reimburse us in cash for certain personnel and overhead costs that we incur on their behalf,behalf. For CPA:18 – Global, such costs, excluding those related to our legal transactions group, our senior management, and our investments team, are charged to CPA:18 – Global based on the average of the trailing 12-month aggregate reported revenues of the Managed Programs and us, and personnel costs are capped at 1.0% of CPA:18 – Global’s pro rata lease revenues for 2020, 2019, and 2018; for the legal transactions group, costs are charged according to a summaryfee schedule. For the CWI REITs, the reimbursements were based on actual expenses incurred, excluding those related to our senior management, and allocated between the CWI REITs based on the percentage of which is presented intheir total pro rata hotel revenues for the table below:
Distributions of Available Cash
We are entitled to receive distributions of up to 10% of the Available Cash (as defined in the respectiveCPA:18 – Global’s partnership agreements)agreement) from the operating partnerships of each of the existing Managed REITs,CPA:18 – Global, payable quarterly in arrears. We areAfter completion of the CWI 1 and CWI 2 Merger on April 13, 2020, we no longer receive distributions of Available Cash from CWI 1 and CWI 2. Prior to the closing of the CWI 1 and CWI 2 Merger, we were required to pay 20% and 25% of such distributions to the subadvisors of CWI 1 and CWI 2, respectively.
Back-End Fees and Interests in the Managed Programs
Under our advisory agreements with certain of the Managed Programs, we may also receive compensation in connection with providing liquidity events for their stockholders. For the Managed REITs,CPA:18 – Global, the timing and form of such a liquidity events areevent is at the discretion of each REIT’sits board of directors. Therefore, there can be no assurance as to whether or when any of these back-end fees or interests will be realized. Such back-end fees or interests include or may include disposition fees, interests in disposition proceeds, and distributions related to ownership of shares or limited partnership units in the Managed Programs. As a condition of the CPA:17 Merger, we waived certain back-end fees that we would have been entitled to receive from CPA:17 – Global upon its liquidation pursuant to the terms of our advisory agreement and partnership agreement with CPA:17 – Global (Note 3). Back-end fees and interests related to the CWI 1 and CWI 2 Merger are described above.
Other Transactions with Affiliates
Loans to Affiliates
From time to time, our Board has approved the making of secured and unsecured loans or lines of credit from us to certain of the Managed Programs, at our sole discretion, with each loan at a rate equal to the rate at which we are able to borrow funds under our Senior Unsecured Credit Facility (Note 11), generally for the purpose of facilitating acquisitions construction funding, or for working capital purposes.
The following table sets forth certain information regardingprincipal outstanding balance on our loans or linesto CESH was $46.3 million as of December 31, 2019, excluding accrued interest of $1.5 million. CESH repaid the principal outstanding balance in full during the year ended December 31, 2020 and the loan matured on October 1, 2020. In addition, the loan agreements with CWI 1 and CWI 2 were terminated upon completion of the CWI 1 and CWI 2 Merger on April 13, 2020. In July 2020, we provided CPA:18 – Global with a short-term unsecured revolving line of credit, to affiliates (dollars in thousands):which had a maximum authorized loan amount of $50.0 million and a maturity date of March 31, 2022 as of December 31, 2020. The principal outstanding on this line of credit was $21.1 million as of December 31, 2020.
