We own interests in the Managed Programs and account for these interests under the equity method because, as their advisor, and through our ownership of their common stock, we do not exert control over, but we do have the ability to exercise significant influence on,over, the Managed Programs. Operating results of the Managed Programs are included in the Investment Management segment.
The following table sets forth certain information about our investments in the Managed Programs (dollars in thousands):
W. P. Carey 6/30/2022 10-Q– 21
|
| |
| W. P. Carey 9/30/2017 10-Q– 28
|
Notes to Consolidated Financial Statements (Unaudited)
The following table sets forth our ownership interests in our equity method investments in real estate, excluding the Managed Programs, and their respective carrying values (dollars in thousands):
|
| | | | | | | | | | | | |
| | | | | | Carrying Value at |
Lessee | | Co-owner | | Ownership Interest | | September 30, 2017 | | December 31, 2016 |
The New York Times Company | | CPA®:17 – Global | | 45% | | $ | 69,510 |
| | $ | 69,668 |
|
Frontier Spinning Mills, Inc. | | CPA®:17 – Global | | 40% | | 24,147 |
| | 24,138 |
|
Beach House JV, LLC (a) | | Third Party | | N/A | | 15,105 |
| | 15,105 |
|
ALSO Actebis GmbH (b) | | CPA®:17 – Global | | 30% | | 12,072 |
| | 11,205 |
|
Jumbo Logistiek Vastgoed B.V. (b) (c) | | CPA®:17 – Global | | 15% | | 10,505 |
| | 8,739 |
|
Wagon Automotive GmbH (b) | | CPA®:17 – Global | | 33% | | 8,323 |
| | 8,887 |
|
Wanbishi Archives Co. Ltd. (d) | | CPA®:17 – Global | | 3% | | 333 |
| | 334 |
|
| | | | | | $ | 139,995 |
| | $ | 138,076 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Carrying Value at |
Lessee/Fund/Description | | Co-owner | | Ownership Interest | | June 30, 2022 | | December 31, 2021 |
Las Vegas Retail Complex (a) | | Third Party | | N/A | | $ | 141,341 | | | $ | 104,114 | |
Johnson Self Storage | | Third Party | | 90% | | 66,552 | | | 67,573 | |
Kesko Senukai (b) | | Third Party | | 70% | | 33,416 | | | 41,955 | |
Harmon Retail Corner (c) | | Third Party | | 15% | | 24,725 | | | 24,435 | |
State Farm Mutual Automobile Insurance Co. | | CPA:18 – Global | | 50% | | 6,411 | | | 7,129 | |
Apply Sørco AS (d) | | CPA:18 – Global | | 49% | | 3,977 | | | 5,909 | |
Fortenova Grupa d.d. (b) | | CPA:18 – Global | | 20% | | 2,146 | | | 2,936 | |
Bank Pekao (b) (e) | | CPA:18 – Global | | 50% | | 2,106 | | | 4,460 | |
WLT (f) | | WLT | | N/A | | — | | | 33,392 | |
| | | | | | $ | 280,674 | | | $ | 291,903 | |
__________
| |
(a) | This investment is in the form of a preferred equity interest. |
| |
(b) | The carrying value of this investment is affected by fluctuations in the exchange rate of the euro. |
| |
(c) | This investment represents a tenancy-in-common interest, whereby the property is encumbered by the debt for which we are jointly and severally liable. The co-obligor is CPA®:17 – Global and the amount due under the arrangement was approximately $75.4 million at September 30, 2017. Of this amount, $11.3 million represents the amount we are liable for and is included within the carrying value of the investment at September 30, 2017.
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| |
(d) | The carrying value of this investment is affected by fluctuations in the exchange rate of the yen. |
(a)On June 10, 2021, we entered into an agreement to fund a construction loan of approximately $261.9 million (as of June 30, 2022) for a retail complex in Las Vegas, Nevada. Through June 30, 2022, we funded $141.0 million, including $37.3 million during the six months ended June 30, 2022. Interest income from this investment was $3.4 million and $0.3 million for the six months ended June 30, 2022 and 2021, respectively, which was recognized within Earnings (losses) from equity method investments in our consolidated statements of income.
(b)The carrying value of this investment is affected by fluctuations in the exchange rate of the euro.
(c)This investment is reported using the hypothetical liquidation at book value (“HLBV”) model, which may be different than pro rata ownership percentages, primarily due to the capital structure of the partnership agreement.
(d)The carrying value of this investment is affected by fluctuations in the exchange rate of the Norwegian krone.
(e)We recognized our $4.6 million proportionate share of an impairment charge recorded on this investment during the six months ended June 30, 2022, which was reflected within Earnings (losses) from equity method investments in our consolidated statements of income. The estimated fair value of the investment is based on the estimated selling price of the international office facility owned by the investment, and the fair value of the non-recourse mortgage encumbering the property also approximates the fair value of the property.
(f)We own 12,208,243 shares of common stock of WLT, which we accounted for as an equity method investment in real estate as of December 31, 2021, but was reclassified to equity securities at fair value within Other assets, net on our consolidated balance sheets in January 2022 (Note 8).
We received aggregate distributions of $12.1$18.4 million and $12.4$11.1 million from our other unconsolidated real estate investments for the ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, respectively. At SeptemberJune 30, 20172022 and December 31, 2016,2021, the aggregate unamortized basis differences on our unconsolidated real estate investments were $7.1$7.6 million and $6.7$7.9 million, respectively.
Note 8. Fair Value Measurements
The fair value of an asset is defined as the exit price, which is the amount that would either be received when an asset is sold or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance establishes a three-tier fair value hierarchy based on the inputs used in measuring fair value. These tiers are: Level 1, for which quoted market prices for identical instruments are available in active markets, such as money market funds, equity securities, and U.S. Treasury securities; Level 2, for which there are inputs other than quoted prices included within Level 1 that are observable for the instrument, such as certain derivative instruments including interest rate 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.
W. P. Carey 6/30/2022 10-Q– 22
Notes to Consolidated Financial Statements (Unaudited)
Items Measured at Fair Value on a Recurring Basis
The methods and assumptions described below were used to estimate the fair value of each class of financial instrument. For significant Level 3 items, we have also provided the unobservable inputs along with their weighted-average ranges.inputs.
Money Market FundsDerivative Assets and Liabilities — Our money market funds,derivative assets and liabilities, which are included in CashOther assets, net and cash equivalentsAccounts payable, accrued expenses and other liabilities, respectively, in the consolidated financial statements, are comprised of government securities and U.S. Treasury bills. These funds were classified as Level 1 as we used quoted prices from active markets to determine their fair values.
Derivative Assets — Our derivative assets, which are included in Other assets, net in the consolidated financial statements, are comprised of foreign currency forward contracts, foreign currency collars, interest rate swaps, interest rate caps, and stock warrants (Note 9).
The foreign currency forward contracts, foreign currency collars,valuation of our derivative instruments (excluding stock warrants) 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 swaps,curves, spot and interest rate caps were measured atforward 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 using readily observable market inputs,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 quotations on interest rates,collateral postings, thresholds, mutual puts, and guarantees. These derivative instruments 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.
The stock warrants were measured at fair value using valuation models that incorporate market inputs and our own assumptions about future cash flows. We classified these assets as Level 3 because these assets are not traded in an active market.
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| W. P. Carey 9/30/2017 10-Q– 29
|
Notes to Consolidated Financial Statements (Unaudited)
Derivative Liabilities — Our derivative liabilities, which are included in Accounts payable, accrued expenses and other liabilities in the consolidated financial statements, are comprised of foreign currency collars and interest rate swaps (Note 9). 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 because they are custom, over-the-counter contracts with various bank counterparties that are not traded in an active market.
Equity Method Investment in CESH I—We have elected to account for our investment in CESH, Iwhich is included in Equity method investments in the consolidated financial statements, at fair value by selecting the equity method fair value option available under GAAP (Note 7). We classified this investment as Level 3 because we primarily used valuation models that incorporate unobservable inputs to determine its fair value.
Investment in Shares of Lineage Logistics — We have elected to apply the measurement alternative under Accounting Standards Update 2016-01, Financial Instruments — Overall (Subtopic 825-10) to account for our investment in shares of Lineage Logistics (a cold storage REIT), which is included in Other assets, net in the consolidated financial statements. Under this alternative, the carrying value is adjusted for any impairments or changes in fair value resulting from observable transactions for similar or identical investments in the issuer. We classified this investment as Level 3 because it is not traded in an active market. We recognized non-cash unrealized gains on our investment in shares of Lineage Logistics of $23.4 million during the six months ended June 30, 2021, due to a secondary market transaction at a higher price per share, which was recorded within Other gains and (losses) in the consolidated financial statements. In addition, during the six months ended June 30, 2022 and 2021, we received cash dividends of $4.3 million and $6.4 million, respectively, from our investment in shares of Lineage Logistics, which was recorded within Non-operating income in the consolidated financial statements. The fair value of this investment was $366.3 million at both June 30, 2022 and December 31, 2021.
Investment in Shares of GCIF — We account for our investment in shares of Guggenheim Credit Income Fund (“GCIF”), which is included in Other assets, net in the consolidated financial statements, at fair value. We classified this investment as Level 2 because we used a quoted price from an inactive market to determine its fair value. During the six months ended June 30, 2022, we received liquidating distributions from our investment in shares of GCIF totaling $1.1 million, which reduced the cost basis of our investment (in March 2021, GCIF announced its intention to liquidate and to distribute substantially all of its assets). The fair value of our equity investment in CESH I approximated its carrying value asshares of SeptemberGCIF was $3.3 million and $4.3 million at June 30, 20172022 and December 31, 2016.2021, respectively.
Investment in Preferred Shares of WLT — In January 2022, WLT redeemed in full our 1,300,000 shares of its preferred stock for gross proceeds of $65.0 million (based on the liquidation preference of $50.00 per share). In connection with this redemption, we reclassified an unrealized gain on this investment of $18.7 million from Accumulated other comprehensive loss to Other gains and (losses) in the consolidated financial statements (Note 12). Prior to this redemption, we accounted for this investment, which was included in Other assets, net in the consolidated financial statements, as available-for-sale debt securities at fair value (Level 3). During the six months ended June 30, 2022, we received cash dividends of $0.9 million from our investment in preferred shares of WLT, which was recorded within Non-operating income in the consolidated financial statements. The fair value of our investment in preferred shares of WLT was $65.0 million as of December 31, 2021.
W. P. Carey 6/30/2022 10-Q– 23
Notes to Consolidated Financial Statements (Unaudited)
Investment in Common Shares of WLT — In January 2022, we reclassified our investment in 12,208,243 shares of common stock of WLT from equity method investments to equity securities, since we no longer have significant influence over WLT, following the redemption of our investment in preferred shares of WLT, as described above. As a result, we account for this investment, which is included in Other assets, net in the consolidated financial statements, at fair value. We classified this investment as Level 3 because it is not traded in an active market. The carrying value of this investment was $33.4 million as of December 31, 2021, which was included within Equity method investments in the consolidated financial statements. We recognized non-cash unrealized gains of $43.4 million on our investment in common shares of WLT during the six months ended June 30, 2022, reflecting the most recently published net asset value of WLT, which was recorded within Other gains and (losses) in the consolidated financial statements. The fair value of our investment in common shares of WLT was $76.8 million as of June 30, 2022.
We did not have any transfers into or out of Level 1, Level 2, and Level 3 category of measurements during either the three or ninesix months ended SeptemberJune 30, 20172022 or 2016.2021. Gains and losses (realized and unrealized) recognized on items measured at fair value on a recurring basis included in earnings are reported within Other incomegains and (expenses)(losses) on our consolidated financial statements.
Our other material financial instruments had the following carrying values and fair values as of the dates shown (dollars in thousands):
|
| | | | | | | | | | | | | | | | | |
| | | September 30, 2017 | | December 31, 2016 |
| Level | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
Unsecured Senior Notes, net (a) (b) (c) | 2 | | $ | 2,455,383 |
| | $ | 2,574,990 |
| | $ | 1,807,200 |
| | $ | 1,828,829 |
|
Non-recourse mortgages, net (a) (b) (d) | 3 | | 1,253,051 |
| | 1,265,075 |
| | 1,706,921 |
| | 1,711,364 |
|
Note receivable (d) | 3 | | 10,070 |
| | 9,740 |
| | 10,351 |
| | 10,046 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | June 30, 2022 | | December 31, 2021 |
| Level | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
Senior Unsecured Notes, net (a) (b) (c) | 2 | | $ | 5,471,066 | | | $ | 4,983,231 | | | $ | 5,701,913 | | | $ | 5,984,228 | |
Non-recourse mortgages, net (a) (b) (d) | 3 | | 328,820 | | | 324,326 | | | 368,524 | | | 369,841 | |
__________
| |
(a) | The carrying value of Unsecured Senior Notes, net (Note 10) includes unamortized deferred financing costs of $15.0 million and $12.1 million at September 30, 2017 and December 31, 2016, respectively. The carrying value of Non-recourse mortgages, net includes unamortized deferred financing costs of $1.0 million and $1.3 million at September 30, 2017 and December 31, 2016, respectively. |
| |
(b) | The carrying value of Unsecured Senior Notes, net includes unamortized discount of $10.2 million and $7.8 million at September 30, 2017 and December 31, 2016, respectively. The carrying value of Non-recourse mortgages, net includes unamortized discount of $1.4 million and $0.2 million at September 30, 2017 and December 31, 2016, respectively. |
| |
(c) | We determined the estimated fair value of the Unsecured Senior Notes using quoted market prices in an open market with limited trading volume, where available. In cases where there was no trading volume, we determined the estimated fair value using a discounted cash flow model using a rate that reflects the average yield of similar market participants. |
| |
(d) | We determined the estimated fair value of these financial instruments 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. |
(a)The carrying value of Senior Unsecured Notes, net (Note 10) includes unamortized deferred financing costs of $25.6 million and $28.7 million at June 30, 2022 and December 31, 2021, respectively. The carrying value of Non-recourse mortgages, net includes unamortized deferred financing costs of less than $0.1 million at both June 30, 2022 and December 31, 2021. (b)The carrying value of Senior Unsecured Notes, net includes unamortized discount of $26.0 million and $29.2 million at June 30, 2022 and December 31, 2021, respectively. The carrying value of Non-recourse mortgages, net includes unamortized discount of $0.4 million and $0.8 million at June 30, 2022 and December 31, 2021, respectively.
(c)We determined the estimated fair value of the Senior Unsecured Notes using observed market prices in an open market, which may experience limited trading volume.
(d)We determined the estimated fair value of our non-recourse mortgage loans 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 consider 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.
We estimated that our other financial assets and liabilities, (excluding net investments in direct financing leases)including amounts outstanding under our Senior Unsecured Credit Facility (Note 10), but excluding finance receivables (Note 5), had fair values that approximated their carrying values at both SeptemberJune 30, 20172022 and December 31, 2016.2021.
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| W. P. Carey 9/30/2017 10-Q– 30
|
Notes to Consolidated Financial Statements (Unaudited)
Items Measured at Fair Value on a Non-Recurring Basis (Including Impairment Charges)
We periodically assess whether there are any indicators that the value of our real estate investments may be impaired or that their carrying value may not be recoverable. For investmentsThere have been no significant changes in real estate held for useour impairment policies from what was disclosed in the 2021 Annual Report.
W. P. Carey 6/30/2022 10-Q– 24
Notes to Consolidated Financial Statements (Unaudited)
The following tables present information about assets for which we recorded an impairment indicator is identified, we follow a two-step process to determine whether the investment is impairedcharge and to determine the amount of the charge. First, we compare the carrying value of the property’s asset group to the future undiscounted net cash flows that we expect the property’s asset group will generate, including any estimated proceeds from the eventual sale of the property’s asset group. If this amount is less than the carrying value, the property’s asset group is considered to be not recoverable. We then measure the impairment charge as the excess of the carrying value of the property’s asset group over the estimatedwere measured at fair value of the property’s asset group, which is primarily determined using market information such as recent comparable sales, broker quotes, or third-party appraisals. If relevant market information is not available or is not deemed appropriate, we performon a future net cash flow analysis, discounted for inherent risk associated with each investment. We determined that the significant inputs used to value these investments fall within Level 3 fornon-recurring basis (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| 2022 | | 2021 |
| Fair Value Measurements | | Impairment Charges | | Fair Value Measurements | | Impairment Charges |
Impairment Charges | | | | | | | |
Land, buildings and improvements and intangibles | $ | 10,270 | | | $ | 6,206 | | | $ | — | | | $ | — | |
Equity method investments | — | | | — | | | — | | | — | |
| | | $ | 6,206 | | | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2022 | | 2021 |
| Fair Value Measurements | | Impairment Charges | | Fair Value Measurements | | Impairment Charges |
Impairment Charges | | | | | | | |
Land, buildings and improvements and intangibles | $ | 24,497 | | | $ | 26,385 | | | $ | — | | | $ | — | |
Equity method investments | — | | | — | | | 8,175 | | | 6,830 | |
| | | $ | 26,385 | | | | | $ | 6,830 | |
Impairment charges, and their related triggering events and fair value reporting. As a result of our assessments, we calculated impairment charges based on market conditions and assumptions that existed at the time. The valuation of real estate is subject to significant judgment and actual results may differ materially if market conditions or the underlying assumptions change.
We did not recognize any impairment chargesmeasurements, recognized during the three or nineand six months ended SeptemberJune 30, 2017.2022 and 2021 were as follows:
Land, Buildings and Improvements and Intangibles
The impairment charges described below are reflected within Impairment charges in our consolidated statements of income.
During the three and six months ended SeptemberJune 30, 2016,2022, we recognized impairment charges totaling $14.4 million, including an amount attributable to a noncontrolling interest of $0.6$6.2 million on 182 properties includingin order to reduce their carrying values to their estimated fair values, which approximated their estimated selling prices.
During the six months ended June 30, 2022, we recognized an impairment charge of $10.9 million on a portfolioproperty in order to reduce its carrying value to its estimated fair value, which declined due to changes in expected cash flows related to the existing tenant’s lease expiration in 2023. The fair value measurement was determined by estimating discounted cash flows using two significant unobservable inputs, which were the cash flow discount rate (14.0%) and terminal capitalization rate (11.0%)
In March 2022, we entered into a transaction to restructure certain leases with Pendragon PLC (a tenant at certain automotive dealerships in the United Kingdom). Under this restructuring, we extended the leases on 30 properties by 11 years (no change to rent) and entered into an agreement to dispose of 1412 properties, with the tenant continuing to pay rent until the earlier of sale date or certain specified dates over the following 12 months. As a result, during the six months ended June 30, 2022, we recognized impairment charges totaling $9.3 million on 6 of these properties in order to reduce the carrying values of the properties to their estimated fair values. The fair value measurements for the properties were determined using a direct capitalization rate analysis; the capitalization rate for the various scenarios ranged from 4.75% to 10.00%.
Equity Method Investments
The other-than-temporary impairment charges recognized on the portfoliodescribed below are reflected within Earnings (losses) from equity method investments in our consolidated statements of 14 properties were in addition to charges recognized on the portfolio duringincome.
During the six months ended June 30, 2016 (as described below), based on the purchase and sale agreement for the portfolio. The fair value measurements for the properties, which totaled $158.8 million, approximated their estimated selling prices, less estimated costs to sell. We used available information, including third-party broker information and internal discounted cash flow models (Level 3 inputs), in determining the fair value of these properties. The portfolio of 14 properties was sold in October 2016. Of the other four properties, one was sold in December 2016, two were disposed of in January 2017, and one property, which was classified as held for sale as of December 31, 2016, was sold in January 2017.
During the nine months ended September 30, 2016,2021, we recognized an other-than-temporary impairment charges totaling $49.9 million, including an amount attributable to a noncontrolling interestcharge of $0.6$6.8 million on 18 properties in ordera jointly owned real estate investment to reduce the carrying valuesvalue of the propertiesour investment to theirits estimated fair values. In additionvalue, which declined due to changes in expected cash flows related to the impairment charges of $14.4 million recognized during the three months ended September 30, 2016, described above, we recognized impairment charges totaling $35.4 million on the portfolio of 14 properties during the six months ended June 30, 2016,existing tenant’s lease expiration in order to reduce the carrying values of the properties to their estimated fair values at that time.2028. The fair value measurements for the properties, which totaled $158.8 million, approximated their estimated selling prices, less estimated costs to sell. We used available information, including third-party broker information and internalmeasurement was determined by estimating discounted cash flows using three significant unobservable inputs, which were the cash flow models (Level 3 inputs)discount rate (5.75%), in determining the fair value of these properties.residual discount rate (7.50%), and residual capitalization rate (6.75%).
W. P. Carey 6/30/2022 10-Q– 25
Notes to Consolidated Financial Statements (Unaudited)
Note 9. Risk Management and Use of Derivative Financial Instruments
Risk Management
In the normal course of our ongoing business operations, we encounter economic risk. There are four main components of economic risk that impact us: interest rate risk, credit risk, market risk, and foreign currency risk. We are primarily subject to interest rate risk on our interest-bearing liabilities, including our Senior Unsecured Credit Facility and Unsecured Senior Notes (Note 10). and unhedged variable-rate non-recourse mortgage loans. 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 ourSenior Unsecured Notes, other securities, and the shares or limited partnership units we hold in the Managed Programs, due to changes in interest rates or other market factors. We own investments in North America, Europe, Australia, and AsiaJapan and are subject to risks associated with fluctuating foreign currency exchange rates.
Derivative Financial Instruments
When we use derivative instruments, it is generally to reduceThere have been no significant changes in 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, and we may be granted common stock warrants by lessees when structuring lease transactions, which are considered to be derivative instruments. The primary risks related to our use of derivative
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| W. P. Carey 9/30/2017 10-Q– 31
|
Notes to Consolidated Financial Statements (Unaudited)
instruments include a counterparty to a hedging arrangement defaulting on its obligation and a downgrade in the credit quality of a counterparty to such an extent that our ability to sell or assign our side of the hedging transaction is impaired. While we seek to mitigate these risks by entering into hedging arrangements with large financial institutions that we deem to be creditworthy, it is possible that our hedging transactions, which are intended to limit losses, could adversely affect our earnings. Furthermore, if we terminate a hedging arrangement, we may be obligated to pay certain costs, such as transaction or breakage fees. We have established policies and procedures for risk assessment and the approval, reporting, and monitoring of derivative financial instrument activities.
We measure derivative instruments at fair value and record them as assets or liabilities, depending on our rights or obligations under the applicable derivative contract. Derivatives that are not designated as hedges must be adjusted to fair value through earnings. For a derivative designated, and that qualified, as a cash flow hedge, the effective portion of the change in fair value of the derivative is recognized in Other comprehensive income (loss) until the hedged item is recognized in earnings. For a derivative designated, and that qualified, as a net investment hedge, the effective portion of the changepolicies from what was disclosed in the fair value and/or the net settlement of the derivative is reported in Other comprehensive income (loss) as part of the cumulative foreign currency translation adjustment. The ineffective portion of the change in fair value of any derivative is immediately recognized in earnings.
All derivative transactions with an individual counterparty are governed by a master International Swap and Derivatives Association agreement, which can be considered as a master netting arrangement; however, we report all our derivative instruments on a gross basis on our consolidated financial statements.2021 Annual Report. At both SeptemberJune 30, 20172022 and December 31, 2016,2021, no cash collateral had been posted nor received for any of our derivative positions.
The following table sets forth certain information regarding our derivative instruments (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivatives Designated as Hedging Instruments | | Balance Sheet Location | | Derivative Assets Fair Value at | | Derivative Liabilities Fair Value at |
| | June 30, 2022 | | December 31, 2021 | | June 30, 2022 | | December 31, 2021 |
Foreign currency collars | | Other assets, net | | $ | 41,827 | | | $ | 19,484 | | | $ | — | | | $ | — | |
Interest rate swap | | Other assets, net | | 503 | | | — | | | — | | | — | |
Interest rate cap | | Other assets, net | | 5 | | | 1 | | | — | | | — | |
Foreign currency collars | | Accounts payable, accrued expenses and other liabilities | | — | | | — | | | — | | | (1,311) | |
Interest rate swaps | | Accounts payable, accrued expenses and other liabilities | | — | | | — | | | — | | | (908) | |
| | | | 42,335 | | | 19,485 | | | — | | | (2,219) | |
Derivatives Not Designated as Hedging Instruments | | | | | | | | | | |
Stock warrants | | Other assets, net | | 4,600 | | | 4,600 | | | — | | | — | |
Foreign currency collars | | Other assets, net | | 1,126 | | | — | | | — | | | — | |
| | | | 5,726 | | | 4,600 | | | — | | | — | |
Total derivatives | | | | $ | 48,061 | | | $ | 24,085 | | | $ | — | | | $ | (2,219) | |
|
| | | | | | | | | | | | | | | | | | |
Derivatives Designated as Hedging Instruments | | Balance Sheet Location | | Asset Derivatives Fair Value at | | Liability Derivatives Fair Value at |
| | September 30, 2017 | | December 31, 2016 | | September 30, 2017 | | December 31, 2016 |
Foreign currency forward contracts | | Other assets, net | | $ | 15,636 |
| | $ | 37,040 |
| | $ | — |
| | $ | — |
|
Foreign currency collars | | Other assets, net | | 5,837 |
| | 17,382 |
| | — |
| | — |
|
Interest rate swaps | | Other assets, net | | 227 |
| | 190 |
| | — |
| | — |
|
Interest rate cap | | Other assets, net | | 24 |
| | 45 |
| | — |
| | — |
|
Foreign currency collars | | Accounts payable, accrued expenses and other liabilities | | — |
| | — |
| | (4,472 | ) | | — |
|
Interest rate swaps | | Accounts payable, accrued expenses and other liabilities | | — |
| | — |
| | (1,822 | ) | | (2,996 | ) |
Derivatives Not Designated as Hedging Instruments | | | | | | | | | | |
Stock warrants | | Other assets, net | | 3,551 |
| | 3,752 |
| | — |
| | — |
|
Interest rate swap (a) | | Other assets, net | | 14 |
| | 9 |
| | — |
| | — |
|
Total derivatives | | | | $ | 25,289 |
| | $ | 58,418 |
| | $ | (6,294 | ) | | $ | (2,996 | ) |
__________
| |
(a) | 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. |
W. P. Carey 6/30/2022 10-Q– 26
|
| |
| W. P. Carey 9/30/2017 10-Q– 32
|
Notes to Consolidated Financial Statements (Unaudited)
The following tables present the impact of our derivative instruments in the consolidated financial statements (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amount of Gain (Loss) Recognized on Derivatives in Other Comprehensive Income (Loss) (a) |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
Derivatives in Cash Flow Hedging Relationships | | 2022 | | 2021 | | 2022 | | 2021 |
Foreign currency collars | | $ | 18,456 | | | $ | (2,539) | | | $ | 23,654 | | | $ | 13,628 | |
Interest rate swaps | | 575 | | | 235 | | | 1,356 | | | 3,648 | |
Interest rate caps | | 2 | | | 2 | | | 5 | | | 4 | |
Total | | $ | 19,033 | | | $ | (2,302) | | | $ | 25,015 | | | $ | 17,280 | |
|
| | | | | | | | | | | | | | | | |
| | Amount of Gain (Loss) Recognized on Derivatives in Other Comprehensive Income (Loss) (Effective Portion) (a) |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
Derivatives in Cash Flow Hedging Relationships | | 2017 | | 2016 | | 2017 | | 2016 |
Foreign currency collars | | $ | (5,398 | ) | | $ | (439 | ) | | $ | (16,002 | ) | | $ | 3,618 |
|
Foreign currency forward contracts | | (4,752 | ) | | (3,622 | ) | | (16,422 | ) | | (7,830 | ) |
Interest rate swaps | | 250 |
| | 961 |
| | 779 |
| | (1,536 | ) |
Interest rate caps | | (17 | ) | | (29 | ) | | (26 | ) | | (21 | ) |
Derivatives in Net Investment Hedging Relationships (b) | | | | | | | | |
Foreign currency forward contracts | | (1,171 | ) | | (2,200 | ) | | (5,347 | ) | | (3,357 | ) |
Total | | $ | (11,088 | ) | | $ | (5,329 | ) | | $ | (37,018 | ) | | $ | (9,126 | ) |
| | | | Amount of Gain (Loss) on Derivatives Reclassified from Other Comprehensive Income (Loss) (Effective Portion) | | Amount of Gain (Loss) on Derivatives Reclassified from Other Comprehensive Income (Loss) |
Derivatives in Cash Flow Hedging Relationships | | Location of Gain (Loss) Recognized in Income | | Three Months Ended September 30, | | Nine Months Ended September 30, | Derivatives in Cash Flow Hedging Relationships | | Location of Gain (Loss) Recognized in Income | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2022 | | 2021 | | 2022 | | 2021 |
Foreign currency forward contracts | | Other income and (expenses) | | $ | 1,454 |
| | $ | 1,773 |
| | $ | 5,336 |
| | $ | 5,163 |
| |
Foreign currency collars | | Other income and (expenses) | | 735 |
| | 654 |
| | 3,154 |
| | 1,259 |
| Foreign currency collars | | Non-operating income | | $ | 3,359 | | | $ | 614 | | | $ | 5,463 | | | $ | (567) | |
Interest rate swaps and caps | | Interest expense | | (286 | ) | | (512 | ) | | (1,024 | ) | | (1,578 | ) | |
Interest rate swaps and caps (b) | | Interest rate swaps and caps (b) | | Interest expense | | (122) | | | (198) | | | (286) | | | (524) | |
Total | | $ | 1,903 |
| | $ | 1,915 |
| | $ | 7,466 |
| | $ | 4,844 |
| Total | | $ | 3,237 | | | $ | 416 | | | $ | 5,177 | | | $ | (1,091) | |
__________
| |
(a) | Excludes net losses of $0.4 million and net gains of less than $0.1 million recognized on unconsolidated jointly owned investments for the three months ended September 30, 2017 and 2016, respectively, and net losses of $0.9 million and $0.2 million for the nine months ended September 30, 2017 and 2016, respectively. |
| |
(b) | The effective portion of the changes in fair value of these contracts are reported in the foreign currency translation adjustment section of Other comprehensive income (loss). |
(a)Excludes net gains of $0.9 million and $0.3 million recognized on unconsolidated jointly owned investments for the three months ended June 30, 2022 and 2021, respectively, and net gains of $2.3 million and $0.6 million for the six months ended June 30, 2022 and 2021, respectively.
(b)Amount for the six months ended June 30, 2021 excludes other comprehensive income totaling $3.1 million that was released from the consolidated financial statements (along with the related liability balances) upon the termination of interest rate swaps in connection with certain prepayments of non-recourse mortgage loans during the period.
|
| |
| W. P. Carey 9/30/2017 10-Q– 33
|
Notes to Consolidated Financial Statements (Unaudited)
Amounts reported in Other comprehensive (loss) income (loss) related to interest rate swapsderivative contracts will be reclassified to Interest expense as interest is incurred on our variable-rate debt. Amounts reported in Other comprehensive (loss) income (loss) related to foreign currency derivative contracts will be reclassified to OtherNon-operating income and (expenses) when the hedged foreign currency contracts are settled. As of SeptemberJune 30, 2017,2022, we estimate that an additional $0.7$0.2 million and $7.5$18.1 million will be reclassified as interestInterest expense and otherNon-operating income, 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 |
Derivatives in Cash Flow Hedging Relationships | | Location of Gain (Loss) Recognized in Income | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Foreign currency collars | | Non-operating income | | $ | 2,575 | | | $ | (841) | | | $ | 3,783 | | | $ | 159 | |
Interest rate swaps | | Interest expense | | 144 | | | 225 | | | 331 | | | 1,131 | |
Derivatives Not in Cash Flow Hedging Relationships | | | | | | | | | | |
Foreign currency collars | | Other gains and (losses) | | 842 | | | — | | | 1,126 | | | — | |
Stock warrants | | Other gains and (losses) | | — | | | (500) | | | — | | | (500) | |
Total | | | | $ | 3,561 | | | $ | (1,116) | | | $ | 5,240 | | | $ | 790 | |
|
| | | | | | | | | | | | | | | | | | |
| | | | Amount of Gain (Loss) on Derivatives Recognized in Income |
Derivatives Not in Cash Flow Hedging Relationships | | Location of Gain (Loss) Recognized in Income | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
Foreign currency collars | | Other income and (expenses) | | $ | (225 | ) | | $ | 78 |
| | $ | (718 | ) | | $ | 257 |
|
Stock warrants | | Other income and (expenses) | | 134 |
| | 335 |
| | (201 | ) | | 134 |
|
Foreign currency forward contracts | | Other income and (expenses) | | (19 | ) | | — |
| | (19 | ) | | — |
|
Interest rate swaps | | Other income and (expenses) | | 2 |
| | 401 |
| | 11 |
| | 2,656 |
|
Derivatives in Cash Flow Hedging Relationships | | | | | | | | | | |
Interest rate swaps (a) | | Interest expense | | 153 |
| | 165 |
| | 455 |
| | 428 |
|
Foreign currency forward contracts | | Other income and (expenses) | | (14 | ) | | (55 | ) | | (75 | ) | | 86 |
|
Foreign currency collars | | Other income and (expenses) | | (13 | ) | | (26 | ) | | (11 | ) | | 12 |
|
Total | | | | $ | 18 |
| | $ | 898 |
| | $ | (558 | ) | | $ | 3,573 |
|
__________
| |
(a) | Relates to the ineffective portion of the hedging relationship. |
See below for information on our purposes for entering into derivative instruments and for information on derivative instruments owned by unconsolidated investments, which are excluded from the tables above.instruments.
