UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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| þ | | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | | For the fiscal year ended December 31, 20182019 |
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| o | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | | For the transition period from to |
Commission File Number: 000-54970
CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
(Exact name of registrant as specified in its charter) |
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| Maryland | | 90-0885534 |
| (State of incorporation) | | (I.R.S. Employer Identification No.) |
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| 50 Rockefeller Plaza | | |
| New York, New York | | 10020 |
| (Address of principal executive offices) | | (Zip Code) |
Investor Relations (212) 492-8920
(212) 492-1100
(Registrant’s telephone numbers, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, Par Value $0.001 Per Share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.
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Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ |
| | | (Do not check if a smaller reporting company) |
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Smaller reporting company o | Emerging growth company o | |
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
Registrant has no active market for its common stock. Non-affiliates held 108,472,291110,567,519 and 31,410,98432,002,614 of Class A and Class C shares, respectively, of outstanding common stock at June 30, 2018.2019.
As of March 8, 2019February 21, 2020 there were 115,721,680118,196,797 shares of Class A common stock and 31,938,32832,527,727 shares of Class C common stock of registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant incorporates by reference its definitive Proxy Statement with respect to its 20192020 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.
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| | INDEX | |
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| 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. | | |
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CPA:18 – Global 20182019 10-K – 1
Forward-Looking Statements
This Annual Report on Form 10-K (this “Report”), including Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of Part II of this Report, contains forward-looking statements within the meaning of the federal securities laws.
These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. These forward-looking statements include, but are not limited to, statements regarding: our corporate strategy, the amount and timing of any future dividends; statements regarding our corporate strategy andliquidity event, underlying assumptions about our portfolio (e.g. occupancy rate, lease terms, and tenant credit quality, including our expectations about tenant bankruptcies and interest coverage), potential holding periods for our investments (including possible new acquisitions and dispositions,dispositions), and our international exposure; our future capital expenditure levels, including any plans to fund our future liquidity needs, and future leverage and debt service obligations; our capital structure; statements that we make regarding our ability to remain qualified for taxation as a real estate investment trust (“REIT”); and the Tax Cuts and Jobs Act; the impact of recently issued accounting pronouncements;pronouncements and other regulatory activity, such as the General Data Protection Regulation in the European Union or other data privacy initiatives; and the general economic outlook.activity. It is important to note that our actual results could be materially different from those projected in such forward-looking statements. Other unknown or unpredictable factors could also have material adverse effects on our business, financial condition, liquidity, results of operations, Modified funds from operations (“MFFO”), 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 of 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, shareholders 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 Report, 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.
CPA:18 – Global 20182019 10-K – 2
PART I
Item 1. Business.
General Development of Business
Overview
Corporate Property Associates 18 – Global Incorporated (“CPA:18 – Global”) and, together with its consolidated subsidiaries, we, us, or our, is a publicly owned, non-traded REIT that primarily invests in a diversified portfolio of income-producing commercial properties and other real estate-related assets,leased to companies, both domestically and outside the United States. In addition, our portfolio includes self-storage and student housing investments. As a REIT, we are not subject to U.S. federal income taxation as long as we satisfy certain requirements, principally relating to the nature of our income and the level of our distributions, among other factors. We conduct substantially all of our investment activities and own all of our assets through CPA:18 Limited Partnership, a Delaware limited partnership, which is our Operating Partnership. In addition to being a general partner and a limited partner of the Operating Partnership, we also own a 99.97% capital interest in the Operating Partnership. WPC–CPA:18 Holdings, LLC (“CPA:18 Holdings” or the “Special General Partner”), also known as the Special General Partner, a subsidiary of our sponsor, W. P. Carey Inc. (“WPC”), holds the remaining 0.03% special general partner interest in the Operating Partnership.
Our primary investment strategy is to acquire, own, and manage a portfolio of commercial real estate properties. Our single-tenant, net-leased properties are leased to a diversified group of companies on a single-tenant, net-leased basis and generally require the tenant to pay substantially all of the costs associated with operating and maintaining the property, such as maintenance, insurance, taxes, structural repairs, and other operating expenses.
In addition, our portfolio atas of December 31, 20182019 included self-storage and multi-family investments (comprised of multi-family residential properties, student housing development projects, and student housing operating properties),properties, which we refer to as our Operating Properties. During the year ended December 31, 2019, our portfolio also included our last multi-family residential property, which was sold on January 29, 2019. After that date, we no longer earned any revenue from multi-family residential properties (which were primarily from leases of one year or less with individual tenants).
We are managed by WPC through certain of its subsidiaries (collectively, our “Advisor”). WPC is a diversified REIT and leading owner of commercial real estate listed on the New York Stock Exchange under the symbol “WPC.” In addition, WPC also manages the portfolios of certain non-traded investment programs. Pursuant to an advisory agreement, our Advisor provides both strategic and day-to-day management services for us, including asset management, dispositions of assets, investor relations, investment research and analysis, investment financing and other investment-related services, and administrative services. Our Advisor also provides office space and other facilities for us. We pay asset management fees and certain transactional fees to our Advisor and also reimburse our Advisor for certain expenses incurred in providing services to us, including expenses associated with personnel provided for administration of our operations. The current advisory agreement has a term of one year and may be renewed for successive one-year periods. As of December 31, 2018,2019, our Advisor also servesserved in this capacity for Carey Watermark Investors Incorporated and Carey Watermark Investors 2 Incorporated, which are publicly owned, non-traded REITs that invest in hotel and lodging-related properties (together with us, the “Managed REITs”). WPC also advises Carey European Student Housing Fund I, L.P. (“CESH” and, together(together with the Managed REITs, the “Managed Programs”), a limited partnership formed for the purpose of developing, owning, and operating student housing properties in Europe.
We were formed as a Maryland corporation on September 7, 2012. We commenced our initial public offering in May 2013 and raised aggregate gross proceeds of $1.2 billion through the closing of the offering in April 2015. In addition, from inception through December 31, 2018, $150.42019, $183.9 million and $42.2$52.5 million of distributions to our shareholders were reinvested in our Class A and Class C common stock, respectively, through our Distribution Reinvestment Plan (“DRIP”). Although we have substantially invested all of the proceeds from our offering, we intend to continue to use our cash reserves and cash generated from operations to acquire, own, and manage a portfolio of commercial properties leased to a diversified group of companies, as well as self-storage and multi-familystudent housing operating properties and development projects.
We have no employees. AtAs of December 31, 2018,2019, our Advisor had 206204 employees who are available to perform services for us under our advisory agreement (Note 3).
CPA:18 – Global 20182019 10-K – 3
Business Objectives and Strategy
Our objectives are to:
provide attractive risk-adjusted returns for our stockholders;
generate sufficient cash flow over time to provide investors with increasing distributions;
seek investments with potential for capital appreciation; and
use leverage to enhance returns on our investments.
We seek to achieve these objectives by investing in a diversified portfolio of income-producing commercial properties.
We intend our portfolio to be diversified by property type, geography, tenant,properties as well as self-storage and industry. We are not required to meet any diversification standards and have no specific policies or restrictions regarding the geographic areas where we make investments, the industries in which our tenants or borrowers may conduct business, or the percentage of our capital that we may invest in a particular asset type.student housing properties.
Our Portfolio
AtAs of December 31, 2018,2019, our net lease portfolio was comprised of full or partial ownership interests in 5747 properties, substantially all of which were fully occupied and triple-net leased to 9361 tenants, and totaled approximately 10.09.6 million square feet on a pro rata basis.feet. The remainder of our portfolio at that date was comprised of full or partial ownership interests in 6968 self-storage properties, and 15 multi-family properties (which included twelve12 student housing development projects and two student housing operating properties, as well as one multi-family residential property that was sold in January 2019 (Note 16)) totaling 5.65.5 million square feet. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Portfolio Overview for more information about our portfolio.
Asset Management
Our Advisor is generally responsible for all aspects of our operations, including selecting our investments, formulating and evaluating the terms of each proposed acquisition, arranging for the acquisition of the investment, negotiating the terms of borrowings, managing our day-to-day operations, and arranging for and negotiating sales of assets. With respect to our net-leased investments, asset management functions 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, refinancing debt, and selling assets. With respect to our self-storage and multi-familystudent housing investments, asset management functions include engaging unaffiliated third parties for management and operation of our investments, active oversight of property developers and managers, credit and real estate risk analysis, building expansions and redevelopments, refinancing debt, and selling assets. Working with the third-party managers it engages, our Advisor reviews and approves operating and capital budgets, inspects properties, and provides input on business strategy at the property.
Our Advisor monitors, on an ongoing basis, compliance by tenants with their lease obligations and other factors that could affect the financial performance of any of our properties. Monitoring involves verifying that each tenant has paid real estate taxes, assessments, and other expenses relating to the properties it occupies and confirming that appropriate insurance coverage is being maintained by the tenant. Our Advisor also utilizes third-party asset managers for certain domestic and international investments. Our Advisor reviews financial statements of our tenants and undertakes physical inspections of the condition and maintenance of our properties. Additionally, our Advisor periodically analyzes each tenant’s financial condition, the industry in which each tenant operates, and each tenant’s relative strength in its industry.
With respect to other real estate-related assets such as mortgage and mezzanine loans, asset management operations include evaluating potential borrowers’ creditworthiness, operating history, and capital structure. With respect to any investments in other mortgage-related instruments that we may make, our Advisor is responsible for selecting, acquiring, and facilitating the acquisition or disposition of such investments, including monitoring the portfolio on an ongoing basis. Our Advisor also monitors our portfolio to ensure that we do not engage in activities that may lead us to be deemed an “investment company” under the Investment Company Act of 1940.
CPA:18 – Global 20182019 10-K – 4
Holding Period
We generally intend to hold our investments in real property for an extended period depending on the type of investment. The determination of whether a particular property should be sold or otherwise disposed of will be made after consideration of relevant factors, including prevailing economic conditions, with a view to achieving maximum capital appreciation for our stockholders or avoiding increases in risk. No assurance can be given that these objectives will be realized.
One of our objectives is ultimately to provide our stockholders with the opportunity to obtain liquidity for their investments in us. We may provide liquidity for our stockholders through sales of assets (either on a portfolio basis or individually), a listing of our shares on a stock exchange, a merger (which may include a merger with one or more of the Managed Programs or WPC or its affiliates), an enhanced redemption program or another transaction approved by our board of directors. We are under no obligation to liquidate our portfolio within any particular period since the precise timing will depend on real estate and financial markets, economic conditions of the areas in which the properties are located, and tax effects on stockholders that may prevail in the future. Furthermore, there can be no assurance that we will be able to consummate a liquidity event. In the three most recent instances in which stockholders of non-traded REITs managed by our Advisor were provided with liquidity, Corporate Property Associates 15 Incorporated, (“CPA:15”), Corporate Property Associates 16 – Global Incorporated, (“CPA:16 – Global”), and Corporate Property Associates 17 – Global Incorporated (“CPA:17 – Global”) merged with and into subsidiaries of WPC on September 28, 2012, January 31, 2014, and October 31, 2018, respectively.
Financing Strategies
Consistent with our investment policies, we use leverage when available on terms we believe are favorable. We will generally borrow in the same currency that is used to pay rent on the property. This enables us to hedge a significant portion of our currency risk on international investments. We, through the subsidiaries we form to make investments, will generally seek to borrow on a non-recourse basis and in amounts that we believe will maximize the return to our stockholders, although we may also borrow at the corporate level. The use of non-recourse financing may allow us to improve returns to our stockholders and to limit our exposure on any investment to the amount invested. Non-recourse indebtedness means the indebtedness of the borrower or its subsidiaries that is secured only by the assets to which such indebtedness relates without recourse to the borrower or any of its subsidiaries, other than in case of customary carve-outs for which the borrower or its subsidiaries act as guarantor in connection with such indebtedness, such as fraud, misappropriation, misapplication of funds, environmental conditions, and material misrepresentation. Since non-recourse financing generally restricts the lender’s claim on the assets of the borrower, the lender generally may only take back the asset securing the debt, which protects our other assets. In some cases, particularly with respect to non-U.S. investments, the lenders may require that they have recourse to other assets owned by a subsidiary borrower, in addition to the asset securing the debt. Such recourse generally would not extend to the assets of our other subsidiaries. Lenders typically seek to include change of control provisions in the terms of a loan, making the termination or replacement of our Advisor, or the dissolution of our Advisor, events of default or events requiring the immediate repayment of the full outstanding balance of the loan. While we attempt to negotiate to not include such provisions, lenders may require them.
Aggregate borrowings on our portfolio as a whole may not exceed, on average, the lesser of 75% of the total costs of all investments or 300% of our net assets, unless the excess is approved by a majority of our independent directors and disclosed to stockholders in our next quarterly report, along with justification for the excess. Net assets are our total assets (other than intangibles), valued at cost before deducting depreciation, reserves for bad debts, and other non-cash reserves, less total liabilities.
Our charter currently provides that we will not borrow funds from our directors, WPC, our Advisor or any of their respective affiliates unless the transaction is approved by a majority of our directors (including a majority of the independent directors) who do not have an interest in the transaction, as being fair, competitive, and commercially reasonable and not less favorable than those prevailing for loans between unaffiliated third parties under the same circumstances. In July 2016, it was approved by our and WPC’s board of directors to allow for unsecured loans from WPC to us, of up to $50.0 million in the aggregate (at the sole discretion of WPC’s management), at a rate equal to which WPC can borrow funds under its senior credit facility.
CPA:18 – Global 2018 10-K– 5
Investment Strategies
Long-Term, Net-Leased Assets
We invest primarily in income-producing commercial real estate properties that are, upon acquisition, improved or being developed or that are to be developed within a reasonable period after acquisition. A significant portion of our acquisitions are subject to long-term triple-net leases, which require the tenant to pay substantially all of the costs associated with operating and maintaining the property. In analyzing potential net-lease investments for our real estate portfolio, our Advisor reviews various aspects of a transaction, including the tenant and the underlying real estate fundamentals, to determine whether a potential investment and lease can be structured to satisfy our investment criteria. In evaluating net-leased transactions, our Advisor generally considers, among other things, the following aspects of each transaction:
CPA:18 – Global 2019 10-K– 5
Tenant/Borrower Evaluation — Our Advisor evaluates each potential tenant or borrower for its creditworthiness, typically considering factors such as management experience, industry position and fundamentals, operating history, and capital structure. Our Advisor also rates 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. Our Advisor seeks opportunities in which it believes the tenant may have a stable or improving credit profile or credit potential that has not been fully recognized by the market. Our Advisor defines creditworthiness as a risk-reward relationship appropriate to its investment strategies, which may or may not coincide with ratings issued by the credit rating agencies. Our Advisor has a robust internal credit rating system and may designate a tenant as “implied investment grade” even if the credit rating agencies have not made a rating determination. As of December 31, 2018,2019, we had nine tenants that were rated investment grade, as well as 3547 below-investment grade tenants (with a weighted-average internal credit rating of 3.3). The aforementioned credit rating data does not include our multi-tenant net-leased properties or our multi-family residential properties, student housing development projects, or student housing operating properties.
Properties Critical to Tenant/Borrower Operations — Our Advisor generally focuses on properties that it believes are critical to the ongoing operations of the tenant. Our Advisor believes 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.and development projects.
Lease Terms — Generally, the net-leased properties in which we invest will be leased on a full-recourse basis to the tenants or their affiliates. In addition, our Advisor seeks to include a clause in each lease that provides for increases in rent over the term of the lease. These increases are either fixed (i.e., mandated on specific dates) or tied to increases in inflation indices (e.g., 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 gross revenues of the tenant above a stated level (“percentage rent”).
Transaction Provisions to Enhance and Protect Value — Our Advisor attempts to include provisions in our leases it believes may help to protect our investment from 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 our 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. Our Advisor 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-leased 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.
Operating Properties and Other
Self-Storage Investments — Our Advisor combines a rigorous underwriting process and active oversight of property managers with a goal to generate attractive risk-adjusted returns. We had full or partial ownership interests in 6968 self-storage properties as of December 31, 2018.2019. Our self-storage investments are managed by unaffiliated third parties who have been engaged by our Advisor. Our Advisor’s internal asset management personnel oversee the third-party managers with detailed performance reviews, budget review and approval, and business strategy review.
CPA:18 – Global 2018 10-K– 6
Multi-FamilyStudent Housing Investments — We have strategic relationships with third parties for the purpose of sourcing and managing investment opportunities in this sector, both domestically and internationally. We combine a rigorous underwriting process and active oversight of property developers and managers with a goal to generate attractive risk-adjusted returns. As of December 31, 2018,2019, we had full or partial ownership interests in 15 multi-family properties (including twelve12 student housing development projects and two student housing operating properties, as well as one multi-family residential property that was sold in January 2019 (Note 16)).properties.
Diversification
Our Advisor attempts to diversify our portfolio to avoid undue dependence on any one particular tenant, borrower, collateral type, geographic location, or industry. By diversifying the portfolio, our Advisor seeks to reduce the adverse effect of a single under-performing investment or a downturn in any particular industry or geographic region. While our Advisor has not endeavored to maintain any particular standard of diversity in our owned portfolio, we believe that it is reasonably well-diversified. Our Advisor also assesses the relative risk of our portfolio on a quarterly basis.
Real Estate Evaluation
Our Advisor reviews and evaluates the physical condition of the property and the market in which it is located. Our Advisor considers 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. Our Advisor obtains third-party environmental and engineering reports and market studies when required. When considering an investment outside the United States, our Advisor will also consider factors particular to a country or region, including geopolitical risk, in addition to the risks normally associated with real property investments.
Other Real Estate-Related Assets
We have acquired or may in the future acquire other real estate assets, including, but not limited to, the following:
Opportunistic Investments — These may include short-term net leases, vacant property, land, multi-tenanted property, non-commercial property, and property leased to non-related tenants.
Mortgage Loans Collateralized by Commercial Real Properties — We may invest in commercial mortgages and other commercial real estate interests consistent with the requirements for qualification as a REIT.
B Notes — We may purchase from third parties, and may retain from mortgage loans we originate and securitize or sell, subordinated interests referred to as B Notes.
Mezzanine Loans — We have invested in and may continue to invest in mezzanine loans that take the form of subordinated loans secured by second mortgages on the underlying property or loans secured by a pledge of the ownership interests in the entity that directly or indirectly owns the property.
Equity and Debt Securities of Companies Engaged in Real Estate Activities,including other REITs — We may invest in equity and debt securities (including common and preferred stock, as well as limited partnership or other interests) of companies engaged in real estate activities.
Transactions with Affiliates
We have entered, and expect in the future to enter, into transactions with our affiliates, including our Advisor, if we believe that doing so is consistent with our investment objectives and we comply with our investment policies and procedures. These transactions typically take the form of equity investments in jointly owned entities, direct purchases of assets, mergers, or other types of transactions. Joint ventures with affiliates of WPC are permitted only if:
a majority of our directors (including a majority of our independent directors) not otherwise interested in the transaction approve the allocation of the transaction among the affiliates as being fair and reasonable to us; and
the affiliate makes its investment on substantially the same terms and conditions as us.
CPA:18 – Global 20182019 10-K – 76
Investment Decisions
Our Advisor’s investment department, under the oversight of its chief investment officer, is primarily responsible for evaluating, negotiating, and structuring potential investment opportunities for us and WPC. Our Advisor also has an independent investment committee that provides services to CESH, WPC, and us. Before an investment is made for us, the transaction is reviewed by the investment committee. The independent investment committee is not directly involved in originating or negotiating potential investments, but instead functions as a separate and final step in the acquisition process. Our Advisor places special emphasis on having experienced individuals serve on its investment committee. Subject to limited exceptions, our Advisor generally will not invest in a transaction on our behalf unless it is approved by the investment committee.
The investment committee has developed policies that permit some investments to be made without committee approval. Under current policy, certain investments may be approved by either the chairman of the investment committee or the Advisor’s chief investment officer. Additional such delegations may be made in the future at the discretion of the investment committee.
Environmental Matters
We have invested, and expect to continue to invest, in properties currently or historically used as industrial, manufacturing, and commercial properties. Under various federal, state, and local environmental laws and regulations, current and former owners and operators of property may have liability for the cost of investigating, cleaning up or disposing of hazardous materials released at, on, under, in, or from the property. These laws typically impose responsibility and liability without regard to whether the owner or operator knew of or was responsible for the presence of hazardous materials or contamination, and liability under these laws is often joint and several. Third parties may also make claims against owners or operators of properties for personal injuries and property damage associated with releases of hazardous materials. As part of our efforts to mitigate these risks, we typically engage third parties to perform assessments of potential environmental risks when evaluating a new acquisition of property, and we frequently require sellers to address them before closing or obtain contractual protection (indemnities, cash reserves, letters of credit, or other instruments) from property sellers, tenants, a tenant’s parent company or another third party to address known or potential environmental issues. With respect to our self-storage and multi-family investments, which are not subject to net-leased arrangements, there is no tenant of the property to provide indemnification, so we may be liable for costs associated with environmental contamination in the event any such circumstances arise after we acquire the property.
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 our website, http://www.cpa18global.com, as soon as reasonably practicable after they are filed with or furnished to the SEC. 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 or furnished with the SEC. Our Code of Business Conduct and Ethics, which applies to all employees, including our chief executive officer and chief financial officer, is available on the Corporate Governance portion of our website, http://www.cpa18global.com. We intend to make available on our website any future amendments or waivers to our Code of Business Conduct and Ethics within four business days after any such amendments or waivers.
CPA:18 – Global 20182019 10-K – 87
Item 1A. Risk Factors.
Our business, results of operations, financial condition, and ability to pay distributions at the current rate could be materially adversely affected by various risks and uncertainties, including those enumerated below. These risk factors may have affected, and in the future could affect, our actual operating and financial results and could cause such results to differ materially from those in any forward-looking statements. You should not consider this list exhaustive. New risk factors emerge periodically and we cannot assure you that the factors described below list all risks that may become material to us at any later time.
The price of shares being offered through our DRIP is determined by our board of directors based upon our NAVs from time to time and may not be indicative of the price at which the shares would trade if they were listed on an exchange or actively traded by brokers.
The price of the shares currently being offered through our DRIP is determined by our board of directors in the exercise of its business judgment based upon our NAVs from time to time. The valuation methodologies underlying our NAVs involve subjective judgments. Valuations of real properties do not necessarily represent the price at which a willing buyer would purchase our properties; therefore, there can be no assurance that we would realize the values underlying our NAVs if we were to sell our assets and distribute the net proceeds to our stockholders. In addition, the values of our assets and debt are likely to fluctuate over time. This price may not be indicative of (i) the price at which shares would trade if they were listed on an exchange or actively traded by brokers, (ii) the proceeds that a stockholder would receive if we were liquidated or dissolved, or (iii) the value of our portfolio at the time you dispose of your shares. Since our NAVs are estimates and may be impacted by various factors (including elements that are outside our control, such as changes in interest and/or exchange rates, as well as real estate markets fluctuations), there is no assurance that a stockholder will realize such NAVs in connection with any liquidity event.
We may be unable to pay or maintain cash distributions or increase distributions over time.
The amount of cash we have available for distribution to stockholders is affected by many factors, such as the performance of our Advisor in selecting investments for us to make, selecting tenants for our properties, and securing financing arrangements; our ability to buy properties; the amount of rental income from our properties; our operating expense levels; as well as many other variables. We may not always be in a position to pay distributions to our stockholders and any distributions we do make may not increase over time. Our board of directors, in its sole discretion, will determine on a quarterly basis the amount of cash to be distributed to our stockholders based on a number of considerations, including, but not limited to, our results of operations, cash flow and capital requirements; economic and tax considerations; our borrowing capacity; applicable provisions of the Maryland General Corporation Law; and other factors. Our actual results may differ significantly from the assumptions used by our board of directors in establishing the distribution rate to our stockholders. There is also a risk that we may not have sufficient cash from operations to make a distribution required to maintain our REIT status. Consequently, our distribution levels are not guaranteed and may fluctuate.
Our distributions in the past have exceeded, and may in the future exceed, our funds from operations (“FFO”).
Over the life of our company, the regular quarterly cash distributions we pay are expected to be principally sourced from our FFO. However, we have funded a portion of our cash distributions to date using net proceeds from our public offering and there can be no assurance that our FFO will be sufficient to cover our future distributions. For the year ended December 31, 2018,2019, our FFO covered approximately 98.0%76.8% of total distributions declared, with the balance funded from other sources, including our DRIP. We funded all of these distributions forFor the year ended December 31, 2018 from Net2019, net cash provided by operating activities.activities fully covered total distributions declared. If our properties are not generating sufficient cash flow or our other expenses require it, we may need to use other sources of funds, such as proceeds from asset sales or borrowings to fund distributions in order to satisfy REIT requirements. If we fund distributions from borrowings, such financing will incur interest costs and need to be repaid.
Because we have paid, and may continue to pay, distributions from sources other than our FFO, our distributions at any point in time may not reflect the current performance of our properties or our current operating cash flows.
Our charter permits us to make distributions from any source, including the sources described in the risk factor above. Because the amount we pay out in distributions has in the past exceeded, and may in the future continue to exceed, our FFO, distributions to stockholders may not reflect the current performance of our properties or our current operating cash flows. To the extent distributions exceed cash flow from operations, distributions may be treated as a return of investment and could reduce a stockholder’s basis in our stock. A reduction in a stockholder’s basis in our stock could result in the stockholder recognizing more gain upon the disposition of his or her shares, which in turn could result in greater taxable income to such stockholder.
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Stockholders’ equity interests may be diluted.
Our stockholders do not have preemptive rights to any shares of common stock issued by us in the future. Therefore, (i) when we sell shares of common stock in the future, including those issued pursuant to our DRIP, (ii) when we issue shares of common stock to our independent directors or to our Advisor and its affiliates for payment of fees in lieu of cash, or (iii) if we issue additional common stock or other securities that are convertible into our common stock, then existing stockholders and investors that purchased their shares in our initial public offering will experience dilution of their percentage ownership in us. Depending on the terms of such transactions, most notably the offering price per share, which may be less than the price paid per share in our initial public offering, and the value of our properties and other investments, existing stockholders might also experience a dilution in the book value per share of their investment in us.
If we recognize substantial impairment charges on our properties or investments, our net income may be reduced.
We may incur substantial impairment charges, which we are required to recognize: (i) whenever we sell a property for less than its carrying value or we determine that the carrying amount of the property is not recoverable and exceeds its fair value; (ii) for direct financing leases, whenever losses related to the unguaranteedcollectability of receivables are both probable and reasonably estimable or there has been a permanent decline in the current estimate of the residual value of the underlying property has declined on an other-than-temporary basis;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 interest in the investment has declined on an other-than-temporary basis. By their nature, the timing or extent of impairment charges are not predictable. We may incur non-cash impairment charges in the future, which may reduce our net income, although they do not necessarily affect our FFO, which is the metric we use to evaluate our distribution coverage.
Our board of directors may change our investment policies without stockholder approval, which could alter the nature of your investment.
Our investment policies may change over time and may also vary as new investment techniques are developed. Except as otherwise provided in our charter, our investment policies, the methods for their implementation, as well as our other objectives, policies, and procedures, may be altered by a majority of our directors (including a majority of the independent directors), without the approval of our stockholders. As a result, the nature of your investment could change without your consent. Material changes in our investment focus will be described in our periodic reports filed with the SEC; however, these reports would typically be filed after changes in our investment focus have been made, and in some cases, several months after such changes. A change in our investment strategy may, among other things, increase our exposure to interest rate risk, default risk, and commercial real property market fluctuations, all of which could materially adversely affect our ability to achieve our investment objectives.
We are 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.
Our success is dependent on the performance of our Advisor, but the past performance of other programs managed by our Advisor may not be indicative of our success.Advisor.
Our ability to achieve our investment objectives and to pay distributions is largely dependent upon the performance of our Advisor in the acquisition of investments, the selection of tenants, the determination of any financing arrangements, the completion of our build-to-suit and development projects, and the management of our assets. TheIn addition, our Advisor may not be as familiar with the potential risks of investments outside our existing property types, which could lead to diminished investment performance and adversely affect our revenues, NAVs, and distributions to our stockholders.
Finally, the performance of past programs managed by our Advisor may not be indicative of our Advisor’s performance with respect to us. We cannot guarantee that our Advisor will be able to successfully manage and achieve liquidity for us to the extent it has done so for prior programs.
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We have invested in, and may continue to invest in, assets outside our net-lease and self-storage businesses and incur losses as a result.could be adversely affected if WPC sells, transfers or otherwise discontinues its investment management business.
We are not restricted inWPC has exited non-traded retail fundraising activities and no longer sponsors new investment programs, although it currently expects to continue serving as our Advisor through the typesend of investmentsour life cycle. If WPC sells, transfers or otherwise discontinues its investment management business entirely, we may make. Wewould have invested in, and may continue to invest in, assets outside long-term, net-leased properties and self-storage businesses. Ourfind a new Advisor, who may not be as familiar with our company, may not provide the potential riskssame level of investments outside net-leased properties and self-storage. If we continue to invest in assets outside these property types, suchservices as our investments in student housing development projectsAdvisor, and other operating properties,may charge fees that are higher than the fees we pay to our Advisor’s reduced experience level could result in diminished investment performance,Advisor, all of which in turn couldmay materially adversely affect our revenues, NAVs,performance and distributionsdelay or otherwise negatively impact our ability to our stockholders.
We may be deterred from terminating the advisoryagreement because, upon certain termination events, our Operating Partnership must decide whether to exercise its right to repurchase all oreffect a portion of CPA:18 Holdings’ interests.
The advisory agreement has a term of one year and may be renewed for successive one-year periods. We mayliquidity event. If we terminate the advisory agreement upon 60 days’ written notice without cause or penalty. The termination or resignation of Carey Asset Management Corp. as our Advisor, including by non-renewal ofand repurchase the advisory agreement and replacement with an entity that is not an affiliate of our Advisor, would give our Operating Partnership the right, but not the obligation, to repurchase all or a portion of CPA:18 Holdings’ special general partnerSpecial General Partner’s interest in our Operating Partnership, at a value based onwhich we would have the lesser of: (i) five timesright to do in such circumstances, the amount of the last completed fiscal year’s special general partner distributions, and (ii) the discounted present value of the estimated future special general partner distributions until March 2025. This repurchasecosts to us could be prohibitively expensive and require the Operating Partnership to sell assets in order to complete the repurchase. If our Operating Partnership does not exercise its repurchase right and CPA:18 Holdings’ interest is converted into a special limited partnership interest, we might be unable to find another entity that would be willing to act as our Advisor while CPA:18 Holdings owns a significant interest in the Operating Partnership. Even if we do find another entity to act as our Advisor, we may be subject to higher fees than those charged by Carey Asset Management Corp. These considerations could deter us from terminating the advisory agreement.substantial.
The repurchase of CPA:18 Holdings’ special general partner interest in our Operating Partnership upon termination of our Advisor may discourage certain business combination transactions.
In the event of a merger or other extraordinary corporate transaction in which the advisory agreement is terminated and an affiliate of WPC does not replace Carey Asset Management Corp. as our Advisor, the Operating Partnership must either repurchase all or a portion of CPA:18 Holdings’ special general partner interest in our Operating Partnership at the value described in the immediately preceding risk factor or obtain CPA:18 Holdings’ consent to the merger. This obligation may deter a transaction in which we are not the surviving entity. This deterrence may limit the opportunity for stockholders to receive a premium for their shares that might otherwise exist if a third party attempted to acquire us through a merger or other extraordinary corporate transaction.
The termination or replacement of our Advisor could trigger a default or repayment event under the financing arrangements for some of our assets.
Lenders for certain financing arrangements related to our assets may request change of control provisions in their loan documentation that would make the termination or replacement of WPC or its affiliates as our Advisor an event of default or an event triggering the immediate repayment of the full outstanding balance of the loan. If an event of default or a repayment event occurs with respect to any of our loans, our revenues and distributions to our stockholders may be adversely affected.
Payment of fees to our Advisor and distributions to our Special General Partner will reduce cash available for investment and distribution.
Our Advisor performs services for us in connection with the selection and acquisition of our investments, the management and leasing of our properties, and the administration of our other investments. Pursuant to the advisory agreement, asset management fees payable to our Advisor may be paid in cash or shares of our Class A common stock at our option, after consultation with our Advisor. If our Advisor receives all or a portion of its fees in cash, we will pay our Advisor substantial cash fees for these services. In addition, our Special General Partner is entitled to certain distributions from our Operating Partnership. The payment of these fees and distributions will reduce the amount of cash available for investments or distribution to our stockholders.
CPA:18 – Global 2018 10-K– 11
We have limited independence from our Advisor and its affiliates, who may be subject to conflicts of interest.
We delegate our management functions to our Advisor, for which it earns fees pursuant to the advisory agreement. Although at least a majority of our board of directors must be independent, we have limited independence from our Advisor due to this delegation. As part of its duties, our Advisor manages our business and selects our investments. Our Advisor and its affiliates have potential conflicts of interest in their dealings with us. Circumstances under which a conflict could arise between us and our Advisor and its affiliates include:
our Advisor is compensated for certain transactions on our behalf (e.g., acquisitions of investments and sales), which may cause our Advisor to engage in transactions that generate higher fees, rather than transactions that are more appropriate or beneficial for our business;
agreements between us and our Advisor, including agreements regarding compensation, are not negotiated on an arm’s-length basis, as would occur if the agreements were with unaffiliated third parties;
acquisitions of single assets or portfolios of assets from WPC and its affiliates , subject to our investment policies and procedures, in the form of a direct purchase of assets, a merger, or another type of transaction;
competition with WPC for investments, which are resolved by our Advisor (although our Advisor is required to use its best efforts to present a continuing and suitable investment program to us, allocation decisions present conflicts of interest, which may not be resolved in the manner most favorable to our interests);
decisions regarding asset sales, which could impact the timing and amount of fees payable to our Advisor, as well as allocations and distributions payable to CPA:18 Holdings pursuant to its special general partner interests (e.g., our Advisor receives asset management fees and may decide not to sell an asset; however, CPA:18 Holdings will be entitled to certain profit allocations and cash distributions based upon sales of assets as a result of its Operating Partnership profits interest);
decisions regarding potential liquidity events and business combination transactions (including a merger with WPC);
decisions regarding liquidity events, which may entitle our Advisor and its affiliates to receive additional fees and distributions in relation to the liquidations;
a recommendation by our Advisor that we declare distributions at a particular rate because our Advisor and CPA:18 Holdings may begin collecting subordinated fees once the applicable preferred return rate has been met; and
the negotiation or termination of the advisory agreement and other agreements with our Advisor and its affiliates.
Our NAVs are computed by our Advisor relying in part on information that our Advisor provides to a third party.
Our NAVs are computed by our Advisor relying in part upon third-party appraisals of the fair market value of our real estate (we began using a rolling appraisal process starting with our September 30, 2016 quarterly NAVs, whereby approximately 25% of our real estate portfolio, based on asset value, is appraised each quarter) and third-party estimates of the fair market value of our debt. Any valuation includes the use of estimates and our valuation may be influenced by the information provided to the third party by our Advisor. Because our NAVs are estimates and can change as interest rate and real estate markets fluctuate, there is no assurance that a stockholder will realize such NAVs in connection with any liquidity event.
We face competition from our Advisor and its affiliates, as well as unrelated parties for the investments we make.
WPC has investment policies and return objectives that are similar to ours and they are actively seeking investment opportunities. Therefore, WPC may compete with us with respect to investments; potential purchasers, sellers, and lessees of properties; and mortgage financing for properties. We do not have a non-competition agreement with WPC.
We also face competition for our investments from many unrelated sources, including insurance companies, credit companies, pension funds, private individuals, financial institutions, finance companies, investment companies, and other REITs. We also face competition from institutions that provide or arrange for other types of commercial financing through private or public offerings of equity or debt or traditional bank financings. These institutions may accept greater risk or lower returns, allowing them to offer more attractive terms to prospective tenants. In addition, when evaluating acceptable rates of return on our behalf, our Advisor considers a variety of factors, such as the cost of raising capital, the amount of revenue it can earn, and our performance hurdle rate. These factors may limit the number of investments that our Advisor makes on our behalf. Further capital inflows into our marketplace will place additional pressure on the returns that we can generate from our investments, as well as our Advisor’s willingness and ability to execute transactions.
CPA:18 – Global 2018 10-K– 12
If we internalize our management functions, stockholders’ interests could be diluted and we could incur significant self-management costs.
In the future, our board of directors may consider internalizing the functions currently performed for us by our Advisor by, among other methods, acquiring our Advisor. The method by which we could internalize these functions could take many forms. There is no assurance that internalizing our management functions will be beneficial to us and our stockholders. There is also no assurance that the key employees of our Advisor who perform services for us would elect to work directly for us, instead of remaining with our Advisor or another affiliate of WPC. An acquisition of our Advisor could also result in dilution of your interests as a stockholder and could reduce earnings per share. Additionally, we may not realize the perceived benefits, be able to properly integrate a new staff of managers and employees, or be able to effectively replicate the services provided previously by our Advisor. Internalization transactions, including the acquisition of advisors or property managers affiliated with entity sponsors, have also, in some cases, been the subject of litigation. Even if these claims are without merit, we could be forced to spend significant resources defending claims, which would reduce the amount of funds available for us to invest in properties or other investments and to pay distributions. All of these factors could have a material adverse effect on our results of operations, financial condition, and ability to pay distributions.
We couldmay be adversely affected if WPC sells, transfersdeterred from terminating the advisoryagreement or otherwise discontinues its investment management business.engaging in certain business combination transactions because, upon certain events, our Operating Partnership must decide whether to repurchase all or a portion of WPC’s interest in our Operating Partnership.
AsWhile the advisory agreement has a term of June 30, 2017, WPC exited non-traded retail fundraising activitiesone year (which may be renewed for successive one-year periods) and no longer sponsors new investment programs, although it currently expects to continue serving as our Advisor through the end of our life cycle. If WPC sells, transfers or otherwise discontinues its investment management business entirely, we would have to find a new Advisor, who may not be familiar with our company, may not provide the same level of services as our Advisor, and may charge fees that are higher than the fees we pay to our Advisor, all of which may materially adversely affect our performance and delay or otherwise negatively impact our ability to effect a liquidity event. If we terminate the advisory agreement upon 60 days’ written notice without cause or penalty, the termination or resignation of our Advisor, including by non-renewal of the advisory agreement and replacement with an entity that is not an affiliate of our Advisor, would give our Operating Partnership the right, but not the obligation, to repurchase the Special General Partner’sall or a portion of WPC’s special general partner interest in our Operating Partnership (which is held through its subsidiary CPA:18 Holdings) at a value based on the lesser of: (i) five times the amount of the last completed fiscal year’s special general partner distributions, and (ii) the discounted present value of the estimated future special general partner distributions until March 2025. This repurchase could be prohibitively expensive and require the Operating Partnership to sell assets in order to complete the repurchase. If our Operating Partnership does not exercise its repurchase right and WPC’s interest is converted into a special limited partnership interest, we might be unable to find another entity that would be willing to act as our Advisor while WPC owns a significant interest in the Operating Partnership. Even if we do find another entity to act as our Advisor, we may be subject to higher fees than those charged by Carey Asset Management Corp. These considerations could deter us from terminating the advisory agreement.
In addition, in the event of a merger or other extraordinary corporate transaction in which the advisory agreement is terminated and an affiliate of WPC does not replace our Advisor, the Operating Partnership must either repurchase WPC’s special general partner interest in our Operating Partnership at the value described above or obtain WPC’s consent to the merger. This obligation may limit opportunities for stockholders to receive a premium for their shares that might otherwise exist if a third party attempted to acquire us through a merger or other extraordinary corporate transaction.
The termination or replacement of our Advisor could trigger a default or repayment event under the financing arrangements for some of our assets.
Lenders for certain financing arrangements related to our assets may request change of control provisions in their loan documentation that would make the termination or replacement of WPC or its affiliates as our Advisor an event of default or an event triggering the immediate repayment of the full outstanding balance of the loan. If an event of default or a repayment event occurs with respect to any of our loans, our revenues and distributions to our stockholders may be adversely affected.
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Payment of fees to our Advisor and distributions to our Special General Partner will reduce cash available for investment and distribution.
Our Advisor performs services for us in connection with the selection and acquisition of our investments, the management and leasing of our properties, and the administration of our other investments. Pursuant to the advisory agreement, asset management fees payable to our Advisor may be paid in cash or shares of our Class A common stock at our option, after consultation with our Advisor. If our Advisor receives all or a portion of its fees in cash, we will pay our Advisor substantial cash fees for these services. In addition, our Special General Partner is entitled to certain distributions from our Operating Partnership. The payment of these fees and distributions will reduce the amount of cash available for investments or distribution to our stockholders.
We have limited independence from our Advisor and its affiliates, who may be subject to conflicts of interest.
We delegate our management functions to our Advisor, for which it earns fees pursuant to the advisory agreement. Although at least a majority of our board of directors must be independent, we have limited independence from our Advisor due to this delegation. As part of its duties, our Advisor manages our business and selects our investments. Our Advisor and its affiliates have potential conflicts of interest in their dealings with us. Circumstances under which a conflict could arise between us and our Advisor and its affiliates include:
our Advisor is compensated for certain transactions on our behalf (e.g., acquisitions of investments and sales), which may cause our Advisor to engage in transactions that generate higher fees, rather than transactions that are more appropriate or beneficial for our business;
agreements between us and our Advisor, including agreements regarding compensation, are not negotiated on an arm’s-length basis, as would haveoccur if the rightagreements were with unaffiliated third parties;
acquisitions of single assets or portfolios of assets from WPC and its affiliates, subject to doour investment policies and procedures, in such circumstances, the costsform of a direct purchase of assets, a merger, or another type of transaction;
competition with WPC for investments, which are resolved by our Advisor (although our Advisor is required to use its best efforts to present a continuing and suitable investment program to us, allocation decisions present conflicts of interest, which may not be resolved in the manner most favorable to our interests);
decisions regarding asset sales, which could impact the timing and amount of fees payable to our Advisor, as well as allocations and distributions payable to CPA:18 Holdings pursuant to its special general partner interests (e.g., our Advisor receives asset management fees and may decide not to sell an asset; however, CPA:18 Holdings will be substantial.entitled to certain profit allocations and cash distributions based upon sales of assets as a result of its Operating Partnership profits interest);
decisions regarding potential liquidity events and business combination transactions (including a merger with WPC), which may entitle our Advisor and its affiliates to receive additional fees and distributions in relation to the liquidations;
a recommendation by our Advisor that we declare distributions at a particular rate because our Advisor and CPA:18 Holdings may begin collecting subordinated fees once the applicable preferred return rate has been met; and
the negotiation or termination of the advisory agreement and other agreements with our Advisor and its affiliates.
Our NAVs are computed by our Advisor relying in part on information that our Advisor provides to a third party.
Our NAVs are computed by our Advisor relying in part upon third-party appraisals of the fair market value of our real estate (we began using a rolling appraisal process starting with our September 30, 2016 quarterly NAVs, whereby approximately 25% of our real estate portfolio, based on asset value, is appraised each quarter) and third-party estimates of the fair market value of our debt. Any valuation includes the use of estimates and our valuation may be influenced by the information provided to the third party by our Advisor.
CPA:18 – Global 2019 10-K– 11
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. 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, difficulty refinancing mortgage loans at maturity, possible lease abandonments 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 debt service payments we incur. General risks associated with the ownership of real estate 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 or fire and 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.
In addition, the initial appraisals that we obtain on our properties are generally based on the value of the properties when they are leased. If the leases on the properties terminate, the value of the properties may fall significantly below the appraised value, which could result in impairment charges on the properties.
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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. In addition, to the extent tenants are unable to successfully conduct their operations, their ability to pay rent may be adversely affected. Although we endeavor to monitor, on an ongoing basis, compliance by tenants with their lease obligations and other factors that could affect the financial performance of our properties, such monitoring may not always ascertain or forestall deterioration either in the condition of a property or the financial circumstances of a tenant.
Our participation in joint ventures creates additional risk.
From time to time, we have participated in joint ventures to purchase assets and we may do so in the future. There are additional risks involved in joint venture transactions. As a co-investor in a joint venture, we would not be in a position to exercise sole decision-making authority relating to the property, the joint venture, or our investment partner. In addition, there is the potential that our joint venture partner may become bankrupt or that we may have diverging or inconsistent economic or business interests. These diverging interests could, among other things, expose us to liabilities in the joint venture in excess of our proportionate share of those liabilities. The partition rights of each owner in a jointly owned property could reduce the value of each portion of the divided property.
We may have difficulty selling or re-leasing our properties and this lack of liquidity may limit our ability to quickly change our portfolio in response to changes in economic or other conditions.
Real estate investments 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. Some of our net lease investments involve properties that are designed for the particular needs of a tenant. With these properties, we may be required to renovate or make rent concessions in order to lease the property to another tenant. In addition, if we are forced to sell these properties, we may have difficulty selling it to a party other than the tenant due to the property’s unique design. These and other limitations may affect our ability to sell properties without adversely affecting returns to our stockholders.
CPA:18 – Global 2019 10-K– 12
Our accounting policies and methods are fundamental to how we record and report our financial position and results of operations, and they require us to make estimates, judgments, and assumptions about matters that are inherently uncertain.
Our accounting policies and methods are fundamental to how we record and report our financial position and results of operations. We have identified several accounting policies as being critical to the presentation of our financial position and results of operations because they require management to make particularly subjective or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be recorded under different conditions or using different assumptions. Due to the inherent uncertainty of the estimates, judgments, and assumptions associated with these critical accounting policies, we cannot provide any assurance that we will not make significant subsequent adjustments to our consolidated financial statements. If our judgments, assumptions, and allocations prove to be incorrect, or if circumstances change, our business, financial condition, revenues, operating expense, results of operations, liquidity, ability to pay dividends, or stock price may be materially adversely affected.
CPA:18 – Global 2018 10-K– 14
We use derivative financial instruments to hedge against interest rate and currency fluctuations, which could reduce the overall return on our investments.
We use derivative financial instruments to hedge exposures to changes in interest rates and currency rates. These instruments involve risk, such as the risk that counterparties may fail to perform under the terms of the derivative contract or that such arrangements may not be effective in reducing our exposure to interest rate changes. In addition, the use of such instruments may reduce the overall return on our investments. These instruments may also generate income that may not be treated as qualifying REIT income for purposes of the 75% or 95% REIT income test. See “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” below.
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. AtAs of December 31, 2018,2019, our triple-net lease real estate properties located outside of the United States represented 59%56% of consolidated contractual minimum annualized base rent (“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 complying with a wide variety of foreign laws, which may be more stringent than U.S. laws (including land use, zoning, environmental, financial, and privacy laws and regulations) includingregulations, such as the European Union’s General Data Protection Regulation in the European Union;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 Directive)Directives), which may result in additional taxes on our international investments;
changes in operating expenses in particular countries; 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 cost, and terms of mortgage funds), including with regard to Brexit (discussed below).
In addition, the lack of publicly available information in certain jurisdictions in accordance with U.S. generally accepted accounting principles (“GAAP”) could impair our ability to analyze transactions and may cause us to forego an investment opportunity. It may also impair our ability to receive timely and accurate financial information from tenants necessary to meet our reporting obligations to financial institutions or governmental and regulatory agencies. Certain of these risks may be greater in less developed countries. Further, our Advisor’s expertise to date has primarily been in the United States and certain countries in Europe and Asia. Our Advisor has less experience in other international markets and may not be as familiar with the potential risks to our investments in these areas, which could cause us to incur losses as a result.
Our Advisor may engage third-party asset managers in international jurisdictions to monitor compliance with legal requirements and lending agreements with respect to properties we own. Failure to comply with applicable requirements may expose us or our operating subsidiaries to additional liabilities.
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Economic conditions and regulatory changes surrounding the United Kingdom’s exit from the European Union could have a material adverse effect on our business and results of operations.
The United Kingdom invoked Article 50 of the Treaty on European Union on March 29, 2017, initiatinginitiated the process to leave the European Union (“Brexit”), which is currently scheduled to occur on March 29, 2019. 2017, which formally occurred on January 31, 2020. The United Kingdom is currently in a transition period until December 31, 2020, during which it negotiates the terms of its future relationship with the European Union, while preserving membership in the European Union’s internal market and customs union and relinquishing representation in the European Union’s institutions.
The real estate industry faces substantial uncertainty regarding the impact of Brexit. Adverse consequences could include, but are not limited to: global economic uncertainty and deterioration, volatility in currency exchange rates, adverse changes in regulation of the real estate industry, disruptions to the markets we invest in and the tax jurisdictions we operate in (which may adversely impact tax benefits or liabilities in these or other jurisdictions), and/or negative impacts on the operations and financial conditions of our tenants or the operations of our student housing properties. In addition, Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the United Kingdom determines which European Union laws to replace or replicate. As of December 31, 2018, 3.0%2019, 6% and 27.0%24% of our consolidated total revenue was from the United Kingdom and other European Union countries, respectively (although these percentages will likely increase upon the completion of our student housing development projects located in the United Kingdom and other European Union countries).
Given the ongoing political uncertainty surrounding the eventual formtransition period negotiations (including the potential implementation of Brexit (including a potential “hardfree trade agreement versus a “no-deal Brexit” in which the United Kingdom would also give up full access to the European Union single market and customs union)), we cannot predict how the Brexit process will finally be implemented and are continuing to assess the potential impact, if any, of these events on our operations, financial condition, and results of operations.
Changes in how LIBOR is determined, or the potentialThe anticipated replacement of LIBOR with an alternative reference rate, may adversely affect our interest expense.
Certain instruments within our debt profile are indexed to the London Interbank Offered Rate (“LIBOR”), which is a benchmark rate at which banks offer to lend funds to one another in the international interbank market for short term loans. Concerns regarding the accuracy and integrity of LIBOR including the underlying methodology for calculating LIBOR, led the United Kingdom to publish a review of LIBOR in September 2012. The review made a number of recommendations, including the introduction of statutory regulation of LIBOR, the transfer of responsibility for LIBOR from the British Bankers’ Association to an independent administrator, changes to the method of compilation of lending rates and new regulatory oversight and enforcement mechanisms for rate setting. Based on the review, final rules for the regulation and supervision of LIBOR by the Financial Conduct Authority (the “FCA”) were published and came into effect on April 2, 2013. On July 27, 2017, the FCA announced its intention to phase out LIBOR rates by the end of 2021.
We cannot predict the impact of these changes or any other regulatory reforms that may be enacted in other jurisdictions, to LIBOR. In addition, any other legal or regulatory changes made byas regulators and the FCA or other governance or oversight bodies inglobal financial markets debate the method by which LIBOR is determined or the transition from LIBOR to a successor benchmark may result in, among other things, a sudden or prolonged increase or decrease inbenchmark. Assuming that LIBOR a delay in the publication of LIBOR, or changes in the rules or methodologies in LIBOR, all of which may discourage market participants from continuing to administer or to participate in LIBOR’s determination and, in certain situations, could result in LIBOR no longer being determined and published. If LIBOR isbecomes unavailable after 2021, the interest rates on our LIBOR-indexed debt (comprised of our non-recourse mortgage loan with carrying amount of $25.1 million, which is not subject to interest rate swaps or caps, as of December 31, 2019) will be determined usingfall back to various alternative methods, any of which maycould result in higher interest obligations than under the current form of LIBOR. Further, the same costs and risks that may lead to the discontinuation or unavailability of LIBOR may make one or more of the alternative methods impossible or impracticable to determine. Any of these proposals or consequences could have a material adverse effect on our financing costs. Furthermore, thereThere is no guarantee that a transition from LIBOR to an alternative will not result in financial market disruptions, significant increases in benchmark rates or borrowing costs to borrowers, any of which could have an adverse effect on our business,financing costs, liquidity, results of operations, and overall financial condition, and liquidity.condition.
Fluctuations in exchange rates may adversely affect our results and our NAVs.
We are subject to potential fluctuations in exchange rates between foreign currencies and the U.S. dollar (our principal foreign currency exposures are to the euro and, to a lesser extent, the Norwegian krone and British pound sterling). We attempt to mitigate a portion of the currency fluctuation risk by financing our properties in the local currency denominations, although there can be no assurance that this will be effective. Since we have historically placed both our debt obligations and tenants’ rental obligations to us in the same currency, our results of our 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), which may in turn adversely affect our NAVs.
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Because we use debt to finance investments, our cash flow could be adversely affected.
Most of our investments were made by borrowing a portion of the total investment and securing the loan with a mortgage on the property. We generally borrow on a non-recourse basis to limit our exposure on any property to the amount of equity invested in the property. If we are unable to make our 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 incorporate 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 financing may also require us to make a balloon payment at maturity. Our ability to make such balloon payments will depend upon our ability to refinance the obligation, invest additional equity, 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 timing of our assets.
Because most of our properties are occupied by a single tenant, our success is materially dependent upon their 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 revenues. For the year ended December 31, 2018,2019, our five largest tenants/guarantors represented approximately 21.3%21.7% of our total consolidated revenue. Lease payment defaults by tenants could negatively impact our net income and reduce the amounts available for distribution to our stockholders. As some of our tenants may not have a recognized credit rating, these tenants may have a higher risk of lease defaults than tenants with a recognized credit rating.
The bankruptcy or insolvency of tenants or borrowers may cause 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 or borrower under one of our loan transactions could cause: the loss of lease or interest and principal payments, an increase in the carrying cost of the property, litigation,and litigation. If one or a series of bankruptcies or insolvencies is significant enough (more likely during a period of economic downturn), it could lead to a reduction in our NAV,NAVs, and/or a decrease in amounts available for distribution to our stockholders.
Under U.S. bankruptcy law, a tenant that is the subject of bankruptcy proceedings has the option of assuming or rejecting any unexpired lease. As a general matter, after the commencement of bankruptcy proceedings and prior to assumption or rejection of an expired lease, U.S. bankruptcy laws provide that, until such unexpired lease is assumed or rejected, the tenant or its trustee must perform the tenant’s obligations under the lease in a timely manner. However, under certain circumstances, the time period for performance of such obligations may be extended by an order of the bankruptcy court. 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. Theclaim and the maximum claim will be capped at the amount owed for unpaid rent prior to the bankruptcy (unrelated to the termination), plus the greater of one year’s lease payments or 15% of the remaining lease payments payable under the lease (but no more than three years’ lease payments).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-leasenet lease transaction as a secured lending transaction. If that were to occur, we would not be treated as the owner of the property, but we might have rights as a secured creditor. Those rights would not include a right to compel the tenant to timely perform its obligations under the lease but may instead entitle us to “adequate protection,” a bankruptcy concept that applies to protect against a decrease in the value of the property if the value of the property is less than the balance owed to us.
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Insolvency laws outside the United States may not be asmore or less favorable to reorganization or the protection of a debtor’s rights as in the United States.States (e.g., the Croatian government’s adoption of the Act on Extraordinary Administration Proceedings in Companies of Systemic Importance for the Republic of Croatia in April 2017 in reaction to the financial difficulties of the Agrokor group). In circumstances where the bankruptcy laws of the United States are considered to be more favorable to debtors and/or their reorganization, entities that are not ordinarily perceived as U.S. entities may seek to take advantage of U.S. bankruptcy laws (an entity would be eligible to be a debtor under the U.S. bankruptcy laws if it had a domicile, place of business, or assets in the United States).laws.
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We may incur costs to finish build-to-suit and development projects.
We may acquirehave acquired undeveloped land or partially developed buildings in order to construct build-to-suit facilities for a prospective tenant. The primary risks of build-to-suit projects are the potential for failing to meet an agreed-upon delivery schedule and cost-overruns, which may, among other things, cause total project costs to exceed the original budget and may depress our NAVs and distributions until the projects come online. While some prospective tenants will bear these risks, we may be required to bear these risks in other instances, which means that (i) we may have to advance funds to cover cost-overruns that we would not be able to recover through increased rent payments or (ii) that we may experience delays in the project that delay commencement of rent. We will attempt to minimize these risks through guaranteed maximum price contracts, review of contractor financials, and completing plans and specifications prior to commencement of construction. The incurrence of the additional costs described above or any non-occupancy by a prospective tenant upon completion may reduce the project’s and our portfolio’s returns or result in losses, which may adversely affect our NAVs.
Development and construction risks could affect our profitability.
We have and may continue to invest in and develop student housing development projects student housingand operating properties and multi-family residential properties. Currently, we have twelve12 ongoing student housing development projects.projects, with estimated funding commitments totaling $457.4 million. Such investments can involve long timelines and complex undertakings, including due diligence, entitlement, environmental remediation, and dense urban construction. We may abandon opportunities that we have begun to explore for a number of reasons (including changes in local market conditions or increases in construction or financing costs) and, as a result, fail to recover expenses already incurred in exploring those opportunities. We may also be unable to obtain, or experience delays in obtaining, necessary zoning, occupancy, or other required governmental or third-party permits and authorizations, which could result in increased costs or missing the beginning of the academic year or the delay or abandonment of opportunities. We project construction costs based on market conditions at the time we prepare our budgets and, while we include anticipated changes, we cannot (i) predict costs with certainty or (ii) guarantee that market rents in effect at the time that the development is completed will be sufficient to offset the effects of any increased costs. Occupancy rates and rents may fail to meet our original expectations for a number of reasons, including competition from similar developments and other changes in market and economic conditions beyond our control.
We are subject to risks posed by fluctuating demand and significant competition in the self-storage industry.
A decrease in the demand for self-storage space would likely have an adverse effect on revenues from our operating portfolio. Demand for self-storage space has been and could be adversely affected by weakness in national, regional, and local economies; changes in supply of, or demand for, similar or competing self-storage facilities in an area; and the excess amount of self-storage space in a particular market. To the extent that any of these conditions occur, they are likely to affect market rents for self-storage space, which could cause a decrease in our revenues. For the year ended December 31, 2018,2019, revenue generated from our self-storage investments represented approximately 27%31% of our consolidated total revenue.
Our self-storage facilities compete with other self-storage facilities in their geographic markets. As a result of competition, the self-storage facilities could experience a decrease in occupancy levels and rental rates, which would decrease our cash available for distribution. We compete in operations and for acquisition opportunities with companies that have substantial financial resources. Competition may reduce the number of suitable acquisition opportunities offered to us and increase the bargaining power of property owners seeking to sell. The self-storage industry has at times experienced overbuilding in response to perceived increases in demand. A recurrence of overbuilding may cause our self-storage properties to experience a decrease in occupancy levels, limit their ability to increase rents, and compel them to offer discounts.
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We depend on the abilities of the property managers of our self-storage facilities.facilities and student housing operating properties.
We contract with independent property managers to operate our self-storage facilities and student housing operating properties on a day-to-day basis. Although we consult with the property managers with respect to strategic business plans, we may be limited, depending on the terms of the applicable management agreement, in our ability to direct the actions of the independent property managers, particularly with respect to daily operations. Thus, even if we believe that our self-storage facilities or our student housing operating properties are being operated inefficiently or in a manner that does not result in satisfactory occupancy rates or operating profits, we may not have sufficient rights under a particular management agreement to force the property manager to change its method of operation. We can only seek redress if a property manager violates the terms of the applicable management agreement, and then only to the extent of the remedies provided in the agreement. We are, therefore, substantially dependent on the ability of the independent property managers to successfully operate our self-storage facilities.facilities and student housing operating properties. Some of our management agreements may have lengthy terms, may not be terminable by us before the agreement’s expiration and may require the payment of termination fees. In the event that we are able to and do replace any of our property managers, we may experience significant disruptions at the self-storage facilities or student housing operating properties, which may adversely affect our results of operations.
Short-term leases may expose us to the effects of declining market rent.
We currently own, and may continue to acquire, certain types of properties (e.g., self-storage and student housing properties) that typically have short-term leases (generally one year or less) with tenants. There is no assurance that we will be able to renew these leases as they expire or attract replacement tenants on comparable terms, if at all, which may expose us to the effects of declining market rent.
Potential liability for environmental matters could adversely affect our financial condition.
We have invested, and may in the future invest, in real properties historically 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 costs of investigation and removal (including at appropriate disposal facilities)
or remediation of hazardous or toxic substances in, on, or migrating from our real 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 on one 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 ability to sell or lease the property or to borrow using the property as collateral. In addition, environmental liabilities, or costs or operating limitations imposed on a tenant 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 indemnification against potential environmental liabilities. With respect to our self-storage and multi-familystudent housing investments, where there is no tenant to provide indemnification under a net-lease arrangement, we may be liable for costs associated with environmental contamination in the event any such circumstances arise after we acquire the property.property and there is no tenant or other party to provide indemnification under a net-lease arrangement.
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We and our independent property operators rely on information technology in our operations, and any material failure, inadequacy, interruption, or security failure of that technology could harm our business.
We and our independent property operators rely on information technology networks and systems, including the Internet, to process, transmit, and store electronic information, and to manage or support a variety of business processes, including financial transactions and records, personal identifying information, billing, and operating data. We purchase some of our information technology from third-party vendors and we rely on commercially available systems, software, tools, and monitoring to provide security for processing, transmission, and storage of confidential information. It is possible that our safety and security measures will not be able to prevent improper system functions, damage, or the improper access or disclosure of personally identifiable information. Security breaches, including physical or electronic break-ins, computer viruses, attacks by hackers, and similar breaches, can create system disruptions, shutdowns, or unauthorized disclosure of confidential information. Any failure to maintain proper function, security, and availability of our information systems could interrupt our operations, damage our reputation, subject us to liability claims or regulatory penalties, and could have a material adverse effect on our business, financial condition, and results of operations.
The occurrence of cyber incidents to our Advisor, or a deficiency in our Advisor’s cyber security, could negatively impact our business by causing a disruption to our operations, a compromise or corruption of our confidential information, and/or damage to our business 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 information resources. More specifically, a cyber incident could be (i) an intentional attack which(which could include gaining unauthorized access to systems to disrupt operations, corrupt data, or steal confidential information;information) or (ii) an unintentional accident or error. Our Advisor uses information technology and other computer resources to carry out important operational activities and to maintain business records. In addition, our Advisor may store or come into contact with sensitive information and data. If our Advisor and its third-party service providers fail to comply with applicable privacy or data security laws in handling this information, including the new 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.
As our Advisor’s reliance on technology has increased, so have the risks posed to our Advisor’s systems, both internal and outsourced. Our Advisor has implemented systemsprocesses, procedures, and processescontrols intended to address ongoing and evolving cyber security risks, secure confidential information, and prevent unauthorized access to or lossbut these measures, as well as our increased awareness of sensitive, confidential, and personal data.a risk of a cyber incident, do not guarantee that our financial results will not be negatively impacted by such an incident. Although our Advisor and its third-party service providers employ what they believe are adequate security, disaster recovery and other preventative and corrective measures, their security measures, may not be sufficient for all possible situations and could be vulnerable to, among other things, hacking, employee error, system error, and facultyfaulty password management.
In addition, if our Advisor or its partners fail to comply with applicable privacy or data security laws in handling this information, including the new General Data Protection Regulation in the European Union, we could face significant legal and financial exposure to claims of governmental agencies and parties whose privacy is compromised. The primary risks that could directly result from the occurrence of a cyber incident include operational interruption, damage to our relationship with our tenants, and private data exposure. A significant and extended disruption could damage our business or reputation; cause a loss of revenue; have an adverse effect on tenant relations; cause an unintended or unauthorized public disclosure; or lead to the misappropriation of proprietary, personal identifying and confidential information; all of which could result in us and our Advisor incurring significant expenses to address and remediate or otherwise resolve these kinds of issues. We and our Advisor maintain insurance intended to cover some of these risks, but it may not be sufficient to cover the losses from any future breaches of our Advisor’s systems. Our Advisor has implemented processes, procedures, and controls to help mitigate these risks, but these measures, as well as our and our Advisor’s increased awareness of a risk of a cyber incident, do not guarantee that our financial results will not be negatively impacted by such an incident. The release of confidential information may also lead to litigation or other proceedings against us and our Advisor by affected individuals, business partners and/or regulators, and the outcome of such proceedings, which could include losses, penalties, fines, injunctions, expenses, and charges recorded against our earnings, reputational harm, could have a material and adverse effect on our business, financial position or results of operations.
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The lack of an active public trading market for our shares, combined with the ownership limitation on our shares, may discourage a takeover and make it difficult for stockholders to sell shares quickly or at all.
There is no active public trading market for our shares and we do not expect one to develop. Moreover, we are not required to complete a liquidity event by a specified date. To assist us in meeting the REIT qualification rules, among other things, our charter also prohibits the ownership by one person or an affiliated group of (i) more than 9.8% in value of our shares of stock of any class or series (including common shares or any preferred shares) or (ii) more than 9.8% in value or number, whichever is more restrictive, of our outstanding shares of common stock, unless exempted by our board of directors. This ownership limitation may discourage third parties from making a potentially attractive tender offer for your shares, thereby inhibiting a change of control in us. In addition, you should not rely on our redemption plan as a method to sell shares promptly because it includes numerous restrictions that limit your ability to sell your shares to us and our board of directors may amend, suspend, or terminate the plan without advance notice. In particular, the redemption plan provides that we may redeem shares only if we have sufficient funds available for redemption and to the extent the total number of shares for which redemption is requested in any quarter, together with the aggregate number of shares redeemed in the preceding three fiscal quarters, does not exceed 5% of the total number of our shares outstanding as of the last day of the immediately preceding fiscal quarter. Given these limitations, it may be difficult for investors to sell their shares promptly or at all. In addition, the price received for any shares sold prior to a liquidity event is likely to be less than the proportionate value of the real estate we own. Investor suitability standards imposed by certain states may also make it more difficult for investors to sell their shares to someone in those states. As a result, our shares should only be purchased as a long-term investment.
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Conflicts of interest may arise between holders of our common stock and holders of partnership interests in our Operating Partnership.
Our directors and officers have duties to us and our stockholders under Maryland law in connection with their management of us. At the same time, our Operating Partnership was formed in Delaware and we, as general partner, have duties under Delaware law to our Operating Partnership and any other limited partners in connection with our management of our Operating Partnership. Our duties as general partner of our Operating Partnership may come into conflict with the duties of our directors and officers to us and our stockholders.
Under Delaware law, a general partner of a Delaware limited partnership owes its limited partners the duties of good faith and fair dealing. Other duties, including fiduciary duties, may be modified or eliminated in the partnership’s partnership agreement. The partnership agreement of our Operating Partnership provides that, for so long as we own a controlling interest in our Operating Partnership, any conflict that cannot be resolved in a manner not adverse to either our stockholders or the limited partners will be resolved in favor of our stockholders. The provisions of Delaware law that allow the fiduciary duties of a general partner to be modified by a partnership agreement have not been tested in a court of law and we have not obtained an opinion of counsel covering the provisions set forth in the partnership agreement that purport to waive or restrict our fiduciary duties.