| Interest Rate at December 31, 2019 | Maturity Date at December 31, 2019 | Maximum Loan Amount Authorized at December 31, 2019 | Principal Outstanding Balance at December 31, (a) | |||||||||||||
| Managed Program | 2019 | 2018 | ||||||||||||||
CESH (b) (c) | LIBOR + 1.00% | 10/1/2020 | $ | 65,000 | $ | 46,269 | $ | 14,461 | ||||||||
CWI 1 (d) | N/A | N/A | 25,000 | — | 41,637 | |||||||||||
| CPA:18 – Global | N/A | N/A | 50,000 | — | — | |||||||||||
CWI 2 (d) | N/A | N/A | 25,000 | — | — | |||||||||||
| $ | 46,269 | $ | 56,098 | |||||||||||||
Other
At December 31, 2019,2020, we owned interests in 9 jointly owned investments in real estate (including our investment in shares of common stock of WLT, as described above), with the remaining interests held by affiliates or third parties. We consolidate 2 such investments and account for the remaining 78 such investments under the equity method of accounting (Note 8). and consolidate the remaining investment. In addition, we owned stock of each of the existing Managed REITsCPA:18 – Global and limited partnership units of CESH at that date. We accountaccounted for these investments under the equity method of accounting or at fair value (Note 8).
W. P. Carey | |||||
Notes to Consolidated Financial Statements
Note 5. Land, Buildings and Improvements and Assets Held for Sale
Land, Buildings and Improvements — Operating Leases
Land and buildings leased to others, which are subject to operating leases, and real estate under construction, are summarized as follows (in thousands):
| December 31, | |||||||
| 2019 | 2018 | ||||||
| Land | $ | 1,875,065 | $ | 1,772,099 | |||
| Buildings and improvements | 7,828,439 | 6,945,513 | |||||
| Real estate under construction | 69,604 | 63,114 | |||||
| Less: Accumulated depreciation | (950,452 | ) | (724,550 | ) | |||
| $ | 8,822,656 | $ | 8,056,176 | ||||
| December 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Land | $ | 2,012,688 | $ | 1,875,065 | |||||||
| Buildings and improvements | 8,724,064 | 7,828,439 | |||||||||
| Real estate under construction | 119,391 | 69,604 | |||||||||
| Less: Accumulated depreciation | (1,206,912) | (950,452) | |||||||||
| $ | 9,649,231 | $ | 8,822,656 | ||||||||
During 2019,2020, the U.S. dollar strengthenedweakened against the euro, as the end-of-period rate for the U.S. dollar in relation to the euro decreasedincreased by 1.9%9.2% to $1.1234$1.2271 from $1.1450.$1.1234. As a result of this fluctuation in foreign currency exchange rates, the carrying value of our Land, buildings and improvements subject to operating leases decreasedincreased by $36.7$269.6 million from December 31, 20182019 to December 31, 2019.2020.
In connection with changes in lease classifications due to extensions of the underlying leases, we reclassified 56 properties with an aggregate carrying value of $183.8 million from Net investments in direct financing leases to Land, buildings and improvements subject to operating leases during 2020 (Note 6).
During the second quarter of 2019, we entered into net lease agreements for certain self-storage properties previously classified as operating properties. As a result, in June 2019 and August 2019, we reclassified 22 and 5 consolidated self-storage properties, respectively, with an aggregate carrying value of $287.7 million from Land, buildings and improvements attributable to operating properties to Land, buildings and improvements subject to operating leases. Effective as of those times, we began recognizing lease revenues from these properties, whereas previously we recognized operating property revenues and expenses from these properties.
Depreciation expense, including the effect of foreign currency translation, on our buildings and improvements subject to operating leases was $258.9 million, $229.0 million, $162.6 million, and $143.9$162.6 million for the years ended December 31, 2020, 2019, 2018, and 2017,2018, respectively.