W. P. Carey 6/30/2022 10-Q– 27
Notes to Consolidated Financial Statements (Unaudited)
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 mortgagegenerally seek long-term debt financing on a long-term, fixed-rate basis. However, from time to time, we or our investment partners have obtained, and may in the future obtain, variable-rate, non-recourse mortgage loans and, as a result, we have entered into, and may continue to enter into, interest rate swap agreements or interest rate cap agreements with counterparties. 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.
|
| |
| W. P. Carey 9/30/2017 10-Q– 34
|
Notes to Consolidated Financial Statements (Unaudited)
The interest rate swaps and caps that our consolidated subsidiaries had outstanding at SeptemberJune 30, 20172022 are summarized as follows (currency in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
Interest Rate Derivatives | | Number of Instruments | | Notional Amount | | Fair Value at June 30, 2022 (a) |
Designated as Cash Flow Hedging Instruments | | | | | | | |
Interest rate swaps | | 2 | | 46,584 | | EUR | | $ | 496 | |
Interest rate swap | | 1 | | 15,718 | | USD | | 7 | |
Interest rate cap | | 1 | | 10,608 | | EUR | | 5 | |
| | | | | | | $ | 508 | |
|
| | | | | | | | | | |
| | Number of Instruments |
| Notional Amount |
| Fair Value at September 30, 2017 (a) |
Interest Rate Derivatives | |
|
|
Designated as Cash Flow Hedging Instruments | | | | | | | |
Interest rate swaps | | 11 | | 104,966 |
| USD | | $ | (1,455 | ) |
Interest rate swap | | 1 | | 5,813 |
| EUR | | (140 | ) |
Interest rate cap | | 1 | | 30,517 |
| EUR | | 24 |
|
Not Designated as Cash Flow Hedging Instruments | | | | | | | |
Interest rate swap (b) | | 1 | | 2,890 |
| USD | | 14 |
|
| | | | | | | $ | (1,557 | ) |
____________________(a)Fair value amounts are based on the exchange rate of the euro at June 30, 2022, as applicable.
| |
(a) | Fair value amounts are based on the exchange rate of the euro at September 30, 2017, 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 and Collars
We are exposed to foreign currency exchange rate movements, primarily in the euro and, to a lesser extent, the British pound sterling, the Australian dollar,Norwegian krone, and certain other currencies. 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 income and (expenses) 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. A foreign currency collar consists of a written call option and a purchased put option to sell the foreign currency at a range of predetermined exchange rates. 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 7762 months or less.
The following table presents the foreign currency derivative contractscollars that we had outstanding at SeptemberJune 30, 2017, which were designated as cash flow hedges2022 (currency in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
Foreign Currency Derivatives | | Number of Instruments | | Notional Amount | | Fair Value at June 30, 2022 |
Designated as Cash Flow Hedging Instruments | | | | | | | |
Foreign currency collars | | 79 | | 311,100 | | EUR | | $ | 35,741 | |
Foreign currency collars | | 85 | | 55,120 | | GBP | | 6,086 | |
Not Designated as Cash Flow Hedging Instruments | | | | | | | |
Foreign currency collars | | 2 | | 15,100 | | EUR | | 1,126 | |
| | | | | | | $ | 42,953 | |
|
| | | | | | | | | | |
| | Number of Instruments | | Notional Amount | | Fair Value at September 30, 2017 |
Foreign Currency Derivatives | | | |
Designated as Cash Flow Hedging Instruments | | | | | | | |
Foreign currency forward contracts | | 25 | | 77,208 |
| EUR | | $ | 12,553 |
|
Foreign currency collars | | 24 | | 40,750 |
| GBP | | 5,316 |
|
Foreign currency collars | | 24 | | 87,150 |
| EUR | | (3,951 | ) |
Foreign currency forward contracts | | 5 | | 2,680 |
| GBP | | 603 |
|
Foreign currency forward contracts | | 9 | | 11,411 |
| AUD | | 404 |
|
Designated as Net Investment Hedging Instruments | | | | | | | |
Foreign currency forward contracts | | 3 | | 74,463 |
| AUD | | 2,076 |
|
| | | | | | | $ | 17,001 |
|
|
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| W. P. Carey 9/30/2017 10-Q– 35
|
Notes to Consolidated Financial Statements (Unaudited)
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 SeptemberJune 30, 2017.2022. At SeptemberJune 30, 2017,2022, our total credit exposure and the maximum exposure to any single counterparty was $19.9$43.8 million and $13.5$8.5 million, respectively.
W. P. Carey 6/30/2022 10-Q– 28
Notes to Consolidated Financial Statements (Unaudited)
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. At SeptemberJune 30, 2017,2022, 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 $6.5 million and $3.3$2.2 million at September 30, 2017 and December 31, 2016, respectively,2021, which included accrued interest and any nonperformance risk adjustments.adjustments (there was 0 such liability balance at June 30, 2022). If we had breached any of these provisions at September 30, 2017 or December 31, 2016,2021, we could have been required to settle our obligations under these agreements at their aggregate termination value of $6.8 million and $3.3 million, respectively.$2.3 million.
Net Investment Hedges
At September 30, 2017, the €236.3 million borrowedBorrowings under our Senior Unsecured Notes, Unsecured Revolving Credit Facility, and Unsecured Term Loans (all as defined in Note 10) denominated in euro, outstanding under our Amended Term Loan was designated as a net investment hedge (Note 10). Additionally, we have had two issuances of euro-denominated senior notes, each with a principal amount of €500.0 million, which we refer to as the 2.0% Senior Notes and 2.25% Senior Notes (Note 10). These borrowingsBritish pounds sterling, or Japanese yen are designated as, and are effective as, economic hedges of our net investments in foreign entities. Variability in the exchange rates of the foreign currencies with respect to the U.S. dollar impacts
Exchange rate variations impact our financial results asbecause the financial results of our foreign subsidiaries are translated to U.S. dollars each period, with the effect of changes in the foreign currencies to U.S. dollar exchange ratesrate variations being recorded in Other comprehensive (loss) income (loss) as part of the cumulative foreign currency translation adjustment. As a result, the borrowings in euro under our Amended Term Loan, 2.0% Senior Notes, and 2.25% Senior Notes are recorded at cost in the consolidated financial statements and all changes in the value of our borrowings under our euro-denominated senior notes and changes in the value of our euro, Japanese yen, and British pound sterling borrowings under our Senior Unsecured Credit Facility, related to changes in the spot rates, will be reported in the same manner as aforeign currency translation adjustment,adjustments, which isare recorded in Other comprehensive (loss) income (loss) as part of the cumulative foreign currency translation adjustment.
At September 30, 2017, we also had foreign currency forward contracts that were designated as Such gains (losses) related to non-derivative net investment hedges as discussed in“Derivative Financial Instruments” above.were $236.4 million and $(44.5) million for the three months ended June 30, 2022 and 2021, respectively, and $313.3 million and $98.0 million for the six months ended June 30, 2022 and 2021, respectively.
Note 10. Debt
Senior Unsecured Credit Facility
AsOn February 20, 2020, we entered into the Fourth Amended and Restated Credit Facility, which had capacity of December 31, 2016, we hadapproximately $2.1 billion, comprised of (i) a senior credit facility that provided for a $1.5$1.8 billion unsecured revolving credit facility orfor our Unsecuredworking capital needs, acquisitions, and other general corporate purposes (our “Unsecured Revolving Credit Facility, andFacility”), (ii) a $250.0£150.0 million term loan facility, or our Prior Term Loan, which we refer to collectively as the Senior Unsecured Credit Facility. At December 31, 2016, the Senior Unsecured Credit Facility also permitted (i) up to $750.0 million under our Unsecured Revolving Credit Facility to be borrowed in certain currencies other than the U.S. dollar, (ii) swing line loans up to $50.0 million under our Unsecured Revolving Credit Facility,(our “Term Loan”), and (iii) the issuance of letters of credit under our Unsecured Revolving Credit Facility in an aggregate amount not to exceed $50.0 million. On January 26, 2017, we exercised our option to extend our Prior Term Loan by an additional year to January 31, 2018.
On February 22, 2017, we amended and restated our Senior Unsecured Credit Facility to increase its capacity to approximately $1.85 billion, which is comprised of $1.5 billion under our Unsecured Revolving Credit Facility, a €236.3 million term loan, or our Amended Term Loan, and a $100.0€96.5 million delayed draw term loan or our Delayed(our “Delayed Draw Term Loan. The Delayed Draw Term Loan allows for borrowings in U.S. dollars, euros, or British pounds sterling.Loan”). We refer to our Prior Term Loan, Amended Term Loan and Delayed Draw Term Loan collectively as the Unsecured“Unsecured Term Loans.
On February 22, 2017, we drew downLoans” and the entire facility collectively as our Amended Term Loan in full by borrowing €236.3 million (equivalent to $250.0 million) to repay and terminate our $250.0 million Prior Term Loan. On June 8, 2017, we drew down our Delayed Draw Term Loan in full by borrowing €88.7 million (equivalent to $100.0 million) to partially pay down the amounts then outstanding under our“Senior Unsecured Revolving Credit Facility.”
The maturity date of the Unsecured Revolving Credit Facility is February 22, 2021. We have two options to extend the maturity date of the Unsecured Revolving Credit Facility by six months, subject to the conditions provided in the Third Amended and Restated Credit Facility dated February 22, 2017, as amended, or the Credit Agreement. The maturity date of both the Amended
|
| |
| W. P. Carey 9/30/2017 10-Q– 36
|
Notes to Consolidated Financial Statements (Unaudited)
Term Loan and Delayed Draw Term Loan is February 22, 2022. The Senior Unsecured Credit Facility is being used for working capital needs, for acquisitions, and for other general corporate purposes.
The Credit Agreement also permits (i) a sub-limit for upincludes the ability to $1.0 billion under the Unsecured Revolving Credit Facility to be borrowedborrow in certain currencies other than U.S. dollars (ii)and has a sub-limit for swing line loansmaturity date of up to $75.0 million under the Unsecured Revolving Credit Facility, and (iii) a sub-limit for the issuance of letters of credit under the Unsecured Revolving Credit Facility in an aggregate amount not to exceed $50.0 million.February 20, 2025. The aggregate principal amount (of revolving and term loans) available under the Senior Unsecured Credit AgreementFacility may be increased up to an amount not to exceed the U.S. dollar equivalent of $2.35$2.75 billion, and may be allocated as an increase to the Unsecured Revolving Credit Facility, the Amended Term Loan, or the Delayed Draw Term Loan, or if the Amended Term Loan has been terminated, an add-on term loan, in each case subject to the conditions to increase providedset forth in our Credit Agreement, as described above.
In April 2022, we entered into a Second Amendment to the Credit Agreement. In connection withAgreement to increase the amendmentTerm Loan to £270.0 million and restatementthe Delayed Draw Term Loan to €215.0 million, thereby increasing the total capacity of our Senior Unsecured Credit Facility we capitalized deferred financing costs totaling $8.5 million, which is being amortized to Interest expense overapproximately $2.4 billion. There were no other changes to the remaining terms of our Credit Agreement. We used the approximately $300 million of proceeds from this increase in the capacity of our Unsecured Term Loans to partially repay amounts outstanding under our Unsecured Revolving Credit Facility and Amended Term Loan.Facility.
At SeptemberJune 30, 2017,2022, our Unsecured Revolving Credit Facility had unusedavailable capacity of $1.3approximately $1.4 billion excluding(net of amounts reserved for outstanding letters of credit. As of September 30, 2017, our lenders had issuedstandby letters of credit totaling $0.1 million on our behalf in connection with certain contractual obligations, which reduce amounts that may be drawn under our Unsecured Revolving Credit Facility by the same amount.$0.6 million). We also incur aan annual facility fee of 0.20% of the total commitment on our Unsecured Revolving Credit Facility, and a feewhich is included within Interest expense in our consolidated statements of 0.20% on the unused commitments under our Delayed Draw Term Loan priorincome.
W. P. Carey 6/30/2022 10-Q– 29
Notes to the draw or termination of such commitments.Consolidated Financial Statements (Unaudited)
The following table presents a summary of our Senior Unsecured Credit Facility (dollars in millions)thousands):
|
| | | | | | | | | | | | |
|
| Interest Rate at September 30, 2017 (a) |
| Maturity Date at September 30, 2017 |
| Principal Outstanding Balance at |
Senior Unsecured Credit Facility |
|
|
| September 30, 2017 |
| December 31, 2016 |
Unsecured Term Loans: |
|
|
|
|
|
|
|
|
Amended Term Loan — borrowing in euros (b) (c) |
| EURIBOR + 1.10% |
| 2/22/2022 |
| $ | 279.0 |
|
| $ | — |
|
Delayed Draw Term Loan — borrowing in euros (c) |
| EURIBOR + 1.10% |
| 2/22/2022 |
| 104.7 |
|
| — |
|
Prior Term Loan — borrowing in U.S. dollars (d) | | N/A | | N/A | | — |
| | 250.0 |
|
|
|
|
|
|
| 383.7 |
|
| 250.0 |
|
Unsecured Revolving Credit Facility: |
|
|
|
|
|
|
|
|
|
|
Unsecured Revolving Credit Facility — borrowing in U.S. dollars |
| LIBOR + 1.00% |
| 2/22/2021 |
| 113.0 |
|
| 390.0 |
|
Unsecured Revolving Credit Facility — borrowing in euros (c) |
| EURIBOR + 1.00% |
| 2/22/2021 |
| 111.2 |
|
| 286.7 |
|
|
|
|
|
|
| 224.2 |
|
| 676.7 |
|
|
|
|
|
|
| $ | 607.9 |
|
| $ | 926.7 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Interest Rate at June 30, 2022 (a) | | Maturity Date at June 30, 2022 | | Principal Outstanding Balance at |
Senior Unsecured Credit Facility | | | | June 30, 2022 | | December 31, 2021 |
Unsecured Term Loans: | | | | | | | | |
Term Loan — borrowing in British pounds sterling (b) (c) (d) | | SONIA + 0.9826% | | 2/20/2025 | | $ | 326,787 | | | $ | 202,183 | |
Delayed Draw Term Loan — borrowing in euros (e) | | EURIBOR + 0.95% | | 2/20/2025 | | 223,321 | | | 109,296 | |
| | | | | | 550,108 | | | 311,479 | |
Unsecured Revolving Credit Facility: | | | | | | | | |
Borrowing in euros (e) | | EURIBOR + 0.85% | | 2/20/2025 | | 248,769 | | | 205,001 | |
Borrowing in U.S. dollars (f) | | LIBOR + 0.85% | | 2/20/2025 | | 151,000 | | | — | |
Borrowing in Japanese yen (g) | | TIBOR + 0.85% | | 2/20/2025 | | 17,686 | | | 20,935 | |
Borrowing in British pounds sterling | | N/A | | 2/20/2025 | | — | | | 184,660 | |
| | | | | | 417,455 | | | 410,596 | |
| | | |
| | $ | 967,563 | | | $ | 722,075 | |
__________
| |
(a) | The applicable interest rate at September 30, 2017(a)The applicable interest rate at June 30, 2022 was based on the credit rating for our Senior Unsecured Notes of BBB/Baa2 . (b)SONIA means Sterling Overnight Index Average. (c)Interest rate includes both a spread adjustment to the base rate and a credit spread. (d)Balance excludes unamortized discount of $1.8 million and $0.9 million at June 30, 2022 and December 31, 2021, respectively. (e)EURIBOR means Euro Interbank Offered Rate. (f)LIBOR means London Interbank Offered Rate. (g)TIBOR means Tokyo Interbank Offered Rate.
Senior Unsecured Senior Notes of BBB/Baa2. |
| |
(b) | Balance excludes unamortized deferred financing costs of $0.2 million and unamortized discount of $1.3 million at September 30, 2017. |
| |
(c) | EURIBOR means Euro Interbank Offered Rate. |
| |
(d) | Balance excludes unamortized deferred financing costs of less than $0.1 million at December 31, 2016. |
Unsecured Senior Notes
As set forth in the table below, we have euro and U.S. dollar-denominated senior unsecured senior notes outstanding with an aggregate principal balance outstanding of $2.5$5.5 billion at SeptemberJune 30, 2017. 2022 (the “Senior Unsecured Notes”).
We refer to these notes collectively asredeemed the Unsecured Senior Notes. On January 19, 2017, we completed a public offering of €500.0 million of 2.25%2.0% Senior Notes atdue 2023 in March 2021. In connection with this redemption, we paid a price“make-whole” amount of 99.448%$26.2 million (based on the exchange rate of par value, issued bythe euro as of the date of redemption) and recognized a loss on extinguishment of $28.2 million, which is included within Other gains and (losses) on our wholly owned subsidiary, WPC Eurobond B.V., which are guaranteed by us. These 2.25% Senior Notes have a 7.5-year term and are scheduled to mature on July 19, 2024.consolidated statements of income for the six months ended June 30, 2021.
W. P. Carey 6/30/2022 10-Q– 30
|
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| W. P. Carey 9/30/2017 10-Q– 37
|
Notes to Consolidated Financial Statements (Unaudited)
Interest on the Senior Unsecured Senior Notes is payable annually in arrears for our euro-denominated senior notes and semi-annually for U.S. dollar-denominated senior notes. The Senior Unsecured Senior Notes can be redeemed at par within three months of their respective maturities, or we can call the notes at any time for the principal, accrued interest, and a make-whole amount based upon the applicable government bond yield plus 3020 to 35 basis points. The following table presents a summary of our Senior Unsecured Senior Notes outstanding at SeptemberJune 30, 20172022 (currency in millions)thousands):
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Original Issue Discount | | Effective Interest Rate | | | | | | Principal Outstanding Balance at |
Unsecured Senior Notes, net (a) | | Issue Date | | Principal Amount | | Price of Par Value | | | | Coupon Rate | | Maturity Date | | September 30, 2017 | | December 31, 2016 |
2.0% Senior Notes | | 1/21/2015 | | € | 500.0 |
| | 99.220 | % | | $ | 4.6 |
| | 2.107 | % | | 2.0 | % | | 1/20/2023 | | $ | 590.3 |
| | $ | 527.1 |
|
4.6% Senior Notes | | 3/14/2014 | | $ | 500.0 |
| | 99.639 | % | | $ | 1.8 |
| | 4.645 | % | | 4.6 | % | | 4/1/2024 | | 500.0 |
| | 500.0 |
|
2.25% Senior Notes | | 1/19/2017 | | € | 500.0 |
| | 99.448 | % | | $ | 2.9 |
| | 2.332 | % | | 2.25 | % | | 7/19/2024 | | 590.3 |
| | — |
|
4.0% Senior Notes | | 1/26/2015 | | $ | 450.0 |
| | 99.372 | % | | $ | 2.8 |
| | 4.077 | % | | 4.0 | % | | 2/1/2025 | | 450.0 |
| | 450.0 |
|
4.25% Senior Notes | | 9/12/2016 | | $ | 350.0 |
| | 99.682 | % | | $ | 1.1 |
| | 4.290 | % | | 4.25 | % | | 10/1/2026 | | 350.0 |
| | 350.0 |
|
| | | | | | | | | | | | | | | | $ | 2,480.6 |
| | $ | 1,827.1 |
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| | | | Principal Amount | | Coupon Rate | | Maturity Date | | Principal Outstanding Balance at |
Senior Unsecured Notes, net (a) | | Issue Date | | | | | June 30, 2022 | | December 31, 2021 |
4.6% Senior Notes due 2024 | | 3/14/2014 | | $ | 500,000 | | | 4.6 | % | | 4/1/2024 | | $ | 500,000 | | | $ | 500,000 | |
2.25% Senior Notes due 2024 | | 1/19/2017 | | € | 500,000 | | | 2.25 | % | | 7/19/2024 | | 519,350 | | | 566,300 | |
4.0% Senior Notes due 2025 | | 1/26/2015 | | $ | 450,000 | | | 4.0 | % | | 2/1/2025 | | 450,000 | | | 450,000 | |
2.250% Senior Notes due 2026 | | 10/9/2018 | | € | 500,000 | | | 2.250 | % | | 4/9/2026 | | 519,350 | | | 566,300 | |
4.25% Senior Notes due 2026 | | 9/12/2016 | | $ | 350,000 | | | 4.25 | % | | 10/1/2026 | | 350,000 | | | 350,000 | |
2.125% Senior Notes due 2027 | | 3/6/2018 | | € | 500,000 | | | 2.125 | % | | 4/15/2027 | | 519,350 | | | 566,300 | |
1.350% Senior Notes due 2028 | | 9/19/2019 | | € | 500,000 | | | 1.350 | % | | 4/15/2028 | | 519,350 | | | 566,300 | |
3.850% Senior Notes due 2029 | | 6/14/2019 | | $ | 325,000 | | | 3.850 | % | | 7/15/2029 | | 325,000 | | | 325,000 | |
0.950% Senior Notes due 2030 | | 3/8/2021 | | € | 525,000 | | | 0.950 | % | | 6/1/2030 | | 545,318 | | | 594,615 | |
2.400% Senior Notes due 2031 | | 10/14/2020 | | $ | 500,000 | | | 2.400 | % | | 2/1/2031 | | 500,000 | | | 500,000 | |
2.450% Senior Notes due 2032 | | 10/15/2021 | | $ | 350,000 | | | 2.450 | % | | 2/1/2032 | | 350,000 | | | 350,000 | |
2.250% Senior Notes due 2033 | | 2/25/2021 | | $ | 425,000 | | | 2.250 | % | | 4/1/2033 | | 425,000 | | | 425,000 | |
| | | | | | | | | | $ | 5,522,718 | | | $ | 5,759,815 | |
__________
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(a) | (a)Aggregate balance excludes unamortized deferred financing costs totaling $15.0 million and $12.1 million, and unamortized discount totaling $10.2 million and $7.8 million, at September 30, 2017 and December 31, 2016, respectively. |
Proceeds from the issuances of each of these notes were used primarily to partially pay down the amounts then outstanding under the unsecured revolving credit facility that we had in place at that time. In connection with the offering of the 2.25% Senior Notes in January 2017, we incurred financing costs totaling $4.0$25.6 million during the nine months ended Septemberand $28.7 million, and unamortized discount totaling $26.0 million and $29.2 million, at June 30, 2017, which are included in Unsecured Senior Notes, net in the consolidated financial statements2022 and are being amortized to Interest expense over the term of the 2.25% Senior Notes.December 31, 2021, respectively.
Covenants
The Senior Unsecured Credit Facility, as amended, andAgreement, each of the Senior Unsecured Senior Notes, and certain of our non-recourse mortgage loan agreements include customary financial maintenance covenants that require us to maintain certain ratios and benchmarks at the end of each quarter. The Senior Unsecured Credit Facility also contains various customary affirmative and negativeThere have been no significant changes in our debt covenants applicable to us and our subsidiaries, subject to materiality and other qualifications, baskets, and exceptions as outlinedfrom what was disclosed in the Credit Agreement.2021 Annual Report. We were in compliance with all of these covenants at SeptemberJune 30, 2017.2022.
We may make unlimited Restricted Payments (as defined in the Credit Agreement), as long as no non-payment default or financial covenant default has occurred before, or would on a pro forma basis occur as a result of, the Restricted Payment. In addition, we may make Restricted Payments in an amount required to (i) maintain our REIT status and (ii) as a result of that status, not pay federal or state income or excise tax, as long as the loans under the Credit Agreement have not been accelerated and no bankruptcy or event of default has occurred.
Obligations under the Senior Unsecured Credit Facility may be declared immediately due and payable upon the occurrence of certain events of default as defined in the Credit Agreement, including failure to pay any principal when due and payable, failure to pay interest within five business days after becoming due, failure to comply with any covenant, representation or condition of any loan document, any change of control, cross-defaults, and certain other events as set forth in the Credit Agreement, with grace periods in some cases.
Non-Recourse Mortgages
At SeptemberJune 30, 2017,2022, the weighted-average interest rate for our total non-recourse mortgage notes payable bore interest at fixed annual rates ranging from 2.0% to 7.8%was 3.8% (fixed-rate and variable contractual annual rates ranging from 0.9% to 6.9%variable-rate non-recourse mortgage notes payable were 4.8% and 1.9%, respectively), with maturity dates ranging from December 2017August 2022 to September 2031.
Repayments
During the six months ended June 2027.
In January 2017,30, 2022, we repaid two international(i) prepaid a non-recourse mortgage loansloan of $10.4 million and (ii) repaid a non-recourse mortgage loan at maturity with an aggregatea principal balance of approximately $243.8$2.5 million. We recognized a net loss on extinguishment of debt of $1.1 million encumberingon these repayments, which is included within Other gains and (losses) on our consolidated statements of income. The weighted-average interest rate for these non-recourse mortgage loans on their respective dates of repayment was 5.8%.
During the six months ended June 30, 2021, we (i) prepaid non-recourse mortgage loans totaling $426.9 million, and (ii) repaid a German investment,non-recourse mortgage loan at maturity with a principal balance of approximately $3.0 million. We recognized an aggregate net loss on extinguishment of debt of $31.9 million on these repayments, primarily comprised of certain properties leased to Hellweg Die Profi-Baumärkte GmbH & Co. KG, or the Hellweg 2 Portfolio,prepayment penalties totaling $31.8 million, which is jointly owned withincluded within Other gains and (losses) on our affiliate, CPA®:17 – Global. In connection with this repayment, CPA®:17 – Global contributed $90.3 million, which was accounted for as a contribution from a noncontrolling interest. Amounts are based on the exchange rateconsolidated statements of the euro as of the date of repayment.income. The weighted-average interest rate for these non-recourse mortgage loans on their respective dates of repayment was 5.1%.
W. P. Carey 6/30/2022 10-Q– 31
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| W. P. Carey 9/30/2017 10-Q– 38
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Notes to Consolidated Financial Statements (Unaudited)
interest rate for these mortgage loans on the date of repayment was 5.4%. During the nine months ended September 30, 2017, we repaid additional loans at maturity with an aggregate principal balance of approximately $19.3 million.
During the nine months ended September 30, 2017, we prepaid non-recourse mortgage loans totaling $157.4 million, including $38.4 million encumbering properties that were disposed of during the nine months ended September 30, 2017 (Note 15). Amounts are based on the exchange rate of the related foreign currency as of the date of repayment, as applicable. The weighted-average interest rate for these mortgage loans on their respective dates of prepayment was 5.5%. In connection with these payments, we recognized a gain on extinguishment of debt of $0.8 million during the nine months ended September 30, 2017, which was included in Other income and (expenses) in the consolidated financial statements.
Foreign Currency Exchange Rate Impact
During the ninesix months ended SeptemberJune 30, 2017,2022, the U.S. dollar weakenedstrengthened against the euro, resulting in an aggregate increasedecrease of $204.7$329.4 million in the aggregate carrying values of our Non-recourse mortgages, net, Senior Unsecured Credit Facility, and Senior Unsecured Senior Notes, net from December 31, 20162021 to SeptemberJune 30, 2017.2022.
Scheduled Debt Principal Payments
Scheduled debt principal payments during the remainderas of 2017, each of the next four calendar years following December 31, 2017, and thereafter through 2027June 30, 2022 are as follows (in thousands):
| | | | | | | | |
Years Ending December 31, | | Total |
2022 (remainder) | | $ | 30,717 | |
2023 | | 178,319 | |
2024 | | 1,056,815 | |
2025 | | 1,466,474 | |
2026 | | 901,421 | |
Thereafter through 2033 | | 3,185,790 | |
Total principal payments | | 6,819,536 | |
Unamortized discount, net | | (28,209) | |
Unamortized deferred financing costs | | (25,699) | |
Total | | $ | 6,765,628 | |
Certain amounts in the table above are based on the applicable foreign currency exchange rate at June 30, 2022.
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| | | | |
Years Ending December 31, | | Total (a) |
2017 (remainder) | | $ | 40,784 |
|
2018 | | 278,163 |
|
2019 | | 99,384 |
|
2020 | | 221,547 |
|
2021 | | 384,004 |
|
Thereafter through 2027 | | 3,320,040 |
|
Total principal payments | | 4,343,922 |
|
Unamortized deferred financing costs | | (16,210 | ) |
Unamortized discount, net (b) | | (12,874 | ) |
Total | | $ | 4,314,838 |
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__________
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(a) | Certain amounts are based on the applicable foreign currency exchange rate at September 30, 2017. |
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(b) | Represents the unamortized discount on the Unsecured Senior Notes of $10.2 million in aggregate, unamortized discount on the Unsecured Term Loans of $1.3 million, and unamortized discount of $1.4 million in aggregate resulting from the assumption of property-level debt in connection with both the CPA®:15 Merger and the CPA®:16 Merger (Note 1). |
Note 11. Commitments and Contingencies
At SeptemberJune 30, 2017,2022, 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 position or results of operations.
Note 12. Restructuring and Other Compensation
Expenses Recorded During 2017
On June 15, 2017, our Board approved a plan to exit all non-traded retail fundraising activities carried out by our wholly-owned broker-dealer subsidiary, Carey Financial, as of June 30, 2017 (Note 1). As a result, we incurred non-recurring charges to exit our fundraising activities, consisting primarily of severance costs. During the nine months ended September 30, 2017, we recorded $8.2 million of severance and benefits and $0.9 million of other related costs, which are all included in Restructuring and other compensation in the consolidated financial statements.
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| W. P. Carey 9/30/2017 10-Q– 39
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Notes to Consolidated Financial Statements (Unaudited)
Expenses Recorded During 2016
In connection with the resignation of our then-chief executive officer, Trevor P. Bond, we and Mr. Bond entered into a letter agreement, dated February 10, 2016. Under the terms of the agreement, subject to certain conditions, Mr. Bond is entitled to receive the severance benefits provided for in his employment agreement and, subject to satisfaction of applicable performance conditions and proration, vesting of his outstanding unvested PSUs in accordance with their terms. In addition, the portion of his previously granted RSUs that were scheduled to vest on February 15, 2016, which would have been forfeited upon separation pursuant to their terms, were allowed to vest on that date. In connection with the separation agreement, we recorded $5.1 million of severance-related expenses during the nine months ended September 30, 2016, which are included in Restructuring and other compensation in the consolidated financial statements.
In February 2016, we entered into an agreement with Catherine D. Rice, our former chief financial officer, in connection with the termination of her employment, which provides for the continued vesting of her outstanding RSUs and PSUs pursuant to their terms as though her employment had continued through their respective vesting dates. In connection with the modification of these award terms, we recorded incremental stock-based compensation expense of $2.4 million during the nine months ended September 30, 2016, which is included in Restructuring and other compensation in the consolidated financial statements.
In March 2016, as part of a cost savings initiative, we undertook a reduction in force, or RIF, and realigned and consolidated certain positions within the company, resulting in employee headcount reductions. As a result of these reductions in headcount and the separations described above, during the nine months ended September 30, 2016, we recorded $8.2 million of severance and benefits, $3.2 million of stock-based compensation, and $0.5 million of other related costs, which are all included in Restructuring and other compensation in the consolidated financial statements.
As of September 30, 2017, the accrued liability for these severance obligations recorded during 2016 and 2017 was $4.8 million, which is included within Accounts payable, accrued expenses and other liabilities in the consolidated financial statements.
Note 13.12. Stock-Based Compensation and Equity
Stock-Based Compensation
In June 2017, our shareholders approved the 2017 Share Incentive Plan, which replaced our predecessor plans for employees, the 2009 Share Incentive Plan, and for non-employee directors, the 2009 Non-Employee Directors’ Incentive Plan. No further awards will be granted under those predecessorWe maintain several stock-based compensation plans, which are more fully described in the 20162021 Annual Report. The 2017 Share Incentive Plan authorizesThere have been no significant changes to the issuanceterms and conditions of up to 4,000,000 sharesany of our common stock, reduced bystock-based compensation plans or arrangements during the number of shares (279,728) that were subject to awards granted under the 2009 Share Incentive Plan and the 2009 Non-Employee Directors’ Incentive Plan after December 31, 2016 and before the effective date of the 2017 Share Incentive Plan, which was June 15, 2017. The 2017 Share Incentive Plan provides for the grant of various stock- and cash-based awards, including (i) share options, (ii) RSUs, (iii) PSUs, (iv) RSAs, and (v) dividend equivalent rights.