In addition, the partnership agreement expressly limits our liability by providing that we and our officers, directors, agents, employees, and designees will not be liable or accountable to our Operating Partnership for losses sustained, liabilities incurred, or benefits not derived if we or our officers, directors, agents, employees, or designees, as the case may be, acted in good faith. Furthermore, our Operating Partnership is required to indemnify us and our officers, directors, agents, employees, and designees to the extent permitted by applicable law from, and against, any and all claims arising from operations of our Operating Partnership, unless it is established that: (i) the act or omission was committed in bad faith, was fraudulent, or was the result of active and deliberate dishonesty; (ii) the indemnified party actually received an improper personal benefit in money, property, or services; or (iii) in the case of a criminal proceeding, the indemnified person had reasonable cause to believe that the act or omission was unlawful. These limitations on liability do not supersede the indemnification provisions of our charter.
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Maryland law could restrict a change in control, which could have the effect of inhibiting a change in control even if a change in control were in our stockholders’ interest.
Provisions of Maryland law applicable to us prohibit business combinations with:
any person who beneficially owns 10% or more of the voting power of our outstanding voting stock, referred to as an interested stockholder;
an affiliate or associate who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of our outstanding stock, also referred to as an interested stockholder; or
an affiliate of an interested stockholder.
These prohibitions last for five years after the most recent date on which the interested stockholder became an interested stockholder. Thereafter, any business combination must be recommended by our board of directors and approved by the affirmative vote of at least 80% of the votes entitled to be cast by holders of our outstanding voting stock and two-thirds of the votes entitled to be cast by holders of our voting stock (other than voting stock held by the interested stockholder or by an affiliate or associate of the interested stockholder). These requirements could have the effect of inhibiting a change in control even if a change in control were in our stockholders’ interest. These provisions of Maryland law do not apply, however, to business combinations that are approved or exempted by our board of directors prior to the time that someone becomes an interested stockholder. In addition, a person is not an interested stockholder if the board of directors approved in advance the transaction by which he or she otherwise would have become an interested stockholder. However, in approving a transaction, the board of directors may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the board.
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Our charter permits our board of directors to issue stock with terms that may subordinate the rights of the holders of our current common stock or discourage a third party from acquiring us.
Our board of directors may determine that it is in our best interest to classify or reclassify any unissued stock and establish the preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications, and terms or conditions of redemption of any such stock. Thus, our board of directors could authorize the issuance of such stock with terms and conditions that could subordinate the rights of the holders of our common stock or have the effect of delaying, deferring, or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer, or sale of all or substantially all of our assets) that might provide a premium price for holders of our common stock. However, the issuance of preferred stock must also be approved by a majority of independent directors not otherwise interested in the transaction, who will have access at our expense to our legal counsel or to independent legal counsel. In addition, the board of directors, with the approval of a majority of the entire board and without any action by the stockholders, may amend our charter from time to time to increase or decrease the aggregate number of shares or the number of shares of any class or series that we have authority to issue. If our board of directors determines to take any such action, it will do so in accordance with the duties it owes to holders of our common stock.
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 2013 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.
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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 in part upon our board of directors’ good faith analysis of 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.
The Internal Revenue Service may treat sale-leaseback transactions as loans, which could jeopardize our REIT qualification.
The Internal Revenue Service may take the position that specific sale-leaseback transactions that we treat as true leases are not true leases for U.S. federal income tax purposes but are, instead, financing arrangements or loans. If a sale-leaseback transaction were so recharacterized, we might fail to satisfy the qualification requirements applicable to REITs.
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.
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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. If this were 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 of directors. 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 qualify as a REIT, any C 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’s earnings and profits.
CPA:18 – Global 2018 10-K– 23
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 (including mandatory holding periods prior to disposition), 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 or dispositions, including the purchase of non-qualifying assets, the expansion of non-real estate activities, and investments in the businesses to be conducted by our taxable REIT subsidiaries (“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.
CPA:18 – Global 2019 10-K– 21
To meet our annual distribution requirements, we may be required to distribute amounts that may otherwise be used for our operations, including amounts that may be invested in future acquisitions, capital expenditures, or debt repayment; and it is possible that we might be required to borrow funds, sell assets, or raise equity to fund these distributions, even if the then-prevailing market conditions are not favorable for such transactions.
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 limit our hedging and therefore 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.
CPA:18 – Global 2018 10-K– 24
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 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.
Our ownership of TRSs will be subject to limitations that could prevent us from growing our portfolio and our 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.
Overall, no more than 20% of the value of a REIT’s gross assets, may consist of interests in TRSs; compliance with this limitation could limit our ability to grow our portfolio. In addition, 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.
CPA:18 – Global 2019 10-K– 22
Dividends payable by REITs do not qualify for the reduced tax rates on dividend income from C corporations, which could cause investors to perceive investments in REITs to be relatively less attractive.
The maximum U.S. federal income tax rate for certain qualified dividends payable by C corporations to U.S. stockholders that are individuals, trusts and estates is 20%. Dividends payable by REITs, however, are generally not eligible for the reduced qualified dividend rate. However, for taxable years beginning after December 31, 2017 and before January 1, 2026, under the recently enacted Tax Cuts and Jobs Act, noncorporate taxpayers may deduct up to 20% of certain qualified business income, including "qualified REIT dividends" (generally, dividends received by a REIT shareholder that are not designated as capital gain dividends or qualified dividend income), subject to certain limitations, resulting in an effective maximum U.S. federal income tax rate of 29.6% on such income. Although the reduced U.S. federal income tax rate applicable to qualified dividends from C corporations does not adversely affect the taxation of REITs or dividends paid by REITs, the more favorable rates applicable to regular corporate dividends, together with the recently reduced corporate tax rate (21%), could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends.
CPA:18 – Global 2018 10-K– 25
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.
We will also be subject to a federal corporate level tax at the highest regular corporate rate (currently 21% for year 2018)) 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 of directors to revoke our REIT election, without stockholder approval, may cause adverse consequences for our stockholders.
Our organizational documents permit our board of directors to revoke or otherwise terminate our REIT election, without the approval of our stockholders, if 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 U.S. federal income tax at regular corporate rates and state and local taxes, which may have adverse consequences on the total return to our stockholders.
CPA:18 – Global 2019 10-K– 23
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 and/or the attendant tax consequences to us or our stockholders.
CPA:18 – Global 2018 10-K– 26
Recent changesChanges to U.S. tax laws could have a negative impact on our business.
On December 22, 2017, the President signed a tax reform bill into law, referred to herein as the “Tax Cuts and Jobs Act,” which among other things:
reduces the corporate income tax rate from 35% to 21% (including with respect to our TRSs);
reduces the rate of U.S. federal withholding tax on distributions made to non-U.S. shareholders by a REIT that are attributable to gains from the sale or exchange of U.S. real property interests from 35% to 21%;
allows for an immediate 100% deduction of the cost of certain capital asset investments (generally excluding real estate assets), subject to a phase-down of the deduction percentage over time;
changes the recovery periods for certain real property and building improvements (e.g., 30 years (previously 40 years) for residential real property);
restricts the deductibility of interest expense by businesses (generally, to 30% of the business’s adjusted taxable income) except, among others, real property businesses electing out of such restriction; generally, we expect our business to qualify as such a real property business, but businesses conducted by our TRSs may not qualify, and we have not yet determined whether our subsidiaries can and/or will make such an election;business;
requires the use of the less favorable alternative depreciation system to depreciate real property in the event a real property business elects to avoid the interest deduction restriction above;
restricts the benefits of like-kind exchanges that defer capital gains for tax purposes to exchanges of real property;
permanently repeals the “technical termination” rule for partnerships, meaning sales or exchanges of the interests in a partnership will be less likely to, among other things, terminate the taxable year of, and restart the depreciable lives of assets held by, such partnership for tax purposes;
requires accrual method taxpayers to take certain amounts in income no later than the taxable year in which such income is taken into account as revenue in an applicable financial statement prepared under GAAP,in accordance with U.S. generally accepted accounting principles (“GAAP”), which, with respect to certain leases, could accelerate the inclusion of rental income;
eliminates the federal corporate alternative minimum tax;
implements a one-time deemed repatriation tax on corporate profits (at a rate of 15.5% on cash assets and 8% on non-cash assets) held offshore, which profits are not taken into account for purposes of the REIT gross income tests;
reduces the highest marginal income tax rate for individuals to 37% from 39.6% (excluding, in each case, the 3.8% Medicare tax on net investment income);
generally allows a deduction for individuals equal to 20% of certain income from pass-through entities, including ordinary dividends distributed by a REIT (excluding capital gain dividends and qualified dividend income), generally resulting in a maximum effective federal income tax rate applicable to such dividends of 29.6% compared to 37% (excluding, in each case, the 3.8% Medicare tax on net investment income), although regulations may restrict the ability to claim this deduction for non-corporate shareholders depending upon their holding period in our stock; and
limits certain deductions for individuals, including deductions for state and local income taxes, and eliminates deductions for miscellaneous itemized deductions (including certain investment expenses).
As a REIT, we are required to distribute at least 90% of our taxable income to our shareholders annually. As a result of the changes to U.S. federal tax laws implemented by the Tax Cuts and Jobs Act, our taxable income and the amount of distributions to our stockholders required to maintain our REIT status, as well as our relative tax advantage as a REIT, could change.
CPA:18 – Global 2019 10-K– 24
The Tax Cuts and Jobs Act is a complex revision to the U.S. federal income tax laws with impacts on different categories of taxpayers and industries, which will require subsequent rulemaking and interpretation in a number of areas. In addition, many provisions in the Tax Cuts and Jobs Act, particularly those affecting individual taxpayers, expire at the end of 2025. The long-term impact of the Tax Cuts and Jobs Act on the overall economy, government revenues, our tenants, us, and the real estate industry cannot be reliably predicted at this time. Furthermore, the Tax Cuts and Jobs Act may negatively impact the operating results, financial condition, and future business plans for some or all of our tenants. The Tax Cuts and Jobs Act may also result in reduced government revenues, and therefore reduced government spending, which may negatively impact some of our tenants that rely on government funding. There can be no assurance that the Tax Cuts and Jobs Act will not negatively impact our operating results, financial condition, and future business operations.
Item 1B. Unresolved Staff Comments.
None.
CPA:18 – Global 2018 10-K– 27
Item 2. Properties.
Our principal corporate offices are located in the offices of our Advisor at 50 Rockefeller Plaza, New York, NY 10020.
Item 3. Legal Proceedings.
AtAs of December 31, 2018,2019, we were not involved in any material litigation.
Various claims and lawsuits arising in the normal course of business may be pending against us. The results of these proceedings are not expected to have a material adverse effect on our consolidated financial position or results of operations.
Item 4. Mine Safety Disclosures.
Not applicable.
CPA:18 – Global 20182019 10-K – 2825
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Unlisted Shares and Distributions
There is no active public trading market for our shares. At March 8, 2019,February 21, 2020, there were 28,42227,947 holders of record of our shares of common stock.
We are required to distribute annually at least 90% of our distributable REIT net taxable income to maintain our status as a REIT. Quarterly distributions declared per share for the past two years are as follows:
| | | | Years Ended December 31, | Years Ended December 31, |
| | 2018 | | 2017 | 2019 | | 2018 |
| | Class A | | Class C | | Class A | | Class C | Class A | | Class C | | Class A | | Class C |
| First quarter | $ | 0.1563 |
| | $ | 0.1375 |
| | $ | 0.1563 |
| | $ | 0.1380 |
| $ | 0.1563 |
| | $ | 0.1373 |
| | $ | 0.1563 |
| | $ | 0.1375 |
|
| Second quarter | 0.1563 |
| | 0.1378 |
| | 0.1563 |
| | 0.1382 |
| 0.1563 |
| | 0.1376 |
| | 0.1563 |
| | 0.1378 |
|
| Third quarter | 0.1563 |
| | 0.1374 |
| | 0.1563 |
| | 0.1384 |
| 0.1563 |
| | 0.1376 |
| | 0.1563 |
| | 0.1374 |
|
| Fourth quarter | 0.1563 |
| | 0.1376 |
| | 0.1563 |
| | 0.1380 |
| 0.1563 |
| | 0.1374 |
| | 0.1563 |
| | 0.1376 |
|
| | $ | 0.6252 |
| | $ | 0.5503 |
| | $ | 0.6252 |
| | $ | 0.5526 |
| $ | 0.6252 |
| | $ | 0.5499 |
| | $ | 0.6252 |
| | $ | 0.5503 |
|
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.
Unregistered Sales of Equity Securities
During the three months ended December 31, 20182019, we issued 349,060165,190 shares of our Class A common stock to our Advisor as consideration for asset management fees. These sharesfees, which were issued at our most recently published NAV at the date of issuance, which was $8.57 forissuance. The shares issued in October 2019 (54,348 shares) were based on the months ended October 31, 2018 and NovemberNAV as of June 30, 2018 (234,972 shares)2019 ($8.91), and $8.73 for the month endedshares issued in November and December 31, 2018 (114,0882019 (110,842 shares) were based on the NAV as of September 30, 2019 ($8.67). In acquiring our shares, our Advisor represented that such interests were being acquired by it for investment purposes and not with a view to the distribution thereof. As previously discussed in our definitive proxy statements,filings with the SEC, over the past three years, we have issued 34,06830,573 shares of our common stock to our directors from time to time. Since none of these transactions were considered to have involved a “public offering” within the meaning of Section 4(a)(2) of the Securities Act of 1933, the shares issued were deemed to be exempt from registration.
All other prior sales of unregistered securities have been reported in our previously filed quarterly and annual reports on Form 10-Q and Form 10-K, respectively.
CPA:18 – Global 20182019 10-K – 2926
Issuer Purchases of Equity Securities
The following table provides information with respect to repurchases of our common stock pursuant to our redemption plan during the three months ended December 31, 20182019:
| | | | | Class A | | Class C | | | Class A | | Class C | |
| 2018 Period | | Total number of Class A
shares purchased (a) | | Average price
paid per share | | Total number of Class C
shares purchased (a) | | Average price
paid per share | | Total number of shares
purchased as part of
publicly announced plans or program (a) | | Maximum number (or
approximate dollar value)of shares that may yet be
purchased under the plans or program (a) | |
| 2019 Period | | | Total number of Class A
shares purchased (a) | | Average price
paid per share | | Total number of Class C
shares purchased (a) | | Average price
paid per share | | Total number of shares
purchased as part of
publicly announced plans or program (a) | | Maximum number (or
approximate dollar value)of shares that may yet be
purchased under the plans or program (a) |
| October 1-31 | | — |
| | — |
| | — |
| | — |
| | N/A | | N/A | | — |
| | — |
| | — |
| | — |
| | N/A | | N/A |
| November 1-30 | | — |
| | — |
| | — |
| | — |
| | N/A | | N/A | | — |
| | — |
| | — |
| | — |
| | N/A | | N/A |
| December 1-31 | | 499,347 |
| | $ | 8.41 |
| | 190,545 |
| | $ | 8.34 |
| | N/A | | N/A | | 425,780 |
| | $ | 8.42 |
| | 159,714 |
| | $ | 8.27 |
| | N/A | | N/A |
| Total | | 499,347 |
| | | | 190,545 |
| | | | | 425,780 |
| | | | 159,714 |
| | | |
___________
| |
| (a) | Represents shares of our Class A and Class C common stock requested to be repurchased under our redemption plan, pursuant to which we may elect to redeem shares at the request of our stockholders, subject to certain exceptions, conditions, and limitations. The maximum amount of shares purchasable by us in any period depends on a number of factors and is at the discretion of our board of directors. During the three months ended December 31, 2018,2019, we received 104109 and 3437 redemption requests for Class A and Class C common stock, respectively. As of the date of this Report, we have fulfilled all of the valid redemption requests that we received during the three months ended December 31, 2018.2019. We generally receive fees in connection with share redemptions. The average price paid per share will vary depending on the number of redemption requests that were made during the period, the number of redemption requests that qualify for special circumstances, and the most recently published quarterly NAV. For shares redeemed under such special circumstances, the redemption price was the greater of the price paid to acquire the shares from us or 95% of our most recently published quarterly NAVs. |
CPA:18 – Global 20182019 10-K – 3027
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, |
| | 2018 | | 2017 | | 2016 | | 2015 | | 2014 | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| Operating Data | | | | | | | | | | | | | | | | | | |
| Total revenues | $ | 216,716 |
| | $ | 205,634 |
| | $ | 184,323 |
| | $ | 135,943 |
| | $ | 54,317 |
| $ | 197,439 |
| | $ | 216,716 |
| | $ | 205,634 |
| | $ | 184,323 |
| | $ | 135,943 |
|
Acquisition and other expenses (a) | 28 |
| | 64 |
| | 6,789 |
| | 42,216 |
| | 59,225 |
| |
Net income (loss) (b) | 117,290 |
| | 39,817 |
| | (19,785 | ) | | (49,326 | ) | | (56,556 | ) | |
Net (income) loss attributable to noncontrolling interests (b) | (20,562 | ) | | (13,284 | ) | | (10,299 | ) | | (8,406 | ) | | 689 |
| |
Net income (loss) (a) | | 44,004 |
| | 117,290 |
| | 39,817 |
| | (19,785 | ) | | (49,326 | ) |
Net income attributable to noncontrolling interests (a) | | (11,432 | ) | | (20,562 | ) | | (13,284 | ) | | (10,299 | ) | | (8,406 | ) |
| Net income (loss) attributable to CPA:18 – Global | 96,728 |
| | 26,533 |
| | (30,084 | ) | | (57,732 | ) | | (55,867 | ) | 32,572 |
| | 96,728 |
| | 26,533 |
| | (30,084 | ) | | (57,732 | ) |
| | | | | | | | | | | | | | | | | | | |
| Income (loss) per share: | | | | | | | | | | | | | | | | | | |
| Net income (loss) attributable to CPA:18 – Global Class A | 0.67 |
| | 0.19 |
| | (0.22 | ) | | (0.45 | ) | | (0.63 | ) | 0.22 |
| | 0.67 |
| | 0.19 |
| | (0.22 | ) | | (0.45 | ) |
| Net income (loss) attributable to CPA:18 – Global Class C | 0.66 |
| | 0.18 |
| | (0.23 | ) | | (0.44 | ) | | (0.72 | ) | 0.22 |
| | 0.66 |
| | 0.18 |
| | (0.23 | ) | | (0.44 | ) |
| | | | | | | | | | | | | | | | | | | |
| Distributions per share declared to CPA:18 – Global Class A | 0.6252 |
| | 0.6252 |
| | 0.6252 |
| | 0.6250 |
| | 0.6248 |
| 0.6252 |
| | 0.6252 |
| | 0.6252 |
| | 0.6252 |
| | 0.6250 |
|
| Distributions per share declared to CPA:18 – Global Class C | 0.5503 |
| | 0.5526 |
| | 0.5467 |
| | 0.5333 |
| | 0.5316 |
| 0.5499 |
| | 0.5503 |
| | 0.5526 |
| | 0.5467 |
| | 0.5333 |
|
| Balance Sheet Data | | | | | | | | | | | | | | | | | | |
| Total assets | $ | 2,304,553 |
| | $ | 2,330,997 |
| | $ | 2,209,446 |
| | $ | 2,134,683 |
| | $ | 1,611,462 |
| $ | 2,234,803 |
| | $ | 2,304,553 |
| | $ | 2,330,997 |
| | $ | 2,209,446 |
| | $ | 2,134,683 |
|
| Net investments in real estate | 1,936,236 |
| | 2,062,451 |
| | 1,953,153 |
| | 1,862,969 |
| | 1,106,659 |
| 1,946,720 |
| | 1,936,236 |
| | 2,062,451 |
| | 1,953,153 |
| | 1,862,969 |
|
Long-term obligations (c) | 1,249,977 |
| | 1,287,847 |
| | 1,180,138 |
| | 1,035,354 |
| | 534,815 |
| |
Long-term obligations (b) | | 1,208,256 |
| | 1,249,977 |
| | 1,287,847 |
| | 1,180,138 |
| | 1,035,354 |
|
| Other Information | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) operating activities (d) | $ | 97,703 |
| | $ | 88,425 |
| | $ | 66,747 |
| | $ | 37,537 |
| | $ | (9,915 | ) | |
Net cash used in investing activities (d) | (8,980 | ) | | (63,226 | ) | | (214,598 | ) | | (893,421 | ) | | (945,586 | ) | |
Net cash provided by (used in) financing activities (d) | 16,588 |
| | (34,063 | ) | | 102,708 |
| | 559,829 |
| | 1,282,833 |
| |
| Net cash provided by operating activities | | $ | 90,820 |
| | $ | 97,703 |
| | $ | 88,425 |
| | $ | 66,747 |
| | $ | 37,537 |
|
| Net cash used in investing activities | | (22,675 | ) | | (8,980 | ) | | (63,226 | ) | | (214,598 | ) | | (893,421 | ) |
| Net cash (used in) provided by financing activities | | (96,244 | ) | | 16,588 |
| | (34,063 | ) | | 102,708 |
| | 559,829 |
|
| Cash distributions paid | 87,609 |
| | 85,174 |
| | 81,677 |
| | 75,936 |
| | 37,636 |
| 89,845 |
| | 87,609 |
| | 85,174 |
| | 81,677 |
| | 75,936 |
|
| Distributions declared | 88,187 |
| | 85,865 |
| | 82,594 |
| | 78,385 |
| | 53,444 |
| 90,326 |
| | 88,187 |
| | 85,865 |
| | 82,594 |
| | 78,385 |
|
___________
| |
| (a) | On January 1, 2017, we adopted ASU 2017-01 (Note 2), and as a result, all transaction costs incurred during theThe year ended December 31, 2018 and 2017 were capitalized since our acquisitions during the year were classified as asset acquisitions. Most2019 includes gains on sale of our future acquisitions are likelyreal estate totaling $24.8 million (which includes a $2.9 million gain attributable to be classified as asset acquisitions. |
| |
(b) | noncontrolling interests). The year ended December 31, 2018 includes gains on sale of real estate totaling $78.7 million (inclusive of a tax benefit of $2.0 million), as well as a gain on insurance proceeds totaling $16.6 million (inclusive of a tax benefit of $3.5 million). The gains on sale of real estate and insurance proceeds include amounts attributable to noncontrolling interest of $8.3 million and $2.3 million, respectively (Note 13). |
| |
(c)(b) | Represents non-recourse mortgagesecured debt obligations, bonds payable, deferred acquisition fee installments (including interest), and the annual distribution and shareholder servicing fee liability. |
| |
(d) | On January 1, 2018, we adopted ASU 2016-15 and ASU 2016-18, which revised how certain items are presented in the consolidated statements of cash flows (Note 2). As a result of adopting this guidance, we retrospectively revised Net cash provided by (used in) operating activities, Net cash used in investing activities, and Net cash provided by (used in) financing activities in the selected financial data for the years ended December 31, 2017, 2016, 2015, and 2014. |
CPA:18 – Global 20182019 10-K – 3128
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide the reader with information that will assist in understanding our financial statements and the reasons for changes in certain key components of our financial statements from period to period. Management’s Discussion and Analysis of Financial Condition and Results of Operations also provides the reader with our perspective on our financial position and liquidity, as well as certain other factors that may affect our future results.
We operate in three reportable business segments: Net Lease, Self Storage, and Multi-Family.Other Operating Properties. Our Net Lease segment includes our investments in net-leased properties, whether they are accounted for as operating leases or direct financing leases. Our Self Storage segment is comprised of our investments in self-storage properties. Our Multi-FamilyOther Operating Properties segment is comprised of our investments in student housing development projects, student housing operating properties and multi-family residential properties.properties (our last multi-family residential property was sold in January 2019). In addition, we have an All Other category that includes our notes receivable investments.investments, one of which was repaid during the second quarter of 2019 (Note 14).
The following discussion should be read in conjunction with our consolidated financial statements included in Item 8 of this Report and the matters described under Item 1A. Risk Factors. Please see our Annual Report on Form 10-K for the year ended December 31, 2018 for discussion of our results of operations for the year ended December 31, 2017.
Business Overview
We are a publicly owned, non-traded REIT that invests in a diversified portfolio of income-producing commercial properties leased to companies, and other real estate-related assets, both domestically and outside the United States. In addition, our portfolio includes self-storage and student housing andproperties. Our last multi-family residential investments.property was sold on January 29, 2019. After that date, we no longer earned any revenue from multi-family residential properties (which were primarily from leases of one year or less with individual tenants). As a REIT, we are not subject to U.S. federal income taxation as long as we satisfy certain requirements, principally relating to the nature of our income, the level of our distributions, and other factors. We earn revenue principally by leasing the properties we own to single corporate tenants, primarily on a triple-net lease basis, which requires the tenant to pay substantially all of the costs associated with operating and maintaining the property. We derive self-storage revenue from rents received from customers who rent storage space, primarily under month-to-month leases for personal or business use. We earn student housing revenue primarily from leases of one year or less with individual students. Revenue is subject to fluctuation because of the timing of new transactions, completion of build-to-suit and development projects, lease terminations, lease expirations, contractual rent adjustments, tenant defaults, sales of properties, and foreign currency exchange rates. We commenced operations in May 2013 and are managed by our Advisor. We hold substantially all of our assets and conduct substantially all of our business through our Operating Partnership. We are the general partner of, and own 99.97% of the interests in, the Operating Partnership. The remaining interest in the Operating Partnership is held by a subsidiary of WPC.
Significant Developments
On December 20, 2019, CPA:18 – Global executed a framework agreement with a third party (“Framework Agreement”) to enter into 11 net lease agreements for our student housing properties located in Spain and Portugal for 25 years upon completion of construction. The student housing operating property located in Barcelona, Spain that was placed into service during the third quarter of 2019 became a net lease property effective as of the date of the Framework Agreement. The remaining ten student housing projects under construction are scheduled for completion throughout 2020 and 2021. Additionally, the Framework Agreement includes an option for the third party to purchase all the properties (on an all or none basis) for fixed purchase prices by September 23, 2023 or earlier under certain other circumstances specified in the Framework Agreement.
Management Changes
On December 11, 2019, Ms. ToniAnn Sanzone, the chief financial officer of WPC, was appointed as our chief financial officer, succeeding Ms. Mallika Sinha, who resigned from that position, effective as of that same date.
CPA:18 – Global 2019 10-K– 29
Net Asset Values
Our Advisor calculates our NAVs as of each quarter-end by relying in part on rolling update appraisals covering approximately 25% of our real estate portfolio each quarter, adjusted to give effect to the estimated fair value of our debt (all provided by an independent third party) and making additional adjustments.for other relevant factors. Since our quarterly NAVs are not based on an appraisal of our full portfolio, to the extent any new quarterly NAV isadjustments are within 1% of our previously disclosed NAV,NAVs, our quarterly NAVNAVs will remain unchanged. We monitor properties not appraised during the quarter to identify any that may have experienced a significant event and obtain updated third-party appraisals for such properties. Our NAVs are based on a number of variables, including individual tenant credits, lease terms, lending credit spreads, foreign currency exchange rates, share counts, tenant defaults, and development projects that are not yet generating income, among others. We do not control all of these variables and, as such, cannot predict how they will change in the future. The majority of our costsCosts associated with our development projects (which are not yet generating income) are not appraised quarterly and are carried at cost, which approximates fair value. These costs are included in Real estateEstate under construction in our consolidated financial statements and totaled approximately $152.1 million as of December 31, 2018.statements. Our NAVs as of September 30, 20182019 were $8.73$8.67 for both our Class A and Class C common stock. Please see our Current Report on Form 8-K dated December 6, 2018November 20, 2019 for additional information regarding the calculation of our NAVs. Our Advisor currently intends to determine our quarterly NAVs as of December 31, 20182019 during the first quarter of 2019.2020.
The accrued distribution and shareholder servicing fee payable has been valued using a hypothetical liquidation value and, as a result, the NAVs do not reflect any obligation to pay future distribution and shareholder servicing fees. AtAs of December 31, 2018,2019, the liability balance for the distribution and shareholder servicing fee was $3.8 million.
CPA:18 – Global 2018 10-K– 32
Changes$1.9 million, which includes $0.5 million related to the fourth quarter 2019. We currently expect that we will cease incurring the distribution and shareholder servicing fee during the third quarter of 2020, at which time the total underwriting compensation paid in Management
On January 27, 2019, a memberrespect of
our boardthe offering will reach 10.0% of
directors, Marshall E. Blume, passed away.the gross offering proceeds (Note 3).
Financial Highlights
During the year ended December 31, 2018,2019, we completed the following, as further described in the consolidated financial statements.
Acquisition Activity
We entered into tena new student housing development project transactionstransaction for an aggregate amount of $351.6$29.7 million (amount based on the exchange rate of the euro on the respective acquisition dates)date), inclusive of unfunded future commitments and acquisition-relatedacquisition related costs and fees (Note 4).
Projects Placed into Service
DuringUpon the year ended December 31, 2018, projects totaling $139.3 million were placed into service, primarily related to thesubstantial completion of twothe student housing development projectsproperty located in the United Kingdom and the remaining portion of a net-leased hotel placed into service in 2017. Of that total, $113.1Barcelona, Spain, we reclassified $31.4 million was reclassifiedfrom Real estate under construction to Operating real estate — land,Land, buildings and improvements on our consolidated financial statements. Subsequent to the completion of this project, on December 20, 2019, we entered into a Framework Agreement with a third party to net-lease this property, as discussed above. As such, we reclassified $30.8 million from Operating real estate — Land, buildings and $26.2 million was reclassifiedimprovements to Real estate — land,Land, buildings and improvements (Note 4).
Disposition Activity
Operating Real Estate—During the year ended December 31, 2018, weWe sold five domesticour 97% interest in our last multi-family residential propertiesproperty to one of our joint venture partners for total proceeds of $95.5$13.1 million, net of sellingclosing costs, and recognized a gain on sale of $15.4 million (which includes a $2.9 million gain attributable to noncontrolling interests). The buyer assumed the related mortgage loan outstanding on this property totaling $24.2 million (Note 13).
Real Estate — We sold the 11 properties in our United Kingdom trade counter portfolio (the “Truffle portfolio”) for total proceeds of $39.3 million, net of closing costs, and recognized an aggregate gain on sale of $58.2 million, which includes an $8.3 million gain attributable to noncontrolling interests. For three of these properties, we sold our 97% interest in each property to one of our joint venture partners. In addition, the buyers assumed the related mortgage loans outstanding on four of these properties totaling $93.4 million. The remaining property was sold to an unaffiliated third party and the related outstanding mortgage loan of $25.3 million was repaid prior to the disposition (Note 13).
At December 31, 2018, our last multi-family residential property was classified as Assets held for sale, net with a carrying value of $23.6 million and a non-recourse mortgage loan of $24.3 million (Note 4). This property was sold in January 2019 (Note 16), and as a result, we have no remaining multi-family residential properties as of the date of this Report.
Real Estate — During the year ended December 31, 2018, we sold an office building located in Utrecht, the Netherlands for total proceeds of $29.7 million, net of selling costs, and recognized an aggregate gain on sale of $20.5 million, inclusive of a tax benefit of $2.0$10.3 million (amounts based on the exchange rate of the euro on the date of sale). On the sale date, the property had an outstanding mortgage loan of $29.2 million, which was assumed by the buyer (Note 13).
Ghana Settlement — On December 17, 2018, in relation to a joint venture development project in Accra, Ghana, we entered into a settlement agreement with our insurer relating to a payment of a claim under our political risk insurance policy. We received payment of $45.6 million, net of transaction costs, on December 27, 2018, resulting in a gain on insurance proceeds of $16.6 million (inclusive of a tax benefit and a gain attributable to noncontrolling interests of $3.5 million and $2.3 million, respectively). As part of the settlement, we transferred our right to collect for tenant default damages to the insurer (Note 4).
Financing Activity
During the year ended December 31, 2018, we obtained construction loans relating to two student housing development projects totaling $65.8 million (based on the exchange rate of the British pound sterling and euro at the dates of acquisition)sale). In addition,At closing, we drew down $124.7 million during 2018 (based onrepaid the exchange rate of the British pound sterling and euro at the dates of the respective drawdowns), which includes financings originally obtained in 2017 (Note 9).
On September 20, 2018, in conjunction with our investment in a student housing development project located in Austin, Texas, we assumed a 90% interest in an existing $4.5$22.7 million non-recourse mortgage loan that bears an annual variable interest rate (which was 5.5% as of the date we assumed the loan) and matures in December 2019. We have the option to extend this loan six months from the original maturity date to June 2020encumbering these properties (Note 913).
CPA:18 – Global 20182019 10-K – 3330
Financing Activity
We alsoOn November 8, 2019, we obtained a $34.0 million non-recourse mortgage loan encumbering seven self-storageof $75.6 million, related to the two student housing operating properties located in Southern California and usedthe United Kingdom (Note 9). The loan bears a portionvariable rate interest rate (3.0% at the date of financing), in which interest only payments are due through the scheduled maturity date of November 2022. At closing, we repaid the $74.9 million construction loans previously encumbering these properties. Amounts are based on the exchange rate of the proceedsBritish pound sterling at the date of financing.
On March 4, 2019, we obtained a construction loan of $51.7 million for a student housing development project located in Austin, Texas. The loan bears a variable interest rate on outstanding drawn balances (3.9% at December 31, 2019) and is scheduled to repaymature in March 2023. We have the $16.4option to extend this loan one year from the original maturity date to March 2024. As of December 31, 2019, we had drawn $25.1 million non-recourse mortgageon the construction loan encumbering those properties (Note 9).
Consolidated Results
(in thousands)
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| Total revenues | $ | 216,716 |
| | $ | 205,634 |
| | $ | 184,323 |
|
| Acquisition and other expenses | 28 |
| | 64 |
| | 6,789 |
|
| Net income (loss) attributable to CPA:18 – Global | 96,728 |
| | 26,533 |
| | (30,084 | ) |
| | | | | | |
| Cash distributions paid | 87,609 |
| | 85,174 |
| | 81,677 |
|
| | | | | | |
Net cash provided by operating activities (a) | 97,703 |
| | 88,425 |
| | 66,747 |
|
Net cash used in investing activities (a) | (8,980 | ) | | (63,226 | ) | | (214,598 | ) |
Net cash provided by (used in) financing activities (a) | 16,588 |
| | (34,063 | ) | | 102,708 |
|
| | | | | | |
| Supplemental financial measures: | | | | | |
FFO attributable to CPA:18 – Global (b) | 86,437 |
| | 85,138 |
| | 46,748 |
|
MFFO attributable to CPA:18 – Global (b) | 65,223 |
| | 61,344 |
| | 57,084 |
|
Adjusted MFFO attributable to CPA:18 – Global (b) | 62,546 |
| | 59,068 |
| | 57,717 |
|
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| Total revenues | $ | 197,439 |
| | $ | 216,716 |
| | $ | 205,634 |
|
| Net income attributable to CPA:18 – Global | 32,572 |
| | 96,728 |
| | 26,533 |
|
| | | | | | |
| Cash distributions paid | 89,845 |
| | 87,609 |
| | 85,174 |
|
| | | | | | |
| Net cash provided by operating activities | 90,820 |
| | 97,703 |
| | 88,425 |
|
| Net cash used in investing activities | (22,675 | ) | | (8,980 | ) | | (63,226 | ) |
| Net cash (used in) provided by financing activities | (96,244 | ) | | 16,588 |
| | (34,063 | ) |
| | | | | | |
| Supplemental financial measures: | | | | | |
FFO attributable to CPA:18 – Global (a) | 69,413 |
| | 86,437 |
| | 85,138 |
|
MFFO attributable to CPA:18 – Global (a) | 65,864 |
| | 65,223 |
| | 61,344 |
|
Adjusted MFFO attributable to CPA:18 – Global (a) | 65,672 |
| | 62,546 |
| | 59,068 |
|
__________
| |
| (a) | On January 1, 2018, we adopted ASU 2016-15 and ASU 2016-18, which revised how certain items are presented in the consolidated statements of cash flows. As a result of adopting this guidance, we retrospectively revised Net cash provided by operating activities, Net cash used in investing activities, and Net cash provided by (used in) financing activities within our consolidated statements of cash flows for the years ended December 31, 2017 and 2016, as described in Note 2. |
| |
(b) | We consider the performance metrics listed above, including FFO, MFFO, and Adjusted modified funds from operations (“Adjusted MFFO”), which are supplemental measures that are not defined by GAAP (“non-GAAP measures”), to be important measures in the evaluation of our operating performance. See Supplemental Financial Measures below for our definitions of these non-GAAP measures and reconciliations to their most directly comparable GAAP measures. |
Revenues and Net Income (Loss) Attributable to CPA:18 – Global
2018 vs. 2017 — Total revenues improveddecreased by $11.1$19.3 million during 20182019 as compared to 2017,2018, primarily due toas a result of our dispositions and the accretive impact of our investmentsforeign currency exchange rates, partially offset by an increase in operating property revenues primarily driven by the full year impact of two student housing operating properties placed into service duringin September 2018, and 2017.as well as the student housing operating property placed into service in July 2019.
Net income (loss) attributable to CPA:18 – Global improveddecreased by $70.2$64.2 million during 20182019 as compared to 2017,2018, primarily due to the gains on sale of real estate and insurance proceeds recognized (inclusive of tax benefits, respectively) during the current period (Note 13), the accretive impact of our investments placed into service during 2018, and 2017, andas well as a decrease in depreciation and amortization expense as certain self-storage in-place lease intangible assets became fully amortized subsequent to December 31, 2017.total revenues. These increasesdecreases were partially offset by an increase inthe gains on sale recognized during 2019 as well as reduced property and interest expense, realized and unrealized foreign currency transaction losses related to our international investments, and additional bad debt expense, primarily at oneexpenses (primarily as a result of our jointly owned properties (Note 14)sold or transferred in 2018 and 2019).
CPA:18 – Global 20182019 10-K – 3431
2017 vs. 2016 — Total revenues improved by $21.3 million during 2017 as compared to 2016, primarily due to the accretive impact of our investments acquired or placed into service during 2017 and 2016.
Net income (loss) attributable to CPA:18 – Global improved by $56.6 million during 2017 as compared to 2016, primarily as a result of the accretive impact of our investments acquired or placed into service during 2017 and 2016. Additional improvements resulted from an increase in realized and unrealized foreign currency transaction gains related to our international investments, as well as the gain on sale of a student housing operating property located in Reading, United Kingdom and a decrease in acquisition expenses. These increases were offset by provisions for bad debt expense related to two tenants and an increase in interest expense.
FFO, MFFO, and Adjusted MFFO Attributable to CPA:18 – Global
FFO, MFFO, and Adjusted MFFO are non-GAAP measures that we use to evaluate our business. For definitions of MFFO and Adjusted MFFO, and a reconciliation to Net income (loss) attributable to CPA:18 – Global, see Supplemental Financial Measures below.
2018 vs. 2017— For the year ended December 31, 20182019 compared to 2017,2018, FFO increaseddecreased by $1.3$17.0 million primarily due to gainsthe gain on insurance proceeds recognized during 2018, the current periodnegative impact from our properties sold during 2018 and 2019, and a decrease in interest income as a result of the accretive impactMills Fleet Farm Group LLC (“Mills Fleet”) mezzanine loan repayment in the second quarter of our investments placed into service. FFO increases2019 (Note 5). These decreases were partially offset by an increase in capitalized interest expense, realized and unrealized foreign currency transaction losses related toon our international investments, and additional bad debt expense, primarily at one of our jointly owned properties.student housing development projects.
For the year ended December 31, 20182019 compared to 2017,2018, MFFO and Adjusted MFFO increased by $3.9$0.6 million and $3.5$3.1 million, respectively, primarily as a resultdue to the lease restructure during the second quarter of 2019 with our tenant, Fortenova (formerly Agrokor), and the accretive impact of our investmentsstudent housing projects placed into service during 20172018 and 2018,2019. An additional increase resulted from the capitalized interest on our student housing development projects in 2019. These increases were partially offset by an increase in interest expense and additional bad debt expense, primarily at one of our jointly owned properties.
2017 vs. 2016 — For the year ended December 31, 2017 compared to 2016, FFO increased by $38.4 million, primarily as a result of the accretivenegative impact of our investments acquired or placed into service during 20162018 and 2017. Additional improvements resulted from an increase in realized and unrealized foreign currency transaction gains related to our international investments,2019 dispositions as well as a decrease in acquisition expenses. FFO increases were partially offset by provisions for bad debt expense related to two tenants and an increase in interest expense.
For the year ended December 31, 2017 compared to 2016, MFFO and Adjusted MFFO increased by $4.3 million and $1.4 million, respectively, primarilyincome as a result of the accretive impactMills Fleet mezzanine loan repayment in the second quarter of our investments acquired or placed into service during 20162019 and 2017. MFFO and Adjusted MFFO increases were partially offset by provisions for bad debt expense relatedthe weakening of foreign currency exchange rates in relation to two tenants and an increase in interest expense.the U.S. dollar between the years.
CPA:18 – Global 20182019 10-K – 3532
Portfolio Overview
We hold a diversified portfolio of income-producing commercial real estate properties, and other real estate-related assets. We make investments both domestically and internationally. In addition, our portfolio includes self-storage, student housing, and multi-family residential properties (our last multi-family residential property was sold on January 29, 2019) for the periods presented below. 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, net-leased and operating investments. See Terms and Definitions below for a description of pro rata amounts.
Portfolio Summary
| | | | December 31, | December 31, |
| | 2018 | | 2017 | 2019 | | 2018 |
Number of net-leased properties (a) | 57 |
| | 59 |
| 47 |
| | 57 |
|
Number of operating properties (b)(a) | 84 |
| | 79 |
| 70 |
| | 72 |
|
Number of tenants (a) | 93 |
| | 98 |
| |
| Number of development projects | | 12 |
| | 12 |
|
| Number of tenants (net-leased properties) | | 61 |
| | 93 |
|
| Total square footage (in thousands) | 15,660 |
| | 16,873 |
| 15,130 |
| | 15,660 |
|
| Occupancy — Single-tenant | 98.3 | % | | 99.7 | % | |
| Occupancy — Multi-tenant | 96.1 | % | | 92.4 | % | |
| Weighted-average lease term — Single-tenant properties (in years) | 10.2 |
| | 11.1 |
| |
| Weighted-average lease term — Multi-tenant properties (in years) | 6.6 |
| | 7.1 |
| |
Number of countries (c) | 12 |
| | 12 |
| |
| Occupancy (net-leased properties) | | 99.4 | % | | 98.3 | % |
| Weighted-average lease term (net-leased properties, in years) | | 9.4 |
| | 10.2 |
|
| Number of countries | | 12 |
| | 12 |
|
| Total assets (consolidated basis in thousands) | $ | 2,304,553 |
| | $ | 2,330,997 |
| $ | 2,234,803 |
| | $ | 2,304,553 |
|
| Net investments in real estate (consolidated basis in thousands) | 1,936,236 |
| | 2,062,451 |
| 1,946,720 |
| | 1,936,236 |
|
Debt, net — pro rata (in thousands) | 1,156,060 |
| | 1,184,896 |
| 1,126,326 |
| | 1,156,060 |
|
| | | | Years Ended December 31, | Years Ended December 31, |
| (dollars in thousands, except exchange rates) | 2018 | | 2017 | | 2016 | 2019 | | 2018 | | 2017 |
Acquisition volume — consolidated (d)(b) | $ | 390,975 |
| | $ | 145,519 |
| | $ | 185,203 |
| $ | 29,736 |
| | $ | 390,975 |
| | $ | 145,519 |
|
Acquisition volume — pro rata (e)(c) | 369,921 |
| | 160,773 |
| | 200,736 |
| 29,736 |
| | 369,921 |
| | 160,773 |
|
| Financing obtained — consolidated | 163,186 |
| | 94,119 |
| | 175,451 |
| 113,444 |
| | 163,186 |
| | 94,119 |
|
| Financing obtained — pro rata | 166,954 |
| | 100,064 |
| | 188,222 |
| 110,098 |
| | 166,954 |
| | 100,064 |
|
| Average U.S. dollar/euro exchange rate | 1.1813 |
| | 1.1292 |
| | 1.1067 |
| 1.1196 |
| | 1.1813 |
| | 1.1292 |
|
| Average U.S. dollar/Norwegian krone exchange rate | 0.1230 |
| | 0.1210 |
| | 0.1193 |
| 0.1137 |
| | 0.1230 |
| | 0.1210 |
|
| Average U.S. dollar/British pound sterling exchange rate | 1.3356 |
| | 1.2882 |
| | 1.3558 |
| 1.2767 |
| | 1.3356 |
| | 1.2882 |
|
Change in the U.S. CPI (f)(d) | 1.9 | % | | 2.1 | % | | 2.0 | % | 2.3 | % | | 1.9 | % | | 2.1 | % |
Change in the Harmonized Index of Consumer Prices (f) | 1.6 | % | | 1.4 | % | | 1.2 | % | |
Change in the Netherlands CPI (d) | | 2.7 | % | | 2.0 | % | | 1.3 | % |
Change in the Norwegian CPI (f)(d) | 3.4 | % | | 1.6 | % | | 3.4 | % | 1.4 | % | | 3.4 | % | | 1.6 | % |
__________
| |
| (a) | Represents our single-tenant and multi-tenant properties and, accordingly, excludes all operating properties. We consider a property to be multi-tenant if it does not have a single tenant that comprises more than 75%As of the contractual minimum ABR for the property. See Terms and Definitions below for a description of ABR. |
| |
(b) | At December 31, 2018,2019, our operating portfolio consisted of 6968 self-storage properties and 15 multi-family properties (including twelve student housing development projects and two student housing operating properties, as well as one multi-family residential property that was sold in January 2019 (Note 16)), all of which are managed by third parties. Our operating portfolio also includes self-storage development projects. |
| |
(c) | As part of the settlement agreement with our insurer relating to payment of a claim under our political risk insurance policy, we transferred our right to collect for tenant default damages related to the joint venture development project located in Accra, Ghana to our insurer (Note 4). |
| |
(d)(b) | Includes development project transactions and related budget amendments, which are reflected as the total commitment for the development project funding, and excludes investments in unconsolidated joint ventures. |
| |
(e)(c) | Includes development project transactions and related budget amendments, which are reflected as the total commitment for the development project funding, and includes investments in unconsolidated joint ventures, which include our equity investment in real estate (Note 4). |
CPA:18 – Global 2018 10-K– 36
| |
(f)(d) | Many of our lease agreements include contractual increases indexed to changes in the U.S. CPI, Netherlands CPI, Norwegian CPI, or other similar indices in the jurisdictions where the properties are located. |
CPA:18 – Global 2019 10-K– 33
The tables below present information about our portfolio on a pro rata basis at for the year ended December 31, 2018.2019. See Terms and Definitions below for a description of pro rata metrics, stabilized net operating income (“Pro Rata Metrics, Stabilized NOI”),NOI, and ABR.
Portfolio Diversification by Property Type
(dollars in thousands)
| | | Property Type | | Stabilized NOI | | Percent | | Stabilized NOI | | Percent |
| Net-Leased | | | | | | | | |
| Office | | $ | 41,043 |
| | 33 | % | | $ | 39,227 |
| | 31 | % |
| Hotel | | 14,275 |
| | 12 | % | |
| Hospitality | | | 14,266 |
| | 11 | % |
| Warehouse | | 12,772 |
| | 10 | % | | 12,933 |
| | 11 | % |
| Industrial | | 11,668 |
| | 9 | % | | 8,695 |
| | 7 | % |
| Retail | | 6,418 |
| | 5 | % | | 7,549 |
| | 6 | % |
| Net-Leased Total | | 86,176 |
| | 69 | % | | 82,670 |
| | 66 | % |
| | | | | | | | | |
| Operating | | | | | | | | |
| Self storage | | 36,090 |
| | 29 | % | | 37,057 |
| | 29 | % |
| Multi-family | | 2,397 |
| | 2 | % | |
| Other operating properties | | | 6,329 |
| | 5 | % |
| Operating Total | | 38,487 |
| | 31 | % | | 43,386 |
| | 34 | % |
| Total | | $ | 124,663 |
| | 100 | % | | $ | 126,056 |
| | 100 | % |
Portfolio Diversification by Geography
(dollars in thousands)
| | | Region | | Stabilized NOI |
| Percent | | Stabilized NOI |
| Percent |
| United States | | | | | | | | |
| South | | $ | 31,599 |
| | 25 | % | | $ | 29,987 |
| | 24 | % |
| Midwest | | 23,491 |
| | 19 | % | | 23,385 |
| | 19 | % |
| West | | 11,264 |
| | 9 | % | | 12,411 |
| | 10 | % |
| East | | 9,653 |
| | 8 | % | | 9,476 |
| | 8 | % |
| U.S. Total | | 76,007 |
| | 61 | % | | 75,259 |
| | 61 | % |
| | | | | | | | | |
| International | | | | | | | | |
| Norway | | 12,053 |
| | 10 | % | | 11,179 |
| | 9 | % |
| The Netherlands | | 10,519 |
| | 8 | % | |
| Germany | | 9,792 |
| | 8 | % | | 10,466 |
| | 8 | % |
| Netherlands | | | 8,409 |
| | 7 | % |
| United Kingdom | | | 6,330 |
| | 5 | % |
| Mauritius | | 5,203 |
| | 4 | % | | 4,980 |
| | 4 | % |
| Poland | | 4,317 |
| | 3 | % | | 4,275 |
| | 3 | % |
| United Kingdom | | 2,635 |
| | 2 | % | |
| Croatia | | | 2,615 |
| | 2 | % |
| Slovakia | | 2,336 |
| | 2 | % | | 2,303 |
| | 1 | % |
| Croatia | | 1,000 |
| | 1 | % | |
| Canada | | 801 |
| | 1 | % | | 240 |
| | — | % |
| International Total | | 48,656 |
| | 39 | % | | 50,797 |
| | 39 | % |
| Total | | $ | 124,663 |
| | 100 | % | | $ | 126,056 |
| | 100 | % |
CPA:18 – Global 20182019 10-K – 3734
Top Ten Tenants by Total Stabilized NOI
(dollars in thousands)
| | | Tenant/Lease Guarantor | | Property Type | | Tenant Industry | | Location | | Stabilized NOI | | Percent | | Property Type | | Tenant Industry | | Location | | Stabilized NOI | | Percent |
Fentonir Trading & Investments Limited (a) | | Hotel | | Hotel, Gaming, and Leisure | | Munich and Stuttgart, Germany | | $ | 7,488 |
| | 6 | % | | Hospitality | | Hotel, Gaming, and Leisure | | Munich and Stuttgart, Germany | | $ | 7,590 |
| | 6 | % |
| Sweetheart Cup Company, Inc. | | Warehouse | | Containers, Packaging, and Glass | | University Park, Illinois | | 6,053 |
| | 5 | % | | Warehouse | | Containers, Packaging and Glass | | University Park, Illinois | | 6,213 |
| | 5 | % |
Rabobank Groep NV (a) | | Office | | Banking | | Eindhoven, Netherlands | | 5,776 |
| | 5 | % | | Office | | Banking | | Eindhoven, Netherlands | | 5,465 |
| | 5 | % |
Albion Resorts (a) | | Hotel | | Hotel, Gaming, and Leisure | | Albion, Mauritius | | 5,203 |
| | 4 | % | |
Albion Resorts (Club Med) (a) | | | Hospitality | | Hotel, Gaming, and Leisure | | Albion, Mauritius | | 4,980 |
| | 4 | % |
Bank Pekao S.A. (a) | | | Office | | Banking | | Warsaw, Poland | | 4,275 |
| | 4 | % |
Siemens AS (a) | | Office | | Capital Equipment | | Oslo, Norway | | 4,546 |
| | 4 | % | | Office | | Capital Equipment | | Oslo, Norway | | 4,235 |
| | 4 | % |
Bank Pekao S.A. (a) | | Office | | Banking | | Warsaw, Poland | | 4,317 |
| | 3 | % | |
| State Farm Automobile Co. | | Office | | Insurance | | Austin, Texas | | 3,816 |
| | 3 | % | | Office | | Insurance | | Austin, Texas | | 3,892 |
| | 3 | % |
Royal Vopak NV (a) | | Office | | Oil and Gas | | Rotterdam, Netherlands | | 3,723 |
| | 3 | % | |
| Orbital ATK, Inc. | | | Office | | Metals and Mining | | Plymouth, Minnesota | | 3,591 |
| | 3 | % |
| State of Iowa Board of Regents | | | Office | | Sovereign and Public Finance | | Coralville and Iowa City, Iowa | | 3,472 |
| | 3 | % |
COOP Ost AS (a) | | Retail | | Grocery | | Oslo, Norway | | 3,597 |
| | 3 | % | | Retail | | Grocery | | Oslo, Norway | | 3,462 |
| | 3 | % |
| Orbital ATK, Inc. | | Office | | Metals and Mining | | Plymouth, Minnesota | | 3,535 |
| | 3 | % | |
| Total | | $ | 48,054 |
| | 39 | % | | $ | 47,175 |
| | 40 | % |
__________
| |
| (a) | Stabilized NOI amounts for these properties are subject to fluctuations in foreign currency exchange rates. |
CPA:18 – Global 20182019 10-K – 3835
Net-Leased Portfolio
The tables below represent information about our net-leased portfolio on a pro rata basis and, accordingly, exclude all operating properties atas of December 31, 2018.2019. See Terms and Definitions below for a description of pro rata metrics,Pro Rata Metrics, Stabilized NOI and ABR.
Portfolio Diversification by Tenant Industry
(dollars in thousands)
| | | Industry Type | | Stabilized NOI | | Percent | | ABR | | Percent |
| Hotel, Gaming, and Leisure | | $ | 14,275 |
| | 17 | % | | $ | 14,634 |
| | 16 | % |
| Banking | | 10,093 |
| | 12 | % | | 10,325 |
| | 11 | % |
| Grocery | | 6,417 |
| | 7 | % | | 6,872 |
| | 8 | % |
| Containers, Packaging, and Glass | | 6,053 |
| | 7 | % | | 6,213 |
| | 7 | % |
| Insurance | | | 4,845 |
| | 5 | % |
| Capital Equipment | | | 4,525 |
| | 5 | % |
| Utilities: Electric | | | 3,922 |
| | 4 | % |
| Oil and Gas | | | 3,762 |
| | 4 | % |
| Retail | | 4,768 |
| | 6 | % | | 3,626 |
| | 4 | % |
| Oil and Gas | | 4,743 |
| | 6 | % | |
| Capital Equipment | | 4,415 |
| | 5 | % | |
| Insurance | | 4,339 |
| | 5 | % | |
| Sovereign and Public Finance | | | 3,547 |
| | 4 | % |
| Metals and Mining | | 3,535 |
| | 4 | % | | 3,531 |
| | 4 | % |
| Business Services | | | 3,430 |
| | 4 | % |
| Media: Advertising, Printing, and Publishing | | 3,516 |
| | 4 | % | | 3,398 |
| | 4 | % |
| Sovereign and Public Finance | | 3,460 |
| | 4 | % | |
| Utilities: Electric | | 3,282 |
| | 4 | % | |
| High Tech Industries | | | 3,258 |
| | 4 | % |
| Healthcare and Pharmaceuticals | | | 2,639 |
| | 3 | % |
| Automotive | | 2,889 |
| | 3 | % | | 1,984 |
| | 3 | % |
| Business Services | | 2,719 |
| | 3 | % | |
| Healthcare and Pharmaceuticals | | 2,336 |
| | 3 | % | |
| High Tech Industries | | 2,216 |
| | 3 | % | |
| Construction and Building | | 1,514 |
| | 2 | % | | 1,521 |
| | 2 | % |
| Non-Durable Consumer Goods | | 1,115 |
| | 1 | % | | 1,239 |
| | 1 | % |
| Telecommunications | | | 1,095 |
| | 1 | % |
| Electricity | | | 1,057 |
| | 1 | % |
| Wholesale | | | 1,049 |
| | 1 | % |
| Residential | | | 990 |
| | 1 | % |
| Cargo Transportation | | 1,051 |
| | 1 | % | | 977 |
| | 1 | % |
| Electricity | | 1,039 |
| | 1 | % | |
| Telecommunications | | 984 |
| | 1 | % | |
| Wholesale | | 983 |
| | 1 | % | |
| Consumer Services | | | 685 |
| | 1 | % |
Other (a) | | 434 |
| | — | % | | 722 |
| | 1 | % |
| Total | | $ | 86,176 |
| | 100 | % | | $ | 89,846 |
| | 100 | % |
__________
| |
| (a) | Includes Stabilized NOIABR from tenants in the following industries: durable consumer goods and environmental industries. |
CPA:18 – Global 20182019 10-K – 3936
Lease Expirations
| | Year of Lease Expiration (a) (b) | | Number of Leases Expiring | | ABR | | Percent | |
| 2019 | | 7 |
| | $ | 1,054 |
| | 1 | % | |
Year of Lease Expiration (a) | | | Number of Leases Expiring | | ABR | | Percent |
| 2020 | | 6 |
| | 946 |
| | 1 | % | | 3 |
| | $ | 714 |
| | 1 | % |
| 2021 | | 5 |
| | 1,161 |
| | 1 | % | | 2 |
| | 1,021 |
| | 1 | % |
| 2022 | | 5 |
| | 296 |
| | — | % | | 2 |
| | 113 |
| | — | % |
| 2023 | | 16 |
| | 15,764 |
| | 17 | % | | 12 |
| | 15,241 |
| | 17 | % |
| 2024 | | 11 |
| | 5,364 |
| | 6 | % | | 14 |
| | 5,286 |
| | 6 | % |
| 2025 | | 8 |
| | 5,170 |
| | 6 | % | | 3 |
| | 4,810 |
| | 5 | % |
| 2026 | | 8 |
| | 6,936 |
| | 8 | % | | 5 |
| | 7,494 |
| | 8 | % |
| 2027 | | 8 |
| | 6,294 |
| | 7 | % | | 6 |
| | 6,120 |
| | 7 | % |
| 2028 | | 5 |
| | 5,378 |
| | 6 | % | | 4 |
| | 5,310 |
| | 6 | % |
| 2029 | | 4 |
| | 9,178 |
| | 10 | % | | 3 |
| | 9,085 |
| | 10 | % |
| 2030 | | 6 |
| | 4,375 |
| | 5 | % | | 2 |
| | 3,961 |
| | 4 | % |
| 2031 | | 5 |
| | 4,917 |
| | 5 | % | | 4 |
| | 5,027 |
| | 6 | % |
| 2032 | | 3 |
| | 7,970 |
| | 9 | % | | 3 |
| | 7,913 |
| | 9 | % |
| Thereafter (>2032) | | 11 |
| | 17,000 |
| | 18 | % | | 12 |
| | 17,751 |
| | 20 | % |
| Total | | 108 |
| | $ | 91,803 |
| | 100 | % | | 75 |
| | $ | 89,846 |
| | 100 | % |
__________
| |
| (a) | Assumes tenant does not exercise renewal option. |
| |
(b) | These maturities also include our multi-tenant properties, which generally have a shorter duration than our single-tenant properties, and on a combined basis represent pro rata ABR of $3.5 million. |
Lease Composition and Leasing Activities
Substantially all of our leases provide for either scheduled rent increases, periodic rent adjustments based on formulas indexed to changes in the CPI or similar indices, or percentage rents. As of December 31, 2019, approximately 50.7% of our leases (based on ABR) provided for adjustments based on formulas indexed to changes in the U.S. CPI (or similar indices for the jurisdiction in which the property is located), some of which are subject to caps and/or floors. In addition, 47.4% of our leases (based on ABR) have fixed rent adjustments, for a scheduled average ABR increase of 3.4% over the next 12 months. Lease revenues from our international investments are subject to exchange rate fluctuations, primarily from the euro. 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 are insignificant for the periods presented.
CPA:18 – Global 20182019 10-K – 4037
Operating Properties
AtAs of December 31, 2018,2019, our operating portfolio consisted of 6968 self-storage properties and 15 multi-family properties (including twelve student housing development projects and two student housing operating properties, as well as one multi-family residential property that was sold in January 2019 (Note 16)). Atproperties. As of December 31, 2018,2019, our operating portfolio was comprised as follows (square footage in thousands): | | | Location | | Number of Properties | | Square Footage | | Number of Properties | | Square Footage |
| Florida | | 22 |
| | 2,016 |
| | 21 |
| | 1,779 |
|
Texas (a) | | 13 |
| | 843 |
| | 12 |
| | 843 |
|
| California | | 10 |
| | 860 |
| | 10 |
| | 860 |
|
| Nevada | | 3 |
| | 243 |
| | 3 |
| | 243 |
|
| Delaware | | 3 |
| | 241 |
| | 3 |
| | 241 |
|
| Georgia | | 3 |
| | 171 |
| | 3 |
| | 171 |
|
| Illinois | | 2 |
| | 100 |
| | 2 |
| | 100 |
|
| Hawaii | | 2 |
| | 95 |
| | 2 |
| | 95 |
|
| Kentucky | | 1 |
| | 121 |
| | 1 |
| | 121 |
|
| North Carolina | | 1 |
| | 121 |
| | 1 |
| | 121 |
|
| Washington DC | | 1 |
| | 67 |
| |
| Washington D.C. | | | 1 |
| | 67 |
|
| South Carolina | | 1 |
| | 63 |
| | 1 |
| | 62 |
|
| New York | | 1 |
| | 61 |
| | 1 |
| | 61 |
|
| Louisiana | | 1 |
| | 59 |
| | 1 |
| | 59 |
|
| Massachusetts | | 1 |
| | 58 |
| | 1 |
| | 58 |
|
| Missouri | | 1 |
| | 41 |
| | 1 |
| | 41 |
|
| Oregon | | 1 |
| | 40 |
| | 1 |
| | 40 |
|
| U.S. Total | | 67 |
| | 5,200 |
| | 65 |
| | 4,962 |
|
Spain (b) | | 8 |
| | — |
| |
Canada (c) | | 4 |
| | 208 |
| |
United Kingdom (a) | | 3 |
| | 215 |
| |
Portugal (d) | | 2 |
| | — |
| |
| Canada | | | 3 |
| | 316 |
|
| United Kingdom | | | 2 |
| | 215 |
|
| International Total | | 17 |
| | 423 |
| | 5 |
| | 531 |
|
| Total | | 84 |
| | 5,623 |
| | 70 |
| | 5,493 |
|
__________
| |
(a) | Includes one student housing development project. |
| |
(b) | Comprised of eight student housing development projects. |
| |
(c) | Includes one self-storage facility development project that is an unconsolidated investment and is included in Accounts receivable and other assets, net in the consolidated financial statements. |
| |
(d) | Comprised of two student housing development projects. |
CPA:18 – Global 20182019 10-K – 4138
Build-to-Suit and Development Projects
As of December 31, 2018,2019, we had the following 12 consolidated student housing development projects, and joint-venture development projects,including joint-ventures, which remain under construction (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | | | |
| Estimated Completion Date | | Property Type | | Location | | Ownership Percentage (a) | | Number of Buildings | | Square Footage | | Estimated Project Totals (b) | | Amount Funded (b) (c) |
| Q3 2019 | | Student Housing | | Barcelona, Spain | | 98.7 | % | | 1 |
| | 112,980 |
| | $ | 24,263 |
| | $ | 17,173 |
|
| Q3 2020 | | Student Housing | | Austin, Texas | | 90.0 | % | | 1 |
| | 185,720 |
| | 74,469 |
| | 15,053 |
|
| Q3 2020 | | Student Housing | | Coimbra, Portugal | | 98.5 | % | | 1 |
| | 135,076 |
| | 25,298 |
| | 8,785 |
|
| Q3 2020 | | Student Housing | | San Sebastian, Spain | | 100.0 | % | | 1 |
| | 126,075 |
| | 34,652 |
| | 11,286 |
|
| Q3 2020 | | Student Housing | | Porto, Portugal | | 98.5 | % | | 1 |
| | 102,112 |
| | 23,399 |
| | 4,838 |
|
| Q3 2020 | | Student Housing | | Malaga, Spain | | 100.0 | % | | 1 |
| | 88,878 |
| | 39,888 |
| | 4,944 |
|
| Q3 2020 | | Student Housing | | Barcelona, Spain | | 100.0 | % | | 3 |
| | 77,504 |
| | 30,040 |
| | 12,578 |
|
| Q1 2021 | | Student Housing | | Swansea, United Kingdom (d) | | 94.5 | % | | 1 |
| | 176,496 |
| | 65,025 |
| | 15,885 |
|
| Q1 2021 | | Student Housing | | Seville, Spain | | 75.0 | % | | 1 |
| | 163,477 |
| | 42,138 |
| | 11,601 |
|
| Q3 2021 | | Student Housing | | Bilbao, Spain | | 100.0 | % | | 1 |
| | 179,279 |
| | 50,053 |
| | 6,358 |
|
| Q3 2021 | | Student Housing | | Valencia, Spain | | 98.7 | % | | 1 |
| | 100,423 |
| | 25,685 |
| | 6,040 |
|
| Q3 2021 | | Student Housing | | Granada, Spain | | 98.5 | % | | 1 |
| | 75,557 |
| | 22,160 |
| | 3,369 |
|
| | | | | | | | | 14 |
| | 1,523,577 |
| | $ | 457,070 |
| | 117,910 |
|
Third-party contributions (e) | | | | | | | | | | | | (7,593 | ) |
| Total | | | | | | | | | | | | | | $ | 110,317 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Location | | Ownership Percentage (a) | | Number of Buildings | | Square Footage | | Estimated Project Totals (b) | | Amount Funded (b) (c) | | Estimated Completion Date |
Malaga, Spain (d) | | 100.0 | % | | 2 |
| | 230,329 |
| | $ | 39,136 |
| | $ | 10,735 |
| | Q3 2020 |
| Austin, Texas | | 90.0 | % | | 1 |
| | 185,720 |
| | 74,469 |
| | 47,802 |
| | Q3 2020 |
San Sebastian, Spain (d) | | 100.0 | % | | 1 |
| | 126,075 |
| | 33,998 |
| | 17,277 |
| | Q3 2020 |
Porto, Portugal (d) | | 98.5 | % | | 1 |
| | 102,112 |
| | 22,957 |
| | 7,077 |
| | Q3 2020 |
Barcelona, Spain (d) | | 100.0 | % | | 3 |
| | 77,504 |
| | 29,474 |
| | 17,479 |
| | Q3 2020 |
Seville, Spain (d) | | 75.0 | % | | 1 |
| | 163,477 |
| | 41,343 |
| | 14,060 |
| | Q1 2021 |
Coimbra, Portugal (d) | | 98.5 | % | | 1 |
| | 135,076 |
| | 24,820 |
| | 9,996 |
| | Q1 2021 |
Bilbao, Spain (d) | | 100.0 | % | | 1 |
| | 179,279 |
| | 49,109 |
| | 10,076 |
| | Q3 2021 |
Valencia, Spain (d) | | 98.7 | % | | 1 |
| | 100,423 |
| | 25,201 |
| | 7,142 |
| | Q3 2021 |
Pamplona, Spain (d) | | 100.0 | % | | 1 |
| | 91,363 |
| | 28,064 |
| | 10,024 |
| | Q3 2021 |
Granada, Spain (d) | | 98.5 | % | | 1 |
| | 75,557 |
| | 21,742 |
| | 4,399 |
| | Q3 2021 |
Swansea, United Kingdom (e) | | 97.0 | % | | 1 |
| | 176,496 |
| | 67,077 |
| | 26,287 |
| | Q2 2022 |
| | | | | 15 |
| | 1,643,411 |
| | $ | 457,390 |
| | 182,354 |
| | |
Third-party contributions (f) | | | | | | | | | | (7,069 | ) | | |
| Total | | | | | | | | | | $ | 175,285 |
| | |
__________
| |
| (a) | Represents our expected ownership percentage upon the completion of each respective development project. |
| |
| (b) | Amounts related to our eleven11 international development projects are denominated in a foreign currency. For these projects, amounts are based on their respective exchange rates as of December 31, 2018.2019. |
| |
| (c) | Amounts exclude capitalized interest, accrued costs, and capitalized acquisition fees forpaid to our Advisor, which are all included in Real estate under construction. |
| |
(d) | Amount funded for the project includes $7.3 million of prepaid ground lease rent that is included in Accounts receivable and other assets, netconstruction on our consolidated balance sheets. |
| |
| (d) | Included as part of the executed Framework Agreement to become a net-leased property upon completion of construction (Note 14). |
| |
| (e) | Amount funded for the project includes $7.3 million right-of-use (“ROU”) land lease asset that is included in In-place lease and other intangible assets on our consolidated balance sheets. |
| |
| (f) | Amount represents the funds contributed from our joint-venture partners. |
As of December 31, 2018, we had the following unconsolidated joint-venture self-storage development project, which remains under construction (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | | | |
| Estimated Completion Date | | Property Type | | Location (a) | | Ownership Percentage (b) | | Number of Buildings | | Square Footage | | Estimated Project Totals (c) | | Amount Funded (c) |
| Q3 2020 | | Self Storage | | Vaughn, Canada | | 90.0 | % | | 1 |
| | 95,475 |
| | $ | 14,460 |
| | $ | 2,826 |
|
| | | | | | | | | 1 |
| | 95,475 |
| | $ | 14,460 |
| | $ | 2,826 |
|
_________
| |
(a) | This property relates to an unconsolidated investment, which we account for under the equity method of accounting. |
| |
(b) | Represents our expected ownership percentage upon the completion of the development project. As of December 31, 2018, the joint-venture partner had not yet purchased its 10% equity interest, which will be funded by the distributions it is eligible to receive upon the property being placed into service. |
CPA:18 – Global 20182019 10-K – 4239
| |
(c) | Amount is denominated in Canadian dollars, which have been partially funded by third-party financing. U.S. dollar amounts are based on the exchange rate as of December 31, 2018. |
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.method (“Pro Rata Metrics”). We have a number of investments 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(loss) from that investment. Under the pro rata consolidation method, we generally 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, 2018.2019. 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.