W. P. Carey 2020 10-K– 80 | |||||
Notes to Consolidated Financial Statements
Acquisitions of Real Estate During 2020 — We entered into the following investments, which were deemed to be real estate asset acquisitions, at a total cost of $661.4 million, including land of $105.4 million, buildings of $449.4 million (including capitalized acquisition-related costs of $11.9 million), and net lease intangibles of $106.6 million (dollars in thousands):
| Property Location(s) | Number of Properties | Date of Acquisition | Property Type | Total Capitalized Costs | ||||||||||||||||||||||
Newark, United Kingdom (a) | 1 | 1/6/2020 | Warehouse | $ | 111,546 | |||||||||||||||||||||
Aurora, Oregon (b) | 1 | 1/24/2020 | Industrial | 28,755 | ||||||||||||||||||||||
Vojens, Denmark (a) (c) | 1 | 1/31/2020 | Warehouse | 10,611 | ||||||||||||||||||||||
Kitzingen, Germany (a) | 1 | 3/9/2020 | Office | 53,666 | ||||||||||||||||||||||
| Knoxville, Tennessee | 1 | 6/25/2020 | Warehouse | 66,045 | ||||||||||||||||||||||
| Bluffton and Plymouth, Indiana | 2 | 9/23/2020 | Industrial | 44,466 | ||||||||||||||||||||||
| Huntley, Illinois | 1 | 9/30/2020 | Industrial | 39,523 | ||||||||||||||||||||||
| Various, United States | 3 | 10/12/2020 | Industrial | 50,958 | ||||||||||||||||||||||
Various, Spain (a) | 27 | 10/30/2020 | Retail | 101,153 | ||||||||||||||||||||||
| Little Canada, Minnesota | 1 | 10/30/2020 | Warehouse | 34,019 | ||||||||||||||||||||||
Hurricane, Utah (d) | 1 | 12/8/2020 | Warehouse | 23,324 | ||||||||||||||||||||||
| Bethlehem, Pennsylvania and Waco, Texas | 4 | 12/10/2020 | Industrial | 29,031 | ||||||||||||||||||||||
| St. Charles, Missouri and Green Bay, Wisconsin | 2 | 12/18/2020 | Industrial | 29,726 | ||||||||||||||||||||||
| Various, United States | 4 | 12/31/2020 | Industrial | 38,615 | ||||||||||||||||||||||
| $ | 661,438 | |||||||||||||||||||||||||
__________
(a)Amount reflects the applicable exchange rate on the date of acquisition.
(b)Amount includes approximately $5.0 million in contingent consideration that will be released to the tenant/seller upon the tenant securing an easement on the property.
(c)We also recorded an estimated deferred tax liability of $0.5 million, with a corresponding increase to the asset value, since we assumed the tax basis of the acquired property.
(d)We also committed to fund an additional $20.0 million for an expansion at the facility, which is expected to be completed in the fourth quarter of 2022.
The acquired net lease intangibles are comprised of (i) in-place lease intangible assets totaling $109.4 million, which have a weighted-average expected life of 20.6 years, (ii) a below-market rent intangible liability of $10.9 million, which has an expected life of 22.1 years, and (iii) above-market rent intangible assets totaling $8.2 million, which have a weighted-average expected life of 18.7 years.
Acquisitions of Real Estate During 2019 —We entered into the following23 investments, which were deemed to be real estate asset acquisitions, at a total cost of $737.5 million, including land of $86.3 million, buildings of $523.3 million (including capitalized acquisition-related costs of $9.6 million), net lease intangibles of $134.9 million, a prepaid rent liability of $6.1 million, a debt premium of $0.8 million (related to the non-recourse mortgage loan assumed in connection with an acquisition, as described below)acquisition), and net other liabilities assumed of $0.1 million:million.
Acquisitions of Real Estate During 2018 — We entered into 15 investments, which were deemed to be real estate asset acquisitions, at a total cost of $806.9 million, including land of $126.4 million, buildings of $571.6 million (including capitalized acquisition-related costs of $17.3 million), net lease intangibles of $113.7 million, and net other liabilities assumed of $4.8 million.
In addition, as discussed in Note 3, we acquired 232 consolidated properties subject to existing operating leases in the CPA:17 Merger, which increased the carrying value of our Land, buildings and improvements subject to operating leases by $3.0 billion during the year ended December 31, 2018.
Dollar amounts are based on the exchange rates of the foreign currencies on the dates of activity, as applicable.