During the ninesix months ended SeptemberJune 30, 2017 and 2016, we2022. We recorded stock-based compensation expense of $14.6$9.8 million and $18.2$9.0 million during the three months ended June 30, 2022 and 2021, respectively, ofand $17.6 million and $14.4 million during the six months ended June 30, 2022 and 2021, respectively, which $3.2 million was included in Restructuring and otherStock-based compensation forexpense in the nine months ended September 30, 2016 (Note 12).consolidated financial statements.
W. P. Carey 6/30/2022 10-Q– 32
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| W. P. Carey 9/30/2017 10-Q– 40
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Notes to Consolidated Financial Statements (Unaudited)
Restricted and Conditional Awards
Nonvested RSAs, RSUs,restricted share awards (“RSAs”), restricted share units (“RSUs”), and PSUsperformance share units (“PSUs”) at SeptemberJune 30, 20172022 and changes during the ninesix months ended September June 30, 2017 2022were as follows:
| | | | | | | | | | | RSA and RSU Awards | | PSU Awards |
| RSA and RSU Awards | | PSU Awards | | Shares | | Weighted-Average Grant Date Fair Value | | Shares | | Weighted-Average Grant Date Fair Value |
| Shares | | Weighted-Average Grant Date Fair Value | | Shares | | Weighted-Average Grant Date Fair Value | |
Nonvested at January 1, 2017 | 356,865 |
| | $ | 61.63 |
| | 310,018 |
| | $ | 73.80 |
| |
Nonvested at January 1, 2022 | | Nonvested at January 1, 2022 | 306,994 | | | $ | 71.21 | | | 398,255 | | | $ | 86.86 | |
Granted (a) | 193,467 |
| | 62.19 |
| | 107,934 |
| | 75.39 |
| Granted (a) | 212,226 | | | 80.10 | | | 144,311 | | | 104.97 | |
Vested (b) | (169,560 | ) | | 62.77 |
| | (132,412 | ) | | 74.21 |
| Vested (b) | (136,412) | | | 72.53 | | | (165,615) | | | 92.16 | |
Forfeited | (41,957 | ) | | 61.09 |
| | (45,258 | ) | | 76.91 |
| Forfeited | (5,412) | | | 76.54 | | | — | | | — | |
Adjustment (c) | — |
| | — |
| | 28,271 |
| | 63.24 |
| Adjustment (c) | — | | | — | | | 143,984 | | | 81.65 | |
Nonvested at September 30, 2017 (d) | 338,815 |
| | $ | 61.45 |
| | 268,553 |
| | $ | 75.18 |
| |
Nonvested at June 30, 2022 (d) | | Nonvested at June 30, 2022 (d) | 377,396 | | | $ | 75.65 | | | 520,935 | | | $ | 89.53 | |
__________
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(a) | (a)The grant date fair value of RSAs and RSUs reflect our stock price on the date of grant on a one-for-one basis. The grant date fair value of PSUs was determined utilizing (i) a Monte Carlo simulation model to generate an estimate of our future stock price over the three-year performance period and (ii) future financial performance projections. To estimate the fair value of PSUs granted during the nine months ended September 30, 2017, we used a risk-free interest rate of 1.5%, an expected volatility rate of 17.1%, and assumed a dividend yield of zero. |
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(b) | The total fair value of shares vested during the nine months ended September 30, 2017 was $20.5 million. Employees have the option to take immediate delivery of the shares upon vesting or defer receipt to a future date pursuant to previously made deferral elections. At September 30, 2017 and December 31, 2016, we had an obligation to issue 1,135,563 and 1,217,274 shares, respectively, of our common stock underlying such deferred awards, which is recorded within Total stockholders’ equity as a Deferred compensation obligation of $46.7 million and $50.2 million, respectively. |
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(c) | Vesting and payment of the PSUs is conditioned upon certain company and/or market performance goals being met during the relevant three-year performance period. The ultimate number of PSUs to be vested will depend on the extent to which the performance goals are met and can range from zero to three times the original awards. As a result, we recorded adjustments to reflect the number of shares expected to be issued when the PSUs vest. |
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(d) | At September 30, 2017, total unrecognized compensation expense related to these awards was approximately $21.4 million, with an aggregate weighted-average remaining term of 1.9 years. |
During the threedate of grant on a 1-for-one basis. The grant date fair value of PSUs was determined utilizing (i) a Monte Carlo simulation model to generate an estimate of our future stock price over the three-year performance period and nine(ii) future financial performance projections. To estimate the fair value of PSUs granted during the six months ended SeptemberJune 30, 2017, 2,4752022, we used a risk-free interest rate of 1.2%, an expected volatility rate of 36.7%, and 134,709assumed a dividend yield of zero.
(b)The grant date fair value of shares vested during the six months ended June 30, 2022 was $25.2 million. Employees have the option to take immediate delivery of the shares upon vesting or defer receipt to a future date pursuant to previously made deferral elections. At June 30, 2022 and December 31, 2021, we had an obligation to issue 1,181,947 and 1,104,020 shares, respectively, of our common stock options, respectively, were exercisedunderlying such deferred awards, which is recorded within Total stockholders’ equity as a Deferred compensation obligation of $57.0 million and $49.8 million, respectively.
(c)Vesting and payment of the PSUs is conditioned upon certain company and/or market performance goals being met during the relevant three-year performance period. The ultimate number of PSUs to be vested will depend on the extent to which the performance goals are met and can range from zero to 3 times the original awards. As a result, we recorded adjustments at June 30, 2022 to reflect the number of shares expected to be issued when the PSUs vest.
(d)At June 30, 2022, total unrecognized compensation expense related to these awards was approximately $47.5 million, with an aggregate intrinsic valueweighted-average remaining term of less than $0.1 million and $4.0 million, respectively. At September 30, 2017, there were 10,324 stock options outstanding, all of which were exercisable and, if not exercised, will expire on December 31, 2017.2.2 years.
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| W. P. Carey 9/30/2017 10-Q– 41
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Notes to Consolidated Financial Statements (Unaudited)
Earnings Per Share
Under current authoritative guidance for determining earnings per share, all nonvested share-based payment awards that contain non-forfeitable rights to distributions are considered to be participating securities and therefore are included in the computation of earnings per share under the two-class method. The two-class method is an earnings allocation formula that determines earnings per share for each class of common shares and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. Certain of our nonvested RSUs and RSAs contain rights to receive non-forfeitable distribution equivalents or distributions, respectively, and therefore we apply the two-class method of computing earnings per share. The calculation of earnings per share below excludes the income attributable to the nonvested participating RSUs and RSAs from the numerator and such nonvested shares in the denominator. The following table summarizes basic and diluted earnings (in thousands, except share amounts)(dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | |
| | | | | | | |
Net income — basic and diluted | $ | 127,678 | | | $ | 120,245 | | | $ | 284,673 | | | $ | 171,879 | |
| | | | | | | |
Weighted-average shares outstanding — basic | 194,019,451 | | | 180,099,370 | | | 192,971,256 | | | 178,379,654 | |
Effect of dilutive securities | 744,244 | | | 569,362 | | | 734,779 | | | 522,605 | |
Weighted-average shares outstanding — diluted | 194,763,695 | | | 180,668,732 | | | 193,706,035 | | | 178,902,259 | |
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| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net income attributable to W. P. Carey | $ | 80,278 |
| | $ | 110,943 |
| | $ | 202,080 |
| | $ | 220,043 |
|
Net income attributable to nonvested participating RSUs and RSAs | (239 | ) | | (386 | ) | | (600 | ) | | (766 | ) |
Net income — basic and diluted | $ | 80,039 |
| | $ | 110,557 |
| | $ | 201,480 |
| | $ | 219,277 |
|
| | | | | | | |
Weighted-average shares outstanding — basic | 108,019,292 |
| | 107,221,668 |
| | 107,751,672 |
| | 106,493,145 |
|
Effect of dilutive securities | 124,402 |
| | 246,361 |
| | 195,818 |
| | 360,029 |
|
Weighted-average shares outstanding — diluted | 108,143,694 |
| | 107,468,029 |
| | 107,947,490 |
| | 106,853,174 |
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For the three and ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, there were no potentially dilutive securities excluded from the computation of diluted earnings per share.
At-The-Market Equity Offering Program
On March 1, 2017, we filed a prospectus supplement with the SEC pursuant to which we may offer and sell shares of our common stock from time to time, up to an aggregate gross sales price of $400.0 million, through a continuous “at-the-market,” or ATM, offering program with a consortium of banks acting as sales agents. On that date, we also terminated a prior ATM program that was established on June 3, 2015, under which we could also offer and sell shares of our common stock, up to an aggregate gross sales price of $400.0 million. During the three and nine months ended September 30, 2017, we issued 15,500 and 345,253 shares, respectively, of our common stock under the current ATM program at a weighted-average price of $67.05 and $67.78 per share, respectively, for net proceeds of $0.9 million and $22.8 million, respectively. During the three and nine months ended September 30, 2016, we issued 968,535 and 1,249,836 shares, respectively, of our common stock under the prior ATM program at a weighted-average price of $68.54 and $68.52 per share, respectively, for net proceeds of $65.2 million and $84.1 million, respectively. As of September 30, 2017, $376.6 million remained available for issuance under our current ATM program.
Acquisition of Noncontrolling Interest
On May 24, 2017, we acquired the remaining 25% interest in an international jointly owned investment (which we already consolidated) from the noncontrolling interest holders for €2, bringing our ownership interest to 100%. No gain or loss was recognized on the transaction. We recorded an adjustment of approximately $1.8 million to Additional paid-in capital in our consolidated statement of equity for the nine months ended September 30, 2017 related to the difference between the consideration transferred and the carrying value of the noncontrolling interest related to this investment. The property owned by the investment was sold on May 26, 2017 and we recognized a gain on sale of less than $0.1 million (Note 15).
Redeemable Noncontrolling Interest
We account for the noncontrolling interest in our subsidiary, W. P. Carey International, LLC, or WPCI, held by a third party as a redeemable noncontrolling interest, because, pursuant to a put option held by the third party, we had an obligation to redeem the interest at fair value, subject to certain conditions. This obligation was required to be settled in shares of our common stock. On October 1, 2013, we received a notice from the holder of the noncontrolling interest in WPCI regarding the exercise of the put option, pursuant to which we were required to purchase the third party’s 7.7% interest in WPCI. Pursuant to the terms of the6/30/2022 10-Q– 33
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| W. P. Carey 9/30/2017 10-Q– 42
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Notes to Consolidated Financial Statements (Unaudited)
ATM Program
related put agreement, the value
On May 2, 2022, we established a continuous “at-the-market” offering program (“ATM Program”) with a syndicate of that interest was determined based on a third-party valuation as of October 31, 2013,banks, pursuant to which is the end of the month that the put option was exercised. In March 2016, we issued 217,011 shares of our common stock having an aggregate gross sales price of up to $1.0 billion may be sold (i) directly through or to the holderbanks acting as sales agents or as principal for their own accounts or (ii) participating banks or their affiliates acting as forward sellers on behalf of the redeemable noncontrolling interest, which had a value of $13.4 million at the date of issuance,any forward purchasers pursuant to a formula set forthforward sale agreement (our “ATM Forwards”). Effective as of that date, we terminated a prior ATM Program that was established on August 9, 2019.
Our prior ATM Program is discussed in the put agreement. Through2021 Annual Report. The following table sets forth certain information regarding the issuance of shares of our common stock under our prior ATM Program during the periods presented (net proceeds in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Shares of common stock issued | 491,068 | | | 2,205,509 | | | 2,740,295 | | | 4,225,624 | |
Weighted-average price per share | $ | 81.70 | | | $ | 74.56 | | | $ | 80.79 | | | $ | 72.50 | |
Net proceeds | $ | 39,101 | | | $ | 162,292 | | | $ | 218,095 | | | $ | 302,512 | |
Forward Equity
We expect to settle the ATM Forwards in full on or prior to the maturity date of this Report,each ATM Forward via physical delivery of the third party hasoutstanding shares of common stock in exchange for cash proceeds. However, subject to certain exceptions, we may also elect to cash settle or net share settle all or any portion of our obligations under any ATM Forwards. The forward sale price that we will receive upon physical settlement of the ATM Forwards will be (i) subject to adjustment on a daily basis based on a floating interest rate factor equal to a specified daily rate less a spread (i.e., if the specified daily rate is less than the spread on any day, the interest rate factor will result in a daily reduction of the applicable forward sale price) and (ii) decreased based on amounts related to expected dividends on shares of our common stock during the term of the ATM Forwards.
We determined that our ATM Forwards meet the criteria for equity classification and are therefore exempt from derivative accounting. We recorded the ATM Forwards at fair value at inception, which we determined to be zero. Subsequent changes to fair value are not formally transferred his interestsrequired under equity classification.
In addition, we refer to our three forward equity offerings presented below as the June 2020 Equity Forwards, June 2021 Equity Forwards, and August 2021 Equity Forwards (collectively, the “Equity Forwards”), which are discussed in WPCIthe 2021 Annual Report. Our ATM Forwards are also presented below (gross offering proceeds at closing in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Agreement Date (a) | | Shares Offered (b) | | Average Gross Offering Price | | Average Gross Offering Proceeds at Closing | | Outstanding Shares as of June 30, 2022 |
June 2020 Equity Forwards (c) | 6/17/2020 | | 5,462,500 | | $ | 70.00 | | | $ | 382,375 | | | — |
June 2021 Equity Forwards (d) | 6/7/2021 | | 6,037,500 | | 75.30 | | | 454,624 | | | — |
August 2021 Equity Forwards | 8/9/2021 | | 5,175,000 | | 78.00 | | | 403,650 | | | 3,925,000 |
ATM Forwards (e) | 5/2/2022 | | 3,674,187 | | 83.98 | | | 308,553 | | | 3,674,187 |
| | | | | | | | | 7,599,187 |
__________
(a)We expect to us pursuantsettle the Equity Forwards in full within 18 months of the respective agreement dates via physical delivery of the outstanding shares of common stock in exchange for cash proceeds, although we may elect cash settlement or net share settlement for all or a portion of our obligations under the Equity Forwards, subject to certain conditions.
(b)Includes 712,500, 787,500, and 675,000 shares of common stock purchased by certain underwriters in connection with the put agreement becauseJune 2020 Equity Forwards, June 2021 Equity Forwards, and August 2021 Equity Forwards, respectively, upon the exercise of a dispute regarding30-day options to purchase additional shares.
(c)All remaining outstanding shares were settled during the three months ended June 30, 2021.
(d)All remaining outstanding shares were settled during the three months ended December 31, 2021.
(e)We sold shares under our ATM Forwards during the second quarter of 2022. We did not settle any amounts that may still be owedof the shares sold and therefore did not receive any proceeds from such sales.
W. P. Carey 6/30/2022 10-Q– 34
Notes to him.Consolidated Financial Statements (Unaudited)
The following table presents a reconciliationsets forth certain information regarding the settlement of redeemable noncontrolling interest (inour Equity Forwards during the periods presented (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Shares of common stock delivered | — | | | 4,523,209 | | | — | | | 4,523,209 | |
Net proceeds | $ | — | | | $ | 309,864 | | | $ | — | | | $ | 309,864 | |
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Beginning balance | $ | 965 |
| | $ | 14,944 |
|
Distributions | — |
| | (13,418 | ) |
Redemption value adjustment | — |
| | (561 | ) |
Ending balance | $ | 965 |
| | $ | 965 |
|
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):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2022 |
| Gains and (Losses) on Derivative Instruments | | Foreign Currency Translation Adjustments | | Gains and (Losses) on Investments | | Total |
Beginning balance | $ | 23,717 | | | $ | (265,857) | | | $ | — | | | $ | (242,140) | |
Other comprehensive loss before reclassifications | 23,213 | | | (43,993) | | | — | | | (20,780) | |
Amounts reclassified from accumulated other comprehensive loss to: | | | | | | | |
Non-operating income | (3,359) | | | — | | | — | | | (3,359) | |
Interest expense | 122 | | | — | | | — | | | 122 | |
Total | (3,237) | | | — | | | — | | | (3,237) | |
Net current period other comprehensive loss | 19,976 | | | (43,993) | | | — | | | (24,017) | |
Ending balance | $ | 43,693 | | | $ | (309,850) | | | $ | — | | | $ | (266,157) | |
| | | Three Months Ended September 30, 2017 | | Three Months Ended June 30, 2021 |
| Gains and Losses on Derivative Instruments | | Foreign Currency Translation Adjustments | | Gains and Losses on Marketable Securities | | Total | | Gains and (Losses) on Derivative Instruments | | Foreign Currency Translation Adjustments | | Gains and (Losses) on Investments | | Total |
Beginning balance | $ | 24,636 |
| | $ | (267,868 | ) | | $ | (416 | ) | | $ | (243,648 | ) | Beginning balance | $ | 982 | | | $ | (234,871) | | | $ | — | | | $ | (233,889) | |
Other comprehensive income before reclassifications | (8,367 | ) | | 25,417 |
| | 66 |
| | 17,116 |
| Other comprehensive income before reclassifications | (1,607) | | | 5,973 | | | — | | | 4,366 | |
Amounts reclassified from accumulated other comprehensive loss to: | | | | | | | | Amounts reclassified from accumulated other comprehensive loss to: | |
Gain on sale of real estate, net of tax (Note 15) | — |
| | 3,562 |
| | — |
| | 3,562 |
| |
Non-operating income | | Non-operating income | (614) | | | — | | | — | | | (614) | |
Interest expense | 286 |
| | — |
| | — |
| | 286 |
| Interest expense | 198 | | | — | | | — | | | 198 | |
Other income and (expenses) | (2,189 | ) | | — |
| | — |
| | (2,189 | ) | |
Total | (1,903 | ) | | 3,562 |
| | — |
| | 1,659 |
| Total | (416) | | | — | | | — | | | (416) | |
Net current period other comprehensive income | (10,270 | ) | | 28,979 |
| | 66 |
| | 18,775 |
| Net current period other comprehensive income | (2,023) | | | 5,973 | | | — | | | 3,950 | |
Net current period other comprehensive gain attributable to noncontrolling interests | 8 |
| | (4,716 | ) | | — |
| | (4,708 | ) | |
Net current period other comprehensive income attributable to noncontrolling interests | | Net current period other comprehensive income attributable to noncontrolling interests | (21) | | | — | | | — | | | (21) | |
Ending balance | $ | 14,374 |
| | $ | (243,605 | ) | | $ | (350 | ) | | $ | (229,581 | ) | Ending balance | $ | (1,062) | | | $ | (228,898) | | | $ | — | | | $ | (229,960) | |
W. P. Carey 6/30/2022 10-Q– 35
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2016 |
| Gains and Losses on Derivative Instruments | | Foreign Currency Translation Adjustments | | Gains and Losses on Marketable Securities | | Total |
Beginning balance | $ | 34,744 |
| | $ | (240,985 | ) | | $ | 40 |
| | $ | (206,201 | ) |
Other comprehensive loss before reclassifications | (1,178 | ) | | (11,824 | ) | | (7 | ) | | (13,009 | ) |
Amounts reclassified from accumulated other comprehensive loss to: | | | | | | | |
Interest expense | 512 |
| | — |
| | — |
| | 512 |
|
Other income and (expenses) | (2,427 | ) | | — |
| | — |
| | (2,427 | ) |
Total | (1,915 | ) | | — |
| | — |
| | (1,915 | ) |
Net current period other comprehensive loss | (3,093 | ) | | (11,824 | ) | | (7 | ) | | (14,924 | ) |
Net current period other comprehensive gain attributable to noncontrolling interests | 17 |
| | (218 | ) | | — |
| | (201 | ) |
Ending balance | $ | 31,668 |
| | $ | (253,027 | ) | | $ | 33 |
| | $ | (221,326 | ) |
|
| |
| W. P. Carey 9/30/2017 10-Q– 43
|
Notes to Consolidated Financial Statements (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2022 |
| Gains and (Losses) on Derivative Instruments | | Foreign Currency Translation Adjustments | | Gains and (Losses) on Investments | | Total |
Beginning balance | $ | 16,347 | | | $ | (256,705) | | | $ | 18,688 | | | $ | (221,670) | |
Other comprehensive loss before reclassifications | 32,523 | | | (53,145) | | | — | | | (20,622) | |
Amounts reclassified from accumulated other comprehensive loss to: | | | | | | | |
Non-operating income | (5,463) | | | — | | | — | | | (5,463) | |
Interest expense | 286 | | | — | | | — | | | 286 | |
Other gains and (losses) (Note 8) | — | | | — | | | (18,688) | | | (18,688) | |
Total | (5,177) | | | — | | | (18,688) | | | (23,865) | |
Net current period other comprehensive loss | 27,346 | | | (53,145) | | | (18,688) | | | (44,487) | |
Ending balance | $ | 43,693 | | | $ | (309,850) | | | $ | — | | | $ | (266,157) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2021 |
| Gains and (Losses) on Derivative Instruments | | Foreign Currency Translation Adjustments | | Gains and (Losses) on Investments | | Total |
Beginning balance | $ | (18,937) | | | $ | (220,969) | | | $ | — | | | $ | (239,906) | |
Other comprehensive income before reclassifications | 16,805 | | | (7,929) | | | — | | | 8,876 | |
Amounts reclassified from accumulated other comprehensive loss to: | | | | | | | |
Non-operating income | 567 | | | — | | | — | | | 567 | |
Interest expense | 524 | | | — | | | — | | | 524 | |
Total | 1,091 | | | — | | | — | | | 1,091 | |
Net current period other comprehensive income | 17,896 | | | (7,929) | | | — | | | 9,967 | |
Net current period other comprehensive income attributable to noncontrolling interests | (21) | | | — | | | — | | | (21) | |
Ending balance | $ | (1,062) | | | $ | (228,898) | | | $ | — | | | $ | (229,960) | |
|
| | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2017 |
| Gains and Losses on Derivative Instruments | | Foreign Currency Translation Adjustments | | Gains and Losses on Marketable Securities | | Total |
Beginning balance | $ | 46,935 |
| | $ | (301,330 | ) | | $ | (90 | ) | | $ | (254,485 | ) |
Other comprehensive income before reclassifications | (25,108 | ) | | 68,124 |
| | (260 | ) | | 42,756 |
|
Amounts reclassified from accumulated other comprehensive loss to: | | | | | | | |
Gain on sale of real estate, net of tax (Note 15) | — |
| | 3,562 |
| | — |
| | 3,562 |
|
Interest expense | 1,024 |
| | — |
| | — |
| | 1,024 |
|
Other income and (expenses) | (8,490 | ) | | — |
| | — |
| | (8,490 | ) |
Total | (7,466 | ) | | 3,562 |
| | — |
| | (3,904 | ) |
Net current period other comprehensive income | (32,574 | ) | | 71,686 |
| | (260 | ) | | 38,852 |
|
Net current period other comprehensive gain attributable to noncontrolling interests | 13 |
| | (13,961 | ) | | — |
| | (13,948 | ) |
Ending balance | $ | 14,374 |
| | $ | (243,605 | ) | | $ | (350 | ) | | $ | (229,581 | ) |
See Note 9 for additional information on our derivatives activity recognized within Other comprehensive (loss) income for the periods presented. |
| | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2016 |
| Gains and Losses on Derivative Instruments | | Foreign Currency Translation Adjustments | | Gains and Losses on Marketable Securities | | Total |
Beginning balance | $ | 37,650 |
| | $ | (209,977 | ) | | $ | 36 |
| | $ | (172,291 | ) |
Other comprehensive loss before reclassifications | (1,155 | ) | | (41,999 | ) | | (3 | ) | | (43,157 | ) |
Amounts reclassified from accumulated other comprehensive loss to: | | | | | | | |
Interest expense | 1,578 |
| | — |
| | — |
| | 1,578 |
|
Other income and (expenses) | (6,422 | ) | | — |
| | — |
| | (6,422 | ) |
Total | (4,844 | ) | | — |
| | — |
| | (4,844 | ) |
Net current period other comprehensive loss | (5,999 | ) | | (41,999 | ) | | (3 | ) | | (48,001 | ) |
Net current period other comprehensive gain attributable to noncontrolling interests | 17 |
| | (1,051 | ) | | — |
| | (1,034 | ) |
Ending balance | $ | 31,668 |
| | $ | (253,027 | ) | | $ | 33 |
| | $ | (221,326 | ) |
DistributionsDividends Declared
During the thirdsecond quarter of 2017, we2022, our Board declared a quarterly distributiondividend of $1.0050$1.059 per share, which was paid on October 16, 2017July 15, 2022 to stockholders of record on October 2, 2017, in the aggregate amountas of $107.4 million.June 30, 2022.
During the ninesix months ended SeptemberJune 30, 2017,2022, we declared distributionsdividends totaling $3.00$2.116 per share in the aggregate amount of $320.3 million.share.
Note 14.13. Income Taxes
We elected to be treated as a REIT and believe that we have been organized and have operated in such a manner to maintain our qualification as a REIT for federal and state income tax purposes. As a REIT, we are generally not subject to corporate level federal income taxes on earnings distributed to our stockholders. Since inception, we have distributed at least 100% of our taxable income annually and intend to do so for the tax year ending December 31, 2017.annually. Accordingly, we have not included any provisions for federal income taxes related to the REIT in the accompanying consolidated financial statements for the three and ninesix months ended SeptemberJune 30, 20172022 and 2016.2021.
Certain of our subsidiaries have elected TRS status. A TRS may provide certain services considered impermissible for REITs and may hold assets that REITs may not hold directly. We also own real property in jurisdictions outside the United States
|
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| W. P. Carey 9/30/2017 10-Q– 44
|
Notes to Consolidated Financial Statements (Unaudited)
through foreign subsidiaries and are subject to income taxes on our pre-tax income earned from properties in such countries. The accompanying consolidated financial statements include an interim tax provision for our TRSs and foreign subsidiaries, as necessary, for the three and ninesix months ended SeptemberJune 30, 20172022 and 2016. 2021.
W. P. Carey 6/30/2022 10-Q– 36
Notes to Consolidated Financial Statements (Unaudited)
Current income tax expense was $3.0$6.6 million and $4.8$9.1 million for the three months ended SeptemberJune 30, 20172022 and 2016,2021, respectively, and $11.1$14.9 million and $14.7$17.5 million for the ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, respectively.
During the second quarter of 2016, we identified and recorded out-of-period adjustments related to adjustments to prior period Deferred income tax returns. This adjustment is reflected as a $3.0 million reduction of our Benefit from income taxes in the consolidated statements of income for the nine months ended September 30, 2016 (Note 2), and is included in current income tax expense for the nine months ended September 30, 2016.
Our TRSs and foreign subsidiaries are subject to U.S. federal, state, and foreign income taxes. As such, deferred tax assets and liabilities are established for temporary differences between the financial reporting basis and the tax basis of assets and liabilities at the enacted tax rates expected to be in effect when the temporary differences reverse. A valuation allowance for deferred tax assets is provided if we believe that it is more likely than not that we will not realize the tax benefit of deferred tax assets based on available evidence at the time the determination is made. A change in circumstances may cause us to change our judgment about whether the tax benefit of a deferred tax asset will more likely than not be realized. We generally report any change in the valuation allowance through our income statement in the period in which such changes in circumstances occur. Deferred tax assets (net of valuation allowance) and liabilities for our TRSs and foreign subsidiaries were recorded, as necessary, as of September 30, 2017 and December 31, 2016. The majority of our deferred tax assets relate to the timing difference between the financial reporting basis and tax basis for stock-based compensation expense. The majority of our deferred tax liabilities relate to differences between the tax basis and financial reporting basis of the assets acquired in acquisitions in which the tax basis of such assets(expense) was not stepped up to fair value for income tax purposes. (Provision for) benefit from income taxes included deferred income tax benefits of $1.2$0.4 million and $1.6$(0.2) million for the three months ended SeptemberJune 30, 20172022 and 2016,2021, respectively, and $8.2$1.6 million and $19.2$2.4 million for the ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, respectively.
Note 15.14. Property Dispositions
From time to time, we may decide to sell a property. We have an active capital recycling program, with a goal of extending the average lease term 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 assets. We may make a decisiondecide to dispose of a property when it is vacant as a result of tenants vacating space, 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. All property dispositions are recorded within our Owned Real Estate segment.segment and are also discussed in Note 4.
2017 2022— During the three and ninesix months ended SeptemberJune 30, 2017,2022, we sold five8 and 14 properties, and 11 properties and a parcel of vacant land, respectively, for total proceeds, of $58.7 million and $102.5 million, respectively, net of selling costs, of $88.4 million and $115.1 million, respectively, and recognized a net gain on these sales of $19.3totaling $31.1 million and $22.7$42.4 million, respectively. In connection with the salerespectively (inclusive of a property in Malaysia in August 2017, and in accordance with ASC 830-30-40, Foreign Currency Matters, we reclassified $3.6 million of foreign currency translation losses from Accumulated other comprehensive loss to Gain on sale of real estate, net of tax (as a reduction to Gain on sale of real estate, net of tax), since the sale represented a disposal of our Malaysian investments (Note 13). One of the properties sold during the nine months ended September 30, 2017 was held for sale at December 31, 2016 (Note 4). In addition, in January 2017, we transferred ownership of two international properties and the related non-recourse mortgage loan, which had an aggregate asset carrying value of $31.3 million and an outstanding balance of $28.1 million (net of $3.8 million of cash held in escrow that was retained by the mortgage lender), respectively, on the dates of transfer, to the mortgage lender, resulting in a net loss ofincome taxes totaling less than $0.1 million.
Duringmillion for both the ninethree and six months ended SeptemberJune 30, 2017, we entered into a contract to sell one international property, which was classified as held for sale as of September 30, 2017 (Note 4)2022, recognized upon sale).
2016 2021— During the three and ninesix months ended SeptemberJune 30, 2016,2021, we sold three10 and 12 properties, and ten properties and a parcel of vacant land, respectively, for total proceeds, of $192.0 million and $392.6 million, respectively, net of selling costs, of $85.0 million and $98.4 million, respectively, and recognized a net gain on these sales of $37.4totaling $19.8 million and $39.9$29.2 million, respectively including amounts attributable to noncontrolling interests(inclusive of $0.9income taxes totaling $3.7 million for the nine months ended September 30, 2016. In April 2016, we transferred ownership
and $3.8 million, respectively, recognized upon sale).
W. P. Carey 6/30/2022 10-Q– 37
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| W. P. Carey 9/30/2017 10-Q– 45
|
Notes to Consolidated Financial Statements (Unaudited)
of a vacant international property and the related non-recourse mortgage loan, which had a carrying value of $39.8 million and an outstanding balance of $60.9 million, respectively, on the date of transfer, to the mortgage lender, resulting in a net gain of $16.4 million. In addition, in July 2016, a vacant domestic property with an asset carrying value of $13.7 million, which was encumbered by a $24.3 million non-recourse mortgage loan (net of $2.6 million of cash held in escrow that was retained by the mortgage lender), was foreclosed upon by the mortgage lender, resulting in a net gain of $11.6 million.
In connection with those sales that constituted businesses, during the three and nine months ended September 30, 2016 we allocated goodwill totaling $18.0 million and $32.9 million, respectively, to the cost basis of the properties for our Owned Real Estate segment based on the relative fair value at the time of the sale.
In the fourth quarter of 2015, we executed a lease amendment with a tenant in a domestic office building. The amendment extended the lease term an additional 15 years to January 31, 2037 and provided a one-time rent payment of $25.0 million, which was paid to us on December 18, 2015. The lease amendment also provided an option to terminate the lease effective February 29, 2016, with additional lease termination fees of $22.2 million to be paid to us on or five days before February 29, 2016 upon exercise of the option. The tenant exercised the option on January 1, 2016. The aggregate of the additional rent payment of $25.0 million and the lease termination fees of $22.2 million were amortized to lease termination income from the lease amendment date on December 4, 2015 through the end of the non-cancelable lease term on February 29, 2016, resulting in $15.0 million recognized during the year ended December 31, 2015 and $32.2 million recognized during the nine months ended September 30, 2016 within Lease termination income and other in the consolidated financial statements. In addition, during the fourth quarter of 2015, we entered into an agreement to sell the property to a third party and the buyer placed a deposit of $12.7 million for the purchase of the property that was held in escrow. In February 2016, we sold the property for proceeds of $44.4 million, net of selling costs, and recognized a loss on the sale of $10.7 million.