NOI— Net operating income (“NOI”) is a non-GAAP measure intended to reflect the performance of our entire portfolio of properties. We define NOI as rental revenues minusless non-reimbursable property expenses as determined by GAAP. We believe that NOI is a helpful measure that both investors and management can use to evaluate the financial performance of our properties and it allows for comparison of our portfolio performance between periods and to other REITs. While we believe that NOI is a useful supplemental measure, it should not be considered as an alternative to Net income (loss) as an indication of our operating performance.
Stabilized NOI— We use stabilizedStabilized NOI, a non-GAAP measure, as a metric to evaluate the performance of our entire portfolio of properties. Stabilized NOI for development projects and newly acquired operating properties that are not yet substantially leased up are not included in our portfolio information until one year after the project has been substantially completed and placed into service, or the property has been substantially leased up respectively (and the project or property has not been disposed of during or prior to the current period). In addition, any newly acquired stabilized operating property is included in our portfolio of stabilized
Stabilized NOI information upon acquisition. Stabilized NOI for a net-leased property is included in our portfolio information upon acquisition or in the period when it is placed into service as(as the property will already have a lease in place (the property also must not have been disposed of during or priorplace).
Stabilized NOI is adjusted for corporate expenses, such as asset management fees and cash distributions to the current period). Special General Partner, as well as other gains and (losses) that are calculated and reported at the corporate level and not evaluated as part of any property’s operating performance. Additionally, non-cash adjustments (such as straight-line rent adjustments) and interest income related to our Notes receivable (which is non-property related) are not included in Stabilized NOI. Lastly, non-core income is excluded from Stabilized NOI as this income is generally not recurring in nature.
We believe that Stabilized NOI is a helpful measure that both investors and management can use to evaluate the financial performance of our properties and it allows for comparison of our portfolio performance between periods and to other REITs. While we believe that Stabilized NOI is a useful supplemental measure, it should not be considered as an alternative to Net income (loss) as an indication of our operating performance.
CPA:18 – Global 20182019 10-K – 4340
Reconciliation of Net Income (Loss) (GAAP) to Net Operating Income Attributable to CPA:18 – Global (non-GAAP) (in thousands):
| | | | Years Ended December 31, | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 | 2019 | | 2018 | | 2017 |
| Net Income (Loss) (GAAP) | $ | 117,290 |
| | $ | 39,817 |
| | $ | (19,785 | ) | |
| Net Income (GAAP) | | $ | 44,004 |
| | $ | 117,290 |
| | $ | 39,817 |
|
| Adjustments: | | | | | | | | | | |
| Depreciation and amortization | 66,436 |
| | 75,174 |
| | 82,756 |
| 65,498 |
| | 66,436 |
| | 75,174 |
|
| (Gain) loss on sale of real estate, net | (78,657 | ) | | (14,209 | ) | | 63 |
| |
| Interest expense | 53,221 |
| | 48,994 |
| | 43,132 |
| 48,019 |
| | 53,221 |
| | 48,994 |
|
| Gain on sale of real estate, net | | (24,773 | ) | | (78,657 | ) | | (14,209 | ) |
| Other (gains) and losses | (21,276 | ) | | (19,969 | ) | | 6,656 |
| (4,715 | ) | | (21,276 | ) | | (19,969 | ) |
| Equity in losses of equity method investment in real estate | 1,072 |
| | 871 |
| | 204 |
| 2,185 |
| | 1,072 |
| | 871 |
|
| (Benefit from) provision for income taxes | (1,952 | ) | | (1,506 | ) | | 6 |
| |
| Provision for (benefit from) income taxes | | 210 |
| | (1,952 | ) | | (1,506 | ) |
NOI related to noncontrolling interests (1) | (12,313 | ) | | (12,128 | ) | | (13,051 | ) | (12,835 | ) | | (12,313 | ) | | (12,128 | ) |
NOI related to equity method investment in real estate (2) | 692 |
| | 75 |
| | (180 | ) | 200 |
| | 692 |
| | 75 |
|
| Net Operating Income Attributable to CPA:18 – Global (Non-GAAP) | $ | 124,513 |
| | $ | 117,119 |
| | $ | 99,801 |
| $ | 117,793 |
| | $ | 124,513 |
| | $ | 117,119 |
|
| | | | | | | | | | | |
| (1) NOI related to noncontrolling interests: | | | | | | | | | | |
| Net income attributable to noncontrolling interests (GAAP) | $ | (20,562 | ) | | $ | (13,284 | ) | | $ | (10,299 | ) | $ | (11,432 | ) | | $ | (20,562 | ) | | $ | (13,284 | ) |
| Available Cash Distributions to a related party | 9,692 |
| | 8,650 |
| | 7,586 |
| |
| Depreciation and amortization | (6,673 | ) | | (6,430 | ) | | (6,296 | ) | (7,389 | ) | | (6,673 | ) | | (6,430 | ) |
| Interest expense | | (4,770 | ) | | (4,884 | ) | | (4,703 | ) |
| Gain on sale of real estate, net | 8,259 |
| | 3,627 |
| | — |
| 2,898 |
| | 8,259 |
| | 3,627 |
|
| Interest expense | (4,884 | ) | | (4,703 | ) | | (4,536 | ) | |
| Other gains and (losses) | 1,934 |
| | 174 |
| | (73 | ) | (366 | ) | | 1,934 |
| | 174 |
|
| Benefit from (provision for) income taxes | (79 | ) | | (162 | ) | | 567 |
| 92 |
| | (79 | ) | | (162 | ) |
Available Cash Distributions to a related party (Note 3) | | 8,132 |
| | 9,692 |
| | 8,650 |
|
| NOI related to noncontrolling interests | $ | (12,313 | ) | | $ | (12,128 | ) | | $ | (13,051 | ) | $ | (12,835 | ) | | $ | (12,313 | ) | | $ | (12,128 | ) |
| |
| |
| |
|
| |
| |
|
| (2) NOI related to equity method investment in real estate: | | | | | | | | | | |
| Equity in losses of equity method investment in real estate (GAAP) | $ | (1,072 | ) | | $ | (871 | ) | | $ | (204 | ) | $ | (2,185 | ) | | $ | (1,072 | ) | | $ | (871 | ) |
| Depreciation and amortization | 549 |
| | 334 |
| | 27 |
| 1,771 |
| | 549 |
| | 334 |
|
| Interest expense | 943 |
| | 641 |
| | — |
| 1,780 |
| | 943 |
| | 641 |
|
| Gain on sale of real estate, net | | (1,122 | ) | | — |
| | — |
|
| Other gains and (losses) | 7 |
| | (11 | ) | | (3 | ) | (58 | ) | | 7 |
| | (11 | ) |
| Benefit from (provision for) income taxes | 265 |
| | (18 | ) | | — |
| 14 |
| | 265 |
| | (18 | ) |
| NOI related to equity method investment in real estate | $ | 692 |
| | $ | 75 |
| | $ | (180 | ) | $ | 200 |
| | $ | 692 |
| | $ | 75 |
|
CPA:18 – Global 20182019 10-K – 4441
Reconciliation of Stabilized NOI to Net Operating Income Attributable to CPA:18 – Global (Non-GAAP) (pro rata, in thousands):
| | | | Years Ended December 31, | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 | 2019 | | 2018 | | 2017 |
| Net-leased | $ | 86,176 |
| | $ | 81,436 |
| | $ | 79,959 |
| $ | 82,670 |
| | $ | 86,176 |
| | $ | 81,436 |
|
| Self storage | 36,090 |
| | 33,232 |
| | 23,506 |
| 37,057 |
| | 36,090 |
| | 33,232 |
|
| Multi-family | 2,397 |
| | 11,508 |
| | 10,378 |
| |
| Other operating properties | | 6,329 |
| | 2,397 |
| | 11,508 |
|
| Stabilized NOI | 124,663 |
| | 126,176 |
| | 113,843 |
| 126,056 |
| | 124,663 |
| | 126,176 |
|
| Other NOI: | | | | | | | | | | |
Corporate (a) | (20,281 | ) | | (22,757 | ) | | (20,655 | ) | (19,593 | ) | | (20,281 | ) | | (22,757 | ) |
| Notes receivable | | 4,075 |
| | 7,234 |
| | 7,158 |
|
| Straight-line rent adjustments | 4,712 |
| | 5,184 |
| | 5,067 |
| 3,461 |
| | 4,712 |
| | 5,184 |
|
Non-core income (b) | | 2,457 |
| | — |
| | — |
|
| Disposed properties | 7,477 |
| | 1,241 |
| | — |
| 1,516 |
| | 7,477 |
| | 1,241 |
|
| Notes receivable | 7,234 |
| | 7,158 |
| | 1,578 |
| |
| | 123,805 |
| | 117,002 |
| | 99,833 |
| 117,972 |
| | 123,805 |
| | 117,002 |
|
Recently-opened operating properties (b) | 906 |
| | 165 |
| | — |
| |
Build-to-Suit and Development Projects (c) | (198 | ) | | (48 | ) | | (32 | ) | |
Recently-opened operating properties (c) | | (148 | ) | | 906 |
| | 165 |
|
Build-to-Suit and Development Projects (d) | | (31 | ) | | (198 | ) | | (48 | ) |
| Net Operating Income Attributable to CPA:18 – Global (Non-GAAP) | $ | 124,513 |
| | $ | 117,119 |
| | $ | 99,801 |
| $ | 117,793 |
| | $ | 124,513 |
| | $ | 117,119 |
|
_________
| |
| (a) | Includes expenses such as asset management fees and cash distributions to the Special General Partner as well as other gains and (losses) that are calculated and reported at the portfoliocorporate level and not evaluated as part of any property’s operating performance. |
| |
| (b) | Includes NOI related to back rents collected from tenants that were previously reserved in prior periods. |
| |
| (c) | The year ended December 31, 2019 includes NOI for the student housing operating property located in Barcelona, Spain, which was placed into service during the third quarter of 2019. This property became net lease upon the execution of the Framework Agreement with a third party in December 2019 (Note 14). The years ended December 31, 2018 and 2017 include NOI relating to the student housing operating properties located in Portsmouth and Cardiff, United Kingdom, which were completed and began operating during the third quarter of 2018 as well as phases placed into service for the Canadian self-storage properties during the year ended December 31, 2018. |
| |
(c)(d) | IncludesAll years include NOI for our ongoing student housing and Canadian self-storage development projects. Refer to the Build-to-Suit and Development Projects table above for a listing of all current projects. The years ended December 31, 2018 and 2017, include NOI for our Canadian self-storage development projects which were all substantially completed as of December 31, 2018. |
CPA:18 – Global 2018 10-K– 45
Results of Operations
We evaluate our results of operations with a focus on: (i) our ability to generate the cash flow necessary to meet our objectives of funding distributions to stockholders and (ii) increasing the value of our real estate investments. As a result, our assessment of operating results gives less emphasis to the effect of unrealized gains and losses, which may cause fluctuations in net income (loss) for comparable periods but have no impact on cash flows, and to other non-cash charges, such as depreciation and impairment charges.
The following table presents the comparative results of operations (in thousands): |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | Change | | 2017 | | 2016 | | Change |
| Revenues | | | | | | | | | | | |
| Lease revenues | $ | 115,672 |
| | $ | 105,823 |
| | $ | 9,849 |
| | $ | 105,823 |
| | $ | 97,770 |
| | $ | 8,053 |
|
| Operating real estate income | 79,352 |
| | 80,027 |
| | (675 | ) | | 80,027 |
| | 71,404 |
| | 8,623 |
|
| Reimbursable tenant costs | 13,985 |
| | 12,152 |
| | 1,833 |
| | 12,152 |
| | 11,149 |
| | 1,003 |
|
| Interest income and other | 7,707 |
| | 7,632 |
| | 75 |
| | 7,632 |
| | 4,000 |
| | 3,632 |
|
| | 216,716 |
| | 205,634 |
| | 11,082 |
| | 205,634 |
| | 184,323 |
| | 21,311 |
|
| Operating Expenses | | | | | | | | | | | |
| Depreciation and amortization: | | | | | | | | | | | |
| Net-leased properties | 48,576 |
| | 46,899 |
| | 1,677 |
| | 46,899 |
| | 44,829 |
| | 2,070 |
|
| Operating properties | 17,860 |
| | 28,275 |
| | (10,415 | ) | | 28,275 |
| | 37,927 |
| | (9,652 | ) |
| | 66,436 |
| | 75,174 |
| | (8,738 | ) | | 75,174 |
| | 82,756 |
| | (7,582 | ) |
| Property expenses: | | | | | | | | | | | |
| Operating properties | 32,928 |
| | 33,530 |
| | (602 | ) | | 33,530 |
| | 31,831 |
| | 1,699 |
|
| Net-leased properties | 14,157 |
| | 12,152 |
| | 2,005 |
| | 12,152 |
| | 4,520 |
| | 7,632 |
|
| Reimbursable tenant costs | 13,985 |
| | 12,152 |
| | 1,833 |
| | 12,152 |
| | 11,149 |
| | 1,003 |
|
| Asset management fees | 12,087 |
| | 11,293 |
| | 794 |
| | 11,293 |
| | 10,126 |
| | 1,167 |
|
| | 73,157 |
| | 69,127 |
| | 4,030 |
| | 69,127 |
| | 57,626 |
| | 11,501 |
|
| General and administrative | 7,397 |
| | 7,271 |
| | 126 |
| | 7,271 |
| | 6,876 |
| | 395 |
|
| Acquisition and other expenses | 28 |
| | 64 |
| | (36 | ) | | 64 |
| | 6,789 |
| | (6,725 | ) |
| | 147,018 |
| | 151,636 |
| | (4,618 | ) | | 151,636 |
| | 154,047 |
| | (2,411 | ) |
| Other Income and Expenses | | | | | | | | | | | |
| Gain (loss) on sale of real estate, net | 78,657 |
| | 14,209 |
| | 64,448 |
| | 14,209 |
| | (63 | ) | | 14,272 |
|
| Interest expense | (53,221 | ) | | (48,994 | ) | | (4,227 | ) | | (48,994 | ) | | (43,132 | ) | | (5,862 | ) |
| Other gains and (losses) | 21,276 |
| | 19,969 |
| | 1,307 |
| | 19,969 |
| | (6,656 | ) | | 26,625 |
|
| Equity in losses of equity method investment in real estate | (1,072 | ) | | (871 | ) | | (201 | ) | | (871 | ) | | (204 | ) | | (667 | ) |
| | 45,640 |
| | (15,687 | ) | | 61,327 |
| | (15,687 | ) | | (50,055 | ) | | 34,368 |
|
| Income (loss) before income taxes | 115,338 |
| | 38,311 |
| | 77,027 |
| | 38,311 |
| | (19,779 | ) | | 58,090 |
|
| Benefit from (provision for) income taxes | 1,952 |
| | 1,506 |
| | 446 |
| | 1,506 |
| | (6 | ) | | 1,512 |
|
| Net Income (Loss) | 117,290 |
| | 39,817 |
| | 77,473 |
| | 39,817 |
| | (19,785 | ) | | 59,602 |
|
| Net income attributable to noncontrolling interests | (20,562 | ) | | (13,284 | ) | | (7,278 | ) | | (13,284 | ) | | (10,299 | ) | | (2,985 | ) |
| Net Income (Loss) Attributable to CPA:18 – Global | $ | 96,728 |
| | $ | 26,533 |
| | $ | 70,195 |
| | $ | 26,533 |
| | $ | (30,084 | ) | | $ | 56,617 |
|
CPA:18 – Global 20182019 10-K – 46
Lease Composition and Leasing Activities
As of December 31, 2018, approximately 49.4% of our leases (based on ABR) provided for adjustments based on formulas indexed to changes in the U.S. CPI (or similar indices for the jurisdiction in which the property is located), some of which are subject to caps and/or floors. In addition, 45.6% of our leases (based on ABR) have fixed rent adjustments, for a scheduled average ABR increase of 2.2% over the next 12 months. Lease revenues from our international investments are subject to exchange rate fluctuations, primarily from the euro.
CPA:18 – Global 2018 10-K– 4742
Property Level Contribution
The following table presents the property level contribution for our consolidated net-leased and operating properties, as well as a reconciliation to net income (loss) attributable to CPA:18 – Global (in thousands):
| | | | Years Ended December 31, | Years Ended December 31, |
| | 2018 | | 2017 | | Change | | 2017 | | 2016 | | Change | 2019 | | 2018 | | Change | | 2018 | | 2017 | | Change |
| Existing Net-Leased Properties | | | | | | | | | | | | | | | | | | | | | | |
| Lease revenues | $ | 96,636 |
| | $ | 95,600 |
| | $ | 1,036 |
| | $ | 95,600 |
| | $ | 94,709 |
| | $ | 891 |
| $ | 100,050 |
| | $ | 104,651 |
| | $ | (4,601 | ) | | $ | 104,651 |
| | $ | 103,302 |
| | $ | 1,349 |
|
| Depreciation and amortization | (41,319 | ) | | (42,421 | ) | | 1,102 |
| | (42,421 | ) | | (42,839 | ) | | 418 |
| (44,185 | ) | | (39,778 | ) | | (4,407 | ) | | (39,778 | ) | | (40,865 | ) | | 1,087 |
|
| Reimbursable tenant cots | | (11,492 | ) | | (11,493 | ) | | 1 |
| | (11,493 | ) | | (10,902 | ) | | (591 | ) |
| Property expenses | (10,859 | ) | | (8,651 | ) | | (2,208 | ) | | (8,651 | ) | | (4,167 | ) | | (4,484 | ) | (5,803 | ) | | (10,352 | ) | | 4,549 |
| | (10,352 | ) | | (8,110 | ) | | (2,242 | ) |
| Property level contribution | 44,458 |
| | 44,528 |
| | (70 | ) | | 44,528 |
| | 47,703 |
| | (3,175 | ) | 38,570 |
| | 43,028 |
| | (4,458 | ) | | 43,028 |
| | 43,425 |
| | (397 | ) |
| Recently Acquired Net-Leased Properties | | | | | | | | | | | | | | | | | | | | | | |
| Lease revenues | 16,020 |
| | 6,753 |
| | 9,267 |
| | 6,753 |
| | — |
| | 6,753 |
| 17,019 |
| | 17,741 |
| | (722 | ) | | 17,741 |
| | 7,172 |
| | 10,569 |
|
| Depreciation and amortization | (5,474 | ) | | (2,448 | ) | | (3,026 | ) | | (2,448 | ) | | — |
| | (2,448 | ) | (5,031 | ) | | (5,474 | ) | | 443 |
| | (5,474 | ) | | (2,448 | ) | | (3,026 | ) |
| Reimbursable tenant costs | | (1,515 | ) | | (1,720 | ) | | 205 |
| | (1,720 | ) | | (436 | ) | | (1,284 | ) |
| Property expenses | (617 | ) | | (395 | ) | | (222 | ) | | (395 | ) | | — |
| | (395 | ) | (700 | ) | | (619 | ) | | (81 | ) | | (619 | ) | | (405 | ) | | (214 | ) |
| Property level contribution | 9,929 |
| | 3,910 |
| | 6,019 |
| | 3,910 |
| | — |
| | 3,910 |
| 9,773 |
| | 9,928 |
| | (155 | ) | | 9,928 |
| | 3,883 |
| | 6,045 |
|
| Existing Operating Properties | | | | | | | | | | | | | | | | | | | | | | |
| Operating property revenues | 49,393 |
| | 46,941 |
| | 2,452 |
| | 46,941 |
| | 43,012 |
| | 3,929 |
| 60,763 |
| | 57,909 |
| | 2,854 |
| | 57,909 |
| | 55,098 |
| | 2,811 |
|
| Operating property expenses | | (23,628 | ) | | (22,133 | ) | | (1,495 | ) | | (22,133 | ) | | (21,782 | ) | | (351 | ) |
| Depreciation and amortization | (10,476 | ) | | (16,221 | ) | | 5,745 |
| | (16,221 | ) | | (27,902 | ) | | 11,681 |
| (11,911 | ) | | (12,840 | ) | | 929 |
| | (12,840 | ) | | (22,460 | ) | | 9,620 |
|
| Operating property expenses | (19,193 | ) | | (19,042 | ) | | (151 | ) | | (19,042 | ) | | (18,271 | ) | | (771 | ) | |
| Property level contribution | 19,724 |
| | 11,678 |
| | 8,046 |
| | 11,678 |
| | (3,161 | ) | | 14,839 |
| 25,224 |
| | 22,936 |
| | 2,288 |
| | 22,936 |
| | 10,856 |
| | 12,080 |
|
| Recently Acquired Operating Properties | | | | | | | | | | | | | | | | | | | | | | |
| Operating property revenues | 11,151 |
| | 8,171 |
| | 2,980 |
| | 8,171 |
| | 5,810 |
| | 2,361 |
| 10,195 |
| | 2,627 |
| | 7,568 |
| | 2,627 |
| | 12 |
| | 2,615 |
|
| Operating property expenses | | (3,715 | ) | | (1,662 | ) | | (2,053 | ) | | (1,662 | ) | | 1 |
| | (1,663 | ) |
| Depreciation and amortization | (3,064 | ) | | (6,239 | ) | | 3,175 |
| | (6,239 | ) | | (4,772 | ) | | (1,467 | ) | (3,683 | ) | | (700 | ) | | (2,983 | ) | | (700 | ) | | — |
| | (700 | ) |
| Property expenses | (4,602 | ) | | (2,740 | ) | | (1,862 | ) | | (2,740 | ) | | (1,814 | ) | | (926 | ) | |
| Property level contribution | 3,485 |
| | (808 | ) | | 4,293 |
| | (808 | ) | | (776 | ) | | (32 | ) | 2,797 |
| | 265 |
| | 2,532 |
| | 265 |
| | 13 |
| | 252 |
|
| Properties Sold, Transferred, or Held for Sale | | | | | | | | | | | | | | | | | | | | | | |
| Operating property revenues | 18,808 |
| | 24,915 |
| | (6,107 | ) | | 24,915 |
| | 22,582 |
| | 2,333 |
| |
| Operating property expenses | (9,133 | ) | | (11,748 | ) | | 2,615 |
| | (11,748 | ) | | (11,746 | ) | | (2 | ) | |
| Lease revenues | 3,016 |
| | 3,470 |
| | (454 | ) | | 3,470 |
| | 3,061 |
| | 409 |
| 2,031 |
| | 7,265 |
| | (5,234 | ) | | 7,265 |
| | 7,501 |
| | (236 | ) |
| Depreciation and amortization | (6,103 | ) | | (7,845 | ) | | 1,742 |
| | (7,845 | ) | | (7,243 | ) | | (602 | ) | (688 | ) | | (7,644 | ) | | 6,956 |
| | (7,644 | ) | | (9,401 | ) | | 1,757 |
|
| Property expenses | (2,681 | ) | | (3,106 | ) | | 425 |
| | (3,106 | ) | | (353 | ) | | (2,753 | ) | (618 | ) | | (3,185 | ) | | 2,567 |
| | (3,185 | ) | | (3,636 | ) | | 451 |
|
| Operating property revenues | | 354 |
| | 18,807 |
| | (18,453 | ) | | 18,807 |
| | 24,915 |
| | (6,108 | ) |
| Reimbursable tenant costs | | (197 | ) | | (764 | ) | | 567 |
| | (764 | ) | | (814 | ) | | 50 |
|
| Operating property expenses | | (80 | ) | | (9,133 | ) | | 9,053 |
| | (9,133 | ) | | (11,749 | ) | | 2,616 |
|
| Property level contribution | 3,907 |
| | 5,686 |
| | (1,779 | ) | | 5,686 |
| | 6,301 |
| | (615 | ) | 802 |
| | 5,346 |
| | (4,544 | ) | | 5,346 |
| | 6,816 |
| | (1,470 | ) |
| Property Level Contribution | 81,503 |
| | 64,994 |
| | 16,509 |
| | 64,994 |
| | 50,067 |
| | 14,927 |
| 77,166 |
| | 81,503 |
| | (4,337 | ) | | 81,503 |
| | 64,993 |
| | 16,510 |
|
| Add other income: | | | | | | | | | | | | | | | | | | | | | | |
| Interest income and other | 7,707 |
| | 7,632 |
| | 75 |
| | 7,632 |
| | 4,000 |
| | 3,632 |
| 7,027 |
| | 7,707 |
| | (680 | ) | | 7,707 |
| | 7,633 |
| | 74 |
|
| Less other expenses: | | | | | | | | | | | | | | | | | | | | | | |
| Asset management fees | (12,087 | ) | | (11,293 | ) | | (794 | ) | | (11,293 | ) | | (10,126 | ) | | (1,167 | ) | (11,539 | ) | | (12,087 | ) | | 548 |
| | (12,087 | ) | | (11,293 | ) | | (794 | ) |
| General and administrative | (7,397 | ) | | (7,271 | ) | | (126 | ) | | (7,271 | ) | | (6,876 | ) | | (395 | ) | (7,724 | ) | | (7,425 | ) | | (299 | ) | | (7,425 | ) | | (7,335 | ) | | (90 | ) |
| Acquisition and other expenses | (28 | ) | | (64 | ) | | 36 |
| | (64 | ) | | (6,789 | ) | | 6,725 |
| |
| | | 64,930 |
| | 69,698 |
| | (4,768 | ) | | 69,698 |
| | 53,998 |
| | 15,700 |
|
| Other Income and Expenses | | | | | | | | | | | | | | | | | | | | | | |
| Gain (loss) on sale of real estate, net | 78,657 |
| | 14,209 |
| | 64,448 |
| | 14,209 |
| | (63 | ) | | 14,272 |
| |
| Interest expense | (53,221 | ) | | (48,994 | ) | | (4,227 | ) | | (48,994 | ) | | (43,132 | ) | | (5,862 | ) | (48,019 | ) | | (53,221 | ) | | 5,202 |
| | (53,221 | ) | | (48,994 | ) | | (4,227 | ) |
| Gain on sale of real estate, net | | 24,773 |
| | 78,657 |
| | (53,884 | ) | | 78,657 |
| | 14,209 |
| | 64,448 |
|
| Other gains and (losses) | 21,276 |
| | 19,969 |
| | 1,307 |
| | 19,969 |
| | (6,656 | ) | | 26,625 |
| 4,715 |
| | 21,276 |
| | (16,561 | ) | | 21,276 |
| | 19,969 |
| | 1,307 |
|
| Equity in losses of equity method investment in real estate | (1,072 | ) | | (871 | ) | | (201 | ) | | (871 | ) | | (204 | ) | | (667 | ) | (2,185 | ) | | (1,072 | ) | | (1,113 | ) | | (1,072 | ) | | (871 | ) | | (201 | ) |
| | 45,640 |
| | (15,687 | ) | | 61,327 |
| | (15,687 | ) | | (50,055 | ) | | 34,368 |
| (20,716 | ) | | 45,640 |
| | (66,356 | ) | | 45,640 |
| | (15,687 | ) | | 61,327 |
|
| Income (loss) before income taxes | 115,338 |
| | 38,311 |
| | 77,027 |
| | 38,311 |
| | (19,779 | ) | | 58,090 |
| |
| Benefit from (provision for) income taxes | 1,952 |
| | 1,506 |
| | 446 |
| | 1,506 |
| | (6 | ) | | 1,512 |
| |
| Net Income (Loss) | 117,290 |
| | 39,817 |
| | 77,473 |
| | 39,817 |
| | (19,785 | ) | | 59,602 |
| |
| Income before income taxes | | 44,214 |
| | 115,338 |
| | (71,124 | ) | | 115,338 |
| | 38,311 |
| | 77,027 |
|
| (Provision for) benefit from income taxes | | (210 | ) | | 1,952 |
| | (2,162 | ) | | 1,952 |
| | 1,506 |
| | 446 |
|
| Net Income | | 44,004 |
| | 117,290 |
| | (73,286 | ) | | 117,290 |
| | 39,817 |
| | 77,473 |
|
| Net income attributable to noncontrolling interests | (20,562 | ) | | (13,284 | ) | | (7,278 | ) | | (13,284 | ) | | (10,299 | ) | | (2,985 | ) | (11,432 | ) | | (20,562 | ) | | 9,130 |
| | (20,562 | ) | | (13,284 | ) | | (7,278 | ) |
| Net Income (Loss) Attributable to CPA:18 – Global | $ | 96,728 |
| | $ | 26,533 |
| | $ | 70,195 |
| | $ | 26,533 |
| | $ | (30,084 | ) | | $ | 56,617 |
| |
| Net Income Attributable to CPA:18 – Global | | $ | 32,572 |
| | $ | 96,728 |
| | $ | (64,156 | ) | | $ | 96,728 |
| | $ | 26,533 |
| | $ | 70,195 |
|
CPA:18 – Global 20182019 10-K – 4843
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 over time. Property level contribution presents the lease and operating property revenues, less property expenses, reimbursable tenant costs, and depreciation and amortization. Reimbursable tenant costs (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. When a property is leased on a net lease basis, reimbursable tenant costs are recorded as both income and property expense and, therefore, have no impact on the Property level contribution. While we believe that Property level contribution is a useful supplemental measure, it should not be considered as an alternative to Net income (loss) attributable to CPA:18 – Global as an indication of our operating performance.
Existing Net-Leased Properties
Existing net-leased properties are those we acquired prior to January 1, 20162017 and that were not sold during the periods presented. AtAs of December 31, 2018,2019, there were 5342 existing net-leased properties.
20182019 vs. 20172018 — For the year ended December 31, 20182019 as compared to 2017,2018, property level contribution for existing net-leased properties decreased by $0.1$4.5 million, primarily due to an increase in property expenses of $2.2 million, partially offset by a decrease in depreciationof $2.9 million at our Fortenova (formerly Agrokor) properties, and amortization expense$1.4 million as a result of $1.1 million and an increase in lease revenuesthe weakening of $1.0 million. The increase in property expenses was primarily due to an increase in bad debt expense associated with one of our jointly owned investments in 2018. The decrease in depreciation and amortization expense was primarily due to an in-place lease intangible related to a bankrupt tenant being written-off after the tenant vacated the property in 2017 while the increase in lease revenues primarily related to the fluctuations ofcertain foreign currencies (primarily the euro) in relation to the U.S. dollar between years.
2017 vs. 2016 — Fordollar. During the year ended December 31, 2017 as compared to 2016, property level contribution for existing net-leasedsecond quarter of 2019, we restructured our lease at our Fortenova properties, decreased by $3.2 million, primarily due towhich resulted in an increase in property expensesdepreciation and amortization as a result of $4.5 million resulting principally from bad debt expense associated with twoaccelerated amortization of our jointly owned investments in 2017. This was partially offset by an increasein-place lease intangibles, decrease in lease revenues, and a decrease in bad debt. Upon our adoption of $0.9 million, primarily due to fluctuationsAccounting Standards Update 2016-02 during the first quarter of foreign currencies.2019 (Note 2), rents deemed uncollectible are recorded against lease revenues.
Recently Acquired Net-Leased Properties
Recently acquired net-leased properties are those that we acquired or placed into service subsequent to December 31, 2015. At2016. This includes the 11 student housing properties subject to the Framework Agreement (Note 1). As of December 31, 2018,2019, there were four15 recently acquired net-leased properties.
20182019 vs. 20172018 — For the year ended December 31, 20182019 as compared to 2017,2018, property level contribution from recently acquired net-leased properties increaseddecreased by $6.0$0.2 million, primarily due to a full-yearthe weakening of activitycertain foreign currencies in 2018 for the build-to-suit properties placed into service during 2017.
2017 vs. 2016 — For the year ended December 31, 2017 as compared to 2016, property level contribution from recently acquired net-leased properties increased by $3.9 million, duerelation to the properties acquired or placed into service during 2017 compared to no recently acquired net-leased properties in 2016.U.S. dollar.
Existing Operating Properties
Existing operating properties are those that we acquired prior to January 1, 20162017 and that were not sold during the periods presented. AtAs of December 31, 2018,2019, there were 5765 existing operating properties.
20182019 vs. 20172018 — For the year ended December 31, 20182019 as compared to 2017,2018, property level contribution from existing operating properties increased by $8.0$2.3 million. Operating revenues and operating expenses increased by $2.9 million and $1.5 million, respectively, reflecting the increased stabilization at various self-storage properties. In addition, depreciation and amortization expense decreased by $0.9 million, primarily due to a decrease in depreciation and amortization expense of $5.7 million as a result of certain in-place lease intangible assets becoming fully amortized during 2017 and subsequent to December 31, 2017. Additionally, there was an increase in operating property revenue of $2.5 million, primarily due to increased market rents.
2017 vs. 2016 — For the year ended December 31, 2017 as compared to 2016, property level contribution from existing operating properties increased by $14.8 million, primarily due to a decrease in depreciation and amortization expense of $11.7 million as a result of certain in-place lease intangible assets becoming fully amortized subsequent to December 31, 2016. Additionally, there was an increase in operating property revenues of $3.9 million, primarily due to increased market rents, partially offset by a $0.8 million increase in operating property expenses.2018.
CPA:18 – Global 2018 10-K– 49
Recently Acquired Operating Properties
Recently acquired operating properties are those that we acquired or placed into service subsequent to December 31, 2015. At2016. For the periods presented, there were 12 student housing development projects under construction and three student housing operating properties, one of which was placed into service in the current period. On December 20, 2019, this property, along with ten student housing development projects under construction, were included in the Framework Agreement and are included in the property count noted further above. As of December 31, 2018, there were 112019, the two remaining recently acquired operating properties which included twowere comprised of the student housing operating properties placed into service during the third quarter of 2018 (Note 44)).
2018CPA:18 – Global 2019 10-K– 44
2019 vs. 20172018 — For the year ended December 31, 20182019 as compared to 2017,2018, property level contribution from recently acquired operating properties increased by $4.3$2.5 million, primarily due to a decrease in depreciation and amortization expensethe full year impact of $3.2 million as a result of certain in-place lease intangible assets becoming fully amortized during and subsequent to December 31, 2017. Additionally, there was an increase in operating property revenue of $3.0 million and operating property expenses of $1.9 million, primarily due to the two student housing properties placed into service during 2018.
2017 vs. 2016 — For the year ended December 31, 2017third quarter of 2018, as compared to 2016, property level contribution from recently acquired operating properties remained relatively flat due to an increase inwell as the impact of the student housing operating property revenueplaced into service in the third quarter of $2.4 million being offset by2019 prior to the increases in depreciation and amortization expense of $1.5 million and operating property expenses of $0.9 million.net-lease conversion on December 20, 2019.
Properties Sold, Transferred, or Held for Sale
20182019 —During the year ended December 31, 2019, we sold the 11 properties in our Truffle portfolio, as well as our last multi-family residential property located in Fort Walton Beach, Florida (Note 13).
2018 — During the year ended December 31, 2018, we sold five domestic multi-family residential properties, as well as an office building located in Utrecht, the Netherlands. Additionally, as a result of a settlement agreement with our insurer related to the development project in Accra, Ghana, we transferred the right to collect for tenant default damages to the insurer (Note 13).
AtAs of December 31, 2018, we had one multi-family residential property classified as Assets held for sale, (Note 4), which we sold in January 2019 (Note 16).
2017 — In October 2017, we sold a student housing operating property located in Reading, United Kingdom, which was previously classified as Operating real estate — land, buildings and improvements in the consolidated financial statements (Note 13).noted above.
Other RevenuesIncome and Expenses
Interest Income and Other
20182019 vs. 20172018 — For the year ended December 31, 20182019 as compared to 2017,2018, interest income and other remained relatively flat.
2017 vs. 2016 — For the year ended December 31, 2017 compared to 2016, interest income and other increased by $3.6decreased $0.7 million, primarily due to an increase in interest earned on athe Mills Fleet mezzanine loan investment that we acquiredrepayment in November 2016April 2019 (Note 5), partially offset by the receipt of back rents as a result of a lease restructure during the second quarter of 2019 with our tenant, Fortenova (formerly Agrokor).
Asset Management Fees
2018Our Advisor is entitled to an annual asset management fee, which is further described in Note 3.
2019 vs. 20172018 — For the year ended December 31, 20182019 as compared to 2017,2018, asset management fees increaseddecreased by $0.8$0.5 million, primarily due to our investment volume during 2018 and 2017, which increaseda decrease in the asset base from which our Advisor earns a fee.fee as a result of our dispositions during and subsequent to the year ended December 31, 2018.
General and Administrative
20172019 vs. 20162018 — For the year ended December 31, 20172019 as compared to 2016, asset management fees2018, general and administrative expenses increased by $1.2$0.3 million primarily due to our investment volume during 2017an increase in professional fees and 2016, which increased the asset basereimbursable costs allocated from which our Advisor earns a fee.(Note 3).
General and AdministrativeInterest Expense
Our interest expense is directly impacted by the mortgage financing obtained or assumed in connection with our investing activity (Note 9). During the years ended December 31, 2019 and 2018, we obtained new financings totaling $113.4 million and $163.2 million, respectively.
2019 vs. 20172018 — For the year ended December 31, 20182019 as compared to 2017, general2018, interest expense decreased by $5.2 million, primarily as a result of our encumbered properties sold in 2018 and administrative expenses remained relatively flat.2019. Our average outstanding debt balance was $1.1 billion and $1.3 billion during the years ended December 31, 2019 and 2018, respectively, with a weighted-average annual interest rate of 4.4% and 4.1%, respectively.
CPA:18 – Global 20182019 10-K – 5045
Gain on Sale of Real Estate, net
2017 vs. 2016Gain on sale of real estate, net, consists of gain on the sale of properties that were disposed of during the years ended December 31, 2019 and 2018. Our dispositions are more fully described in Note 13.
2019 — For the year ended December 31, 20172019, we recognized a gain on sale of real estate of $24.8 million (inclusive of a $2.9 million gain attributable to noncontrolling interest), as compared to 2016, generala result of the disposition of our Truffle portfolio and administrative expenses increasedour last domestic multi-family residential property located in Fort Walton Beach, Florida. The gains on sale of real estate recognized as a result of these dispositions were partially offset by $0.4the $1.1 million primarily due to an increase in personnel and overhead reimbursement costs of $0.4 million resulting from increased revenuesdisposition fees incurred during the year ended December 31, 2017 compared to 2016, which is the basis for the costs allocated to us by our Advisor under the advisory agreement.
Acquisition2019 in connection with certain 2018 and Other Expenses
Acquisition expenses represent direct costs incurred to acquire properties in transactions that are accounted for as business combinations, whereby such costs are required to be expensed as incurred2019 dispositions (Note 23). On January 1, 2017, we adopted ASU 2017-01 (Note 2), and as a result, all transaction costs incurred during the years ended December 31, 2018 and 2017 were capitalized since our acquisitions during the year were classified as asset acquisitions. Most of our future acquisitions are likely to be classified as asset acquisitions.
2018 vs. 2017 — For the years ended December 31, 2018 and 2017, acquisition expenses remained relatively flat as no acquisitions were deemed to be business combinations during 2018 and 2017.
2017 vs. 2016 — For the year ended December 31, 2017 as compared to 2016, acquisition expenses decreased by $6.7 million, as no 2017 acquisitions were deemed to be business combinations.
Gain (Loss) on Sale of Real Estate, net
For the year ended December 31, 2018, we recognized a gain on sale of real estate of $78.7 million (inclusive of a tax benefit of $2.0 million) as a result of the disposition of five domestic multi-family residential properties and an office building located in Utrecht, the Netherlands (Note 13).
For the year ended December 31, 2017, we recognized a gain on sale of real estate of $14.2 million as a result of the disposition of a student housing operating property located in Reading, United Kingdom (Note 13).
Interest Expense
Our interest expense is directly impacted by the mortgage and bond financing obtained or assumed in connection with our investing activity (Note 9). During the years ended December 31, 2018, 2017, and 2016, we obtained new financings totaling $163.2 million, $94.1 million, and $175.5 million, respectively.
2018 vs. 2017 — For the year ended December 31, 2018 as compared to 2017, interest expense increased by $4.2 million, primarily due to an increase in mortgage and bond financing obtained or assumed in connection with our investing activity during both periods. Our average outstanding debt balance was $1.3 billion and $1.2 billion during the years ended December 31, 2018 and 2017, respectively, with a weighted-average annual interest rate of 4.1% and 4.0%, respectively.
2017 vs. 2016 — For the year ended December 31, 2017 as compared to 2016, interest expense increased by $5.9 million. Our average outstanding debt balance was $1.2 billion and $1.1 billion during the years ended December 31, 2017 and 2016, respectively, with a weighted-average annual interest rate of 4.0% and 4.1%, respectively.Netherlands.
Other Gains and (Losses)
Other gains and (losses) primarily consists of gains and losses on foreign currency transactions and derivative instruments, as well as gains and losses on insurance proceeds. We make 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 also recognize gains or losses on foreign currency transactions when we repatriate cash from our foreign investments or hold foreign currencies inheld by entities with athe U.S. dollar as their functional currency designation. In addition, we have certain derivative instruments, includingdue to fluctuations in foreign currency contracts, that are not designated as hedges for accounting purposes, for which realized and unrealized gains and losses are included in earnings.exchange rates. The timing and amount of such gains or losses cannot always be estimated and are subject to fluctuation.
CPA:18 – Global 2018 10-K2019 – —51 For the year ended December 31, 2019, we recognized net other gains of $4.7 million, which was primarily comprised of $1.8 million in realized gains on foreign currency forward contracts and collars; $1.5 million in interest income received, primarily from our cash balances held by financial institutions; $1.1 million in gains on insurance proceeds received for a property damaged by a hurricane in 2017; and $0.4 million of realized and unrealized foreign currency transaction gains.
2018 —For the year ended December 31, 2018, we recognized net other gains of $21.3 million, which was primarily comprised of $16.6 million in gains on insurance proceeds (inclusive of a tax benefit of $3.5 million) relating to a joint venture development project in Accra, Ghana (which we transferred to the insurer during the year),; and $5.6 million in gains on insurance proceeds received for a property damaged by a tornado in 2017. Additionally, we recognized $0.6 million of realized gains on foreign currency forward contracts and collars, which was partially offset by $1.5 million of realized and unrealized foreign currency transaction losses related to our international investments, primarily related to our short-term intercompany loans.
2017— For the year ended December 31, 2017, we recognized net other gains of $20.0 million, which was primarily comprised of $17.5 million of realized and unrealized foreign currency transaction losses related to our international investments, primarily related to our short-term intercompany loans. Additionally, we recognized $1.2 million of gains on the change in fair value of our rent guarantees, $1.1 million of realized gains on foreign currency forward contracts and collars, and interest income received on our cash balances held with financial institutions of $0.3 million.
2016— For the year ended December 31, 2016, we recognized net other expenses of $6.7 million, which was comprised of realized and unrealized foreign currency transaction losses related to our international investments of $9.7 million, partially offset by gains recognized on derivatives of $1.4 million, mark-to-market gains on our rent guarantees of $1.1 million and interest income received on our cash balances held with financial institutions of $0.3 million.
Equity in Losses of Equity Method Investment in Real Estate
20182019 vs. 20172018 — For the year ended December 31, 20182019 as compared to 2017, equity in losses of equity method investment in real estate remained relatively flat.
2017 vs. 2016 — For the year ended December 31, 2017 as compared to 2016,2018, equity in losses of equity method investment in real estate increased by $0.7$1.1 million, primarily due to tenant vacancies at one of our investments and increased depreciation expense as a result of the commencementsubstantial completion of operations in twoa Canadian self-storage facilities (upon completionfacility during the third quarter of distinct phases of the overall development) in 2017 compared to one in 2016.2018.
(Provision for) Benefit from (Provision for) Income Taxes
Our provision for income taxes isare primarily related to our international properties.properties, and are further described in Note 12.
2019 — During the year ended December 31, 2019, we recorded a provision for income taxes of $0.2 million, comprised of current income tax provisions of $2.5 million, partially offset by a benefit from deferred income taxes of $2.3 million.
2018 — During the year ended December 31, 2018, we recorded a benefit from income taxes of $2.0 million, comprised of a benefit from deferred income taxes of $3.7 million, partially offset by current income tax provisions of $1.7 million.
2017 — During the year ended December 31, 2017, we recorded a benefit from income taxes of $1.5 million, comprised of a benefit from deferred income taxes of $3.6 million, partially offset by current income tax provisions of $2.1 million.
2016CPA:18 – Global 2019 10-K– — During the year ended December 31, 2016, we recorded a current income tax provision of $1.4 million, substantially offset by deferred income tax benefits of $1.4 million.46
Net Income Attributable to Noncontrolling Interests
20182019 vs. 20172018 — For the year ended December 31, 20182019 as compared to 2017,2018, net income attributable to noncontrolling interests increaseddecreased by $7.3$9.1 million, primarily due to the gains on sale of our joint venture real estate disposals in 2018 (Note 13).
2017 vs. 2016 — For, as well as a decrease in the year ended December 31, 2017 as compared to 2016, net income attributable to noncontrolling interests increasedavailable cash generated by $3.0 million, primarily due to the disposition of the student housing operating property in Reading, United KingdomOperating Partnership (the “Available Cash Distribution”) (Note 133), which was a joint venture..
Liquidity and Capital Resources
We use the cash flow generated from our investments primarily to meet our operating expenses, service debt, and fund distributions to stockholders. We currently expect that, for the short-term, the aforementioned cash requirements will be funded by our cash on hand, cash flow from operations, financings, and sales of real estate. We may also use proceeds from financings and asset sales for the acquisition of real estate and real estate-related investments.
CPA:18 – Global 2018 10-K– 52
Our liquidity would be adversely affected by unanticipated costs and greater-than-anticipated operating expenses. To the extent that our working capital reserve is insufficient to satisfy our cash requirements, additional funds may be provided from cash generated from operations or through short-term borrowings. In addition, we may incur indebtedness in connection with the acquisition of real estate, refinance debt on existing properties, or arrange for the leveraging of any previously unfinanced property.
Sources and Uses of Cash During the Year
Our cash flows will fluctuate periodically due to a number of factors, which may include, among other things: the timing of purchases and sales of real estate; the timing of the receipt of proceeds from, and the repayment of, non-recourse mortgage loans and bonds payable,secured debt, and the receipt of lease revenues; whether our Advisor receives fees in shares of our common stock or cash, which our board of directors must elect after consultation with our Advisor; the timing and characterization of distributions received from equity investments in real estate; the timing of payments of the Available Cash Distributions to our Advisor; and changes in foreign currency exchange rates. Despite these fluctuations, we believe our investments 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, the proceeds of non-recourse mortgage loans,secured debt, sales of assets, and distributions reinvested in our common stock through our DRIP to meet these needs. We assess our ability to access capital on an ongoing basis. Our sources and uses of cash during the yearperiod are described below.
2019
Operating Activities — Net cash provided by operating activities decreased by $6.9 million during 2019 as compared to 2018, primarily due to decreased operating cash flow resulting from the dispositions of properties (Note 13), as well as decreased interest income due to the Mills Fleet mezzanine loan repayment in April 2019. Investing Activities — Our investing activities are generally comprised of funding of build-to suit and development projects, real estate purchases and sales, payment of deferred acquisition fees to our Advisor for asset acquisitions, and capitalized property-related costs.
Net cash used in investing activities totaled $22.7 million for the year ended December 31, 2019. This was primarily the result of cash outflows of $108.1 million of funding of construction costs for our build-to-suit and development projects (Note 4). We also had cash outflows of $7.0 million for value added taxes (“VAT”) paid in connection with real estate acquisitions, and $4.5 million for payment of deferred acquisition fees to our Advisor (Note 3). These cash outflows were partially offset by cash inflows of $50.8 million for proceeds from the sale of real estate (Note 13), $36.0 million of proceeds from repayment of the Mills Fleet note receivable (Note 5), and $9.6 million for VAT refunded in connection with real estate acquisitions.
Financing Activities — Net cash used in financing activities totaled $96.2 million for the year ended December 31, 2019. This was primarily due to cash outflows of $132.2 million for scheduled payments and prepayments of non-recourse secured debt financings (Note 9), $89.8 million related to distributions paid to our stockholders, $21.5 million for the repurchase of shares of our common stock pursuant to our redemption program (described below), and $20.1 million for distributions to noncontrolling interests. We had cash inflows related to proceeds of $123.6 million from non-recourse mortgage financings (Note 9), $41.7 million of distributions that were reinvested by stockholders in shares of our common stock through our DRIP.
CPA:18 – Global 2019 10-K– 47
2018
Operating Activities — — Net cash provided by operating activities increased by $9.2 million during 2018 as compared to 2017, primarily due to the impact of investments acquired or placed into service during 2017 and 2018, partially offset by an increase in interest expense.
Investing Activities — Our investing activities are generally comprised of real estate purchases and sales, funding of development projects, payment of deferred acquisition fees to our Advisor for asset acquisitions, and capitalized property-related costs.
Net cash used in investing activities totaled $9.0 million for the year ended December 31, 2018. This was primarily the result of cash outflows of $91.5 million to fund the construction costs of our development projects (Note 4) and $80.9 million for our real estate investments (Note 4).investments. We also had cash outflows of $10.5 million for capital expenditures on our real estate, $9.4 million for value added taxes (“VAT”)VAT paid in connection with real estate acquisitions, and $3.9 million for payment of deferred acquisition fees to our Advisor. These cash outflows were partially offset by cash inflows of $125.8 million for proceeds from the sale of five domestic multi-family residential properties and an office building located in Utrecht, the Netherlands, (Note 13), as well as insurance proceeds of $53.2 million related to the settlement agreement with the insurer for a joint venture development project located in Accra, Ghana, (Note 4), and insurance proceeds received for a property damaged by a tornado in 2017. We also had cash inflows of $5.5 million for VAT refunded in connection with real estate acquisitions.
Financing Activities — Net cash provided by financing activities totaled $16.6 million for the year ended December 31, 2018. This was primarily due to cash inflows related to proceeds of $158.3 million from non-recourse mortgage financings (Note 9) and $41.9 million of distributions that were reinvested by stockholders in shares of our common stock through our DRIP. We had cash outflows of $87.6 million related to distributions paid to our stockholders, $52.4 million for scheduled payments and prepayments of mortgage loan principal, $23.1 million for the repurchase of shares of our common stock pursuant to our redemption program (described below) and $21.2 million for distributions to noncontrolling interests.
2017
Operating Activities — Net cash provided by operating activities increased by $21.7 million during 2017 as compared to 2016, primarily due to the impact of investments acquired or placed into service during 2016 and 2017.
CPA:18 – Global 2018 10-K– 53
Investing Activities — Net cash used in investing activities totaled $63.2 million for the year ended December 31, 2017. This was primarily the result of cash outflows of $59.6 million to fund the construction costs of our development projects and $50.4 million for our real estate investments. We also had cash outflows of $12.5 million for capital expenditures on our owned real estate, $6.3 million for VAT paid in connection with real estate acquisitions, $5.6 million for capital contributions to our equity investment, and $3.8 million for payment of deferred acquisition fees to our Advisor. We had cash inflows of $59.5 million for proceeds from the sale of a student housing operating property in Reading, United Kingdom, $12.6 million for VAT refunded in connection with real estate acquisitions, and $3.9 million from insurance settlements.
Financing Activities — Net cash used in financing activities totaled $34.1 million for the year ended December 31, 2017. This was primarily due to cash outflows related to distributions paid totaling $85.2 million for the fourth quarter of 2016 and the first, second, and third quarters of 2017, net repayments of notes payable to WPC of $27.5 million, distributions to noncontrolling interests of $20.3 million, and scheduled payments and prepayments of mortgage loan principal of $10.7 million. As further described below, we also paid $20.1 million to repurchase shares of our common stock pursuant to our redemption program. We had cash inflows related to proceeds of $85.6 million from non-recourse mortgage financings and net proceeds received through our DRIP of $42.3 million.
Distributions
Our objectives are to generate sufficient cash flow over time to provide stockholders with distributions. During 2018,2019, we declared distributions to stockholders of $88.2$90.3 million, which were comprised of cash distributions of $44.2$46.5 million and $44.0$43.8 million reinvested by stockholders in shares of our common stock pursuant to our DRIP. From inception through December 31, 2018,2019, we have declared distributions to stockholders totaling $390.4$480.7 million, which were comprised of cash distributions of $186.7$233.3 million and $203.6$247.4 million reinvested by stockholders in shares of our common stock pursuant to our DRIP.
We believe that FFO, a non-GAAP measure, is an appropriate metric to evaluate our ability to fund distributions to stockholders. For a discussion of FFO, see Supplemental Financial Measures below. Over the life of our company,Since inception, the regular quarterly cash distributions that we pay are expected to behave principally sourced from ourbeen covered by FFO or cash flow from operations. However, we have funded a portion of our cash distributions to date using net proceeds from our initial public offering and there can be no assurance that our FFO or cash flow from operations will be sufficient to cover our future distributions. Our distribution coverage using FFO was approximately 98.0%76.8% of total distributions declared during the year ended December 31, 2018, which were all funded from Net2019, while our net cash provided by operating activities.activities fully covered total distributions declared.
Redemptions
We maintain a quarterly redemption program pursuant to which we may, at the discretion of our board of directors, redeem shares of our common stock from stockholders seeking liquidity. During the year ended December 31, 2018,2019, we received requests to redeem 2,004,9581,960,121 and 777,584579,919 shares of Class A and Class C common stock, respectively, comprised of 411449 and 159132 redemption requests, respectively, which we fulfilled at an average price of $8.33$8.48 and $8.24$8.42 per share for the Class A and Class C common stock, respectively. As of the date of this Report, we have fulfilled all of the valid redemption requests that we received during the year ended December 31, 2018.2019. During the year ended December 31, 2017,2018, we redeemed 1,885,6882,004,958 and 636,097777,584 shares of Class A and Class C common stock, respectively, at an average price of $8.01$8.33 and $7.84$8.24 per share, respectively. Except for redemptions sought in certain defined special circumstances, the redemption price of the shares listed above was 95% of our most recently published quarterly NAV.NAVs. For shares redeemed under such special circumstances, the redemption price was the greater of the price paid to acquire the shares from us or 95% of our most recently published quarterly NAV.NAVs.
CPA:18 – Global 20182019 10-K – 5448
Summary of Financing
The table below summarizes our non-recourse mortgages and bonds payablesecured debt, net (dollars in thousands):
| | | | December 31, | December 31, |
| | 2018 | | 2017 | 2019 | | 2018 |
Carrying Value (a) | | | | | | |
| Fixed rate | $ | 1,007,020 |
| | $ | 1,123,540 |
| $ | 951,748 |
| | $ | 1,007,020 |
|
| Variable rate: | | | | | | |
| Amount subject to interest rate swaps and caps | 115,251 |
| | 100,181 |
| 184,361 |
| | 115,251 |
|
| Amount subject to floating interest rate | 115,156 |
| | 51,727 |
| 65,804 |
| | 115,156 |
|
| | 230,407 |
| | 151,908 |
| 250,165 |
| | 230,407 |
|
| | $ | 1,237,427 |
| | $ | 1,275,448 |
| $ | 1,201,913 |
| | $ | 1,237,427 |
|
| Percent of Total Debt | | | | | | |
| Fixed rate | 81 | % | | 88 | % | 79 | % | | 81 | % |
| Variable rate | 19 | % | | 12 | % | 21 | % | | 19 | % |
| | 100 | % | | 100 | % | 100 | % | | 100 | % |
| Weighted-Average Interest Rate at End of Year | | | | | | |
| Fixed rate | 4.0 | % | | 4.0 | % | 3.9 | % | | 4.0 | % |
Variable rate (b) | 5.1 | % | | 4.1 | % | 3.8 | % | | 5.1 | % |
| Total debt | | 3.9 | % | | 4.2 | % |
___________
| |
| (a) | Aggregate debt balance includes unamortized deferred financing costs totaling $6.9$5.8 million and $8.3$6.9 million as of December 31, 20182019 and 2017,2018, respectively, and unamortized premium, net of $1.3$2.1 million and $1.1$1.3 million as of December 31, 2019 and 2018, and 2017, respectively.respectively (Note 9). |
| |
| (b) | The impact of our derivative instruments is reflected in the weighted-average interest rates. |
Cash Resources
AtAs of December 31, 2018,2019, our cash resources consisted of cash and cash equivalents totaling $170.9$144.1 million. Of this amount, $92.4$34.4 million (at then-current exchange rates) was held in foreign subsidiaries, which may be subject to restrictions or significant costs should we decide to repatriate these funds. As of December 31, 2018,2019, we had $14.8$26.6 million available to borrow under our third-party financing arrangementsarrangement for funding of construction of certainour student housing development projectsproject located in Austin, Texas (Note 9). Our cash resources may be used for future investments and can be used for working capital needs, other commitments, and distributions to our stockholders. In addition, our unleveraged properties had an aggregate carrying value of $109.5$189.9 million atas of December 31, 2018,2019, although there can be no assurance that we would be able to obtain financing for these properties.
In July 2016, our board of directors and the board of directors of WPC approved unsecured loans from WPC to us for acquisition funding purposes, at the sole discretion of WPC’s management, of up to $50.0 million, in the aggregate, at a rate equal to the rate at which WPC can borrow funds under its senior credit facility. AtAs of December 31, 2018,2019, no such loans were outstanding (Note 3).
Cash Requirements
During the next 12 months, we expect that our cash requirements will include making payments to fund capital commitments such as development projects, acquiring new investments, paying distributions to our stockholders and to our affiliates that hold noncontrolling interests in entities we control, making share repurchases pursuant to our redemption plan, and making scheduled debt service payments, as well as other normal recurring operating expenses. Balloon payments totaling $80.5$58.1 million on our consolidated mortgage loan obligations are due during the next 12 months. Our Advisor is actively seeking to refinance these loans, although there can be no assurance that it will be able to do so on favorable terms, or at all. We expect to fund $210.3 million related to capital and other lease commitments during the next 12 months. We expect to fund future investments, capital commitments, any capital expenditures on existing properties, and scheduled and unscheduled debt payments on our mortgage loans through the use of our cash reserves, cash generated from operations, and proceeds from financings and asset sales.
CPA:18 – Global 20182019 10-K – 5549
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 and lease obligations) atcommitments) as of December 31, 20182019 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 |
Debt — principal (a) | $ | 1,243,063 |
| | $ | 86,541 |
| | $ | 226,495 |
| | $ | 333,047 |
| | $ | 596,980 |
|
Capital commitments (b) | 362,291 |
| | 209,469 |
| | 152,822 |
| | — |
| | — |
|
| Interest on borrowings and deferred acquisition fees | 235,379 |
| | 51,125 |
| | 83,278 |
| | 64,390 |
| | 36,586 |
|
Operating and other lease commitments (c) | 11,551 |
| | 824 |
| | 1,228 |
| | 711 |
| | 8,788 |
|
Deferred acquisition fees — principal (d) | 7,860 |
| | 3,866 |
| | 3,994 |
| | — |
| | — |
|
Annual distribution and shareholder servicing fee (e) | 3,830 |
| | 1,556 |
| | 2,274 |
| | — |
| | — |
|
Asset retirement obligations (f) | 3,007 |
| | — |
| | — |
| | — |
| | 3,007 |
|
| | $ | 1,866,981 |
| | $ | 353,381 |
| | $ | 470,091 |
| | $ | 398,148 |
| | $ | 645,361 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | Total | | Less than 1 year | | 1-3 years | | 3-5 years | | More than 5 years |
Debt — principal (a) | $ | 1,205,638 |
| | $ | 101,331 |
| | $ | 322,955 |
| | $ | 416,529 |
| | $ | 364,823 |
|
Capital commitments (b) | 281,894 |
| | 200,404 |
| | 81,490 |
| | — |
| | — |
|
| Interest on borrowings | 189,886 |
| | 46,013 |
| | 74,708 |
| | 52,702 |
| | 16,463 |
|
Deferred acquisition fees (c) | 4,427 |
| | 3,381 |
| | 1,046 |
| | — |
| | — |
|
| | $ | 1,681,845 |
| | $ | 351,129 |
| | $ | 480,199 |
| | $ | 469,231 |
| | $ | 381,286 |
|
__________
| |
| (a) | Represents the non-recourse mortgage loans and bonds payablesecured debt, net that we obtained in connection with our investments and excludes $6.9$5.8 million of deferred financing costs and $1.3$2.1 million of unamortized premium, net (Note 9). |
| |
| (b) | Capital commitments includeis comprised of our current development projects totaling $350.8$275.0 million (Note 4) and $11.5, $4.8 million of outstanding commitments on development projects that have been placed into service.service, and $2.0 million of tenant improvement allowances at certain properties. |
| |
| (c) | Operating commitments consist of rental obligations under ground leases. Other lease commitments consist of our estimated share of future rents payable pursuant to the advisory agreement for the purpose of leasing office space used for the administration of real estate entities, which is calculated as our allocable portion of WPC’s future minimum rent amounts using the allocation percentages for overhead reimbursement as of December 31, 2018 (Note 3). |
| |
(d) | Represents deferred acquisition fees and related interest due to our Advisor as a result of our acquisitions.acquisitions (Note 3). These fees are scheduled to be paid in three equal annual installments following the quarter in which a property was purchased. |
| |
(e) | Represents the estimated liability for the present value of the remaining annual distribution and shareholder servicing fee in connection with our Class C common stock (Note 3). |
| |
(f) | Represents the amount of future obligations estimated for the removal of asbestos and environmental waste in connection with certain of our acquisitions, payable upon the retirement or sale of the assets. |
Amounts in the table above that relate to our foreign operations are based on the exchange rate of the local currencies at December 31, 20182019, which consisted primarily of the euro and Norwegian krone and, to a lesser extent, the British pound sterling. AtAs of December 31, 20182019, we had no material capital lease obligations for which we were the lessee, either individually or in the aggregate.
Equity Method Investment
We have an interest in an unconsolidated investment that relates to a joint venture for the development of four self-storage facilities in Canada (Note 4). This investment is jointly owned with a third party, which is also the general partner. At December 31, 2018, the total equity investment balance for these properties was $18.8 million. The joint venture also had total third-party recourse debt of $28.7 million.
CPA:18 – Global 2018 10-K– 56
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 protections (e.g. indemnities, cash reserves, letters of credit, or other instruments) from sellers when we acquire a property. In addition, our leases generally 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. The 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-leased 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, we believe that the ultimate resolution of environmental matters should not have a material adverse effect on our financial condition, liquidity, or results of operations.
CPA:18 – Global 2019 10-K– 50
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 recent accounting changechanges that may potentially impact our business isare described under Recent Accounting Pronouncements in Note 2.
CPA:18 – Global 2019 10-K– 51
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 FFO, MFFO, and Adjusted MFFO, which are non-GAAP measures. 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, MFFO, and Adjusted MFFO and reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are provided below.
FFO MFFO, and Adjusted MFFO
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, and depreciation and amortization from real estate assets; and after adjustments for unconsolidated partnerships and jointly owned investments. Adjustments for unconsolidated partnerships and jointly owned investments are calculated to reflect FFO. Our FFO calculation complies with NAREIT’s policy described above. However, NAREIT’s definition of FFO does not distinguish between the conventional method of equity accounting and the hypothetical liquidation at book value method of accounting for unconsolidated partnerships and jointly owned investments.