W. P. Carey 2020 10-K– 81 | |||||
Notes to Consolidated Financial Statements
Real Estate Under Construction
During 2019,2020, we capitalized real estate under construction totaling $129.0$225.8 million. The number of construction projects in progress with balances included in real estate under construction was 35 and 43 as of December 31, 20192020 and 2018,2019, respectively. Aggregate unfunded commitments totaled approximately $227.8$81.8 million and $204.5$227.8 million as of December 31, 20192020 and 2018,2019, respectively.
During 2019,2020, we completed the following construction projects, at a total cost of $122.5 million:$171.2 million (dollars in thousands):
| Property Location(s) | Primary Transaction Type | Number of Properties | Date of Completion | Property Type | Total Capitalized Costs (a) | |||||||||||||||||||||||||||
| Westborough, Massachusetts | Redevelopment | 1 | 1/15/2020 | Laboratory | $ | 53,060 | ||||||||||||||||||||||||||
San Antonio, Texas (b) | Build-to-Suit | 1 | 6/25/2020 | Industrial | 78,726 | |||||||||||||||||||||||||||
Marktheidenfeld, Germany (c) | Expansion | 1 | 6/30/2020 | Warehouse | 8,254 | |||||||||||||||||||||||||||
Azambuja, Portugal (c) | Expansion | 1 | 9/21/2020 | Warehouse | 28,067 | |||||||||||||||||||||||||||
| Wichita, Kansas | Expansion | 1 | 10/15/2020 | Warehouse | 3,129 | |||||||||||||||||||||||||||
| $ | 171,236 | |||||||||||||||||||||||||||||||
(a)Amount includes capitalized interest.
(b)Amount includes land of $4.0 million related to a purchase option that we expect to exercise.
(c)Amount reflects the applicable exchange rate on the date of transaction.
During 2020, we commenced a redevelopment project at a warehouse facility in Zabia Wola, Poland, in March 2019 at a cost totaling $5.6$24.7 million including capitalized interest;
During 2020, we committed $7.4 million (based on the exchange rate of the euro at December 31, 2020) to fund a renovation project for an existing tenant at a warehouseretail facility in Wichita, Kansas, for an aggregate of $3.0 million, which weSan Donato Milanese, Italy, to convert the facility into office space. We currently expect to complete the project in the third quarter of 2020;2021.
During 2019, we currently expect to be completed in the first quarter of 2021; and
During 2018, we completed 9 construction projects, at a total cost of $102.5 million, of which $39.8 million was capitalized during 2017.million.
Dollar amounts are based on the exchange rates of the foreign currencies on the dates of activity, as applicable.
Dispositions of Real Estate
During 2019,2020, we sold 1621 properties, which were classified as Land, buildings and improvements subject to operating leases. As a result, the carrying value of our Land, buildings and improvements subject to operating leases decreased by $84.3$142.9 million from December 31, 20182019 to December 31, 2019.2020.
Lease Termination Income and Other
Lease termination income and other also includes interest income from our loans receivable (Note 6).
2020 — For the year ended December 31, 2020, lease termination income and other on our consolidated statements of income included: (i) income of $4.2 million related to a lease restructuring in May 2019 that led to the recognition of rent receipts during the first and second quarters of 2020 on claims that were previously deemed uncollectible; (ii) income from a parking garage attached to one of our net-leased properties totaling $2.3 million; (iii) deferred maintenance income totaling $1.6 million from former tenants; (iv) lease termination income of $0.6 million; and (v) income of $0.6 million from receipt of proceeds from a bankruptcy claim on a prior tenant.