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| W. P. Carey 9/30/2017 10-Q– 46
|
Notes to Consolidated Financial Statements (Unaudited)
Note 16.15. Segment Reporting
We evaluate our results from operations through our two2 major business segments: Owned Real Estate and Investment Management. As a result of our Board’s decision to exit all non-traded retail fundraising activities as of June 30, 2017 (Note 1), we have revised how we view and present a component of our two reportable segments. As such, beginning with the second quarter of 2017, we include (i) equity in earnings of equity method investments in the Managed Programs and (ii) our equity investments in the Managed Programs in our Investment Management segment. Both (i) earnings from our investment in CCIF and (ii) our investment in CCIF continue to be included in our Investment Management segment. Results of operations and assets by segment for prior periods have been reclassified to conform to the current period presentation. The following tables present a summary of comparative results and assets for these business segments (in thousands):
Owned Real Estate
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Revenues | | | | | | | |
Lease revenues | $ | 314,354 | | | $ | 289,064 | | | $ | 622,079 | | | $ | 573,729 | |
Income from direct financing leases and loans receivable | 17,778 | | | 17,422 | | | 36,157 | | | 35,164 | |
Operating property revenues (a) | 5,064 | | | 3,245 | | | 8,929 | | | 5,424 | |
Lease termination income and other | 2,591 | | | 5,059 | | | 16,713 | | | 6,644 | |
| 339,787 | | | 314,790 | | | 683,878 | | | 620,961 | |
| | | | | | | |
Operating Expenses | | | | | | | |
Depreciation and amortization | 115,080 | | | 114,348 | | | 230,473 | | | 224,670 | |
General and administrative | 20,841 | | | 20,464 | | | 43,925 | | | 42,547 | |
Reimbursable tenant costs | 16,704 | | | 15,092 | | | 33,664 | | | 30,850 | |
Property expenses, excluding reimbursable tenant costs | 11,851 | | | 11,815 | | | 25,630 | | | 22,698 | |
Stock-based compensation expense | 9,758 | | | 9,048 | | | 17,591 | | | 14,429 | |
Impairment charges | 6,206 | | | — | | | 26,385 | | | — | |
Operating property expenses | 3,191 | | | 2,049 | | | 5,978 | | | 3,960 | |
Merger and other expenses | 1,984 | | | (2,599) | | | (341) | | | (3,090) | |
| 185,615 | | | 170,217 | | | 383,305 | | | 336,064 | |
Other Income and Expenses | | | | | | | |
Interest expense | (46,417) | | | (49,252) | | | (92,470) | | | (100,892) | |
Gain on sale of real estate, net | 31,119 | | | 19,840 | | | 42,367 | | | 29,212 | |
Other gains and (losses) | (20,155) | | | 7,472 | | | 14,263 | | | (34,717) | |
Non-operating income | 5,975 | | | 3,065 | | | 14,517 | | | 9,337 | |
Earnings (losses) from equity method investments in real estate | 4,529 | | | (1,854) | | | 3,742 | | | (12,973) | |
| (24,949) | | | (20,729) | | | (17,581) | | | (110,033) | |
Income before income taxes | 129,223 | | | 123,844 | | | 282,992 | | | 174,864 | |
Provision for income taxes | (5,955) | | | (9,119) | | | (12,868) | | | (15,545) | |
Net Income from Real Estate | 123,268 | | | 114,725 | | | 270,124 | | | 159,319 | |
Net income attributable to noncontrolling interests | (40) | | | (38) | | | (38) | | | (45) | |
Net Income from Real Estate Attributable to W. P. Carey | $ | 123,228 | | | $ | 114,687 | | | $ | 270,086 | | | $ | 159,274 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Revenues | | | | | | | |
Lease revenues | $ | 161,511 |
| | $ | 163,786 |
| | $ | 475,547 |
| | $ | 506,358 |
|
Operating property revenues | 8,449 |
| | 8,524 |
| | 23,652 |
| | 23,696 |
|
Reimbursable tenant costs | 5,397 |
| | 6,537 |
| | 15,940 |
| | 19,237 |
|
Lease termination income and other | 1,227 |
| | 1,224 |
| | 4,234 |
| | 34,603 |
|
| 176,584 |
| | 180,071 |
| | 519,373 |
| | 583,894 |
|
| | | | | | | |
Operating Expenses | | | | | | | |
Depreciation and amortization | 62,970 |
| | 61,740 |
| | 186,481 |
| | 210,557 |
|
General and administrative | 11,234 |
| | 7,453 |
| | 27,311 |
| | 25,653 |
|
Property expenses, excluding reimbursable tenant costs | 10,556 |
| | 10,193 |
| | 31,196 |
| | 38,475 |
|
Reimbursable tenant costs | 5,397 |
| | 6,537 |
| | 15,940 |
| | 19,237 |
|
Stock-based compensation expense | 1,880 |
| | 1,572 |
| | 4,733 |
| | 4,316 |
|
Other expenses | 65 |
| | — |
| | 1,138 |
| | 2,975 |
|
Impairment charges | — |
| | 14,441 |
| | — |
| | 49,870 |
|
Restructuring and other compensation | — |
| | — |
| | — |
| | 4,413 |
|
| 92,102 |
| | 101,936 |
| | 266,799 |
| | 355,496 |
|
Other Income and Expenses | | | | | | | |
Interest expense | (41,182 | ) | | (44,349 | ) | | (125,374 | ) | | (139,496 | ) |
Equity in earnings of equity method investments in real estate | 3,740 |
| | 3,230 |
| | 9,533 |
| | 9,585 |
|
Other income and (expenses) | (4,918 | ) | | 3,244 |
| | (6,249 | ) | | 7,681 |
|
| (42,360 | ) | | (37,875 | ) | | (122,090 | ) | | (122,230 | ) |
Income before income taxes and gain on sale of real estate | 42,122 |
| | 40,260 |
| | 130,484 |
| | 106,168 |
|
(Provision for) benefit from income taxes | (1,511 | ) | | (530 | ) | | (6,696 | ) | | 6,792 |
|
Income before gain on sale of real estate | 40,611 |
| | 39,730 |
| | 123,788 |
| | 112,960 |
|
Gain on sale of real estate, net of tax | 19,257 |
| | 49,126 |
| | 22,732 |
| | 68,070 |
|
Net Income from Owned Real Estate | 59,868 |
| | 88,856 |
| | 146,520 |
| | 181,030 |
|
Net income attributable to noncontrolling interests | (3,376 | ) | | (1,359 | ) | | (8,530 | ) | | (6,294 | ) |
Net Income from Owned Real Estate Attributable to W. P. Carey | $ | 56,492 |
| | $ | 87,497 |
| | $ | 137,990 |
| | $ | 174,736 |
|
W. P. Carey 6/30/2022 10-Q– 38
|
| |
| W. P. Carey 9/30/2017 10-Q– 47
|
Notes to Consolidated Financial Statements (Unaudited)
Investment Management
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Revenues | | | | | | | |
Asset management and other revenue | $ | 3,467 | | | $ | 3,966 | | | $ | 6,887 | | | $ | 7,920 | |
Reimbursable costs from affiliates | 1,143 | | | 968 | | | 2,070 | | | 2,009 | |
| 4,610 | | | 4,934 | | | 8,957 | | | 9,929 | |
Operating Expenses | | | | | | | |
Reimbursable costs from affiliates | 1,143 | | | 968 | | | 2,070 | | | 2,009 | |
Merger and other expenses | — | | | — | | | 3 | | | 15 | |
| 1,143 | | | 968 | | | 2,073 | | | 2,024 | |
Other Income and Expenses | | | | | | | |
Earnings from equity method investments in the Managed Programs | 2,872 | | | 1,698 | | | 8,431 | | | 3,084 | |
Other gains and (losses) | (1,591) | | | 73 | | | (264) | | | 1,074 | |
Non-operating (loss) income | (1) | | | — | | | 3 | | | 84 | |
| 1,280 | | | 1,771 | | | 8,170 | | | 4,242 | |
Income before income taxes | 4,747 | | | 5,737 | | | 15,054 | | | 12,147 | |
(Provision for) benefit from income taxes | (297) | | | (179) | | | (467) | | | 458 | |
Net Income from Investment Management Attributable to W. P. Carey | $ | 4,450 | | | $ | 5,558 | | | $ | 14,587 | | | $ | 12,605 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Revenues | | | | | | | |
Asset management revenue | $ | 17,938 |
| | $ | 15,978 |
| | $ | 53,271 |
| | $ | 45,596 |
|
Structuring revenue | 9,817 |
| | 12,301 |
| | 27,981 |
| | 30,990 |
|
Reimbursable costs from affiliates | 6,211 |
| | 14,540 |
| | 45,390 |
| | 46,372 |
|
Dealer manager fees | 105 |
| | 1,835 |
| | 4,430 |
| | 5,379 |
|
Other advisory revenue | 99 |
| | 522 |
| | 896 |
| | 522 |
|
| 34,170 |
| | 45,176 |
| | 131,968 |
| | 128,859 |
|
Operating Expenses | | | | | | | |
Reimbursable costs from affiliates | 6,211 |
| | 14,540 |
| | 45,390 |
| | 46,372 |
|
General and administrative | 6,002 |
| | 8,280 |
| | 25,878 |
| | 32,469 |
|
Subadvisor fees | 5,206 |
| | 4,842 |
| | 11,598 |
| | 10,010 |
|
Stock-based compensation expense | 2,755 |
| | 2,784 |
| | 9,916 |
| | 10,648 |
|
Restructuring and other compensation | 1,356 |
| | — |
| | 9,074 |
| | 7,512 |
|
Depreciation and amortization | 1,070 |
| | 1,062 |
| | 2,838 |
| | 3,278 |
|
Dealer manager fees and expenses | 462 |
| | 3,028 |
| | 6,544 |
| | 9,000 |
|
Other expenses | — |
| | — |
| | — |
| | 2,384 |
|
| 23,062 |
| | 34,536 |
| | 111,238 |
| | 121,673 |
|
Other Income and Expenses | | | | | | | |
Equity in earnings of equity method investments in the Managed Programs | 12,578 |
| | 13,573 |
| | 38,287 |
| | 38,658 |
|
Other income and (expenses) | 349 |
| | 1,857 |
| | 1,280 |
| | 1,717 |
|
| 12,927 |
| | 15,430 |
| | 39,567 |
| | 40,375 |
|
Income before income taxes | 24,035 |
| | 26,070 |
| | 60,297 |
| | 47,561 |
|
(Provision for) benefit from income taxes | (249 | ) | | (2,624 | ) | | 3,793 |
| | (2,254 | ) |
Net Income from Investment Management Attributable to W. P. Carey | $ | 23,786 |
| | $ | 23,446 |
| | $ | 64,090 |
| | $ | 45,307 |
|
Total Company
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Revenues | $ | 344,397 | | | $ | 319,724 | | | $ | 692,835 | | | $ | 630,890 | |
Operating expenses | 186,758 | | | 171,185 | | | 385,378 | | | 338,088 | |
Other income and (expenses) | (23,669) | | | (18,958) | | | (9,411) | | | (105,791) | |
Provision for income taxes | (6,252) | | | (9,298) | | | (13,335) | | | (15,087) | |
Net income attributable to noncontrolling interests | (40) | | | (38) | | | (38) | | | (45) | |
Net income attributable to W. P. Carey | $ | 127,678 | | | $ | 120,245 | | | $ | 284,673 | | | $ | 171,879 | |
| | | | | | | | | | | |
| Total Assets at |
| June 30, 2022 | | December 31, 2021 |
Real Estate | $ | 15,314,097 | | | $ | 15,344,703 | |
Investment Management | 140,132 | | | 135,927 | |
Total Company | $ | 15,454,229 | | | $ | 15,480,630 | |
__________
(a)Operating property revenues from our hotels include $3.3 million and $1.7 million for the three months ended June 30, 2022 and 2021, respectively, and $5.4 million and $2.5 million for the six months ended June 30, 2022 and 2021, respectively, generated from a hotel in Bloomington, Minnesota (revenues reflect higher occupancy as the hotel’s business recovered from the COVID-19 pandemic).
W. P. Carey 6/30/2022 10-Q– 39
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Revenues | $ | 210,754 |
| | $ | 225,247 |
| | $ | 651,341 |
| | $ | 712,753 |
|
Operating expenses | 115,164 |
| | 136,472 |
| | 378,037 |
| | 477,169 |
|
Other income and (expenses) | (29,433 | ) | | (22,445 | ) | | (82,523 | ) | | (81,855 | ) |
Gain on sale of real estate, net of tax | 19,257 |
| | 49,126 |
| | 22,732 |
| | 68,070 |
|
(Provision for) benefit from income taxes | (1,760 | ) | | (3,154 | ) | | (2,903 | ) | | 4,538 |
|
Net income attributable to noncontrolling interests | (3,376 | ) | | (1,359 | ) | | (8,530 | ) | | (6,294 | ) |
Net income attributable to W. P. Carey | $ | 80,278 |
| | $ | 110,943 |
| | $ | 202,080 |
| | $ | 220,043 |
|
|
| | | | | | | |
| Total Assets at |
| September 30, 2017 | | December 31, 2016 |
Owned Real Estate | $ | 7,975,925 |
| | $ | 8,104,974 |
|
Investment Management | 358,486 |
| | 348,980 |
|
Total Company | $ | 8,334,411 |
| | $ | 8,453,954 |
|
|
| |
| W. P. Carey 9/30/2017 10-Q– 48
|
Notes to Consolidated Financial Statements (Unaudited)
Note 17.16. Subsequent Events
Mortgage Loan RepaymentsAcquisitions and Completed Construction Project
In October 2017,July 2022, we repaid three non-recourse mortgage loans with an aggregate principal balancecompleted two acquisitions totaling approximately $281.9 million. They are as follows:
•$262.0 million for a portfolio of approximately $25.220 industrial facilities in the United States; and
•$19.9 million for a portfolio of 5 retail facilities in Spain.
In addition, in July 2022, we completed a build-to-suit project for $25.7 million.
Repayments of Loans to Affiliates
In October 2017, CWI 1 repaid a total of $29.2 million of the loans outstanding to us at September 30, 2017, of which $15.0 million reduced the amount outstanding under the revolving working capital facility and $14.2 million went toward repaying the bridge loan. In October 2017, CPA®:18 – Globalrepaid in full the $19.0 million loan that was outstanding to us at September 30, 2017 (Note 3).
Loan to Affiliate
On October 19, 2017, we entered into a secured $25.0 million revolving working capital facility with CWI 2. The loan bears interest at LIBOR plus 1.00% and maturesAmounts are based on the earlierapplicable exchange rate on the date of December 31, 2018 and the expiration or termination by CWI 2 of its advisory agreement with us (Note 3).
transaction.
W. P. Carey 6/30/2022 10-Q– 40
|
| |
| W. P. Carey 9/30/2017 10-Q– 49
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Resultsof 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 OperationsThis item also provides the reader with our perspective on our financial position and liquidity, as well as certain other factors that may affect our future results. The discussion also provides information aboutbreaks down the financial results of the segments of our business by segment to provide a better understanding of how these segments and their results affect our financial condition and results of operations. Our Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the 20162021 Annual Report and subsequent reports filed under the Securities Exchange Act of 1934.
Business Overview
As described in more detail in1934, as amended (the “Exchange Act”). Refer to Item 1 of the 20162021 Annual Report for a description of our business.
Significant Developments
Proposed Merger with CPA:18 – Global
On February 27, 2022, we, provide long-term financing via sale-leasebackCPA:18 – Global, CPA:18 LP, and build-to-suitcertain of our subsidiaries entered into the Merger Agreement, pursuant to which CPA:18 – Global will merge with and into one of our indirect subsidiaries in exchange for shares of our common stock and cash (Note 1). The Proposed Merger and related transactions for companies worldwide and, aswere approved by the stockholders of September 30, 2017, manageCPA:18 – Global at a global investment portfolio of 1,381 properties, including 890 net-leased properties and two operating properties within our owned real estate portfolio. Our business operates in two segments: Owned Real Estate and Investment Management.
On June 15, 2017, our Board approved a plan to exit all non-traded retail fundraising activities carried out by our wholly-owned broker-dealer subsidiary, Carey Financial, effective as of June 30, 2017.special meeting on July 26, 2022. We currently expect the transaction to continue to manage all existing Managed Programs through the end of their respective natural life cycles (Noteclose on August 1,). 2022.
Financial Highlights
During the ninesix months ended SeptemberJune 30, 2017,2022, we completed the following activities, as(as further described below and in the consolidated financial statements:statements):
| |
• | We capitalized and completed four construction projects at a cost totaling $59.0 million and acquired one investment for $6.0 million for our Owned Real Estate segmentReal Estate
Investments
•We acquired 11 investments totaling $644.0 million (Note 4, Note 5). •We completed three construction projects at a cost totaling $98.2 million (Note 4). •We funded approximately $37.3 million for a construction loan to build a retail complex in Las Vegas, Nevada, during the nine months ended September 30, 2017 (Note 4). |
| |
• | As part of our active capital recycling program, we disposed of 13 properties and a parcel of vacant land from our Owned Real Estate portfolio for total proceeds of $130.6 million, net of selling costs (Note 15). |
| |
• | On January 19, 2017, we completed a public offering of €500.0 million of 2.25% Senior Notes, at a price of 99.448% of par value, issued by our wholly owned subsidiary, WPC Eurobond B.V., which are guaranteed by us. These 2.25% Senior Notes have a 7.5-year term and are scheduled to mature on July 19, 2024 (Note 10). |
| |
• | On February 22, 2017, we amended and restated our Senior Unsecured Credit Facility to increase its capacity to $1.85 billion, which is comprised of a $1.5 billion Unsecured Revolving Credit Facility maturing in four years with two six-month extension options, a €236.3 million Amended Term Loan maturing in five years, and a $100.0 million Delayed Draw Term Loan also maturing in five years. On that date, we also drew down our Amended Term Loan in full by borrowing €236.3 million (equivalent to $250.0 million) and repaid in full, and terminated, our $250.0 million Prior Term Loan. On June 8, 2017, we drew down our Delayed Draw Term Loan in full by borrowing €88.7 million (equivalent to $100.0 million) (Note 10). |
| |
• | We reduced our mortgage debt outstanding by repaying at maturity or prepaying $417.9 million of non-recourse mortgage loans with a weighted-average interest rate of 5.4% during the nine months ended September 30, 2017 (Note 10). |
| |
• | In connection with our Board’s decision to exit all non-traded retail fundraising activities as of June 30, 2017, we recorded $1.4 million and $9.1 million of restructuring expenses during the three and nine months ended September 30, 2017, respectively, primarily related to severance costs (Note 1, Note 12). |
During the
three and ninesix months ended
SeptemberJune 30,
2017,2022. Through June 30, 2022, we
have funded $141.0 million (Note 7).•We committed to fund two build-to-suit or expansion projects totaling $24.9 million. We currently expect to complete the projects in 2022 and 2023 (Note 4).
Dispositions
•As part of our active capital recycling program, we disposed of 14 properties for total proceeds, net of selling costs, of $115.1 million (Note 14). •In January 2022, WLT redeemed in full our 1,300,000 shares of its preferred stock for gross proceeds of $65.0 million (Note 8).
Financing and Capital Markets Transactions
•On May 2, 2022, we established a $1.0 billion ATM Program, under which we may issue shares directly or defer delivery to a later date through our ATM Forwards. As of June 30, 2022, we had approximately $301.0 million of available proceeds under our ATM Forwards (Note 12). •We issued 15,500 and 345,2532,740,295 shares respectively, of our common stock under the currentour prior ATM programProgram at a weighted-average price of $67.05 and $67.78$80.79 per share, respectively, for net proceeds of $0.9$218.1 million (Note 12). •In April 2022, we increased the Term Loan to £270.0 million and $22.8the Delayed Draw Term Loan to €215.0 million, respectively.thereby increasing the total capacity of our Senior Unsecured Credit Facility to approximately $2.4 billion. We used the approximately $300 million of proceeds from this increase in the capacity of our Unsecured Term Loans to partially repay amounts outstanding under our Unsecured Revolving Credit Facility (Note 10). | |
• | We structured new investments on behalf of the Managed Programs totaling $1.1 billion during the nine months ended September 30, 2017, increasing our assets under management to $13.2 billion as of September 30, 2017. In August 2017, we resigned as the advisor to CCIF, and our advisory agreement with CCIF was terminated, effective as of September 11, 2017. CCIF was included in the Managed Programs prior to our resignation as its advisor (Note 1). |
W. P. Carey 6/30/2022 10-Q– 41
Investment Management
Assets Under Management
•As of June 30, 2022, we managed total assets of approximately $2.5 billion on behalf of CPA:18 – Global and CESH. The vast majority of our Investment Management earnings are generated from asset management fees and our ownership interests in CPA:18 – Global and CESH. However, subject to the terms and conditions of the Merger Agreement, upon consummation of the Proposed Merger, we will no longer receive fees and distributions from CPA:18 – Global, and as a result, Investment Management earnings are expected to decline in future periods (Note 1).
Dividends to Stockholders
We declared cash distributionsdividends totaling $3.00$2.116 per share induring the aggregate amount of $320.3 million for the ninesix months ended SeptemberJune 30, 2017,2022, comprised of threetwo quarterly dividends per share declared of $0.9950, $1.0000,$1.057 and $1.0050.$1.059 (Note 12).
|
| |
| W. P. Carey 9/30/2017 10-Q– 50
|
Consolidated Results
(in thousands, except shares)
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Revenues from Owned Real Estate | $ | 176,584 |
| | $ | 180,071 |
| | $ | 519,373 |
| | $ | 583,894 |
|
Reimbursable tenant costs | 5,397 |
| | 6,537 |
| | 15,940 |
| | 19,237 |
|
Revenues from Owned Real Estate (excluding reimbursable tenant costs) | 171,187 |
| | 173,534 |
| | 503,433 |
| | 564,657 |
|
| | | | | | | |
Revenues from Investment Management | 34,170 |
| | 45,176 |
| | 131,968 |
| | 128,859 |
|
Reimbursable costs from affiliates | 6,211 |
| | 14,540 |
| | 45,390 |
| | 46,372 |
|
Revenues from Investment Management (excluding reimbursable costs from affiliates) | 27,959 |
| | 30,636 |
| | 86,578 |
| | 82,487 |
|
| | | | | | | |
Total revenues | 210,754 |
| | 225,247 |
| | 651,341 |
| | 712,753 |
|
Total reimbursable costs | 11,608 |
| | 21,077 |
| | 61,330 |
| | 65,609 |
|
Total revenues (excluding reimbursable costs) | 199,146 |
| | 204,170 |
| | 590,011 |
| | 647,144 |
|
| | | | | | | |
Net income from Owned Real Estate attributable to W. P. Carey (a) | 56,492 |
| | 87,497 |
| | 137,990 |
| | 174,736 |
|
Net income from Investment Management attributable to W. P. Carey (a) | 23,786 |
| | 23,446 |
| | 64,090 |
| | 45,307 |
|
Net income attributable to W. P. Carey | 80,278 |
|
| 110,943 |
|
| 202,080 |
|
| 220,043 |
|
| | | | | | | |
Cash distributions paid | 108,272 |
| | 104,587 |
| | 322,389 |
| | 310,509 |
|
| | | | | | | |
Net cash provided by operating activities | | | | | 381,877 |
| | 377,476 |
|
Net cash provided by (used in) investing activities | | | | | 175,305 |
| | (27,984 | ) |
Net cash used in financing activities | | | | | (549,728 | ) | | (298,096 | ) |
| | | | | | | |
Supplemental financial measures: | | | | | | | |
Adjusted funds from operations attributable to W. P. Carey (AFFO) — Owned Real Estate (a) (b) | 116,337 |
| | 118,030 |
| | 345,529 |
| | 352,058 |
|
Adjusted funds from operations attributable to W. P. Carey (AFFO) — Investment Management (a) (b) | 31,905 |
| | 26,441 |
| | 85,388 |
| | 64,115 |
|
Adjusted funds from operations attributable to W. P. Carey (AFFO) (b) | 148,242 |
|
| 144,471 |
|
| 430,917 |
|
| 416,173 |
|
| | | | | | | |
Diluted weighted-average shares outstanding | 108,143,694 |
| | 107,468,029 |
| | 107,947,490 |
| | 106,853,174 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Revenues from Real Estate | $ | 339,787 | | | $ | 314,790 | | | $ | 683,878 | | | $ | 620,961 | |
Revenues from Investment Management | 4,610 | | | 4,934 | | | 8,957 | | | 9,929 | |
Total revenues | 344,397 | | | 319,724 | | | 692,835 | | | 630,890 | |
| | | | | | | |
Net income from Real Estate attributable to W. P. Carey | 123,228 | | | 114,687 | | | 270,086 | | | 159,274 | |
Net income from Investment Management attributable to W. P. Carey | 4,450 | | | 5,558 | | | 14,587 | | | 12,605 | |
Net income attributable to W. P. Carey | 127,678 | | | 120,245 | | | 284,673 | | | 171,879 | |
| | | | | | | |
Dividends declared | 205,898 | | | 194,914 | | | 411,395 | | | 382,395 | |
| | | | | | | |
Net cash provided by operating activities | | | | | 446,883 | | | 398,747 | |
Net cash used in investing activities | | | | | (560,525) | | | (885,881) | |
Net cash provided by financing activities | | | | | 106,531 | | | 398,948 | |
| | | | | | | |
Supplemental financial measures (a): | | | | | | | |
Adjusted funds from operations attributable to W. P. Carey (AFFO) — Real Estate | 247,246 | | | 222,377 | | | 499,260 | | | 432,705 | |
Adjusted funds from operations attributable to W. P. Carey (AFFO) — Investment Management | 7,128 | | | 6,299 | | | 13,940 | | | 12,457 | |
Adjusted funds from operations attributable to W. P. Carey (AFFO) | 254,374 | | | 228,676 | | | 513,200 | | | 445,162 | |
| | | | | | | |
Diluted weighted-average shares outstanding | 194,763,695 | | | 180,668,732 | | | 193,706,035 | | | 178,902,259 | |
__________
| |
(a) | As a result of our Board’s decision to exit all non-traded retail fundraising activities as of June 30, 2017, we have revised how we view and present a component of our two reportable segments. As such, beginning with the second quarter of 2017, we include equity in earnings of equity method investments in the Managed Programs in our Investment Management segment (Note 1). Earnings from our investment in CCIF continue to be included in our Investment Management segment. Results of operations for prior periods have been reclassified to conform to the current period presentation. |
| |
(b) | We consider Adjusted funds from operations, or AFFO, a supplemental measure that is not defined by GAAP, referred to as a non-GAAP measure, to be an important measure in the evaluation of our operating performance. See Supplemental Financial Measures below for our definition of this non-GAAP measure and a reconciliation to its most directly comparable GAAP measure. |
(a)We consider Adjusted funds from operations (“AFFO”), a supplemental measure that is not defined by GAAP (a “non-GAAP measure”), to be an important measure in the evaluation of our operating performance. See Supplemental Financial Measures below for our definition of this non-GAAP measure and a reconciliation to its most directly comparable GAAP measure.
W. P. Carey 6/30/2022 10-Q– 42
|
| |
| W. P. Carey 9/30/2017 10-Q– 51
|
Revenues
Consolidated Results
Total revenues increased for the three and six months ended June 30, 2022 as compared to the same periods in 2021. Real Estate revenue increased primarily due to higher lease revenues (substantially as a result of property acquisition activity and rent escalations, partially offset by the impact of the weakening euro and British pound sterling, as well as property dispositions) and higher lease termination and other income for the six months ended June 30, 2022 as compared to the same period in 2021 (Note 4). Revenues and
Net Income Attributable to W. P. Carey
Total revenues decreasedNet income attributable to W. P. Carey increased for the three months ended SeptemberJune 30, 20172022 as compared to the same period in 2016, due to decreases within both our Investment Management and Owned2021. Net income from Real Estate segments. Investment Management revenue decreased primarily as a result of a decrease in structuring revenue and a decrease in dealer manager fees dueattributable to our exit from all non-traded retail fundraising activities (Note 1), partially offset by an increase in asset management revenue as a result of growth in assets under management for the Managed Programs. Owned Real Estate revenue declinedW. P. Carey increased primarily due to a decreasenon-cash unrealized gain recognized on our investment in lease revenues duecommon shares of WLT (Note 8), a higher aggregate gain on sale of real estate (Note 14), and the impact of real estate acquisitions, partially offset by the impact of the weakening euro and British pound sterling, and impairment charges recognized during the current year period.
Net income attributable to dispositions of properties since July 1, 2016 (Note 15).
Total revenues decreasedW. P. Carey increased for the ninesix months ended SeptemberJune 30, 20172022 as compared to the same period in 2016, due to decreases within our Owned2021. Net income from Real Estate segment, partially offset by increases within our Investment Management segment. Owned Real Estate revenue declined primarily due to lease termination income recognized during the prior year period related to a domestic property sold in February 2016, as well as a decrease in lease revenues due to dispositions of properties since January 1, 2016 (Note 15), partially offset by an increase in lease revenues due to property acquisitions since January 1, 2016. Investment Management revenue increased primarily due to an increase in asset management revenue as a result of growth in assets under management for the Managed Programs, partially offset by a decrease in structuring revenue and a decrease in dealer manager fees due to our exit from all non-traded retail fundraising activities (Note 1).
Net income attributable to W. P. Carey decreased for the three months ended September 30, 2017 as compared to the same period in 2016,increased primarily due to a lower loss on extinguishment of debt (Note 10), non-cash unrealized gains recognized on our investment in common shares of WLT (Note 8), the lowerimpact of real estate acquisitions, and a higher aggregate gain on sale of real estate, recognized during the current year period (Note 15), as well as decreases in Owned Real Estate and Investment Management revenues. The decrease in Net income attributable to W. P. Carey was partially offset by lower interest expensethe impact of the weakening euro and British pound sterling, higher impairment charges (Note 8), and a non-cash unrealized gain recognized on our investment in shares of Lineage Logistics during the currentprior year period (Note 8).
AFFO
AFFO increased for the three and six months ended June 30, 2022 as compared to the same periodperiods in 2016. In addition, during2021, primarily due to higher lease revenues from net investment activity and rent escalations, partially offset by the prior year period, we recognized impairment charges on certain international properties (Note 8),impact of the weakening euro and British pound sterling, as well as a related offsetting deferred tax benefit on those impairment charges, which reduced Net income attributable to the cessation of cash dividends from our investment in preferred shares of WLT following the redemption of that investment in January 2022 (Note 8).
W. P. Carey for the period.6/30/2022 10-Q– 43
Net income attributable to W. P. Carey decreased for the nine months ended September 30, 2017 as compared to the same period in 2016, primarily due to the lower aggregate gain on sale of real estate recognized during the current year period (Note 15), as well as a decrease in Owned Real Estate revenues. During the current year period, we also recognized non-recurring restructuring expenses, primarily comprised of severance costs, related to our exit from all non-traded retail fundraising activities (Note 12). The decrease in Net income attributable to W. P. Carey was partially offset by lower interest expense and general and administrative expenses during the current year period as compared to the same period in 2016. In addition, during the prior year period, we recognized impairment charges on certain international properties (Note 8), as well as a related offsetting deferred tax benefit on those impairment charges, which reduced Net income attributable to W. P. Carey for the period. During the prior year period, we recognized one-time restructuring and other compensation expenses, consisting primarily of severance costs, related to the RIF (Note 12), as well as an allowance for credit losses on a direct financing lease (Note 5).
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased for the nine months ended September 30, 2017 as compared to the same period in 2016, primarily due to an increase in cash flow generated from properties acquired during 2016 and 2017, a decrease in interest expense, and lower general and administrative expenses in the current year period. These increases were partially offset by lease termination income received in connection with the sale of a property during the prior year period and a decrease in cash flow as a result of property dispositions during 2016 and 2017.
AFFO
AFFO increased for the three months ended September 30, 2017 as compared to the same period in 2016, primarily due to lower interest expense, higher asset management revenue, and higher earnings from our equity interests in the Managed Programs, partially offset by lower structuring revenues, higher general and administrative expenses, and lower lease revenues.
AFFO increased for the nine months ended September 30, 2017 as compared to the same period in 2016, primarily due to lower interest expense, higher asset management revenue, lower general and administrative expenses, and higher earnings from our equity interests in the Managed Programs, partially offset by lower lease revenues, lease termination income received in connection with the sale of a property during the prior year period, and lower structuring revenues.
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Owned Real Estate
Investments
During the nine months ended September 30, 2017, we capitalized and completed construction projects at a cost totaling $59.0 million (Note 4), as follows:
an expansion project at an industrial facility in Windsor, Connecticut in March 2017 at a cost totaling $3.3 million;
an expansion project at an educational facility in Coconut Creek, Florida in May 2017 at a cost totaling $18.2 million;
an expansion project at an industrial facility in Monarto, Australia in May 2017 at a cost totaling $15.9 million; and
a build-to-suit project for an industrial facility in McCalla, Alabama in June 2017 at a cost totaling $21.6 million.
In addition, during the nine months ended September 30, 2017, we acquired an industrial facility in Chicago, Illinois for $6.0 million and committed to fund an additional $3.6 million of building improvements at that facility by June 2018.