CPA:18 – Global 2018 10-K– 57
The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements. We believe that, since real estate values historically rise and fall with market conditions, including inflation, interest rates, the business cycle, unemployment, and consumer spending, presentations of operating results for a REIT using historical accounting for depreciation may be less informative. Historical accounting for real estate involves the use of GAAP. Any other method of accounting for real estate such as the fair value method cannot be construed to be any more accurate or relevant than the comparable methodologies of real estate valuation found in GAAP. Nevertheless, we believe that the use of FFO, which excludes the impact of real estate-related depreciation and amortization, as well as impairment charges of real estate-related assets, provides a more complete understanding of our performance to investors and to management; and when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income. In particular, we believe it is appropriate to disregard impairment charges, as this is a fair value adjustment that is largely based on market fluctuations and assessments regarding general market conditions, which can change over time. While impairment charges are excluded from the calculation of FFO, it could be difficult to recover any impairment charges. However, FFO, MFFO, and Adjusted MFFO, as described below, should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or in its applicability in evaluating the operating performance of the company. The method utilized to evaluate the value and performance of real estate under GAAP should be construed as a more relevant measure of operational performance and considered more prominently than the non-GAAP measures FFO, MFFO, and Adjusted MFFO and the adjustments to GAAP in calculating FFO, MFFO, and Adjusted MFFO.
Changes in the accounting and reporting promulgations under GAAP (for acquisition fees and expenses from a capitalization/depreciation model to an expensed-as-incurred model) were put into effect subsequent to the establishment of NAREIT’s definition of FFO. Management believes these cash-settled expenses, such as acquisition fees that are typically accounted for as operating expenses, do not affect our overall long-term operating performance. MFFO
Publicly registered, non-traded REITs typically have a significant amount of acquisition activity and are substantially more dynamic during their initial years of investment and operation. While other start-up entities may also experience significant acquisition activity during their initial years, we believe that non-traded REITs are unique in that they have a limited life with targeted exit strategies within a relatively limited time frame after acquisition activity ceases. We currently intend to begin the process of achieving a liquidity event (i.e., listing of our common stock on a national exchange, a merger or sale of our assets, or another similar transaction) beginning in April 2022, which is seven years following the closing of our initial public offering. Due to the above factors and other unique features of publicly registered, non-traded REITs, the Institute for Portfolio Alternatives (formerly known as the Investment Program Association) (the “IPA”), an industry trade group, has standardized a measure known as MFFO, which the IPA has recommended as a supplemental measure for publicly registered non-traded REITs and which we believe to be another appropriate non-GAAP measure to reflect the operating performance of a non-traded REIT.our operations. MFFO is not equivalent to our net income or loss as determined under GAAP and MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate with a limited life and targeted exit strategy as(as currently intended. We believe that, becauseintended). Since MFFO excludes costs that we consider more reflective of investing activities and other non-operating items included in FFO, and also excludes acquisition fees and expenseswe believe that affect our operations only in periods in which properties are acquired, MFFO can provide, on a going forward basis,it provides an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance after the period in which we are acquiring properties and once our portfolio is in place. By providinginitial property-acquisition phase. We believe that MFFO we believe we are presenting useful information that assistsallows investors and analysts to better assess the sustainability of our operating performance now that our initial public offering has been completedis
CPA:18 – Global 2019 10-K– 52
complete and once essentially all of our properties have been acquired.the proceeds are invested. We also believe that MFFO is a recognized measure of sustainable operating performance by the non-traded REIT industry. Further, we believe MFFO is useful in comparing the sustainability of our operating performance, with the sustainability of the operating performance of other real estate companies that are not as involved in acquisition activities. MFFO should only be used to assess the sustainability of a company’s operating performance after a company’s offering has been completed and properties have been acquired, as it excludes acquisition costs that have a negative effect on a company’s operating performance during the periods in which properties are acquired.
CPA:18 – Global 2018 10-K– 58
We define MFFO, a non-GAAP measure, consistent with the IPA’s Practice Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Traded REITs: Modified Funds from Operations (the “Practice Guideline”), issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for the following items, included in the determination of GAAP net income, as applicable: acquisition fees and expenses; amounts relating to deferred rent receivablesstraight line rents and amortization of above- and below-market leases and liabilities (which are adjusted in order to reflect such payments from a GAAP accrual basis to a cash accrual basis of disclosing the rent and lease payments); accretion of discounts and amortization of premiums on debt investments; nonrecurring impairments of real estate-related investments (i.e., infrequent or unusual, not reasonably likely to recur in the ordinary course of business); mark-to-market adjustments included in net income; nonrecurring gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives, or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and jointly owned investments, with such adjustments calculated to reflect MFFO on the same basis. The accretion of discounts and amortization of premiums on debt investments, unrealized gains and losses on hedges, foreign exchange, derivatives or securities holdings, unrealized gains and losses resulting from consolidations, as well as other listed cash flow adjustments, are adjustments made to net income in calculating the cash flows provided by operating activities and, in some cases, reflect gains or losses that are unrealized and may not ultimately be realized.
Our MFFO calculation complies with the IPA’s Practice Guideline described above. In calculating MFFO, we exclude acquisition-related expenses,above and is adjusted for certain items, such as accretion of discounts and amortizations of premiums on borrowings (as such adjustments are comparable to the permitted adjustments for debt investments), non-cash accretion of environmental liabilities and amortization of above- and below-market leases, fair value adjustments of derivative financial instruments, deferred rent receivables, and the adjustments of such items related to noncontrolling interests. Under GAAP, acquisition fees and expenses are characterized asROU assets, which management believes is helpful in assessing our operating expenses in determining operating net income. These expenses are paid in cash by a company. All paid and accrued acquisition fees and expenses will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by the company, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property, these fees and expenses, and other costs related to such property. Further, under GAAP, certain contemplated non-cash fair value and other non-cash adjustments are considered operating non-cash adjustments to net income in determining cash flow from operating activities.performance.
Our management uses MFFO and the adjustments used to calculate it in order to evaluate our performance against other non-traded REITs, which also have limited lives with short and defined acquisition periods and targeted exit strategies shortly thereafter.strategies. As noted above, MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate in this manner. We believe that MFFO and the adjustments used to calculate it allow us to present our performance in a manner that takes into account certain characteristics unique to non-traded REITs, such as their limited life, defined acquisition period, and targeted exit strategy, and is therefore a useful measure for investors. For example, acquisition costs are generally funded from the proceeds of our offering and other financing sources and not from operations. By excluding expensed acquisition costs, the use of MFFO provides information consistent with management’s analysis of the operating performance of the properties. Additionally, fair value adjustments, which are based on the impact of current market fluctuations and underlying assessments of general market conditions, but can also result from operational factors such as rental and occupancy rates, may not be directly related or attributable to our current operating performance. By excluding such changes that may reflect anticipated and unrealized gains or losses, we believe MFFO provides useful supplemental information.
Adjusted MFFO
In addition, our management uses Adjusted MFFO as another measure of sustainable operating performance. Adjusted MFFO adjusts MFFO for deferred income tax expenses and benefits, which are non-cash items that may cause short-term fluctuations in net income, but have no impact on current period cash flows. Additionally, we adjust MFFO to reflect the realized gains/losses on the settlement of foreign currency derivatives to arrive at Adjusted MFFO. Foreign currency derivatives are a fundamental part of our operations in that they help us manage the foreign currency exposure we have associated with cash flows from our international investments.
FFO, MFFO, and Adjusted MFFO
Presentation of this information is intended to provide useful information to investors as they compare the operating performance of different REITs, although it should be noted that not all REITs calculate FFO, MFFO, and Adjusted MFFO the same way, so comparisons with other REITs may not be meaningful. Furthermore, FFO, MFFO, and Adjusted MFFO are not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income as an indication of our performance, as an alternative to cash flows from operations as an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. FFO, MFFO, and Adjusted MFFO should be reviewed in conjunction with other GAAP measurements as an indication of our performance.
CPA:18 – Global 2018 10-K– 59
Neither the SEC, NAREIT, nor any other regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate FFO, MFFO, and Adjusted MFFO. In the future, the SEC, NAREIT, or another regulatory body may decide to standardize the allowable adjustments across the non-traded REIT industry and we would have to adjust our calculation and characterization of FFO, MFFO, or Adjusted MFFO accordingly.
CPA:18 – Global 2019 10-K– 53
FFO, MFFO, and Adjusted MFFO were as follows (in thousands):
| | | | Years Ended December 31, | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 | 2019 | | 2018 | | 2017 |
| Net income (loss) attributable to CPA:18 – Global | $ | 96,728 |
| | $ | 26,533 |
| | $ | (30,084 | ) | |
| Net income attributable to CPA:18 – Global | | $ | 32,572 |
| | $ | 96,728 |
| | $ | 26,533 |
|
| Adjustments: | | | | | | | | | | |
| (Gain) loss on sale of real estate, net | (78,657 | ) | | (14,209 | ) | | 63 |
| |
| Depreciation and amortization of real property | 66,209 |
| | 75,375 |
| | 83,110 |
| 65,494 |
| | 66,209 |
| | 75,375 |
|
| Gain on sale of real estate, net | | (24,773 | ) | | (78,657 | ) | | (14,209 | ) |
Proportionate share of adjustments for noncontrolling interests to arrive at FFO (a) | | (4,529 | ) | | 1,608 |
| | (2,895 | ) |
| Proportionate share of adjustments to equity in net income of partially owned entities | 549 |
| | 334 |
| | 27 |
| 649 |
| | 549 |
| | 334 |
|
Proportionate share of adjustments for noncontrolling interests (a) | 1,608 |
| | (2,895 | ) | | (6,368 | ) | |
| Total adjustments | (10,291 | ) | | 58,605 |
| | 76,832 |
| 36,841 |
| | (10,291 | ) | | 58,605 |
|
| FFO (as defined by NAREIT) attributable to CPA:18 – Global | 86,437 |
| | 85,138 |
| | 46,748 |
| 69,413 |
| | 86,437 |
| | 85,138 |
|
| Adjustments: | | | | | | | | | | |
Realized (gains) losses on foreign currency, derivatives and other (b) | (28,111 | ) | | 58 |
| | (1,687 | ) | |
| Unrealized losses (gains) on foreign currency, derivatives and other | 6,241 |
| | (19,777 | ) | | 9,245 |
| |
Straight-line and other rent adjustments (c) | (5,100 | ) | | (5,286 | ) | | (5,636 | ) | |
| Amortization of premium/discount on debt investments and fair market value adjustments, net | 1,907 |
| | 934 |
| | 1,521 |
| |
| Loss (gain) on extinguishment of debt | 1,283 |
| | 54 |
| | (7 | ) | |
| Other amortization and non-cash charges | 510 |
| | — |
| | — |
| |
Above- and below-market rent intangible lease amortization, net (d) | (170 | ) | | (126 | ) | | (650 | ) | |
Straight-line and other rent adjustments (b) | | (3,408 | ) | | (4,892 | ) | | (5,635 | ) |
| Amortization of premiums and discounts | | 2,552 |
| | 1,907 |
| | 934 |
|
Other (gains) and losses (c) (d) | | (2,173 | ) | | (20,600 | ) | | (19,663 | ) |
Above- and below-market rent intangible lease amortization, net (e) | | (631 | ) | | (378 | ) | | 223 |
|
| Other amortization and non-cash items | | 486 |
| | 510 |
| | — |
|
| Acquisition and other expenses | 28 |
| | 64 |
| | 6,789 |
| 72 |
| | 28 |
| | 64 |
|
Proportionate share of adjustments for noncontrolling interests (e) | 2,198 |
| | 285 |
| | 761 |
| |
| Proportionate share of adjustments for noncontrolling interests | | (407 | ) | | 2,198 |
| | 285 |
|
| Proportionate share of adjustments for partially owned entities | | (40 | ) | | 13 |
| | (2 | ) |
| Total adjustments | (21,214 | ) | | (23,794 | ) | | 10,336 |
| (3,549 | ) | | (21,214 | ) | | (23,794 | ) |
| MFFO attributable to CPA:18 – Global | 65,223 |
| | 61,344 |
| | 57,084 |
| 65,864 |
| | 65,223 |
| | 61,344 |
|
| Adjustments: | | | | | | | | | | |
| Deferred taxes | (3,281 | ) | | (3,659 | ) | | (721 | ) | |
| Tax expense, deferred | | (1,959 | ) | | (3,281 | ) | | (3,659 | ) |
| Hedging gains | 604 |
| | 1,383 |
| | 1,354 |
| 1,767 |
| | 604 |
| | 1,383 |
|
| Total adjustments | (2,677 | ) | | (2,276 | ) | | 633 |
| (192 | ) | | (2,677 | ) | | (2,276 | ) |
| Adjusted MFFO attributable to CPA:18 – Global | $ | 62,546 |
| | $ | 59,068 |
| | $ | 57,717 |
| $ | 65,672 |
| | $ | 62,546 |
| | $ | 59,068 |
|
__________
| |
| (a) | The yearyears ended December 31, 2019, 2018, includesand 2017 include gains on sale with regard to our joint venture real estate disposals in 2018 (Note 13). |
| |
| (b) | Under GAAP, rental receipts are recorded on a straight-line basis over the life of the lease. This may result in timing of income recognition that is significantly different than on an accrual basis. By adjusting for these items (to reflect changes from a straight-line basis to an accrual basis), management believes that MFFO and Adjusted MFFO provides useful supplemental information on the realized economic impact of lease terms, provides insight on the contractual cash flows of such lease terms, and aligns results with management’s analysis of operating performance. |
| |
| (c) | Primarily comprised of gains and losses from foreign currency movements, gains and losses on derivatives, and loss on extinguishment of debt. During the year ended December 31, 2019, we aggregated loss on extinguishment of debt and realized (gains) and losses on foreign currency (both of which were previously disclosed as separate MFFO adjustment line items), as well as certain other adjustments, within this line item, which is comprised of adjustments related to Other gains and (losses) on our consolidated statements of income. Prior period amounts have been reclassified to conform to current period presentation. |
| |
| (d) | During the year ended December 31, 2018, we recognized a gain from insurance proceeds received of $16.6 million (inclusive of a tax benefit of $3.5 million), which we then transferred to the insurer, as a result of a settlement agreement with our insurer regarding a joint venture development project located in Accra, Ghana, as well as insurance proceeds of $5.6 million for the rebuild of a property that was damaged by a tornado in 2017. |
| |
(c) | Under GAAP, rental receipts are allocated to periods using an accrual basis. This may result in timing of income recognition that is significantly different than underlying contract terms. By adjusting for these items (to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments), management believes that MFFO and Adjusted MFFO provides useful supplemental information on the realized economic impact of lease terms and debt investments, provides insight on the contractual cash flows of such lease terms and debt investments, and aligns results with management’s analysis of operating performance. |
CPA:18 – Global 2018 10-K– 60
| |
(d)(e) | Under GAAP, certain intangibles are accounted for at cost and reviewed at least annually for impairment, and certain intangibles are assumed to diminish predictably in value over time and amortized, similar to depreciation and amortization of other real estate related assets that are excluded from FFO. However, because real estate values and market lease rates historically rise or fall with market conditions, management believes that by excluding charges relating to amortization of these intangibles, MFFO, and Adjusted MFFO provides useful supplemental information on the performance of the real estate. |
| |
(e) | The year ended December 31, 2018 includes a gain on insurance proceeds attributable to noncontrolling interests related to the promote to our joint venture partner for the development project located in Accra, Ghana (Note 13).
|
CPA:18 – Global 20182019 10-K – 6154
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 risks that we are exposed to are interest rate risk and foreign currency exchange risk. 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 can affect the ability of tenants in a particular industry/region to meet their respective lease obligations. In order to manage this risk, our Advisor views our collective tenant roster as a portfolio and attempts to diversify such portfolio so that we are not overexposed to a particular industry or geographic region.
Generally, we do not use derivative instruments to hedge credit/market risks or for speculative purposes. However, from time to time, we may enter into foreign currency forward contracts and collars to hedge our foreign currency cash flow exposures.
Interest Rate Risk
The values of our real estate, related fixed-rate debt obligations, and notes receivable investments 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 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 assets to decrease. 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 have historically attempted to obtain non-recourse mortgagesecured debt financing on a long-term, fixed-rate basis. However, from time to time, we or our joint investment partners have obtained, and may in the future obtain, variable-rate non-recourse mortgage loans,secured debt, 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 8 for additional information on our interest rate swaps and caps.
AtAs of December 31, 2018,2019, a significant portion (approximately 94.5%) of our outstanding debt either bore interest at fixed rates, or was swapped or capped to a fixed rate or, in the case of one of our Norwegian investments, inflation-linked to the Norwegian CPI.rate. Our debt obligations are more fully described in Note 9, in Item 8 below, and Liquidity and Capital Resources — Summary of Financing in Item 7 above. The following table presents principal cash outflows based upon expected maturity dates of our debt obligations outstanding atas of December 31, 20182019 (in thousands): | |
| 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Thereafter |
| Total |
| Fair value | 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter |
| Total |
| Fair value |
Fixed-rate debt (a) | $ | 4,140 |
| | $ | 86,127 |
| | $ | 121,795 |
| | $ | 124,912 |
| | $ | 154,933 |
| | $ | 523,809 |
|
| $ | 1,015,716 |
|
| $ | 1,017,083 |
| $ | 59,741 |
| | $ | 116,412 |
| | $ | 99,759 |
| | $ | 154,299 |
| | $ | 177,880 |
| | $ | 350,141 |
|
| $ | 958,232 |
|
| $ | 977,393 |
|
Variable rate debt (a) | $ | 82,401 |
| | $ | 7,601 |
| | $ | 45,211 |
| | $ | 17,859 |
| | $ | 1,105 |
| | $ | 73,170 |
|
| $ | 227,347 |
|
| $ | 239,950 |
| $ | 7,590 |
| | $ | 45,200 |
| | $ | 95,583 |
| | $ | 26,241 |
| | $ | 22,234 |
| | $ | 50,558 |
|
| $ | 247,406 |
|
| $ | 261,611 |
|
__________
| |
| (a) | Amounts are based on the exchange rate at December 31, 2018,2019, as applicable. |
The estimated fair value of our fixed-rate debt and variable-rate debt (which either have either effectively been converted to a fixed rate through the use of interest rate swaps or, in the case of one our Norwegian investments, is inflation-linked to the Norwegian CPI)swaps) is marginally affected by changes in interest rates. A decrease or increase in interest rates of 1% would change the estimated fair value of this debt at December 31, 20182019 by an aggregate increase of $41.0$34.4 million or an aggregate decrease of $49.9$43.3 million, respectively. Annual interest expense on our unhedged variable-rate debt at December 31, 20182019 would increase or decrease by $1.2$0.7 million for each respective 1% change in annual interest rates.
As more fully described under Liquidity and Capital Resources — Summary of Financing in Item 7 above, a portion of our variable-rate debt in the table above bore interest at fixed rates at December 31, 20182019, but has interest rate reset features that will change the fixed interest rates to then-prevailing market fixed rates at certain points during their term. This debt is generally not subject to short-term fluctuations in interest rates.
CPA:18 – Global 20182019 10-K – 6255
Foreign Currency Exchange Rate Risk
We own international investments, primarily in Europe, and as a result, are subject to risk from the effects of exchange rate movements in various foreign currencies, primarily the euro and the Norwegian krone, which may affect future costs and cash flows. Although most of our foreign investments through the fourth quarteras of 2018December 31, 2019 were conducted in these currencies, we may conduct business in other currencies in the future. We manage foreign currency exchange rate movements by generally placing both our debt service obligation to the lender and the tenant’s rental obligation to us in the same currency. This reduces our overall exposure to the actual equity that we have invested and the equity portion of our cash flow. 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), 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.
As noted above, we have obtained, and may in the future obtain, non-recourse mortgage and bondsecured debt financing in local currencies. To the extent that currency fluctuations increase or decrease rental revenues, as translated to U.S. dollars, the change in debt service, 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.
Scheduled future minimum rents,lease payments to be received, exclusive of renewals, under non-cancelable operating leases for our consolidated foreign operations as of December 31, 20182019 during each of the next five calendar years and thereafter, are as follows (in thousands):
| | Lease Revenues (a) | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Thereafter | | Total | |
Lease Revenues (a) (b) | | | 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter | | Total |
Euro (b)(c) | | $ | 45,509 |
| | $ | 45,110 |
| | $ | 45,174 |
| | $ | 45,369 |
| | $ | 39,816 |
| | $ | 371,460 |
| | $ | 592,438 |
| | $ | 43,519 |
| | $ | 43,947 |
| | $ | 44,137 |
| | $ | 38,573 |
| | $ | 35,432 |
| | $ | 332,969 |
| | $ | 538,577 |
|
Norwegian krone (c)(d) | | 13,039 |
| | 12,776 |
| | 12,146 |
| | 11,737 |
| | 11,504 |
| | 40,849 |
| | 102,051 |
| | 12,742 |
| | 12,092 |
| | 11,680 |
| | 11,680 |
| | 8,523 |
| | 32,055 |
| | 88,772 |
|
British pound sterling (d) | | 3,396 |
| | 3,211 |
| | 2,988 |
| | 2,721 |
| | 2,442 |
| | 8,842 |
| | 23,600 |
| |
| | | $ | 61,944 |
| | $ | 61,097 |
| | $ | 60,308 |
| | $ | 59,827 |
| | $ | 53,762 |
| | $ | 421,151 |
| | $ | 718,089 |
| | $ | 56,261 |
| | $ | 56,039 |
| | $ | 55,817 |
| | $ | 50,253 |
| | $ | 43,955 |
| | $ | 365,024 |
| | $ | 627,349 |
|
Scheduled debt service payments (principal and interest) for mortgage notes and bonds payable, for our foreign operations as of December 31, 2018,2019, during each of the next five calendar years and thereafter, are as follows (in thousands):
| | Debt Service (a) (e) | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Thereafter | | Total | | 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter | | Total |
Euro (b)(c) | | $ | 11,471 |
| | $ | 66,140 |
| | $ | 78,784 |
| | $ | 41,987 |
| | $ | 67,631 |
| | $ | 91,614 |
| | $ | 357,627 |
| | $ | 64,075 |
| | $ | 74,978 |
| | $ | 49,922 |
| | $ | 67,314 |
| | $ | 73,065 |
| | $ | 12,291 |
| | $ | 341,645 |
|
Norwegian krone (c)(d) | | 5,856 |
| | 5,856 |
| | 47,060 |
| | 4,043 |
| | 4,043 |
| | 106,702 |
| | 173,560 |
| | 5,855 |
| | 46,628 |
| | 4,061 |
| | 4,061 |
| | 4,061 |
| | 102,390 |
| | 167,056 |
|
British pound sterling (d)(b) | | 75,498 |
| | 24,345 |
| | — |
| | — |
| | — |
| | — |
| | 99,843 |
| | 1,666 |
| | 1,753 |
| | 79,743 |
| | — |
| | — |
| | — |
| | 83,162 |
|
| | | $ | 92,825 |
| | $ | 96,341 |
| | $ | 125,844 |
| | $ | 46,030 |
| | $ | 71,674 |
| | $ | 198,316 |
| | $ | 631,030 |
| | $ | 71,596 |
| | $ | 123,359 |
| | $ | 133,726 |
| | $ | 71,375 |
| | $ | 77,126 |
| | $ | 114,681 |
| | $ | 591,863 |
|
__________
| |
| (a) | Amounts are based on the applicable exchange rates at December 31, 20182019. Contractual rents and debt obligations are denominated in the functional currency of the country where each property is located. |
| |
| (b) | We estimate that, for a 1% increase or decrease in the exchange rate between the British pound sterling and the U.S. dollar, there would be a corresponding change in the projected estimated property-level cash flow at December 31, 2019 of $0.8 million. As a result of the sale of our Truffle portfolio during the year ended December 31, 2019 (Note 13), we no longer receive non-cancelable lease payments denominated in the British pound sterling. The revenues generated from our student housing operating properties located in the United Kingdom are excluded, as they do not meet the criteria of non-cancelable operating leases. |
| |
| (c) | We estimate that, for a 1% increase or decrease in the exchange rate between the euro and the U.S. dollar, there would be a corresponding change in the projected estimated property-level cash flow at December 31, 20182019 of $2.3$2.0 million. |
| |
(c)(d) | We estimate that, for a 1% increase or decrease in the exchange rate between the Norwegian krone and the U.S. dollar, there would be a corresponding change in the projected estimated property-level cash flow at December 31, 2018 of $0.7 million. |
| |
(d) | We estimate that, for a 1% increase or decrease in the exchange rate between the British pound sterling and the U.S. dollar, there would be a corresponding change in the projected estimated property-level cash flow at December 31, 20182019 of $0.8 million. |
| |
| (e) | Interest on unhedged variable-rate debt obligations was calculated using the applicable annual interest rates and balances outstanding at December 31, 2018.2019. |
As a result of scheduled balloon payments on certain of our international debt obligations, projected debt service obligations exceed projected lease revenues in 2019 and 2020 for investments denominated in the British pound sterling, in 2020, 2021 and 2023 for the euro, and in 2021 and after 2023 for the Norwegian krone. We currently anticipate that, by their respective due dates, we will have refinanced certain of these loans, but there can be no assurance that we will be able to do so on favorable terms, if at all. If refinancing has not occurred, we would expect to use our cash resources to make these payments, if necessary.
CPA:18 – Global 20182019 10-K – 6356
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 as we make additional investments.risk. While we believe our portfolio is reasonably well-diversified, it does contain concentrations in excess of 10%,certain areas, based on the percentage of our consolidated total revenues, Stabilized NOI, or pro rata ABR.
For the year ended December 31, 2018,2019, our consolidated portfolio had the following significant characteristics in excess of 10% based on the percentage of our consolidated total revenues:
62%59% related to domestic properties, which included concentrations of 13%12% and 11% in Florida and Texas, respectively; and
38%41% related to international properties.
AtAs of December 31, 2018,2019, our portfolio had the following significant property, industry and lease characteristics in excess of 10% in certain areas, based on the percentage of our Stabilized NOI as of that date:
61% related to domestic properties, which included a concentration of 13% in Florida;
39% related to international properties
31% related to office properties, 29% related to self-storage properties, 11% related to hotel properties, 11% related to warehouse properties; and
29% related to the self-storage industry and 11% related to the hotel, gaming, and leisure industry.
As of December 31, 2019, our net-leased portfolio, which excludes our operating properties, had the following significant property, industry and lease characteristics in excess of 10% in certain areas, based on the percentage of our pro rata ABR as of that date:
41%44% related to domestic properties, which included a concentration of 11% in Illinois;
59%56% related to international properties, which included a concentration in Norway of 14%, Germany of 12%, and the Netherlands of 12%, and Germany of 12%;
46%47% related to office properties, 16% related to hotel properties, 14%15% related to warehouse properties, 14%11% related to industrial properties, and 10% related to retail properties; and
16% related to the hotel, gaming, and leisure industry, and 11% related to the banking industry.
CPA:18 – Global 20182019 10-K – 6457
Item 8. Financial Statements and Supplementary Data.
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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.
CPA:18 – Global 20182019 10-K – 6558
Report of Independent Registered Public Accounting Firm
TotheBoard of Directors and Stockholders of
Corporate Property Associates 18 – Global Incorporated
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Corporate Property Associates 18 – Global Incorporated and its subsidiaries (the “Company”) as of December 31, 20182019 and 2017,2018, and the related consolidated statements of operations,income, of comprehensive income, (loss),of equity and of cash flowsfor each of the three years in the period ended December 31, 2018,2019, including the related notes and financial statement schedules listed in the accompanying index (collectively referred to as the “consolidatedfinancial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20182019 and 2017,2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 20182019 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidatedfinancial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements 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 of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidatedfinancial 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 consolidatedfinancial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
New York, New York
March 12, 2019February 28, 2020
We have served as the Company'sCompany’s auditor since 2013.
CPA:18 – Global 20182019 10-K – 6659
CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
| | | | December 31, | December 31, |
| | 2018 | | 2017 | 2019 | | 2018 |
| Assets | | | | | | |
| Investments in real estate: | | | | | | |
| Real estate — Land, buildings and improvements | $ | 1,210,776 |
| | $ | 1,263,172 |
| $ | 1,200,645 |
| | $ | 1,210,776 |
|
| Operating real estate — Land, buildings and improvements | 503,149 |
| | 566,489 |
| 512,485 |
| | 503,149 |
|
| Real estate under construction | 152,106 |
| | 134,366 |
| 235,751 |
| | 152,106 |
|
| Net investments in direct financing leases | 41,745 |
| | 39,957 |
| 42,054 |
| | 41,745 |
|
| In-place lease intangible assets | 252,316 |
| | 274,723 |
| |
| Other intangible assets | 33,144 |
| | 35,811 |
| |
| In-place lease and other intangible assets | | 284,097 |
| | 285,460 |
|
| Investments in real estate | 2,193,236 |
| | 2,314,518 |
| 2,275,032 |
| | 2,193,236 |
|
| Accumulated depreciation and amortization | (280,608 | ) | | (252,067 | ) | (328,312 | ) | | (280,608 | ) |
| Assets held for sale, net | 23,608 |
| | — |
| — |
| | 23,608 |
|
| Net investments in real estate | 1,936,236 |
| | 2,062,451 |
| 1,946,720 |
| | 1,936,236 |
|
| Cash and cash equivalents | 170,914 |
| | 71,068 |
| 144,148 |
| | 170,914 |
|
| Accounts receivable and other assets, net | 197,403 |
| | 197,478 |
| 143,935 |
| | 197,403 |
|
| Total assets | $ | 2,304,553 |
| | $ | 2,330,997 |
| |
Total assets (a) | | $ | 2,234,803 |
| | $ | 2,304,553 |
|
| Liabilities and Equity | | | | | | |
| Debt: | | | | |
Non-recourse mortgages, net, including debt attributable to Assets held for sale (Note 4) | $ | 1,098,281 |
| | $ | 1,129,432 |
| |
| Bonds payable, net | 139,146 |
| | 146,016 |
| |
| Debt, net | 1,237,427 |
| | 1,275,448 |
| |
| Non-recourse secured debt, net | | $ | 1,201,913 |
| | $ | 1,237,427 |
|
| Accounts payable, accrued expenses and other liabilities | 132,065 |
| | 148,031 |
| 147,098 |
| | 132,065 |
|
| Due to affiliates | 16,827 |
| | 13,767 |
| 11,376 |
| | 16,827 |
|
| Distributions payable | 22,264 |
| | 21,686 |
| 22,745 |
| | 22,264 |
|
| Total liabilities | 1,408,583 |
| | 1,458,932 |
| |
Total liabilities (a) | | 1,383,132 |
| | 1,408,583 |
|
Commitments and contingencies (Note 10) |
| |
|
| |
|
| Preferred stock, $0.001 par value; 50,000,000 shares authorized; none issued | — |
| | — |
| — |
| | — |
|
| Class A common stock, $0.001 par value; 320,000,000 shares authorized; 114,589,333 and 111,193,651 shares, respectively, issued and outstanding | 114 |
| | 110 |
| |
| Class C common stock, $0.001 par value; 80,000,000 shares authorized; 31,641,265 and 31,189,137 shares, respectively, issued and outstanding | 32 |
| | 31 |
| |
| Class A common stock, $0.001 par value; 320,000,000 shares authorized; 117,179,578 and 114,589,333 shares, respectively, issued and outstanding | | 117 |
| | 114 |
|
| Class C common stock, $0.001 par value; 80,000,000 shares authorized; 32,238,513 and 31,641,265 shares, respectively, issued and outstanding | | 32 |
| | 32 |
|
| Additional paid-in capital | 1,290,888 |
| | 1,257,840 |
| 1,319,584 |
| | 1,290,888 |
|
| Distributions and accumulated losses | (411,464 | ) | | (420,005 | ) | (470,326 | ) | | (411,464 | ) |
| Accumulated other comprehensive loss | (50,593 | ) | | (33,212 | ) | (56,535 | ) | | (50,593 | ) |
| Total stockholders’ equity | 828,977 |
| | 804,764 |
| 792,872 |
| | 828,977 |
|
| Noncontrolling interests | 66,993 |
| | 67,301 |
| 58,799 |
| | 66,993 |
|
| Total equity | 895,970 |
| | 872,065 |
| 851,671 |
| | 895,970 |
|
| Total liabilities and equity | $ | 2,304,553 |
| | $ | 2,330,997 |
| $ | 2,234,803 |
| | $ | 2,304,553 |
|
__________
| |
| (a) | See Note 2 for details related to variable interest entities (“VIEs”). |
See Notes to Consolidated Financial Statements.
CPA:18 – Global 2019 10-K– 60
CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share amounts)
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| Revenues | | | | | |
| Lease revenues — net-leased | $ | 119,100 |
| | $ | 129,657 |
| | $ | 117,975 |
|
| Lease revenues — operating real estate | 70,589 |
| | 76,962 |
| | 77,345 |
|
| Other operating and interest income | 7,750 |
| | 10,097 |
| | 10,314 |
|
| | 197,439 |
| | 216,716 |
| | 205,634 |
|
| Operating Expenses | | | | | |
| Depreciation and amortization | 65,498 |
| | 66,436 |
| | 75,174 |
|
| Property expenses | 31,864 |
| | 40,229 |
| | 35,597 |
|
| Operating real estate expenses | 27,423 |
| | 32,928 |
| | 33,530 |
|
| General and administrative | 7,724 |
| | 7,425 |
| | 7,335 |
|
| | 132,509 |
| | 147,018 |
| | 151,636 |
|
| Other Income and Expenses | | | | | |
| Interest expense | (48,019 | ) | | (53,221 | ) | | (48,994 | ) |
| Gain on sale of real estate, net | 24,773 |
| | 78,657 |
| | 14,209 |
|
| Other gains and (losses) | 4,715 |
| | 21,276 |
| | 19,969 |
|
| Equity in losses of equity method investment in real estate | (2,185 | ) | | (1,072 | ) | | (871 | ) |
| | (20,716 | ) | | 45,640 |
| | (15,687 | ) |
| Income before income taxes | 44,214 |
| | 115,338 |
| | 38,311 |
|
| (Provision for) benefit from income taxes | (210 | ) | | 1,952 |
| | 1,506 |
|
| Net Income | 44,004 |
| | 117,290 |
| | 39,817 |
|
| Net income attributable to noncontrolling interests (inclusive of Available Cash Distributions to a related party of $8,132, $9,692, and $8,650, respectively) | (11,432 | ) | | (20,562 | ) | | (13,284 | ) |
| Net Income Attributable to CPA:18 – Global | $ | 32,572 |
| | $ | 96,728 |
| | $ | 26,533 |
|
| Class A Common Stock | | | | | |
| Net income attributable to CPA:18 – Global | $ | 25,636 |
| | $ | 75,816 |
| | $ | 21,032 |
|
| Basic and diluted weighted-average shares outstanding | 116,469,007 |
| | 113,401,265 |
| | 109,942,186 |
|
| Basic and diluted income per share | $ | 0.22 |
| | $ | 0.67 |
| | $ | 0.19 |
|
| Class C Common Stock | | | | | |
| Net income attributable to CPA:18 – Global | $ | 6,936 |
| | $ | 20,912 |
| | $ | 5,501 |
|
| Basic and diluted weighted-average shares outstanding | 32,123,513 |
| | 31,608,961 |
| | 31,138,787 |
|
| Basic and diluted income per share | $ | 0.22 |
| | $ | 0.66 |
| | $ | 0.18 |
|
See Notes to Consolidated Financial Statements.
CPA:18 – Global 20182019 10-K – 67
CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| Revenues | | | | | |
| Lease revenues: | | | | | |
| Rental income | $ | 112,010 |
| | $ | 102,101 |
| | $ | 93,198 |
|
| Interest income from direct financing leases | 3,662 |
| | 3,722 |
| | 4,572 |
|
| Total lease revenues | 115,672 |
| | 105,823 |
| | 97,770 |
|
| Operating real estate income | 79,352 |
| | 80,027 |
| | 71,404 |
|
| Other operating income | 14,454 |
| | 12,616 |
| | 11,561 |
|
| Other interest income | 7,238 |
| | 7,168 |
| | 3,588 |
|
| | 216,716 |
| | 205,634 |
| | 184,323 |
|
| Operating Expenses | | | | | |
| Depreciation and amortization | 66,436 |
| | 75,174 |
| | 82,756 |
|
| Property expenses | 40,229 |
| | 35,597 |
| | 25,795 |
|
| Operating real estate expenses | 32,928 |
| | 33,530 |
| | 31,831 |
|
| General and administrative | 7,397 |
| | 7,271 |
| | 6,876 |
|
| Acquisition and other expenses | 28 |
| | 64 |
| | 6,789 |
|
| | 147,018 |
| | 151,636 |
| | 154,047 |
|
| Other Income and Expenses | | | | | |
| Gain (loss) on sale of real estate, net | 78,657 |
| | 14,209 |
| | (63 | ) |
| Interest expense | (53,221 | ) | | (48,994 | ) | | (43,132 | ) |
| Other gains and (losses) | 21,276 |
| | 19,969 |
| | (6,656 | ) |
| Equity in losses of equity method investment in real estate | (1,072 | ) | | (871 | ) | | (204 | ) |
| | 45,640 |
| | (15,687 | ) | | (50,055 | ) |
| Income (loss) before income taxes | 115,338 |
| | 38,311 |
| | (19,779 | ) |
| Benefit from (provision for) income taxes | 1,952 |
| | 1,506 |
| | (6 | ) |
| Net Income (Loss) | 117,290 |
| | 39,817 |
| | (19,785 | ) |
| Net income attributable to noncontrolling interests (inclusive of Available Cash Distributions to a related party of $9,692, $8,650, and $7,586, respectively) | (20,562 | ) | | (13,284 | ) | | (10,299 | ) |
| Net Income (Loss) Attributable to CPA:18 – Global | $ | 96,728 |
| | $ | 26,533 |
| | $ | (30,084 | ) |
| Class A Common Stock | | | | | |
| Net income (loss) attributable to CPA:18 – Global | $ | 75,816 |
| | $ | 21,032 |
| | $ | (23,065 | ) |
| Basic and diluted weighted-average shares outstanding | 113,401,265 |
| | 109,942,186 |
| | 105,691,583 |
|
| Basic and diluted income (loss) per share | $ | 0.67 |
| | $ | 0.19 |
| | $ | (0.22 | ) |
| Class C Common Stock | | | | | |
| Net income (loss) attributable to CPA:18 – Global | $ | 20,912 |
| | $ | 5,501 |
| | $ | (7,019 | ) |
| Basic and diluted weighted-average shares outstanding | 31,608,961 |
| | 31,138,787 |
| | 30,091,602 |
|
| Basic and diluted income (loss) per share | $ | 0.66 |
| | $ | 0.18 |
| | $ | (0.23 | ) |
See Notes to Consolidated Financial Statements.
CPA:18 – Global 2018 10-K– 6861
CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
| | | | Years Ended December 31, | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 | 2019 | | 2018 | | 2017 |
| Net Income (Loss) | $ | 117,290 |
| | $ | 39,817 |
| | $ | (19,785 | ) | |
| Net Income | | $ | 44,004 |
| | $ | 117,290 |
| | $ | 39,817 |
|
| Other Comprehensive (Loss) Income | | | | | | | | | | |
| Foreign currency translation adjustments | (23,002 | ) | | 39,925 |
| | (12,254 | ) | (4,509 | ) | | (23,002 | ) | | 39,925 |
|
| Realized and unrealized gain (loss) on derivative instruments | 3,297 |
| | (6,669 | ) | | 227 |
| |
| Unrealized (loss) gain on derivative instruments | | (2,079 | ) | | 3,297 |
| | (6,669 | ) |
| | (19,705 | ) | | 33,256 |
| | (12,027 | ) | (6,588 | ) | | (19,705 | ) | | 33,256 |
|
| Comprehensive Income (Loss) | 97,585 |
| | 73,073 |
| | (31,812 | ) | |
| Comprehensive Income | | 37,416 |
| | 97,585 |
| | 73,073 |
|
| | | | | | | | | | | |
| Amounts Attributable to Noncontrolling Interests | | | | | | | | | | |
| Net income | (20,562 | ) | | (13,284 | ) | | (10,299 | ) | (11,432 | ) | | (20,562 | ) | | (13,284 | ) |
| Foreign currency translation adjustments | 2,324 |
| | (4,764 | ) | | 639 |
| 644 |
| | 2,324 |
| | (4,764 | ) |
| Unrealized loss on derivative instruments | | 2 |
| | — |
| | — |
|
| Comprehensive income attributable to noncontrolling interests | (18,238 | ) | | (18,048 | ) | | (9,660 | ) | (10,786 | ) | | (18,238 | ) | | (18,048 | ) |
| Comprehensive Income (Loss) Attributable to CPA:18 – Global | $ | 79,347 |
| | $ | 55,025 |
| | $ | (41,472 | ) | |
| Comprehensive Income Attributable to CPA:18 – Global | | $ | 26,630 |
| | $ | 79,347 |
| | $ | 55,025 |
|
See Notes to Consolidated Financial Statements.
CPA:18 – Global 20182019 10-K – 6962
CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF EQUITY
Years Ended December 31, 2019, 2018, 2017, and 20162017
(in thousands, except share and per share amounts)
| | | | CPA:18 – Global Stockholders | | | | | CPA:18 – Global Stockholders | | | | |
| | Common Stock | | Additional Paid-In Capital | | Distributions
and
Accumulated
Losses | | Accumulated
Other Comprehensive Loss | | Total CPA:18 – Global Stockholders | | Noncontrolling Interests | | | Common Stock | | Additional Paid-In Capital | | Distributions
and
Accumulated
Losses | | Accumulated
Other Comprehensive Loss | | Total CPA:18 – Global Stockholders | | Noncontrolling Interests | | |
| | Class A | | Class C | | | Class A | | Class C | | |
| | | Shares | | Amount | | Shares | | Amount | | Total |
| Balance at January 1, 2019 | | 114,589,333 |
| | $ | 114 |
| | 31,641,265 |
| | $ | 32 |
| | $ | 1,290,888 |
| | $ | (411,464 | ) | | $ | (50,593 | ) | | $ | 828,977 |
| | $ | 66,993 |
| | $ | 895,970 |
|
Cumulative-effect adjustment for the adoption of new accounting pronouncements (Note 2) | | | | | | | | | | | | (1,108 | ) | | | | (1,108 | ) | | | | (1,108 | ) |
| Shares issued | | 3,822,104 |
| | 4 |
| | 1,171,368 |
| | 1 |
| | 43,809 |
| | | | | | 43,814 |
| |
| | 43,814 |
|
| Shares issued to affiliate | | 714,598 |
| | 1 |
| | | | | | 6,261 |
| | | | | | 6,262 |
| |
| | 6,262 |
|
| Shares issued to directors | | 9,164 |
| | — |
| | | | | | 80 |
| | | | | | 80 |
| | | | 80 |
|
| Contributions from noncontrolling interests | | | | | | | | | | | | | | | | — |
| | 2,838 |
| | 2,838 |
|
| Distributions to noncontrolling interests | | | | | | | | | | | | | | | | — |
| | (21,818 | ) | | (21,818 | ) |
| Distributions declared ($0.6252 and $0.5499 per share to Class A and Class C, respectively) | | | | | | | | | | | | (90,326 | ) | | | | (90,326 | ) | | | | (90,326 | ) |
| Net income | | | | | | | | | | | | 32,572 |
| | | | 32,572 |
| | 11,432 |
| | 44,004 |
|
| Other comprehensive loss: | | | | | | | | | | | | | | | |
| | | |
|
| Foreign currency translation adjustments | | | | | | | | | | | | | | (3,865 | ) | | (3,865 | ) | | (644 | ) | | (4,509 | ) |
| Unrealized loss on derivative instruments | | | | | | | | | | | | | | (2,077 | ) | | (2,077 | ) | | (2 | ) | | (2,079 | ) |
| Repurchase of shares | | (1,955,621 | ) | | (2 | ) | | (574,120 | ) | | (1 | ) | | (21,454 | ) | | | | | | (21,457 | ) | | | | (21,457 | ) |
| Balance at December 31, 2019 | | 117,179,578 |
| | $ | 117 |
| | 32,238,513 |
| | $ | 32 |
| | $ | 1,319,584 |
| | $ | (470,326 | ) | | $ | (56,535 | ) | | $ | 792,872 |
| | $ | 58,799 |
| | $ | 851,671 |
|
| | Shares | | Amount | | Shares | | Amount | | Additional Paid-In Capital | | Distributions
and
Accumulated
Losses | | Accumulated
Other Comprehensive Loss | | Total CPA:18 – Global Stockholders | | Noncontrolling Interests | | Total | | | | | | | | | | | | | | | | | | | |
| Balance at January 1, 2018 | 111,193,651 |
| | $ | 110 |
| | 31,189,137 |
| | $ | 31 |
| | $ | 872,065 |
| 111,193,651 |
| | $ | 110 |
| | 31,189,137 |
| | $ | 31 |
| | $ | 1,257,840 |
| | $ | (420,005 | ) | | $ | (33,212 | ) | | $ | 804,764 |
| | $ | 67,301 |
| | $ | 872,065 |
|
| Shares issued | 3,969,258 |
| | 4 |
| | 1,229,712 |
| | 1 |
| | 44,000 |
| 3,969,258 |
| | 4 |
| | 1,229,712 |
| | 1 |
| | 43,995 |
| | | | | | 44,000 |
| | | | 44,000 |
|
| Shares issued to affiliate | 1,422,629 |
| | 1 |
| | | | | | 12,085 |
| | | | | | 12,086 |
| |
| | 12,086 |
| 1,422,629 |
| | 1 |
| | | | | | 12,085 |
| | | | | | 12,086 |
| | | | 12,086 |
|
| Shares issued to directors | 8,753 |
| | — |
| | | | | | 75 |
| | | | | | 75 |
| | | | 75 |
| 8,753 |
| | — |
| | | | | | 75 |
| | | | | | 75 |
| | | | 75 |
|
| Contributions from noncontrolling interests | | | | | | | | | | | | | | | — |
| | 5,966 |
| | 5,966 |
| | | | | | | | | | | | | | | — |
| | 5,966 |
| | 5,966 |
|
| Distributions to noncontrolling interests | | | | | | | | | | | | | | | — |
| | (24,512 | ) | | (24,512 | ) | | | | | | | | | | | | | | | — |
| | (24,512 | ) | | (24,512 | ) |
| Distributions declared ($0.6252 and $0.5503 per share to Class A and Class C, respectively) | | | | | | | | | | | (88,187 | ) | | | | (88,187 | ) | | | | (88,187 | ) | | | | | | | | | | | (88,187 | ) | | | | (88,187 | ) | | | | (88,187 | ) |
| Net income | | | | | | | | | | | 96,728 |
| | | | 96,728 |
| | 20,562 |
| | 117,290 |
| | | | | | | | | | | 96,728 |
| | | | 96,728 |
| | 20,562 |
| | 117,290 |
|
| Other comprehensive income: | | | | | | | | | | | | | | |
| | | |
| |
| Other comprehensive loss: | | | | | | | | | | | | | | | |
| | | |
|
| Foreign currency translation adjustments | | | | | | | | | | | | | (20,678 | ) | | (20,678 | ) | | (2,324 | ) | | (23,002 | ) | | | | | | | | | | | | | (20,678 | ) | | (20,678 | ) | | (2,324 | ) | | (23,002 | ) |
| Realized and unrealized gain on derivative instruments | | | | | | | | | | | | | 3,297 |
| | 3,297 |
| | | | 3,297 |
| |
| Unrealized gain on derivative instruments | | | | | | | | | | | | | | 3,297 |
| | 3,297 |
| | | | 3,297 |
|
| Repurchase of shares | (2,004,958 | ) | | (1 | ) | | (777,584 | ) | | — |
| | (23,107 | ) | | | | | | (23,108 | ) | | | | (23,108 | ) | (2,004,958 | ) | | (1 | ) | | (777,584 | ) | | — |
| | (23,107 | ) | | | | | | (23,108 | ) | | | | (23,108 | ) |
| Balance at December 31, 2018 | 114,589,333 |
| | $ | 114 |
| | 31,641,265 |
| | $ | 32 |
| | $ | 1,290,888 |
| | $ | (411,464 | ) | | $ | (50,593 | ) | | $ | 828,977 |
| | $ | 66,993 |
| | $ | 895,970 |
| 114,589,333 |
| | $ | 114 |
| | 31,641,265 |
| | $ | 32 |
| | $ | 1,290,888 |
| | $ | (411,464 | ) | | $ | (50,593 | ) | | $ | 828,977 |
| | $ | 66,993 |
| | $ | 895,970 |
|
| | | | | | | | | | | | | | | | | | | | | |
| Balance at January 1, 2017 | 107,460,081 |
| | $ | 107 |
| | 30,469,144 |
| | $ | 30 |
| | $ | 1,222,139 |
| | $ | (360,673 | ) | | $ | (61,704 | ) | | $ | 799,899 |
| | $ | 66,005 |
| | $ | 865,904 |
| |
| Shares issued | 4,219,140 |
| | 4 |
| | 1,356,090 |
| | 1 |
| | 44,495 |
| | | | | | 44,500 |
| | | | 44,500 |
| |
| Shares issued to affiliate | 1,387,460 |
| | 1 |
| | | | | | 11,186 |
| | | | | | 11,187 |
| | | | 11,187 |
| |
| Shares issued to directors | 12,658 |
| | — |
| | | | | | 100 |
| | | | | | 100 |
| | | | 100 |
| |
| Contributions from noncontrolling interests | | | | | | | | | | | | | | | — |
| | 3,409 |
| | 3,409 |
| |
| Distributions to noncontrolling interests | | | | | | | | | | | | | | | — |
| | (20,161 | ) | | (20,161 | ) | |
| Distributions declared ($0.6252 and $0.5526 per share to Class A and Class C, respectively) | | | | | | | | | | | (85,865 | ) | | | | (85,865 | ) | | | | (85,865 | ) | |
| Net income | | | | | | | | | | | 26,533 |
| | | | 26,533 |
| | 13,284 |
| | 39,817 |
| |
| Other comprehensive income: | | | | | | | | | | | | | | |
| | | |
| |
| Foreign currency translation adjustments | | | | | | | | | | | | | 35,161 |
| | 35,161 |
| | 4,764 |
| | 39,925 |
| |
| Realized and unrealized loss on derivative instruments | | | | | | | | | | | | | (6,669 | ) | | (6,669 | ) | | | | (6,669 | ) | |
| Repurchase of shares | (1,885,688 | ) | | (2 | ) | | (636,097 | ) | | — |
| | (20,080 | ) | | | | | | (20,082 | ) | | | | (20,082 | ) | |
| Balance at December 31, 2017 | 111,193,651 |
| | $ | 110 |
| | 31,189,137 |
| | $ | 31 |
| | $ | 1,257,840 |
| | $ | (420,005 | ) | | $ | (33,212 | ) | | $ | 804,764 |
| | $ | 67,301 |
| | $ | 872,065 |
| |
(Continued)
CPA:18 – Global 20182019 10-K – 7063
CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF EQUITY
(Continued)
Years Ended December 31, 2019, 2018, 2017, and 20162017
(in thousands, except share and per share amounts)
| | | | CPA:18 – Global Stockholders | | | | | CPA:18 – Global Stockholders | | | | |
| | Common Stock | | Additional Paid-In Capital | | Distributions
and
Accumulated
Losses | | Accumulated
Other Comprehensive Loss | | Total CPA:18 – Global Stockholders | | Noncontrolling Interests | | | Common Stock | | Additional Paid-In Capital | | Distributions
and
Accumulated
Losses | | Accumulated
Other Comprehensive Loss | | Total CPA:18 – Global Stockholders | | Noncontrolling Interests | | |
| | Class A | | Class C | | | Class A | | Class C | | |
| | Shares | | Amount | | Shares | | Amount | | Total | Shares | | Amount | | Shares | | Amount | | Total |
| Balance at January 1, 2016 | 103,214,083 |
| | $ | 103 |
| | 29,536,899 |
| | $ | 30 |
| | $ | 1,178,990 |
| | $ | (247,995 | ) | | $ | (50,316 | ) | | $ | 880,812 |
| | $ | 71,896 |
| | $ | 952,708 |
| |
| Balance at January 1, 2017 | | 107,460,081 |
| | $ | 107 |
| | 30,469,144 |
| | $ | 30 |
| | $ | 1,222,139 |
| | $ | (360,673 | ) | | $ | (61,704 | ) | | $ | 799,899 |
| | $ | 66,005 |
| | $ | 865,904 |
|
| Shares issued | 3,957,275 |
| | 4 |
| | 1,280,998 |
| | — |
| | 43,490 |
| | | | | | 43,494 |
| | | | 43,494 |
| 4,219,140 |
| | 4 |
| | 1,356,090 |
| | 1 |
| | 44,495 |
| | | | | | 44,500 |
| | | | 44,500 |
|
| Shares issued to affiliate | 1,253,420 |
| | 1 |
| |
| |
| | 10,072 |
| | | | | | 10,073 |
| | | | 10,073 |
| 1,387,460 |
| | 1 |
| |
| |
| | 11,186 |
| | | | | | 11,187 |
| | | | 11,187 |
|
| Shares issued to directors | 12,658 |
| | — |
| | | | | | 100 |
| | | | | | 100 |
| | | | 100 |
| 12,658 |
| | — |
| | | | | | 100 |
| | | | | | 100 |
| | | | 100 |
|
| Contributions from noncontrolling interests |
| | | | | | | |
| | | | | | — |
| | 88 |
| | 88 |
|
| | | | | | | |
| | | | | | — |
| | 3,409 |
| | 3,409 |
|
| Distributions to noncontrolling interests | | | | | | | | | | | | | | | — |
| | (15,639 | ) | | (15,639 | ) | | | | | | | | | | | | | | | — |
| | (20,161 | ) | | (20,161 | ) |
| Distributions declared ($0.6252 and $0.5467 per share to Class A and Class C, respectively) | | | | | | | | | | | (82,594 | ) | | | | (82,594 | ) | | | | (82,594 | ) | |
| Net loss | | | | | | | | | | | (30,084 | ) | | | | (30,084 | ) | | 10,299 |
| | (19,785 | ) | |
| Other comprehensive loss: | | | | | | | | | | |
| | | |
| | | |
| |
| Distributions declared ($0.6252 and $0.5526 per share to Class A and Class C, respectively) | | | | | | | | | | | | (85,865 | ) | | | | (85,865 | ) | | | | (85,865 | ) |
| Net income | | | | | | | | | | | | 26,533 |
| | | | 26,533 |
| | 13,284 |
| | 39,817 |
|
| Other comprehensive income: | | | | | | | | | | | |
| | | |
| | | |
|
| Foreign currency translation adjustments | | | | | | | | | | | | | (11,615 | ) | | (11,615 | ) | | (639 | ) | | (12,254 | ) | | | | | | | | | | | | | 35,161 |
| | 35,161 |
| | 4,764 |
| | 39,925 |
|
| Realized and unrealized gain on derivative instruments | | | | | | | | | | | | | 227 |
| | 227 |
| |
| | 227 |
| |
| Unrealized loss on derivative instruments | | | | | | | | | | | | | | (6,669 | ) | | (6,669 | ) | |
| | (6,669 | ) |
| Repurchase of shares | (977,355 | ) | | (1 | ) | | (348,753 | ) | | — |
| | (10,513 | ) | | | |
| | (10,514 | ) | | | | (10,514 | ) | (1,885,688 | ) | | (2 | ) | | (636,097 | ) | | — |
| | (20,080 | ) | | | |
| | (20,082 | ) | | | | (20,082 | ) |
| Balance at December 31, 2016 | 107,460,081 |
| | $ | 107 |
| | 30,469,144 |
| | $ | 30 |
| | $ | 1,222,139 |
| | $ | (360,673 | ) | | $ | (61,704 | ) | | $ | 799,899 |
| | $ | 66,005 |
| | $ | 865,904 |
| |
| Balance at December 31, 2017 | | 111,193,651 |
| | $ | 110 |
| | 31,189,137 |
| | $ | 31 |
| | $ | 1,257,840 |
| | $ | (420,005 | ) | | $ | (33,212 | ) | | $ | 804,764 |
| | $ | 67,301 |
| | $ | 872,065 |
|
See Notes to Consolidated Financial Statements.
CPA:18 – Global 20182019 10-K – 7164
CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | Years Ended December 31, | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 | 2019 | | 2018 | | 2017 |
| Cash Flows — Operating Activities |
| | | | |
| | | | |
| Net income (loss) | $ | 117,290 |
| | $ | 39,817 |
| | $ | (19,785 | ) | |
| Adjustments to net income (loss): | | | | | | |
| (Gain) loss on sale of real estate | (78,657 | ) | | (14,209 | ) | | 63 |
| |
| Net income | | $ | 44,004 |
| | $ | 117,290 |
| | $ | 39,817 |
|
| Adjustments to net income: | | | | | | |
| Depreciation and amortization, including intangible assets and deferred financing costs | 69,622 |
| | 77,530 |
| | 84,766 |
| 69,139 |
| | 69,622 |
| | 77,530 |
|
| Gain on insurance proceeds | (22,227 | ) | | — |
| | — |
| |
| Non-cash asset management fee and directors’ compensation | 12,162 |
| | 11,393 |
| | 10,226 |
| |
| Allowance for uncollectible accounts | 5,727 |
| | 4,164 |
| | 3 |
| |
| Gain on sale of real estate | | (24,773 | ) | | (78,657 | ) | | (14,209 | ) |
| Asset management fees and directors’ compensation paid in shares | | 5,850 |
| | 12,162 |
| | 11,393 |
|
| Straight-line rent adjustments | (4,548 | ) | | (5,223 | ) | | (5,221 | ) | (2,960 | ) | | (4,548 | ) | | (5,223 | ) |
| Deferred income tax benefit | (3,690 | ) | | (3,624 | ) | | (1,436 | ) | (2,310 | ) | | (3,690 | ) | | (3,624 | ) |
| Realized and unrealized loss (gain) on foreign currency transactions, derivatives, and other | 1,913 |
| | (17,799 | ) | | 10,259 |
| |
| Loss on extinguishment of debt | 1,283 |
| | — |
| | — |
| |
| Equity in losses of equity method investment in real estate in excess of distributions received | 1,072 |
| | 871 |
| | 204 |
| 2,185 |
| | 1,072 |
| | 871 |
|
| Amortization of rent-related intangibles and deferred rental revenue | (712 | ) | | (575 | ) | | (1,113 | ) | (1,068 | ) | | (712 | ) | | (575 | ) |
| Realized and unrealized (gain) loss on foreign currency transactions, derivatives, and other | | (694 | ) | | 1,913 |
| | (17,799 | ) |
| Loss on extinguishment of debt | | 133 |
| | 1,283 |
| | — |
|
| Gain on insurance proceeds | | — |
| | (22,227 | ) | | — |
|
| Allowance for uncollectible accounts | | — |
| | 5,727 |
| | 4,164 |
|
| Net change in other operating assets and liabilities | | 1,607 |
| | 86 |
| | 3,977 |
|
| Change in deferred acquisition fees payable | (1,618 | ) | | (7,897 | ) | | (8,661 | ) | (293 | ) | | (1,618 | ) | | (7,897 | ) |
| Net change in other operating assets and liabilities | 86 |
| | 3,977 |
| | (2,558 | ) | |
| Net Cash Provided by Operating Activities | 97,703 |
| | 88,425 |
| | 66,747 |
| 90,820 |
| | 97,703 |
| | 88,425 |
|
| Cash Flows — Investing Activities | | | | | | | | | | |
| Funding for build-to-suit and development projects | | (108,139 | ) | | (172,379 | ) | | (103,770 | ) |
| Proceeds from sale of real estate | 125,841 |
| | 59,510 |
| | 40 |
| 50,846 |
| | 125,841 |
| | 59,510 |
|
| Funding and advances for build-to-suit projects | (91,517 | ) | | (59,634 | ) | | (103,889 | ) | |
| Acquisitions of real estate, build-to-suit projects and direct financing leases | (80,862 | ) | | (50,392 | ) | | (57,128 | ) | |
| Proceeds from repayment of notes receivable | | 35,954 |
| | 2,546 |
| | — |
|
| Value added taxes refunded in connection with the acquisitions of real estate | | 9,627 |
| | 5,501 |
| | 12,639 |
|
| Value added taxes paid in connection with acquisitions of real estate | | (6,964 | ) | | (9,440 | ) | | (6,253 | ) |
| Payment of deferred acquisition fees to an affiliate | | (4,503 | ) | | (3,851 | ) | | (3,827 | ) |
| Return of capital from equity investments | | 3,161 |
| | — |
| | 229 |
|
| Capital expenditures on real estate | | (2,989 | ) | | (10,450 | ) | | (12,512 | ) |
| Proceeds from insurance settlements | 53,195 |
| | 3,895 |
| | — |
| 1,084 |
| | 53,195 |
| | 3,895 |
|
| Capital expenditures on real estate | (10,450 | ) | | (12,512 | ) | | (7,021 | ) | |
| Value added taxes paid in connection with acquisitions of real estate | (9,440 | ) | | (6,253 | ) | | (11,680 | ) | |
| Value added taxes refunded in connection with the acquisitions of real estate | 5,501 |
| | 12,639 |
| | 6,049 |
| |
| Payment of deferred acquisition fees to an affiliate | (3,851 | ) | | (3,827 | ) | | (4,652 | ) | |
| Proceeds from repayment of notes receivable | 2,546 |
| | — |
| | — |
| |
| Capital contributions to equity investment | | (911 | ) | | 18 |
| | (5,649 | ) |
| Other investing activities, net | 39 |
| | (93 | ) | | 47 |
| 159 |
| | 39 |
| | (93 | ) |
| Capital contributions to equity investment | 18 |
| | (5,649 | ) | | (4,013 | ) | |
| Deposits for investments | — |
| | (1,139 | ) | | 4,000 |
| |
| Return of capital from equity investments | — |
| | 229 |
| | 2,149 |
| |
| Investment in notes receivable | — |
| | — |
| | (38,500 | ) | |
| Acquisition of real estate | | — |
| | — |
| | (7,395 | ) |
| Net Cash Used in Investing Activities | (8,980 | ) | | (63,226 | ) | | (214,598 | ) | (22,675 | ) | | (8,980 | ) | | (63,226 | ) |
| Cash Flows — Financing Activities | | | | | | | | | | |
| Scheduled payments and prepayments of mortgage principal | | (132,160 | ) | | (52,411 | ) | | (10,711 | ) |
| Proceeds from mortgage financing | 158,302 |
| | 85,559 |
| | 145,675 |
| 123,641 |
| | 158,302 |
| | 85,559 |
|
| Distributions paid | (87,609 | ) | | (85,174 | ) | | (81,677 | ) | (89,845 | ) | | (87,609 | ) | | (85,174 | ) |
| Scheduled payments and prepayments of mortgage principal | (52,411 | ) | | (10,711 | ) | | (7,007 | ) | |
| Proceeds from issuance of shares | 41,901 |
| | 42,329 |
| | 41,070 |
| 41,735 |
| | 41,901 |
| | 42,329 |
|
| Repurchase of shares | (23,108 | ) | | (20,082 | ) | | (10,514 | ) | (21,457 | ) | | (23,108 | ) | | (20,082 | ) |
| Distributions to noncontrolling interests | (21,192 | ) | | (20,264 | ) | | (15,639 | ) | (20,070 | ) | | (21,192 | ) | | (20,264 | ) |
| Contributions from noncontrolling interests | 1,520 |
| | 2,632 |
| | 88 |
| 2,922 |
| | 1,520 |
| | 2,632 |
|
| Payment of deferred financing costs and mortgage deposits | (1,495 | ) | | (807 | ) | | (1,274 | ) | (1,001 | ) | | (1,495 | ) | | (807 | ) |
| Other financing activities, net | 680 |
| | (13 | ) | | 4 |
| (9 | ) | | 680 |
| | (45 | ) |
| Repayment of notes payable to affiliate | — |
| | (38,696 | ) | | — |
| — |
| | — |
| | (38,696 | ) |
| Proceeds from notes payable to affiliate | — |
| | 11,196 |
| | 27,500 |
| — |
| | — |
| | 11,196 |
|
| Changes in financing escrow | — |
| | (32 | ) | | 4,482 |
| |
| Net Cash Provided by (Used in) Financing Activities | 16,588 |
| | (34,063 | ) | | 102,708 |
| |
| Net Cash (Used in) Provided by Financing Activities | | (96,244 | ) | | 16,588 |
| | (34,063 | ) |
| 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 | (4,656 | ) | | 5,306 |
| | (1,713 | ) | 659 |
| | (4,656 | ) | | 5,306 |
|
| Net increase (decrease) in cash and cash equivalents and restricted cash | 100,655 |
| | (3,558 | ) | | (46,856 | ) | |
| Net (decrease) increase in cash and cash equivalents and restricted cash | | (27,440 | ) | | 100,655 |
| | (3,558 | ) |
| Cash and cash equivalents and restricted cash, beginning of year | 90,183 |
| | 93,741 |
| | 140,597 |
| 190,838 |
| | 90,183 |
| | 93,741 |
|
| Cash and cash equivalents and restricted cash, end of year | $ | 190,838 |
| | $ | 90,183 |
| | $ | 93,741 |
| $ | 163,398 |
| | $ | 190,838 |
| | $ | 90,183 |
|
See Notes to Consolidated Financial Statements.
CPA:18 – Global 20182019 10-K – 72
CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
Supplemental Cash Flow Information
(In thousands)
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| Interest paid, net of amounts capitalized | $ | 50,650 |
| | $ | 45,821 |
| | $ | 39,417 |
|
| Interest capitalized | $ | 3,445 |
| | $ | 4,087 |
| | $ | 6,472 |
|
| Income taxes paid | $ | 2,584 |
| | $ | 1,084 |
| | $ | 794 |
|
CPA:18 – Global 2018 10-K– 7365
CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization
Corporate Property Associates 18 – Global Incorporated (“CPA:18 – Global”) and, together with its consolidated subsidiaries, we, us, or our,, is a publicly owned, non-traded REIT,real estate investment trust (“REIT”), that invests primarily in a diversified portfolio of income-producing commercial real estate properties leased to companies, and other real estate related assets, both domestically and internationally. In addition, our portfolio includes self-storage and student housing investments. We were formed in 2012 and are managed by W. P. Carey Inc. (“WPC”) through one of its subsidiaries (collectively our “Advisor”). As a REIT, we are not subject to U.S. federal income taxationtaxes 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, among other factors. We earn revenue primarily by leasing the properties we own to single corporate tenants, predominantly on a triple-net lease basis, which requires the tenant to pay substantially all of the costs associated with operating and maintaining the property. We derive self-storage revenue from rents received from customers who rent storage space, primarily under month-to-month leases for personal or business use. We earn student housing and multi-family residential revenue primarily from leases of one year or less with individual students and tenants, respectively. Our last multi-family residential property was sold on January 29, 2019. After that date, we no longer earned revenue from multi-family residential tenants. Revenue is subject to fluctuation due to the timing of new lease transactions, lease terminations, lease expirations, contractual rent adjustments, tenant defaults, sales of properties, and changes in foreign currency exchange rates.