W. P. Carey | |||||
Notes to Consolidated Financial Statements
For the year ended December 31, 2019, lease termination income and other on our consolidated statements of income included: (i) income of $9.1 million from receipt of proceeds from a bankruptcy claim on a prior tenant; (ii) income of $8.8 million related to a lease restructuring in May 2019 that led to the recognition of $6.6 million in rent receipts during the third and fourth quarters of 2019 on claims that were previously deemed uncollectible, and a related value-added tax refund of $2.2 million that was recognized in May 2019; and (iii) income of $6.2 million related to a lease termination and related master lease restructuring that occurred during the fourth quarter of 2019, for which payment will be received over the remaining lease term of properties held under that master lease.lease; and (iv) income from a parking garage attached to one of our net-leased properties totaling $3.5 million.
Leases
Operating Lease Income
Lease income related to operating leases recognized and included in the consolidated statements of income is as follows (in thousands):
| Years Ended December 31, | ||||||||||||||
| Year Ended December 31, 2019 | 2020 | 2019 | ||||||||||||
| Lease income — fixed | $ | 898,111 | Lease income — fixed | $ | 981,430 | $ | 898,111 | |||||||
Lease income — variable (a) | 89,873 | Lease income — variable (a) | 99,193 | 89,873 | ||||||||||
Total operating lease income (b) | $ | 987,984 | Total operating lease income (b) | $ | 1,080,623 | $ | 987,984 | |||||||
__________
(a)Includes (i) rent increases based on changes in the CPI and other comparable indices and (ii) reimbursements for property taxes, insurance, and common area maintenance services.
(b)Excludes $73.9 million and $98.4 million of interest income from direct financing leases that are included in Lease revenues in the consolidated statement of income for the years ended December 31, 2020 and 2019, respectively.
Scheduled Future Lease Payments to be Received
Scheduled future lease payments to be received (exclusive of expenses paid by tenants, percentage of sales rents, and future CPI-based adjustments) under non-cancelable operating leases at December 31, 20192020 are as follows (in thousands):
| Years Ending December 31, | Total | |||||||
| 2021 | $ | 1,087,184 | ||||||
| 2022 | 1,069,466 | |||||||
| 2023 | 1,036,884 | |||||||
| 2024 | 965,645 | |||||||
| 2025 | 899,414 | |||||||
| Thereafter | 7,465,238 | |||||||
| Total | $ | 12,523,831 | ||||||
| Years Ending December 31, | Total | |||
| 2020 | $ | 1,007,041 | ||
| 2021 | 992,378 | |||
| 2022 | 962,801 | |||
| 2023 | 924,275 | |||
| 2024 | 854,652 | |||
| Thereafter | 7,071,917 | |||
| Total | $ | 11,813,064 | ||
| Years Ending December 31, | Total | |||
| 2019 | $ | 920,044 | ||
| 2020 | 915,411 | |||
| 2021 | 896,083 | |||
| 2022 | 861,688 | |||
| 2023 | 802,509 | |||
| Thereafter | 6,151,480 | |||
| Total | $ | 10,547,215 | ||
See Note 6 for scheduled future lease payments to be received under non-cancelable direct financing leases.
Lease Cost
Certain information related to the total lease cost for operating leases is as follows (in thousands):
| Years Ended December 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Fixed lease cost | $ | 17,616 | $ | 14,503 | |||||||
| Variable lease cost | 1,089 | 1,186 | |||||||||
| Total lease cost | $ | 18,705 | $ | 15,689 | |||||||
| Year Ended December 31, 2019 | |||
| Fixed lease cost | $ | 14,503 | |
| Variable lease cost | 1,186 | ||
| Total lease cost | $ | 15,689 | |
W. P. Carey 2020 10-K– 83 | |||||
Notes to Consolidated Financial Statements
During the yearyears ended December 31, 2020 and 2019, we received sublease income totaling approximately $5.5 million and $5.4 million, respectively, which is included in Lease revenues in the consolidated statementstatements of income.