Dispositions
During the nine months ended September 30, 2017, we sold 11 properties and a parcel of vacant land from our Owned Real Estate portfolio for total proceeds of $102.5 million, net of selling costs, and recorded a net gain on sale of real estate of $22.7 million. We also disposed of two properties with an aggregate carrying value of $31.3 million by transferring ownership to the mortgage lender, in satisfaction of non-recourse mortgage loans encumbering the properties totaling $28.1 million (net of $3.8 million of cash held in escrow that was retained by the mortgage lender), resulting in a net gain of less than $0.1 million (Note 15).
Financing Transactions
During the nine months ended September 30, 2017, we entered into the following financing transactions (Note 10):
On January 19, 2017, we completed a public offering of €500.0 million of 2.25% Senior Notes, at a price of 99.448% of par value, issued by our wholly owned subsidiary, WPC Eurobond B.V., which are guaranteed by us. These 2.25% Senior Notes have a 7.5-year term and are scheduled to mature on July 19, 2024.
On February 22, 2017, we amended and restated our Senior Unsecured Credit Facility to increase its capacity to $1.85 billion, which is comprised of a $1.5 billion Unsecured Revolving Credit Facility maturing in four years with two six-month extension options, a €236.3 million Amended Term Loan maturing in five years, and a $100.0 million Delayed Draw Term Loan also maturing in five years. On that date, we also drew down our Amended Term Loan in full by borrowing €236.3 million (equivalent to $250.0 million) and repaid in full, and terminated, our $250.0 million Prior Term Loan. On June 8, 2017, we drew down our Delayed Draw Term Loan in full by borrowing €88.7 million (equivalent to $100.0 million). We incur interest at LIBOR, or a LIBOR equivalent, plus 1.00% on the Unsecured Revolving Credit Facility, and at EURIBOR plus 1.10% on both the Amended Term Loan and Delayed Draw Term Loan.
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• | In January 2017, we repaid two international non-recourse mortgage loans at maturity with an aggregate principal balance of approximately $243.8 million encumbering the Hellweg 2 Portfolio, which is jointly owned with our affiliate, CPA®:17 – Global. In connection with this repayment, CPA®:17 – Global contributed $90.3 million, which was accounted for as a contribution from a noncontrolling interest. Amounts are based on the exchange rate of the euro as of the date of repayment. The weighted-average interest rate for these mortgage loans on the date of repayment was 5.4%.
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• | During the nine months ended September 30, 2017, we prepaid non-recourse mortgage loans totaling $157.4 million, including $38.4 million encumbering properties that were disposed of during the nine months ended September 30, 2017 (Note 15). Amounts are based on the exchange rate of the related foreign currency as of the date of repayment, as applicable. The weighted-average interest rate for these mortgage loans on their respective dates of prepayment was 5.5%. In connection with these payments, we recognized a gain on extinguishment of debt of $0.8 million during the nine months ended September 30, 2017, which was included in Other income and (expenses) in the consolidated financial statements. |
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Composition
As of September 30, 2017, our Owned Real Estate portfolio consisted of 890 net-lease properties, comprising 85.9 million square feet leased to 211 tenants, and two hotels, which are classified as operating properties. As of that date, the weighted-average lease term of the net-lease portfolio was 9.5 years and the occupancy rate was 99.8%.
Investment Management
During the nine months ended September 30, 2017, we managed CPA®:17 – Global, CPA®:18 – Global, CWI 1, CWI 2, and CESH I. As of September 30, 2017, these Managed Programs had total assets under management of approximately $13.2 billion. In August 2017, we resigned as the advisor to CCIF, and our advisory agreement with CCIF was terminated, effective as of September 11, 2017. CCIF was included in the Managed Programs prior to our resignation as its advisor (Note 1).
Non-Traded Retail Fundraising Platform Closure
On June 15, 2017, our Board approved a plan to exit all non-traded retail fundraising activities carried out by our wholly-owned broker-dealer subsidiary, Carey Financial, as of June 30, 2017, in keeping with our long-term strategy of focusing exclusively on net lease investing for our balance sheet. We currently expect to continue to manage all existing Managed Programs through the end of their respective natural life cycles (Note 1).
Investment Transactions
During the nine months ended September 30, 2017, we structured new investments totaling $1.1 billion on behalf of the Managed Programs, from which we earned $27.4 million in structuring revenue.
CWI 2: We structured two investments in domestic hotels for $423.5 million, including acquisition-related costs. One of these investments is jointly-owned with CWI 1.
CESH I: We structured investments in six international student housing development projects and one build-to-suit expansion on an existing project for an aggregate of $287.7 million, including acquisition-related costs.
CWI 1: We structured one investment in a domestic hotel for $165.2 million, including acquisition-related costs. This investment is jointly-owned with CWI 2.
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• | CPA®:17 – Global: We structured investments in two properties and one build-to-suit expansion on an existing property for an aggregate of $158.5 million, including acquisition-related costs. Approximately $147.0 million was invested in Europe and $11.5 million was invested in the United States.
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• | CPA®:18 – Global: We structured investments in two properties and three build-to-suit expansions on existing properties, including increases in funding commitments, for an aggregate of $66.2 million, including of acquisition-related costs. Approximately $58.9 million was invested internationally and $7.3 million was invested in the United States.
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Financing Transactions
During the nine months ended September 30, 2017, we arranged mortgage financing totaling $439.9 million for CWI 2, $293.1 million for CPA®:17 – Global, $175.5 million for CWI 1, and $89.4 million for CPA®:18 – Global, from which we earned $0.6 million in structuring revenue.
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Investor Capital Inflows
In connection with our Board’s decision to exit from non-traded retail fundraising activities, we ceased active fundraising for the Managed Programs on June 30, 2017 (Note 1). The offerings for CWI 2 and CESH I closed on July 31, 2017. In August 2017, we resigned as the advisor to CCIF, effective as of September 11, 2017. The investor capital inflows for the funds managed by us during the nine months ended September 30, 2017 were as follows:
CWI 2 commenced its initial public offering in the first quarter of 2015. Through the closing of its offering on July 31, 2017, CWI 2 had raised approximately $851.3 million through its offering, of which $235.0 million was raised during the nine months ended September 30, 2017. We earned $2.9 million in Dealer manager fees during the nine months ended September 30, 2017 related to this offering.
CESH I commenced its private placement in July 2016. Through the closing of its offering on July 31, 2017, CESH I had raised approximately $139.7 million through its offering, of which $26.9 million was raised during the nine months ended September 30, 2017. We earned $0.5 million in Dealer manager fees during the nine months ended September 30, 2017 related to this offering.
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• | Two CCIF Feeder Funds commenced their respective initial public offerings in the third quarter of 2015 and invested the proceeds that they raised in the master fund, CCIF. Through June 30, 2017, these funds had invested $195.3 million in CCIF, of which $70.2 million was invested during the nine months ended September 30, 2017. We earned $1.0 million in Dealer manager fees during the nine months ended September 30, 2017 related to these offerings. One of the CCIF Feeder Funds, CCIF 2016 T, closed its offering on April 28, 2017. In August 2017, we resigned as the advisor to CCIF, and our advisory agreement with CCIF was terminated, effective as of September 11, 2017. CCIF was included in the Managed Programs prior to our resignation as its advisor (Note 1). |
Significant Developments
Board of Directors Change
On October 3, 2017, we announced that Margaret G. Lewis, age 63, was appointed to our Board.
Management Change
On November 1, 2017, our Board appointed Mr. Jason E. Fox, our President, to succeed Mr. Mark J. DeCesaris as our Chief Executive Officer and as a Director, both effective as of January 1, 2018. Mr. DeCesaris intends to retire from his positions as Chief Executive Officer and a Director, effective as of December 31, 2017.
Upon commencement of his new duties on January 1, 2018, Mr. Fox will be stepping down as our President. Mr. John J. Park, our Director of Strategy and Capital Markets, will succeed Mr. Fox as President on that date.
Mr. Fox, age 44, has served as W. P. Carey’s President since 2015 and previously served in various capacities in the Investment Department, including as Head of Global Investments, since joining W. P. Carey in 2002. Mr. Park, age 53, has served as W. P. Carey’s Director of Strategy and Capital Markets since March 2016, after serving in various capacities since joining W. P. Carey as an investment analyst in 1987.
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Portfolio Overview
We intend to continue to acquire a diversifiedOur portfolio is comprised of income-producingoperationally-critical, commercial real estate assets net leased to tenants located primarily in the United States and Northern and Western Europe. We invest in high-quality single tenant industrial, warehouse, office, retail, and self-storage properties and other real estate-related assets. We expectsubject to make these investments both domestically and internationally.long-term net leases with built-in rent escalators. Portfolio information is provided on a pro rata basis, unless otherwise noted below, to better illustrate the economic impact of our various net-leased jointly owned investments. See Terms and Definitions below for a description of pro rata amounts.
Portfolio Summary
| | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
ABR (in thousands) | $ | 1,270,226 | | | $ | 1,247,764 | |
Number of net-leased properties | 1,357 | | | 1,304 | |
Number of operating properties (a) | 20 | | | 20 | |
Number of tenants (net-leased properties) | 356 | | | 352 | |
Total square footage (net-leased properties, in thousands) | 161,294 | | | 155,674 | |
Occupancy (net-leased properties) | 99.1 | % | | 98.5 | % |
Weighted-average lease term (net-leased properties, in years) | 11.0 | | | 10.8 | |
Number of countries (b) | 25 | | | 24 | |
Total assets (in thousands) | $ | 15,454,229 | | | $ | 15,480,630 | |
Net investments in real estate (in thousands) | 12,976,489 | | | 13,037,369 | |
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| September 30, 2017 | | December 31, 2016 |
Number of net-leased properties | 890 |
| | 903 |
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Number of operating properties (a) | 2 |
| | 2 |
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Number of tenants (net-leased properties) | 211 |
| | 217 |
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Total square footage (net-leased properties, in thousands) | 85,883 |
| | 87,866 |
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Occupancy (net-leased properties) | 99.8 | % | | 99.1 | % |
Weighted-average lease term (net-leased properties, in years) | 9.5 |
| | 9.7 |
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Number of countries | 18 |
| | 19 |
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Total assets (consolidated basis, in thousands) | $ | 8,334,411 |
| | $ | 8,453,954 |
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Net investments in real estate (consolidated basis, in thousands) (b) | 6,751,905 |
| | 6,781,900 |
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| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Financing obtained — consolidated (in millions) (c) | $ | 633.4 |
| | $ | 384.6 |
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Financing obtained — pro rata (in millions) (c) | 633.4 |
| | 367.6 |
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Acquisition volume (in millions) (d) (e) | 6.0 |
| | 385.8 |
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Construction and expansion projects capitalized and completed (in millions) (d) (f) | 59.0 |
| | — |
|
Average U.S. dollar/euro exchange rate | 1.1130 |
| | 1.1161 |
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Average U.S. dollar/British pound sterling exchange rate | 1.2751 |
| | 1.3939 |
|
Change in the U.S. CPI (g) | 2.2 | % | | 2.1 | % |
Change in the Germany CPI (g) | 0.7 | % | | 0.7 | % |
Change in the United Kingdom CPI (g) | 2.1 | % | | 0.8 | % |
Change in the Spain CPI (g) | (0.3 | )% | | (0.5 | )% |
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2022 | | 2021 |
Acquisition volume (in millions) (c) | $ | 681.3 | | | $ | 922.0 | |
Construction projects completed (in millions) | 98.2 | | | 62.4 | |
Average U.S. dollar/euro exchange rate | 1.0941 | | | 1.2046 | |
Average U.S. dollar/British pound sterling exchange rate | 1.2999 | | | 1.3874 | |
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(a) | At both September 30, 2017 and December 31, 2016, operating properties consisted of two hotel properties with an average occupancy of 85.1% for the nine months ended September 30, 2017. |
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(b) | In 2017, we reclassified certain line items in our consolidated balance sheets. As a result, Net investments in real estate as of December 31, 2016 has been revised to conform to the current period presentation (Note 2). |
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(c) | Both the consolidated and pro rata amounts for the nine months ended September 30, 2017 include the issuance of €500.0 million of 2.25% Senior Notes in January 2017 and the amendment and restatement of our Senior Unsecured Credit Facility in February 2017, which increased our borrowing capacity by approximately $100.0 million (Note 10). Both the consolidated and pro rata amounts for the nine months ended September 30, 2016 include the issuance of $350.0 million of 4.25% Senior Notes in September 2016. The consolidated amount for the nine months ended September 30, 2016 includes the refinancing of a non-recourse mortgage loan for $34.6 million, while the pro rata amount for the nine months ended September 30, 2016 includes our proportionate share of that refinancing of $17.6 million. Dollar amounts are based on the exchange rate of the euro on the dates of activity, as applicable. |
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(d) | Amounts are the same on both a consolidated and pro rata basis. |
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(e) | Amount for the nine months ended September 30, 2017 excludes a commitment for $3.6 million of building improvements in connection with an acquisition (Note 4). Amount for the nine months ended September 30, 2016 excludes an aggregate commitment for $128.1 million of build-to-suit financing. |
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(f) | Includes projects that were capitalized and partially completed in 2016. |
(a)At both June 30, 2022 and December 31, 2021, operating properties consisted of 19 self-storage properties (of which we consolidated ten, with an average occupancy of 95.3% as of June 30, 2022) and one hotel property with an average occupancy of 59.2% for the six months ended June 30, 2022.
(b)We acquired investments in Belgium during the six months ended June 30, 2022.
(c)Amounts for the six months ended June 30, 2022 and 2021 include $37.3 million and $84.9 million, respectively, of funding for a construction loan (Note 7).
W. P. Carey 6/30/2022 10-Q– 44
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(g) | Many of our lease agreements include contractual increases indexed to changes in the U.S. Consumer Price Index, or CPI, or similar indices in the jurisdictions in which the properties are located. |
Net-Leased Portfolio
The tables below represent information about our net-leased portfolio at SeptemberJune 30, 20172022 on a pro rata basis and, accordingly, exclude all operating properties. See Terms and Definitions below for a description of pro rata amounts and ABR.
Top Ten Tenants by ABR
(dollars in thousands)
| | Tenant/Lease Guarantor | | Property Type | | Tenant Industry | | Location | | Number of Properties | | ABR | | ABR Percent | | Weighted-Average Remaining Lease Term (Years) | Tenant/Lease Guarantor | | Description | | Number of Properties | | ABR | | ABR Percent | | Weighted-Average Lease Term (Years) |
U-Haul Moving Partners Inc. and Mercury Partners, LP | | U-Haul Moving Partners Inc. and Mercury Partners, LP | | Net lease self-storage properties in the U.S. | | 78 | | | $ | 38,751 | | | 3.0 | % | | 1.8 | |
State of Andalucía (a) | | State of Andalucía (a) | | Government office properties in Spain | | 70 | | | 28,506 | | | 2.2 | % | | 12.5 | |
Hellweg Die Profi-Baumärkte GmbH & Co. KG (a) | | Retail | | Retail Stores | | Germany | | 53 |
| | $ | 36,265 |
| | 5.3 | % | | 12.4 |
| Hellweg Die Profi-Baumärkte GmbH & Co. KG (a) | | Do-it-yourself retail properties in Germany | | 35 | | | 26,537 | | | 2.1 | % | | 14.7 | |
U-Haul Moving Partners Inc. and Mercury Partners, LP | | Self Storage | | Cargo Transportation, Consumer Services | | United States | | 78 |
| | 31,853 |
| | 4.7 | % | | 6.6 |
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State of Andalucia (a) | | Office | | Sovereign and Public Finance | | Spain | | 70 |
| | 28,708 |
| | 4.2 | % | | 17.2 |
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Metro Cash & Carry Italia S.p.A. (a) | | Metro Cash & Carry Italia S.p.A. (a) | | Business-to-business wholesale stores in Italy and Germany | | 20 | | | 26,492 | | | 2.1 | % | | 6.3 | |
Extra Space Storage, Inc. | | Extra Space Storage, Inc. | | Net lease self-storage properties in the U.S. | | 27 | | | 22,957 | | | 1.8 | % | | 21.8 | |
OBI Group (a) | | OBI Group (a) | | Do-it-yourself retail properties in Poland | | 26 | | | 21,515 | | | 1.7 | % | | 8.1 | |
Marriott Corporation | | Marriott Corporation | | Net lease hotel properties in the U.S. | | 18 | | | 21,350 | | | 1.7 | % | | 1.6 | |
Nord Anglia Education, Inc. | | Nord Anglia Education, Inc. | | K-12 private schools in the U.S. | | 3 | | | 20,981 | | | 1.7 | % | | 21.2 | |
Pendragon PLC (a) | | Retail | | Retail Stores, Consumer Services | | United Kingdom | | 70 |
| | 21,488 |
| | 3.2 | % | | 12.6 |
| Pendragon PLC (a) | | Automotive dealerships in the United Kingdom | | 63 | | | 20,214 | | | 1.6 | % | | 12.9 | |
Marriott Corporation | | Hotel | | Hotel, Gaming and Leisure | | United States | | 18 |
| | 20,065 |
| | 3.0 | % | | 6.1 |
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Forterra Building Products (a) (b) | | Industrial | | Construction and Building | | United States and Canada | | 49 |
| | 17,517 |
| | 2.6 | % | | 18.5 |
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OBI Group (a) | | Office, Retail | | Retail Stores | | Poland | | 18 |
| | 16,295 |
| | 2.4 | % | | 6.7 |
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True Value Company | | Warehouse | | Retail Stores | | United States | | 7 |
| | 15,680 |
| | 2.3 | % | | 5.3 |
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UTI Holdings, Inc. | | Education Facility | | Consumer Services | | United States | | 5 |
| | 14,484 |
| | 2.1 | % | | 4.5 |
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ABC Group Inc. (c) | | Industrial, Office, Warehouse | | Automotive | | Canada, Mexico, and United States | | 14 |
| | 13,771 |
| | 2.0 | % | | 19.2 |
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Advance Auto Parts, Inc. | | Advance Auto Parts, Inc. | | Distribution facilities in the U.S. | | 29 | | | 19,851 | | | 1.6 | % | | 10.6 | |
Total | | 382 |
| | $ | 216,126 |
| | 31.8 | % | | 11.1 |
| Total | | 369 | | | $ | 247,154 | | | 19.5 | % | | 10.5 | |
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(a) | ABR amounts are subject to fluctuations in foreign currency exchange rates. |
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(b) | Of the 49 properties leased to Forterra Building Products, 44 are located in the United States and five are located in Canada. |
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(c) | Of the 14 properties leased to ABC Group Inc., six are located in Canada, four are located in Mexico, and four are located in the United States, subject to three master leases all denominated in U.S. dollars. |
(a)ABR amounts are subject to fluctuations in foreign currency exchange rates.
W. P. Carey 6/30/2022 10-Q– 45
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Portfolio Diversification by Geography
(in thousands, except percentages)
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Region | | ABR | | ABR Percent | | Square Footage (a) | | Square Footage Percent |
United States | | | | | | | | |
South | | | | | | | | |
Texas | | $ | 105,724 | | | 8.3 | % | | 11,983 | | | 7.4 | % |
Florida | | 53,372 | | | 4.2 | % | | 4,456 | | | 2.7 | % |
Tennessee | | 25,193 | | | 2.0 | % | | 4,136 | | | 2.6 | % |
Georgia | | 24,804 | | | 2.0 | % | | 3,512 | | | 2.2 | % |
Alabama | | 19,386 | | | 1.5 | % | | 3,334 | | | 2.1 | % |
Other (b) | | 15,469 | | | 1.2 | % | | 2,237 | | | 1.4 | % |
Total South | | 243,948 | | | 19.2 | % | | 29,658 | | | 18.4 | % |
Midwest | | | | | | | | |
Illinois | | 62,824 | | | 4.9 | % | | 8,734 | | | 5.4 | % |
Minnesota | | 32,584 | | | 2.6 | % | | 3,225 | | | 2.0 | % |
Indiana | | 26,882 | | | 2.1 | % | | 4,734 | | | 2.9 | % |
Ohio | | 21,055 | | | 1.7 | % | | 4,503 | | | 2.8 | % |
Wisconsin | | 15,962 | | | 1.3 | % | | 2,726 | | | 1.7 | % |
Michigan | | 15,410 | | | 1.2 | % | | 2,496 | | | 1.6 | % |
Other (b) | | 35,706 | | | 2.8 | % | | 5,634 | | | 3.5 | % |
Total Midwest | | 210,423 | | | 16.6 | % | | 32,052 | | | 19.9 | % |
East | | | | | | | | |
North Carolina | | 36,505 | | | 2.9 | % | | 8,098 | | | 5.0 | % |
Pennsylvania | | 31,890 | | | 2.5 | % | | 3,673 | | | 2.3 | % |
New Jersey | | 23,178 | | | 1.8 | % | | 1,235 | | | 0.8 | % |
Massachusetts | | 22,159 | | | 1.7 | % | | 1,387 | | | 0.8 | % |
New York | | 18,881 | | | 1.5 | % | | 2,221 | | | 1.4 | % |
Kentucky | | 17,796 | | | 1.4 | % | | 3,063 | | | 1.9 | % |
South Carolina | | 14,982 | | | 1.2 | % | | 4,088 | | | 2.5 | % |
Other (b) | | 37,234 | | | 2.9 | % | | 5,300 | | | 3.3 | % |
Total East | | 202,625 | | | 15.9 | % | | 29,065 | | | 18.0 | % |
West | | | | | | | | |
California | | 70,710 | | | 5.5 | % | | 6,420 | | | 4.0 | % |
Arizona | | 30,099 | | | 2.4 | % | | 3,365 | | | 2.1 | % |
Other (b) | | 63,158 | | | 5.0 | % | | 6,720 | | | 4.1 | % |
Total West | | 163,967 | | | 12.9 | % | | 16,505 | | | 10.2 | % |
United States Total | | 820,963 | | | 64.6 | % | | 107,280 | | | 66.5 | % |
International | | | | | | | | |
Spain | | 60,420 | | | 4.8 | % | | 5,078 | | | 3.2 | % |
Germany | | 57,205 | | | 4.5 | % | | 6,440 | | | 4.0 | % |
Poland | | 55,570 | | | 4.4 | % | | 7,959 | | | 4.9 | % |
United Kingdom | | 52,424 | | | 4.1 | % | | 4,804 | | | 3.0 | % |
The Netherlands | | 52,200 | | | 4.1 | % | | 6,990 | | | 4.3 | % |
Italy | | 24,912 | | | 2.0 | % | | 2,386 | | | 1.5 | % |
Denmark | | 20,475 | | | 1.6 | % | | 2,844 | | | 1.8 | % |
France | | 19,013 | | | 1.5 | % | | 1,685 | | | 1.0 | % |
Croatia | | 15,988 | | | 1.3 | % | | 1,726 | | | 1.1 | % |
Canada | | 15,644 | | | 1.2 | % | | 2,448 | | | 1.5 | % |
Other (c) | | 75,412 | | | 5.9 | % | | 11,654 | | | 7.2 | % |
International Total | | 449,263 | | | 35.4 | % | | 54,014 | | | 33.5 | % |
Total | | $ | 1,270,226 | | | 100.0 | % | | 161,294 | | | 100.0 | % |
|
| | | | | | | | | | | | | |
Region | | ABR | | Percent | | Square Footage (a) | | Percent |
United States | | | | | | | | |
South | | | | | | | | |
Texas | | $ | 56,669 |
| | 8.4 | % | | 8,192 |
| | 9.5 | % |
Florida | | 29,407 |
| | 4.3 | % | | 2,657 |
| | 3.1 | % |
Georgia | | 20,863 |
| | 3.1 | % | | 3,293 |
| | 3.8 | % |
Tennessee | | 15,589 |
| | 2.3 | % | | 2,306 |
| | 2.7 | % |
Other (b) | | 11,722 |
| | 1.7 | % | | 2,280 |
| | 2.7 | % |
Total South | | 134,250 |
| | 19.8 | % | | 18,728 |
| | 21.8 | % |
| | | | | | | | |
East | | | | | | | | |
North Carolina | | 19,867 |
| | 2.9 | % | | 4,518 |
| | 5.3 | % |
New Jersey | | 18,768 |
| | 2.8 | % | | 1,097 |
| | 1.3 | % |
New York | | 18,244 |
| | 2.7 | % | | 1,178 |
| | 1.4 | % |
Pennsylvania | | 16,870 |
| | 2.5 | % | | 2,525 |
| | 2.9 | % |
Massachusetts | | 15,402 |
| | 2.3 | % | | 1,390 |
| | 1.6 | % |
Virginia | | 7,616 |
| | 1.1 | % | | 1,025 |
| | 1.2 | % |
Connecticut | | 6,940 |
| | 1.0 | % | | 1,135 |
| | 1.3 | % |
Other (b) | | 17,967 |
| | 2.6 | % | | 3,781 |
| | 4.4 | % |
Total East | | 121,674 |
| | 17.9 | % | | 16,649 |
| | 19.4 | % |
| | | | | | | | |
West | | | | | | | | |
California | | 42,578 |
| | 6.3 | % | | 3,303 |
| | 3.9 | % |
Arizona | | 26,776 |
| | 3.9 | % | | 3,049 |
| | 3.5 | % |
Colorado | | 9,834 |
| | 1.5 | % | | 864 |
| | 1.0 | % |
Other (b) | | 26,621 |
| | 3.9 | % | | 3,241 |
| | 3.8 | % |
Total West | | 105,809 |
| | 15.6 | % | | 10,457 |
| | 12.2 | % |
| | | | | | | | |
Midwest | | | | | | | | |
Illinois | | 21,689 |
| | 3.2 | % | | 3,295 |
| | 3.9 | % |
Michigan | | 12,171 |
| | 1.8 | % | | 1,396 |
| | 1.6 | % |
Indiana | | 9,329 |
| | 1.4 | % | | 1,418 |
| | 1.7 | % |
Ohio | | 8,547 |
| | 1.3 | % | | 1,911 |
| | 2.2 | % |
Minnesota | | 6,932 |
| | 1.0 | % | | 811 |
| | 0.9 | % |
Other (b) | | 24,064 |
| | 3.5 | % | | 4,385 |
| | 5.1 | % |
Total Midwest | | 82,732 |
| | 12.2 | % | | 13,216 |
| | 15.4 | % |
United States Total | | 444,465 |
| | 65.5 | % | | 59,050 |
| | 68.8 | % |
| | | | | | | | |
International | | | | | | | | |
Germany | | 60,506 |
| | 8.9 | % | | 6,272 |
| | 7.3 | % |
United Kingdom | | 33,570 |
| | 4.9 | % | | 2,324 |
| | 2.7 | % |
Spain | | 30,438 |
| | 4.5 | % | | 2,927 |
| | 3.4 | % |
Poland | | 18,321 |
| | 2.7 | % | | 2,189 |
| | 2.5 | % |
The Netherlands | | 15,341 |
| | 2.3 | % | | 2,233 |
| | 2.6 | % |
France | | 14,542 |
| | 2.1 | % | | 1,266 |
| | 1.5 | % |
Finland | | 13,030 |
| | 1.9 | % | | 1,121 |
| | 1.3 | % |
Canada | | 12,638 |
| | 1.9 | % | | 2,196 |
| | 2.6 | % |
Australia | | 12,507 |
| | 1.8 | % | | 3,272 |
| | 3.8 | % |
Other (c) | | 23,504 |
| | 3.5 | % | | 3,033 |
| | 3.5 | % |
International Total | | 234,397 |
| | 34.5 | % | | 26,833 |
| | 31.2 | % |
| | | | | | | | |
Total | | $ | 678,862 |
| | 100.0 | % | | 85,883 |
| | 100.0 | % |
W. P. Carey 6/30/2022 10-Q– 46
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| W. P. Carey 9/30/2017 10-Q– 58
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Portfolio Diversification by Property Type
(in thousands, except percentages)
|
| | | | | | | | | | | | | |
Property Type | | ABR | | Percent | | Square Footage (a) | | Percent |
Industrial | | $ | 203,127 |
| | 29.9 | % | | 38,564 |
| | 44.9 | % |
Office | | 166,880 |
| | 24.6 | % | | 10,998 |
| | 12.8 | % |
Retail | | 111,249 |
| | 16.3 | % | | 9,780 |
| | 11.4 | % |
Warehouse | | 97,115 |
| | 14.4 | % | | 18,661 |
| | 21.7 | % |
Self Storage | | 31,853 |
| | 4.7 | % | | 3,535 |
| | 4.1 | % |
Other (d) | | 68,638 |
| | 10.1 | % | | 4,345 |
| | 5.1 | % |
Total | | $ | 678,862 |
| | 100.0 | % | | 85,883 |
| | 100.0 | % |
__________ | |
(a) | Includes square footage for any vacant properties. |
| |
(b) | Other properties within South include assets in Alabama, Louisiana, Arkansas, Mississippi, and Oklahoma. Other properties within East include assets in Kentucky, South Carolina, Maryland, New Hampshire, and West Virginia. Other properties within West include assets in Utah, Washington, Nevada, Oregon, New Mexico, Wyoming, Alaska, and Montana. Other properties within Midwest include assets in Missouri, Kansas, Wisconsin, Nebraska, Iowa, South Dakota, and North Dakota. |
| |
(c) | Includes assets in Norway, Hungary, Austria, Thailand, Mexico, Sweden, Belgium, and Japan. |
| |
(d) | Includes ABR from tenants within the following property types: education facility, hotel, theater, fitness facility, and net-lease student housing. |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Property Type | | ABR | | ABR Percent | | Square Footage (a) | | Square Footage Percent |
Industrial | | $ | 339,070 | | | 26.7 | % | | 56,461 | | | 35.0 | % |
Warehouse | | 306,675 | | | 24.1 | % | | 57,856 | | | 35.9 | % |
Office | | 237,154 | | | 18.7 | % | | 16,013 | | | 9.9 | % |
Retail (d) | | 212,899 | | | 16.8 | % | | 19,384 | | | 12.0 | % |
Self Storage (net lease) | | 61,708 | | | 4.9 | % | | 5,810 | | | 3.6 | % |
Other (e) | | 112,720 | | | 8.8 | % | | 5,770 | | | 3.6 | % |
Total | | $ | 1,270,226 | | | 100.0 | % | | 161,294 | | | 100.0 | % |
__________
(a)Includes square footage for any vacant properties.
(b)Other properties within South include assets in Louisiana, Arkansas, Oklahoma, and Mississippi. Other properties within Midwest include assets in Missouri, Kansas, Iowa, Nebraska, North Dakota, and South Dakota. Other properties within East include assets in Virginia, Maryland, Connecticut, West Virginia, New Hampshire, and Maine. Other properties within West include assets in Oregon, Utah, Colorado, Washington, Nevada, Hawaii, New Mexico, Idaho, Wyoming, and Montana.
(c)Includes assets in Lithuania, Mexico, Finland, Norway, Belgium, Hungary, Portugal, the Czech Republic, Austria, Sweden, Slovakia, Japan, Latvia, and Estonia.
(d)Includes automotive dealerships.
(e)Includes ABR from tenants within the following property types: education facility, hotel (net lease), laboratory, theater, fitness facility, student housing (net lease), funeral home, restaurant, and land.