Substantially all of our assets and liabilities are held by CPA:18 Limited Partnership (“the Operating Partnership”), and atas of December 31, 20182019 we owned 99.97% of general and limited partnership interests in the Operating Partnership. The remaining interest in the Operating Partnership is held by a subsidiary of WPC.
AtAs of December 31, 2018,2019, our net lease portfolio was comprised of full or partial ownership interests in 5747 properties, substantially all of which were fully-occupiedfully occupied and triple-net leased to 9361 tenants totaling 10.09.6 million square feet. The remainder of our portfolio at that date was comprised of our full or partial ownership interests in 6968 self-storage properties, and 15 multi-family properties (which includes twelve12 student housing development projects and two student housing operating properties, as well as one multi-family residential property that was sold in January 2019 (Note 16)), totaling 5.6approximately 5.5 million square feet.
We operate in three reportable business segments: Net Lease, Self Storage, and Multi-Family.Other Operating Properties. Our Net Lease segment includes our investments in net-leased properties, whether they are accounted for as operating leases or direct financing leases. Our Self Storage segment is comprised of our investments in self-storage properties. Our Multi-FamilyOther Operating Properties segment is comprised of our investments in student housing development projects, student housing operating properties and multi-family residential properties.properties (our last multi-family residential property was sold in January 2019). In addition, we have an All Other category that includes our notes receivable investments, (Note 14).one of which was repaid during the second quarter of 2019. Our reportable business segments and All Other category are the same as our reporting units.units (Note 14).
On December 20, 2019, we executed a framework agreement with a third party (the “Framework Agreement”) to enter into 11 net lease agreements for our student housing properties located in Spain and Portugal for 25 years upon completion of construction. Effective as of the date of this Framework Agreement, the student housing operating property located in Barcelona, Spain that was placed into service during the third quarter of 2019 became a net lease property. Additionally, the remaining ten student housing projects under construction will become subject to net lease agreements upon their completion and are scheduled to do so throughout 2020 and 2021 (Note 14).
We raised aggregate gross proceeds in our initial public offering of approximately $1.2 billion through April 2, 2015, which is the date we closed our offering. We have fully invested the proceeds from our initial public offering. In addition, from inception through December 31, 2018, $150.42019, $183.9 million and $42.2$52.5 million of distributions to our shareholders were reinvested in our Class A and Class C common stock, respectively, through our Distribution Reinvestment Plan (“DRIP”).
CPA:18 – Global 2019 10-K– 66
Notes to Consolidated Financial Statements
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. However, following our adoption of Accounting Standards Update (“ASU”) 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, on January 1, 2017, as described below, all transaction costs incurred during the years ended December 31, 2018 and 2017 were capitalized since our acquisitions during the years were classified as asset acquisitions. Most of our future acquisitions are likely to be classified as asset acquisitions.
CPA:18 – Global 2018 10-K– 74
Notes to Consolidated Financial Statements
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. Site improvements are valued using the cost 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, applying a selected capitalization rate, and deducting estimated costs of sale.
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;
the marketing period necessary to put a lease in place;
carrying costs during the marketing period;
leasing commissions and tenant improvement allowances;
market rents and growth factors of these rents; and
a market lease term and a capitalization rate to be applied to an estimate of market rent at the end of the market lease term.
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
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, industry standards, and based on our experience. Different estimates of remaining economic life will affect the depreciation expense that is recorded.
CPA:18 – Global 2019 10-K– 67
Notes to Consolidated Financial Statements
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.term. 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. 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 appraisals conducted by independent appraisal firms.
CPA:18 – Global 2018 10-K– 75
Notes to Consolidated Financial Statements
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 above-market leases and below-market ground leases in Other intangible assets in the consolidated financial statements. We include the value of below-market leases and above-market ground leases in Accounts payable, accrued expenses and other liabilities in the consolidated financial statements. We include the amortization of above- and below-market ground lease intangibles in Property expenses 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. We amortize the value of in-place lease intangibles to Depreciationdepreciation 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 and is included in Interest expense in the consolidated financial statements. 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. In the event we dispose of a property 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 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.
CPA:18 – Global 2019 10-K– 68
Notes to Consolidated Financial Statements
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, the vacancy of a property that is not subject to a lease,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. We may incur impairment charges on long-lived assets, including real estate, related intangible assets, direct financing leases, assets held for sale, and equity investments in real estate. We may also incur impairment charges on goodwill and notes receivable. Our policies and estimates for evaluating whether these assets are impaired are presented below.
Real Estate — 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, over a ten-year holding period, 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.
CPA:18 – Global 2018 10-K– 76
Notes to Consolidated Financial Statements
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. The estimated fair value of the property’s asset group is primarily determined using market information from outside sources, such as broker quotes or recent comparable sales. In cases where the available market information is not deemed appropriate, we perform a future net cash flow analysis discounted for inherent risk associated with each asset to determine an 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 will continue to review the property for subsequent changes in the fair value and may recognize an additional impairment charge if warranted.
Real EstateGain/Loss on Sales — In the unlikely event that we decide not to sell a property previously classified as held for sale, we reclassify the property as held and used. We measure and record a property that is reclassified as held and used at the lower of (i) its carrying amount before the property was classified as held for sale, adjusted for any depreciation expense that would have been recognized had the property been continuously classified as held and used or (ii) the estimated fair value at the date of the subsequent decision not to sell.
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. When these criteria are met, a gain or loss is recognized as the difference between the sale price, less any selling costs, and the carrying value of the property.
Direct Financing Leases — We reviewperiodically assess whether there are any indicators that the value of our net investments in direct financing leases at least annually tomay be impaired. When determining a possible impairment, we take into consideration the collectability of direct financing lease receivables for which a reserve would be required if any losses are both probable and reasonably estimable. In addition, we determine whether there has been an other-than-temporarya permanent decline in the current estimate of the residual value of the property. The residual value is our estimate of what we could realize upon the sale of the property at the end of the lease term, based on market information and third-party estimates where available. If this review indicates that a permanent decline in residualthe fair value has occurred that is other-than-temporary,of the asset below its carrying value, we recognize an impairment charge equal to the difference between the fair value and carrying amount of the residual value.charge.
We also assess the carrying amount for recoverability and if, as a result of the decreased expected cash flows, we determine that our carrying value is not fully recoverable, we record an allowance for credit losses to reflect the change in the estimate of the future cash flows that includes rent. Accordingly, the net investment balance is written down to fair value. When we enter into a contract to sell the real estate assets that are recorded as direct financing leases, we evaluate whether we believe it is probable that the disposition will occur. If we determine that the disposition is probable, we will classify the net investment as held for sale and write down the net investment to its fair value if the fair value is less than the carrying value.
CPA:18 – Global 2019 10-K– 69
Notes to Consolidated Financial Statements
Equity Investment in Real Estate — We evaluate our equity investment in 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 our equity investment 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 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 investments in direct financing leases) have fair values that generally approximate their carrying values.
CPA:18 – Global 2018 10-K– 77
Notes to Consolidated Financial Statements
Goodwill — We evaluate goodwill for possible impairment at least annually or upon the occurrence of a triggering event.event (Note 6). 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, including goodwill.value. If this is not determined to be the case, a step one quantitative impairment test is considered unnecessary. However, if it is more likely than not, then step one is performed to determine both the existence and amount of goodwill impairment. If the fair value of the reporting unit exceeds its carrying amount, we do not consider goodwill to be impaired. If however, the fair value of the reporting unit is less than its carrying amount, an impairment loss is recognized in an amount equal to the excess, limited to the total amount of goodwill allocated to the reporting unit.
NotesNote Receivable — We evaluate our notesnote receivable on a periodic basis to determine if there are any indicators that the value may be impaired. We determined the estimated fair value of these financial instruments using a discounted cash flow model that estimates the present value of the future note payments by discounting such payments at current estimated market interest rates. The estimated market interest rates take into account interest rate risk and the value of the underlying collateral, which includes quality of the collateral, the credit quality of the tenant/obligor, and the time until maturity.
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 variable interest entity (“VIE”)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 VIEs 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.
CPA:18 – Global 20182019 10-K – 7870
Notes to Consolidated Financial Statements
AtAs of December 31, 2019 and December 31, 2018, we considered 19 and 21 entities to be VIEs, 20respectively, of which we consolidated 18 and 20, respectively, as we are considered the primary beneficiary. At December 31, 2017, we considered 12 entities to be VIEs, 11 of which we consolidated. We previously determined that a development project located in Accra, Ghana to be a VIE. During the year ended December 31, 2018, we transferred the right to collect for tenant default damages related to the development project to our insurer as part of a settlement agreement with our insurer relating to payment of a claim under our political risk insurance policy (Note 4), and as a result, we no longer determine this property to be a VIE. The following table presents a summary of selected financial data of the consolidated VIEs included in the consolidated balance sheets (in thousands): | | | | December 31, | December 31, |
| | 2018 | | 2017 | 2019 | | 2018 |
| Real estate — Land, buildings and improvements | $ | 362,536 |
| | $ | 373,954 |
| $ | 359,886 |
| | $ | 362,536 |
|
| Operating real estate — Land, buildings and improvements | 110,543 |
| | — |
| — |
| | 110,543 |
|
| Real estate under construction | 151,479 |
| | 107,732 |
| 233,220 |
| | 151,479 |
|
| In-place lease intangible assets | 86,011 |
| | 88,617 |
| 101,198 |
| | 103,234 |
|
| Other intangible assets | 17,223 |
| | 18,040 |
| |
| Accumulated depreciation and amortization | (68,534 | ) | | (54,592 | ) | (78,598 | ) | | (68,534 | ) |
| Cash and cash equivalents | 18,092 |
| | 5,030 |
| |
| Accounts receivable and other assets, net | 27,625 |
| | 33,219 |
| |
| Total assets | 704,975 |
| | 572,000 |
| 642,648 |
| | 704,975 |
|
| | | | | | | |
| Non-recourse mortgages, net, including debt attributable to Assets held for sale | $ | 284,669 |
| | $ | 218,267 |
| |
| Bonds payable, net | 57,253 |
| | 60,577 |
| |
| Accounts payable, accrued expenses and other liabilities | 50,061 |
| | 46,858 |
| |
| Non-recourse secured debt, net | | $ | 276,124 |
| | $ | 341,922 |
|
| Total liabilities | 391,983 |
| | 325,702 |
| 330,549 |
| | 391,983 |
|
At both December 31, 20182019 and 2017,2018, we had one unconsolidated VIE, which we account for under the equity method of accounting. We do not consolidate this entity because we are not the primary beneficiary and the nature of our involvement in the activities of the entity allows us to exercise significant influence on, but does not give us power over, decisions that significantly affect the economic performance of the entity. As of December 31, 20182019 and 2017,2018, the net carrying amount of this equity investment was $18.8$14.9 million and $20.9$18.8 million, respectively, and our maximum exposure to loss in this entity is limited to our investment.
At times, the carrying value of our equity investment may fall below zero for certain investments. We intend to fund our share of the jointly owned investment’s future operating deficits should the need arise. However, we have no legal obligation to pay for any of the liabilities of such investments nor do we have any legal obligation to fund the operating deficits. AtAs of December 31, 20182019 and 2017,2018, our sole equity investment did not have a carrying value below zero.
Out-of-Period AdjustmentsForeign Currencies —During We are subject to fluctuations in exchange rates between foreign currencies and the third quarter of 2017, we identifiedU.S. dollar (primarily the euro and recorded out-of-period adjustments relatedthe Norwegian krone and, to a lesser extent, the accounting for deferred foreign income taxes. We concluded that these adjustments were not material to our consolidated financial statements for anyBritish pound sterling). The following table reflects the end-of-period rate of the current or prior periods presented. The net adjustment is reflected as a $0.8 million increase of our Benefit from income taxesU.S. dollar in the consolidated statements of income for the year ended December 31, 2017.relation to foreign currencies:
|
| | | | | | | | | | |
| | December 31, | | |
| | 2019 | | 2018 | | Percent Change |
| British Pound Sterling | $ | 1.3204 |
| | $ | 1.2800 |
| | 3.2 | % |
| Euro | 1.1234 |
| | 1.1450 |
| | (1.9 | )% |
| Norwegian Krone | 0.1139 |
| | 0.1151 |
| | (1.0 | )% |
Reclassifications — Certain prior period amounts have been reclassified to conform to the current period presentation.
In the second quarter of 2018, we reclassified notes receivable, equity investment in real estate, and goodwill to be included within Accounts receivable and other assets, net in our consolidated balance sheets. Additionally, we reclassified deferred income taxes to be included within Accounts payable, accrued expenses and other liabilities in our consolidated balance sheets. Prior period balances have been reclassified to conform to the current period presentation.
In addition, in accordance with the SEC’s Disclosure Updateadoption of certain rule and Simplification release, datedform amendments on August 18,17, 2018, we moved Gain on sale of real estate, net in the consolidated statements of income to be included within Other Income and Expenses.
In connection with our adoption of Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), effective January 1, 2019, as described below in Recent Accounting Pronouncements, reimbursable tenant costs (revenues), which were previously included in Other operating income, are now included within Lease revenues — net-leased in the consolidated statements of income. Additionally, we previously presented Interest income from direct financing leases separately on the consolidated statements of income. We now present this item within Lease revenues — net-leased.
CPA:18 – Global 20182019 10-K – 7971
Notes to Consolidated Financial Statements
The following table presentsIn addition, we previously presented Other operating income and Other interest income separately on the consolidated statements of income. We currently present these items as Other operating and interest income as a summaryresult of amountsthe reclassifications related to the adoption of ASU 2016-02 previously discussed. Additionally, non-lease operating real estate income is now included in Accounts receivableOther operating and other assets, netinterest income, which was previously included in Lease revenues — operating real estate in the consolidated financial statements (in thousands):
|
| | | | | | | |
| | December 31, |
| | 2018 | | 2017 |
| Accounts receivable and other assets, net | | | |
| $ | 63,954 |
| | $ | 66,500 |
|
| Accounts receivable, net | 31,302 |
| | 32,572 |
|
| 26,354 |
| | 26,084 |
|
| Restricted cash | 19,924 |
| | 19,115 |
|
Equity investment in real estate (Note 4) | 18,764 |
| | 20,919 |
|
| Prepaid expenses | 12,890 |
| | 13,496 |
|
| Other assets | 24,215 |
| | 18,792 |
|
| | $ | 197,403 |
| | $ | 197,478 |
|
The following table presents a summary of amountsincome. Lastly, we reclassified Acquisition and other expenses to be included in Accounts payable, accrued expensesGeneral and other liabilitiesadministrative in the consolidated statements of income, which did not have a material impact on our consolidated financial statements (in thousands):statements.
|
| | | | | | | |
| | December 31, |
| | 2018 | | 2017 |
| Accounts payable, accrued expenses and other liabilities | | | |
| $ | 47,956 |
| | $ | 63,980 |
|
| Accounts payable and accrued expenses | 35,260 |
| | 39,626 |
|
| Deferred revenue | 18,545 |
| | 11,975 |
|
Intangible liabilities, net (Note 6) | 9,757 |
| | 11,009 |
|
| Other liabilities | 20,547 |
| | 21,441 |
|
| | $ | 132,065 |
| | $ | 148,031 |
|
Restricted Cash — In connection with our adoption of ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, as described below, we revised our consolidated statements of cash flows to include restricted cash when reconciling the beginning-of-period and end-of-period cash amounts shown on the statement of cash flows. As a result, we retrospectively revised prior periods presented to conform to the current period presentation. 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, | December 31, |
| | 2018 | | 2017 | | 2016 | 2019 | | 2018 | | 2017 |
| Cash and cash equivalents | $ | 170,914 |
| | $ | 71,068 |
| | $ | 72,028 |
| $ | 144,148 |
| | $ | 170,914 |
| | $ | 71,068 |
|
Restricted cash (a) | 19,924 |
| | 19,115 |
| | 21,713 |
| 19,250 |
| | 19,924 |
| | 19,115 |
|
| Total cash and cash equivalents and restricted cash | $ | 190,838 |
| | $ | 90,183 |
| | $ | 93,741 |
| $ | 163,398 |
| | $ | 190,838 |
| | $ | 90,183 |
|
__________
| |
| (a) | Restricted cash is included within Accounts receivable and other assets, net on our consolidated balance sheets. |
Real Estate and Operating Real Estate — We carry land, buildings, and personal property at cost less accumulated depreciation. We capitalize improvements and significant renovations that extend the useful life of the properties, while we expense replacements, maintenance and repairs that do not improve or extend the lives of the respective assets as incurred.
CPA:18 – Global 2018 10-K– 80
Notes to Consolidated Financial Statements
Real Estate Under Construction — For properties under construction, operating expenses, including interest charges and other property expenses (e.g. real estate taxes, insurance and legal costs) are capitalized rather than expensed. We capitalize interest by applying the interest rate applicable to any funding specific to the property or the interest rate applicable to outstanding borrowings to the average amount of accumulated qualifying expenditures for properties under construction during the period.
NotesNote Receivable — For investments in mortgage notes and loan participations, the loans are initially reflected at acquisition cost, which consists of the outstanding balance, net of the acquisition discount or premium. We amortize any discount or premium as an adjustment to increase or decrease, respectively, the yield realized on these loans over the life of the loan. As such, differences between carrying value and principal balances outstanding do not represent embedded losses or gains as we generally plan to hold such loans to maturity.balance. Our notesnote receivable areis included in Accounts receivable and other assets, net in the consolidated financial statements. We generate revenue in the form of interest payments from the borrower, which are recognized in Other operating and interest income in the consolidated financial statements.
Allowance for Doubtful Accounts— We consider rents due under leases and payments under notes receivable to be past-due or delinquent when a contractually required rent, principal payment, or interest payment is not remitted in accordance with the provisions of the underlying agreement. We evaluate each account individually and set up an allowance when, based upon current information and events, it is probable that we will be unable to collect all amounts due according to the existing contractual terms and the amount can be reasonably estimated.
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.
Other Assets and Liabilities — We include notesour note receivable, prepaid expenses, deferred rental income, equity investment in real estate, tenant receivables, deferred charges, escrow balances held by lenders, restricted cash balances, deferred tax assets, and derivative assets in Accounts receivable and other assets, net in the consolidated financial statements. We include derivative liabilities, deferred income taxes, amounts held on behalf of tenants, deferred revenue, intangible liabilities, and environmental liabilities in Accounts payable, accrued expenses and other liabilities in the consolidated financial statements. Deferred rental income is the aggregate cumulative difference for operating leases between scheduled rents that vary during the lease term and rent recognized on a straight-line basis.
CPA:18 – Global 2019 10-K– 72
Notes to Consolidated Financial Statements
Deferred Acquisition Fees Payable to Affiliate — Fees payable to our Advisor for structuring and negotiating investments and related mortgage financing on our behalf are included in Due to affiliates (Note 3). This fee, together with its accrued interest, is payable in three equal annual installments on the first business day of the fiscal quarter immediately following the fiscal quarter in which an investment is made, and the first business day of the corresponding fiscal quarter in each of the subsequent two fiscal years. The timing of the payment of such fees is subject to the preferred return criterion, a non-compounded cumulative distribution return of 5% per annum (based initially on our invested capital).
Share Repurchases — Share repurchases are recorded as a reduction of common stock par value and additional paid-in capital under our redemption plan, pursuant to which we may elect to redeem shares at the request of our stockholders, subject to certain exceptions, conditions, and limitations. The maximum amount of shares purchasable by us in any period depends on a number of factors and is at the discretion of our board of directors.
Noncontrolling Interests — We account for the special general partner interest in our Operating Partnership as a noncontrolling interest (Note 3). The special general partner interest entitles WPC–CPA:18 Holdings, LLC (“CPA:18 Holdings” or the “Special General Partner”), to cash distributions and, in the event there is a termination or non-renewal of the advisory agreement, redemption rights. Cash distributions to the Special General Partner are accounted for as an allocation to net income attributable to noncontrolling interest.
CPA:18 – Global 2018 10-K– 81
Notes to Consolidated Financial Statements
Revenue Recognition — Revenue 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.
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. Operating property revenues are comprised of lease and other revenues from our self-storage and multi-family portfoliosother operating properties (including multi-family residential and student housing operating properties)and multi-family residential properties, which we sold our last multi-family residential property in January 2019).
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 in the jurisdiction where the property is located, or the lease may provide for participation in gross revenues of the tenant above a stated level (“percentage rent”). 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 record real estate at cost less accumulated depreciation; 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 4).
We record leases accounted for under the direct financing method as a net investment in direct financing leases (Note 5). 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.
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 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 included in Property expenses in the consolidated financial statements 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.
CPA:18 – Global 2019 10-K– 73
Notes to Consolidated Financial Statements
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.
Interest Capitalized in Connection with Real Estate Under Construction — Interest directly related to development projects is capitalized. We consider a development project as substantially completed upon the completion of improvements. If discrete portions of a project are substantially completed and occupied and other portions have not yet reached that stage, the substantially completed portions are accounted for separately. We allocate costs incurred between the portions under construction and the portions substantially completed and only capitalize those costs associated with the portion under construction. We determine an interest rate to be applied for capitalizing interest based on a blended rate of our debt obligations.
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 (generally up to seven years). 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 of the asset.
CPA:18 – Global 2018 10-K– 82
Notes to Consolidated Financial Statements
Foreign Currency Translation and Transaction Gains and Losses — We have interests in international real estate investments primarily in Europe, for which the functional currency is either the euro, the British pound sterling, or the Norwegian krone. 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-average exchange rate during the year. We report the gains and losses resulting from this translation as a component of Other comprehensive (loss) income (loss) in equity. These translation gains and losses are released to net income (loss) when we have substantially exited from all investments in the related currency.
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 (loss) 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 with scheduled principal payments, are included in the determination of net income (loss).
Intercompany foreign currency transactions of a long-term nature (that is, settlement is not planned or anticipated in the foreseeable future), in which the entities to the transactions are consolidated or accounted for by the equity method in our consolidated financial statements, are not included in net income (loss) but are reported as a component of Other comprehensive income (loss) in equity.
Net realized gains or (losses) are recognized on foreign currency transactions in connection with the transfer of cash from foreign operations of subsidiaries to the parent company. We recognized net realized gains of $4.7 million for the year ended December 31, 2018, and realized losses of $2.6$0.6 million, and $0.5$2.6 million, for the years ended December 31, 2019 and 2017, respectively, and 2016, respectively.net realized gains of $4.7 million and for the year ended December 31, 2018.
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 a derivativederivatives designated and that qualifiedqualify as a cash flow hedge, the effective portion ofhedges, the change in fair value of the derivative is recognized in Other comprehensive income (loss) until the hedged item istransaction affects earnings. Gains and losses on the cash flow hedges representing hedge components excluded from the assessment of effectiveness recognized in earnings.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 ineffective portionearnings recognition of a derivative’s changeexcluded components is presented in fair value is immediately recognized in earnings.the same line item as the hedged transactions. For a derivativederivatives designated and that qualifiedqualify as a net investment hedge, the effective portion of the change in the fair value and/or the net settlement of the derivative areis reported in Other comprehensive (loss) income (loss) as part of the cumulative foreign currency translation adjustment. The ineffective portion of the change in fair value of the derivative is recognized directly in earnings. Amounts are reclassified out of Other comprehensive (loss) income (loss) 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.
CPA:18 – Global 2019 10-K– 74
Notes to Consolidated Financial Statements
Income Taxes — We have elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code. In order to maintain our qualification as a REIT, we are required, among other things, to distribute at least 90% of our REIT net taxable income to our stockholders and meet certain tests regarding the nature of our income and assets. As a REIT, we are not subject to federal income taxes on our 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 believe that we have operated, and we intend to continue to operate, in a manner that allows us to continue to qualify as a REIT.
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 certain foreign jurisdictions. As a result, we are subject to certain foreign, state, and local taxes and a provision for such taxes is included in the consolidated financial statements.
We elect to treat certain of our corporate subsidiaries as taxable REIT subsidiaries (“TRSs”). In general, a TRS may perform additional services for our tenants and generally may engage in any real estate or non-real estate-related business (except for the operation or management of health care facilities or lodging facilities or providing to any person, under a franchise, license or otherwise, rights to any brand name under which any lodging facility or health care facility is operated). These operations are subject to corporate federal, state, local, and foreign income taxes, as applicable. Our financial statements are prepared on a consolidated basis including TRSs and include a provision for current and deferred taxes on these operations.
CPA:18 – Global 2018 10-K– 83
Notes to Consolidated Financial Statements
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 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 U.S. GAAP purposes as described in Note 12). 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) (Note 12).
Income (Loss) Per Share — We have a simple equity capital structure with only common stock outstanding. As a result, income (loss) per share, as presented, represents both basic and dilutive per-share amounts for all periods presented in the consolidated financial statements. Income (loss) per basic and diluted share of common stock is calculated by dividing Net income (loss) attributable to CPA:18 – Global by the weighted-average number of shares of common stock issued and outstanding during the year. The allocation of Net income (loss) attributable to CPA:18 – Global is calculated based on the weighted-average shares outstanding for Class A common stock and Class C common stock for the years ended December 31, 2019, 2018, 2017, and 2016,2017, respectively.
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.
Recent Accounting Pronouncements
Pronouncements Adopted as of December 31, 2018
In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. ASU 2014-09 does not apply to our lease revenues, which constitute a majority of our revenues, but will primarily apply to revenues generated from our operating properties. We adopted this guidance for our interim and annual periods beginning January 1, 2018 using the modified retrospective transition method applied to any contracts not completed as of that date. There were no changes to the prior period presentations of revenue. Results of operations for reporting periods beginning January 1, 2018 are presented under Topic 606. The adoption of Topic 606 did not have a material impact on our consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 requires all equity investments (other than those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value, with changes in the fair value recognized through net income. We adopted this guidance for our interim and annual periods beginning January 1, 2018. The adoption of ASU 2016-01 did not have a material impact on our consolidated financial statements.
CPA:18 – Global 20182019 10-K – 8475
Notes to Consolidated Financial Statements
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 intends to reduce diversity in practice for certain cash flow classifications, including, but not limited to (i) debt prepayment or debt extinguishment costs, (ii) contingent consideration payments made after a business combination, (iii) proceeds from the settlement of insurance claims, and (iv) distributions received from equity method investees. We retrospectively adopted this guidance for our interim and annual periods beginning January 1, 2018. The adoption of ASU 2016-15 did not have a material impact on our consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. ASU 2016-18 intends to reduce diversity in practice for the classification and presentation of changes in restricted cash on the statement of cash flows. ASU 2016-18 requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. We retrospectively adopted this guidance for our interim and annual periods beginning January 1, 2018. See Restricted Cash above for additional information.
In February 2017, the FASB issued ASU 2017-05, Other Income — Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance andRecent Accounting for Partial Sales of Nonfinancial Assets. ASU 2017-05 clarifies that the scope and application of ASC 610-20 includes the sale or transfer of nonfinancial assets and financial assets that meet the definition of nonfinancial assets to non-customers in substance, as well as partial sales. Nonfinancial assets within the scope of this Subtopic include the sale of land, buildings and intangible assets. The Subtopic defines the term “in substance nonfinancial asset,” in part, as a financial asset promised to a counterparty in a contract if substantially all of the fair value of the assets (recognized and unrecognized) that are promised to the counterparty in the contract is concentrated in nonfinancial assets. It also clarifies that nonfinancial assets within the scope of Subtopic 610-20 may include nonfinancial assets transferred within a legal entity to a counterparty. For example, a parent company may transfer control of nonfinancial assets by transferring ownership interests in a consolidated subsidiary. Additionally, the Subtopic provides guidance on the recognition of gains and losses on the sale or transfer of these nonfinancial and in substance nonfinancial assets when control is transferred. We adopted this guidance for our interim and annual periods beginning January 1, 2018 and applied the modified retrospective transition method (applicable to any contracts not completed as of that date). The adoption of ASU 2017-05 did not have a material impact on our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 removes, modifies, and adds certain fair value disclosure requirements. We adopted this guidance for our interim period beginning July 1, 2018. The adoption of this standard did not have a material impact on our consolidated financial statements.Pronouncements
Pronouncements to be Adopted afteras of December 31, 20182019
In February 2016, the FASBFinancial Accounting Standards Board (“FASB”) issued ASU2016-02, 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, would beare capitalized and recorded on the balance sheet. For lessors, however, the new standard remains equivalent togenerally consistent with existing guidance, but has been updated to align with certain changes to the lessee model and the new revenue recognition standard.
ASU 2016-02 provides two transition methods. The first transition method allows for application of the new model at the beginning of the earliest comparative period presented. Under the second transition method, comparative periods would not be restated,2014-09, Revenue from Contracts with any cumulative effect adjustments recognized in the opening balance of retained earnings in the period of adoption. In addition, a practical expedient was recently issued by the FASB that allows lessors to combine non-lease components with related lease components if certain conditions are met.
CPA:18 – Global 2018 10-K– Customers85 (
Notes to Consolidated Financial Statements
The ASU eliminates specialized guidance for real estate sale and leaseback transactions and will now apply to both lessees and lessors. To qualify as a sale and leaseback transaction, certain criteria will have to be met, including qualifying as a sale (applying ASU 2014-09) and the transfer of control of the asset by the seller-lessee. Additionally, a real estate sale and leaseback arrangement that includes a seller-lessee repurchase option will result in a failed sale. As the buyer-lessor, where control is not transferred, the transaction will have to be accounted for as a financial asset instead of the purchase of a real estate asset. We do not anticipate having a significant amount of failed sales for sale and leaseback transactions as a result of the new sale and leaseback guidance.
Additionally, under the ASU, if a lessor determines subsequent to the commencement date of the lease that collectability of lease payments under an operating lease is not probable, the lessor is required to recognize the difference between income recognized up to that point and the income that would have been recognized on a cash basis as a reduction of current period lease income. This differs from the current guidance, where the lessor would recognize the effects of a change in the assessment of collectability as an addition to the bad debt reserve for amounts accrued at the time the collectability assessment changed. As a result, we expect any such adjustments to be recorded to lease revenues as opposed to property expenses, which is where they are currently recorded.Topic 606).
We will adoptadopted this guidance for our interim and annual periods beginning January 1, 2019 using the modified retrospective method, applying the transition provisions at the beginning of the period of adoption rather than at the beginning of the earliest comparative period presented. We elected the package of practical expedients as permitted under the transition guidance, which allowed us to not reassess whether arrangements contain leases, lease classification, and expectinitial direct costs. The adoption of the lease standard resulted in a cumulative effect adjustment recognized of $1.1 million in the opening balance of retained earnings as of January 1, 2019.
| |
| • | As a Lessee: we recognized $36.7 million of operating lease ROU assets and $9.5 million of corresponding lease liabilities for certain operating land lease arrangements for which we were the lessee on January 1, 2019, which included reclassifying below market land lease intangible assets, above market land lease intangible liabilities, and prepaid rent as a component of the ROU asset (a net reclassification of $27.2 million). See Note 4 for additional disclosures on the presentation of these amounts in our consolidated balance sheets. |
ROU assets represent our right to use an underlying asset for the second transition method.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 also electexercise 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: a practical expedient allows lessors to combine non-lease components (lease arrangements that include common area maintenance services) with related lease components (lease revenues), if 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. We elected the practical expedientexpedient. For (i) operating lease arrangements involving real estate that include common area maintenance services and apply it consistently to(ii) all leased real estate. ASU 2016-02 will require extensive quantitativeestate arrangements that include real estate taxes and qualitative disclosures.insurance costs, we present these amounts within Lease revenues — net-leased in our consolidated statements of income. We record amounts reimbursed by the lessee in the period that the applicable expenses are incurred.
Under ASU 2016-02, lessors willare allowed to only capitalize incremental direct leasing costs. Historically, we haveWe were not capitalized internal legal and leasing costs incurred, and thus do not expect to bematerially impacted by thethis change.
We expect to recognize a right-of-use asset and a corresponding lease liability for certain operating land lease arrangements for which we are the lessee. The right-of-use asset and corresponding lease liability are expected to be less than 1.5% of total assets and less than 1.0% of total liabilities, respectively. Additionally, for lease arrangements that include common area maintenance services (subject to certain criteria being met), real estate taxes, and insurance where we are the lessor, we expect to present these amounts within lease revenues in our consolidated statements of income.
In June 2016, the FASB issuedCPA:18 – Global 2019 10-K– ASU 2016-13,76
Notes to Consolidated Financial Instruments — Credit Losses. ASU 2016-13 introduces a new model for estimating credit losses based on current expected credit losses for certain types of financial instruments, including loans receivable, held-to-maturity debt securities, and net investments in direct financing leases, amongst other financial instruments. ASU 2016-13 also modifies the impairment model for available-for-sale debt securities and expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for losses. ASU 2016-13 will be effective for public business entities in fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early application of the guidance permitted. We are in the process of evaluating the impact of adopting ASU 2016-13 on our consolidated financial statements.Statements
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. ASU 2017-12 will makemakes more financial and nonfinancial hedging strategies eligible for hedge accounting. It also amends the presentation and disclosure requirements and changes how companies assesseliminates the requirements to separately measure and disclose hedge effectiveness. It is intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. ASU 2017-12 willWe adopted this guidance for our interim and annual periods beginning January 1, 2019. The adoption of this standard impacted our consolidated financial statements for both cash flow and net investment hedges. Changes in the fair value of our hedging instruments are no longer separated into effective and ineffective portions. The entire change in the fair value of these hedging instruments included in the assessment of effectiveness is now recorded in Accumulated other comprehensive loss. The impact to our consolidated financial statements as a result of these changes was not material.
Pronouncements to be effective in fiscal years beginningAdopted after December 15, 2018, including interim periods within those fiscal years,31, 2019
In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses. ASU 2016-13 replaces the “incurred loss” model with early adoption permitted. We arean “expected loss” model, resulting in the processearlier recognition of evaluatingcredit losses even if the impactrisk of adoptingloss is remote. This standard applies to financial assets measured at amortized cost and certain other instruments, including loans receivable and net investments in direct financing leases. This standard does not apply to receivables arising from operating leases, which are within the scope of Topic 842. We will adopt ASU 2017-122016-13 for our interim and annual periods beginning January 1, 2020 using the modified retrospective method, which requires applying changes in reserves through a cumulative-effect adjustment to retained earnings as of January 1, 2020. The adoption of this standard is not expected to have a material impact on our consolidated financial statements, and will adopt the standard for the fiscal year beginning January 1, 2019.statements.
Note 3. Agreements and Transactions with Related Parties
Transactions with Our Advisor
We have an advisory agreement with our Advisor whereby our Advisor performs certain services for us under a fee arrangement, including the identification, evaluation, negotiation, purchase, day-to-day management, and disposition of real estate and related assets and mortgage loans; day-to-day management; and the performance of certain administrative duties.loans. We also reimburse our Advisor for general and administrative duties performed on our behalf. The advisory agreement has a term of one year and may be renewed for successive one-year periods.periods or extend pursuant to its terms. We may terminate the advisory agreement upon 60 days written notice without cause or penalty.
Jointly Owned Investments and Other Transactions with our Affiliates
As of December 31, 2019, we owned interests ranging from 50% to 100% in jointly owned investments, with the remaining interests held by affiliates or by third parties. Since no other parties hold any rights that supersede our control, we consolidate all of these joint ventures, with the exception of our sole equity investment (Note 4), which we account for under the equity method of accounting.
CPA:18 – Global 20182019 10-K – 8677
Notes to Consolidated Financial Statements
The following tables present a summary of fees we paid, expenses we reimbursed, and distributions we made to our Advisor and other affiliates (which excludes the annual distribution and shareholder servicing fee that impacts equity as further disclosed below the tables) in accordance with the terms of the relevant agreements (in thousands):
| | | | Years Ended December 31, | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 | 2019 | | 2018 | | 2017 |
| Amounts Included in the Consolidated Statements of Operations | | | | | | |
| Amounts Included in the Consolidated Statements of Income | | | | | | |
| Asset management fees | $ | 12,087 |
| | $ | 11,293 |
| | $ | 10,126 |
| $ | 11,539 |
| | $ | 12,087 |
| | $ | 11,293 |
|
| Available Cash Distributions | 9,692 |
| | 8,650 |
| | 7,586 |
| 8,132 |
| | 9,692 |
| | 8,650 |
|
| Personnel and overhead reimbursements | 3,121 |
| | 3,170 |
| | 3,064 |
| 3,161 |
| | 3,121 |
| | 3,170 |
|
| Director compensation | 235 |
| | 310 |
| | 310 |
| |
Interest expense on deferred acquisition fees, affiliate loan, and accretion of interest on annual distribution and shareholder servicing fee (a) | 100 |
| | 1,034 |
| | 898 |
| |
| Acquisition expenses | — |
| | — |
| | 5,458 |
| |
| Disposition fees | | 1,117 |
| | — |
| | — |
|
Interest expense on deferred acquisition fees, and external joint venture loans, and accretion of interest on annual distribution and shareholder servicing fee (a) | | 492 |
| | 100 |
| | 1,034 |
|
| | $ | 25,235 |
| | $ | 24,457 |
| | $ | 27,442 |
| $ | 24,441 |
| | $ | 25,000 |
| | $ | 24,147 |
|
| | | | | | | | | | | |
| Acquisition Fees Capitalized | | | | | | | | | | |
| Current acquisition fees | $ | 9,370 |
| | $ | 3,757 |
| | $ | 3,310 |
| $ | 695 |
| | $ | 9,370 |
| | $ | 3,757 |
|
| Capitalized personnel and overhead reimbursements | | 665 |
| | 1,063 |
| | 640 |
|
| Deferred acquisition fees | 7,496 |
| | 3,006 |
| | 2,648 |
| 555 |
| | 7,496 |
| | 3,006 |
|
| Capitalized personnel and overhead reimbursements | 1,063 |
| | 640 |
| | 263 |
| |
| | $ | 17,929 |
| | $ | 7,403 |
| | $ | 6,221 |
| $ | 1,915 |
| | $ | 17,929 |
| | $ | 7,403 |
|
____________________
| |
| (a) | For the yearyears ended December 31, 2019 and 2018, interest on the annual distribution and shareholder servicing fee is excluded because, effective as of the third quarter of 2017, it is paid directly to selected dealers rather than through Carey Financial LLC (“Carey Financial”), a subsidiary of WPC, as discussed further below. |
The following table presents a summary of amounts included in Due to affiliates in the consolidated financial statements (in thousands):
| | | | December 31, | December 31, |
| | 2018 | | 2017 | 2019 | | 2018 |
Due to Affiliates (a) | | | | | | |
External joint venture loans, accounts payable, and other (a) | | $ | 5,951 |
| | $ | 5,070 |
|
| Deferred acquisition fees, including accrued interest | $ | 8,720 |
| | $ | 6,693 |
| 4,456 |
| | 8,720 |
|
| Accounts payable and other | 5,070 |
| | 6,102 |
| |
| Asset management fees payable | | 961 |
| | 972 |
|
| Current acquisition fees | 2,065 |
| | — |
| 8 |
| | 2,065 |
|
| Asset management fees payable | 972 |
| | 972 |
| |
| | $ | 16,827 |
| | $ | 13,767 |
| $ | 11,376 |
| | $ | 16,827 |
|
___________
| |
| (a) | This table excludes outstanding receivablesIncludes loans from our Advisor totaling $0.4joint venture partners to the jointly owned investments that we consolidate. As of December 31, 2019 and 2018, loans due to our joint venture partners including accrued interest, were $4.6 million and $0.7$3.5 million, at December 31, 2018 and 2017, respectively, which were included within Accounts receivable and other assets, net in our consolidated financial statements.respectively. |
Loans from WPC
In July 2016, our board of directors and the board of directors of WPC approved unsecured loans from WPC to us, at the sole discretion of WPC’s management, of up to $50.0 million in the aggregate, at a rate equal to the rate at which WPC can borrow funds under its senior credit facility, for acquisition funding purposes.facility.
For both the years ended December 31, 20182019 and 2017,2018, no such loans were outstanding.
CPA:18 – Global 20182019 10-K – 8778
Notes to Consolidated Financial Statements
Asset Management Fees
Pursuant to the advisory agreement, our Advisor is entitled to an annual asset management fee ranging from 0.5% to 1.5%, depending on the type of investment and based on the average market value or average equity value, as applicable, of our investments. Asset management fees are payable in cash and/or shares of our Class A common stock at our option, after consultation with our Advisor. If our Advisor receives all or a portion of its fees in shares, the number of shares issued is determined by dividing the dollar amount of fees by our most recently published estimated net asset value per share (“NAV”) per Class A share, which was $8.73$8.67 as of September 30, 2018. For the years ended December 31, 2018, 2017, and 2016,2019. Effective January 1, 2019, our Advisor received itselected to receive 50% of the asset management fees in shares of our Class A common stock. Atstock and 50% in cash. For the years ended December 31, 2018, and 2017, all asset management fees paid to our Advisor were in shares of our Class A common stock. As of December 31, 2019, our Advisor owned 5,039,2855,753,883 shares, or 3.4%3.9%, of our outstanding Class A common stock. Asset management fees are included in Property expenses in the consolidated financial statements.
Annual Distribution and Shareholder Servicing Fee
Through June 30, 2017, Carey Financial, the wholly-owned subsidiary of our Advisor, was entitled to receive an annual distribution and shareholder servicing fee from us in connection with our Class C common stock, which it may have re-allowed to selected dealers. Beginning with the payment for the third quarter of 2017 (paid during October 2017), the annual distribution and shareholder servicing fees are paid directly to selected dealers rather than through Carey Financial. The amount of the annual distribution and shareholder servicing fee is 1.0% of the most recently published NAV of our Class C common stock, which was $8.73$8.67 as of September 30, 2018.2019. The annual distribution and shareholder servicing fee accrues daily and is payable quarterly in arrears. We will no longer incur the annual distribution and shareholder servicing fee beginning on the date at which, in the aggregate, underwriting compensation from all sources reaches 10.0% of the gross proceeds from our initial public offering, which it had not yet reached as of December 31, 2018. At2019. As of December 31, 20182019 and 2017,2018, we recorded a liability of $3.8$1.9 million and $5.7$3.8 million, respectively, within Accounts payable, accrued expenses and other liabilities in the consolidated financial statements.
Acquisition and Disposition Fees
Our Advisor receives acquisition fees, a portion of which is payable upon acquisition, while the remaining portion is subordinated to a preferred return of a non-compounded cumulative distribution of 5.0% per annum (based initially on our invested capital). The initial acquisition fee and subordinated acquisition fee are 2.5% and 2.0%, respectively, of the aggregate total cost of our portion of each investment for all investments, other than those in readily marketable real estate securities purchased in the secondary market, for which our Advisor will not receive any acquisition fees. Deferred acquisition fees are scheduled to be paid in three equal annual installments following the quarter in which a property was purchased and are subject to the preferred return described above. The preferred return was achieved as of the years ended December 31, 20182019 and 2017.2018. Unpaid installments of deferred acquisition fees are included in Due to affiliates in the consolidated financial statements and bear interest at an annual rate of 2.0%. The cumulative total acquisition costs, including acquisition fees paid to the advisor, may not exceed 6.0% of the aggregate contract purchase price of all investments, which is measured at the end of each year.
In addition, our Advisor may be entitled to receive a disposition fee equal to the lesser of (i) 50.0% of the competitive real estate commission (as defined in the advisory agreement) or (ii) 3.0% of the contract sales price of the investment being sold. These fees are paid at the discretion of our board of directors. During the year ended December 31, 2019, a total of $1.1 million of disposition fees were approved and paid in connection with certain 2018 and 2019 dispositions, and are included in Gain on sale of real estate, net in the consolidated financial statements.
Personnel and Overhead Reimbursements
Under the terms of the advisory agreement, our Advisor allocates a portion of its personnel and overhead expenses to us and the other entities that are managed by WPC and its affiliates, which as of December 31, 20182019 included Carey Watermark Investors Incorporated, Carey Watermark Investors 2 Incorporated, and Carey European Housing Student Fund I, L.P. (collectively with us, the “Managed Programs”). Our Advisor also allocated a portion of its personnel and overhead expenses to (i) Corporate Property Associates 17 – Global Incorporated prior to October 31, 2018, which was the date of the completion of the merger between WPC andat which that fund and (ii) Carey Credit Income Fund (now known as Guggenheim Credit Income Fund) prior to September 11, 2017, which was the effective date of resignation ofmerged into a wholly-owned subsidiary of WPC as the advisor to that fund.WPC. Our Advisor allocates these expenses to us on the basis of the percentage of our trailing four quarters of reported revenues in comparison to those of WPC and other entities managed by WPC and its affiliates.
CPA:18 – Global 20182019 10-K – 8879
Notes to Consolidated Financial Statements
We reimburse our Advisor for the allocated costs of personnel and overhead in managing our day-to-day operations, including accounting services, stockholder services, corporate management, and property management and operations. In addition, we reimburse our Advisor for various expenses it incurs in the course of providing services to us. We reimburse certain third-party expenses paid by our Advisor on our behalf, including property-specific costs, professional fees, office expenses, and business development expenses. In addition, we reimburse our Advisor for the allocated costs of personnel and overhead in managing our day-to-day operations, including accounting services, stockholder services, corporate management, and property management and operations. We do not reimburse our Advisor for salaries and benefits paid to our named executive officers or for the cost of personnel if these personnelthat provide services for transactions for whichwhere our Advisor receives a transaction fee such(such as for acquisitions and dispositions.dispositions). Under the advisory agreement, the amount of applicable personnel costs allocated to us is capped at 1.0% and 2.0% for 2018 and 2017, respectively, of our pro rata leasetotal revenues for each year.of 2019 and 2018. Costs related to our Advisor’s legal transactions group are based on a schedule of expenses relating to services performed for different types of transactions, such as financing, lease amendments, and dispositions, among other categories, and includes 0.25% of the total investment cost of an acquisition. In general, personnel and overhead reimbursements are included in General and administrative expenses in the consolidated financial statements. However, we capitalize certain of the costs related to our Advisor’s legal transactions group if the costs relate to a transaction that is not considered to be a business combination.an asset acquisition or other transactions.
Excess Operating Expenses
Our Advisor is obligated to reimburse us for the amount by which our operating expenses exceeds the “2%/25% guidelines” (the greater of 2% of average invested assets or 25% of net income) as defined in the advisory agreement for any 12-month period, subject to certain conditions. For the most recent trailing four quarters, our operating expenses were below this threshold.
Available Cash Distributions
WPC’s interest in the Operating Partnership entitles it to receive distributions of up to 10.0% of the available cash generated by the Operating Partnership referred to as (“the Available Cash Distribution,Distribution”), which is defined as cash generated from operations, excluding capital proceeds, as reduced by operating expenses and debt service, excluding prepayments and balloon payments. Available Cash Distributions are included in Net income attributable to noncontrolling interests in the consolidated financial statements.
Jointly Owned Investments and Other Transactions with our Affiliates
At December 31, 2018, we owned interests ranging from 50% to 99% in jointly owned investments, with the remaining interests held by affiliates or by third parties. We consolidate all of these joint ventures with the exception of our sole equity investment (Note 4), which we account for under the equity method of accounting. Additionally, no other parties hold any rights that overcome our control. We account for the minority share of these investments as noncontrolling interests.
Note 4. Real Estate, Operating Real Estate, Real Estate Under Construction, and Equity Investment in Real Estate
Real Estate — Land, Buildings and Improvements
Real estate, which consists of land and buildings leased to others, and which are subject to operating leases, is summarized as follows (in thousands):
| | | | December 31, | December 31, |
| | 2018 | | 2017 | 2019 | | 2018 |
| Land | $ | 195,275 |
| | $ | 202,500 |
| $ | 196,693 |
| | $ | 195,275 |
|
| Buildings and improvements | 1,015,501 |
| | 1,060,672 |
| 1,003,952 |
| | 1,015,501 |
|
| Less: Accumulated depreciation | (112,061 | ) | | (87,886 | ) | (135,922 | ) | | (112,061 | ) |
| | $ | 1,098,715 |
| | $ | 1,175,286 |
| $ | 1,064,723 |
| | $ | 1,098,715 |
|
During the year ended December 31, 2018, the U.S. dollar strengthened against the euro, as the end-of-period rate for the U.S. dollar in relation to the euro decreased by 4.5% to $1.1450 from $1.1993. As a result, theThe carrying value of our Real estateEstate — land,Land, buildings and improvements decreased by $42.2$11.0 million from December 31, 20172018 to December 31, 2018.2019, reflecting the impact of exchange rate fluctuations during the same period (Note 2).
Depreciation expense, including the effect of foreign currency translation, on our real estate was $29.5 million, $31.0 million, $28.3 million, and $25.7$28.3 million for the years ended December 31, 2019, 2018, and 2017, and 2016, respectively.
CPA:18 – Global 2018 10-K– 89
Notes to Consolidated Financial Statements
Dispositions of Real Estate During 2018
2019 — During the year ended December 31, 2019, we sold the 11 properties in our United Kingdom trade counter portfolio (the “Truffle portfolio”). As a result, the carrying value of our real estate properties decreased by $26.0 million from December 31, 2018 to December 31, 2019 (Note 13).
2018 — During the year ended December 31, 2018, we sold an office building located in Utrecht, the Netherlands. As a result, the carrying value of our real estate properties decreased by $36.8 million from December 31, 2017 to December 31, 2018 (Note 13).
Acquisition of Real Estate During 2017
CPA:18 – Global 2019 10-K– 80
Notes to Consolidated Financial Statements
On March 14, 2017, we acquired a 90% controlling interest in a warehouse facility in Iowa City, Iowa, which was deemedLeases
Operating Lease Income
Lease income related to be an asset acquisition, at a total cost of $8.2 million, including net lease intangibles of $1.6 millionoperating leases recognized and acquisition-related costs of $0.4 million that were capitalized. The seller retained a 10% interestincluded within Lease revenues — net-leased and Lease revenues — operating real estate in the property, which isconsolidated statements of income for the equivalent of $0.8 million of the purchase price.year ended December 31, 2019 are as follows (in thousands):
|
| | | | |
| | | December 31, 2019 |
| Lease revenues — net-leased | | |
| Lease income — fixed | | $ | 99,771 |
|
Lease income — variable (a) | | 15,468 |
|
Total operating lease income (b) | | $ | 115,239 |
|
| | | |
| Lease revenues — operating real estate | | |
| Lease income — fixed | | $ | 67,969 |
|
Lease income — variable (c) | | 2,626 |
|
| Total operating lease income | | $ | 70,595 |
|
_________
| |
| (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 $3.9 million of interest income from direct financing leases that is included in Lease revenues — net-leased in the consolidated statements of income. |
| |
| (c) | Primarily comprised of late fees and administrative fees revenues. |
Scheduled Future Minimum RentsLease Payments to be Received
Scheduled future minimum rents, exclusivelease payments to be received (exclusive of renewals, expenses paid by tenants, percentage rents, and future CPI-based adjustments,adjustments) under non-cancelable operating leases atas of December 31, 2019 are as follows (in thousands): |
| | | | |
| Years Ending December 31, | | Total |
| 2020 | | $ | 96,642 |
|
| 2021 | | 97,057 |
|
| 2022 | | 97,588 |
|
| 2023 | | 91,057 |
|
| 2024 | | 80,281 |
|
| Thereafter | | 498,628 |
|
| Total | | $ | 961,253 |
|
Scheduled future lease payments to be received (exclusive of expenses paid by tenants, percentage rents, and future CPI-based adjustments) under non-cancelable operating leases as of December 31, 2018 are as follows (in thousands): |
| | | | |
| Years Ending December 31, | | Total |
| 2019 | | $ | 101,618 |
|
| 2020 | | 101,413 |
|
| 2021 | | 101,261 |
|
| 2022 | | 101,535 |
|
| 2023 | | 94,502 |
|
| Thereafter | | 590,636 |
|
| Total | | $ | 1,090,965 |
|
See Note 5 for scheduled future lease payments to be received under non-cancelable direct financing leases.
CPA:18 – Global 2019 10-K– 81
Notes to Consolidated Financial Statements
Lease Cost
During the year ended December 31, 2019, total lease cost for operating leases totaled $1.1 million. Additionally, we recognized reimbursable ground rent totaling approximately $0.4 million, which is included in Lease revenues — net-leased in the consolidated statements of income.
Other Information
Supplemental balance sheet information related to ROU assets and lease liabilities is as follows (dollars in thousands):
|
| | | | | |
| | Location on Consolidated Balance Sheets | | December 31, 2019 |
| Operating ROU assets — land leases | In-place lease and other intangible assets | | $ | 35,069 |
|
| | | | |
| Operating lease liabilities — land leases | Accounts payable, accrued expenses and other liabilities | | $ | 8,116 |
|
| | | | |
Weighted-average remaining lease term — operating leases (a) | | | 43.4 years |
|
Weighted-average discount rate — operating leases (a) | | | 6.8 | % |
| Number of land lease arrangements | | | 8 |
|
| Lease term range | | | 6 – 983 years |
|
___________
| |
| (a) | Excludes a $7.3 million ROU land lease asset related to the student housing development project located in Swansea, United Kingdom as it has no future obligation during the remaining 983-year lease term. |
Cash paid for operating lease liabilities included in the Net cash provided by operating activities for the year ended 2019 was $0.8 million. There are no land finance 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, 2019 is as follows (in thousands): |
| | | | |
| Years Ending December 31, | | Total |
| 2020 | | $ | 651 |
|
| 2021 | | 651 |
|
| 2022 | | 651 |
|
| 2023 | | 651 |
|
| 2024 | | 651 |
|
| Thereafter | | 22,179 |
|
| Total lease payments | | 25,434 |
|
| Less: amount of lease payments representing interest | | (17,318 | ) |
| Present value of future lease payments/lease obligations | | $ | 8,116 |
|
Scheduled future lease payments (excluding amounts paid directly by tenants) for the five succeeding years subsequent to the year ended December 31, 2018 are $0.3 million each year, respectively, and $8.8 million thereafter.
CPA:18 – Global 2019 10-K– 82
Notes to Consolidated Financial Statements
Operating Real Estate — Land, Buildings and Improvements
Operating real estate, which consists of our self-storage, student housing, and multi-family residential properties (our last multi-family residential property was sold on January 29, 2019), is summarized as follows (in thousands):
| | | | December 31, | December 31, |
| | 2018 | | 2017 | 2019 | | 2018 |
| Land | $ | 77,984 |
| | $ | 98,429 |
| $ | 78,240 |
| | $ | 77,984 |
|
| Buildings and improvements | 425,165 |
| | 468,060 |
| 434,245 |
| | 425,165 |
|
| Less: Accumulated depreciation | (41,969 | ) | | (43,786 | ) | (57,237 | ) | | (41,969 | ) |
| | $ | 461,180 |
| | $ | 522,703 |
| $ | 455,248 |
| | $ | 461,180 |
|
The carrying value of our Operating real estate — land, buildings and improvements decreasedincreased by $2.5$2.9 million from December 31, 20172018 to December 31, 2018, due to2019, reflecting the strengtheningimpact of the U.S. dollar relative to foreign currencies (primarily the British pound sterling)exchange rate fluctuations during the year.same period (Note 2).
Depreciation expense, including the effect of foreign currency translation, on our operating real estate for the years ended December 31, 2019, 2018, and 2017 and 2016 was $15.2 million, $16.9 million, $17.4 million, and $16.2$17.4 million, respectively.
Dispositions of Operating Real Estate During 2018
2019 — During the year ended December 31, 2019, we sold our last multi-family residential property, which was previously classified as held for sale at December 31, 2018 (Note 13).
2018 — During the year ended December 31, 2018, we sold five domestic multi-family residential properties. As a result, the carrying value of operating properties decreased by $137.3 million from December 31, 2017 to December 31, 2018 (Note 13).
CPA:18 – Global 2018 10-K– 90
Notes to Consolidated Financial Statements
Dispositions of Operating Real Estate During 2017
On October 11, 2017, we sold a student housing operating property located in Reading, United Kingdom (Note 13).
Real Estate Under Construction
The following table provides the activity of our Real estate under construction (in thousands): | | | | Years Ended December 31, | Years Ended December 31, |
| | 2018 | | 2017 | 2019 | | 2018 |
| Beginning balance | $ | 134,366 |
| | $ | 182,612 |
| $ | 152,106 |
| | $ | 134,366 |
|
| Capitalized funds | 189,286 |
| | 129,588 |
| 112,595 |
| | 189,286 |
|
| Placed into service | (139,253 | ) | | (200,158 | ) | (34,944 | ) | | (139,253 | ) |
Disposition (a) | (32,519 | ) | | — |
| |
| Capitalized interest | 5,355 |
| | 4,603 |
| 7,139 |
| | 5,355 |
|
| Foreign currency translation adjustments | (5,129 | ) | | 17,721 |
| (1,145 | ) | | (5,129 | ) |
Disposition (a) | | — |
| | (32,519 | ) |
| Ending balance | $ | 152,106 |
| | $ | 134,366 |
| $ | 235,751 |
| | $ | 152,106 |
|
_________
| |
| (a) | On December 17, 2018, we transferred our right to collect for tenant default damages related to the joint venture for a university complex development site located in Accra, Ghana (as discussed further below). |
Capitalized Funds During 2019
On February 8, 2019, we entered into a student housing development project located in Pamplona, Spain at a total cost of $11.1 million (amount is based on the exchange rate of the euro on the date of acquisition). This property is under construction and is currently projected to be completed in September 2021, at which point, our total investment is expected to be approximately $29.7 million. As there is insufficient equity at risk, the investment is considered to be a VIE (Note 2).
During the year ended December 31, 2019, total capitalized funds primarily related to our student housing development projects, which were comprised principally of initial funding of $11.1 million and construction draws of $101.5 million. Capitalized funds include accrued costs of $9.0 million, which is a non-cash investing activity.
CPA:18 – Global 2019 10-K– 83
Notes to Consolidated Financial Statements
Capitalized Funds During 2018
We entered into the following student housing development project investments during the year ended December 31, 2018 (amounts based on the exchange rate of the euro on the date of acquisition as applicable):
| | | Location | | Date of Acquisition | | Ownership Percentage | | Purchase Price (a) | | Estimated Completion Date | | Estimated Total Investment (a) (b) | | Date of Acquisition | | Ownership Percentage | | Purchase Price (a) | | Estimated Completion Date | | Estimated Total Investment (a) (b) |
Barcelona, Spain (c) (d) | | 3/8/2018 | | 98.7 | % | | $ | 10,469 |
| | Q3 2019 | | $ | 28,473 |
| | 3/8/2018 | | 98.7 | % | | $ | 10,469 |
| | Completed Q3 2019 | | $ | 28,473 |
|
Coimbra, Portugal (c) (d) | | 6/11/2018 | | 98.5 | % | | 9,338 |
| | Q3 2020 | | 26,326 |
| | 6/11/2018 | | 98.5 | % | | 9,338 |
| | Q1 2021 | | 26,326 |
|
San Sebastian, Spain (c) | | 6/14/2018 | | 100.0 | % | | 13,126 |
| | Q3 2020 | | 36,733 |
| | 6/14/2018 | | 100.0 | % | | 13,126 |
| | Q3 2020 | | 36,733 |
|
Barcelona, Spain (c) | | 6/25/2018 | | 100.0 | % | | 13,089 |
| | Q3 2020 | | 31,686 |
| | 6/25/2018 | | 100.0 | % | | 13,089 |
| | Q3 2020 | | 31,686 |
|
Valencia, Spain (c) (d) | | 7/30/2018 | | 98.7 | % | | 7,113 |
| | Q3 2021 | | 26,991 |
| | 7/30/2018 | | 98.7 | % | | 7,113 |
| | Q3 2021 | | 26,991 |
|
Austin, Texas (c) (e) | | 9/20/2018 | | 90.0 | % | | 13,666 |
| | Q3 2020 | | 70,181 |
| | 9/20/2018 | | 90.0 | % | | 13,666 |
| | Q3 2020 | | 70,181 |
|
Granada, Spain (c) (d) | | 9/21/2018 | | 98.5 | % | | 4,262 |
| | Q3 2021 | | 23,416 |
| | 9/21/2018 | | 98.5 | % | | 4,262 |
| | Q3 2021 | | 23,416 |
|
Seville, Spain (c) (f) | | 11/20/2018 | | 75.0 | % | | 13,137 |
| | Q1 2021 | | 32,510 |
| | 11/20/2018 | | 75.0 | % | | 13,137 |
| | Q1 2021 | | 32,510 |
|
Bilbao, Spain (c) | | 12/14/2018 | | 100.0 | % | | 10,694 |
| | Q3 2021 | | 51,624 |
| | 12/14/2018 | | 100.0 | % | | 10,694 |
| | Q3 2021 | | 51,624 |
|
Porto, Portugal (c) (d) | | 12/18/2018 | | 98.5 | % | | 6,185 |
| | Q3 2020 | | 23,651 |
| | 12/18/2018 | | 98.5 | % | | 6,185 |
| | Q3 2020 | | 23,651 |
|
| | |
| | $ | 101,079 |
| |
| | $ | 351,591 |
| |
| | $ | 101,079 |
| |
| | $ | 351,591 |
|
_________
| |
| (a) | Based on the exchange rate of the euro at the date of acquisition for international investments. |
| |
| (b) | Amounts represent our expected total investment in the respective development projects. |
| |
| (c) | As there is insufficient equity at risk, the investment is considered to be a VIE (Note 2). |
| |
| (d) | Since we are responsible for substantially all of the economics but have disproportionate voting rights, the investment is considered to be a VIE (Note 2). |
| |
| (e) | We assumed 90% interest in an existing $4.5 million loan on this property (Note 9). Additionally, the seller retained the remaining interest on this investment, which was accounted for as a $2.3 million non-cash financing activity. |
| |
| (f) | As part of the transaction, the seller retained a 23.5% interest on this investment, which was accounted for as a $2.2 million non-cash financing activity. |
CPA:18 – Global 2018 10-K– 91
Notes to Consolidated Financial Statements
During the year ended December 31, 2018, total capitalized funds primarily related to our student housing development projects, which were comprised principally of initial funding of $103.3 million and construction draws of $86.0 million. Capitalized funds include accrued costs of $1.1 million, which is a non-cash investing activity.
Capitalized Funds During 2017
On December 20, 2017, we purchased 95% of the shares in the partially completed hotel located in Munich, Germany from the third-party developer for $9.6 million, which was based on the exchange rate of the euro on the date of the acquisition and is in addition to the $67.2 million financing provided to the developer in 2015.
On May 17, 2017, we made our final payment to the developer for a development project located in Eindhoven, the Netherlands for $18.7 million, which was based on the exchange rate of the euro on the date of the acquisition. Additionally, we also recorded $10.4 million of deferred tax liabilities in connection with our investment in this project. Simultaneous with the payment to the developer, the project was completed and placed into service.
During the year ended December 31, 2017, construction commenced on one of our previous development projects. The net investment of $10.7 million was reclassified to Real estate under construction from Net investments in direct financing leases during the year ended December 31, 2017.
During the year ended December 31, 2017, total capitalized funds primarily related to our development projects, which were comprised primarily of initial funding of $51.5 million and construction draws of $78.1 million. Capitalized funds include accrued costs of $3.7 million, which are a non-cash investing activity.
In addition, we entered into the following student housing development projects during the year ended December 31, 2017:
$7.3 million for a student housing development project located in Malaga, Spain on October 17, 2017 (amounts based on the exchange rate of the euro on the date of acquisition). The student housing property is currently under construction and is projected to be completed in September 2020. Upon completion of this project, our total investment is currently expected to be approximately $44.0 million. As there is insufficient equity at risk, the investment is considered to be a VIE;
$7.3 million to enter into a ground lease for a joint venture student housing development project with a third party located in Swansea, United Kingdom on November 24, 2017 (amounts are based on the exchange rate of the British pound sterling on the date of acquisition). The acquisition is included in Other assets, net on our consolidated balance sheet as this amount was a prepayment of rent and construction has not yet commenced. We also incurred acquisition-related costs of $3.1 million that were capitalized and are included in Real estate under construction on our consolidated balance sheet. We acquired 97% of the equity of this investment at closing. The student housing development project is currently projected to be completed in March 2021. Upon completion of this project, our total investment is currently expected to be approximately $50.6 million. As the joint venture has insufficient equity at risk and we control this development project, this joint venture is considered to be a VIE that we consolidate.
Capitalized Interest
Capitalized interest includes interest incurred during construction, as well as amortization of the mortgage discount and deferred financing costs, which totaled $7.1 million, $5.4 million, and $4.6 million for the years ended December 31, 2019, 2018, and December 31, 2017, respectively, and is a non-cash investing activity.
Placed into Service
On July 2, 2019, upon substantial completion, we placed into service the student housing property located in Barcelona, Spain. As a result, we reclassified $31.4 million from Real estate under construction to Operating real estate — Land, buildings and improvements on our consolidated financial statements. Subsequent to the completion of this project, on December 20, 2019, we entered into the Framework Agreement with a third party to net-lease this property (Note 14). As such, we reclassified $30.8 million from Operating real estate — Land, buildings and improvements to Real estate — Land, buildings and improvements (Note 14). Amounts based on the exchange rate of the euro at the date of reclassification.
During the year ended December 31, 2018, a total of $139.3 million wasupon substantial completion, we placed into service principally related to the substantial completion of two student housing properties located in the United Kingdom and the remaining portion of a net-leased hotel placed(placed into service in 2017,2017) totaling $139.3 million, which is a non-cash investing activity. Of that total, $113.1 million was reclassified to Operating real estate — land, buildings and improvements and $26.2 million was reclassified to Real estate — land, buildings and improvements.
CPA:18 – Global 20182019 10-K – 9284
Notes to Consolidated Financial Statements
During the year ended December 31, 2017, we placed into service the completed portion of a net leased hotel, two build-to-suit projects, and the remaining portion of a substantially completed student housing property, which we sold during the year, totaling $200.2 million, which is a non-cash investing activity. Of that total, $197.2 million was reclassified to Real estate — land, buildings and improvements and $2.9 million was reclassified to Operating real estate — land, buildings and improvements.
Ending Balance
At both December 31, 20182019 and 2017,2018, we had twelve and six12 open student housing development projects, respectively, with aggregate unfunded commitments totaling approximately $348.5$279.9 million and $178.3$348.5 million, respectively, excluding capitalized interest, accrued costs, and capitalized acquisition fees for our Advisor.
Ghana Settlement During 2018
On February 19, 2016, we entered into a joint venture development project with a third party for a university complex development site located in Accra, Ghana (“Ghana Joint Venture”). At the time of the investment, the Ghana Joint Venture, which we consolidated, entered into an agreement for third party financing in an amount up to $41.0 million from the Overseas Private Investment Corporation, a developmental finance institution of the U.S. Government. The transaction, including the funding of this loan, was subject to the tenant obtaining a letter of credit, which did not occur and caused the tenant to default under its concession agreement with the Ghana Joint Venture’s subsidiary.subsidiary (“Ghana Special Purpose Vehicle (“SPV”)). The concession agreement effectively functioned as a ground lease and gave us the right to construct the university complex. As a result, the Ghana Joint Venture’s subsidiarySPV terminated the concession agreement in May 2018 and no longer pursued the completion of this project.