Other Information
Supplemental balance sheet information related to ROU assets and lease liabilities is as follows (dollars in thousands):
| December 31, | |||||||||||||||||
| Location on Consolidated Balance Sheets | 2020 | 2019 | |||||||||||||||
| Operating ROU assets — land leases | In-place lease intangible assets and other | $ | 119,590 | $ | 114,209 | ||||||||||||
| Operating ROU assets — office leases | Other assets, net | 61,137 | 7,519 | ||||||||||||||
| Total operating ROU assets | $ | 180,727 | $ | 121,728 | |||||||||||||
| Operating lease liabilities | Accounts payable, accrued expenses and other liabilities | $ | 151,466 | $ | 87,658 | ||||||||||||
| Weighted-average remaining lease term — operating leases | 29.2 years | 38.2 years | |||||||||||||||
| Weighted-average discount rate — operating leases | 7.1 | % | 7.8 | % | |||||||||||||
| Number of land lease arrangements | 68 | 64 | |||||||||||||||
Number of office space arrangements (a) | 7 | 6 | |||||||||||||||
| Lease term range (excluding extension options not reasonably certain of being exercised) | <1 – 100 years | 1 – 100 years | |||||||||||||||
| Location on Consolidated Balance Sheets | December 31, 2019 | ||||
| Operating ROU assets — land leases | In-place lease intangible assets and other | $ | 114,209 | ||
| Operating ROU assets — office leases | Other assets, net | 7,519 | |||
| Total operating ROU assets | $ | 121,728 | |||
| Operating lease liabilities | Accounts payable, accrued expenses and other liabilities | $ | 87,658 | ||
| Weighted-average remaining lease term — operating leases | 38.2 years | ||||
| Weighted-average discount rate — operating leases | 7.8 | % | |||
| Number of land lease arrangements | 64 | ||||
| Number of office space arrangements | 6 | ||||
| Lease term range (excluding extension options not reasonably certain of being exercised) | 1 – 100 years | ||||
(a)The lease for our former office space in New York matured on January 31, 2021.
In the second quarter of 2020, our lease of new office space in New York commenced, with a lease maturity date of May 2036. As a result, we capitalized an office lease right-of-use asset and corresponding operating lease liability, which had carrying values of $59.2 million and $66.5 million, respectively, as of December 31, 2020, and are included within Other assets, net and Accounts payable, accrued expenses and other liabilities, respectively, on our consolidated balance sheets. This is a non-cash transaction.
Cash paid for operating lease liabilities included in Net cash provided by operating activities totaled $15.5 million and $14.6 million for the yearyears ended December 31, 2019.2020 and 2019, respectively. There are no land or office direct financing leases for which we are the lessee, therefore there are no related ROU assets or lease liabilities.
Undiscounted Cash Flows
A reconciliation of the undiscounted cash flows for operating leases recorded on the consolidated balance sheet within Accounts payable, accrued expenses and other liabilities as of December 31, 20192020 is as follows (in thousands):
| Years Ending December 31, | Total | |||||||
| 2021 | $ | 12,550 | ||||||
| 2022 | 14,556 | |||||||
| 2023 | 14,375 | |||||||
| 2024 | 13,206 | |||||||
| 2025 | 13,152 | |||||||
| Thereafter | 323,537 | |||||||
| Total lease payments | 391,376 | |||||||
| Less: amount of lease payments representing interest | (239,910) | |||||||
| Present value of future lease payments/lease obligations | $ | 151,466 | ||||||
| Years Ending December 31, | Total | |||
| 2020 | $ | 14,197 | ||
| 2021 | 8,769 | |||
| 2022 | 8,006 | |||
| 2023 | 7,866 | |||
| 2024 | 6,728 | |||
| Thereafter | 251,844 | |||
| Total lease payments | 297,410 | |||
| Less: amount of lease payments representing interest | (209,752 | ) | ||
| Present value of future lease payments/lease obligations | $ | 87,658 | ||
W. P. Carey 2020 10-K– 84 | |||||
Notes to the year ended December 31, 2018 are: $14.5 million for 2019, $13.5 million for 2020, $7.9 million for 2021, $7.1 million for 2022, $7.0 million for 2023, and $246.7 million for the years thereafter.Consolidated Financial Statements