W. P. Carey 6/30/2022 10-Q– 47
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Portfolio Diversification by Tenant Industry
(in thousands, except percentages)
| | Industry Type | | ABR | | Percent | | Square Footage | | Percent | Industry Type | | ABR | | ABR Percent | | Square Footage | | Square Footage Percent |
Retail Stores (a) | | $ | 119,208 |
| | 17.6 | % | | 14,916 |
| | 17.4 | % | Retail Stores (a) | | $ | 265,377 | | | 20.9 | % | | 34,369 | | | 21.3 | % |
Consumer Services | | 71,119 |
| | 10.5 | % | | 5,604 |
| | 6.5 | % | Consumer Services | | 110,204 | | | 8.7 | % | | 8,067 | | | 5.0 | % |
Beverage and Food | | Beverage and Food | | 86,945 | | | 6.8 | % | | 12,263 | | | 7.6 | % |
Automotive | | 55,550 |
| | 8.2 | % | | 9,044 |
| | 10.5 | % | Automotive | | 79,095 | | | 6.2 | % | | 12,310 | | | 7.6 | % |
Sovereign and Public Finance | | 42,798 |
| | 6.3 | % | | 3,411 |
| | 4.0 | % | |
Construction and Building | | 36,926 |
| | 5.5 | % | | 8,142 |
| | 9.5 | % | |
Hotel, Gaming, and Leisure | | 35,352 |
| | 5.2 | % | | 2,254 |
| | 2.6 | % | |
Beverage, Food, and Tobacco | | 31,222 |
| | 4.6 | % | | 6,876 |
| | 8.0 | % | |
Grocery | | Grocery | | 69,117 | | | 5.4 | % | | 7,756 | | | 4.8 | % |
Cargo Transportation | | 28,823 |
| | 4.2 | % | | 3,860 |
| | 4.5 | % | Cargo Transportation | | 61,358 | | | 4.8 | % | | 9,485 | | | 5.9 | % |
Healthcare and Pharmaceuticals | | 28,203 |
| | 4.2 | % | | 1,988 |
| | 2.3 | % | Healthcare and Pharmaceuticals | | 60,276 | | | 4.7 | % | | 5,372 | | | 3.3 | % |
Construction and Building | | Construction and Building | | 51,403 | | | 4.1 | % | | 9,077 | | | 5.6 | % |
Business Services | | Business Services | | 47,521 | | | 3.7 | % | | 3,981 | | | 2.5 | % |
Capital Equipment | | Capital Equipment | | 47,088 | | | 3.7 | % | | 7,755 | | | 4.8 | % |
Durable Consumer Goods | | Durable Consumer Goods | | 44,337 | | | 3.5 | % | | 10,276 | | | 6.4 | % |
Hotel and Leisure | | Hotel and Leisure | | 42,259 | | | 3.3 | % | | 2,214 | | | 1.4 | % |
Containers, Packaging, and Glass | | 27,278 |
| | 4.0 | % | | 5,325 |
| | 6.2 | % | Containers, Packaging, and Glass | | 40,660 | | | 3.2 | % | | 6,714 | | | 4.2 | % |
Sovereign and Public Finance | | Sovereign and Public Finance | | 37,455 | | | 3.0 | % | | 3,241 | | | 2.0 | % |
High Tech Industries | | 26,133 |
| | 3.8 | % | | 2,354 |
| | 2.7 | % | High Tech Industries | | 31,066 | | | 2.5 | % | | 3,315 | | | 2.1 | % |
Media: Advertising, Printing, and Publishing | | 25,448 |
| | 3.7 | % | | 1,588 |
| | 1.8 | % | |
Capital Equipment | | 24,668 |
| | 3.6 | % | | 4,037 |
| | 4.7 | % | |
Business Services | | 14,175 |
| | 2.1 | % | | 1,730 |
| | 2.0 | % | |
Wholesale | | 13,500 |
| | 2.0 | % | | 2,572 |
| | 3.0 | % | |
Durable Consumer Goods | | 11,509 |
| | 1.7 | % | | 2,485 |
| | 2.9 | % | |
Grocery | | 11,421 |
| | 1.7 | % | | 1,260 |
| | 1.5 | % | |
Chemicals, Plastics, and Rubber | | Chemicals, Plastics, and Rubber | | 27,710 | | | 2.2 | % | | 4,431 | | | 2.7 | % |
Insurance | | Insurance | | 25,973 | | | 2.0 | % | | 1,749 | | | 1.1 | % |
Non-Durable Consumer Goods | | Non-Durable Consumer Goods | | 23,869 | | | 1.9 | % | | 5,940 | | | 3.7 | % |
Banking | | Banking | | 19,210 | | | 1.5 | % | | 1,216 | | | 0.8 | % |
Aerospace and Defense | | 10,406 |
| | 1.5 | % | | 1,115 |
| | 1.3 | % | Aerospace and Defense | | 16,227 | | | 1.3 | % | | 1,358 | | | 0.8 | % |
Chemicals, Plastics, and Rubber | | 9,357 |
| | 1.4 | % | | 1,108 |
| | 1.3 | % | |
Metals and Mining | | 9,177 |
| | 1.4 | % | | 1,341 |
| | 1.6 | % | |
Oil and Gas | | 8,659 |
| | 1.3 | % | | 368 |
| | 0.4 | % | |
Banking | | 8,412 |
| | 1.2 | % | | 702 |
| | 0.8 | % | |
Non-Durable Consumer Goods | | 8,115 |
| | 1.2 | % | | 1,883 |
| | 2.2 | % | |
Telecommunications | | 7,008 |
| | 1.0 | % | | 418 |
| | 0.5 | % | Telecommunications | | 15,007 | | | 1.2 | % | | 1,479 | | | 0.9 | % |
Metals | | Metals | | 14,913 | | | 1.2 | % | | 3,068 | | | 1.9 | % |
Media: Broadcasting and Subscription | | Media: Broadcasting and Subscription | | 12,723 | | | 1.0 | % | | 784 | | | 0.5 | % |
Other (b) | | 14,395 |
| | 2.1 | % | | 1,502 |
| | 1.8 | % | Other (b) | | 40,433 | | | 3.2 | % | | 5,074 | | | 3.1 | % |
Total | | $ | 678,862 |
| | 100.0 | % | | 85,883 |
| | 100.0 | % | Total | | $ | 1,270,226 | | | 100.0 | % | | 161,294 | | | 100.0 | % |
__________
| |
(a) | Includes automotive dealerships. |
| |
(b) | Includes ABR from tenants in the following industries: insurance, electricity, media: broadcasting and subscription, forest products and paper, and environmental industries. Also includes square footage for vacant properties. |
(a)Includes automotive dealerships.
(b)Includes ABR from tenants in the following industries: media: advertising, printing, and publishing, wholesale, oil and gas, environmental industries, consumer transportation, forest products and paper, real estate, and electricity. Also includes square footage for vacant properties.
W. P. Carey 6/30/2022 10-Q– 48
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| W. P. Carey 9/30/2017 10-Q– 60
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Lease Expirations
(in thousands, except percentages, number of leases, and number of leases)tenants)
| | Year of Lease Expiration (a) | | Number of Leases Expiring | | ABR | | Percent | | Square Footage | | Percent | Year of Lease Expiration (a) | | Number of Leases Expiring | | Number of Tenants with Leases Expiring | | ABR | | ABR Percent | | Square Footage | | Square Footage Percent |
Remaining 2017 (b) | | 3 |
| | $ | 609 |
| | 0.1 | % | | 71 |
| | 0.1 | % | |
2018 | | 5 |
| | 8,129 |
| | 1.2 | % | | 1,107 |
| | 1.3 | % | |
2019 | | 22 |
| | 31,176 |
| | 4.6 | % | | 3,132 |
| | 3.6 | % | |
2020 | | 24 |
| | 33,390 |
| | 4.9 | % | | 3,343 |
| | 3.9 | % | |
2021 | | 80 |
| | 42,214 |
| | 6.2 | % | | 6,376 |
| | 7.4 | % | |
2022 | | 40 |
| | 70,121 |
| | 10.3 | % | | 9,442 |
| | 11.0 | % | |
2023 | | 21 |
| | 41,331 |
| | 6.1 | % | | 5,811 |
| | 6.8 | % | |
2024 | | 43 |
| | 95,601 |
| | 14.1 | % | | 11,592 |
| | 13.5 | % | |
Remaining 2022 | | Remaining 2022 | | 20 | | | 17 | | | $ | 24,073 | | | 1.9 | % | | 1,500 | | | 0.9 | % |
2023 (b) | | 2023 (b) | | 32 | | | 27 | | | 46,942 | | | 3.7 | % | | 5,127 | | | 3.2 | % |
2024 (c) | | 2024 (c) | | 43 | | | 37 | | | 94,116 | | | 7.4 | % | | 12,221 | | | 7.6 | % |
2025 | | 41 |
| | 34,083 |
| | 5.0 | % | | 3,689 |
| | 4.3 | % | 2025 | | 52 | | | 30 | | | 58,981 | | | 4.6 | % | | 7,144 | | | 4.4 | % |
2026 | | 19 |
| | 18,912 |
| | 2.8 | % | | 3,159 |
| | 3.7 | % | 2026 | | 41 | | | 30 | | | 56,375 | | | 4.4 | % | | 8,222 | | | 5.1 | % |
2027 | | 26 |
| | 42,632 |
| | 6.3 | % | | 6,052 |
| | 7.0 | % | 2027 | | 57 | | | 33 | | | 79,785 | | | 6.3 | % | | 8,715 | | | 5.4 | % |
2028 | | 10 |
| | 20,052 |
| | 3.0 | % | | 2,272 |
| | 2.6 | % | 2028 | | 42 | | | 24 | | | 62,132 | | | 4.9 | % | | 5,571 | | | 3.5 | % |
2029 | | 11 |
| | 19,970 |
| | 2.9 | % | | 2,897 |
| | 3.4 | % | 2029 | | 51 | | | 24 | | | 55,657 | | | 4.4 | % | | 6,882 | | | 4.3 | % |
2030 | | 11 |
| | 50,930 |
| | 7.5 | % | | 4,804 |
| | 5.6 | % | 2030 | | 28 | | | 24 | | | 65,273 | | | 5.1 | % | | 5,565 | | | 3.4 | % |
Thereafter (>2030) | | 96 |
| | 169,712 |
| | 25.0 | % | | 21,953 |
| | 25.6 | % | |
2031 | | 2031 | | 33 | | | 17 | | | 64,229 | | | 5.1 | % | | 8,056 | | | 5.0 | % |
2032 | | 2032 | | 37 | | | 18 | | | 40,780 | | | 3.2 | % | | 5,409 | | | 3.4 | % |
2033 | | 2033 | | 28 | | | 22 | | | 74,922 | | | 5.9 | % | | 10,159 | | | 6.3 | % |
2034 | | 2034 | | 48 | | | 16 | | | 76,288 | | | 6.0 | % | | 7,955 | | | 4.9 | % |
2035 | | 2035 | | 13 | | | 13 | | | 26,224 | | | 2.1 | % | | 4,725 | | | 2.9 | % |
Thereafter (>2035) | | Thereafter (>2035) | | 277 | | | 109 | | | 444,449 | | | 35.0 | % | | 62,519 | | | 38.8 | % |
Vacant | | — |
| | — |
| | — | % | | 183 |
| | 0.2 | % | Vacant | | — | | | — | | | — | | | — | % | | 1,524 | | | 0.9 | % |
Total | | 452 |
| | $ | 678,862 |
| | 100.0 | % | | 85,883 |
| | 100.0 | % | Total | | 802 | | | $ | 1,270,226 | | | 100.0 | % | | 161,294 | | | 100.0 | % |
__________
| |
(a) | Assumes tenants do not exercise any renewal options. |
| |
(b) | One month-to-month lease with ABR of $0.1 million is included in 2017 ABR. |
(a)Assumes tenants do not exercise any renewal options or purchase options.
(b)Includes ABR of $16.1 million from a tenant (Marriott Corporation) with a lease expiration in January 2023.
(c)Includes ABR of $38.8 million from a tenant (U-Haul Moving Partners, Inc. and Mercury Partners, LP) that holds an option to repurchase the 78 properties it is leasing in April 2024. There can be no assurance that such repurchase will be completed.
Rent Collections
Through the date of this Report, we received from tenants over 99.6% of contractual base rent that was due during the second quarter of 2022 (based on contractual minimum annualized base rent (“ABR”) as of March 31, 2022).
Terms and Definitions
Pro Rata Metrics— The portfolio information above contains certain metrics prepared under theon a pro rata consolidation method.basis. We refer to these metrics as pro rata metrics. We have a number of investments, usually with our affiliates, in which our economic ownership is less than 100%. Under theOn a full consolidation method,basis, we report 100% of the assets, liabilities, revenues, and expenses of those investments that are deemed to be under our control or for which we are deemed to be the primary beneficiary, even if our ownership is less than 100%. Also, for all other jointly owned investments, which we do not control, we report our net investment and our net income or loss from that investment. Under theOn a pro rata consolidation method,basis, 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 theour jointly owned investments’ financial statement line items by our percentage ownership and adding those amounts to 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 suchour jointly owned investments.
ABR —ABR represents contractual minimum annualized base rent for our net-leased properties and reflects exchange rates as of SeptemberJune 30, 2017.2022. 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.
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Results of Operations
We operate in two reportable segments: Owned Real Estate and Investment Management. We evaluate our results of operations with a primary focus on increasing and enhancing the value, quality, and number of properties in our Owned Real Estate segment, as well as assets owned by the Managed Programs, which are managed by us through our Investment Management segment. We focus our efforts on accretive investing and improving underperforming assetsportfolio quality through re-leasing efforts, including negotiation of lease renewals, or selectively selling assets in order to increase value in our real estate portfolio.
As a result of our Board’s decision to exit all non-traded retail fundraising activities as of June 30, 2017, we have revised how we view and present a component of our two reportable segments. As such, beginning with the second quarter of 2017, we include equity in earnings of equity method investments in the Managed Programs in Through our Investment Management segment, (Note 1). Earnings from our investment in CCIFwe expect to continue to be included inearn fees and other income from the management of the portfolios of the remaining Managed Programs until those programs reach the end of their respective life cycles. Refer to Note 15 for tables presenting the comparative results of our Real Estate and Investment Management segment. Results of operations for prior periods have been reclassified to conform to the current period presentation.segments.
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Owned Real Estate
Revenues
The following table presents the comparative results ofrevenues within our Owned Real Estate segment (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | Change | | 2022 | | 2021 | | Change |
Real Estate Revenues | | | | | | | | | | | |
Lease revenues from: | | | | | | | | | | | |
Existing net-leased properties | $ | 282,633 | | | $ | 273,925 | | | $ | 8,708 | | | $ | 562,924 | | | $ | 552,371 | | | $ | 10,553 | |
Recently acquired net-leased properties | 31,017 | | | 12,381 | | | 18,636 | | | 57,558 | | | 14,794 | | | 42,764 | |
Net-leased properties sold or held for sale | 704 | | | 2,758 | | | (2,054) | | | 1,597 | | | 6,564 | | | (4,967) | |
Total lease revenues (includes reimbursable tenant costs) | 314,354 | | | 289,064 | | | 25,290 | | | 622,079 | | | 573,729 | | | 48,350 | |
Income from direct financing leases and loans receivable | 17,778 | | | 17,422 | | | 356 | | | 36,157 | | | 35,164 | | | 993 | |
Operating property revenues | 5,064 | | | 3,245 | | | 1,819 | | | 8,929 | | | 5,424 | | | 3,505 | |
Lease termination income and other | 2,591 | | | 5,059 | | | (2,468) | | | 16,713 | | | 6,644 | | | 10,069 | |
| $ | 339,787 | | | $ | 314,790 | | | $ | 24,997 | | | $ | 683,878 | | | $ | 620,961 | | | $ | 62,917 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change |
Revenues | | | | | | | | | | | |
Lease revenues | $ | 161,511 |
| | $ | 163,786 |
| | $ | (2,275 | ) | | $ | 475,547 |
| | $ | 506,358 |
| | $ | (30,811 | ) |
Operating property revenues | 8,449 |
| | 8,524 |
| | (75 | ) | | 23,652 |
| | 23,696 |
| | (44 | ) |
Reimbursable tenant costs | 5,397 |
| | 6,537 |
| | (1,140 | ) | | 15,940 |
| | 19,237 |
| | (3,297 | ) |
Lease termination income and other | 1,227 |
| | 1,224 |
| | 3 |
| | 4,234 |
| | 34,603 |
| | (30,369 | ) |
| 176,584 |
| | 180,071 |
| | (3,487 | ) | | 519,373 |
| | 583,894 |
| | (64,521 | ) |
Operating Expenses | | | | | | | | | | | |
Depreciation and amortization: | | | | | | | | | | | |
Net-leased properties | 61,583 |
| | 60,337 |
| | 1,246 |
| | 182,314 |
| | 206,312 |
| | (23,998 | ) |
Operating properties | 1,067 |
|
| 1,071 |
| | (4 | ) | | 3,202 |
| | 3,174 |
| | 28 |
|
Corporate depreciation and amortization | 320 |
| | 332 |
| | (12 | ) | | 965 |
| | 1,071 |
| | (106 | ) |
| 62,970 |
| | 61,740 |
| | 1,230 |
| | 186,481 |
| | 210,557 |
| | (24,076 | ) |
Property expenses: | | | | | | | | | | | |
Operating property expenses | 6,227 |
| | 5,611 |
| | 616 |
| | 17,859 |
| | 17,117 |
| | 742 |
|
Reimbursable tenant costs | 5,397 |
| | 6,537 |
| | (1,140 | ) | | 15,940 |
| | 19,237 |
| | (3,297 | ) |
Net-leased properties | 4,329 |
| | 4,582 |
| | (253 | ) | | 13,337 |
| | 21,358 |
| | (8,021 | ) |
| 15,953 |
| | 16,730 |
| | (777 | ) | | 47,136 |
| | 57,712 |
| | (10,576 | ) |
General and administrative | 11,234 |
| | 7,453 |
| | 3,781 |
| | 27,311 |
| | 25,653 |
| | 1,658 |
|
Stock-based compensation expense | 1,880 |
| | 1,572 |
| | 308 |
| | 4,733 |
| | 4,316 |
| | 417 |
|
Other expenses | 65 |
| | — |
| | 65 |
| | 1,138 |
| | 2,975 |
| | (1,837 | ) |
Impairment charges | — |
| | 14,441 |
| | (14,441 | ) | | — |
| | 49,870 |
| | (49,870 | ) |
Restructuring and other compensation | — |
| | — |
| | — |
| | — |
| | 4,413 |
| | (4,413 | ) |
| 92,102 |
| | 101,936 |
| | (9,834 | ) | | 266,799 |
| | 355,496 |
| | (88,697 | ) |
Other Income and Expenses | | | | | | | | | | | |
Interest expense | (41,182 | ) | | (44,349 | ) | | 3,167 |
| | (125,374 | ) | | (139,496 | ) | | 14,122 |
|
Equity in earnings of equity method investments in real estate | 3,740 |
| | 3,230 |
| | 510 |
| | 9,533 |
| | 9,585 |
| | (52 | ) |
Other income and (expenses) | (4,918 | ) | | 3,244 |
| | (8,162 | ) | | (6,249 | ) | | 7,681 |
| | (13,930 | ) |
| (42,360 | ) | | (37,875 | ) | | (4,485 | ) | | (122,090 | ) | | (122,230 | ) | | 140 |
|
Income before income taxes and gain on sale of real estate | 42,122 |
| | 40,260 |
| | 1,862 |
| | 130,484 |
| | 106,168 |
| | 24,316 |
|
(Provision for) benefit from income taxes | (1,511 | ) | | (530 | ) | | (981 | ) | | (6,696 | ) | | 6,792 |
| | (13,488 | ) |
Income before gain on sale of real estate | 40,611 |
| | 39,730 |
| | 881 |
| | 123,788 |
| | 112,960 |
| | 10,828 |
|
Gain on sale of real estate, net of tax | 19,257 |
| | 49,126 |
| | (29,869 | ) | | 22,732 |
| | 68,070 |
| | (45,338 | ) |
Net Income from Owned Real Estate | 59,868 |
| | 88,856 |
| | (28,988 | ) | | 146,520 |
| | 181,030 |
| | (34,510 | ) |
Net income attributable to noncontrolling interests | (3,376 | ) | | (1,359 | ) | | (2,017 | ) | | (8,530 | ) | | (6,294 | ) | | (2,236 | ) |
Net Income from Owned Real Estate Attributable to W. P. Carey | $ | 56,492 |
| | $ | 87,497 |
| | $ | (31,005 | ) | | $ | 137,990 |
| | $ | 174,736 |
| | $ | (36,746 | ) |
|
| |
| W. P. Carey 9/30/2017 10-Q– 63
|
Lease Composition and Leasing Activities
As of September 30, 2017, 68.9% of our net leases, based on ABR, have rent increase adjustments based on CPI or similar indices and 26.2% of our net leases, based on ABR, have fixed rent increases. These leases comprise 95.1% of our portfolio. CPI and similar rent adjustments are based on formulas indexed to changes in the CPI, or other similar indices for the jurisdiction in which the property is located, some of which have caps and/or floors. Over the next 12 months, fixed rent escalations are scheduled to increase ABR by an average of 2.5%, excluding leases that are set to expire within the next 12 months. We own international investments and, therefore, lease revenues from these investments are subject to exchange rate fluctuations in various foreign currencies, primarily the euro.
The following discussion presents a summary of rents on existing properties arising from leases with new tenants and renewed leases with existing tenants for the period presented and, therefore, does not include new acquisitions or properties placed into service for our portfolio during the periods presented, as applicable.
During the three months ended September 30, 2017, we entered into one new lease for approximately 3,000 square feet of leased space. The rent for the leased space is $22.50 per square foot. In addition, during the three months ended September 30, 2017, we extended two leases with existing tenants for a total of approximately 0.1 million square feet of leased space. The average new rent for the leased space is $7.19 per square foot, compared to the average former rent of $7.18 per square foot.
During the nine months ended September 30, 2017, we entered into five new leases for a total of approximately 0.4 million square feet of leased space. The average rent for the leased space is $14.92 per square foot. We provided tenant improvement allowances for the four new leases totaling $8.8 million. In addition, during the nine months ended September 30, 2017, we extended 22 leases with existing tenants for a total of approximately 2.8 million square feet of leased space. The average new rent for the leased space is $5.27 per square foot, compared to the average former rent of $5.47 per square foot, reflecting current market conditions. We provided tenant improvement allowances on four of these leases totaling $4.0 million.
|
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| W. P. Carey 9/30/2017 10-Q– 64
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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 from Owned Real Estate attributable to W. P. Carey (in thousands):6/30/2022 10-Q– 50
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change |
Existing Net-Leased Properties | | | | | | | | | | | |
Lease revenues | $ | 148,721 |
| | $ | 143,209 |
| | $ | 5,512 |
| | $ | 436,210 |
| | $ | 431,502 |
| | $ | 4,708 |
|
Property expenses | (3,776 | ) | | (3,419 | ) | | (357 | ) | | (11,438 | ) | | (10,048 | ) | | (1,390 | ) |
Depreciation and amortization | (56,244 | ) | | (55,111 | ) | | (1,133 | ) | | (165,834 | ) | | (165,842 | ) | | 8 |
|
Property level contribution | 88,701 |
| | 84,679 |
| | 4,022 |
| | 258,938 |
| | 255,612 |
| | 3,326 |
|
Recently Acquired Net-Leased Properties | | | | | | | | | | | |
Lease revenues | 11,953 |
| | 8,099 |
| | 3,854 |
| | 35,302 |
| | 14,815 |
| | 20,487 |
|
Property expenses | (80 | ) | | (28 | ) | | (52 | ) | | (325 | ) | | (37 | ) | | (288 | ) |
Depreciation and amortization | (5,032 | ) | | (3,823 | ) | | (1,209 | ) | | (14,845 | ) | | (6,885 | ) | | (7,960 | ) |
Property level contribution | 6,841 |
| | 4,248 |
| | 2,593 |
| | 20,132 |
| | 7,893 |
| | 12,239 |
|
Properties Sold or Held for Sale | | | | | | | | | | | |
Lease revenues | 837 |
| | 12,478 |
| | (11,641 | ) | | 4,035 |
| | 60,041 |
| | (56,006 | ) |
Operating revenues | — |
| | — |
| | — |
| | — |
| | 61 |
| | (61 | ) |
Property expenses | (473 | ) | | (1,139 | ) | | 666 |
| | (1,574 | ) | | (11,379 | ) | | 9,805 |
|
Depreciation and amortization | (307 | ) | | (1,403 | ) | | 1,096 |
| | (1,635 | ) | | (33,598 | ) | | 31,963 |
|
Property level contribution | 57 |
| | 9,936 |
| | (9,879 | ) | | 826 |
| | 15,125 |
| | (14,299 | ) |
Operating Properties | | | | | | | | | | | |
Revenues | 8,449 |
| | 8,524 |
| | (75 | ) | | 23,652 |
| | 23,635 |
| | 17 |
|
Property expenses | (6,227 | ) | | (5,607 | ) | | (620 | ) | | (17,859 | ) | | (17,011 | ) | | (848 | ) |
Depreciation and amortization | (1,067 | ) | | (1,071 | ) | | 4 |
| | (3,202 | ) | | (3,161 | ) | | (41 | ) |
Property level contribution | 1,155 |
| | 1,846 |
| | (691 | ) | | 2,591 |
| | 3,463 |
| | (872 | ) |
Property Level Contribution | 96,754 |
| | 100,709 |
| | (3,955 | ) | | 282,487 |
| | 282,093 |
| | 394 |
|
Add: Lease termination income and other | 1,227 |
| | 1,224 |
| | 3 |
| | 4,234 |
| | 34,603 |
| | (30,369 | ) |
Less other expenses: | | | | | | | | | | | |
General and administrative | (11,234 | ) | | (7,453 | ) | | (3,781 | ) | | (27,311 | ) | | (25,653 | ) | | (1,658 | ) |
Stock-based compensation expense | (1,880 | ) | | (1,572 | ) | | (308 | ) | | (4,733 | ) | | (4,316 | ) | | (417 | ) |
Corporate depreciation and amortization | (320 | ) | | (332 | ) | | 12 |
| | (965 | ) | | (1,071 | ) | | 106 |
|
Other expenses | (65 | ) | | — |
| | (65 | ) | | (1,138 | ) | | (2,975 | ) | | 1,837 |
|
Impairment charges | — |
| | (14,441 | ) | | 14,441 |
| | — |
| | (49,870 | ) | | 49,870 |
|
Restructuring and other compensation | — |
| | — |
| | — |
| | — |
| | (4,413 | ) | | 4,413 |
|
Other Income and Expenses | | | | | | | | | | | |
Interest expense | (41,182 | ) | | (44,349 | ) | | 3,167 |
| | (125,374 | ) | | (139,496 | ) | | 14,122 |
|
Equity in earnings of equity method investments in real estate | 3,740 |
| | 3,230 |
| | 510 |
| | 9,533 |
| | 9,585 |
| | (52 | ) |
Other income and (expenses) | (4,918 | ) | | 3,244 |
| | (8,162 | ) | | (6,249 | ) | | 7,681 |
| | (13,930 | ) |
| (42,360 | ) | | (37,875 | ) | | (4,485 | ) | | (122,090 | ) | | (122,230 | ) | | 140 |
|
Income before income taxes and gain on sale of real estate | 42,122 |
| | 40,260 |
| | 1,862 |
| | 130,484 |
| | 106,168 |
| | 24,316 |
|
(Provision for) benefit from income taxes | (1,511 | ) | | (530 | ) | | (981 | ) | | (6,696 | ) | | 6,792 |
| | (13,488 | ) |
Income before gain on sale of real estate | 40,611 |
| | 39,730 |
| | 881 |
| | 123,788 |
| | 112,960 |
| | 10,828 |
|
Gain on sale of real estate, net of tax | 19,257 |
| | 49,126 |
| | (29,869 | ) | | 22,732 |
| | 68,070 |
| | (45,338 | ) |
Net Income from Owned Real Estate | 59,868 |
| | 88,856 |
| | (28,988 | ) | | 146,520 |
| | 181,030 |
| | (34,510 | ) |
Net income attributable to noncontrolling interests | (3,376 | ) | | (1,359 | ) | | (2,017 | ) | | (8,530 | ) | | (6,294 | ) | | (2,236 | ) |
Net Income from Owned Real Estate Attributable to W. P. Carey | $ | 56,492 |
| | $ | 87,497 |
| | $ | (31,005 | ) | | $ | 137,990 |
| | $ | 174,736 |
| | $ | (36,746 | ) |
|
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| W. P. Carey 9/30/2017 10-Q– 65
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Lease Revenues
Property level contribution is a non-GAAP measure that we believe to be a useful supplemental measure for management and investors in evaluating and analyzing the financial results of our net-leased and operating properties included in our Owned Real Estate segment over time. Property level contribution presents the lease and operating property revenues, less property expenses and depreciation and amortization. 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 from Owned Real Estate attributable to W. P. Carey as an indication of our operating performance.
During the three months ended September 30, 2017, certain of our properties were damaged by Hurricane Harvey and Hurricane Irma. As a result, we evaluated such properties to determine if any losses should be recognized. We determined that the damages incurred were immaterial, and as such, no losses have been recorded.
Existing Net-Leased Properties
“Existing net-leased propertiesproperties” are those that we acquired or placed into service prior to January 1, 20162021 and that were not sold or held for sale during the periods presented. For the periods presented, there were 8081,108 existing net-leased properties.
For the three and six months ended SeptemberJune 30, 20172022 as compared to the same periodperiods in 2016,2021, lease revenues from existing net-leased properties increased by $2.2 milliondue to the following items (in millions):
__________
(a)Excludes fixed minimum rent increases, which are reflected as straight-line rent adjustments within lease revenues.
(b)Primarily related to (i) straight-line rent adjustments as a result of an increase in the average exchange ratecontractual rental revenue from certain leases being deemed probable of the U.S. dollar in relation to foreign currencies (primarily the euro) between the periods, $1.3 million related to scheduledcollection and (ii) write-offs of above/below-market rent increases, $1.2 million due to new leases with existing tenants, and $0.8 million related to completed build-to-suit or expansion projects on existing properties. Depreciation and amortization expense from existing net-leased properties increased primarily as a result of an increase in the average exchange rate of the U.S. dollar in relation to foreign currencies (primarily the euro) between the periods.intangibles.
For the nine months ended September 30, 2017 as compared to the same period in 2016, lease revenues from existing net-leased properties increased by $3.3 million related to scheduled rent increases, $2.8 million due to new leases with existing tenants, and $2.4 million related to completed build-to-suit or expansion projects on existing properties. These increases were partially offset by decreases of $2.2 million as a result of a decrease in the average exchange rate of the U.S. dollar in relation to foreign currencies (primarily the British pound sterling) between the periods, $1.0 million due to lease restructurings, and $1.0 million due to lease expirations.
Recently Acquired Net-Leased Properties
“Recently acquired net-leased propertiesproperties” are those that we acquired or placed into service subsequent to December 31, 2015. Since January 1, 2016, we acquired four investments comprised of 67 properties, 51 of which we acquired during the second quarter of 2016, 15 of which we acquired during the fourth quarter of 2016,2020 and one of which we acquired during the second quarter of 2017.
For the three and nine months ended September 30, 2017, property level contribution from recently acquired net-leased properties increased by $2.6 million and $12.2 million, respectively, reflecting the results of operations of our investments completed during 2016 and 2017.
Properties Sold or Held for Sale
In addition to the impact on property level contribution related to properties wethat were not sold or classified as held for sale during the periods presented,presented. Since January 1, 2021, we recognized gainsacquired 36 investments (comprised of 129 properties and losses on salesix land parcels under buildings that we already own) and placed one property into service.
W. P. Carey 6/30/2022 10-Q– 51
“Net-leased properties sold or held for sale” include (i) 14 net-leased properties disposed of real estate, lease termination income, impairment charges, allowances for credit losses, and gain (loss) on extinguishment of debt. The impact of these transactions is described in further detail below and in Note 15.
Duringduring the threesix months ended SeptemberJune 30, 2017, we2022 and (ii) 24 net-leased properties disposed of five properties. During the nine months ended September 30, 2017, we disposed of 13 properties, one of which was held for sale at December 31, 2016, and a parcel of vacant land. At September 30, 2017, we had one property classified as held for sale (Note 4). During the year ended December 31, 2016, we disposed of 33 properties and a parcel of vacant land.
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| W. P. Carey 9/30/2017 10-Q– 66
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In the fourth quarter of 2015, we executed a lease amendment with a tenant in a domestic office building. The amendment extended the lease term an additional 15 years to January 31, 2037 and provided a one-time rent payment of $25.0 million, which was paid to us on December 18, 2015. The lease amendment also provided an option to terminate the lease effective February 29, 2016, with additional lease termination fees of $22.2 million to be paid to us on or five days before February 29, 2016 upon exercise of the option. The tenant exercised the option on January 1, 2016. The aggregate of the additional rent payment of $25.0 million and the lease termination fees of $22.2 million were amortized to lease termination income from the lease amendment date on December 4, 2015 through the end of the non-cancelable lease term on February 29, 2016, resulting in $15.0 million recognized during the year ended December 31,
20152021. Our dispositions are more fully described in Note 14.
Income from Direct Financing Leases and $32.2 million recognized duringLoans Receivable
We currently present Income from direct financing leases and loans receivable on its own line item in the nine months ended September 30, 2016consolidated statements of income. Previously, income from direct financing leases was included within Lease revenues and income from loans receivable was included within Lease termination income and other in the consolidated financial statements. Duringstatements of income. Prior period amounts have been reclassified to conform to the fourth quarter of 2015, we entered into an agreement to sell the property to a third party. In February 2016, we sold the property. As a result of this lease termination and sale, we recognized accelerated amortization of below-market rent intangibles of $16.7 million during the nine months ended September 30, 2016, which was recorded as an adjustment to lease revenues. In addition, for the same property, we recognized accelerated amortization of in-place lease intangibles of $20.3 million during thatcurrent period which is included in depreciation and amortization expense.presentation.
In addition, during the nine months ended September 30, 2016, we recorded an allowance for credit losses of $7.1 million on an international direct financing lease investment that was sold in August 2017, which was included in property expenses, due to a decline in the estimated amount of future payments we would receive from the tenant (Note 5).
Operating Properties
Operating properties consist of our investments in two hotels for all periods presented.