On December 17, 2018, our Ghana Joint Venture entered into a settlement agreement with its insurer relating to payment of a claim under its political risk insurance policy. We received payment of $45.6 million, net of transaction costs, on December 27, 2018, resulting in a gain on insurance proceeds of $16.6 million (inclusive of a tax benefit related to the reversal of deferred tax liabilities and amounts attributable to noncontrolling interests of $3.5 million and $2.3 million, respectively) and is included in Other gains and (losses) in the consolidated financial statements. AsThe Ghana SPV no longer has rights to the tenant default damages as part of the overall settlement, the Ghana Joint Venture transferred its right to collect for tenant default damages to the insurer, excluding its claim toother than a $4.3 million security deposit from the tenant that is currently included in Accounts receivable and other assets, net as well as Accounts payable, accrued expenses and other liabilities. Additionally, while there is some uncertainty of collectability of our value added tax (“VAT”) receivable of $2.7 million to be refunded from the Ghanaian government, we continue to believe the full recovery of the VAT refund is probable and we will continuously monitor and assess the probability of collectability of this receivable.
Assets and Liabilities Held for Sale
Below is a summary of our properties held for sale (in thousands):
| | | | Years Ended December 31, | Years Ended December 31, |
| | 2018 | | 2017 | 2019 | | 2018 |
| Operating real estate — Land, buildings and improvements | $ | 26,277 |
| | $ | — |
| $ | — |
| | $ | 26,277 |
|
| In-place lease intangible assets | 1,090 |
| | — |
| — |
| | 1,090 |
|
| Accumulated depreciation and amortization | (3,759 | ) | | — |
| — |
| | (3,759 | ) |
| Assets held for sale, net | $ | 23,608 |
| | $ | — |
| $ | — |
| | $ | 23,608 |
|
| | | | | | | |
| Non-recourse mortgages, net, attributable to Assets held for sale | $ | 24,250 |
| | $ | — |
| $ | — |
| | $ | 24,250 |
|
At December 31, 2018, we had one multi-family residential property classified as Assets held for sale with a carrying value of $23.6 million, which was encumbered at that date by a non-recourse mortgage loan of $24.3 million. This property was sold in January 2019 and the debt was transferred to the buyer upon sale (Note 1613).
CPA:18 – Global 2018 10-K– 93
Notes to Consolidated Financial Statements
Equity Investment in Real Estate
We classify distributions received from equity method investments using the cumulative earnings approach. Distributions received are considered returns on the investment and classified as cash inflows from operating activities. If, however, the investor’s cumulative distributions received, less distributions received in prior periods determined to be returns of investment, exceeds cumulative equity in earnings recognized, the excess is considered a return of investment and is classified as cash inflows from investing activities.
CPA:18 – Global 2019 10-K– 85
Notes to Consolidated Financial Statements
We have an interest in an unconsolidated investment in our Self Storage segment that relates to a joint venture for the development of fourthree self-storage facilities in Canada. This entity iswas jointly owned with a third party, which is also the general partner. Ourpartner of the joint venture. On April 15, 2019, the joint-venture agreement was amended and our ownership and economic interest in the joint venture isincreased from 90% to 100%. As of December 31, 2018, the joint-venture partner had not accumulated the amountsWe continue to purchase its entire 10% equity interest, which will be funded by the distributions it is eligible to receive upon properties being placed into service. We do not consolidate this entity because we are not the primary beneficiary due to shared decision making with the general partner and the nature of our involvement in the activities, of the entitywhich allows us to exercise significant influence, but does not give us power over decisions that significantly affect the economic performance of the entity.
On August 15, 2019, we closed on the disposition of the self-storage development project located in Vaughan, Canada. In conjunction with this disposal, we recognized equity income of $0.2 million during the year ended December 31, 2019, which is included in Equity in losses of equity method investment in real estate in our consolidated financial statements.
Placed into Service During 2018
During the year ended December 31, 2018, the joint venture completed distinct phases of the overall development at two Canadian self-storage facilities (one of which commenced operations in 2017 as further discussed below)2017) and, as a result, placed a total of $19.5 million of the total amounts of these projects into service. Included in this amount is the vacant parcel of land in Toronto, Canada that was purchased on January 26, 2017 for $5.1 million (based on the exchange rate of the Canadian dollar at the date of acquisition). Of the four self-storage facilities in this investment, three were operational as of December 31, 2018.
Placed into Service During 2017
During the year ended December 31, 2017, the joint venture commenced operations at two Canadian self-storage facilities upon the completion of distinct phases of the overall development, and as a result, placed $9.3 million and $10.1 million of the total amounts for these projects into service.
Ending Balance
At December 31, 20182019 and 2017,2018, our total equity investment balance for these self-storage properties was $18.8$14.9 million and $20.9$18.8 million, respectively, which is included in Accounts receivable and other assets, net in the consolidated financial statements. At December 31, 20182019 and 2017,2018, the joint venture had total third-party recourse debt of $32.2 million and $28.7 million, and $21.5 million, respectively. As a result of the disposition on August 15, 2019, we no longer have unfunded commitments related to our equity investment as of December 31, 2019. The unfunded commitments for the development projects atas of December 31, 2018 and 2017 totaltotaled approximately $13.8 million, and $26.2 million, respectively, related to our equity investment.
Asset Retirement Obligations
We have recorded asset retirement obligations for the removal of asbestos and environmental waste in connection with certain of our investments. We estimated the fair value of the asset retirement obligations based on the estimated economic lives of the properties and the estimated removal costs provided by the inspectors. This liability was $3.2 million and $3.0 million and $2.9 million atas of December 31, 20182019 and 2017,2018, respectively. The liability was discounted using the weighted-average interest rate on the associated fixed-rate mortgage loans at the time the liability was incurred. We include asset retirement obligations in Accounts payable, accrued expenses and other liabilities in the consolidated financial statements.
CPA:18 – Global 2018 10-K– 94
Notes to Consolidated Financial Statements
Note 5. Finance Receivables
Assets representing rights to receive money on demand or at fixed or determinable dates are referred to as finance receivables. Our finance receivables portfolio consists of our notes receivable (which are included in Accounts receivable and other assets, net in the consolidated financial statements) and our Net investments in direct financing leases. Operating leases are not included in finance receivables as such amounts are notreceivables. See Note 2 and Note 4 for information on ROU operating lease assets recognized as an asset in theon our consolidated financial statements.balance sheets.
Notes Receivable
AtAs of December 31, 2018,2019, our notes receivable consisted of two mortgage loans. The first is a $28.0 million mezzanine tranche of 10-year commercial mortgage-backed securities on the Cipriani banquet halls in New York, New York (“Cipriani”) with a maturity date of July 2024. The mezzanine tranche is subordinated to a $60.0 million senior loan on the properties. We have received and will continue to receive interest-onlyInterest-only payments at a rate of 10% per annum on this loanare due through its maturity date. At both December 31, 20182019 and 2017,2018, the balance for this note receivable remained $28.0 million.
The second is a $38.5On April 9, 2019, we received full repayment totaling $36.0 million mezzanine loan collateralized by 27 retail stores in Minnesota, Wisconsin, and Iowa leased toon the Mills Fleet Farm Group LLC mezzanine loan (“Mills Fleet”). The loan bears interest, which was the balance that remained at one month London Interbank Offered Rate (“LIBOR”) plus 10%, and we have received and will continueDecember 31, 2018.
CPA:18 – Global 2019 10-K– 86
Notes to receive interest-only monthly payments until the loan matures. On October 9, 2018, the Mills Fleet borrower exercised its first of three options to extend the maturity dateConsolidated Financial Statements
Interest income from our notes receivable was $4.1 million for one-year successive terms from October 2018 to October 2019. The loan is collateralized by the pledge of the equity in 27 entities that directly own the retail stores and is subordinated to a $280.0 million senior mortgage on the properties. During the year ended December 31, 2018, we received partial repayments2019, and $7.2 million for both the Mills Fleet mezzanine loan totaling $2.5 million. As a result, the balance for the Mills Fleet note receivable atyears ended December 31, 2018 and 2017, was $36.0 millionrespectively, and $38.5 million, respectively.is included in Other operating and interest income in our consolidated statements of income.
Net Investments in Direct Financing Leases
Net investments in our direct financing lease investments is summarized as follows (in thousands):
| | | | December 31, | December 31, |
| | 2018 | | 2017 | 2019 | | 2018 |
| Minimum lease payments receivable | $ | 58,353 |
| | $ | 61,465 |
| |
| Lease payments receivable | | $ | 55,278 |
| | $ | 58,353 |
|
| Unguaranteed residual value | 39,402 |
| | 37,214 |
| 39,401 |
| | 39,402 |
|
| | 97,755 |
| | 98,679 |
| 94,679 |
| | 97,755 |
|
| Less: unearned income | (56,010 | ) | | (58,722 | ) | (52,625 | ) | | (56,010 | ) |
| | $ | 41,745 |
| | $ | 39,957 |
| $ | 42,054 |
| | $ | 41,745 |
|
Interest income from direct financing leases was $3.9 million, for the year ended December 31, 2019, and $3.7 million for both the years ended December 31, 2018 and 2017, and is included in Lease revenues — net-leased in our consolidated statements of income.
Scheduled Future Minimum RentsLease Payments to be Received
Scheduled future minimum rents, exclusivelease payments to be received (exclusive of renewals, expenses paid by tenants, percentage rents, and future CPI-based adjustments,adjustments) under non-cancelable direct financing leases atas of December 31, 2019 were as follows (in thousands): |
| | | | |
| Years Ending December 31, | | Total |
| 2020 | | $ | 3,473 |
|
| 2021 | | 3,541 |
|
| 2022 | | 3,617 |
|
| 2023 | | 3,696 |
|
| 2024 | | 3,784 |
|
| Thereafter | | 37,167 |
|
| Total | | $ | 55,278 |
|
Scheduled future lease payments to be received (exclusive of expenses paid by tenants, percentage rents, and future CPI-based adjustments) under non-cancelable direct financing leases as of December 31, 2018 were as follows (in thousands):
|
| | | | |
| Years Ending December 31, | | Total |
| 2019 | | $ | 3,375 |
|
| 2020 | | 3,455 |
|
| 2021 | | 3,523 |
|
| 2022 | | 3,599 |
|
| 2023 | | 3,677 |
|
| Thereafter | | 40,724 |
|
| Total | | $ | 58,353 |
|
See Note 4 for scheduled lease payments to be received under non-cancelable operating leases.
CPA:18 – Global 20182019 10-K – 9587
Notes to Consolidated Financial Statements
Credit Quality of Finance Receivables
We generally invest in facilities that we believe are critical to a tenant’s business and therefore have a lower risk of tenant default. At both December 31, 20182019 and 2017,2018, we had no significant finance receivable balances that were past due and we had not established any allowances for credit losses. Additionally, there were no modifications of finance receivables during the years ended December 31, 20182019 or 2017. 2018.
We evaluate the credit quality of our finance receivables utilizing an internal five-point credit rating scale, with one representing the highest credit quality and five representing the lowest. A credit quality of one through three indicates a range of investment grade to stable. A credit quality of four through five indicates inclusion on the watch list to risk of default. The credit quality evaluation of our finance receivables is updated quarterly.
A summary of our finance receivables by internal credit quality rating is as follows (dollars in thousands):
| | | | | Number of Tenants/Obligors at December 31, | | Carrying Value at December 31, | | Number of Tenants/Obligors at December 31, | | Carrying Value at December 31, |
| Internal Credit Quality Indicator | | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
| 1 | | — | | — | | $ | — |
| | $ | — |
| |
| 2 | | 2 | | 2 | | 15,705 |
| | 14,386 |
| |
| 3 | | 2 | | 2 | | 29,751 |
| | 29,716 |
| |
| 1-3 | | | 4 | | 4 | | $ | 45,457 |
| | $ | 45,456 |
|
| 4 | | 2 | | 2 | | 60,243 |
| | 62,355 |
| | 1 | | 2 | | 24,597 |
| | 60,243 |
|
| 5 | | — | | — | | — |
| | — |
| | — | | — | | — |
| | — |
|
| | | 0 | | $ | 105,699 |
| | $ | 106,457 |
| | 0 | | $ | 70,054 |
| | $ | 105,699 |
|
Note 6. Intangible Assets and Liabilities
In-place lease and above-market rent intangibles are included in In-place lease and other intangible assets in the consolidated financial statements. Below-market ground lease intangibles and above-market rent intangibles are included in Other intangible assets in the consolidated financial statements. Below-market rent intangibles and above-market ground lease intangibles are included in Accounts payable, accrued expenses and other liabilities in the consolidated financial statements.
In connection with our investment activity (Note 4) during the year ended December 31, 2017, we recorded In-place lease intangibles of $1.6 million that are being amortized over 14.4 years. No lease intangibles were recorded as part of our investment activity during the year ended December 31, 2018.
The following table presents a reconciliation of our goodwill, whichGoodwill is included in our Net Lease segment, which is also the reporting unit for goodwill impairment testing, and is included in Accounts receivable and other assets, net in the consolidated financial statements (in thousands):
|
| | | |
| | Total |
| Balance at January 1, 2017 | $ | 23,526 |
|
| Foreign currency translation | 1,850 |
|
| Other | 708 |
|
| Balance at December 31, 2017 | 26,084 |
|
| Foreign currency translation | (1,359 | ) |
| Other | 1,629 |
|
| Balance at December 31, 2018 | $ | 26,354 |
|
We performed our annual test for impairment during the fourth quarter of 20182019 for goodwill and no impairment was indicated. Goodwill resides within our Net Lease segment, which is also the reporting unit for goodwill impairment testing.
CPA:18 – Global 20182019 10-K – 9688
Notes to Consolidated Financial Statements
Intangible assets and liabilities are summarized as follows (in thousands):
| | | | | December 31, | | December 31, |
| | | 2018 | | 2017 | | 2019 | | 2018 |
| | Amortization Period (Years) | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | Amortization Period (Years) | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| Finite-Lived Intangible Assets | | | | | | | | | | | | | | | | | | | | | | | | |
| In-place lease | 5 – 23 | | $ | 252,316 |
| | $ | (120,936 | ) | | $ | 131,380 |
| | $ | 274,723 |
| | $ | (115,515 | ) | | $ | 159,208 |
| 5 – 23 | | $ | 238,771 |
| | $ | (131,012 | ) | | $ | 107,759 |
| | $ | 252,316 |
| | $ | (120,936 | ) | | $ | 131,380 |
|
| Below-market ground lease | 30 – 99 | | 21,966 |
| | (1,719 | ) | | 20,247 |
| | 23,000 |
| | (1,238 | ) | | 21,762 |
| |
| Above-market rent | 5 – 30 | | 11,178 |
| | (3,923 | ) | | 7,255 |
| | 12,811 |
| | (3,642 | ) | | 9,169 |
| 7 – 30 | | 10,257 |
| | (4,141 | ) | | 6,116 |
| | 11,178 |
| | (3,923 | ) | | 7,255 |
|
Below-market ground lease (a) | | N/A | | — |
| | — |
| | — |
| | 21,966 |
| | (1,719 | ) | | 20,247 |
|
| | | 285,460 |
| | (126,578 | ) | | 158,882 |
| | 310,534 |
| | (120,395 | ) | | 190,139 |
| | 249,028 |
| | (135,153 | ) | | 113,875 |
| | 285,460 |
| | (126,578 | ) | | 158,882 |
|
| Indefinite-Lived Intangible Assets | | | | | | | | | | | | | | | | | | | | | | | | |
| Goodwill | | 26,354 |
| | — |
| | 26,354 |
| | 26,084 |
| | — |
| | 26,084 |
| | 26,024 |
| | — |
| | 26,024 |
| | 26,354 |
| | — |
| | 26,354 |
|
| Total intangible assets | | $ | 311,814 |
| | $ | (126,578 | ) | | $ | 185,236 |
| | $ | 336,618 |
| | $ | (120,395 | ) | | $ | 216,223 |
| | $ | 275,052 |
| | $ | (135,153 | ) | | $ | 139,899 |
| | $ | 311,814 |
| | $ | (126,578 | ) | | $ | 185,236 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Finite-Lived Intangible Liabilities | | | | | | | | | | | | | | | | | | | | | | | | |
| Below-market rent | 5 – 30 | | $ | (15,309 | ) | | $ | 5,651 |
| | $ | (9,658 | ) | | $ | (15,476 | ) | | $ | 4,573 |
| | $ | (10,903 | ) | 6 – 30 | | $ | (14,974 | ) | | $ | 6,627 |
| | $ | (8,347 | ) | | $ | (15,309 | ) | | $ | 5,651 |
| | $ | (9,658 | ) |
Above-market ground lease | 81 | | (105 | ) | | 6 |
| | (99 | ) | | (110 | ) | | 4 |
| | (106 | ) | N/A | | — |
| | — |
| | — |
| | (105 | ) | | 6 |
| | (99 | ) |
| Total intangible liabilities | | $ | (15,414 | ) | | $ | 5,657 |
| | $ | (9,757 | ) | | $ | (15,586 | ) | | $ | 4,577 |
| | $ | (11,009 | ) | | $ | (14,974 | ) | | $ | 6,627 |
| | $ | (8,347 | ) | | $ | (15,414 | ) | | $ | 5,657 |
| | $ | (9,757 | ) |
_________
| |
| (a) | In connection with our adoption of ASU 2016-02 (Note 2), in the first quarter of 2019, we prospectively reclassified below-market ground lease intangible assets and above-market ground lease intangible liabilities to be a component of ROU assets. These amounts are included within In-place lease and other intangibles in our consolidated balance sheets. |
Net amortization of intangibles, including the effect of foreign currency translation, was $20.4 million, $18.4 million, $29.3 million, and $40.2$29.3 million for the years ended December 31, 2019, 2018, 2017, and 2016,2017, respectively. Amortization of below-market rent and above-market rent intangibles is recorded as an adjustment to Rental income, amortization of below-market and above-market ground lease intangibles is included in Property expenses, andincome; amortization of in-place lease intangibles is included in Depreciation and amortization expenseexpense; and amortization of above-market ground lease and below-market ground lease intangibles was included in Property expenses, excluding reimbursable tenant costs, prior to the reclassification of above-market ground lease and below-market ground lease intangibles to ROU assets in the consolidated financial statements.first quarter of 2019, as described above and in Note 2.
Based on the intangible assets and liabilities recorded at as of December 31, 2018,2019, scheduled annual net amortization of intangibles for the next five calendar years and thereafter is as follows (in thousands):
| | | Years Ending December 31, | | Net Increase in Rental Income | | Increase to Amortization/Property Expenses | | Net | | Net Increase in Rental Income | | Increase to Amortization | | Net |
| 2019 | | $ | (342 | ) | | $ | 16,392 |
| | $ | 16,050 |
| |
| 2020 | | (387 | ) | | 15,920 |
| | 15,533 |
| | $ | (411 | ) | | $ | 14,654 |
| | $ | 14,243 |
|
| 2021 | | (401 | ) | | 15,781 |
| | 15,380 |
| | (405 | ) | | 14,567 |
| | 14,162 |
|
| 2022 | | (379 | ) | | 15,436 |
| | 15,057 |
| | (390 | ) | | 14,376 |
| | 13,986 |
|
| 2023 | | (477 | ) | | 13,218 |
| | 12,741 |
| | (486 | ) | | 12,206 |
| | 11,720 |
|
| 2024 | | | (526 | ) | | 9,729 |
| | 9,203 |
|
| Thereafter | | (417 | ) | | 74,781 |
| | 74,364 |
| | (13 | ) | | 42,227 |
| | 42,214 |
|
| | | $ | (2,403 | ) | | $ | 151,528 |
| | $ | 149,125 |
| | $ | (2,231 | ) | | $ | 107,759 |
| | $ | 105,528 |
|
CPA:18 – Global 20182019 10-K – 9789
Notes to Consolidated Financial Statements
Note 7. Fair Value Measurements
The fair value of an asset is defined as the exit price, which is the amount that would either be received when an asset is sold or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance establishes a three-tier fair value hierarchy based on the inputs used in measuring fair value. These tiers are: Level 1, for which quoted market prices for identical instruments are available in active markets, such as money market funds, equity securities, and U.S. Treasury securities; Level 2, for which there are inputs other than quoted prices included within Level 1 that are observable for the instrument, such as certain derivative instruments including interest rate caps, interest rate swaps, foreign currency forward contracts and foreign currency collars; and Level 3, for securities that do not fall into Level 1 or Level 2 and for which little or no market data exists, therefore requiring us to develop our own assumptions.
Items Measured at Fair Value on a Recurring Basis
The methods and assumptions described below were used to estimate the fair value of each class of financial instrument. For significant Level 3 items, we have also provided the unobservable inputs.
Derivative Assets and Liabilities— Our derivative assets and liabilities, which are included in Accounts receivable and other assets, net and Accounts payable, accrued expenses and other liabilities, respectively, in the consolidated financial statements, are comprised of foreign currency forward contracts, interest rate swaps, interest rate caps, and foreign currency collars (Note 8).
The valuation of our derivative instruments is determined using a discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, as well as observable market-based inputs, including interest rate curves, spot and forward rates, and implied volatilities. We incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative instruments for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. These derivative instruments were measured at fair value using readily observable market inputs, such as quotations on interest rates, and were classified as Level 2 as these instruments are custom, over-the-counter contracts with various bank counterparties that are not traded in an active market.
We did not have any transfers into or out of Level 1, Level 2, and Level 3 measurements during the years ended December 31, 20182019 and 2017.2018. Gains and losses (realized and unrealized) recognized on items measured at fair value on a recurring basis included in earnings are reported within Other gains and (losses) on our consolidated financial statements.
Our other financial instruments had the following carrying values and fair values as of the dates shown (dollars in thousands):
| | | | | December 31, | | December 31, |
| | | | 2018 | | 2017 | | | 2019 | | 2018 |
| | Level | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value | Level | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
Debt, net (a) (b) | 3 | | $ | 1,237,427 |
| | $ | 1,257,032 |
| | $ | 1,275,448 |
| | $ | 1,301,844 |
| |
Non-recourse secured debt, net (a) (b) | | 3 | | $ | 1,201,913 |
| | $ | 1,239,004 |
| | $ | 1,237,427 |
| | $ | 1,257,032 |
|
Notes receivable (c) | 3 | | 63,954 |
| | 66,154 |
| | 66,500 |
| | 69,000 |
| 3 | | 28,000 |
| | 30,300 |
| | 63,954 |
| | 66,154 |
|
___________
| |
| (a) | Debt, net consistsAs of Non-recourse mortgages, net and Bonds payable, net. At December 31, 20182019 and 2017,2018, the carrying value of Non-recourse mortgages,secured debt, net includes unamortized deferred financing costs of $6.2$5.8 million and $7.0$6.9 million, respectively. AtAs of December 31, 20182019 and 2017,2018, the carrying value of Bonds payable,Non-recourse secured debt, net includes unamortized deferred financing costspremium, net of $0.7$2.1 million and $0.8$1.3 million, respectively (Note 9). |
| |
| (b) | We determined the estimated fair value of our Non-recourse mortgage loans, net and Bonds payable,secured debt, net using a discounted cash flow model that estimates the present value of the future loan payments by discounting such payments at current estimated market interest rates. The estimated market interest rates take into account interest rate risk and the value of the underlying collateral, which includes quality of the collateral, the credit quality of the tenant/obligor, and the time until maturity. |
| |
| (c) | We determined the estimated fair value of our Notes receivable using a discounted cash flow model with rates that take into account the credit of the tenant/obligor, order of payment tranches, and interest rate risk. We also considered the value of the underlying collateral, taking into account the quality of the collateral, the credit quality of the tenant/obligor, the time until maturity, and the current market interest rate. |
We estimated that our other financial assets and liabilities (excluding net investments in direct financing leases) had fair values that approximated their carrying values atas of both December 31, 20182019 and 2017.
2018.
CPA:18 – Global 20182019 10-K – 9890
Notes to Consolidated Financial Statements
Note 8. Risk Management and Use of Derivative Financial Instruments
Risk Management
In the normal course of our ongoing business operations, we encounter economic risk. There are four main components of economic risk that impact us: interest rate risk, credit risk, market risk, and foreign currency risk. We are primarily subject to interest rate risk on our interest-bearing liabilities. Credit risk is the risk of default on our operations and our tenants’ inability or unwillingness to make contractually required payments. Market risk includes changes in the value of our properties and related loans, as well as changes in the value of our other investments due to changes in interest rates or other market factors. We own international investments, primarily in Europe, and are subject to risks associated with fluctuating foreign currency exchange rates.
Derivative Financial Instruments
When we use derivative instruments, it is generally to reduce our exposure to fluctuations in interest rates and foreign currency exchange rate movements. We have not entered into, and do not plan to enter into financial instruments for trading or speculative purposes. In addition to entering into derivative instruments on our own behalf, we may also be a party to derivative instruments that are embedded in other contracts. The primary risks related to our use of derivative instruments include: (i) a counterparty to a hedging arrangement defaulting on its obligation and (ii) a downgrade in the credit quality of a counterparty to such an extent that our ability to sell or assign our side of the hedging transaction is impaired. While we seek to mitigate these risks by entering into hedging arrangements with large financial institutions that we deem to be creditworthy, it is possible that our hedging transactions, which are intended to limit losses, could adversely affect our earnings. Furthermore, if we terminate a hedging arrangement, we may be obligated to pay certain costs, such as transaction or breakage fees. We have established policies and procedures for risk assessment, as well as the approval, reporting, and monitoring of derivative financial instrument activities.
We measure derivative instruments at fair value and record them as assets or liabilities, depending on our rights or obligations under the applicable derivative contract. Derivatives that are not designated as hedges must be adjusted to fair value through earnings. For a derivativederivatives designated and that qualified,qualify as a cash flow hedge, the effective portion ofhedges, the change in fair value of the derivative is recognized in Other comprehensive (loss) income until the hedged item istransaction affects earnings. Gains and losses on the cash flow hedges representing hedge components excluded from the assessment of effectiveness are recognized in earnings.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 a derivativederivatives designated and that qualified,qualify as a net investment hedge, the effective portion of the change in itsthe fair value and/or the net settlement of the derivative is reported in Other comprehensive (loss) income as part of the cumulative foreign currency translation adjustment. The ineffective portionAmounts are reclassified out of Other comprehensive income into earnings when the change in fair value of any derivativehedged net investment is immediately recognized in earnings.either sold or substantially liquidated.
All derivative transactions with an individual counterparty are governed by a master International Swap and Derivatives Association agreement, which can be considered as a master netting arrangement; however, we report all our derivative instruments on a gross basis on our consolidated financial statements. At both December 31, 20182019 and 2017,2018, no cash collateral had been posted ornor received for any of our derivative positions.
CPA:18 – Global 20182019 10-K – 9991
Notes to Consolidated Financial Statements
The following table sets forth certain information regarding our derivative instruments (in thousands):
| | | Derivatives Designated as Hedging Instruments | | Balance Sheet Location | | Asset Derivatives Fair Value at | | Liability Derivatives Fair Value at | | Balance Sheet Location | | Asset Derivatives Fair Value at | | Liability Derivatives Fair Value at |
| | | December 31, | | December 31, | | | December 31, | | December 31, |
| | | 2018 | | 2017 | | 2018 | | 2017 | | | 2019 | | 2018 | | 2019 | | 2018 |
| Foreign currency collars | | | Accounts receivable and other assets, net | | $ | 1,444 |
| | $ | 750 |
| | $ | — |
| | $ | — |
|
| Foreign currency forward contracts | | Accounts receivable and other assets, net | | $ | 2,011 |
| | $ | 2,419 |
| | $ | — |
| | $ | — |
| | Accounts receivable and other assets, net | | 861 |
| | 2,011 |
| | — |
| | — |
|
| Interest rate caps | | | Accounts receivable and other assets, net | | 116 |
| | — |
| | — |
| | — |
|
| Interest rate swaps | | | Accounts receivable and other assets, net | | 53 |
| | 808 |
| | — |
| | — |
|
| Interest rate swaps | | Accounts receivable and other assets, net | | 808 |
| | 553 |
| | — |
| | — |
| | Accounts payable, accrued expenses and other liabilities | | — |
| | — |
| | (1,991 | ) | | (529 | ) |
| Foreign currency collars | | Accounts receivable and other assets, net | | 750 |
| | 258 |
| | — |
| | — |
| | Accounts payable, accrued expenses and other liabilities | | — |
| | — |
| | — |
| | (622 | ) |
| Interest rate caps | | Accounts receivable and other assets, net | | — |
| | 1 |
| | — |
| | — |
| |
| Foreign currency collars | | Accounts payable, accrued expenses and other liabilities | | — |
| | — |
| | (622 | ) | | (3,266 | ) | |
| Interest rate swaps | | Accounts payable, accrued expenses and other liabilities | | — |
| | — |
| | (529 | ) | | (698 | ) | |
| | | | 2,474 |
| | 3,569 |
|
| (1,991 | ) | | (1,151 | ) |
| Derivatives Not Designated as Hedging Instruments | | | | | | | | | | | | | | | | |
| Interest rate swap | | | Accounts payable, accrued expenses and other liabilities | | — |
| | — |
| | (48 | ) | | — |
|
| Foreign currency collars | | Accounts payable, accrued expenses and other liabilities | | — |
| | — |
| | (115 | ) | | (366 | ) | | Accounts payable, accrued expenses and other liabilities | | — |
| | — |
| | — |
| | (115 | ) |
| | | $ | 3,569 |
| | $ | 3,231 |
| | $ | (1,266 | ) | | $ | (4,330 | ) | | — |
|
| — |
|
| (48 | ) | | (115 | ) |
| | | | $ | 2,474 |
| | $ | 3,569 |
| | $ | (2,039 | ) | | $ | (1,266 | ) |
The following tables present the impact of our derivative instruments in the consolidated financial statements (in thousands):
| | | | | Amount of Gain (Loss) Recognized on Derivatives in Other Comprehensive (Loss) Income (Effective Portion) | | Amount of Gain (Loss) Recognized on Derivatives in Other Comprehensive (Loss) Income |
| | | Years Ended December 31, | | Years Ended December 31, |
| Derivatives in Cash Flow Hedging Relationships | | 2018 | | 2017 | | 2016 | | 2019 | | 2018 | | 2017 |
| Interest rate swaps | | | $ | (2,288 | ) | | $ | 487 |
| | $ | 619 |
|
| Foreign currency collars | | $ | 3,186 |
| | $ | (4,535 | ) | | $ | 327 |
| | 1,343 |
| | 3,186 |
| | (4,535 | ) |
| Interest rate swaps | | 487 |
| | 619 |
| | 810 |
| |
| Foreign currency forward contracts | | (401 | ) | | (2,769 | ) | | (897 | ) | | (1,096 | ) | | (401 | ) | | (2,769 | ) |
| Interest rate caps | | 25 |
| | 16 |
| | (13 | ) | | (38 | ) | | 25 |
| | 16 |
|
Derivatives in Net Investment Hedging Relationship (a) | | | | | | | | | | | | |
| Foreign currency forward contracts | | | 23 |
| | 20 |
| | (39 | ) |
| Foreign currency collars | | 90 |
| | (179 | ) | | (20 | ) | | 19 |
| | 90 |
| | (179 | ) |
| Foreign currency forward contracts | | 20 |
| | (39 | ) | | (56 | ) | |
| Total | | $ | 3,407 |
| | $ | (6,887 | ) | | $ | 151 |
| | $ | (2,037 | ) | | $ | 3,407 |
| | $ | (6,887 | ) |
___________
| |
| (a) | The effective portion of the changes in fair value and the settlement of these contracts isare reported in the foreign currency translation adjustment section of Other comprehensive (loss) income until the underlying investment is sold or substantially liquidated, at which time we reclassify the gain or loss to earnings.income. |
CPA:18 – Global 20182019 10-K – 10092
Notes to Consolidated Financial Statements
| | | | | Amount of Gain (Loss) on Derivatives Reclassified from Other Comprehensive (Loss) Income into Income (Effective Portion) | | Amount of Gain (Loss) on Derivatives Reclassified from Other Comprehensive (Loss) Income into Income |
| Derivatives in Cash Flow Hedging Relationships | | Location of Gain (Loss) Recognized in Income | | Years Ended December 31, | | Location of Gain (Loss) Recognized in Income | | Years Ended December 31, |
| | | 2018 | | 2017 | | 2016 | | | 2019 | | 2018 | | 2017 |
| Foreign currency forward contracts | | Other gains and (losses) | | $ | 1,058 |
| | $ | 1,223 |
| | $ | 1,278 |
| | Other gains and (losses) | | $ | 1,450 |
| | $ | 1,058 |
| | $ | 1,223 |
|
| Foreign currency collars | | | Other gains and (losses) | | 257 |
| | (232 | ) | | 160 |
|
| Interest rate swaps | | Interest expense | | (254 | ) | | (663 | ) | | (879 | ) | | Interest expense | | (136 | ) | | (254 | ) | | (663 | ) |
| Foreign currency collars | | Other gains and (losses) | | (232 | ) | | 160 |
| | 95 |
| |
| Interest rate caps | | Interest expense | | (50 | ) | | (56 | ) | | (4 | ) | | Interest expense | | (13 | ) | | (50 | ) | | (56 | ) |
| Total | | $ | 522 |
| | $ | 664 |
| | $ | 490 |
| | $ | 1,558 |
| | $ | 522 |
| | $ | 664 |
|
Amounts reported in Other comprehensive (loss) income related to our interest rate swapsderivative contracts will be reclassified to Interest expense as interest payments are madeis incurred on our variable-rate debt. Amounts reported in Other comprehensive (loss) income related to foreign currency derivative contracts will be reclassified to Other gains and (losses) when the hedged foreign currency contracts are settled. AtAs of December 31, 2018,2019, we estimated that an additional $0.1$0.8 million and an additional $1.2$1.3 million will be reclassified as Interest expense and Other gains and (losses), respectively, during the next 12 months.
The following table presents the impact of our derivative instruments in the consolidated financial statements (in thousands):
| | | | | Amount of Gain (Loss) on Derivatives Recognized in Income | | Amount of Gain (Loss) on Derivatives Recognized in Income |
| Derivatives Not in Cash Flow Hedging Relationships | | Location of Gain (Loss) Recognized in Income | | Years Ended December 31, | | Location of Gain (Loss) Recognized in Income | | Years Ended December 31, |
| | | 2018 | | 2017 | | 2016 | | | 2019 | | 2018 | | 2017 |
| Foreign currency collars | | Other gains and (losses) | | $ | (95 | ) | | $ | (259 | ) | | $ | 1 |
| | Other gains and (losses) | | $ | 206 |
| | $ | (95 | ) | | $ | (259 | ) |
| Interest rate swaps | | Interest expense | | (82 | ) | | (32 | ) | | — |
| | Interest expense | | (14 | ) | | (82 | ) | | (32 | ) |
Derivatives in Cash Flow Hedging Relationships (a) | | | | | |
| |
| Foreign currency forward contracts | | | Other gains and (losses) | | (4 | ) | | — |
| | — |
|
| Derivatives in Cash Flow Hedging Relationships | | | | | | |
|
| Foreign currency collars | | Other gains and (losses) | | (81 | ) | | (8 | ) | | 2 |
| | Other gains and (losses) | | 7 |
| | (81 | ) | | (8 | ) |
| Interest rate swaps | | Interest expense | | 19 |
| | 26 |
| | 3 |
| | Interest expense | | (1 | ) | | 19 |
| | 26 |
|
| Total | | $ | (239 | ) | | $ | (273 | ) | | $ | 6 |
| | $ | 194 |
| | $ | (239 | ) | | $ | (273 | ) |
__________
| |
(a) | Relates to the ineffective portion of the hedging relationship. |
Interest Rate Swaps and Caps
We are exposed to the impact of interest rate changes primarily through our borrowing activities. To limit this exposure, we attempt to obtain mortgage financing on a long-term, fixed-rate basis. However, from time to time, we or our joint investment partners have obtained, and may in the future obtain, variable-rate non-recourse mortgage loanssecured debt 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. Interest rate swaps, which effectively convert the variable-rate debt service obligations of a loan to a fixed rate, are agreements in which one party exchanges a stream of interest payments for a counterparty’s stream of cash flow over a specific period. The notional, or face, amount on which the swaps are based is not exchanged. Interest rate caps limit the effective borrowing rate of variable-rate debt obligations while allowing participants to share in downward shifts in interest rates. Our objective in using these derivatives is to limit our exposure to interest rate movements.
CPA:18 – Global 20182019 10-K – 10193
Notes to Consolidated Financial Statements
The interest rate swaps and caps that our consolidated subsidiaries had outstanding atas of December 31, 20182019 are summarized as follows (currency in thousands): | | | Interest Rate Derivatives | | Number of Instruments | | Notional
Amount | | Fair Value at December 31, 2018 (a) | | Number of Instruments | | Notional
Amount | | Fair Value at December 31, 2019 (a) |
| Interest rate swaps | | 10 | | 99,244 |
| USD | | $ | 333 |
| | 9 | | 92,339 |
| USD | | $ | (1,938 | ) |
| Interest rate swap | | 1 | | 9,785 |
| EUR | | (54 | ) | |
| Interest rate caps | | 1 | | 5,700 |
| USD | | — |
| | 2 | | 59,000 |
| GBP | | 116 |
|
| Interest rate cap | | | 1 | | 5,700 |
| USD | | — |
|
| Derivatives Not Designated as Hedging Instruments | | | | | |
Interest rate swap (b) | | | 1 | | 9,303 |
| EUR | | (48 | ) |
| | | | | $ | 279 |
| | | | $ | (1,870 | ) |
___________
| |
| (a) | Fair value amount is based on the exchange rate of the eurorespective currencies at December 31, 2018,2019, as applicable. |
| |
| (b) | This interest rate swap does not qualify for hedge accounting; however, it does protect against fluctuations in interest rates related to the underlying variable-rate debt. |
Foreign Currency Contracts
We are exposed to foreign currency exchange rate movements, primarily in the euro and, to a lesser extent, the Norwegian krone. We manage foreign currency exchange rate movements by generally placing our debt service obligation on an investment in the same currency as the tenant’s rental obligation to us. This reduces our overall exposure to the net cash flow from that investment. However, we are subject to foreign currency exchange rate movements to the extent that there is a difference in the timing and amount of the rental obligation and the debt service. Realized and unrealized gains and losses recognized in earnings related to foreign currency transactions are included in Other gains and (losses) in the consolidated financial statements.
In order to hedge certain of our foreign currency cash flow exposures, we enter into foreign currency forward contracts and collars. A foreign currency forward contract is a commitment to deliver a certain amount of currency at a certain price on a specific date in the future. By entering into forward contracts and holding them to maturity, we are locked into a future currency exchange rate for the term of the contract. A foreign currency collar guarantees that the exchange rate of the currency will not fluctuate beyond the range of the options’ strike prices. Our foreign currency forward contracts and foreign currency collars have maturities of 74 months or less.
The following table presents the foreign currency derivative contracts we had outstanding and their designations atas of December 31, 20182019 (currency in thousands):
| | | Foreign Currency Derivatives | | Number of Instruments | | Notional
Amount | | Fair Value at
December 31, 2018 | | Number of Instruments | | Notional
Amount | | Fair Value at
December 31, 2019 |
| Designated as Cash Flow Hedging Instruments | | | | | | | | |
| Foreign currency forward contracts | | 15 | | 5,841 |
| EUR | | $ | 1,483 |
| |
| Foreign currency collars | | | 24 | | 19,012 |
| EUR | | $ | 1,025 |
|
| Foreign currency forward contracts | | 9 | | 13,785 |
| NOK | | 474 |
| | 7 | | 2,776 |
| EUR | | 842 |
|
| Foreign currency collars | | 38 | | 25,296 |
| EUR | | (308 | ) | | 18 | | 35,490 |
| NOK | | 300 |
|
| Foreign currency collars | | 22 | | 44,810 |
| NOK | | 255 |
| |
| Not Designated as Hedging Instruments | | | | | |
| Foreign currency collars | | 2 | | 3,000 |
| EUR | | (115 | ) | |
| Foreign currency forward contract | | | 1 | | 759 |
| NOK | | 19 |
|
| Designated as Net Investment Hedging Instruments | | | | | | | | |
| Foreign currency collars | | 3 | | 16,750 |
| NOK | | 181 |
| | 2 | | 9,350 |
| NOK | | 119 |
|
| Foreign currency forward contracts | | 1 | | 2,568 |
| NOK | | 54 |
| |
| | | | | $ | 2,024 |
| | | | $ | 2,305 |
|
Credit Risk-Related Contingent Features
We measure our credit exposure on a counterparty basis as the net positive aggregate estimated fair value of our derivatives, net of any collateral received. No collateral was received as of December 31, 2018.2019. At December 31, 2018,2019, our total credit exposure was $3.3$2.1 million and the maximum exposure to any single counterparty was $1.9$1.4 million.
CPA:18 – Global 20182019 10-K – 10294
Notes to Consolidated Financial Statements
Some of the agreements we have with our derivative counterparties contain cross-default provisions that could trigger a declaration of default on our derivative obligations if we default, or are capable of being declared in default, on certain of our indebtedness. AtAs of December 31, 2018,2019, we had not been declared in default on any of our derivative obligations. The estimated fair value of our derivatives in a net liability position was $2.1 million and $1.3 million as of December 31, 2019 and $4.4 million at December 31, 2018, and December 31, 2017, respectively, which included accrued interest and any nonperformance risk adjustments. If we had breached any of these provisions atas of December 31, 20182019 or 2017,2018, we could have been required to settle our obligations under these agreements at their aggregate termination value of $1.4$2.2 million and $4.5$1.4 million, respectively.
Note 9. Non-Recourse Secured Debt, net
Debt,Non-recourse secured debt, net consists of Non-recourse mortgages, net, including debt attributable to Assets held for sale, and Bonds payable, net, which areis collateralized by the assignment of real estate properties. For a list of our encumbered properties, see Schedule III — Real Estate and Accumulated Depreciation. AtAs of December 31, 2018,2019, the weighted-average interest rates for our fixed-rate and variable-rate non-recourse secured debt bore interest at fixed annual rates ranging from 1.7% to 5.8%were 3.9% and variable contractual annual rates ranging from 1.6% to 8.2%3.8%, respectively, with maturity dates ranging from 20192020 to 2039.
Financing Activity During 2019
On November 8, 2019, we obtained a non-recourse mortgage loan of $75.6 million, relating to the two student housing operating properties located in the United Kingdom. The loan bears a variable interest rate (3.0% at the date of financing), in which interest only payments are due through the scheduled maturity date of November 2022. At closing, we repaid the $44.7 million and $30.2 million construction loans previously encumbering these properties. Amounts are based on the exchange rate of the British pound sterling at the date of closing.
On March 4, 2019, we obtained a construction loan of $51.7 million for a student housing development project located in Austin, Texas. The loan bears a variable interest rate on outstanding drawn balances (3.9% at December 31, 2019), and is scheduled to mature in March 2023. We have the option to extend this loan one year from the original maturity date to March 2024. As of December 31, 2019, we had drawn $25.1 million on the construction loan.
Financing Activity During 2018
On October 5, 2018, we obtained a construction loan of $15.0 million for a student housing development project located in Barcelona, Spain (based on(which was placed into service during the exchange rate of the euro at the date of the loan)year ended December 31, 2019 (Note 4)). The loan bears an annual fixed interest rate of 2.5%, with a maturity date of April 2032. We had drawn a total of $6.5 million on the construction loan (based on the exchange rate of the euro at the date of each drawdown) as of December 31, 2018. On November 22, 2018, we entered into an additional $2.1 million loan agreement for this student housing development project (based on the exchange rate of the euro at the date of the loan).property. The loan bears an annual fixed interest rate of 2.5%, with a maturity date of May 2022, and will be repaid as the VAT is reclaimed from the taxation authorities. We had drawn a total of $1.4 million on this loan (basedas of December 31, 2018. Amounts are based on the exchange rate of the euro at the date of each drawdown) as of December 31, 2018.the loan and respective drawdowns, where applicable.
On September 20, 2018, in conjunction with our investment in a student housing development project located in Austin, Texas (Note 4), we assumed a 90.0% interest in an existing $4.5 million non-recourse mortgage loan that bears an annual variable interest rate (which was 5.5% as of the date we assumed the loan) and is scheduled to mature. Upon the acquisition of the construction loan in December 2019. We have the option to extend2019 as noted above, this loan six months from the original maturity date to June 2020.was repaid in full.
On May 9, 2018, we obtained a $34.0 million non-recourse mortgage loan encumbering seven self-storage properties located in Southern California. The properties were encumbered by a $16.4 million non-recourse mortgage loan, which was paid in full on the same date using a portion of the proceeds from the term loan. The term loan bears an annual fixed interest rate of 4.5%, with a maturity date of May 2021. We have two options to extend the maturity date, each by an additional year. The principal balance is due at maturity and interest is payable monthly.
On February 13, 2018, we obtained a construction loan of $48.8 million for a student housing development project located in Portsmouth, United Kingdom (based on(which was placed into service during the exchange rate of the British pound sterling at the date of acquisition)year ended December 31, 2018 (Note 4)). The loan bears a variable interest rate (6.0% on the date of the loan) on outstanding drawn balances, and is scheduled to mature in November 2019.balances. We had drawn a total of $43.7 million on the construction loan (basedas of December 31, 2018. This loan was refinanced in November 2019 as noted above. Amounts are based on the exchange rate of the British pound sterling at the date of each drawdown) as of December 31, 2018.the loan and respective drawdowns, where applicable.
CPA:18 – Global 2019 10-K– 95
Notes to Consolidated Financial Statements
During the year ended December 31, 2018, we had additional drawdowns totaling $20.5 million (based on the exchange rate of the British pound sterling at the date of each drawdown) on a construction loan related to a student housing development project located in Cardiff, United Kingdom.Kingdom, which was placed into service during the year ended December 31, 2018 (Note 4). The loan bearsbore an annual interest rate of 7.5% plus LIBORthe London Interbank Offered Rate (“LIBOR”) for outstanding drawn balances, with a maturity date of October 2019. balances. This loan was refinanced in November 2019 as noted above.
Additionally, we drew down a total of $52.4 million (based on the exchange rate of the euro at the date of drawdown) on the non-recourse mortgage loan for a completed build-to-suit hotel in Munich, Germany. The loan bears an annual interest rate of 2.8% and matures in June 2023.
Financing Activity During 2017Interest Paid
DuringInterest paid totaled $43.4 million, $50.7 million, and $45.8 million for the yearyears ended December 31, 2019, 2018, and 2017, we obtained four non-recourse mortgage financings totaling $23.2 million, with a weighted-average annual interest rate of 5.2% and term to maturity of 5.7 years. In addition, we refinanced two non-recourse mortgage loans for a total of $17.0 million with a weighted-average annual interest rate of 2.6% and term to maturity of 4.5 years.
CPA:18 – Global 2018 10-K– 103
Notes to Consolidated Financial Statements
We had an additional drawdown of $3.9 million (based on the exchange rate of the euro at the date of the drawdown) on a senior construction-to-term mortgage loan related to the development of an office building located in Eindhoven, the Netherlands. Through August 31, 2017, the loan bore an interest rate of Euro Interbank Offered Rate (“EURIBOR”) plus 2.5%, except when EURIBOR was below zero, in which case, each draw bore a rate of 2.5% plus the liquidity spread of 0.7% (for a total interest rate of 3.2%). In the third quarter of 2017, the loan was converted to a non-recourse seven-year term loan and now bears a fixed interest rate of 1.8%. Upon conversion of the loan, we drew down on the remaining $22.0 million available balance.
In addition, during the year ended December 31, 2017, we drew down a total of $17.9 million (based on the exchange rate of the euro at the date of the drawdown) on the third-party non-recourse financing related to our build-to-suit project in Hamburg, Germany. The loan bears a fixed annual interest rate of 2.1% with a term to maturity of seven years.
On October 12, 2017, we obtained a construction loan of $31.3 million for a student housing development project located in Cardiff, United Kingdom (based on the exchange rate of the British pound sterling at the date of acquisition). The loan bears an annual interest rate of 7.5% plus LIBOR for outstanding drawn balances with a maturity date of October 2019. During the year ended December 31, 2017, we had drawn down a total of $10.1 million on the student housing development construction loan (based on the exchange rate of the British pound sterling at the date of each drawdown).respectively.
Scheduled Debt Principal Payments
Scheduled debt principal payments as of December 31, 2018,2019, during each of the next five calendar years and thereafter are as follows (in thousands):
| | | Years Ending December 31, | | Total | | Total |
| 2019 | | $ | 86,541 |
| |
| 2020 | | 93,728 |
| | $ | 67,331 |
|
| 2021 | | 167,006 |
| | 161,612 |
|
| 2022 | | 142,771 |
| | 195,342 |
|
| 2023 | | 156,038 |
| | 180,540 |
|
| 2024 | | | 200,114 |
|
| Thereafter through 2039 | | 596,979 |
| | 400,699 |
|
| Total principal payments | | 1,243,063 |
| | 1,205,638 |
|
| Unamortized deferred financing costs | | (6,919 | ) | | (5,841 | ) |
| Unamortized premium, net | | 1,283 |
| | 2,116 |
|
| Total | | $ | 1,237,427 |
| | $ | 1,201,913 |
|
Certain amounts in the table above are based on the applicable foreign currency exchange rate at December 31, 2018.2019.
The carrying value of our Non-recourse mortgage, net, includingsecured debt, attributable to Assets held for sale and Bonds payable, net, decreased by $31.6$6.3 million in the aggregate from December 31, 20172018 to December 31, 2018,2019, reflecting the impact of the strengthening of the U.S. dollar relative to certain foreign currencies (primarily the euro)exchange rate fluctuations during the same period.
Debt Covenants
During the year ended December 31, 2017, we had repaid a total of $1.8 million (amount is based on the exchange rate of the euro as of the date of repayments) of principal on our Agrokor mortgage loan as a result of a debt service coverage ratio covenant breach. The covenant breach will be cured once the net operating income for the related property exceeds the amount set forth in the related loan agreement. As of December 31, 2018, less than $0.1 million of additional payments have been made on the loan principal. As Agrokor is currently in financial distress, there is uncertainty regarding future rent collectionsperiod (Note 142) and whether the default can be cured..
CPA:18 – Global 2018 10-K– 104
Notes to Consolidated Financial Statements
As of December 31, 2017, we were in breach of a loan-to-value covenant on one of our bonds payable. On June 14, 2018, we entered into a pledge agreement with the bondholders to cure the covenant breach, pursuant to which we deposited $5.6 million (based on the exchange rate for the Norwegian krone on the date of deposit) in a bank account and granted a first priority interest in, and pledged the account to, the bondholders. The pledge of the account to the bondholders will stay in effect until the loan-to-value ratio is within the threshold set forth in the bond agreement or until the bonds are repaid in full. There were no changes to the amounts or timing of scheduled interest and principal payments. The balance in the pledged account, based on the exchange rate as of December 31, 2018, was $5.2 million and is included as restricted cash within Accounts receivable and other assets, net on our consolidated balance sheets.
As of December 31, 2018, we were in breach of certain non-financial covenants on one of our non-recourse mortgage loans. As a result of the breach, the lender has the right to declare a “cash trap” in which any surplus cash in our rent account would be transferred to a reserve account with the lender. As of December 31, 2018, the lender has not declared such an event, but has the right to do so until we cure this breach.
Note 10. Commitments and Contingencies
AtAs of December 31, 20182019, we were not involved in any material litigation. 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 positionstatements of income or results of operations.
See Note 4 for unfunded construction commitments.
CPA:18 – Global 2019 10-K– 96
Notes to Consolidated Financial Statements
Note 11. Net Income (Loss)Earnings Per Share and Equity
Basic and Diluted Net Income (Loss)Earnings Per Share
The following table presents net income (loss)earnings per share (in thousands, except share and per share amounts):
| | | | Year Ended December 31, 2018 | Year Ended December 31, 2019 |
| | Basic and Diluted Weighted-Average
Shares Outstanding | | Allocation of Net Income | | Basic and Diluted Net Income Per Share | Basic and Diluted Weighted-Average Shares Outstanding | | Allocation of Net Income | | Basic and Diluted Earnings Per Share |
| Class A common stock | 113,401,265 |
| | $ | 75,816 |
| | $ | 0.67 |
| 116,469,007 |
| | $ | 25,636 |
| | $ | 0.22 |
|
| Class C common stock | 31,608,961 |
| | 20,912 |
| | 0.66 |
| 32,123,513 |
| | 6,936 |
| | 0.22 |
|
| Net income attributable to CPA:18 – Global | | | $ | 96,728 |
| | | | | $ | 32,572 |
| | |
| | | | Year Ended December 31, 2017 | Year Ended December 31, 2018 |
| | Basic and Diluted Weighted-Average
Shares Outstanding | | Allocation of Net Income | | Basic and Diluted Net Income Per Share | Basic and Diluted Weighted-Average Shares Outstanding | | Allocation of Net Income | | Basic and Diluted Earnings Per Share |
| Class A common stock | 109,942,186 |
| | $ | 21,032 |
| | $ | 0.19 |
| 113,401,265 |
| | $ | 75,816 |
| | $ | 0.67 |
|
| Class C common stock | 31,138,787 |
| | 5,501 |
| | 0.18 |
| 31,608,961 |
| | 20,912 |
| | 0.66 |
|
| Net income attributable to CPA:18 – Global | | | $ | 26,533 |
| | | | | $ | 96,728 |
| | |
|
| | | | | | | | | | |
| | Year Ended December 31, 2016 |
| | Basic and Diluted Weighted-Average
Shares Outstanding | | Allocation of Net Loss | | Basic and Diluted Net Loss Per Share |
| Class A common stock | 105,691,583 |
| | $ | (23,065 | ) | | $ | (0.22 | ) |
| Class C common stock | 30,091,602 |
| | (7,019 | ) | | (0.23 | ) |
| Net loss attributable to CPA:18 – Global | | | $ | (30,084 | ) | | |
CPA:18 – Global 2018 10-K– 105
Notes to Consolidated Financial Statements
|
| | | | | | | | | | |
| | Year Ended December 31, 2017 |
| | Basic and Diluted Weighted-Average Shares Outstanding | | Allocation of Net Income | | Basic and Diluted Earnings Per Share |
| Class A common stock | 109,942,186 |
| | $ | 21,032 |
| | $ | 0.19 |
|
| Class C common stock | 31,138,787 |
| | 5,501 |
| | 0.18 |
|
| Net income attributable to CPA:18 – Global | | | $ | 26,533 |
| | |
The allocation of Net income (loss) attributable to CPA:18 – Global is calculated based on the basic and diluted weighted-average shares outstanding for Class A and Class C common stock for each respective period. The Class C common stock allocation includes interest expense related to the accretion of interest on the annual distribution and shareholder servicing fee liability which is only applicable to our Class C common stock which totaled $0.1 million, $0.2 million, for the year ended December 31, 2018 and $0.5 million for the years ended December 31, 2019, 2018, and 2017, and 2016respectively (Note 3).
Distributions
Distributions paid to stockholders consist of ordinary income, capital gains, return of capital or a combination thereof for income tax purposes. The following table presents annualizedOur distributions per share declared and paid during the years ended December 31, 2018, 2017, and 2016, reported for tax purposes and servesare summarized as a designation of capital gain distributions, if applicable, pursuant to Internal Revenue Code Section 857(b)(3)(C) and Treasury Regulation § 1.857-6(e):follows:
| | | | Years Ended December 31, | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 | 2019 | | 2018 | | 2017 |
| | Class A | | Class C | | Class A | | Class C | | Class A | | Class C | Class A | | Class C | | Class A | | Class C | | Class A | | Class C |
| Return of capital | | $ | 0.3662 |
| | $ | 0.3220 |
| | $ | — |
| | $ | — |
| | $ | 0.3254 |
| | $ | 0.2875 |
|
| Capital gain | $ | 0.3847 |
| | $ | 0.3388 |
| | $ | 0.0817 |
| | $ | 0.0722 |
| | $ | — |
| | $ | — |
| 0.1339 |
| | 0.1178 |
| | 0.3847 |
| | 0.3388 |
| | 0.0817 |
| | 0.0722 |
|
| Ordinary income | 0.2405 |
| | 0.2119 |
| | 0.2181 |
| | 0.1927 |
| | 0.1339 |
| | 0.1171 |
| 0.1251 |
| | 0.1101 |
| | 0.2405 |
| | 0.2119 |
| | 0.2181 |
| | 0.1927 |
|
| Return of capital | — |
| | — |
| | 0.3254 |
| | 0.2875 |
| | 0.4913 |
| | 0.4296 |
| |
| Total distributions paid | $ | 0.6252 |
| | $ | 0.5507 |
| | $ | 0.6252 |
| | $ | 0.5524 |
| | $ | 0.6252 |
| | $ | 0.5467 |
| $ | 0.6252 |
| | $ | 0.5499 |
| | $ | 0.6252 |
| | $ | 0.5507 |
| | $ | 0.6252 |
| | $ | 0.5524 |
|
Distributions are declared at the discretion of our board of directors and are not guaranteed. During the fourth quarter of 2018,2019, our board of directors declared quarterly distributions of $0.1563 per share for our Class A common stock and $0.1376$0.1374 per share for our Class C common stock, which were paid on January 15, 20192020 to stockholders of record on December 31, 2018,2019, in the amount of $22.3$22.7 million.
CPA:18 – Global 2019 10-K– 97
Notes to Consolidated Financial Statements
During the year ended December 31, 2018,2019, our board of directors declared distributions in the aggregate amount of $70.9$72.7 million per share for our Class A common stock and $17.3$17.6 million per share for our Class C common stock, which equates to $0.6252 and $0.5503$0.5499 per share, respectively.
CPA:18 – Global 2018 10-K– 106
Notes to Consolidated Financial Statements
Reclassifications Out of Accumulated Other Comprehensive Loss
The following tables present a reconciliation of changes in Accumulated other comprehensive loss by component for the periods presented (in thousands):
| | | | Gains and Losses
on Derivative Instruments | | Foreign Currency Translation Adjustments | | Total | Gains and Losses
on Derivative Instruments | | Foreign Currency Translation Adjustments | | Total |
| Balance at January 1, 2016 | $ | 5,360 |
| | $ | (55,676 | ) | | $ | (50,316 | ) | |
| Other comprehensive loss before reclassifications | 717 |
| | (12,254 | ) | | (11,537 | ) | |
| Amounts reclassified from accumulated other comprehensive loss to: | | | | | | |
| Interest expense | 883 |
| | — |
| | 883 |
| |
| Other gains and (losses) | (1,373 | ) | | — |
| | (1,373 | ) | |
| Net current-period Other comprehensive loss | 227 |
| | (12,254 | ) | | (12,027 | ) | |
| Net current-period Other comprehensive loss attributable to noncontrolling interests | — |
| | 639 |
| | 639 |
| |
| Balance at December 31, 2016 | 5,587 |
| | (67,291 | ) | | (61,704 | ) | |
| Balance at January 1, 2017 | | $ | 5,587 |
| | $ | (67,291 | ) | | $ | (61,704 | ) |
| Other comprehensive income before reclassifications | (6,005 | ) | | 39,925 |
| | 33,920 |
| (6,005 | ) | | 39,925 |
| | 33,920 |
|
| Amounts reclassified from accumulated other comprehensive loss to: | | | | | | | | | | |
| Other gains and (losses) | | (1,383 | ) | | — |
| | (1,383 | ) |
| Interest expense | 719 |
| | — |
| | 719 |
| 719 |
| | — |
| | 719 |
|
| Other gains and (losses) | (1,383 | ) | | — |
| | (1,383 | ) | |
| Net current-period Other comprehensive income | (6,669 | ) | | 39,925 |
| | 33,256 |
| (6,669 | ) | | 39,925 |
| | 33,256 |
|
| Net current-period Other comprehensive income attributable to noncontrolling interests | — |
| | (4,764 | ) | | (4,764 | ) | — |
| | (4,764 | ) | | (4,764 | ) |
| Balance at December 31, 2017 | (1,082 | ) | | (32,130 | ) | | (33,212 | ) | (1,082 | ) | | (32,130 | ) | | (33,212 | ) |
| Other comprehensive loss before reclassifications | 3,819 |
| | (23,002 | ) | | (19,183 | ) | 3,819 |
| | (23,002 | ) | | (19,183 | ) |
| Amounts reclassified from accumulated other comprehensive loss to: | | | | | | | | | | |
| Other gains and (losses) | | (826 | ) | | — |
| | (826 | ) |
| Interest expense | 304 |
| | — |
| | 304 |
| 304 |
| | — |
| | 304 |
|
| Other gains and (losses) | (826 | ) | | — |
| | (826 | ) | |
| Net current-period Other comprehensive loss | 3,297 |
| | (23,002 | ) | | (19,705 | ) | 3,297 |
| | (23,002 | ) | | (19,705 | ) |
| Net current-period Other comprehensive loss attributable to noncontrolling interests | — |
| | 2,324 |
| | 2,324 |
| — |
| | 2,324 |
| | 2,324 |
|
| Balance at December 31, 2018 | $ | 2,215 |
| | $ | (52,808 | ) | | $ | (50,593 | ) | 2,215 |
| | (52,808 | ) | | (50,593 | ) |
| Other comprehensive loss before reclassifications | | (521 | ) | | (4,509 | ) | | (5,030 | ) |
| Amounts reclassified from accumulated other comprehensive loss to: | | | | | | |
| Other gains and (losses) | | (1,707 | ) | | — |
| | (1,707 | ) |
| Interest expense | | 149 |
| | — |
| | 149 |
|
| Net current-period Other comprehensive loss | | (2,079 | ) | | (4,509 | ) | | (6,588 | ) |
| Net current-period Other comprehensive loss attributable to noncontrolling interests | | 2 |
| | 644 |
| | 646 |
|
| Balance at December 31, 2019 | | $ | 138 |
| | $ | (56,673 | ) | | $ | (56,535 | ) |
See Note 8 for additional information on our derivative activity recognized within Other comprehensive (loss) income for the periods presented.
Note 12. Income Taxes
We have elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code. We believe we have operated, and we intend to continue to operate, in a manner that allows us to continue to qualify as a REIT. Under the REIT operating structure, we are permitted to deduct distributions paid to our stockholders and generally will not be required to pay U.S. federal income taxes. Accordingly, the only provision of income taxes in the consolidated financial statements relates to our TRSs. The Tax Cuts and Jobs Act, which was signed into law on December 22, 2017, lowered the U.S. corporate income tax rate from 35% to 21%. As a result, thereThere was no significantmaterial impact to the deferred taxes on our domestic TRSs.
CPA:18 – Global 2019 10-K– 98
Notes to Consolidated Financial Statements
We conduct business in various states and municipalities, primarily within the United States and in Europe, and as a result, we file income tax returns in the U.S. federal jurisdiction and various states and certain foreign jurisdictions. Our tax returns are subject to audit by taxing authorities. Such audits can often take years to complete and settle.
CPA:18 – Global 2018 10-K– 107
Notes to Consolidated Financial Statements
The components of our provision for (benefit from) provision for income taxes for the periods presented are as follows (in thousands):
| | | | Years Ended December 31, | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 | 2019 | | 2018 | | 2017 |
| Federal | | | | | | | | | | |
| Current | $ | 130 |
| | $ | 234 |
| | $ | 276 |
| $ | 60 |
| | $ | 130 |
| | $ | 234 |
|
| Deferred | 5 |
| | 20 |
| | (34 | ) | — |
| | 5 |
| | 20 |
|
| | 135 |
| | 254 |
| | 242 |
| 60 |
| | 135 |
| | 254 |
|
| State and Local | | | | | | | | | | |
| Current | 292 |
| | 355 |
| | 134 |
| 85 |
| | 292 |
| | 355 |
|
| | 292 |
| | 355 |
| | 134 |
| 85 |
| | 292 |
| | 355 |
|
| Foreign | | | | | | | | | | |
| Current | 1,315 |
| | 1,535 |
| | 1,024 |
| 2,375 |
| | 1,315 |
| | 1,535 |
|
| Deferred | (3,694 | ) | | (3,650 | ) | | (1,394 | ) | (2,310 | ) | | (3,694 | ) | | (3,650 | ) |
| | (2,379 | ) | | (2,115 | ) | | (370 | ) | 65 |
| | (2,379 | ) | | (2,115 | ) |
| Total (Benefit) Provision | $ | (1,952 | ) | | $ | (1,506 | ) | | $ | 6 |
| |
| Total Provision (Benefit) | | $ | 210 |
| | $ | (1,952 | ) | | $ | (1,506 | ) |
We account for uncertain tax positions in accordance with ASCAccounting Standards Codification 740, Income Taxes. Our taxable subsidiaries recognize tax positions in the financial statements only when it is more likely than not that the position will be sustained on examination by the relevant taxing authority based on the technical merits of the position. A position that meets this standard is measured at the largest amount of benefit that will more likely than not be realized on settlement. A liability is established for differences between positions taken in a tax return and amounts recognized in the financial statements. The following table presents a reconciliation of
During the beginning and ending amount ofyear ended December 31, 2019, our unrecognized tax benefits (in thousands):
|
| | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 |
| Beginning balance | $ | 449 |
| | $ | 242 |
|
| Addition based on tax positions related to prior periods | 221 |
| | 207 |
|
| Ending balance | $ | 670 |
| | $ | 449 |
|
Atincreased by $0.6 million from $0.7 million as of December 31, 2018 we had unrecognizedto $1.3 million as of December 31, 2019, reflecting additions based on tax positions related to prior periods. If recognized, these benefits as presented in the table above that, if recognized, would have a favorable impact on our effective income tax rate in future periods. We recognize interest and penalties related to uncertain tax positions in income tax expense. AtAs of December 31, 2018 and 2017,2019, we had no accrued interest related to uncertain tax positions.positions of $0.1 million, and had no such liability as of December 31, 2018.
Tax authorities in relevant jurisdictions may select our tax returns for audit and propose adjustments before the expiration of the statute of limitations. Our tax returns filed for tax years 20122013 through 20172018 remain open to adjustment in major tax jurisdictions.
Income Taxes Paid
Income taxes paid were $1.7 million, $2.6 million, and $1.1 million for the years ended December 31, 2019, 2018, and 2017, respectively.