Land, Buildings and Improvements — Operating Properties
At both December 31, 2020 and 2019, Land, buildings and improvements attributable to operating properties consisted of our investments in 10 consolidated self-storage properties and 1 consolidated hotel. As of December 31, 2019, we reclassified another consolidated hotel to Assets held for sale, net and sold it in January 2020, as described below. At December 31, 2018, Land, buildings and improvements attributable to operating properties consisted of our investments in 37 consolidated self-storage properties and 2 consolidated hotels. Below is a summary of our Land, buildings and improvements attributable to operating properties (in thousands):
| December 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Land | $ | 10,452 | $ | 10,452 | |||||||
| Buildings and improvements | 73,024 | 72,631 | |||||||||
| Less: Accumulated depreciation | (14,004) | (11,241) | |||||||||
| $ | 69,472 | $ | 71,842 | ||||||||
| December 31, | |||||||
| 2019 | 2018 | ||||||
| Land | $ | 10,452 | $ | 102,478 | |||
| Buildings and improvements | 72,631 | 363,572 | |||||
| Real estate under construction | — | 4,620 | |||||
| Less: Accumulated depreciation | (11,241 | ) | (10,234 | ) | |||
| $ | 71,842 | $ | 460,436 | ||||
As described above under Land, Buildings and Improvements — Operating Leases, during the second quarter of 2019, we entered into net lease agreements for certain self-storage properties previously classified as operating properties. As a result, in June 2019 and August 2019, we reclassified 22 and 5 consolidated self-storage properties, respectively, with an aggregate carrying value of $287.7 million from Land, buildings and improvements attributable to operating properties to Land, buildings and improvements subject to operating leases.
Depreciation expense on our buildings and improvements attributable to operating properties was $2.8 million, $6.9 million, $4.2 million, and $4.3$4.2 million for the years ended December 31, 2020, 2019, 2018, and 2017,2018, respectively.
For the year ended December 31, 2020, Operating property revenues totaling $11.4 million were comprised of $9.5 million in lease revenues and $1.9 million in other income (such as food and beverage revenue) from 10 consolidated self-storage properties and 2 consolidated hotels. For the year ended December 31, 2019, Operating property revenues totaling $50.2 million were comprised of $39.5 million in lease revenues and $10.7 million in other income (such as food and beverage revenue) from 37 consolidated self-storage properties and 2 consolidated hotels. For the year ended December 31, 2018, Operating property revenues totaling $28.1 million were comprised of $20.9 million in lease revenues and $7.2 million in other income from 37 consolidated self-storage properties and 3 consolidated hotels. For the year ended December 31, 2017, Operating property revenues totaling $30.6 million were comprised of $22.3 million in lease revenues and $8.3 million in other income from 2 consolidated hotels. We derive self-storage revenue primarily from rents received from customers who rent storage space under month-to-month leases for personal or business use. We derive hotel revenue primarily from room rentals, as well as food, beverage, and other services.
Assets Held for Sale, Net
Below is a summary of our properties held for sale (in thousands):
| December 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Land, buildings and improvements | $ | 14,051 | $ | 105,573 | |||||||
| In-place lease intangible assets and other | 12,754 | 0 | |||||||||
| Above-market rent intangible assets | 518 | 0 | |||||||||
| Accumulated depreciation and amortization | (8,733) | (1,563) | |||||||||
| Assets held for sale, net | $ | 18,590 | $ | 104,010 | |||||||
| December 31, | |||||||
| 2019 | 2018 | ||||||
| Land, buildings and improvements | $ | 105,573 | $ | — | |||
| Accumulated depreciation and amortization | (1,563 | ) | — | ||||
| Assets held for sale, net | $ | 104,010 | $ | — | |||