For the three and ninesix months ended SeptemberJune 30, 20172022 as compared to the same periods in 2016, property expenses for operating properties2021, income from direct financing leases and loans receivable increased due to increases in costs related to room and food services, property management, and marketing.the following items (in millions):
OtherW. P. Carey 6/30/2022 10-Q– 52
Operating Property Revenues and Expenses
For the periods presented, we recorded operating property revenues from 11 operating properties, comprised of ten self-storage operating properties (which excludes nine self-storage properties accounted for under the equity method) and one hotel operating property. For our hotel operating property, revenues and expenses increased by (i) $1.5 million and $1.1 million, respectively, for the three months ended June 30, 2022 as compared to the same period in 2021, and (ii) $3.0 million and $2.0 million, respectively, for the six months ended June 30, 2022 as compared to the same period in 2021, reflecting higher occupancy as the hotel’s business recovers from the ongoing COVID-19 pandemic.
Lease Termination Income and Other
2017 — For the nine months ended September 30, 2017, lease termination income and other was $4.2 million. We received proceeds from a bankruptcy settlement claim with a former tenant during both the second and third quarters of 2017 and recognized income during the first, second, and third quarters of 2017 related to a lease termination that occurred during the first quarter of 2017. Lease termination income and other also consists of earnings from our note receivable (is described in Note 54).
2016 — For the nine months ended September 30, 2016, lease termination income
Operating Expenses
Depreciation and
other was $34.6 million, primarily consisting of the $32.2 million of lease termination income related to a domestic property that was sold in February 2016, as discussed above (Note 15).Amortization
GeneralThe following table presents depreciation and Administrative
Beginning with the third quarter of 2017, personnel and rent expenses includedamortization expense within general and administrative expenses that are recorded by our Owned Real Estate segment will be allocated based on time incurred by our personnel for the Owned Real Estate and Investment Management segments. All other overhead costs are charged to our Investment Management segment based on the trailing 12-month reported revenues of the Managed Programs and us.(in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | Change | | 2022 | | 2021 | | Change |
Depreciation and Amortization | | | | | | | | | | | |
Net-leased properties | $ | 113,650 | | | $ | 112,319 | | | $ | 1,331 | | | $ | 227,612 | | | $ | 220,822 | | | $ | 6,790 | |
Operating properties | 683 | | | 679 | | | 4 | | | 1,367 | | | 1,375 | | | (8) | |
Corporate | 747 | | | 1,350 | | | (603) | | | 1,494 | | | 2,473 | | | (979) | |
| $ | 115,080 | | | $ | 114,348 | | | $ | 732 | | | $ | 230,473 | | | $ | 224,670 | | | $ | 5,803 | |
As discussed in Note 3, certain personnel costs and overhead costs are charged to the CPA® REITs based on the trailing 12-month reported revenues of the Managed Programs and us. We allocate certain personnel and overhead costs to the CWI REITs based on the time incurred by our personnel. We allocate certain personnel costs based on the time incurred by our personnel to CESH I and, prior to our resignation as the advisor to CCIF in the third quarter of 2017, to the Managed BDCs.
For the three and ninesix months ended SeptemberJune 30, 20172022 as compared to the same periods in 2016,2021, depreciation and amortization expense for net-leased properties increased primarily due to the impact of net acquisition activity, partially offset by the weakening of foreign currencies (primarily the euro and British pound sterling) in relation to the U.S. dollar between the periods.
General and Administrative
All general and administrative expenses
inare attributed to our
Owned Real Estate
segment, which excludes restructuring and other compensation expenses as described below, increased by $3.8 million and $1.7 million, respectively, primarily due to the change in methodology for allocation of expenses between our Owned Real Estate and Investment Management segments (Note 1).segment.
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| W. P. Carey 9/30/2017 10-Q– 67
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Stock-based Compensation Expense
Beginning with the third quarter of 2017, stock-based compensation expense is being allocated to our Owned Real Estate and Investment Management segments based on time incurred by our personnel for those segments.
For the three and ninesix months ended SeptemberJune 30, 2017, stock-based compensation expense allocated to our Owned Real Estate segment was $1.9 million and $4.7 million, respectively, substantially unchanged from the prior year periods.
Other Expenses
For the nine months ended September 30, 20172022 as compared to the same period in 2016, other2021, general and administrative expenses decreasedallocated to our Real Estate segment increased by $1.8$1.4 million, primarily due to advisoryhigher compensation expense.
Property Expenses, Excluding Reimbursable Tenant Costs
For the six months ended June 30, 2022 as compared to the same period in 2021, property expenses, excluding reimbursable tenant costs, increased by $2.9 million, primarily due to higher carrying costs related to tenant vacancies (which resulted in property expenses no longer being reimbursable) and professional fees incurred during the prior year periodcosts associated with repositioning certain properties.
Stock-based Compensation Expense
Stock-based compensation expense is fully recognized within our OwnedReal Estate segment.
For the six months ended June 30, 2022 as compared to the same period in 2021, stock-based compensation expense allocated to our Real Estate segment increased by $3.2 million, primarily due to changes in connection with the formal strategic review that we completed in May 2016.projected payout for PSUs.
Impairment Charges
Where the undiscounted cash flows for an asset are less than the asset’s carrying value when considering and evaluating the various alternative courses of action that may occur, we recognize an impairment charge to reduce the carrying value of the asset to its estimated fair value. Further, when we classify an asset as held for sale, we carry the asset at the lower of its current carrying value or its fair value, less estimated cost to sell. Our impairment charges are more fully described in Note 8.
DuringW. P. Carey 6/30/2022 10-Q– 53
Merger and Other Expenses
The following table presents merger and other expenses within our Real Estate segment (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | Change | | 2022 | | 2021 | | Change |
Merger and Other Expenses | | | | | | | | | | | |
Costs incurred in connection with the Proposed Merger (Note 1) | $ | 1,785 | | | $ | — | | | $ | 1,785 | | | $ | 2,734 | | | $ | — | | | $ | 2,734 | |
Reversals of estimated liabilities for German real estate transfer taxes that were previously recorded in connection with mergers in prior years | — | | | (2,819) | | | 2,819 | | | (3,616) | | | (3,262) | | | (354) | |
Other expenses | 199 | | | 220 | | | (21) | | | 541 | | | 172 | | | 369 | |
| $ | 1,984 | | | $ | (2,599) | | | $ | 4,583 | | | $ | (341) | | | $ | (3,090) | | | $ | 2,749 | |
Other Income and (Expenses), and Provision for Income Taxes
Interest Expense
For the three months ended September 30, 2016, we recognized impairment charges totaling $14.4 million, including an amount attributable to a noncontrolling interest of $0.6 million, on 18 properties, including a portfolio of 14 properties, in order to reduce the carrying values of the properties to their estimated fair values. The impairment charges recognized on the portfolio of 14 properties were in addition to charges recognized on the portfolio during theand six months ended June 30, 2016 (as described below), based on the purchase and sale agreement for the portfolio. The fair value measurements for the properties approximated their estimated selling prices, less estimated costs to sell. The portfolio of 14 properties was sold in October 2016. Of the other four properties, one was sold in December 2016, two were disposed of in January 2017, and one property, which was classified as held for sale as of December 31, 2016, was sold in January 2017.
During the nine months ended September 30, 2016, we recognized impairment charges totaling $49.9 million, including an amount attributable to a noncontrolling interest of $0.6 million, on 18 properties in order to reduce the carrying values of the properties to their estimated fair values. In addition to the impairment charges of $14.4 million recognized during the three months ended September 30, 2016, described above, we recognized impairment charges totaling $35.4 million on the portfolio of 14 properties during the six months ended June 30, 2016, in order to reduce the carrying values of the properties to their estimated fair values at that time. The fair value measurements for the properties approximated their estimated selling prices, less estimated costs to sell.
Restructuring and Other Compensation
For the nine months ended September 30, 2016, we recorded total restructuring and other compensation expenses of $11.9 million, of which $4.4 million was allocated to our Owned Real Estate segment. Included in the total was $5.1 million of severance related to the employment agreement with our former chief executive officer and $6.8 million related to severance, stock-based compensation, and other costs incurred as part of the employee terminations and RIF during the period (Note 12).
Interest Expense
For the three and nine months ended September 30, 20172022 as compared to the same periods in 2016,2021, interest expense decreased by $3.2$2.8 million and $14.1$8.4 million, respectively, primarily due to an overall decrease(i) the weakening of foreign currencies (primarily the euro and British pound sterling) in relation to the U.S. dollar between the periods, (ii) the reduction of our weighted-average interest rate, as well as an overall decrease in our averagemortgage debt outstanding debt balances. Our weighted-average interest rate was 3.5% and 3.8% during the three months ended September 30, 2017 and 2016, respectively, and 3.6% and 3.9% during the nine months ended September 30, 2017 and 2016, respectively. Our average outstanding debt balance was $4.3 billion and $4.5 billion during the three months ended September 30, 2017 and 2016, respectively, and $4.3 billion and $4.6 billion during the nine months ended September 30, 2017 and 2016, respectively. Theby prepaying or repaying at or close to maturity a total of $790.7 million of non-recourse mortgage loans with a weighted-average interest rate of our debt decreased primarily as a result of paying off certain non-recourse mortgage loans with unsecured borrowings, which bear interest at a lower rate than our mortgage loans4.9% since January 1, 2021 (Note 10)., and (iii) the redemption of the €500.0 million of 2.0% Senior Notes due 2023 in March 2021, partially offset by three senior unsecured notes issuances totaling $1.4 billion (based on the exchange rate of the euro on the date of issuance for our euro-denominated senior unsecured notes) with a weighted-average interest rate of 1.7% completed since January 1, 2021.
The following table presents certain information about our outstanding debt (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Average outstanding debt balance | $ | 6,833,452 | | | $ | 7,000,966 | | | $ | 6,876,996 | | | $ | 6,908,325 | |
Weighted-average interest rate | 2.5 | % | | 2.6 | % | | 2.5 | % | | 2.7 | % |
Gain on Sale of Real Estate, Net
Gain on sale of real estate, net, consists of gain on the sale of properties that were disposed of during the reporting period. Our dispositions are more fully described in Note 14.
W. P. Carey 6/30/2022 10-Q– 54
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| W. P. Carey 9/30/2017 10-Q– 68
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Other IncomeGains and (Expenses)(Losses)
Other incomegains and (expenses)(losses) primarily consists of gains and losses on (i) the mark-to-market fair value of equity securities, (ii) extinguishment of debt, and (iii) foreign currency transactions, derivativeexchange rate movements. The timing and amount of such gains or losses cannot always be estimated and are subject to fluctuation. All of our foreign currency-denominated unsecured debt instruments were designated as net investment hedges during the three and extinguishment of debt. Gainssix months ended June 30, 2022 and 2021. Therefore, no gains and losses on foreign currency transactions areexchange rate movements were recognized on the remeasurement of certain ofsuch instruments during those periods (Note 9). The following table presents other gains and (losses) within our euro-denominated unsecured debt instruments that are not designated as net investment hedges. Real Estate segment (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | Change | | 2022 | | 2021 | | Change |
Other Gains and (Losses) | | | | | | | | | | | |
Net realized and unrealized (losses) gains on foreign currency exchange rate movements (a) | $ | (37,030) | | | $ | 3,270 | | | $ | (40,300) | | | $ | (48,104) | | | $ | (4,181) | | | $ | (43,923) | |
Non-cash unrealized gains related to an increase in the fair value of our investment in common shares of WLT (Note 8) | 15,357 | | | — | | | 15,357 | | | 43,397 | | | — | | | 43,397 | |
Change in allowance for credit losses on finance receivables (Note 5) | 1,753 | | | 4,890 | | | (3,137) | | | 980 | | | 6,249 | | | (5,269) | |
Loss on extinguishment of debt (b) | (149) | | | (187) | | | 38 | | | (1,041) | | | (60,068) | | | 59,027 | |
Realized gains in connection with the redemption of our investment in preferred shares of WLT (Note 8) | — | | | — | | | — | | | 18,688 | | | — | | | 18,688 | |
Non-cash unrealized gains related to an increase in the fair value of our investment in shares of Lineage Logistics (Note 8) | — | | | — | | | — | | | — | | | 23,381 | | | (23,381) | |
Other | (86) | | | (501) | | | 415 | | | 343 | | | (98) | | | 441 | |
| $ | (20,155) | | | $ | 7,472 | | | $ | (27,627) | | | $ | 14,263 | | | $ | (34,717) | | | $ | 48,980 | |
__________
(a)We make certain foreign currency-denominated intercompany loans to a number of our foreign subsidiaries, most of which do not have the U.S. dollar as their functional currency. Remeasurement of foreign currency intercompany transactions that are scheduled for settlement, consisting primarily of accrued interest and short-termamortizing loans, are included in other gains and (losses).
(b)Amount for the determinationsix months ended June 30, 2021 is related to the prepayment of net income. We also recognize gains or losses on foreign currency transactions when we repatriate cash from our foreign investments. In addition, we have certain derivative instruments, including common stock warrantsmortgage loans (primarily comprised of prepayment penalties totaling $31.8 million) and foreign currency contracts, that are not designated as hedges for accounting purposes, for whichredemption of the €500.0 million of 2.0% Senior Notes due 2023 in March 2021 (primarily comprised of a “make-whole” amount of $26.2 million related to the redemption) (Note 10).
W. P. Carey 6/30/2022 10-Q– 55
Non-Operating Income
Non-operating income primarily consists of realized and unrealized gains and losses are included in earnings. The timing and amount of such gains or losses cannot always be estimated and are subject to fluctuation.
2017 — For the three months ended September 30, 2017, net other expenses were $4.9 million. During the period, we recognized net realized and unrealized losses of $7.0 million on foreign currency transactions as a result of changes in foreign currency exchange rates and a net loss on extinguishment of debt totaling $1.6 million primarily related to the repayment of a non-recourse mortgage loan encumbering a domestic property that was sold in July 2017 (Note 15). These losses were partially offset by realized gains of $2.3 million related to foreign currency forward contracts and foreign currency collarsderivative instruments, dividends from securities, and interest income of $0.5 million primarily related toon our loans to affiliates (Note 3).and cash deposits.
For the nine months ended September 30, 2017, net other expenses were $6.2 million. During the period, we recognized net realized and unrealized losses of $16.4 million on foreign currency transactions as a result of changes in foreign currency exchange rates and unrealized losses of $1.1 million primarily on foreign currency collars prior to their maturities on various dates during the period, as well as on common stock warrants that we own in connection with certain investments. These losses were partially offset by realized gains of $8.6 million related to foreign currency forward contracts and foreign currency collars and interestThe following table presents non-operating income of $1.5 million primarily related towithin our loans to affiliates (Note 3).
2016 — For the three months ended September 30, 2016, net other income was $3.2 million. During the period, we recognized realized gains of $2.4 million related to foreign currency forward contracts and foreign currency collars and unrealized gains of $0.7 million recognized primarily on interest rate swaps that did not qualify for hedge accounting. In addition, we recognized a gain of $0.7 million in our Owned Real Estate segment on(in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | Change | | 2022 | | 2021 | | Change |
Non-Operating Income | | | | | | | | | | | |
Realized gains (losses) on foreign currency collars (Note 9) | $ | 5,934 | | | $ | (228) | | | $ | 6,162 | | | $ | 9,246 | | | $ | (408) | | | $ | 9,654 | |
Interest income related to our loans to affiliates and cash deposits | 41 | | | 25 | | | 16 | | | 51 | | | 39 | | | 12 | |
Cash dividends from our investment in preferred shares of WLT (Note 8) | — | | | 3,268 | | | (3,268) | | | 912 | | | 3,268 | | | (2,356) | |
Cash dividends from our investment in Lineage Logistics (Note 8) | — | | | — | | | — | | | 4,308 | | | 6,438 | | | (2,130) | |
| $ | 5,975 | | | $ | 3,065 | | | $ | 2,910 | | | $ | 14,517 | | | $ | 9,337 | | | $ | 5,180 | |
Earnings (Losses) from Equity Method Investments in Real Estate
Our equity method investments in real estate are more fully described in Note 7. The following table presents earnings (losses) from equity method investments in real estate (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | Change | | 2022 | | 2021 | | Change |
Earnings (Losses) from Equity Method Investments in Real Estate | | | | | | | | | | | |
Earnings from Las Vegas Retail Complex | $ | 1,809 | | | $ | 293 | | | $ | 1,516 | | | $ | 3,368 | | | $ | 293 | | | $ | 3,075 | |
Earnings from Johnson Self Storage (a) | 1,087 | | | 492 | | | 595 | | | 2,027 | | | 893 | | | 1,134 | |
Earnings (losses) from Kesko Senukai (b) | 576 | | | 660 | | | (84) | | | 1,230 | | | (510) | | | 1,740 | |
Losses from WLT (c) | — | | | (4,005) | | | 4,005 | | | — | | | (8,488) | | | 8,488 | |
Proportionate share of impairment charge recognized on Bank Pekao (Note 7) | — | | | — | | | — | | | (4,610) | | | — | | | (4,610) | |
Other-than-temporary impairment charge on State Farm Mutual Automobile Insurance Co. (Note 8) | — | | | — | | | — | | | — | | | (6,830) | | | 6,830 | |
Other | 1,057 | | | 706 | | | 351 | | | 1,727 | | | 1,669 | | | 58 | |
| $ | 4,529 | | | $ | (1,854) | | | $ | 6,383 | | | $ | 3,742 | | | $ | (12,973) | | | $ | 16,715 | |
__________
(a)Increases for the deconsolidation of an affiliate, CESH I (Note 2). These gains were partially offset by a net loss on extinguishment of debt of $2.1 million primarily relatedthree and six months ended June 30, 2022 as compared to the payoff of a non-recourse mortgage loan.same periods in 2021 are primarily due to higher occupancy and unit rates at these self-storage facilities. For(b)Increase for the ninesix months ended SeptemberJune 30, 2016, net other income was $7.7 million. During the period, we recognized realized gains of $6.4 million related to foreign currency forward contracts and foreign currency collars, unrealized gains of $3.2 million recognized primarily on interest rate swaps that did not qualify for hedge accounting, and interest income of $0.6 million primarily related to our loans to affiliates (Note 3). In addition, we recognized a gain of $0.7 million in our Owned Real Estate segment on the deconsolidation of CESH I (Note 2). These gains were partially offset by a net loss on extinguishment of debt of $3.9 million primarily related to the payoff of two non-recourse mortgage loans.
(Provision for) Benefit from Income Taxes
For the three months ended September 30, 2017,2022 as compared to the same period in 2016,2021 is primarily due to higher rent collections at these retail properties, where certain rents were previously disputed and subsequently collected.
(c)Losses for the prior year periods were primarily due to the adverse impact of the COVID-19 pandemic on WLT’s operations. We recorded losses from this investment on a one quarter lag. This investment was reclassified to equity securities at fair value within Other assets, net on our consolidated balance sheets in January 2022 (Note 8).
W. P. Carey 6/30/2022 10-Q– 56
Provision for Income Taxes
For the three and six months ended June 30, 2022 as compared to the same periods in 2021, provision for income taxes within our Owned Real Estate segment increaseddecreased by $1.0$3.2 million and $2.7 million, respectively, primarily due to (i) a decrease of $0.7 million inone-time deferred tax expense recognized on a foreign property during the prior year periods and tax benefits primarily associated with basis differencesrecognized on certain foreign properties and (ii) an increase of $0.2 million in current federal, foreign, and state franchise taxes due to higher taxable income on our domestic TRSs and foreign properties.
For the nine months ended September 30, 2017, we recognized a provision for income taxes of $6.7 million, compared to a benefit from income taxes of $6.8 million recorded during the same period in 2016, within our Owned Real Estate segment. During the nine months ended September 30, 2016, we recorded $19.7 million of deferred tax benefits associated with basis differences on certain foreign properties, primarily resulting from the impairment charges recorded in the period on certain international properties (Note 8). In addition, current federal, foreign, and state franchise taxes decreased by $1.1 million due to decreases in taxable income generated by our domestic TRSs and foreign properties.
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| W. P. Carey 9/30/2017 10-Q– 69
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Gain on Sale of Real Estate, Net of Tax
Gain on sale of real estate, net of tax consists of gain on the sale of properties, net of tax that were disposed of during the three and nine months ended September 30, 2017 and 2016 (Note 15).
2017 — During the three and nine months ended September 30, 2017, we sold five properties, and 11 properties andyear periods as a parcel of vacant land, respectively, for net proceeds of $58.7 million and $102.5 million, respectively, and recognized a net gain on these sales, net of tax totaling $19.3 million and $22.7 million, respectively. In connection with the saleresult of a property in Malaysia in August 2017, and in accordance with ASC 830-30-40, Foreign Currency Matters, we reclassified $3.6 million of foreign currency translation losses from Accumulated other comprehensive loss to Gain on sale of real estate, net of tax (as a reduction to Gain on sale of real estate, net of tax), since the sale represented a disposal of our Malaysian investments (Note 13). One of the properties sold during the nine months ended September 30, 2017 was held for sale at December 31, 2016 (Note 4). In addition, in January 2017, we transferred ownership of two international properties and the related non-recourse mortgage loan, which had an aggregate asset carrying value of $31.3 million and an outstanding balance of $28.1 million (net of $3.8 million of cash held in escrow that was retained by the mortgage lender), respectively, on the dates of transfer, to the mortgage lender, resulting in a net loss of less than $0.1 million.court ruling.
2016 — During the three and nine months ended September 30, 2016, we sold three properties, and ten properties and a parcel of vacant land, respectively, for net proceeds of $192.0 million and $392.6 million, respectively, and recognized a net gain on these sales, net of tax totaling $37.4 million and $39.9 million, respectively, including amounts attributable to noncontrolling interests of $0.9 million for the nine months ended September 30, 2016. In addition, in April 2016, we transferred ownership of a vacant international property and the related non-recourse mortgage loan, which had a carrying value of $39.8 million and an outstanding balance of $60.9 million, respectively, on the date of transfer, to the mortgage lender, resulting in a net gain of $16.4 million. Also, in July 2016, a vacant domestic property with an asset carrying value of $13.7 million, which was encumbered by a $24.3 million mortgage loan (net of $2.6 million of cash held in escrow that was retained by the mortgage lender), was foreclosed upon by the mortgage lender, resulting in a net gain of $11.6 million.
Investment Management
We earn revenue as the advisor to the Managed Programs. For the periods presented, we acted as advisor to the following affiliated Managed Programs: CPA®:17 – Global, CPA®:CPA:18 – Global and CESH. The CWI 1 and CWI 2 CCIF (through September 10, 2017)Merger closed on April 13, 2020, and as a result, CWI 2 was renamed Watermark Lodging Trust, Inc., and CESH I (since Junefor which we provided certain services pursuant to a transition services agreement, which was terminated on October 13, 2021 (Note 3 2016)). On June 15, 2017, our Board approved a plan to exit all non-traded retail fundraising activities carried out by our wholly-owned broker-dealer subsidiary, Carey Financial, as of June 30, 2017.
We no longer raise capital for new or existing funds, but we currently expect to continue to manage all existing Managed Programsmanaging CPA:18 – Global and CESH and earn the various fees described below through the end of their respective natural life cyclescycles. Upon the expected completion of the Proposed Merger, we will no longer receive fees and distributions from CPA:18 – Global, and as a result, Investment Management earnings are expected to decline in future periods (Note 1). In August 2017,As of June 30, 2022, we resigned as the advisor to CCIF, and our advisory agreement with CCIF was terminated, effective asmanaged total assets of September 11, 2017. CCIF was included inapproximately $2.5 billion on behalf of the Managed Programs prior to our resignation as its advisor (Note 1).Programs.
Revenues
The following tables present other operating data that management finds useful in evaluating result of operations (dollars in millions):
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Total properties — Managed Programs | 627 |
| | 606 |
|
Assets under management — Managed Programs (a) | $ | 13,244.8 |
| | $ | 12,874.8 |
|
Cumulative funds raised — CWI 2 offering (b) (c) | 851.3 |
| | 616.3 |
|
Cumulative funds raised — CCIF offering (b) (d) | 195.3 |
| | 125.1 |
|
Cumulative funds raised — CESH I offering (e) | 139.7 |
| | 112.8 |
|
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Financings structured — Managed Programs | $ | 997.9 |
| | $ | 1,080.3 |
|
Investments structured — Managed Programs (f) | 1,101.1 |
| | 1,047.8 |
|
Funds raised — CWI 2 offering (b) (c) | 235.0 |
| | 288.8 |
|
Funds raised — CCIF offering (b) (d) | 70.2 |
| | 89.2 |
|
Funds raised — CESH I offering (e) | 26.9 |
| | 41.8 |
|
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(a) | Represents the estimated fair value of the real estate assets owned by the Managed REITs, which was calculated by us as the advisor to the Managed REITs based in part upon third-party appraisals, plus cash and cash equivalents, less distributions payable. Amounts include the fair value of the investment assets, plus cash, owned by CESH I. Amount as of December 31, 2016 also includes the fair value of the investment assets, plus cash, owned by CCIF. |
| |
(b) | Excludes reinvested distributions through each entity’s distribution reinvestment plan. |
| |
(c) | Reflects funds raised from CWI 2’s initial public offering, which commenced in February 2015. In connection with the end of active fundraising by Carey Financial on June 30, 2017, we facilitated the orderly processing of sales in the offering by CWI 2 through July 31, 2017, which then closed its offering on that date. |
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(d) | Amount represents funding from the CCIF Feeder Funds to CCIF. We began to raise funds on behalf of the CCIF Feeder Funds in the fourth quarter of 2015. One of the CCIF Feeder Funds, CCIF 2016 T, closed its offering on April 28, 2017. In August 2017, we resigned as the advisor to CCIF, and our advisory agreement with CCIF was terminated, effective as of September 11, 2017. |
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(e) | Reflects funds raised from CESH I’s private placement, which commenced in July 2016. In connection with the end of active fundraising by Carey Financial on June 30, 2017, we facilitated the orderly processing of sales in the offering by CESH I through July 31, 2017, which then closed its offering on that date. |
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(f) | Includes acquisition-related costs. |
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| W. P. Carey 9/30/2017 10-Q– 71
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Below is a summary of comparative results oftable presents revenues within our Investment Management segment (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | Change | | 2022 | | 2021 | | Change |
Investment Management Revenues | | | | | | | | | | | |
Asset management and other revenue | | | | | | | | | | | |
CPA:18 – Global | $ | 3,047 | | | $ | 3,154 | | | $ | (107) | | | $ | 6,105 | | | $ | 6,292 | | | $ | (187) | |
CESH | 420 | | | 812 | | | (392) | | | 782 | | | 1,628 | | | (846) | |
| 3,467 | | | 3,966 | | | (499) | | | 6,887 | | | 7,920 | | | (1,033) | |
Reimbursable costs from affiliates | | | | | | | | | | | |
CPA:18 – Global | 1,001 | | | 641 | | | 360 | | | 1,774 | | | 1,289 | | | 485 | |
CESH | 142 | | | 231 | | | (89) | | | 296 | | | 516 | | | (220) | |
WLT | — | | | 96 | | | (96) | | | — | | | 204 | | | (204) | |
| 1,143 | | | 968 | | | 175 | | | 2,070 | | | 2,009 | | | 61 | |
| $ | 4,610 | | | $ | 4,934 | | | $ | (324) | | | $ | 8,957 | | | $ | 9,929 | | | $ | (972) | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change |
Revenues | | | | | | | | | | | |
Asset management revenue | $ | 17,938 |
| | $ | 15,978 |
| | $ | 1,960 |
| | $ | 53,271 |
| | $ | 45,596 |
| | $ | 7,675 |
|
Structuring revenue | 9,817 |
| | 12,301 |
| | (2,484 | ) | | 27,981 |
| | 30,990 |
| | (3,009 | ) |
Reimbursable costs from affiliates | 6,211 |
| | 14,540 |
| | (8,329 | ) | | 45,390 |
| | 46,372 |
| | (982 | ) |
Dealer manager fees | 105 |
| | 1,835 |
| | (1,730 | ) | | 4,430 |
| | 5,379 |
| | (949 | ) |
Other advisory revenue | 99 |
| | 522 |
| | (423 | ) | | 896 |
| | 522 |
| | 374 |
|
| 34,170 |
| | 45,176 |
| | (11,006 | ) | | 131,968 |
| | 128,859 |
| | 3,109 |
|
Operating Expenses | | | | | | | | | | | |
Reimbursable costs from affiliates | 6,211 |
| | 14,540 |
| | (8,329 | ) | | 45,390 |
| | 46,372 |
| | (982 | ) |
General and administrative | 6,002 |
| | 8,280 |
| | (2,278 | ) | | 25,878 |
| | 32,469 |
| | (6,591 | ) |
Subadvisor fees | 5,206 |
| | 4,842 |
| | 364 |
| | 11,598 |
| | 10,010 |
| | 1,588 |
|
Stock-based compensation expense | 2,755 |
| | 2,784 |
| | (29 | ) | | 9,916 |
| | 10,648 |
| | (732 | ) |
Restructuring and other compensation | 1,356 |
| | — |
| | 1,356 |
| | 9,074 |
| | 7,512 |
| | 1,562 |
|
Depreciation and amortization | 1,070 |
| | 1,062 |
| | 8 |
| | 2,838 |
| | 3,278 |
| | (440 | ) |
Dealer manager fees and expenses | 462 |
| | 3,028 |
| | (2,566 | ) | | 6,544 |
| | 9,000 |
| | (2,456 | ) |
Other expenses | — |
| | — |
| | — |
| | — |
| | 2,384 |
| | (2,384 | ) |
| 23,062 |
| | 34,536 |
| | (11,474 | ) | | 111,238 |
| | 121,673 |
| | (10,435 | ) |
Other Income and Expenses | | | | | | | | | | | |
Equity in earnings of equity method investments in the Managed Programs | 12,578 |
| | 13,573 |
| | (995 | ) | | 38,287 |
| | 38,658 |
| | (371 | ) |
Other income and (expenses) | 349 |
| | 1,857 |
| | (1,508 | ) | | 1,280 |
| | 1,717 |
| | (437 | ) |
| 12,927 |
| | 15,430 |
| | (2,503 | ) | | 39,567 |
| | 40,375 |
| | (808 | ) |
Income before income taxes | 24,035 |
| | 26,070 |
| | (2,035 | ) | | 60,297 |
| | 47,561 |
| | 12,736 |
|
(Provision for) benefit from income taxes | (249 | ) | | (2,624 | ) | | 2,375 |
| | 3,793 |
| | (2,254 | ) | | 6,047 |
|
Net Income from Investment Management Attributable to W. P. Carey | $ | 23,786 |
| | $ | 23,446 |
| | $ | 340 |
| | $ | 64,090 |
| | $ | 45,307 |
| | $ | 18,783 |
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Asset Management and Other Revenue
We earnAsset management and other revenue includes asset management revenue, structuring revenue, and other advisory revenue. During the periods presented, we earned asset management revenue from the Managed REITs(i) CPA:18 – Global based on the value of theirits real estate-related and lodging-related assets under management. We also earn asset management revenue fromand (ii) CESH I based on its gross assets under management at fair value. We also earned asset management revenue from CCIF based on the average of its gross assets at fair value prior to our resignation as the advisor to CCIF in the third quarter of 2017. Asset management revenue may increase or decrease depending upon (i) increaseschanges in the Managed Programs’ asset bases as a result of new investments; (ii) decreases in the Managed Programs’ asset bases as a result ofpurchases, sales, of investments; and (iii) increases or decreaseschanges in the appraised value of the real estate-related and lodging-related assets in thetheir investment portfolios of the Managed Programs. Prior to our resignation as the advisor to CCIF in the third quarter of 2017, asset management revenue also increased or decreased depending on increases or decreases in the fair value of CCIF’s investment portfolio.portfolios. For 2017,2022, we receive asset management fees from the Managed REITs(i) CPA:18 – Global in shares of theirits common stock and from CESH I in cash. Prior to our resignationthrough February 28, 2022; effective as the advisor to CCIF in the third quarter of 2017,March 1, 2022, we receivedreceive asset management fees from CCIF in cash.
For the three and nine months ended September 30, 2017 as compared to the same periods in 2016, asset management revenue increased by $2.0 million and $7.7 million, respectively, as a result of the growth in assets under management due to investment volume after September 30, 2016. Asset management revenue increased by $0.9 million and $3.2 million, respectively, from CWI 2, $0.5 million and $3.1 million, respectively, from CCIF, $0.4 million and $1.0 million, respectively, from CPA®:CPA:18 – Global $0.3 millionin cash in light of the Proposed Merger (Note 3), and $0.7 million, respectively, from(ii) CESH I, and less than $0.1 million and $0.2 million, respectively, from CWI 1. These increases were partially offset by decreases of $0.1 million and $0.4 million, respectively, in asset management revenue from CPA®:17 – Global, which sold 34 self-storage properties during 2016, resulting in a decrease in assets under management for that fund.cash.
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Structuring Revenue
We earn structuring and other advisory revenue when we structure new investments and debt placement transactions for the Managed Programs. Structuring revenue is dependent on investment activity, which is subject to significant period-to-period variation.