CPA:18 – Global 20182019 10-K – 10899
Notes to Consolidated Financial Statements
Deferred Income Taxes
Our deferred tax assets before valuation allowances were $19.0 million and $10.8 million and $13.7 million atas of December 31, 20182019 and 2017,2018, respectively. Our deferred tax liabilities were $48.6 million and $48.0 million and $64.0 million atas of December 31, 20182019 and 2017,2018, respectively. We determined that $9.2$17.6 million and $13.6$9.2 million of our deferred tax assets did not meet the criteria for recognition under the accounting guidance for income taxes, and accordingly, a valuation allowance was established in that amount atas of December 31, 20182019 and 2017,2018, respectively. Our deferred tax asset, net of valuation allowance, is recorded in Accounts receivable and other assets, net on our consolidated balance sheet. Our deferred tax liabilities are recorded in Accounts payable, accrued expenses and other liabilities in our consolidated balance sheet. Our deferred tax assets and liabilities are primarily the result of temporary differences related to:
basis differences between tax and GAAP for real estate assets (forassets. For income tax purposes, certain acquisitions have resulted in us assuming the seller’s basis, or the carry-over basis, in assets and liabilities for tax purposes. In accordance with purchase accounting requirements under GAAP, we record all of the acquired assets and liabilities at their estimated fair values at the date of acquisition. For our subsidiaries subject to income taxes in the United States or in foreign jurisdictions, we recognize deferred income tax liabilities representing the tax effect of the difference between the tax basis and the fair value of the tangible and intangible assets recorded at the date of acquisition for GAAP.);GAAP;
timing differences generated by differences in the GAAP basis and the tax basis of assets such as those related to capitalized acquisition costs, straight-line rent, prepaid rents, and intangible assets; and
tax net operating losses in foreign jurisdictions that may be realized in future periods if we generate sufficient taxable income.
AtAs of December 31, 20182019 and 2017,2018, we had net operating losses in foreign jurisdictions of approximately $41.9$41.5 million and $25.3$41.9 million, respectively. Our net operating losses will begin to expire in 20192020 in certain foreign jurisdictions. The utilization of net operating losses may be subject to certain limitations under the tax laws of the relevant jurisdiction.
Note 13. Property Dispositions
We have an active capital recycling program, with a goal of extending the average lease term of our portfolio through reinvestment, improving portfolio credit quality through dispositions and acquisitions of assets, increasing the asset criticality factor in our portfolio, and/or executing strategic dispositions of our net-leased and operating assets. We may decide to dispose of a property due to vacancy, tenants electing not to renew their leases, tenant insolvency, or lease rejection in the bankruptcy process. In such cases, we assess whether we can obtain the highest value from the property by selling it, as opposed to re-leasing it. We may also sell a property when we receive an unsolicited offer or negotiate a price for an investment that is consistent with our strategy for that investment. When it is appropriate to do so, we classify the property as an asset held for sale on our consolidated balance sheet.
The results2019
Operating Real Estate — Land, Buildings and Improvements
On January 29, 2019, we sold our 97% interest that we held in our last multi-family residential property, located in Fort Walton Beach, Florida, to one of operationsour joint venture partners for properties that have been sold, transferred, or classified as held for sale are included in the consolidated financial statementstotal proceeds of $13.1 million, net of closing costs, and are summarized as follows (in thousands):
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| Revenues | $ | 21,824 |
| | $ | 28,385 |
| | $ | 25,643 |
|
| Operating expenses | (17,917 | ) | | (22,699 | ) | | (19,342 | ) |
| Gain (loss) on sale of real estate, net | 78,657 |
| | 14,209 |
| | (63 | ) |
| Interest expense | (5,530 | ) | | (6,427 | ) | | (3,897 | ) |
Other gains and (losses) (a) | 14,351 |
| | (3,233 | ) | | (2,542 | ) |
| Benefit from (provision for) income taxes | 415 |
| | 227 |
| | (38 | ) |
Income from properties sold, transferred, or classified as held for sale, net of income taxes (b) | $ | 91,800 |
| | $ | 10,462 |
| | $ | (239 | ) |
__________
(a) Includesrecognized a gain on insurance proceeds forsale of $15.4 million (which includes a $2.9 million gain attributable to noncontrolling interests). The buyer assumed the related non-recourse mortgage loan outstanding on this property totaling $24.2 million.
Real Estate — Land, Buildings and Improvements
During the year ended December 31, 20182019, we sold the 11 properties in our Truffle portfolio, for total proceeds of $16.6$39.3 million, (inclusivenet of a tax benefitclosing costs, and recognized an aggregate gain on sale of $3.5 million) as a result$10.3 million. Additionally, at closing we repaid the non-recourse mortgage loan totaling $22.7 million encumbering these properties (amounts are based on the exchange rate of a settlement agreement with our insurer regarding a joint venture development project located in Accra, Ghana as detailed below.the British pound sterling at the date of sale).
CPA:18 – Global 20182019 10-K – 109100
Notes to Consolidated Financial Statements
(b) For the years ended December 31, 2018, and 2017, amounts include net income attributable to noncontrolling interests of $10.5 million, and $0.7 million, respectively, and net loss attributable to noncontrolling interests of $0.1 million for the year ended December 31, 2016.
2018
Our disposition activity for the year ended December 31, 2018 included the following, none of which qualified for classification as discontinued operations:
SoldOperating Real Estate — Land, Buildings and Improvements
During the year ended December 31, 2018, we sold five domestic multi-family residential properties for total proceeds of $95.5 million, net of selling costs, and recognized an aggregate gain on sale of $58.2 million (which includes an $8.3 million gain attributable to noncontrolling interests). Four of these properties had outstanding mortgage loans totaling $93.4 million, which were assumed by the buyer as part of the sale, and the mortgage loan of $25.3 million relating to the remaining property was repaid prior to the disposition. For three of these properties, we sold our 97% interest to one of our joint venture partners.
Sold
As of December 31, 2018, we had one remaining domestic multi-family residential property classified as Assets held for sale, net with a carrying value of $23.6 million and a non-recourse mortgage loan of $24.3 million. This property was sold in January 2019 as noted above.
Real Estate — Land, Buildings and Improvements
During the year ended December 31, 2018, we sold an office building located in Utrecht, the Netherlands for total proceeds of $29.7 million, net of selling costs. As a result, we recognized an aggregate gain on sale of $20.5 million, inclusive of a tax benefit of $2.0 million (amounts based on the exchange rate of the euro at the date of sale). The property had an outstanding mortgage loan of $29.2 million, which was assumed by the buyer.
As a result of a settlement agreement with our political risk insurer related to a development project in Accra, Ghana, we transferred our right to collect for tenant default damages to the insurer and received $45.6 million, net of transaction costs. As a result we recognized a gain on insurance proceeds of $16.6 million (inclusive of a tax benefit and a gain attributable to noncontrolling interests of $3.5 million and $2.3 million, respectively).
At December 31, 2018, we had one remaining domestic multi-family residential property classified as Assets held for sale, net with a carrying value of $23.6 million and a non-recourse mortgage loan of $24.3 million. This property was sold in January 2019 (Note 16).
2017
On October 11, 2017, we sold a student housing operating property located in Reading, United Kingdom for cash proceeds of $59.5 million (based on the exchange rate of the British pound sterling at the date of sale), net of selling costs, and recorded a gain on sale of $14.2 million (inclusive of a $3.6 million gain attributable to noncontrolling interests). This property disposition did not qualify for classification as a discontinued operation.
CPA:18 – Global 20182019 10-K – 110101
Notes to Consolidated Financial Statements
Note 14. Segment Reporting
We operate in three reportable business segments: Net Lease, Self Storage, and Multi-Family.Other Operating Properties. Our Net Lease segment includes our investments in net-leased properties, whether they are accounted for as operating leases or direct financing leases. Our Self Storage segment is comprised of our investments in self-storage properties. Our Multi-FamilyOther Operating Properties segment is comprised of our investments in student housing development projects, student housing operating properties and multi-family residential properties.properties (our last multi-family residential property was sold in January 2019). In addition, we have an All Other category that includes our notes receivable investments.investments, one of which was repaid during the second quarter of 2019. The following tables present a summary of comparative results and assets for these business segments (in thousands): | | | | Years Ended December 31, | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 | 2019 | | 2018 | | 2017 |
Net Lease | | | | | | | | | | |
| Revenues | $ | 130,124 |
| | $ | 118,476 |
| | $ | 109,332 |
| |
Operating expenses (a) (b) | (76,255 | ) | | (70,867 | ) | | (60,168 | ) | |
| Gain (loss) on sale of real estate, net | 20,547 |
| | — |
| | (63 | ) | |
Revenues (b) | | $ | 122,038 |
| | $ | 130,124 |
| | $ | 118,476 |
|
Operating expenses (b) (c) | | (69,959 | ) | | (76,255 | ) | | (70,867 | ) |
| Interest expense | (36,128 | ) | | (30,877 | ) | | (27,723 | ) | (34,105 | ) | | (36,128 | ) | | (30,877 | ) |
Other income and (expenses), excluding interest expense and gain (loss) on sale of real estate, net (c) | 22,597 |
| | 1,575 |
| | 1,233 |
| |
| Gain on sale of real estate, net | | 9,932 |
| | 20,547 |
| | — |
|
Other gains and (losses) (d) | | 1,203 |
| | 22,597 |
| | 1,575 |
|
| Benefit from income taxes | 1,513 |
| | 2,635 |
| | 811 |
| 1,019 |
| | 1,513 |
| | 2,635 |
|
| Net income attributable to noncontrolling interests | (2,716 | ) | | (1,072 | ) | | (2,765 | ) | (759 | ) | | (2,716 | ) | | (1,072 | ) |
| Net income attributable to CPA:18 – Global | $ | 59,682 |
| | $ | 19,870 |
| | $ | 20,657 |
| $ | 29,369 |
| | $ | 59,682 |
| | $ | 19,870 |
|
| Self Storage | | | | | | | | | | |
| Revenues | $ | 57,920 |
| | $ | 55,075 |
| | $ | 48,794 |
| $ | 60,767 |
| | $ | 57,920 |
| | $ | 55,075 |
|
Operating expenses (d) | (35,235 | ) | | (44,357 | ) | | (57,807 | ) | |
| Operating expenses | | (35,604 | ) | | (35,235 | ) | | (44,357 | ) |
| Interest expense | (13,256 | ) | | (12,357 | ) | | (11,013 | ) | (13,802 | ) | | (13,256 | ) | | (12,357 | ) |
Other income and (expenses), excluding interest expense (e) | (1,298 | ) | | (1,125 | ) | | (231 | ) | |
Other gains and (losses) (e) | | (942 | ) | | (1,298 | ) | | (1,125 | ) |
| Provision for income taxes | (85 | ) | | (114 | ) | | (215 | ) | (115 | ) | | (85 | ) | | (114 | ) |
| Net income (loss) attributable to CPA:18 – Global | $ | 8,046 |
| | $ | (2,878 | ) | | $ | (20,472 | ) | $ | 10,304 |
| | $ | 8,046 |
| | $ | (2,878 | ) |
| Multi-Family | | | | | | |
Other Operating Properties (a) | | | | | | |
| Revenues | $ | 21,434 |
| | $ | 24,915 |
| | $ | 22,609 |
| $ | 10,550 |
| | $ | 21,434 |
| | $ | 24,915 |
|
| Operating expenses | (16,030 | ) | | (17,666 | ) | | (17,103 | ) | (7,713 | ) | | (16,030 | ) | | (17,666 | ) |
| Interest expense | | 133 |
| | (3,529 | ) | | (4,727 | ) |
| Gain on sale of real estate, net | 58,110 |
| | 14,209 |
| | — |
| 14,841 |
| | 58,110 |
| | 14,209 |
|
| Interest expense | (3,529 | ) | | (4,727 | ) | | (3,537 | ) | |
| Other income and (expenses), excluding interest expense and gain (loss) on sale of real estate, net | (870 | ) | | (22 | ) | | 6 |
| |
| Other gains and (losses) | | (182 | ) | | (870 | ) | | (22 | ) |
| Benefit from (provision for) income taxes | 178 |
| | (132 | ) | | (164 | ) | 87 |
| | 178 |
| | (132 | ) |
| Net (income) loss attributable to noncontrolling interests | (8,154 | ) | | (3,562 | ) | | 52 |
| |
| Net income attributable to noncontrolling interests | | (2,541 | ) | | (8,154 | ) | | (3,562 | ) |
| Net income attributable to CPA:18 – Global | $ | 51,139 |
| | $ | 13,015 |
| | $ | 1,863 |
| $ | 15,175 |
| | $ | 51,139 |
| | $ | 13,015 |
|
All Other | | | | | | | | | | |
| Revenues | $ | 7,238 |
| | $ | 7,168 |
| | $ | 3,588 |
| $ | 4,076 |
| | $ | 7,238 |
| | $ | 7,168 |
|
Operating expenses (f) | (4 | ) | | (12 | ) | | (2,010 | ) | |
| Operating expenses | | — |
| | (4 | ) | | (12 | ) |
| Net income attributable to CPA:18 – Global | $ | 7,234 |
| | $ | 7,156 |
| | $ | 1,578 |
| $ | 4,076 |
| | $ | 7,234 |
| | $ | 7,156 |
|
| Corporate | | | | | | | | | | |
Unallocated Corporate Overhead (g) | $ | (19,681 | ) | | $ | (1,980 | ) | | $ | (26,124 | ) | $ | (18,220 | ) | | $ | (19,681 | ) | | $ | (1,980 | ) |
| Net income attributable to noncontrolling interests – Available Cash Distributions | $ | (9,692 | ) | | $ | (8,650 | ) | | $ | (7,586 | ) | $ | (8,132 | ) | | $ | (9,692 | ) | | $ | (8,650 | ) |
| Total Company | | | | | | | | | | |
| Revenues | $ | 216,716 |
| | $ | 205,634 |
| | $ | 184,323 |
| $ | 197,439 |
| | $ | 216,716 |
| | $ | 205,634 |
|
| Operating expenses | (147,018 | ) | | (151,636 | ) | | (154,047 | ) | (132,509 | ) | | (147,018 | ) | | (151,636 | ) |
| Gain (loss) on sale of real estate, net | 78,657 |
| | 14,209 |
| | (63 | ) | |
| Interest expense | (53,221 | ) | | (48,994 | ) | | (43,132 | ) | (48,019 | ) | | (53,221 | ) | | (48,994 | ) |
| Other income and (expenses), excluding interest expense and gain (loss) on sale of real estate, net | 20,204 |
| | 19,098 |
| | (6,860 | ) | |
| Benefit from (provision for) income taxes | 1,952 |
| | 1,506 |
| | (6 | ) | |
| Gain on sale of real estate, net | | 24,773 |
| | 78,657 |
| | 14,209 |
|
Other gains and (losses) (e) | | 2,530 |
| | 20,204 |
| | 19,098 |
|
| (Provision for) Benefit from income taxes | | (210 | ) | | 1,952 |
| | 1,506 |
|
| Net income attributable to noncontrolling interests | (20,562 | ) | | (13,284 | ) | | (10,299 | ) | (11,432 | ) | | (20,562 | ) | | (13,284 | ) |
| Net income (loss) attributable to CPA:18 – Global | $ | 96,728 |
| | $ | 26,533 |
| | $ | (30,084 | ) | |
| Net income attributable to CPA:18 – Global | | $ | 32,572 |
| | $ | 96,728 |
| | $ | 26,533 |
|
CPA:18 – Global 20182019 10-K – 111102
Notes to Consolidated Financial Statements
| | | | Total Assets at December 31, | Total Assets at December 31, |
| | 2018 | | 2017 | 2019 | | 2018 |
Net Lease | $ | 1,461,385 |
| | $ | 1,572,437 |
| $ | 1,517,659 |
| | $ | 1,461,385 |
|
| Self Storage | 386,682 |
| | 398,944 |
| 369,883 |
| | 386,682 |
|
| Multi-Family | 313,925 |
| | 256,875 |
| |
Other Operating Properties (a) | | 213,692 |
| | 313,925 |
|
| Corporate | 78,099 |
| | 35,812 |
| 105,407 |
| | 78,099 |
|
| All Other | 64,462 |
| | 66,929 |
| 28,162 |
| | 64,462 |
|
| Total Company | $ | 2,304,553 |
| | $ | 2,330,997 |
| $ | 2,234,803 |
| | $ | 2,304,553 |
|
__________
| |
| (a) | In April 2017, the Croatian government passedOn December 20, 2019, we executed a special law assisting the restructuringFramework Agreement with a third party to enter into 11 net lease agreements for our student housing properties located in Spain and Portugal for 25 years upon completion of companies considered to have systemic significance in Croatia. This law directly impacts our Agrokor tenant, which is currently experiencing financial distress and received a credit downgrade from both Standard & Poor’s and Moody’s.construction. As a result of these financial difficultiesthis transaction, we reclassified $30.8 million relating to the student housing property placed into service during the third quarter of 2019 from our Other Operating Properties business segment to our Net Lease business segment (Note 4). Additionally, we reclassified $160.6 million relating to the remaining ten student housing projects under construction and uncertainty regarding future rent collections fromare scheduled for completion throughout 2020 and 2021. |
| |
| (b) | For the tenant,years ended December 31, 2018, and 2017 we recorded bad debt expense of $5.2 million and $2.9 million, forrespectively, which is included in Property expenses in the yearsconsolidated statements of income as a result of financial difficulties and uncertainty regarding future rent collections from our tenant Fortenova. As part of our adoption of ASU 2016-02 in the first quarter of 2019, any lease payments that were not determined to be probable of collection were recognized within lease revenues (Note 2). In addition, we restructured the lease with the tenant during the year ended December 31, 2018 and 2017, respectively. In July 2018,2019, under which, the creditors of Agrokor reached a settlement plan to attempt to restructure the company, but as of the date of this Report, we are unable to assess the potential impact of that plantenant was current on this investment.rent. |
| |
(b)(c) | As a result of the financial difficulties and uncertainty regarding future rent collections from a tenant in Stavanger, Norway, we recorded bad debt expense of $1.2 million for the year ended December 31, 2017. During the year ended December 31, 2019 and 2018, no bad debt expense was recorded as the tenant was current on rent under the amended lease. |
| |
(c)(d) | The year ended December 31, 2018 includes a gain on insurance proceeds of $16.6 million (inclusive of a tax benefit of $3.5 million) as a result of a settlement agreement with our political risk insurer regarding the Ghana Joint Venture (Note 4), as well as $5.6 million of insurance proceeds regarding a property that was damaged by a tornado in 2017. |
| |
(d) | Includes acquisition expenses incurred in connection with self-storage transactions. We expensed acquisition-related costs and fees totaling $4.9 million for the year ended December 31, 2016. We adopted ASU 2017-01 as of January 1, 2017 (Note 2), and no acquisitions were deemed business combinations for the years ended December 31, 2018 and 2017. |
| |
| (e) | Includes Equity in losses of equity method investment in real estate. |
| |
| (f) | Includes acquisition expenses incurredIncluded in connection withthe all other category are our notes receivable transactions ininvestments, one of which was repaid during the All Other category. We expensed acquisition-related costs and fees totaling $2.0 million for the year ended December 31, 2016. There were no acquisition expenses incurred for the years ended December 31, 2018 and 2017 related to notes receivable transactionssecond quarter of 2019 (Note 5). |
| |
| (g) | Included in unallocated corporate overhead are expenses and other gains and (losses) that are calculated and reported at the portfolio level and not evaluated as part of any segment’s operating performance. Such items include asset management fees, general and administrative expenses, and gains and losses on foreign currency transactions and derivative instruments. Asset management fees totaled $11.5 million, $12.1 million, and $11.3 million for the years ended December 31, 2019, 2018, and 2017, respectively (Note 3). |
CPA:18 – Global 20182019 10-K – 112103
Notes to Consolidated Financial Statements
Our portfolio is comprised of domestic and international investments. Equity investments in real estate, which is included within our Self Storage business segment, are entirely international and totaled $14.9 million and $18.8 million as of December 31, 2019 and 2018, respectively. The following tables present the geographic information (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of and for the Year Ended December 31, 2018 |
| | Domestic | | International | | |
| | Texas | | Florida | | Other Domestic | | Total | | Norway | | Other International (a) | | Total | | Total |
| Revenues | $ | 24,681 |
| | $ | 29,136 |
| | $ | 81,059 |
| | $ | 134,876 |
| | $ | 17,725 |
| | $ | 64,115 |
| | $ | 81,840 |
| | $ | 216,716 |
|
| Operating expenses | (14,226 | ) | | (17,476 | ) | | (61,837 | ) | | (93,539 | ) | | (9,894 | ) | | (43,585 | ) | | (53,479 | ) | | (147,018 | ) |
| Gain on sale of real estate, net | 5,162 |
| | 18,658 |
| | 34,290 |
| | 58,110 |
| | — |
| | 20,547 |
| | 20,547 |
| | 78,657 |
|
| Interest expense | (7,565 | ) | | (7,477 | ) | | (20,564 | ) | | (35,606 | ) | | (7,384 | ) | | (10,231 | ) | | (17,615 | ) | | (53,221 | ) |
Other income and (expenses), excluding interest expense and gain on sale of real estate, net (b) | 47 |
| | (1,160 | ) | | 13,472 |
| | 12,359 |
| | (3,474 | ) | | 11,319 |
| | 7,845 |
| | 20,204 |
|
| Benefit from income taxes | (120 | ) | | (100 | ) | | (147 | ) | | (367 | ) | | 1,614 |
| | 705 |
| | 2,319 |
| | 1,952 |
|
| Net income attributable to noncontrolling interests | (811 | ) | | (2,475 | ) | | (15,468 | ) | | (18,754 | ) | | (21 | ) | | (1,787 | ) | | (1,808 | ) | | (20,562 | ) |
| Net income attributable to CPA:18 – Global | 7,168 |
| | 19,106 |
| | 30,805 |
| | 57,079 |
| | (1,434 | ) | | 41,083 |
| | 39,649 |
| | 96,728 |
|
| Long-lived assets | 215,330 |
| | 167,944 |
| | 515,965 |
| | 899,239 |
| | 204,902 |
| | 832,095 |
| | 1,036,997 |
| | 1,936,236 |
|
| Equity investment in real estate | — |
| | — |
| | — |
| | — |
| | — |
| | 18,764 |
| | 18,764 |
| | 18,764 |
|
| Non-recourse debt and bonds payable | 149,132 |
| | 137,802 |
| | 394,603 |
| | 681,537 |
| | 139,146 |
| | 416,744 |
| | 555,890 |
| | 1,237,427 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of and for the Year Ended December 31, 2017 |
| | Domestic | | International | | |
| | Texas | | Florida | | Other Domestic | | Total | | Norway | | Other International (a) | | Total | | Total |
| Revenues | $ | 25,166 |
| | $ | 29,263 |
| | $ | 81,830 |
| | $ | 136,259 |
| | $ | 17,600 |
| | $ | 51,775 |
| | $ | 69,375 |
| | $ | 205,634 |
|
| Operating expenses | (16,984 | ) | | (19,793 | ) | | (69,008 | ) | | (105,785 | ) | | (10,749 | ) | | (35,102 | ) | | (45,851 | ) | | (151,636 | ) |
| Gain on sale of real estate, net | — |
| | — |
| | — |
| | — |
| | — |
| | 14,209 |
| | 14,209 |
| | 14,209 |
|
| Interest expense | (7,899 | ) | | (7,590 | ) | | (21,079 | ) | | (36,568 | ) | | (6,749 | ) | | (5,677 | ) | | (12,426 | ) | | (48,994 | ) |
Other income and (expenses), excluding interest expense and gain on sale of real estate, net (b) | (100 | ) | | (100 | ) | | 12,401 |
| | 12,201 |
| | (3,002 | ) | | 9,899 |
| | 6,897 |
| | 19,098 |
|
| Benefit from income taxes | (80 | ) | | (112 | ) | | (418 | ) | | (610 | ) | | 1,645 |
| | 471 |
| | 2,116 |
| | 1,506 |
|
| Net income attributable to noncontrolling interests | (824 | ) | | — |
| | (8,655 | ) | | (9,479 | ) | | 614 |
| | (4,419 | ) | | (3,805 | ) | | (13,284 | ) |
| Net income attributable to CPA:18 – Global | (721 | ) | | 1,668 |
| | (4,929 | ) | | (3,982 | ) | | (641 | ) | | 31,156 |
| | 30,515 |
| | 26,533 |
|
| Long-lived assets | 240,918 |
| | 199,511 |
| | 599,646 |
| | 1,040,075 |
| | 223,702 |
| | 798,674 |
| | 1,022,376 |
| | 2,062,451 |
|
| Equity investment in real estate | — |
| | — |
| | — |
| | — |
| | — |
| | 20,919 |
| | 20,919 |
| | 20,919 |
|
| Non-recourse debt and bonds payable | 174,339 |
| | 163,026 |
| | 441,960 |
| | 779,325 |
| | 146,016 |
| | 350,107 |
| | 496,123 |
| | 1,275,448 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Year Ended December 31, 2016 |
| | Domestic | | International | | |
| | Texas | | Florida | | Other Domestic | | Total | | Norway | | Other International (a) | | Total | | Total |
| Revenues | $ | 25,147 |
| | $ | 27,090 |
| | $ | 72,287 |
| | $ | 124,524 |
| | $ | 17,245 |
| | $ | 42,554 |
| | $ | 59,799 |
| | $ | 184,323 |
|
| Operating expenses | (19,254 | ) | | (25,237 | ) | | (73,203 | ) | | (117,694 | ) | | (9,123 | ) | | (27,230 | ) | | (36,353 | ) | | (154,047 | ) |
| Loss on sale of real estate, net | — |
| | — |
| | — |
| | — |
| | — |
| | (63 | ) | | (63 | ) | | (63 | ) |
| Interest expense | (7,806 | ) | | (6,820 | ) | | (19,283 | ) | | (33,909 | ) | | (7,363 | ) | | (1,860 | ) | | (9,223 | ) | | (43,132 | ) |
Other income and (expenses), excluding interest expense and loss on sale of real estate, net (b) | — |
| | — |
| | 4,094 |
| | 4,094 |
| | (3,607 | ) | | (7,347 | ) | | (10,954 | ) | | (6,860 | ) |
| Provision for income taxes | (75 | ) | | (110 | ) | | (192 | ) | | (377 | ) | | 1,143 |
| | (772 | ) | | 371 |
| | (6 | ) |
| Net income attributable to noncontrolling interests | (786 | ) | | — |
| | (7,611 | ) | | (8,397 | ) | | (817 | ) | | (1,085 | ) | | (1,902 | ) | | (10,299 | ) |
| Net loss attributable to CPA:18 – Global | (2,774 | ) | | (5,077 | ) | | (23,908 | ) | | (31,759 | ) | | (2,522 | ) | | 4,197 |
| | 1,675 |
| | (30,084 | ) |
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| Revenues | | | | | |
| Florida | $ | 22,876 |
| | $ | 29,136 |
| | $ | 29,263 |
|
| Texas | 20,941 |
| | 24,681 |
| | 25,166 |
|
| All Other Domestic | 72,513 |
| | 81,059 |
| | 81,830 |
|
| Total Domestic | 116,330 |
| | 134,876 |
| | 136,259 |
|
| | | | | | |
Total International (a) | 81,109 |
| | 81,840 |
| | 69,375 |
|
| Total Company | $ | 197,439 |
| | $ | 216,716 |
| | $ | 205,634 |
|
___________
| |
| (a) | All years include operations in Norway, Croatia, the Netherlands, Poland, the United Kingdom, Germany, Mauritius, Slovakia, and Canada. The year ended December 31, 2019, includes operations in Spain. No international country or tenant individually comprised at least 10% of our total lease revenues for the years ended December 31, 2019, 2018, and 2017. |
|
| | | | | | | |
| | Years Ended December 31, |
| | 2019 | | 2018 |
Long-lived assets (a) | | | |
| Texas | $ | 246,421 |
| | $ | 215,330 |
|
| Florida | 140,631 |
| | 167,944 |
|
| All Other Domestic | 498,418 |
| | 515,965 |
|
| Total Domestic | 885,470 |
| | 899,239 |
|
| | | | |
| Norway | 197,091 |
| | 204,902 |
|
All Other International (b) | 864,159 |
| | 832,095 |
|
| Total International | 1,061,250 |
| | 1,036,997 |
|
| Total Company | $ | 1,946,720 |
| | $ | 1,936,236 |
|
___________
| |
| (a) | Consists of Net investments in real estate. |
| |
| (b) | Both years include operations in Croatia, the Netherlands, Poland, the United Kingdom, Germany, Mauritius, Slovakia, Canada, Spain, and Canada. |
| |
(b) | Includes Equity in losses of equity method investment in real estate.Portugal. |
CPA:18 – Global 20182019 10-K – 113104
Notes to Consolidated Financial Statements
Note 15. Selected Quarterly Financial Data (Unaudited)
(Dollars in thousands, except per share amounts)
|
| | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2018 | | June 30, 2018 | | September 30, 2018 | | December 31, 2018 |
| Revenues | $ | 54,435 |
| | $ | 55,403 |
| | $ | 55,157 |
| | $ | 51,721 |
|
| Expenses | 37,270 |
| | 37,119 |
| | 37,348 |
| | 35,281 |
|
Net income (a) (b) (c) | 12,318 |
| | 2,981 |
| | 55,487 |
| | 46,504 |
|
Net income attributable to noncontrolling interests (b) (c) | (1,991 | ) | | (3,315 | ) | | (10,003 | ) | | (5,253 | ) |
| Net income attributable to CPA:18 – Global | 10,327 |
| | (334 | ) | | 45,484 |
| | 41,251 |
|
| | | | | | | | |
| Class A Common Stock | | | | | | | |
Basic and diluted income per share (d) | $ | 0.07 |
| | $ | — |
| | $ | 0.31 |
| | $ | 0.29 |
|
| Basic and diluted weighted-average shares outstanding | 112,113,960 |
| | 113,010,970 |
| | 113,800,898 |
| | 114,647,003 |
|
| Distributions declared per share | $ | 0.1563 |
| | $ | 0.1563 |
| | $ | 0.1563 |
| | $ | 0.1563 |
|
| | | | | | | | |
| Class C Common Stock | | | | | | | |
Basic and diluted income per share (d) | $ | 0.07 |
| | $ | — |
| | $ | 0.31 |
| | $ | 0.28 |
|
| Basic and diluted weighted-average shares outstanding | 31,441,399 |
| | 31,593,597 |
| | 31,654,504 |
| | 31,742,535 |
|
| Distributions declared per share | $ | 0.1375 |
| | $ | 0.1378 |
| | $ | 0.1374 |
| | $ | 0.1376 |
|
|
| | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2019 | | June 30, 2019 | | September 30, 2019 | | December 31, 2019 |
| Revenues | $ | 50,294 |
| | $ | 49,027 |
| | $ | 49,091 |
| | $ | 49,027 |
|
| Expenses | 32,272 |
| | 34,021 |
| | 35,737 |
| | 30,479 |
|
Net income (a) | 19,673 |
| | 5,178 |
| | 10,464 |
| | 8,689 |
|
Net income attributable to noncontrolling interests (a) | (4,846 | ) | | (2,100 | ) | | (1,505 | ) | | (2,981 | ) |
| Net income attributable to CPA:18 – Global | 14,827 |
| | 3,078 |
| | 8,959 |
| | 5,708 |
|
| | | | | | | | |
| Class A Common Stock | | | | | | | |
Basic and diluted income per share (b) | $ | 0.10 |
| | $ | 0.02 |
| | $ | 0.06 |
| | $ | 0.04 |
|
| | | | | | | | |
| Class C Common Stock | | | | | | | |
Basic and diluted income per share (b) | $ | 0.10 |
| | $ | 0.02 |
| | $ | 0.06 |
| | $ | 0.04 |
|
|
| | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2017 | | June 30, 2017 | | September 30, 2017 | | December 31, 2017 |
| Revenues | $ | 48,480 |
| | $ | 50,973 |
| | $ | 53,201 |
| | $ | 52,980 |
|
| Expenses | 36,976 |
|
| 39,130 |
|
| 37,103 |
|
| 38,427 |
|
Net income (e) | 2,545 |
|
| 8,134 |
|
| 12,115 |
|
| 17,023 |
|
Net income attributable to noncontrolling interests (e) | (1,925 | ) |
| (2,350 | ) |
| (2,294 | ) |
| (6,715 | ) |
| Net income attributable to CPA:18 – Global | 620 |
| | 5,784 |
| | 9,821 |
| | 10,308 |
|
| | | | | | | | |
| Class A Common Stock | | | | | | | |
Basic and diluted earnings per share (d) | $ | 0.01 |
| | $ | 0.04 |
| | $ | 0.07 |
| | $ | 0.07 |
|
| Basic and diluted weighted-average shares outstanding | 108,457,137 |
| | 109,553,769 |
| | 110,507,579 |
| | 111,233,869 |
|
| Distributions declared per share | $ | 0.1563 |
| | $ | 0.1563 |
| | $ | 0.1563 |
| | $ | 0.1563 |
|
| | | | | | | | |
| Class C Common Stock | | | | | | | |
Basic and diluted earnings per share (d) | $ | — |
| | $ | 0.04 |
| | $ | 0.07 |
| | $ | 0.07 |
|
| Basic and diluted weighted-average shares outstanding | 30,764,145 |
| | 31,030,596 |
| | 31,322,341 |
| | 31,428,744 |
|
| Distributions declared per share | $ | 0.1380 |
| | $ | 0.1382 |
| | $ | 0.1384 |
| | $ | 0.1380 |
|
|
| | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2018 | | June 30, 2018 | | September 30, 2018 | | December 31, 2018 |
| Revenues | $ | 54,435 |
| | $ | 55,403 |
| | $ | 55,157 |
| | $ | 51,721 |
|
| Expenses | 37,270 |
|
| 37,119 |
|
| 37,348 |
|
| 35,281 |
|
Net income (c) (d) (e) | 12,318 |
|
| 2,981 |
|
| 55,487 |
|
| 46,504 |
|
Net income attributable to noncontrolling interests (d) (e) | (1,991 | ) |
| (3,315 | ) |
| (10,003 | ) |
| (5,253 | ) |
| Net income (loss) attributable to CPA:18 – Global | 10,327 |
| | (334 | ) | | 45,484 |
| | 41,251 |
|
| | | | | | | | |
| Class A Common Stock | | | | | | | |
Basic and diluted earnings per share (b) | $ | 0.07 |
| | $ | — |
| | $ | 0.31 |
| | $ | 0.29 |
|
| | | | | | | | |
| Class C Common Stock | | | | | | | |
Basic and diluted earnings per share (b) | $ | 0.07 |
| | $ | — |
| | $ | 0.31 |
| | $ | 0.28 |
|
__________
| |
| (a) | Amount for the three months ended March 31, 2019 includes gains on sale of $15.4 million (which includes a $2.9 million gain attributable to noncontrolling interests) and $1.2 million relating to the dispositions of our last multi-family residential property, and a retail building included in our Truffle portfolio. Amount for the three months ended June 30, 2019 includes a gain on sale of $0.7 million relating to the dispositions of two additional properties located in our Truffle portfolio. Amount for the three months ended September 30, 2019 includes a gain on sale of $8.4 million relating to the remaining eight properties in our Truffle portfolio (Note 13). |
| |
| (b) | The sum of the quarterly Income per share does not agree to the annual earnings per share for 2019 and 2018 due to the issuances of our common stock that occurred during such periods. |
| |
| (c) | Amounts for the three months ended March 31, 2018, June 30, 2018, and December 31, 2018 include gains on insurance proceeds for $4.4 million, $0.9 million, and $0.3 million, respectively, recognized for a property that was damaged by a tornado in 2017. |
| |
(b)(d) | Amount for the three months ended September 30, 2018 includes gain on sale of $52.2 million recognized on the disposition of four domestic multi-family residential properties, inclusive of the gains on sale of $8.1 million attributable to noncontrolling interests (Note 13). |
CPA:18 – Global 2018 10-K– 114
Notes to Consolidated Financial Statements
| |
(c)(e) | Amount for the three months ended December 31, 2018 includes a gain on sale of real estate relating to the dispositions of an office building located in Utrecht, the Netherlands and a domestic multi-family residential property located in San Antonio, Texas of $20.5 million (inclusive of a tax benefit of $2.0 million) and $5.2 million (which includes $0.2 million gain attributable to noncontrolling interests), respectively. Additionally, there was a $16.6 million (inclusive of a tax benefit and gain attributable to noncontrolling interests of $3.5 million and $2.3 million, respectively) gain on insurance proceeds for the settlement with our insurer relating to an investment located in Accra, Ghana (Note 13). |
| |
(d) | The sum of the quarterly Income per share does not agree to the annual Income per share for 2018 and 2017 due to the issuances of our common stock that occurred during such periods. |
| |
(e) | Amount for the three months ended December 31, 2017 includes a gain on sale of $14.2 million (inclusive of a $3.6 million gain attributable to noncontrolling interests) recognized on the disposition of the student housing property located in Reading, United Kingdom (Note 13). |
Note 16. Subsequent Event
On January 29, 2019, we sold the 97% interest that we held in our last multi-family residential property, which was located in Fort Walton Beach, Florida, to a third party for $39.8 million. This property was classified as held for sale at December 31, 2018. The $24.3 million non-recourse mortgage loan that encumbered this property was assumed by the buyer on the date of the sale.
CPA:18 – Global 20182019 10-K – 115105
CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2019, 2018, 2017, and 20162017
(in thousands)
| | | Description | | Balance at Beginning of Year | | Other Additions | | Deductions (a) | | Balance at End of Year | | Balance at Beginning of Year | | Other Additions | | Deductions | | Balance at End of Year |
| Year Ended December 31, 2019 | | | | | | | | | |
| Valuation reserve for deferred tax assets | | | $ | 9,213 |
| | $ | 8,879 |
| | $ | (536 | ) | | $ | 17,556 |
|
Allowance for uncollectible accounts (a) | | | 9,781 |
| | — |
| | (9,781 | ) | | — |
|
| | | | | | | | | | |
| Year Ended December 31, 2018 | | | | | | | | | | | | | | | | |
| Valuation reserve for deferred tax assets | | $ | 13,593 |
| | $ | 3,090 |
| | $ | (7,470 | ) | | $ | 9,213 |
| | $ | 13,593 |
| | $ | 3,090 |
| | $ | (7,470 | ) | | $ | 9,213 |
|
| Allowance for uncollectible accounts | | 4,399 |
| | 5,383 |
| | (1 | ) | | 9,781 |
| | 4,399 |
| | 5,383 |
| | (1 | ) | | 9,781 |
|
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2017 | | | | | | | | | | | | | | | | |
| Valuation reserve for deferred tax assets | | $ | 12,817 |
| | $ | 3,566 |
| | $ | (2,790 | ) | | $ | 13,593 |
| | $ | 12,817 |
| | $ | 3,566 |
| | $ | (2,790 | ) | | $ | 13,593 |
|
| Allowance for uncollectible accounts | | 4 |
| | 4,398 |
| | (3 | ) | | 4,399 |
| | 4 |
| | 4,398 |
| | (3 | ) | | 4,399 |
|
| | | | | | | | | | |
| Year Ended December 31, 2016 | | | | | | | | | |
| Valuation reserve for deferred tax assets | | $ | 10,196 |
| | $ | 2,987 |
| | $ | (366 | ) | | $ | 12,817 |
| |
| Allowance for uncollectible accounts | | 1 |
| | 3 |
| | — |
| | 4 |
| |
___________
| |
| (a) | DuringIn accordance with the year ended December 31, 2018,adoption of ASU 2016-02 during the valuation reserve for deferred taxes decreased by $3.9 million as a resultfirst quarter of the sale of an office building located in Utrecht, the Netherlands2019, any amounts deemed uncollectible are now recorded within lease revenues (Note 132). |
CPA:18 – Global 20182019 10-K – 116106
CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 20182019
(in thousands)
| | | | | | | Initial Cost to Company | | Cost Capitalized
Subsequent to Acquisition (a) | | Increase
(Decrease)
in Net Investments (b) | | Gross Amount at which Carried at Close of Period (c) (d) | | Accumulated Depreciation (d) | | Date of Construction | | Date Acquired | | Life on which
Depreciation in Latest
Statement of
Income is Computed | | | | Initial Cost to Company | | Cost Capitalized
Subsequent to Acquisition (a) | | Increase
(Decrease)
in Net Investments (b) | | Gross Amount at which Carried at Close of Period (c) (d) | | Accumulated Depreciation (d) | | Date of Construction | | Date Acquired | | Life on which
Depreciation in Latest
Statement of
Income is Computed |
| Description | | Encumbrances | | Land | | Buildings | | Land | | Buildings | | Total | | | Encumbrances | | Land | | Buildings | | Land | | Buildings | | Total | |
| Real Estate Under Operating Leases | Real Estate Under Operating Leases | | | | | | | | | | | | | | | | | | Real Estate Under Operating Leases | | | | | | | | | | | | | | | | | |
| Office facility in Austin, TX | | $ | 72,697 |
| | $ | 29,215 |
| | $ | 67,993 |
| | $ | — |
| | $ | — |
| | $ | 29,215 |
| | $ | 67,993 |
| | $ | 97,208 |
| | $ | 11,319 |
| | 1993 | | Aug. 2013 | | 40 yrs. | | $ | 72,719 |
| | $ | 29,215 |
| | $ | 67,993 |
| | $ | — |
| | $ | — |
| | $ | 29,215 |
| | $ | 67,993 |
| | $ | 97,208 |
| | $ | 13,427 |
| | 1993 | | Aug. 2013 | | 40 yrs. |
| Retail facility in Zagreb, Croatia | | 6,521 |
| | — |
| | 10,828 |
| | — |
| | (1,791 | ) | | — |
| | 9,037 |
| | 9,037 |
| | 1,341 |
| | 2005 | | Dec. 2013 | | 34 yrs. | | 5,808 |
| | — |
| | 10,828 |
| | — |
| | (1,962 | ) | | — |
| | 8,866 |
| | 8,866 |
| | 1,576 |
| | 2005 | | Dec. 2013 | | 34 yrs. |
| Retail facility in Zagreb, Croatia | | 6,456 |
| | — |
| | 10,576 |
| | — |
| | (1,823 | ) | | — |
| | 8,753 |
| | 8,753 |
| | 1,226 |
| | 2006 | | Dec. 2013 | | 36 yrs. | | 5,750 |
| | — |
| | 10,576 |
| | — |
| | (1,988 | ) | | — |
| | 8,588 |
| | 8,588 |
| | 1,442 |
| | 2006 | | Dec. 2013 | | 36 yrs. |
| Retail facility in Zagreb, Croatia | | 6,333 |
| | 2,264 |
| | 10,676 |
| | — |
| | (2,219 | ) | | 1,884 |
| | 8,837 |
| | 10,721 |
| | 1,354 |
| | 2006 | | Dec. 2013 | | 34 yrs. | | 5,640 |
| | 2,264 |
| | 10,676 |
| | — |
| | (2,422 | ) | | 1,848 |
| | 8,670 |
| | 10,518 |
| | 1,591 |
| | 2006 | | Dec. 2013 | | 34 yrs. |
| Retail facility in Zadar, Croatia | | 7,118 |
| | 4,320 |
| | 10,536 |
| | — |
| | (2,547 | ) | | 3,594 |
| | 8,715 |
| | 12,309 |
| | 1,446 |
| | 2007 | | Dec. 2013 | | 33 yrs. | | 6,339 |
| | 4,320 |
| | 10,536 |
| | 748 |
| | (2,775 | ) | | 3,526 |
| | 9,303 |
| | 12,829 |
| | 1,700 |
| | 2007 | | Dec. 2013 | | 33 yrs. |
| Retail facility in Split, Croatia | | 2,895 |
| | — |
| | 3,161 |
| | — |
| | (552 | ) | | — |
| | 2,609 |
| | 2,609 |
| | 488 |
| | 2001 | | Dec. 2013 | | 27 yrs. | | 2,578 |
| | — |
| | 3,161 |
| | — |
| | (601 | ) | | — |
| | 2,560 |
| | 2,560 |
| | 573 |
| | 2001 | | Dec. 2013 | | 27 yrs. |
| Industrial facility in Streetsboro, OH | | 2,929 |
| | 1,163 |
| | 3,393 |
| | 1,585 |
| | (535 | ) | | 1,163 |
| | 4,443 |
| | 5,606 |
| | 1,172 |
| | 1993 | | Jan. 2014 | | 21 yrs. | | 2,852 |
| | 1,163 |
| | 3,393 |
| | 1,585 |
| | (535 | ) | | 1,163 |
| | 4,443 |
| | 5,606 |
| | 1,418 |
| | 1993 | | Jan. 2014 | | 21 yrs. |
| Warehouse facility in University Park, IL | | 47,179 |
| | 13,748 |
| | 52,135 |
| | — |
| | — |
| | 13,748 |
| | 52,135 |
| | 65,883 |
| | 9,397 |
| | 2003 | | Feb. 2014 | | 34 - 36 yrs. | | 47,193 |
| | 13,748 |
| | 52,135 |
| | — |
| | — |
| | 13,748 |
| | 52,135 |
| | 65,883 |
| | 11,307 |
| | 2003 | | Feb. 2014 | | 34 - 36 yrs. |
| Office facility in Norcross, GA | | 3,322 |
| | 1,044 |
| | 3,361 |
| | — |
| | — |
| | 1,044 |
| | 3,361 |
| | 4,405 |
| | 535 |
| | 1999 | | Feb. 2014 | | 40 yrs. | | 3,229 |
| | 1,044 |
| | 3,361 |
| | — |
| | — |
| | 1,044 |
| | 3,361 |
| | 4,405 |
| | 616 |
| | 1999 | | Feb. 2014 | | 40 yrs. |
| Office facility in Oslo, Norway | | 40,692 |
| | 14,362 |
| | 59,219 |
| | — |
| | (22,346 | ) | | 10,000 |
| | 41,235 |
| | 51,235 |
| | 5,015 |
| | 2013 | | Feb. 2014 | | 40 yrs. | | 41,175 |
| | 14,362 |
| | 59,219 |
| | — |
| | (22,881 | ) | | 9,896 |
| | 40,804 |
| | 50,700 |
| | 5,989 |
| | 2013 | | Feb. 2014 | | 40 yrs. |
| Office facility in Warsaw, Poland | | 60,555 |
| | — |
| | 112,676 |
| | — |
| | (18,875 | ) | | — |
| | 93,801 |
| | 93,801 |
| | 11,225 |
| | 2008 | | Mar. 2014 | | 40 yrs. | | 55,239 |
| | — |
| | 112,676 |
| | — |
| | (20,644 | ) | | — |
| | 92,032 |
| | 92,032 |
| | 13,331 |
| | 2008 | | Mar. 2014 | | 40 yrs. |
| Industrial facility in Columbus, GA | | 4,556 |
| | 448 |
| | 5,841 |
| | — |
| | — |
| | 448 |
| | 5,841 |
| | 6,289 |
| | 995 |
| | 1995 | | Apr. 2014 | | 30 yrs. | | 4,475 |
| | 448 |
| | 5,841 |
| | — |
| | — |
| | 448 |
| | 5,841 |
| | 6,289 |
| | 1,207 |
| | 1995 | | Apr. 2014 | | 30 yrs. |
| Office facility in Farmington Hills, MI | | 6,876 |
| | 2,251 |
| | 3,390 |
| | 672 |
| | 47 |
| | 2,251 |
| | 4,109 |
| | 6,360 |
| | 682 |
| | 2001 | | May. 2014 | | 40 yrs. | | 6,756 |
| | 2,251 |
| | 3,390 |
| | 672 |
| | 47 |
| | 2,251 |
| | 4,109 |
| | 6,360 |
| | 834 |
| | 2001 | | May 2014 | | 40 yrs. |
| Industrial facility in Surprise, AZ | | 2,163 |
| | 298 |
| | 2,347 |
| | 1,699 |
| | — |
| | 298 |
| | 4,046 |
| | 4,344 |
| | 580 |
| | 1998 | | May. 2014 | | 35 yrs. | | 2,109 |
| | 298 |
| | 2,347 |
| | 1,700 |
| | — |
| | 298 |
| | 4,047 |
| | 4,345 |
| | 714 |
| | 1998 | | May 2014 | | 35 yrs. |
| Industrial facility in Temple, GA | | 6,254 |
| | 381 |
| | 6,469 |
| | — |
| | — |
| | 381 |
| | 6,469 |
| | 6,850 |
| | 1,025 |
| | 2007 | | May. 2014 | | 33 yrs. | | 6,097 |
| | 381 |
| | 6,469 |
| | — |
| | — |
| | 381 |
| | 6,469 |
| | 6,850 |
| | 1,246 |
| | 2007 | | May 2014 | | 33 yrs. |
| Land in Houston, TX | | 1,139 |
| | 1,675 |
| | — |
| | — |
| | — |
| | 1,675 |
| | — |
| | 1,675 |
| | — |
| | N/A | | May. 2014 | | N/A | | 1,101 |
| | 1,675 |
| | — |
| | — |
| | — |
| | 1,675 |
| | — |
| | 1,675 |
| | — |
| | N/A | | May 2014 | | N/A |
| Land in Chicago, IL | | 1,617 |
| | 3,036 |
| | — |
| | — |
| | — |
| | 3,036 |
| | — |
| | 3,036 |
| | — |
| | N/A | | May. 2014 | | N/A | | 1,581 |
| | 3,036 |
| | — |
| | — |
| | — |
| | 3,036 |
| | — |
| | 3,036 |
| | — |
| | N/A | | May 2014 | | N/A |
| Warehouse facility in Jonesville, SC | | 27,939 |
| | 2,995 |
| | 14,644 |
| | 19,389 |
| | — |
| | 2,995 |
| | 34,033 |
| | 37,028 |
| | 5,603 |
| | 1997 | | Jun. 2014 | | 28 yrs. | | 27,987 |
| | 2,995 |
| | 14,644 |
| | 19,389 |
| | — |
| | 2,995 |
| | 34,033 |
| | 37,028 |
| | 6,902 |
| | 1997 | | Jun. 2014 | | 28 yrs. |
| Industrial facility in Ayr, United Kingdom | | 2,552 |
| | 1,150 |
| | 3,228 |
| | — |
| | (1,028 | ) | | 880 |
| | 2,470 |
| | 3,350 |
| | 572 |
| | 1950 | | Aug. 2014 | | 15 - 32 yrs. | |
| Industrial facility in Bathgate, United Kingdom | | 1,652 |
| | 627 |
| | 1,852 |
| | 355 |
| | (607 | ) | | 480 |
| | 1,747 |
| | 2,227 |
| | 319 |
| | 2009 | | Aug. 2014 | | 20 - 35 yrs. | |
| Industrial facility in Dundee, United Kingdom | | 1,602 |
| | 384 |
| | 2,305 |
| | — |
| | (631 | ) | | 294 |
| | 1,764 |
| | 2,058 |
| | 356 |
| | 2008 | | Aug. 2014 | | 22 yrs. | |
| Industrial facility in Dunfermline, United Kingdom | | 908 |
| | 294 |
| | 808 |
| | — |
| | (259 | ) | | 225 |
| | 618 |
| | 843 |
| | 172 |
| | 1990 | | Aug. 2014 | | 13 - 35 yrs. | |
| Industrial facility in Invergordon, United Kingdom | | 475 |
| | 261 |
| | 549 |
| | — |
| | (269 | ) | | 121 |
| | 420 |
| | 541 |
| | 87 |
| | 2006 | | Aug. 2014 | | 22 yrs. | |
| Industrial facility in Livingston, United Kingdom | | 2,019 |
| | 447 |
| | 3,015 |
| | — |
| | (813 | ) | | 342 |
| | 2,307 |
| | 2,649 |
| | 365 |
| | 2008 | | Aug. 2014 | | 29 yrs. | |
| Industrial facility in Livingston, United Kingdom | | 2,271 |
| | — |
| | 3,360 |
| | — |
| | (724 | ) | | — |
| | 2,636 |
| | 2,636 |
| | 490 |
| | 1997 | | Sep. 2014 | | 24 yrs. | |
| Office facility in Warstein, Germany | | | 10,440 |
| | 281 |
| | 15,671 |
| | — |
| | (1,827 | ) | | 249 |
| | 13,876 |
| | 14,125 |
| | 1,908 |
| | 2011 | | Sep. 2014 | | 40 yrs. |
| Warehouse facility in Albany, GA | | | 5,925 |
| | 1,141 |
| | 5,997 |
| | 4,690 |
| | — |
| | 1,141 |
| | 10,687 |
| | 11,828 |
| | 1,214 |
| | 1977 | | Oct. 2014 | | 14 yrs. |
| Office facility in Stavanger, Norway | | | 40,687 |
| | 8,276 |
| | 80,475 |
| | — |
| | (22,125 | ) | | 6,260 |
| | 60,366 |
| | 66,626 |
| | 7,901 |
| | 2012 | | Oct. 2014 | | 40 yrs. |
| Office facility in Eagan, MN | | | 9,678 |
| | 1,189 |
| | 11,279 |
| | — |
| | — |
| | 1,189 |
| | 11,279 |
| | 12,468 |
| | 1,559 |
| | 2013 | | Nov. 2014 | | 40 yrs. |
| Office facility in Plymouth, MN | | | 27,563 |
| | 3,990 |
| | 30,320 |
| | — |
| | — |
| | 3,990 |
| | 30,320 |
| | 34,310 |
| | 4,186 |
| | 1982 | | Nov. 2014 | | 40 yrs. |
| Industrial facility in Dallas, TX | | | 1,522 |
| | 512 |
| | 1,283 |
| | 2 |
| | — |
| | 512 |
| | 1,285 |
| | 1,797 |
| | 320 |
| | 1990 | | Nov. 2014 | | 26 yrs. |
| Industrial facility in Dallas, TX | | | 716 |
| | 509 |
| | 340 |
| | 2 |
| | — |
| | 509 |
| | 342 |
| | 851 |
| | 156 |
| | 1990 | | Nov. 2014 | | 20 yrs. |
CPA:18 – Global 20182019 10-K – 117107
SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
December 31, 20182019
(in thousands)
| | | | | | | Initial Cost to Company | | Cost Capitalized
Subsequent to Acquisition (a) | | Increase
(Decrease)
in Net Investments (b) | | Gross Amount at which Carried at Close of Period (c) (d) | | Accumulated Depreciation (d) | | Date of Construction | | Date Acquired | | Life on which
Depreciation in Latest
Statement of
Income is Computed | | | | Initial Cost to Company | | Cost Capitalized
Subsequent to Acquisition (a) | | Increase
(Decrease)
in Net Investments (b) | | Gross Amount at which Carried at Close of Period (c) (d) | | Accumulated Depreciation (d) | | Date of Construction | | Date Acquired | | Life on which
Depreciation in Latest
Statement of
Income is Computed |
| Description | | Encumbrances | | Land | | Buildings | | Land | | Buildings | | Total | | | Encumbrances | | Land | | Buildings | | Land | | Buildings | | Total | |
| Office facility in Warstein, Germany | | 11,189 |
| | 281 |
| | 15,671 |
| | — |
| | (1,555 | ) | | 254 |
| | 14,143 |
| | 14,397 |
| | 1,575 |
| | 2011 | | Sep. 2014 | | 40 yrs. | |
| Warehouse facility in Albany, GA | | 6,092 |
| | 1,141 |
| | 5,997 |
| | 4,690 |
| | — |
| | 1,141 |
| | 10,687 |
| | 11,828 |
| | 688 |
| | 1977 | | Oct. 2014 | | 14 yrs. | |
| Office facility in Stavanger, Norway | | 41,069 |
| | 8,276 |
| | 80,475 |
| | — |
| | (21,421 | ) | | 6,326 |
| | 61,004 |
| | 67,330 |
| | 6,444 |
| | 2012 | | Oct. 2014 | | 40 yrs. | |
| Office facility in Eagan, MN | | 9,665 |
| | 1,189 |
| | 11,279 |
| | — |
| | — |
| | 1,189 |
| | 11,279 |
| | 12,468 |
| | 1,257 |
| | 2013 | | Nov. 2014 | | 40 yrs. | |
| Office facility in Plymouth, MN | | 27,546 |
| | 3,990 |
| | 30,320 |
| | — |
| | — |
| | 3,990 |
| | 30,320 |
| | 34,310 |
| | 3,371 |
| | 1982 | | Nov. 2014 | | 40 yrs. | |
| Industrial facility in Dallas, TX | | 1,559 |
| | 512 |
| | 1,283 |
| | 2 |
| | — |
| | 512 |
| | 1,285 |
| | 1,797 |
| | 260 |
| | 1990 | | Nov. 2014 | | 26 yrs. | |
| Industrial facility in Dallas, TX | | 734 |
| | 509 |
| | 340 |
| | 2 |
| | — |
| | 509 |
| | 342 |
| | 851 |
| | 128 |
| | 1990 | | Nov. 2014 | | 20 yrs. | |
| Industrial facility in Dallas, TX | | 261 |
| | 128 |
| | 204 |
| | 2 |
| | — |
| | 128 |
| | 206 |
| | 334 |
| | 56 |
| | 1990 | | Nov. 2014 | | 21 yrs. | | 255 |
| | 128 |
| | 204 |
| | 2 |
| | — |
| | 128 |
| | 206 |
| | 334 |
| | 70 |
| | 1990 | | Nov. 2014 | | 21 yrs. |
| Industrial facility in Dallas, TX | | 1,130 |
| | 360 |
| | 1,120 |
| | 1 |
| | — |
| | 360 |
| | 1,121 |
| | 1,481 |
| | 195 |
| | 1990 | | Nov. 2014 | | 29 yrs. | | 1,103 |
| | 360 |
| | 1,120 |
| | 1 |
| | — |
| | 360 |
| | 1,121 |
| | 1,481 |
| | 243 |
| | 1990 | | Nov. 2014 | | 29 yrs. |
| Industrial facility in Fort Worth, TX | | 1,144 |
| | 809 |
| | 671 |
| | 1 |
| | — |
| | 809 |
| | 672 |
| | 1,481 |
| | 171 |
| | 2008 | | Nov. 2014 | | 30 yrs. | | 1,117 |
| | 809 |
| | 671 |
| | 1 |
| | — |
| | 809 |
| | 672 |
| | 1,481 |
| | 212 |
| | 2008 | | Nov. 2014 | | 30 yrs. |
| Industrial facility in Dunfermline, United Kingdom | | 4,296 |
| | 1,162 |
| | 5,631 |
| | 6 |
| | (1,247 | ) | | 949 |
| | 4,603 |
| | 5,552 |
| | 811 |
| | 2000 | | Nov. 2014 | | 23 - 31 yrs. | |
| Industrial facility in Durham, United Kingdom | | 1,392 |
| | 207 |
| | 2,108 |
| | — |
| | (425 | ) | | 169 |
| | 1,721 |
| | 1,890 |
| | 218 |
| | 1998 | | Nov. 2014 | | 35 yrs. | |
| Industrial and warehouse facility in Byron Center, MI | | 7,252 |
| | 625 |
| | 1,005 |
| | 9,515 |
| | — |
| | 625 |
| | 10,520 |
| | 11,145 |
| | 899 |
| | 2015 | | Nov. 2014 | | 40 yrs. | | 7,126 |
| | 625 |
| | 1,005 |
| | 9,515 |
| | — |
| | 625 |
| | 10,520 |
| | 11,145 |
| | 1,162 |
| | 2015 | | Nov. 2014 | | 40 yrs. |
| Office facility in Rotterdam, Netherlands | | 37,555 |
| | 2,247 |
| | 27,150 |
| | — |
| | (5,226 | ) | | 1,497 |
| | 22,674 |
| | 24,171 |
| | 2,316 |
| | 1960 | | Dec. 2014 | | 40 yrs. | | 36,507 |
| | 2,247 |
| | 27,150 |
| | — |
| | (5,682 | ) | | 1,468 |
| | 22,247 |
| | 23,715 |
| | 2,834 |
| | 1960 | | Dec. 2014 | | 40 yrs. |
| Office facility in Rotterdam, Netherlands | | — |
| | 2,246 |
| | 27,136 |
| | — |
| | 370 |
| | 2,625 |
| | 27,127 |
| | 29,752 |
| | 2,779 |
| | 1960 | | Dec. 2014 | | 40 yrs. | | — |
| | 2,246 |
| | 27,136 |
| | — |
| | (191 | ) | | 2,576 |
| | 26,615 |
| | 29,191 |
| | 3,401 |
| | 1960 | | Dec. 2014 | | 40 yrs. |
| Industrial facility in Edinburgh, United Kingdom | | 2,437 |
| | 938 |
| | 2,842 |
| | — |
| | (693 | ) | | 766 |
| | 2,321 |
| | 3,087 |
| | 304 |
| | 1985 | | Dec. 2014 | | 35 yrs. | |
| Hotel in Albion, Mauritius | | 27,400 |
| | 4,047 |
| | 54,927 |
| | 243 |
| | (3,545 | ) | | 3,808 |
| | 51,864 |
| | 55,672 |
| | 6,480 |
| | 2007 | | Dec. 2014 | | 40 yrs. | | 26,951 |
| | 4,047 |
| | 54,927 |
| | 243 |
| | (4,595 | ) | | 3,736 |
| | 50,886 |
| | 54,622 |
| | 7,826 |
| | 2007 | | Dec. 2014 | | 40 yrs. |
| Office facility in Eindhoven, Netherlands | | 54,094 |
| | 8,736 |
| | 14,493 |
| | 73,764 |
| | 2,981 |
| | 9,515 |
| | 90,459 |
| | 99,974 |
| | 3,692 |
| | 2017 | | Mar. 2015 | | 40 yrs. | | 53,222 |
| | 8,736 |
| | 14,493 |
| | 73,764 |
| | 1,095 |
| | 9,335 |
| | 88,753 |
| | 98,088 |
| | 5,828 |
| | 2017 | | Mar. 2015 | | 40 yrs. |
| Industrial facility in Aberdeen, United Kingdom | | 3,882 |
| | 1,560 |
| | 4,446 |
| | 142 |
| | (880 | ) | | 1,335 |
| | 3,933 |
| | 5,268 |
| | 407 |
| | 1990 | | Mar. 2015 | | 40 yrs. | |
| Warehouse facility in Freetown, MA | | 3,190 |
| | 1,149 |
| | 2,219 |
| | — |
| | — |
| | 1,149 |
| | 2,219 |
| | 3,368 |
| | 806 |
| | 2002 | | Apr. 2015 | | 28 yrs. | | 3,196 |
| | 1,149 |
| | 2,219 |
| | — |
| | — |
| | 1,149 |
| | 2,219 |
| | 3,368 |
| | 909 |
| | 2002 | | Apr. 2015 | | 28 yrs. |
| Office facility in Plano, TX | | 21,845 |
| | 3,180 |
| | 26,926 |
| | — |
| | — |
| | 3,180 |
| | 26,926 |
| | 30,106 |
| | 2,597 |
| | 2001 | | Apr. 2015 | | 40 yrs. | | 21,853 |
| | 3,180 |
| | 26,926 |
| | — |
| | — |
| | 3,180 |
| | 26,926 |
| | 30,106 |
| | 3,303 |
| | 2001 | | Apr. 2015 | | 40 yrs. |
| Hotel in Munich, Germany | | 47,050 |
| | 8,497 |
| | 41,883 |
| | 42,996 |
| | (5,019 | ) | | 10,275 |
| | 78,082 |
| | 88,357 |
| | 2,519 |
| | 2017 | | May. 2015 | | 40 yrs. | | 46,519 |
| | 8,497 |
| | 41,883 |
| | 42,982 |
| | (6,672 | ) | | 10,081 |
| | 76,609 |
| | 86,690 |
| | 4,387 |
| | 2017 | | May 2015 | | 40 yrs. |
| Warehouse facility in Plymouth, MN | | 10,435 |
| | 2,537 |
| | 9,731 |
| | 1,019 |
| | — |
| | 2,537 |
| | 10,750 |
| | 13,287 |
| | 1,479 |
| | 1975 | | May. 2015 | | 32 yrs. | | 10,445 |
| | 2,537 |
| | 9,731 |
| | 1,019 |
| | — |
| | 2,537 |
| | 10,750 |
| | 13,287 |
| | 1,900 |
| | 1975 | | May 2015 | | 32 yrs. |
| Retail facility in Oslo, Norway | | 57,253 |
| | 61,607 |
| | 34,183 |
| | 213 |
| | (12,680 | ) | | 53,451 |
| | 29,872 |
| | 83,323 |
| | 4,806 |
| | 1971 | | May. 2015 | | 30 yrs. | | 56,699 |
| | 61,607 |
| | 34,183 |
| | 270 |
| | (13,553 | ) | | 52,892 |
| | 29,615 |
| | 82,507 |
| | 6,089 |
| | 1971 | | May 2015 | | 30 yrs. |
| Hotel in Hamburg, Germany | | 17,165 |
| | 5,719 |
| | 1,530 |
| | 21,248 |
| | 65 |
| | 5,943 |
| | 22,619 |
| | 28,562 |
| | 851 |
| | 2017 | | Jun. 2015 | | 40 yrs. | | 16,878 |
| | 5,719 |
| | 1,530 |
| | 21,248 |
| | (474 | ) | | 5,831 |
| | 22,192 |
| | 28,023 |
| | 1,389 |
| | 2017 | | Jun. 2015 | | 40 yrs. |
| Office facility in Jacksonville, FL | | 10,560 |
| | 1,688 |
| | 10,081 |
| | — |
| | — |
| | 1,687 |
| | 10,082 |
| | 11,769 |
| | 998 |
| | 2001 | | Jul. 2015 | | 40 yrs. | | 10,574 |
| | 1,688 |
| | 10,081 |
| | — |
| | — |
| | 1,688 |
| | 10,081 |
| | 11,769 |
| | 1,285 |
| | 2001 | | Jul. 2015 | | 40 yrs. |
| Office facility in Warrenville, IL | | 22,554 |
| | 2,222 |
| | 25,449 |
| | 1,167 |
| | — |
| | 2,221 |
| | 26,617 |
| | 28,838 |
| | 2,515 |
| | 2001 | | Sep. 2015 | | 40 yrs. | | 22,572 |
| | 2,222 |
| | 25,449 |
| | 1,239 |
| | — |
| | 2,222 |
| | 26,688 |
| | 28,910 |
| | 3,324 |
| | 2001 | | Sep. 2015 | | 40 yrs. |
| Office facility in Coralville, IA | | 34,559 |
| | 1,937 |
| | 31,093 |
| | 5,047 |
| | — |
| | 1,936 |
| | 36,141 |
| | 38,077 |
| | 3,020 |
| | 2015 | | Oct. 2015 | | 40 yrs. | | 34,579 |
| | 1,937 |
| | 31,093 |
| | 5,048 |
| | — |
| | 1,937 |
| | 36,141 |
| | 38,078 |
| | 3,954 |
| | 2015 | | Oct. 2015 | | 40 yrs. |
| Industrial facility in Michalovce, Slovakia | | | 13,279 |
| | 1,055 |
| | 10,808 |
| | 13,611 |
| | (64 | ) | | 1,375 |
| | 24,035 |
| | 25,410 |
| | 2,396 |
| | 2006 | | Oct. 2015 | | 40 yrs. |
| Hotel in Stuttgart, Germany | | | 17,466 |
| | — |
| | 25,717 |
| | 1,175 |
| | 826 |
| | — |
| | 27,718 |
| | 27,718 |
| | 3,180 |
| | 1965 | | Dec. 2015 | | 35 yrs. |
| Warehouse facility in Iowa City, IA | | | 6,144 |
| | 913 |
| | 5,785 |
| | — |
| | — |
| | 913 |
| | 5,785 |
| | 6,698 |
| | 663 |
| | 2001 | | Mar. 2017 | | 28 yrs. |
| Residential facility in Barcelona, Spain | | | 13,951 |
| | 7,453 |
| | 3,574 |
| | 19,833 |
| | 381 |
| | 8,477 |
| | 22,764 |
| | 31,241 |
| | 450 |
| | 2019 | | Mar. 2018 | | 40 yrs. |
| | | | $ | 795,595 |
| | $ | 210,253 |
| | $ | 878,295 |
| | $ | 218,739 |
| | $ | (106,642 | ) | | $ | 196,693 |
| | $ | 1,003,952 |
| | $ | 1,200,645 |
| | $ | 135,922 |
| |
CPA:18 – Global 20182019 10-K – 118108
SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
December 31, 20182019
(in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Initial Cost to Company | | Cost Capitalized
Subsequent to Acquisition (a) | | Increase
(Decrease)
in Net Investments (b) | | Gross Amount at which Carried at Close of Period (c) (d) | | Accumulated Depreciation (d) | | Date of Construction | | Date Acquired | | Life on which
Depreciation in Latest
Statement of
Income is Computed |
| Description | | Encumbrances | | Land | | Buildings | | | | Land | | Buildings | | Total | | | | |
| Industrial facility in Michalovce, Slovakia | | 13,773 |
| | 1,055 |
| | 10,808 |
| | 13,612 |
| | 424 |
| | 1,402 |
| | 24,497 |
| | 25,899 |
| | 1,796 |
| | 2006 | | Oct. 2015 | | 40 yrs. |
| Hotel in Stuttgart, Germany | | 18,241 |
| | — |
| | 25,717 |
| | 1,170 |
| | 1,364 |
| | — |
| | 28,251 |
| | 28,251 |
| | 2,432 |
| | 1965 | | Dec. 2015 | | 35 yrs. |
| Warehouse facility in Iowa City, IA | | 6,130 |
| | 913 |
| | 5,785 |
| | — |
| | — |
| | 913 |
| | 5,785 |
| | 6,698 |
| | 427 |
| | 2001 | | Mar. 2017 | | 28 yrs. |
| | | $ | 820,172 |
| | $ | 209,830 |
| | $ | 904,865 |
| | $ | 198,540 |
| | $ | (102,459 | ) | | $ | 195,275 |
| | $ | 1,015,501 |
| | $ | 1,210,776 |
| | $ | 112,061 |
| | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Initial Cost to Company | | Cost Capitalized Subsequent to Acquisition (a) | | Increase (Decrease) in Net Investments (b) | | Gross Amount at which Carried at Close of Period Total | | Date of Construction | | Date Acquired |
| Description | | Encumbrances | | Land | | Buildings | | | | | |
| Direct Financing Method | | | | | | | | | | | | | | | | |
| Industrial facility in Columbus, GA | | $ | 2,601 |
| | $ | 488 |
| | $ | 2,947 |
| | $ | — |
| | $ | 875 |
| | $ | 4,310 |
| | 1965 | | Apr. 2014 |
| Industrial facility in Houston, TX | | 1,171 |
| | — |
| | 1,573 |
| | — |
| | 210 |
| | 1,783 |
| | 1973 | | May 2014 |
| Warehouse facility in Chicago, IL | | 5,915 |
| | — |
| | 8,564 |
| | 1,381 |
| | 1,418 |
| | 11,363 |
| | 1942 | | May 2014 |
| Industrial facility in Menomonee Falls, WI | | 13,339 |
| | 1,680 |
| | 22,104 |
| | — |
| | 814 |
| | 24,598 |
| | 1974 | | Dec. 2015 |
| | | $ | 23,026 |
| | $ | 2,168 |
| | $ | 35,188 |
| | $ | 1,381 |
| | $ | 3,317 |
| | $ | 42,054 |
| | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Initial Cost to Company | | Costs
Capitalized
Subsequent to
Acquisition (a) | | Increase
(Decrease)
in Net
Investments (b) | | Gross Amount at which Carried
at Close of Period (c) (d) | | | | | | | | Life on which
Depreciation
in Latest
Statement of
Income is
Computed |
| Description | | Encumbrances | | Land | | Buildings | | Personal Property | | | | Land | | Buildings | | Personal Property | | Total | | Accumulated Depreciation (d) | | Date of Construction | | Date Acquired | |
| Operating Real Estate – Residential Facilities | | | | | | | | | | | | | | | | | | | | | | | | |
| Cardiff, UK | | $ | 29,397 |
| | $ | 222 |
| | $ | 14,136 |
| | $ | — |
| | $ | 31,417 |
| | $ | 381 |
| | $ | 222 |
| | $ | 44,350 |
| | $ | 1,584 |
| | $ | 46,156 |
| | $ | 1,671 |
| | 2018 | | Jun. 2015 | | 40 yrs. |
| Portsmouth, UK | | 47,065 |
| | 8,096 |
| | 3,416 |
| | — |
| | 59,294 |
| | 669 |
| | 8,160 |
| | 61,012 |
| | 2,303 |
| | 71,475 |
| | 2,406 |
| | 2018 | | Dec. 2015 | | 40 yrs. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating Real Estate – Self-Storage Facilities | | | | | | | | | | | | | | | | | | | | | | | | |
| Kissimmee, FL | | 6,666 |
| | 3,306 |
| | 7,190 |
| | — |
| | 129 |
| | (18 | ) | | 3,306 |
| | 7,224 |
| | 77 |
| | 10,607 |
| | 1,275 |
| | 2005 | | Jan. 2014 | | 38 yrs. |
| St. Petersburg, FL | | 7,142 |
| | 3,258 |
| | 7,128 |
| | — |
| | 165 |
| | 4 |
| | 3,258 |
| | 7,252 |
| | 45 |
| | 10,555 |
| | 1,197 |
| | 2007 | | Jan. 2014 | | 40 yrs. |
| Corpus Christi, TX | | 2,706 |
| | 340 |
| | 3,428 |
| | — |
| | 285 |
| | 4 |
| | 340 |
| | 3,625 |
| | 92 |
| | 4,057 |
| | 858 |
| | 1998 | | Jul. 2014 | | 28 yrs. |
| Kailua-Kona, HI | | 3,744 |
| | 1,356 |
| | 3,699 |
| | — |
| | 303 |
| | 13 |
| | 1,356 |
| | 3,967 |
| | 48 |
| | 5,371 |
| | 796 |
| | 1991 | | Jul. 2014 | | 32 yrs. |
| Miami, FL | | 3,013 |
| | 1,915 |
| | 1,894 |
| | — |
| | 124 |
| | 7 |
| | 1,915 |
| | 1,996 |
| | 29 |
| | 3,940 |
| | 396 |
| | 1986 | | Aug. 2014 | | 33 yrs. |
| Palm Desert, CA | | 6,842 |
| | 669 |
| | 8,899 |
| | — |
| | 77 |
| | 4 |
| | 669 |
| | 8,941 |
| | 39 |
| | 9,649 |
| | 1,313 |
| | 2006 | | Aug. 2014 | | 40 yrs. |
| Columbia, SC | | 3,035 |
| | 1,065 |
| | 2,742 |
| | — |
| | 229 |
| | 15 |
| | 1,065 |
| | 2,874 |
| | 112 |
| | 4,051 |
| | 685 |
| | 1988 | | Sep. 2014 | | 27 - 30 yrs. |
| Kailua-Kona, HI | | 3,500 |
| | 2,263 |
| | 2,704 |
| | — |
| | 110 |
| | 4 |
| | 2,263 |
| | 2,754 |
| | 64 |
| | 5,081 |
| | 550 |
| | 2004 | | Oct. 2014 | | 32 yrs. |
| Pompano Beach, FL | | 3,002 |
| | 700 |
| | 3,436 |
| | — |
| | 768 |
| | 2 |
| | 700 |
| | 4,133 |
| | 73 |
| | 4,906 |
| | 911 |
| | 1992 | | Oct. 2014 | | 28 yrs. |
| Jensen Beach, FL | | 5,543 |
| | 1,596 |
| | 5,963 |
| | — |
| | 126 |
| | — |
| | 1,596 |
| | 6,023 |
| | 66 |
| | 7,685 |
| | 997 |
| | 1989 | | Nov. 2014 | | 37 yrs. |
| Dickinson, TX | | 6,414 |
| | 1,680 |
| | 7,165 |
| | — |
| | 166 |
| | 2 |
| | 1,680 |
| | 7,219 |
| | 114 |
| | 9,013 |
| | 1,303 |
| | 2001 | | Dec. 2014 | | 35 yrs. |
| Humble, TX | | 5,020 |
| | 341 |
| | 6,582 |
| | — |
| | 26 |
| | 3 |
| | 341 |
| | 6,586 |
| | 25 |
| | 6,952 |
| | 965 |
| | 2009 | | Dec. 2014 | | 39 yrs. |
| Temecula, CA | | 6,478 |
| | 449 |
| | 8,574 |
| | — |
| | 22 |
| | (6 | ) | | 449 |
| | 8,568 |
| | 22 |
| | 9,039 |
| | 1,277 |
| | 2006 | | Dec. 2014 | | 37 yrs. |
| Cumming, GA | | 2,842 |
| | 300 |
| | 3,531 |
| | — |
| | 101 |
| | — |
| | 300 |
| | 3,577 |
| | 55 |
| | 3,932 |
| | 813 |
| | 1994 | | Dec. 2014 | | 27 yrs. |
| Naples, FL | | 10,646 |
| | 3,073 |
| | 10,677 |
| | — |
| | 1,455 |
| | 19 |
| | 3,073 |
| | 12,005 |
| | 146 |
| | 15,224 |
| | 2,460 |
| | 1974 | | Jan. 2015 | | 31 yrs. |
| Valrico, FL | | 5,969 |
| | 695 |
| | 7,558 |
| | — |
| | 308 |
| | (200 | ) | | 695 |
| | 7,637 |
| | 29 |
| | 8,361 |
| | 941 |
| | 2009 | | Jan. 2015 | | 40 yrs. |
| Tallahassee, FL | | 4,887 |
| | 1,796 |
| | 4,782 |
| | — |
| | 132 |
| | 2 |
| | 1,796 |
| | 4,851 |
| | 65 |
| | 6,712 |
| | 825 |
| | 1999 | | Feb. 2015 | | 24 yrs. |
CPA:18 – Global 20182019 10-K – 119109
SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
December 31, 20182019
(in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Initial Cost to Company | | Cost Capitalized Subsequent to Acquisition (a) | | Increase (Decrease) in Net Investments (b) | | Gross Amount at which Carried at Close of Period Total | | Date of Construction | | Date Acquired |
| Description | | Encumbrances | | Land | | Buildings | | | | | |
| Direct Financing Method | | | | | | | | | | | | | | | | |
| Industrial facility in Columbus, GA | | $ | 2,648 |
| | $ | 488 |
| | $ | 2,947 |
| | $ | — |
| | $ | 996 |
| | $ | 4,431 |
| | 1965 | | Apr. 2014 |
| Industrial facility in Houston, TX | | 1,191 |
| | — |
| | 1,573 |
| | — |
| | 178 |
| | 1,751 |
| | 1973 | | May 2014 |
| Warehouse facility in Chicago, IL | | 6,004 |
| | — |
| | 8,564 |
| | 1,380 |
| | 1,329 |
| | 11,273 |
| | 1942 | | May 2014 |
| Industrial facility in Menomonee Falls, WI | | 13,621 |
| | 1,680 |
| | 22,104 |
| | — |
| | 506 |
| | 24,290 |
| | 1974 | | Dec. 2015 |
| | | $ | 23,464 |
| | $ | 2,168 |
| | $ | 35,188 |
| | $ | 1,380 |
| | $ | 3,009 |
| | $ | 41,745 |
| | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Initial Cost to Company | | Costs
Capitalized
Subsequent to
Acquisition (a) | | Increase
(Decrease)
in Net
Investments (b) | | Gross Amount at which Carried
at Close of Period (c) (d) | | | | | | | | Life on which
Depreciation
in Latest
Statement of
Income is
Computed |
| Description | | Encumbrances | | Land | | Buildings | | Personal Property | | | | Land | | Buildings | | Personal Property | | Total | | Accumulated Depreciation (d) | | Date of Construction | | Date Acquired | |
| Operating Real Estate – Multi-Family Facilities | | | | | | | | | | | | | | | | | | | | | | | | |
| Cardiff, UK | | $ | 28,869 |
| | $ | 222 |
| | $ | 14,136 |
| | $ | — |
| | $ | 30,381 |
| | $ | (1,015 | ) | | $ | 217 |
| | $ | 43,507 |
| | $ | — |
| | $ | 43,724 |
| | $ | 275 |
| | 2018 | | Jun. 2015 | | 40 yrs. |
| Portsmouth, UK | | 40,962 |
| | 8,096 |
| | 3,416 |
| | — |
| | 56,810 |
| | (1,503 | ) | | 7,910 |
| | 58,909 |
| | — |
| | 66,819 |
| | 421 |
| | 2018 | | Dec. 2015 | | 40 yrs. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating Real Estate – Self-Storage Facilities | | | | | | | | | | | | | | | | | | | | | | | | |
| Kissimmee, FL | | 6,765 |
| | 3,306 |
| | 7,190 |
| | — |
| | 103 |
| | 4 |
| | 3,306 |
| | 7,238 |
| | 59 |
| | 10,603 |
| | 1,077 |
| | 2005 | | Jan. 2014 | | 38 yrs. |
| St. Petersburg, FL | | 7,249 |
| | 3,258 |
| | 7,128 |
| | — |
| | 141 |
| | 4 |
| | 3,258 |
| | 7,252 |
| | 21 |
| | 10,531 |
| | 984 |
| | 2007 | | Jan. 2014 | | 40 yrs. |
| Corpus Christi, TX | | 2,710 |
| | 340 |
| | 3,428 |
| | — |
| | 218 |
| | 4 |
| | 340 |
| | 3,587 |
| | 63 |
| | 3,990 |
| | 686 |
| | 1998 | | Jul. 2014 | | 28 yrs. |
| Kailua-Kona, HI | | 3,750 |
| | 1,356 |
| | 3,699 |
| | — |
| | 269 |
| | 14 |
| | 1,356 |
| | 3,935 |
| | 47 |
| | 5,338 |
| | 637 |
| | 1991 | | Jul. 2014 | | 32 yrs. |
| Miami, FL | | 3,018 |
| | 1,915 |
| | 1,894 |
| | — |
| | 121 |
| | 7 |
| | 1,915 |
| | 1,996 |
| | 26 |
| | 3,937 |
| | 317 |
| | 1986 | | Aug. 2014 | | 33 yrs. |
| Palm Desert, CA | | 6,853 |
| | 669 |
| | 8,899 |
| | — |
| | 49 |
| | 4 |
| | 669 |
| | 8,914 |
| | 38 |
| | 9,621 |
| | 1,066 |
| | 2006 | | Aug. 2014 | | 40 yrs. |
| Columbia, SC | | 3,040 |
| | 1,065 |
| | 2,742 |
| | — |
| | 210 |
| | 15 |
| | 1,065 |
| | 2,874 |
| | 93 |
| | 4,032 |
| | 551 |
| | 1988 | | Sep. 2014 | | 27 - 30 yrs. |
| Kailua-Kona, HI | | 3,506 |
| | 2,263 |
| | 2,704 |
| | — |
| | 94 |
| | 4 |
| | 2,263 |
| | 2,744 |
| | 58 |
| | 5,065 |
| | 438 |
| | 2004 | | Oct. 2014 | | 32 yrs. |
| Pompano Beach, FL | | 2,997 |
| | 700 |
| | 3,436 |
| | — |
| | 671 |
| | 2 |
| | 700 |
| | 4,053 |
| | 56 |
| | 4,809 |
| | 720 |
| | 1992 | | Oct. 2014 | | 28 yrs. |
| Jensen Beach, FL | | 5,534 |
| | 1,596 |
| | 5,963 |
| | — |
| | 96 |
| | — |
| | 1,596 |
| | 6,004 |
| | 55 |
| | 7,655 |
| | 797 |
| | 1989 | | Nov. 2014 | | 37 yrs. |
| Dickinson, TX | | 6,409 |
| | 1,680 |
| | 7,165 |
| | — |
| | 130 |
| | 2 |
| | 1,680 |
| | 7,217 |
| | 80 |
| | 8,977 |
| | 1,038 |
| | 2001 | | Dec. 2014 | | 35 yrs. |
| Humble, TX | | 5,017 |
| | 341 |
| | 6,582 |
| | — |
| | 23 |
| | 3 |
| | 341 |
| | 6,586 |
| | 22 |
| | 6,949 |
| | 770 |
| | 2009 | | Dec. 2014 | | 39 yrs. |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Initial Cost to Company | | Costs
Capitalized
Subsequent to
Acquisition (a) | | Increase
(Decrease)
in Net
Investments (b) | | Gross Amount at which Carried
at Close of Period (c) (d) | | | | | | | | Life on which
Depreciation
in Latest
Statement of
Income is
Computed |
| Description | | Encumbrances | | Land | | Buildings | | Personal Property | | | | Land | | Buildings | | Personal Property | | Total | | Accumulated Depreciation (d) | | Date of Construction | | Date Acquired | |
| Sebastian, FL | | 1,917 |
| | 474 |
| | 2,031 |
| | — |
| | 286 |
| | — |
| | 474 |
| | 2,251 |
| | 66 |
| | 2,791 |
| | 647 |
| | 1986 | | Feb. 2015 | | 20 yrs. |
| Lady Lake, FL | | 3,919 |
| | 522 |
| | 4,809 |
| | — |
| | 234 |
| | — |
| | 522 |
| | 5,035 |
| | 8 |
| | 5,565 |
| | 698 |
| | 2010 | | Feb. 2015 | | 40 yrs. |
| Panama City Beach, FL | | 2,603 |
| | 706 |
| | 2,864 |
| | — |
| | 39 |
| | 5 |
| | 706 |
| | 2,877 |
| | 31 |
| | 3,614 |
| | 504 |
| | 1997 | | Mar. 2015 | | 36 yrs. |
| Hesperia, CA | | 5,943 |
| | 779 |
| | 5,504 |
| | — |
| | 119 |
| | — |
| | 779 |
| | 5,566 |
| | 57 |
| | 6,402 |
| | 1,277 |
| | 2004 | | Apr. 2015 | | 27 yrs. |
| Hesperia, CA | | 2,444 |
| | 335 |
| | 1,999 |
| | — |
| | 98 |
| | — |
| | 335 |
| | 2,088 |
| | 9 |
| | 2,432 |
| | 496 |
| | 2007 | | Apr. 2015 | | 28 yrs. |
| Hesperia, CA | | 3,579 |
| | 384 |
| | 3,042 |
| | — |
| | 108 |
| | — |
| | 384 |
| | 3,107 |
| | 43 |
| | 3,534 |
| | 923 |
| | 1985 | | Apr. 2015 | | 20 yrs. |
| Highland, CA | | 4,512 |
| | 1,056 |
| | 3,366 |
| | — |
| | 44 |
| | — |
| | 1,056 |
| | 3,400 |
| | 10 |
| | 4,466 |
| | 573 |
| | 2003 | | Apr. 2015 | | 36 yrs. |
| Lancaster, CA | | 4,482 |
| | 217 |
| | 4,355 |
| | — |
| | 77 |
| | — |
| | 217 |
| | 4,390 |
| | 42 |
| | 4,649 |
| | 795 |
| | 1989 | | Apr. 2015 | | 31 yrs. |
| Rialto, CA | | 6,578 |
| | 1,905 |
| | 3,642 |
| | — |
| | 65 |
| | — |
| | 1,905 |
| | 3,676 |
| | 31 |
| | 5,612 |
| | 718 |
| | 2007 | | Apr. 2015 | | 30 yrs. |
| Thousand Palms, CA | | 6,286 |
| | 1,115 |
| | 5,802 |
| | — |
| | 103 |
| | 2 |
| | 1,115 |
| | 5,876 |
| | 31 |
| | 7,022 |
| | 1,124 |
| | 2007 | | Apr. 2015 | | 31 yrs. |
| Louisville, KY | | 6,585 |
| | 2,973 |
| | 6,056 |
| | — |
| | 139 |
| | — |
| | 2,973 |
| | 6,129 |
| | 66 |
| | 9,168 |
| | 1,221 |
| | 1998 | | Apr. 2015 | | 32 yrs. |
| Lilburn, GA | | 2,328 |
| | 1,499 |
| | 1,658 |
| | — |
| | 106 |
| | — |
| | 1,499 |
| | 1,714 |
| | 50 |
| | 3,263 |
| | 651 |
| | 1998 | | Apr. 2015 | | 18 yrs. |
| Stockbridge GA | | 1,616 |
| | 170 |
| | 1,996 |
| | — |
| | 204 |
| | — |
| | 170 |
| | 2,153 |
| | 47 |
| | 2,370 |
| | 520 |
| | 2003 | | Apr. 2015 | | 34 yrs. |
| Crystal Lake, IL | | 2,623 |
| | 811 |
| | 2,723 |
| | — |
| | 73 |
| | — |
| | 811 |
| | 2,781 |
| | 15 |
| | 3,607 |
| | 630 |
| | 1977 | | May 2015 | | 24 yrs. |
| Las Vegas, NV | | 6,349 |
| | 450 |
| | 8,381 |
| | — |
| | 99 |
| | — |
| | 450 |
| | 8,431 |
| | 49 |
| | 8,930 |
| | 1,152 |
| | 1996 | | May 2015 | | 38 yrs. |
| Panama City Beach, FL | | 6,127 |
| | 347 |
| | 8,233 |
| | 5 |
| | 60 |
| | 1 |
| | 347 |
| | 8,254 |
| | 45 |
| | 8,646 |
| | 1,012 |
| | 2008 | | May 2015 | | 40 yrs. |
| Sarasota, FL | | 5,153 |
| | 835 |
| | 6,193 |
| | — |
| | 141 |
| | — |
| | 835 |
| | 6,310 |
| | 24 |
| | 7,169 |
| | 842 |
| | 2003 | | Jun. 2015 | | 40 yrs. |
| Sarasota, FL | | 3,767 |
| | 465 |
| | 4,576 |
| | — |
| | 89 |
| | — |
| | 465 |
| | 4,633 |
| | 32 |
| | 5,130 |
| | 605 |
| | 2001 | | Jun. 2015 | | 39 yrs. |
| St. Peters, MO | | 2,293 |
| | 199 |
| | 2,888 |
| | — |
| | 172 |
| | — |
| | 199 |
| | 2,986 |
| | 74 |
| | 3,259 |
| | 440 |
| | 1991 | | Jun. 2015 | | 35 yrs. |
| Leesburg, FL | | 2,383 |
| | 731 |
| | 2,480 |
| | — |
| | 72 |
| | — |
| | 731 |
| | 2,530 |
| | 22 |
| | 3,283 |
| | 607 |
| | 1988 | | Jul. 2015 | | 23 yrs. |
| Palm Bay, FL | | 7,082 |
| | 2,179 |
| | 7,367 |
| | — |
| | 159 |
| | — |
| | 2,179 |
| | 7,481 |
| | 45 |
| | 9,705 |
| | 1,242 |
| | 2000 | | Jul. 2015 | | 34 yrs. |
| Houston, TX | | 4,582 |
| | 1,067 |
| | 4,965 |
| | — |
| | 558 |
| | — |
| | 1,067 |
| | 5,513 |
| | 10 |
| | 6,590 |
| | 1,092 |
| | 1971 | | Aug. 2015 | | 27 yrs. |
| Ithaca, NY | | 2,266 |
| | 454 |
| | 2,211 |
| | — |
| | 30 |
| | — |
| | 454 |
| | 2,240 |
| | 1 |
| | 2,695 |
| | 449 |
| | 1988 | | Sep. 2015 | | 26 yrs. |
| Las Vegas, NV | | 2,330 |
| | 783 |
| | 2,417 |
| | — |
| | 302 |
| | — |
| | 783 |
| | 2,705 |
| | 14 |
| | 3,502 |
| | 759 |
| | 1984 | | Sep. 2015 | | 14 yrs. |
| Las Vegas, NV | | 2,201 |
| | 664 |
| | 2,762 |
| | 1 |
| | 585 |
| | — |
| | 664 |
| | 3,314 |
| | 34 |
| | 4,012 |
| | 840 |
| | 1987 | | Sep. 2015 | | 17 yrs. |
| Hudson, FL | | 3,222 |
| | 364 |
| | 4,188 |
| | — |
| | 20 |
| | — |
| | 364 |
| | 4,192 |
| | 16 |
| | 4,572 |
| | 518 |
| | 2008 | | Sep. 2015 | | 40 yrs. |
CPA:18 – Global 20182019 10-K – 120110
SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
December 31, 2018
(in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Initial Cost to Company | | Costs
Capitalized
Subsequent to
Acquisition (a) | | Increase
(Decrease)
in Net
Investments (b) | | Gross Amount at which Carried
at Close of Period (c) (d) | | | | | | | | Life on which
Depreciation
in Latest
Statement of
Income is
Computed |
| Description | | Encumbrances | | Land | | Buildings | | Personal Property | | | | Land | | Buildings | | Personal Property | | Total | | Accumulated Depreciation (d) | | Date of Construction | | Date Acquired | |
| Temecula, CA | | 6,474 |
| | 449 |
| | 8,574 |
| | — |
| | 20 |
| | (6 | ) | | 449 |
| | 8,567 |
| | 21 |
| | 9,037 |
| | 1,022 |
| | 2006 | | Dec. 2014 | | 37 yrs. |
| Cumming, GA | | 2,838 |
| | 300 |
| | 3,531 |
| | — |
| | 72 |
| | — |
| | 300 |
| | 3,577 |
| | 26 |
| | 3,903 |
| | 643 |
| | 1994 | | Dec. 2014 | | 27 yrs. |
| Naples, FL | | 10,629 |
| | 3,073 |
| | 10,677 |
| | — |
| | 1,423 |
| | 19 |
| | 3,073 |
| | 11,984 |
| | 135 |
| | 15,192 |
| | 1,930 |
| | 1974 | | Jan. 2015 | | 31 yrs. |
| Valrico, FL | | 5,960 |
| | 695 |
| | 7,558 |
| | — |
| | 27 |
| | (200 | ) | | 695 |
| | 7,358 |
| | 27 |
| | 8,080 |
| | 719 |
| | 2009 | | Jan. 2015 | | 40 yrs. |
| Tallahassee, FL | | 4,880 |
| | 1,796 |
| | 4,782 |
| | — |
| | 120 |
| | 2 |
| | 1,796 |
| | 4,847 |
| | 57 |
| | 6,700 |
| | 649 |
| | 1999 | | Feb. 2015 | | 24 yrs. |
| Sebastian, FL | | 1,909 |
| | 474 |
| | 2,031 |
| | — |
| | 123 |
| | — |
| | 474 |
| | 2,097 |
| | 57 |
| | 2,628 |
| | 505 |
| | 1986 | | Feb. 2015 | | 20 yrs. |
| Lady Lake, FL | | 3,912 |
| | 522 |
| | 4,809 |
| | — |
| | 169 |
| | — |
| | 522 |
| | 4,972 |
| | 6 |
| | 5,500 |
| | 549 |
| | 2010 | | Feb. 2015 | | 40 yrs. |
| Panama City Beach, FL | | 2,598 |
| | 706 |
| | 2,864 |
| | — |
| | 37 |
| | 5 |
| | 706 |
| | 2,877 |
| | 29 |
| | 3,612 |
| | 398 |
| | 1997 | | Mar. 2015 | | 36 yrs. |
| Hesperia, CA | | 5,920 |
| | 779 |
| | 5,504 |
| | — |
| | 112 |
| | — |
| | 779 |
| | 5,562 |
| | 54 |
| | 6,395 |
| | 1,001 |
| | 2004 | | Apr. 2015 | | 27 yrs. |
| Hesperia, CA | | 2,435 |
| | 335 |
| | 1,999 |
| | — |
| | 86 |
| | — |
| | 335 |
| | 2,079 |
| | 6 |
| | 2,420 |
| | 382 |
| | 2007 | | Apr. 2015 | | 28 yrs. |
| Hesperia, CA | | 3,566 |
| | 384 |
| | 3,042 |
| | — |
| | 105 |
| | — |
| | 384 |
| | 3,105 |
| | 42 |
| | 3,531 |
| | 724 |
| | 1985 | | Apr. 2015 | | 20 yrs. |
| Highland, CA | | 4,494 |
| | 1,056 |
| | 3,366 |
| | — |
| | 39 |
| | — |
| | 1,056 |
| | 3,400 |
| | 5 |
| | 4,461 |
| | 450 |
| | 2003 | | Apr. 2015 | | 36 yrs. |
| Lancaster, CA | | 4,464 |
| | 217 |
| | 4,355 |
| | — |
| | 64 |
| | — |
| | 217 |
| | 4,382 |
| | 37 |
| | 4,636 |
| | 624 |
| | 1989 | | Apr. 2015 | | 31 yrs. |
| Rialto, CA | | 6,552 |
| | 1,905 |
| | 3,642 |
| | — |
| | 58 |
| | — |
| | 1,905 |
| | 3,669 |
| | 31 |
| | 5,605 |
| | 562 |
| | 2007 | | Apr. 2015 | | 30 yrs. |
| Thousand Palms, CA | | 6,262 |
| | 1,115 |
| | 5,802 |
| | — |
| | 102 |
| | 2 |
| | 1,115 |
| | 5,876 |
| | 30 |
| | 7,021 |
| | 884 |
| | 2007 | | Apr. 2015 | | 31 yrs. |
| Louisville, KY | | 6,580 |
| | 2,973 |
| | 6,056 |
| | — |
| | 138 |
| | — |
| | 2,973 |
| | 6,129 |
| | 65 |
| | 9,167 |
| | 953 |
| | 1998 | | Apr. 2015 | | 32 yrs. |
| Lilburn, GA | | 2,326 |
| | 1,499 |
| | 1,658 |
| | — |
| | 92 |
| | — |
| | 1,499 |
| | 1,708 |
| | 42 |
| | 3,249 |
| | 510 |
| | 1998 | | Apr. 2015 | | 18 yrs. |
| Stockbridge GA | | 1,615 |
| | 170 |
| | 1,996 |
| | — |
| | 191 |
| | — |
| | 170 |
| | 2,146 |
| | 41 |
| | 2,357 |
| | 402 |
| | 2003 | | Apr. 2015 | | 34 yrs. |
| Crystal Lake, IL | | 2,622 |
| | 811 |
| | 2,723 |
| | — |
| | 49 |
| | — |
| | 811 |
| | 2,770 |
| | 2 |
| | 3,583 |
| | 508 |
| | 1977 | | May 2015 | | 24 yrs. |
| Las Vegas, NV | | 6,345 |
| | 450 |
| | 8,381 |
| | — |
| | 97 |
| | — |
| | 450 |
| | 8,431 |
| | 47 |
| | 8,928 |
| | 897 |
| | 1996 | | May 2015 | | 38 yrs. |
| Panama City Beach, FL | | 6,119 |
| | 347 |
| | 8,233 |
| | 5 |
| | 51 |
| | 1 |
| | 347 |
| | 8,254 |
| | 36 |
| | 8,637 |
| | 789 |
| | 2008 | | May 2015 | | 40 yrs. |
| Sarasota, FL | | 5,145 |
| | 835 |
| | 6,193 |
| | — |
| | 126 |
| | — |
| | 835 |
| | 6,308 |
| | 11 |
| | 7,154 |
| | 650 |
| | 2003 | | Jun. 2015 | | 40 yrs. |
| Sarasota, FL | | 3,761 |
| | 465 |
| | 4,576 |
| | — |
| | 82 |
| | — |
| | 465 |
| | 4,627 |
| | 31 |
| | 5,123 |
| | 470 |
| | 2001 | | Jun. 2015 | | 39 yrs. |
| St. Peters, MO | | 2,291 |
| | 199 |
| | 2,888 |
| | — |
| | 119 |
| | — |
| | 199 |
| | 2,953 |
| | 54 |
| | 3,206 |
| | 336 |
| | 1991 | | Jun. 2015 | | 35 yrs. |
| Leesburg, FL | | 2,380 |
| | 731 |
| | 2,480 |
| | — |
| | 51 |
| | — |
| | 731 |
| | 2,520 |
| | 11 |
| | 3,262 |
| | 468 |
| | 1988 | | Jul. 2015 | | 23 yrs. |
| Palm Bay, FL | | 7,070 |
| | 2,179 |
| | 7,367 |
| | — |
| | 47 |
| | — |
| | 2,179 |
| | 7,382 |
| | 32 |
| | 9,593 |
| | 958 |
| | 2000 | | Jul. 2015 | | 34 yrs. |
| Houston, TX | | 4,576 |
| | 1,067 |
| | 4,965 |
| | — |
| | 502 |
| | — |
| | 1,067 |
| | 5,464 |
| | 3 |
| | 6,534 |
| | 832 |
| | 1971 | | Aug. 2015 | | 27 yrs. |
| Ithaca, NY | | 2,261 |
| | 454 |
| | 2,211 |
| | — |
| | 30 |
| | — |
| | 454 |
| | 2,240 |
| | 1 |
| | 2,695 |
| | 343 |
| | 1988 | | Sep. 2015 | | 26 yrs. |
| Las Vegas, NV | | 2,328 |
| | 783 |
| | 2,417 |
| | — |
| | (131 | ) | | — |
| | 783 |
| | 2,284 |
| | 2 |
| | 3,069 |
| | 640 |
| | 1984 | | Sep. 2015 | | 14 yrs. |
| Las Vegas, NV | | 2,199 |
| | 664 |
| | 2,762 |
| | 1 |
| | 585 |
| | — |
| | 664 |
| | 3,314 |
| | 34 |
| | 4,012 |
| | 633 |
| | 1987 | | Sep. 2015 | | 17 yrs. |
| Hudson, FL | | 3,217 |
| | 364 |
| | 4,188 |
| | — |
| | 6 |
| | — |
| | 364 |
| | 4,192 |
| | 2 |
| | 4,558 |
| | 394 |
| | 2008 | | Sep. 2015 | | 40 yrs. |
CPA:18 – Global 2018 10-K– 121
SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
December 31, 20182019
(in thousands)
| | | | | | | Initial Cost to Company | | Costs
Capitalized
Subsequent to
Acquisition (a) | | Increase
(Decrease)
in Net
Investments (b) | | Gross Amount at which Carried
at Close of Period (c) (d) | | | | | | Life on which
Depreciation
in Latest
Statement of
Income is
Computed | | | | Initial Cost to Company | | Costs
Capitalized
Subsequent to
Acquisition (a) | | Increase
(Decrease)
in Net
Investments (b) | | Gross Amount at which Carried
at Close of Period (c) (d) | | | | | | Life on which
Depreciation
in Latest
Statement of
Income is
Computed |
| Description | | Encumbrances | | Land | | Buildings | | Personal Property | | Land | | Buildings | | Personal Property | | Total | | Accumulated Depreciation (d) | | Date of Construction | | Date Acquired | | | Encumbrances | | Land | | Buildings | | Personal Property | | Land | | Buildings | | Personal Property | | Total | | Accumulated Depreciation (d) | | Date of Construction | | Date Acquired | |
| Kissimmee, FL | | 5,561 |
| | 407 |
| | 8,027 |
| | — |
| | 65 |
| | — |
| | 407 |
| | 8,087 |
| | 5 |
| | 8,499 |
| | 680 |
| | 2015 | | Oct. 2015 | | 40 yrs. | | — |
| | 407 |
| | 8,027 |
| | — |
| | 81 |
| | — |
| | 407 |
| | 8,087 |
| | 21 |
| | 8,515 |
| | 895 |
| | 2015 | | Oct. 2015 | | 40 yrs. |
| El Paso, TX | | 3,685 |
| | 1,275 |
| | 3,339 |
| | — |
| | 59 |
| | — |
| | 1,275 |
| | 3,385 |
| | 13 |
| | 4,673 |
| | 363 |
| | 1983 | | Oct. 2015 | | 35 yrs. | | 3,689 |
| | 1,275 |
| | 3,339 |
| | — |
| | 124 |
| | — |
| | 1,275 |
| | 3,450 |
| | 13 |
| | 4,738 |
| | 482 |
| | 1983 | | Oct. 2015 | | 35 yrs. |
| El Paso, TX | | 2,529 |
| | 921 |
| | 2,764 |
| | — |
| | 1 |
| | — |
| | 921 |
| | 2,764 |
| | 1 |
| | 3,686 |
| | 319 |
| | 1980 | | Oct. 2015 | | 35 yrs. | | 2,532 |
| | 921 |
| | 2,764 |
| | — |
| | 1 |
| | — |
| | 921 |
| | 2,764 |
| | 1 |
| | 3,686 |
| | 417 |
| | 1980 | | Oct. 2015 | | 35 yrs. |
| El Paso, TX | | 3,593 |
| | 594 |
| | 4,154 |
| | — |
| | 16 |
| | — |
| | 594 |
| | 4,154 |
| | 16 |
| | 4,764 |
| | 422 |
| | 1980 | | Oct. 2015 | | 35 yrs. | | 3,597 |
| | 594 |
| | 4,154 |
| | — |
| | 16 |
| | — |
| | 594 |
| | 4,154 |
| | 16 |
| | 4,764 |
| | 555 |
| | 1980 | | Oct. 2015 | | 35 yrs. |
| El Paso, TX | | 3,610 |
| | 594 |
| | 3,867 |
| | — |
| | 121 |
| | — |
| | 594 |
| | 3,966 |
| | 22 |
| | 4,582 |
| | 420 |
| | 1986 | | Oct. 2015 | | 35 yrs. | | 3,614 |
| | 594 |
| | 3,867 |
| | — |
| | 121 |
| | — |
| | 594 |
| | 3,966 |
| | 22 |
| | 4,582 |
| | 554 |
| | 1986 | | Oct. 2015 | | 35 yrs. |
| El Paso, TX | | 1,421 |
| | 337 |
| | 2,024 |
| | — |
| | 13 |
| | — |
| | 337 |
| | 2,027 |
| | 10 |
| | 2,374 |
| | 213 |
| | 1985 | | Oct. 2015 | | 35 yrs. | | 1,423 |
| | 337 |
| | 2,024 |
| | — |
| | 44 |
| | — |
| | 337 |
| | 2,058 |
| | 10 |
| | 2,405 |
| | 281 |
| | 1985 | | Oct. 2015 | | 35 yrs. |
| El Paso, TX | | 3,699 |
| | 782 |
| | 3,825 |
| | — |
| | 32 |
| | — |
| | 782 |
| | 3,836 |
| | 21 |
| | 4,639 |
| | 512 |
| | 1980 | | Oct. 2015 | | 35 yrs. | | 3,703 |
| | 782 |
| | 3,825 |
| | — |
| | 32 |
| | — |
| | 782 |
| | 3,836 |
| | 21 |
| | 4,639 |
| | 674 |
| | 1980 | | Oct. 2015 | | 35 yrs. |
| Fernandina Beach, FL | | 7,218 |
| | 1,785 |
| | 7,133 |
| | — |
| | 39 |
| | — |
| | 1,785 |
| | 7,146 |
| | 26 |
| | 8,957 |
| | 728 |
| | 1986 | | Oct. 2015 | | 25 yrs. | | 7,228 |
| | 1,785 |
| | 7,133 |
| | — |
| | 124 |
| | — |
| | 1,785 |
| | 7,220 |
| | 37 |
| | 9,042 |
| | 959 |
| | 1986 | | Oct. 2015 | | 25 yrs. |
| Kissimmee, FL | | 3,422 |
| | 1,371 |
| | 3,020 |
| | 3 |
| | 50 |
| | — |
| | 1,371 |
| | 3,044 |
| | 29 |
| | 4,444 |
| | 480 |
| | 1981 | | Oct. 2015 | | 24 yrs. | | 3,427 |
| | 1,371 |
| | 3,020 |
| | 3 |
| | 110 |
| | — |
| | 1,371 |
| | 3,102 |
| | 31 |
| | 4,504 |
| | 632 |
| | 1981 | | Oct. 2015 | | 24 yrs. |
| Houston, TX | | 2,741 |
| | 817 |
| | 3,438 |
| | — |
| | 46 |
| | — |
| | 817 |
| | 3,461 |
| | 23 |
| | 4,301 |
| | 426 |
| | 1998 | | Oct. 2015 | | 30 yrs. | | 2,744 |
| | 817 |
| | 3,438 |
| | — |
| | 80 |
| | — |
| | 817 |
| | 3,473 |
| | 45 |
| | 4,335 |
| | 565 |
| | 1998 | | Oct. 2015 | | 30 yrs. |
| Houston, TX | | 2,939 |
| | 708 |
| | 3,778 |
| | — |
| | 92 |
| | — |
| | 708 |
| | 3,823 |
| | 47 |
| | 4,578 |
| | 481 |
| | 2001 | | Nov. 2015 | | 30 yrs. | | 2,943 |
| | 708 |
| | 3,778 |
| | — |
| | 119 |
| | — |
| | 708 |
| | 3,829 |
| | 68 |
| | 4,605 |
| | 639 |
| | 2001 | | Nov. 2015 | | 30 yrs. |
| Greensboro, NC | | 4,027 |
| | 716 |
| | 4,108 |
| | — |
| | 1,187 |
| | — |
| | 716 |
| | 5,266 |
| | 29 |
| | 6,011 |
| | 774 |
| | 1953 | | Dec. 2015 | | 20 yrs. | | 4,029 |
| | 716 |
| | 4,108 |
| | — |
| | 1,262 |
| | — |
| | 716 |
| | 5,339 |
| | 31 |
| | 6,086 |
| | 1,050 |
| | 1953 | | Dec. 2015 | | 20 yrs. |
| Portland, OR | | 6,333 |
| | 897 |
| | 8,831 |
| | — |
| | 76 |
| | — |
| | 897 |
| | 8,874 |
| | 33 |
| | 9,804 |
| | 702 |
| | 2000 | | Dec. 2015 | | 40 yrs. | | 6,338 |
| | 897 |
| | 8,831 |
| | — |
| | 119 |
| | — |
| | 897 |
| | 8,914 |
| | 36 |
| | 9,847 |
| | 934 |
| | 2000 | | Dec. 2015 | | 40 yrs. |
| Kissimmee, FL | | 3,907 |
| | 1,094 |
| | 4,298 |
| | — |
| | 19 |
| | — |
| | 1,094 |
| | 4,301 |
| | 16 |
| | 5,411 |
| | 509 |
| | 2000 | | Jan. 2016 | | 32 yrs. | | 3,840 |
| | 1,094 |
| | 4,298 |
| | — |
| | 41 |
| | — |
| | 1,094 |
| | 4,318 |
| | 21 |
| | 5,433 |
| | 682 |
| | 2000 | | Jan. 2016 | | 32 yrs. |
| Avondale, LA | | 3,409 |
| | 808 |
| | 4,245 |
| | — |
| | — |
| | (12 | ) | | 807 |
| | 4,234 |
| | — |
| | 5,041 |
| | 379 |
| | 2008 | | Jan. 2016 | | 40 yrs. | | 3,412 |
| | 808 |
| | 4,245 |
| | — |
| | 4 |
| | (11 | ) | | 808 |
| | 4,234 |
| | 4 |
| | 5,046 |
| | 508 |
| | 2008 | | Jan. 2016 | | 40 yrs. |
| Gilroy, California | | 5,880 |
| | 2,704 |
| | 7,451 |
| | — |
| | 75 |
| | — |
| | 2,704 |
| | 7,485 |
| | 41 |
| | 10,230 |
| | 816 |
| | 1999 | | Feb. 2016 | | 35 yrs. | | 5,779 |
| | 2,704 |
| | 7,451 |
| | — |
| | 76 |
| | — |
| | 2,704 |
| | 7,485 |
| | 42 |
| | 10,231 |
| | 1,107 |
| | 1999 | | Feb. 2016 | | 35 yrs. |
| Washington, D.C. | | 7,049 |
| | 3,185 |
| | 8,177 |
| | — |
| | 23 |
| | — |
| | 3,185 |
| | 8,200 |
| | — |
| | 11,385 |
| | 668 |
| | 1962 | | Apr. 2016 | | 34 yrs. | | 6,913 |
| | 3,185 |
| | 8,177 |
| | — |
| | 26 |
| | — |
| | 3,185 |
| | 8,203 |
| | — |
| | 11,388 |
| | 914 |
| | 1962 | | Apr. 2016 | | 34 yrs. |
| Milford, MA | | 5,601 |
| | 751 |
| | 6,290 |
| | — |
| | — |
| | — |
| | 751 |
| | 6,290 |
| | — |
| | 7,041 |
| | 545 |
| | 2003 | | Apr. 2016 | | 37 yrs. | | 5,530 |
| | 751 |
| | 6,290 |
| | — |
| | 1 |
| | — |
| | 751 |
| | 6,290 |
| | 1 |
| | 7,042 |
| | 746 |
| | 2003 | | Apr. 2016 | | 37 yrs. |
| Millsboro, DE | | 5,680 |
| | 807 |
| | 5,152 |
| | — |
| | 11 |
| | — |
| | 807 |
| | 5,160 |
| | 3 |
| | 5,970 |
| | 465 |
| | 2001 | | Apr. 2016 | | 35 yrs. | | 5,695 |
| | 807 |
| | 5,152 |
| | — |
| | 11 |
| | — |
| | 807 |
| | 5,160 |
| | 3 |
| | 5,970 |
| | 637 |
| | 2001 | | Apr. 2016 | | 35 yrs. |
| New Castle, DE | | 4,748 |
| | 994 |
| | 5,673 |
| | — |
| | 19 |
| | — |
| | 994 |
| | 5,681 |
| | 11 |
| | 6,686 |
| | 433 |
| | 2005 | | Apr. 2016 | | 38 yrs. | | 4,658 |
| | 994 |
| | 5,673 |
| | — |
| | 30 |
| | — |
| | 994 |
| | 5,681 |
| | 22 |
| | 6,697 |
| | 593 |
| | 2005 | | Apr. 2016 | | 38 yrs. |
| Rehoboth, DE | | 8,693 |
| | 1,229 |
| | 9,945 |
| | — |
| | 11 |
| | — |
| | 1,229 |
| | 9,953 |
| | 3 |
| | 11,185 |
| | 839 |
| | 1999 | | Apr. 2016 | | 38 yrs. | | 8,584 |
| | 1,229 |
| | 9,945 |
| | — |
| | 11 |
| | — |
| | 1,229 |
| | 9,953 |
| | 3 |
| | 11,185 |
| | 1,147 |
| | 1999 | | Apr. 2016 | | 38 yrs. |
| Chicago, IL | | 1,931 |
| | 796 |
| | 2,112 |
| | — |
| | 82 |
| | — |
| | 796 |
| | 2,158 |
| | 36 |
| | 2,990 |
| | 193 |
| | 1990 | | Nov. 2016 | | 25 yrs. | | 1,905 |
| | 796 |
| | 2,112 |
| | — |
| | 83 |
| | — |
| | 796 |
| | 2,158 |
| | 37 |
| | 2,991 |
| | 292 |
| | 1990 | | Nov. 2016 | | 25 yrs. |
| | | $ | 358,083 |
| | $ | 78,176 |
| | $ | 331,663 |
| | $ | 9 |
| | $ | 95,945 |
| | $ | (2,644 | ) | | $ | 77,984 |
| | $ | 423,185 |
| | $ | 1,980 |
| | $ | 503,149 |
| | $ | 41,969 |
| | | | | | $ | 358,664 |
| | $ | 78,176 |
| | $ | 331,663 |
| | $ | 9 |
| | $ | 101,735 |
| | $ | 902 |
| | $ | 78,240 |
| | $ | 427,900 |
| | $ | 6,345 |
| | $ | 512,485 |
| | $ | 57,237 |
| | | | |
___________
| |
| (a) | Consists of the cost of improvements subsequent to purchase and acquisition costs, including construction costs on development project transactions, legal fees, appraisal fees, title costs, and other related professional fees. For business combinations, transaction costs are excluded. |
| |
| (b) | The increase (decrease) in net investment was primarily due to (i) changes in foreign currency exchange rates and (ii) the amortization of unearned income from net investments in direct financing leases, which produces a periodic rate of return that at times may be greater or less than lease payments received. |
| |
| (c) | Excludes (i) gross lease intangible assets of $285.5$249.0 million and the related accumulated amortization of $126.6$135.2 million, (ii) gross lease intangible liabilities of $15.4$15.0 million and the related accumulated amortization of $5.7$6.6 million, and (iii) real estate under construction of $152.1 million, and (iv) assets held for sale with a carrying value of $23.6$235.8 million. |
| |
| (d) | A reconciliation of real estate and accumulated depreciation follows: |
CPA:18 – Global 20182019 10-K – 122111
CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
NOTES TO SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION
(in thousands)
| | | | Reconciliation of Real Estate Subject to Operating Leases | Reconciliation of Real Estate Subject to Operating Leases |
| | Years Ended December 31, | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 | 2019 | | 2018 | | 2017 |
| Beginning balance | $ | 1,263,172 |
| | $ | 990,810 |
| | $ | 986,574 |
| $ | 1,210,776 |
| | $ | 1,263,172 |
| | $ | 990,810 |
|
| Reclassification from operating real estate | | 30,786 |
| | — |
| | — |
|
| Dispositions | | (29,974 | ) | | (36,595 | ) | | — |
|
| Foreign currency translation adjustment | (42,168 | ) | | 67,356 |
| | (12,392 | ) | (11,893 | ) | | (42,168 | ) | | 67,356 |
|
| Dispositions | (36,595 | ) | | — |
| | — |
| |
| Capital improvements | | 892 |
| | 175 |
| | 7,774 |
|
| Reclassification from real estate under construction | 26,192 |
| | 197,232 |
| | 14,775 |
| 58 |
| | 26,192 |
| | 197,232 |
|
| Improvements | 4,437 |
| | 1,378 |
| | 1,853 |
| |
| Additions | (4,262 | ) | | 6,396 |
| | — |
| |
| Ending balance | $ | 1,210,776 |
| | $ | 1,263,172 |
| | $ | 990,810 |
| $ | 1,200,645 |
| | $ | 1,210,776 |
| | $ | 1,263,172 |
|
| | | | Reconciliation of Accumulated Depreciation for Real Estate Subject to Operating Leases | Reconciliation of Accumulated Depreciation for Real Estate Subject to Operating Leases |
| | Years Ended December 31, | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 | 2019 | | 2018 | | 2017 |
| Beginning balance | $ | 87,886 |
| | $ | 55,980 |
| | $ | 31,467 |
| $ | 112,061 |
| | $ | 87,886 |
| | $ | 55,980 |
|
| Depreciation expense | 29,787 |
| | 28,243 |
| | 25,483 |
| 29,339 |
| | 29,787 |
| | 28,243 |
|
| Dispositions | | (4,554 | ) | | (2,523 | ) | | — |
|
| Foreign currency translation adjustment | (3,089 | ) | | 3,663 |
| | (970 | ) | (924 | ) | | (3,089 | ) | | 3,663 |
|
| Dispositions | (2,523 | ) | | — |
| | — |
| |
| Ending balance | $ | 112,061 |
| | $ | 87,886 |
| | $ | 55,980 |
| $ | 135,922 |
| | $ | 112,061 |
| | $ | 87,886 |
|
| | | | Reconciliation of Operating Real Estate | Reconciliation of Operating Real Estate |
| | Years Ended December 31, | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 | 2019 | | 2018 | | 2017 |
| Beginning balance | $ | 566,489 |
| | $ | 606,558 |
| | $ | 490,852 |
| $ | 503,149 |
| | $ | 566,489 |
| | $ | 606,558 |
|
| Reclassification from real estate under construction | | 34,886 |
| | 113,061 |
| | 2,926 |
|
| Reclassification to real estate | | (30,786 | ) | | — |
| | — |
|
| Foreign currency translation adjustment | | 3,014 |
| | (2,518 | ) | | 3,210 |
|
| Capital improvements | | 2,270 |
| | 5,343 |
| | 4,189 |
|
| Dispositions | (152,948 | ) | | (50,394 | ) | | — |
| (48 | ) | | (152,948 | ) | | (50,394 | ) |
| Reclassification from real estate under construction | 113,061 |
| | 2,926 |
| | 44,724 |
| |
| Reclassification to held for sale | (26,278 | ) | | — |
| | — |
| — |
| | (26,278 | ) | | — |
|
| Improvements | 5,343 |
| | 4,189 |
| | 6,029 |
| |
| Foreign currency translation adjustment | (2,518 | ) | | 3,210 |
| | (758 | ) | |
| Additions | — |
| | — |
| | 65,711 |
| |
| Ending balance | $ | 503,149 |
| | $ | 566,489 |
| | $ | 606,558 |
| $ | 512,485 |
| | $ | 503,149 |
| | $ | 566,489 |
|
| | | | Reconciliation of Accumulated Depreciation for Operating Real Estate | Reconciliation of Accumulated Depreciation for Operating Real Estate |
| | Years Ended December 31, | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 | 2019 | | 2018 | | 2017 |
| Beginning balance | $ | 43,786 |
| | $ | 26,937 |
| | $ | 10,727 |
| $ | 41,969 |
| | $ | 43,786 |
| | $ | 26,937 |
|
| Depreciation expense | 16,864 |
| | 17,419 |
| | 16,210 |
| 15,163 |
| | 16,864 |
| | 17,419 |
|
| Foreign currency translation adjustment | | 127 |
| | (2 | ) | | 32 |
|
| Dispositions | (16,009 | ) | | (602 | ) | | — |
| (22 | ) | | (16,009 | ) | | (602 | ) |
| Reclassification to held for sale | (2,670 | ) | | — |
| | — |
| — |
| | (2,670 | ) | | — |
|
| Foreign currency translation adjustment | (2 | ) | | 32 |
| | — |
| |
| Ending balance | $ | 41,969 |
| | $ | 43,786 |
| | $ | 26,937 |
| $ | 57,237 |
| | $ | 41,969 |
| | $ | 43,786 |
|
AtAs of December 31, 2018,2019, the aggregate cost of real estate we and our consolidated subsidiaries own for federal income tax purposes was $2.1 billion.
CPA:18 – Global 20182019 10-K – 123112
CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
SCHEDULE IV — MORTGAGE LOANS ON REAL ESTATE
December 31, 20182019
(dollars in thousands)
| | | | | Interest Rate | | Final Maturity Date | | Fair Value | | Carrying Amount (a) | | Interest Rate | | Final Maturity Date | | Fair Value | | Carrying Amount (a) |
| Description | | |
| Financing agreement — Cipriani | | 10.0 | % | | Jul. 2024 | | $ | 30,200 |
| | $ | 28,000 |
| | 10.0 | % | | Jul. 2024 | | $ | 30,300 |
| | $ | 28,000 |
|
Financing agreement — Mills Fleet (b) (c) | | 12.3 | % | | Oct. 2019 | | 35,954 |
| | 35,954 |
| |
__________
| |
(a) | During the year ended December 31, 2018, we received partial repayments for the Mills Fleet mezzanine loan totaling $2.5 million (Note 5). |
| |
(b) | Interest rate is based on the one-month LIBOR plus 10% (Note 5). |
| |
(c) | On October 9, 2018, the Mills Fleet borrower exercised its first of three options to extend the maturity date of this mezzanine loan for one-year successive terms, from October 2018 to October 2019 (Note 5). |
CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
NOTES TO SCHEDULE IV — MORTGAGE LOANS ON REAL ESTATE
(in thousands)
| | | | Reconciliation of Mortgage Loans on Real Estate | Reconciliation of Mortgage Loans on Real Estate |
| | Years Ended December 31, | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 | 2019 | | 2018 | | 2017 |
| Balance | $ | 66,500 |
| | $ | 66,500 |
| | $ | 28,000 |
| $ | 63,954 |
| | $ | 66,500 |
| | $ | 66,500 |
|
Collection of principal | (2,546 | ) | | | | | (35,954 | ) | | (2,546 | ) | | — |
|
Additions (a) | — |
| | — |
| | 38,500 |
| |
| Ending balance | $ | 63,954 |
| | $ | 66,500 |
| | $ | 66,500 |
| $ | 28,000 |
| | $ | 63,954 |
| | $ | 66,500 |
|
__________
| |
| (a) | Amount for 2016 represents aOn April 9, 2019, we received full repayment totaling $36.0 million on the Mills Fleet mezzanine loan acquisition (Note 5). |
CPA:18 – Global 20182019 10-K – 124113
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
Our disclosure controls and procedures include internal controls and other procedures designed to provide reasonable assurance that information required to be disclosed in this and other reports filed under the Securities Exchange Act of 1934, as amended (“the Exchange Act”) is recorded, processed, summarized, and reported within the required time periods specified in the SEC’s rules and forms; and that such information is accumulated and communicated to management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosures. It should be noted that no system of controls can provide complete assurance of achieving a company’s objectives and that future events may impact the effectiveness of a system of controls.
Our chief executive officer and chief financial officer, after conducting an evaluation, together with members of our management, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 20182019, have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were effective as of December 31, 20182019 at a reasonable level of assurance.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act). 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 accounting principles generally accepted in the United States of America.
Our 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 our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.
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 policies or procedures may deteriorate.
We assessed the effectiveness of our internal control over financial reporting as of December 31, 2018.2019. In making this assessment, we used criteria set forth in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment, we concluded that, as of December 31, 2018,2019, our internal control over financial reporting is effective based on those criteria.
This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to SEC rules that permit us to provide only management’s report in this Annual Report.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
Item 9B. Other Information.
None.
CPA:18 – Global 20182019 10-K – 125114
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
This information will be contained in our definitive proxy statement for the 20192020 Annual Meeting of Stockholders, to be filed within 120 days following the end of our fiscal year, and is incorporated herein by reference.
Item 11. Executive Compensation.
This information will be contained in our definitive proxy statement for the 20192020 Annual Meeting of Stockholders, to be filed within 120 days following the end of our fiscal year, and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
This information will be contained in our definitive proxy statement for the 20192020 Annual Meeting of Stockholders, to be filed within 120 days following the end of our fiscal year, and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
This information will be contained in our definitive proxy statement for the 20192020 Annual Meeting of Stockholders, to be filed within 120 days following the end of our fiscal year, and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services.
This information will be contained in our definitive proxy statement for the 20192020 Annual Meeting of Stockholders, to be filed within 120 days following the end of our fiscal year, and is incorporated herein by reference.
CPA:18 – Global 20182019 10-K – 126115
PART IV
Item 15. Exhibits and Financial Statement Schedules.
The following exhibits are filed with this Report. Documents other than those designated as being filed herewith are incorporated herein by reference.
|
| | | | |
| Exhibit No. | | Description | | Method of Filing |
| 3.1 | | Articles of Incorporation | | Incorporated by reference to Exhibit 3.1 to Registration Statement on Form S-11 (File No. 333-185111) filed March 15, 2013 |
| | | | | |
| 3.2 | | Articles of Amendment and Restatement of Corporate Property Associates 18 – Global Incorporated | | Incorporated by reference to Exhibit 3.1 to Form 8-A filed June 11, 2013 |
| | | | | |
| 3.3 | | Amended and Restated Bylaws of Corporate Property Associates 18 – Global Incorporated | | Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed August 23, 2016 |
| | | | | |
| 4.1 | | Amended and Restated Distribution Reinvestment and Stock Purchase Plan | | Incorporated by reference to Exhibit 4.1 to Form S-3D filed May 4, 2015 |
| | | | |
| 4.2 | | Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 | | Filed herewith |
| | | | | |
| 10.1 | | Amended and Restated Advisory Agreement, as of January 1, 2015, by and among Corporate Property Associates 18 – Global Incorporated, CPA:18 Limited Partnership and Carey Asset Management Corp. | | Incorporated by reference to Exhibit 10.15 to W. P. Carey Inc.’s Annual Report on Form 10-K filed March 2, 2015 (File No. 001-13779) |
| | | | | |
| 10.2 | | Amended and Restated Agreement of Limited Partnership, dated as of January 1, 2015, by and between Corporate Property Associates 18 – Global Incorporated and WPC–CPA:18 Holdings, LLC | | Incorporated by reference to Exhibit 10.5 to Annual Report on Form 10-K filed March 27, 2015 |
| | | | | |
| 10.3 | | Amended and Restated Asset Management Agreement, dated as of May 13, 2015, by and among, Corporate Property Associates 18 – Global Incorporated, CPA:18 Limited Partnership and W. P. Carey & Co. B.V. | | Incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q filed May 15, 2015 |
| | | | | |
| 10.4 | | Form of Indemnification Agreement with independent directors | | Incorporated by reference to Exhibit 10.6 to Quarterly Report on Form 10-Q filed June 20, 2013 |
| | | | | |
| 10.5 | | First Amendment to Amended and Restated Advisory Agreement, dated as of January 30, 2018, among Corporate Property Associates 18 – Global Incorporated, CPA: 18 Limited Partnership and Carey Asset Management Corp. | | Incorporated by reference to Exhibit 10.21 to W. P. Carey Inc.’s Annual Report on Form 10-K filed February 23, 2018 (File No. 001-13779) |
| | | | | |
| 21.1 | | List of Registrant Subsidiaries | | Filed herewith |
| | | | | |
| 23.1 | | Consent of PricewaterhouseCoopers LLP | | Filed herewith |
| | | | | |
CPA:18 – Global 20182019 10-K – 127116
|
| | | | |
| Exhibit No. | | Description | | Method of Filing |
| 31.1 | | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | Filed herewith |
| | | | | |
| 31.2 | | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | Filed herewith |
| | | | | |
| 32 | | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | Filed herewith |
| | | | | |
| 101.INS | | XBRL Instance Document | | Filed herewith |
| | | | | |
| 101.SCH | | XBRL Taxonomy Extension Schema Document | | Filed herewith |
| | | | | |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document | | Filed herewith |
| | | | | |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document | | Filed herewith |
| | | | | |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document | | Filed herewith |
| | | | | |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document | | Filed herewith |
CPA:18 – Global 20182019 10-K – 128117
Item 16. Form 10-K Summary.
None.
CPA:18 – Global 20182019 10-K – 129118
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
| | | |
| | | | Corporate Property Associates 18 – Global Incorporated |
| Date: | March 13, 2019February 28, 2020 | | |
| | | By: | /s/ Mallika SinhaToniAnn Sanzone |
| | | | Mallika SinhaToniAnn Sanzone |
| | | | Chief Financial Officer |
| | | | (Principal Financial Officer) |
| | | | |
| Date: | March 13, 2019February 28, 2020 | | |
| | | By: | /s/ Kristin SabiaArjun Mahalingam |
| | | | Kristin SabiaArjun Mahalingam |
| | | | Chief Accounting Officer |
| | | | (Principal Accounting Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
| | | | |
| Signature | | Title | | Date |
| | | | | |
| /s/ Jason E. Fox | | Chief Executive Officer | | March 13, 2019February 28, 2020 |
| Jason E. Fox | | (Principal Executive Officer) | | |
| | | | | |
/s/ Mallika SinhaToniAnn Sanzone | | Chief Financial Officer | | March 13, 2019February 28, 2020 |
Mallika SinhaToniAnn Sanzone | | (Principal Financial Officer) | | |
| | | | | |
/s/ Kristin SabiaArjun Mahalingam | | Chief Accounting Officer | | March 13, 2019February 28, 2020 |
Kristin SabiaArjun Mahalingam | | (Principal Accounting Officer) | | |
| | | | | |
| /s/ Elizabeth P. Munson | | Chairman of the Board and Director | | March 13, 2019February 28, 2020 |
| Elizabeth P. Munson | | | | |
| | | | | |
| /s/ Richard J. Pinola | | Director | | March 13, 2019February 28, 2020 |
| Richard J. Pinola | | | | |
CPA:18 – Global 20182019 10-K – 130119
EXHIBIT INDEX
The following exhibits are filed with this Report, except where indicated.
|
| | | | |
| Exhibit No. | | Description | | Method of Filing |
| 3.1 | | Articles of Incorporation | | |
| | | | | |
| 3.2 | | Articles of Amendment and Restatement of Corporate Property Associates 18 – Global Incorporated | | |
| | | | | |
| 3.3 | | Amended and Restated Bylaws of Corporate Property Associates 18 – Global Incorporated | | |
| | | | | |
| 4.1 | | Amended and Restated Distribution Reinvestment and Stock Purchase Plan | | |
| | | | |
| 4.2 | | Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 | | |
| | | | | |
| 10.1 | | Amended and Restated Advisory Agreement, as of January 1, 2015, by and among Corporate Property Associates 18 – Global Incorporated, CPA:18 Limited Partnership and Carey Asset Management Corp. | | |
| | | | | |
| 10.2 | | Amended and Restated Agreement of Limited Partnership, dated as of January 1, 2015, by and between Corporate Property Associates 18 – Global Incorporated and WPC–CPA:18 Holdings, LLC | | |
| | | | | |
| 10.3 | | Amended and Restated Asset Management Agreement, dated as of May 13, 2015, by and among, Corporate Property Associates 18 – Global Incorporated, CPA:18 Limited Partnership and W. P. Carey & Co. B.V. | | |
| | | | | |
| 10.4 | | Form of Indemnification Agreement with independent directors | | |
| | | | | |
| 10.5 | | First Amendment to Amended and Restated Advisory Agreement, dated as of January 30, 2018, among Corporate Property Associates 18 – Global Incorporated, CPA: 18 Limited Partnership and Carey Asset Management Corp. | | |
| | | | | |
| 21.1 | | List of Registrant Subsidiaries | | |
| | | | | |
| 23.1 | | Consent of PricewaterhouseCoopers LLP | | |
|
| | | | |
| Exhibit No. | | Description | | Method of Filing |
| | | | | |
| 31.1 | | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | |
| | | | | |
| 31.2 | | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | |
| | | | | |
| 32 | | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | |
| | | | | |
| 101.INS | | XBRL Instance Document | | Filed herewith |
| | | | | |
| 101.SCH | | XBRL Taxonomy Extension Schema Document | | Filed herewith |
| | | | | |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document | | Filed herewith |
| | | | | |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document | | Filed herewith |
| | | | | |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document | | Filed herewith |
| | | | | |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document | | Filed herewith |