For the three months ended September 30, 2017 as compared to the same period in 2016, structuring revenue decreased by $2.5 million. Structuring revenue from CWI 2 and CPA®:17 – Global decreased by $3.6 million and $1.1 million, respectively, as a result of lower investment and debt placement volume during the current year period. Structuring revenue for the three months ended September 30, 2017 also includes a $2.6 million adjustment related to a development deal for one of the Managed Programs, in accordance with ASC 605, Revenue Recognition. These decreases were partially offset by an increase of $3.5 million in structuring revenue from CWI 1 and $1.1 million of structuring revenue recognized during the current year period from CESH I.
For the nine months ended September 30, 2017 as compared to the same period in 2016, structuring revenue decreased by $3.0 million. Structuring revenue from CWI 2 and CPA®:18 – Global decreased by $5.4 million and $4.2 million, respectively, as a result of lower investment and debt placement volume during the current year period. Structuring revenue for the nine months ended September 30, 2017 also includes a $2.6 million adjustment related to a development deal for one of the Managed Programs, in accordance with ASC 605, Revenue Recognition. These decreases were partially offset by $5.5 million of structuring revenue recognized during the current year period from CESH I and increases of $3.1 million and $0.7 million in structuring revenue from CPA®:17 – Global and CWI 1, respectively.
Reimbursable Costs from Affiliates
Reimbursable costs from affiliates represent costs incurred by us on behalf of the Managed Programs. During their respective offering periods, these costs consisted primarily of broker-dealer commissions, distribution and shareholder servicing fees, and marketing and personnel costs, which were reimbursed by the Managed Programs and were reflected as a component of both revenues and expenses. As a result of our exit from all non-traded retail fundraising activities, we will no longer incur offering-related expenses, including broker-dealer commissions, distribution and shareholder servicing fees, and marketing costs, on behalf of the Managed Programs.
For the three months ended September 30, 2017 as compared to the same period in 2016, reimbursable costs from affiliates decreased by $8.3 million, primarily due to a decrease of $5.2 million of distribution and shareholder servicing fees and commissions paid to broker-dealers related to the sale of the CCIF Feeder Funds’ shares, $2.0 million of commissions paid to broker-dealers related to CESH I’s private placement, and $1.4 million in distribution and shareholder servicing fees and commissions paid to broker-dealers related to CWI 2’s initial public offering, in each case due to our exit from all non-traded retail fundraising during the current year period, as described above. These decreases were partially offset by an increase of $0.4 million in overhead reimbursed to us by the Managed Programs.
For the nine months ended September 30, 2017 as compared to the same period in 2016, reimbursable costs from affiliates decreased by $1.0 million, primarily due to a decrease of $16.8 million of distribution and shareholder servicing fees and commissions paid to broker-dealers related to the sale of the CCIF Feeder Funds’ shares. This decrease was partially offset by an increase of $15.2 million of distribution and shareholder servicing fees and commissions paid to broker-dealers related to CWI 2’s initial public offering, and an increase of $0.3 million in overhead reimbursed to us by the Managed Programs.
Dealer Manager Fees
As discussed in Note 3, we earned a dealer manager fee, depending on the class of common stock sold, of $0.30 or $0.26 per share sold, for the Class A common stock and Class T common stock, respectively, in connection with CWI 2’s initial public offering, through March 31, 2017, when CWI 2 suspended its offering in order to determine updated estimated NAVs as of December 31, 2016. As a result, CWI 2 had new offering prices and new dealer manager fees of $0.36 and $0.31 per Class A and Class T Shares, respectively, for its offering through its closing on July 31, 2017. We received dealer manager fees of 2.50% - 3.0% based on the selling price of each share sold in connection with the offerings of the CCIF Feeder Funds, which began in the fourth quarter of 2015. CCIF 2016 T’s offering closed on April 28, 2017. We also received dealer manager fees of up to 3.0% of gross offering proceeds based on the selling price of each limited partnership unit sold in connection with CESH I’s private placement, which commenced in July 2016 and closed in July 2017.
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We re-allowed a portion of the dealer manager fees to selected dealers in the offerings and reflected those amounts as Dealer manager fees and expenses in the consolidated financial statements. As discussed above, on June 15, 2017, our Board approved a plan to exit all non-traded retail fundraising activities as of June 30, 2017, and as a result,Since we no longer receive dealer manager fees following the completion of those fundraising activities on July 31, 2017.
For the threeraise capital for new or existing funds, structuring and nine months ended September 30, 2017 as compared to the same periods in 2016, dealer manager fees decreased due to our exit from all non-traded retail fundraising activities.
Other Advisory Revenue
Under the limited partnership agreement we have with CESH I, we paid all organization and offering costs on behalf of CESH I, and instead of being reimbursed by CESH I on a dollar-for-dollar basis for those costs, we received limited partnership units of CESH I equal to 2.5% of its gross offering proceeds through the closing of its offering on July 31, 2017.
For the three months ended September 30, 2017 as compared to the same period in 2016, other advisory revenue decreased by $0.4 million, primarily duehas recently been and is expected to the completion of CESH I fundraising in July 2017 (Note 2).be insignificant going forward.
For the nine months ended September 30, 2017 as compared to the same period in 2016, other advisory revenue increased by $0.4 million, primarily due to the limited partnership units of CESH I received in connection with CESH I’s private placement, which commenced in July 2016 and closed in July 2017 (Note 2).
General and Administrative
Beginning with the third quarter of 2017, personnel and rent expenses included within general and administrative expenses that are recorded by our Investment Management segment will be allocated based on time incurred by our personnel for the Owned Real Estate and Investment Management segments. All other overhead costs are charged to our Owned Real Estate segment based on the trailing 12-month reported revenues of the Managed Programs and us.
As discussed in Note 3, certain personnel costs and overhead costs are charged to the CPA® REITs based on the trailing 12-month reported revenues of the Managed Programs and us. We allocate certain personnel and overhead costs to the CWI REITs based on the time incurred by our personnel. We allocate certain personnel costs based on the time incurred by our personnel to CESH I and, prior to our resignation as the advisor to CCIF in the third quarter of 2017, to the Managed BDCs.
For the three and nine months ended September 30, 2017 as compared to the same periods in 2016, general and administrative expenses in our Investment Management segment, which excludes restructuring and other compensation expenses as described below, decreased by $2.3 million and $6.6 million, respectively, primarily due to an overall decline in compensation expense as a result of the reduction in headcount, including the RIF and the impact of our exit from all active non-traded retail fundraising activities as of June 30, 2017, and other cost savings initiatives implemented during 2016 as well as the change in methodology for allocation of expenses between our Owned Real Estate and Investment Management segments (Note 1).
Subadvisor Fees
As discussed in Note 3, we earn investment management revenue from CWI 1, CWI 2, and CPA®:18 – Global, and, prior to our resignation as advisor, from CCIF. Pursuant to the terms of the subadvisory agreements we have with the third-party subadvisors in connection with both CWI 1 and CWI 2, we pay a subadvisory fee equal to 20% of the amount of fees paid to us by CWI 1 and 25% of the amount of fees paid to us by CWI 2, including but not limited to: acquisition fees, asset management fees, loan refinancing fees, property management fees, and subordinated disposition fees, each as defined in the advisory agreements we have with each of CWI 1 and CWI 2. We also pay to each subadvisor 20% and 25% of the net proceeds resulting from any sale, financing, or recapitalization or sale of securities of CWI 1 and CWI 2, respectively, by us, the advisor. In addition, in connection with the multi-family properties acquired on behalf of CPA®:18 – Global, we entered into agreements with third-party advisors for the day-to-day management of the properties, for which we pay 100% of asset management fees paid to us by CPA®:18 – Global. Pursuant to the terms of the subadvisory agreement we had with the third-party subadvisor in connection with CCIF (prior to our resignation as the advisor to CCIF in the third quarter of 2017), we paid a subadvisory fee equal to 50% of the asset management fees and organization and offering costs paid to us by CCIF.
W. P. Carey 6/30/2022 10-Q– 57
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For the three and nine months ended September 30, 2017 as compared to the same periods in 2016, subadvisor fees increased by $0.4 million and $1.6 million, respectively, primarily due to increases of $0.7 million and $0.2 million, respectively, as a result of higher fees earned from CWI 1 and increases of $0.2 million and $1.5 million, respectively, as a result of higher fees earned from CCIF, each of which paid higher asset management fees to us during the current year periods as compared to the prior year periods. For the three and nine months ended September 30, 2017 as compared to the same periods in 2016, these increases were partially offset by decreases of $0.5 million and $0.2 million, respectively, as a result of lower fees earned from CWI 2 due to lower investment and debt placement volume during the current year periods.
Stock-based Compensation Expense
Beginning with the third quarter of 2017, stock-based compensation expense is being allocated to our Owned Real Estate and Investment Management segments based on time incurred by our personnel for those segments.
For the nine months ended September 30, 2017 as compared to the same period in 2016, stock-based compensation expense allocated to our Investment Management segment decreased by $0.7 million primarily due to the reduction in RSUs and PSUs outstanding as a result of a reduction in headcount related to our exit from all non-traded retail fundraising activities as of June 30, 2017 (Note 12).
Restructuring and Other Compensation
For the three and nine months ended September 30, 2017, we recorded total restructuring expenses of $1.4 million and $9.1 million, respectively, related to our Board’s decision to exit all non-traded retail fundraising activities as of June 30, 2017. These expenses, all of which were allocated to the Investment Management segment, consist primarily of severance costs (Note 1, Note 12).
For the nine months ended September 30, 2016, we recorded total restructuring and other compensation expenses of $11.9 million, of which $7.5 million was allocated to our Investment Management segment. Included in the total was $5.1 million of severance related to the employment agreement with our former chief executive officer and $6.8 million related to severance, stock-based compensation, and other costs incurred as part of the RIF during that period (Note 12).
Other Income and Expenses
For nine months ended September 30, 2016, we incurred advisory expenses and professional fees of $2.4 million within our Investment Management segment in connection with the formal strategic review that we completed in May 2016.
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Equity in Earnings offrom Equity Method Investments in the Managed Programs
Equity in earnings ofEarnings from our equity method investments in the Managed Programs is recognized in accordance with the investment agreement for each of our equity method investments. In addition, we are entitled to receive distributions of Available Cash (Note 3) from the operating partnerships of each of the Managed REITs. The net income of our unconsolidated investments fluctuates based on the timing of transactions, such as new leases and property sales, as well as the level of impairment charges. Equity in earnings of our equity method investment in CCIF fluctuated based on changes in the fair value of investments owned by CCIF. Following our resignation as the advisor to CCIF, effective September 11, 2017, earnings from our cost method investment in CCIF are included in Other income and (expenses) in the consolidated financial statements (Note 7). The following table presents the details of our Equity in earnings offrom equity method investments in the Managed Programs (Note 7) (in thousands): |
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Equity in earnings of equity method investments in the Managed Programs: | | | | | | | |
Equity in earnings of equity method investments in the Managed Programs (a) | $ | 531 |
| | $ | 2,697 |
| | $ | 3,719 |
| | $ | 6,640 |
|
Distributions of Available Cash: (b) | | | | | | | |
CPA®:17 – Global | 5,459 |
| | 5,276 |
| | 19,240 |
| | 17,803 |
|
CPA®:18 – Global | 2,196 |
| | 1,662 |
| | 6,057 |
| | 5,319 |
|
CWI 1 | 2,498 |
| | 2,838 |
| | 5,743 |
| | 6,931 |
|
CWI 2 | 1,894 |
| | 1,100 |
| | 3,528 |
| | 1,965 |
|
Equity in earnings of equity method investments in the Managed Programs | $ | 12,578 |
| | $ | 13,573 |
| | $ | 38,287 |
| | $ | 38,658 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Earnings from equity method investments in the Managed Programs: | | | | | | | |
Distributions of Available Cash from CPA:18 – Global (a) | $ | 2,814 | | | $ | 1,787 | | | $ | 5,401 | | | $ | 3,326 | |
Earnings (losses) from equity method investments in the Managed Programs (b) | 58 | | | (89) | | | 3,030 | | | (242) | |
Earnings from equity method investments in the Managed Programs | $ | 2,872 | | | $ | 1,698 | | | $ | 8,431 | | | $ | 3,084 | |
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(a) | Decreases for the three and nine months ended September 30, 2017 as compared to the same periods in 2016 were primarily due to decreases of $1.1 million and $3.0 million, respectively, from our investment in shares of common stock of CPA®:17 – Global, which recognized significant gains on the sale of real estate during each of the prior year periods. In addition, we recognized equity in earnings of our equity method investment in CCIF of $1.1 million during the three months ended September 30, 2016. We did not recognize any such earnings during the three months ended September 30, 2017.
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(b) | We are entitled to receive distributions of our share of earnings up to 10% of the Available Cash from the operating partnerships of each of the Managed REITs, as defined in their respective operating partnership agreements (Note 3). Distributions of Available Cash received and earned from the Managed REITs increased in the aggregate, primarily as a result of new investments entered into by the Managed REITs during 2017 and 2016. |
(a)We are entitled to receive distributions of up to 10% of the Available Cash from the operating partnership of CPA:18 – Global, as defined in its operating partnership agreement (Note 3). Distributions of Available Cash received and earned from CPA:18 – Global fluctuate based on the timing of certain events, including acquisitions and dispositions. Other Income and (Expenses)
For both(b)Increase for the three and ninesix months ended SeptemberJune 30, 2016, we recognized a gain of $1.2 million in our Investment Management segment on the deconsolidation of CESH I (Note 2).
(Provision for) Benefit from Income Taxes
For the three months ended September 30, 20172022 as compared to the same period in 2016, provision for income taxes within our Investment Management segment decreased by $2.4 million, primarily due to the impact of lower pre-tax income recognized by our TRSs and a deferred windfall tax benefit of $0.6 million recognized during the current year period as a result of the adoption of ASU 2016-09 during the first quarter of 2017, under which such benefits are now reflected as a reduction to provision for income taxes (Note 2).
For the nine months ended September 30, 2017, we recorded a benefit from income taxes of $3.8 million, compared to a provision for income taxes of $2.3 million recognized during the same period in 2016, within our Investment Management segment. We recorded a benefit from income taxes during the current year period primarily due to a deferred windfall tax benefit of $3.6 million as a result of the adoption of ASU 2016-09 during the first quarter of 2017, under which such benefits are now reflected as a reduction to provision for income taxes (Note 2). We recognized a provision for income taxes during the prior year period primarily2021 was due to an out-of-period adjustment recorded during the period (Note 2).increase of $3.3 million from our investment in shares of CPA:18 – Global.
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Liquidity and Capital Resources
Sources and Uses of Cash During the Period
We use the cash flow generated from our investments primarily to meet our operating expenses, service debt, and fund distributionsdividends to stockholders. Our cash flows fluctuate periodically due to a number of factors, which may include, among other things: the timing of our equity and debt offerings; the timing of purchases and sales of real estate; the timing of the receipt of proceeds from, and the repayment of mortgage loans and receipt of lease revenues; the receipttiming and amount of other lease-related payments; the annual installmenttiming of deferred acquisition revenue and interest thereon from the CPA® REITs;settlement of foreign currency transactions; changes in foreign currency exchange rates; the receipt of the asset management fees in either shares of the common stock or limited partnership units of the Managed ProgramsCPA:18 – Global or cash; the timing and characterization of distributions from equity investments in the Managed Programsmethod investments; and real estate; the receipt of distributions of Available Cash from the Managed REITs; and changes in foreign currency exchange rates.CPA:18 – Global. Despite these fluctuations, we believe that we will generate sufficient cash from operations to meet our normal recurring short-term and long-term liquidity needs. We may also use existing cash resources, unusedavailable capacity under our Senior Unsecured Credit Facility, proceeds from dispositions of properties, proceeds of mortgage loans, net contributions from noncontrolling interests, and the issuance of additional debt or equity securities, such as salesissuances of ourcommon stock through our Equity Forwards and ATM program,Program (Note 12), in order to meet these needs. We assess our ability to access capital on an ongoing basis. Our sources and uses of cash during the period are described below.
Operating Activities — Net cash provided by operating activities increased by $4.4$48.1 million during the ninesix months ended SeptemberJune 30, 20172022 as compared to the same period in 2016,2021, primarily due to an increase in cash flow generated from net investment activity and scheduled rent increases at existing properties, acquired during 2016higher lease termination and 2017, a decrease in interest expense,other income, and lower general and administrative expenses in the current year period. These increases were partially offset by lease termination income received in connection with the sale of a property during the prior year period and a decrease in cash flow as a result of property dispositions during 2016 and 2017.interest expense.
Investing Activities — Our investing activities are generally comprised of real estate-related transactions (purchases and sales) and capitalized property-related costs.
Duringfunding for build-to-suit activities and other capital expenditures on real estate. In addition to these types of transactions, during the ninesix months ended SeptemberJune 30, 2017,2022, we used $123.5$26.0 million to fund short-term loans to the Managed Programs, (Note 3), while $229.7$10.0 million of such loans made by us in prior periods were repaid during the current year period. We sold 11 properties and a parcel of vacant land for net proceeds of $102.5 million. We used $36.7 million primarily to fund expansions on our existing properties. In addition, we used $10.8 million to invest in capital expenditures for owned real estate and $6.0 million to acquire an investment (Note 43). We also received $6.5$8.1 million in distributions from equity investments in the Managed Programs and real estate in excess of cumulative equity income.method investments.
Financing Activities — During the nine months ended September 30, 2017, grossOur financing activities are generally comprised of borrowings under our Senior Unsecured Credit Facility were $1.2 billion and repayments were $1.6 billion, which included the impact of the amendment and restatement of our Senior Unsecured Credit Facility in February 2017 (Note 10). We received the equivalent of $530.5 million in net proceeds from the issuance of the 2.25% Senior Notes in January 2017, which we used primarily to pay down the outstanding balance onunder our Unsecured Revolving Credit Facility, at that time (Note 10). In connection with the issuances of these notes and the amendment and restatement our Senior Unsecured Credit Facility in February 2017 (Note 10), we incurred financing costs totaling $12.7 million. We also made scheduledNotes, payments and prepaidprepayments of non-recourse mortgage loan principalloans, and payments of $303.5 million and $157.4 million, respectively. Additionally, we paid distributionsdividends to stockholders totaling $322.4 million related to the fourth quarter of 2016, the first quarter of 2017, and the second quarter of 2017; and also paid distributions of $16.9 million to affiliates that hold noncontrolling interests in various entities with us. We received contributions from noncontrolling interests totaling $90.5 million, primarily from an affiliate in connection with the repayment at maturity of mortgage loans encumbering the Hellweg 2 Portfolio (Note 10).stockholders. In addition to these types of transactions, during the six months ended June 30, 2022, we received $22.8$218.1 million in net proceeds from the issuance of shares under our prior ATM programProgram (Note 1312).
W. P. Carey 6/30/2022 10-Q– 58
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Summary of Financing
The table below summarizes our Senior Unsecured Notes, our non-recourse mortgages, our Unsecured Senior Notes, and our Senior Unsecured Credit Facility (dollars in thousands):
| | | September 30, 2017 | | December 31, 2016 | | June 30, 2022 | | December 31, 2021 |
Carrying Value | | | | Carrying Value | | | |
Fixed rate: | | | | Fixed rate: | |
Unsecured Senior Notes (a) | $ | 2,455,383 |
| | $ | 1,807,200 |
| |
Senior Unsecured Notes (a) | | Senior Unsecured Notes (a) | $ | 5,471,066 | | | $ | 5,701,913 | |
Non-recourse mortgages (a) | 985,118 |
| | 1,406,222 |
| Non-recourse mortgages (a) | 211,973 | | | 235,898 | |
| 3,440,501 |
| | 3,213,422 |
| | 5,683,039 | | | 5,937,811 | |
Variable rate: | | | | Variable rate: | | | |
Unsecured Term Loans (a) | 382,191 |
| | 249,978 |
| Unsecured Term Loans (a) | 548,287 | | | 310,583 | |
Unsecured Revolving Credit Facility | 224,213 |
| | 676,715 |
| Unsecured Revolving Credit Facility | 417,455 | | | 410,596 | |
Non-recourse mortgages (a): | | | | Non-recourse mortgages (a): | |
Amount subject to interest rate swaps and cap | 149,824 |
| | 158,765 |
| |
Amount subject to interest rate swaps and caps | | Amount subject to interest rate swaps and caps | 69,250 | | | 79,055 | |
Floating interest rate mortgage loans | 118,109 |
| | 141,934 |
| Floating interest rate mortgage loans | 47,597 | | | 53,571 | |
| 874,337 |
| | 1,227,392 |
| | 1,082,589 | | | 853,805 | |
| $ | 4,314,838 |
| | $ | 4,440,814 |
| | $ | 6,765,628 | | | $ | 6,791,616 | |
| | | | | | | |
Percent of Total Debt | | | | Percent of Total Debt | |
Fixed rate | 80 | % | | 72 | % | Fixed rate | 84 | % | | 87 | % |
Variable rate | 20 | % | | 28 | % | Variable rate | 16 | % | | 13 | % |
| 100 | % | | 100 | % | | 100 | % | | 100 | % |
Weighted-Average Interest Rate at End of Period | | | | Weighted-Average Interest Rate at End of Period | | | |
Fixed rate | 3.9 | % | | 4.5 | % | Fixed rate | 2.7 | % | | 2.7 | % |
Variable rate (b) | 1.8 | % | | 1.9 | % | Variable rate (b) | 1.6 | % | | 1.1 | % |
Total debt | | Total debt | 2.5 | % | | 2.5 | % |
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(a) | Aggregate debt balance includes unamortized deferred financing costs totaling $16.2 million and $13.4 million as of September 30, 2017 and December 31, 2016, respectively, and unamortized discount totaling $12.9 million and $8.0 million as of September 30, 2017 and December 31, 2016, respectively. |
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(b) | The impact of our derivative instruments is reflected in the weighted-average interest rates. |
(a)Aggregate debt balance includes unamortized discount, net, totaling $28.2 million and $30.9 million as of June 30, 2022 and December 31, 2021, respectively, and unamortized deferred financing costs totaling $25.7 million and $28.8 million as of June 30, 2022 and December 31, 2021, respectively.
(b)The impact of our interest rate swaps and caps is reflected in the weighted-average interest rates.
Cash Resources
At SeptemberJune 30, 2017,2022, our cash resources consisted of the following:
•cash and cash equivalents totaling $169.8$103.6 million. Of this amount, $84.3$65.1 million, at then-current exchange rates, was held in foreign subsidiaries, and we could be subject to restrictions or significant costs should we decide to repatriate these amounts;
•our Unsecured Revolving Credit Facility, with unusedavailable capacity of $1.3approximately $1.4 billion excluding(net of amounts reserved for outstandingstandby letters of credit;credit totaling $0.6 million);
•available proceeds under our Equity Forwards of approximately $285.0 million (based on 3,925,000 remaining shares outstanding and a net offering price of $72.61 per share as of June 30, 2022);
•available proceeds under our ATM Forwards of approximately $301.0 million (based on 3,674,187 shares outstanding and a weighted-average net offering price of $81.93 per share as of June 30, 2022); and
•unleveraged properties that had an aggregate asset carrying value of $4.4approximately $12.4 billion at SeptemberJune 30, 2017,2022, although there can be no assurance that we would be able to obtain financing for these properties.
WeW. P. Carey 6/30/2022 10-Q– 59
Historically, we have also accessaccessed the capital markets when necessary through additional debt (denominated in both U.S. dollars and euros) and equity offerings, such asofferings. During the €500.0 million of 2.25% Senior Notes thatsix months ended June 30, 2022, we issued in January 2017 (Note 10) and our ATM program. During the three and nine months ended September 30, 2017, we issued 15,500 and 345,2532,740,295 shares respectively, of our common stock under the currentour prior ATM program at a weighted-average price of $67.05 and $67.78 per share, respectively,Program for net proceeds of $0.9$218.1 million and $22.8 million, respectively. During the three and nine months ended September 30, 2016, we issued 968,535 and 1,249,836 shares, respectively, of our common stock under the prior ATM program at a weighted-average price of $68.54 and $68.52 per share,
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respectively, for net proceeds of $65.2 million and $84.1 million, respectively.(Note 12). As of SeptemberJune 30, 2017, $376.62022, we had approximately $285.0 million remainedof available for issuanceproceeds under our currentEquity Forwards (Note 12). As of June 30, 2022, we had approximately $301.0 million of available proceeds under our ATM programForwards (Note 1312).Senior Unsecured Credit Facility
Our Senior Unsecured Credit Facility is more fully described in Note 10. A summary of our Senior Unsecured Credit Facility is provided below (in thousands): |
| | | | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| Outstanding Balance | | Maximum Available | | Outstanding Balance | | Maximum Available |
Unsecured Term Loans, net (a) | $ | 383,695 |
| | $ | 383,695 |
| | $ | 250,000 |
| | $ | 250,000 |
|
Unsecured Revolving Credit Facility | 224,213 |
| | 1,500,000 |
| | 676,715 |
| | 1,500,000 |
|
__________
| |
(a) | Outstanding balance excludes unamortized discount of $1.3 million at September 30, 2017. Outstanding balance also excludes unamortized deferred financing costs of $0.2 million and less than $0.1 million at September 30, 2017 and December 31, 2016, respectively. |
Our cash resources can be used for working capital needs and other commitments and may be used for future investments.
Cash Requirements and Liquidity
As of June 30, 2022, we had (i) $103.6 million of cash and cash equivalents, (ii) approximately $1.4 billion of available capacity under our Unsecured Revolving Credit Facility (net of amounts reserved for standby letters of credit totaling $0.6 million), (iii) available proceeds under our Equity Forwards of approximately $285.0 million (based on 3,925,000 remaining shares outstanding and a net offering price of $72.61 per share as of that date), and (iv) available proceeds under our ATM Forwards of approximately $301.0 million (based on 3,674,187 remaining shares outstanding and a weighted-average net offering price of $81.93 per share as of that date). Our Senior Unsecured Credit Facility includes a $1.8 billion Unsecured Revolving Credit Facility and Unsecured Term Loans outstanding totaling $548.3 million as of June 30, 2022 (Note 10), and is scheduled to mature on February 20, 2025. As of June 30, 2022, scheduled debt principal payments total $30.7 million through December 31, 2022 and $209.0 million through December 31, 2023, and our Senior Unsecured Notes do not start to mature until April 2024 (Note 10).
During the next 12 months following June 30, 2022 and thereafter, we expect that our significant cash requirements will include paymentsinclude:
•paying dividends to acquireour stockholders;
•funding acquisitions of new investments (Note 4); •funding future capital commitments such as build-to-suit projects, paying distributions toand tenant improvement allowances (Note 4); •making scheduled principal and balloon payments on our stockholders and to our affiliates that hold noncontrolling interests in entities we control, debt obligations (Note 10); •making scheduled interest payments on our debt obligations (future interest payments total $798.3 million, with $171.6 million due during the Unsecured Senior Notes, scheduled mortgage loan principal payments, including mortgage balloon paymentsnext 12 months; interest on our consolidated mortgage loanunhedged variable-rate debt obligations was calculated using the applicable annual variable interest rates and prepayments of our consolidated mortgage loan obligations, as well as balances outstanding at June 30, 2022);
•cash consideration and costs related to the Proposed Merger (Note 1); and •other normal recurring operating expenses.
We expect to fund future investments, build-to-suit commitments, any capital expenditures on existing properties, scheduled debt maturities on non-recourse mortgage loans and any loans to certain of the Managed Programs (Note 3)these cash requirements through cash generated from operations, cash received from dispositions of properties, the use of our cash reserves or unused amounts on our Unsecured Revolving Credit Facility (as described above), issuances of sharescommon stock through our ATM program,Equity Forwards and/or ATM Program (Note 12), and potential issuances of additional debt or equity or debt offerings.securities. We may also choose to pursue prepayments of certain of our non-recourse mortgage loan obligations, depending on our capital needs and market conditions at that time.
Our liquidity wouldcould be adversely affected by unanticipated costs, and greater-than-anticipated operating expenses.expenses, and the adverse impact of the continuing COVID-19 pandemic. To the extent that our working capital reserve is insufficient to satisfy our cash requirements, additional funds may be provided from cash from operations and from equity distributions in excess of equity income in real estate to meet our normal recurring short-term and long-term liquidity needs. We may also use existing cash resources, the proceeds of mortgage loans, unusedavailable capacity onunder our Unsecured Revolving Credit Facility, net contributions from noncontrolling interests,mortgage loan proceeds, and the issuance of additional debt or equity securities such as through our ATM program, to meet these needs.
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| W. P. Carey 9/30/2017 10-Q– 79
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Off-Balance Sheet Arrangements The extent to which the COVID-19 pandemic impacts our liquidity and Contractual Obligations
debt covenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence. The table below summarizespotential impact of the COVID-19 pandemic on our debt, off-balance sheet arrangements,tenants and other contractual obligations (primarily our capital commitments and lease obligations) at September 30, 2017 and theproperties could also have a material adverse effect that these arrangements and obligations are expected to have on our liquidity and cash flow in the specified future periods (in thousands):debt covenants.
|
| | | | | | | | | | | | | | | | | | | |
| Total | | Less than 1 year | | 1-3 years | | 3-5 years | | More than 5 years |
Unsecured Senior Notes — principal (a) (b) | $ | 2,480,600 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 2,480,600 |
|
Non-recourse mortgages — principal (a) | 1,255,414 |
| | 280,392 |
| | 295,517 |
| | 322,311 |
| | 357,194 |
|
Senior Unsecured Credit Facility — principal (a) (c) | 607,908 |
| | — |
| | — |
| | 607,908 |
| | — |
|
Interest on borrowings (d) | 826,420 |
| | 147,478 |
| | 270,397 |
| | 223,095 |
| | 185,450 |
|
Operating and other lease commitments (e) | 161,067 |
| | 8,439 |
| | 17,015 |
| | 9,536 |
| | 126,077 |
|
Capital commitments and tenant expansion allowances (f) | 139,654 |
| | 81,807 |
| | 53,748 |
| | 586 |
| | 3,513 |
|
Restructuring and other compensation commitments (g) | 4,829 |
| | 4,532 |
| | 297 |
| | — |
| | — |
|
| $ | 5,475,892 |
| | $ | 522,648 |
| | $ | 636,974 |
| | $ | 1,163,436 |
| | $ | 3,152,834 |
|
__________
| |
(a) | Excludes unamortized deferred financing costs totaling $16.2 million, the unamortized discount on the Unsecured Senior Notes of $10.2 million in aggregate, the unamortized discount on the Unsecured Term Loans of $1.3 million, and the unamortized fair market value adjustment of $1.4 million resulting from the assumption of property-level debt in connection with both the CPA®:15 Merger and the CPA®:16 Merger (Note 10). |
| |
(b) | Our Unsecured Senior Notes are scheduled to mature from 2023 through 2026. |
| |
(c) | Our Unsecured Revolving Credit Facility is scheduled to mature on February 22, 2021 unless otherwise extended pursuant to its terms. Our Unsecured Term Loans are scheduled to mature on February 22, 2022. |
| |
(d) | Interest on unhedged variable-rate debt obligations was calculated using the applicable annual variable interest rates and balances outstanding at September 30, 2017. |
| |
(e) | Operating and other lease commitments consist primarily of rental obligations under ground leases and the future minimum rents payable on the leases for our principal offices. Pursuant to their respective advisory agreements with us, we are reimbursed by the Managed Programs for their share of overhead costs, which includes a portion of those future minimum rent amounts. Our operating lease commitments are presented net of $11.3 million, based on the allocation percentages as of September 30, 2017, which we estimate the Managed Programs will reimburse us for in full (Note 3). |
| |
(f) | Capital commitments include (i) $109.6 million related to build-to-suit expansions and (ii) $30.1 million related to unfunded tenant improvements, including certain discretionary commitments. |
| |
(g) | Represents severance-related obligations to our former chief executive officer and other employees (Note 12). |
Amounts in the tableCertain amounts disclosed above that relate to our foreign operations are based on the applicable foreign currency exchange rate of the local currencies at SeptemberJune 30, 2017, which consisted primarily of the euro. At September 30, 2017, we had no material capital lease obligations for which we were the lessee, either individually or in the aggregate.2022.
W. P. Carey 6/30/2022 10-Q– 60
Supplemental Financial Measures
In the real estate industry, analysts and investors employ certain non-GAAP supplemental financial measures in order to facilitate meaningful comparisons between periods and among peer companies. Additionally, in the formulation of our goals and in the evaluation of the effectiveness of our strategies, we use Funds from Operations or FFO,(“FFO”) and AFFO, which are non-GAAP measures defined by our management. We believe that these measures are useful to investors to consider because they may assist them to better understand and measure the performance of our business over time and against similar companies. A description of FFO and AFFO and reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are provided below.
Funds from Operations and Adjusted Funds from Operations
Due to certain unique operating characteristics of real estate companies, as discussed below, the National Association of Real Estate Investment Trusts, Inc. (“NAREIT”), or 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
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| W. P. Carey 9/30/2017 10-Q– 80
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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 revisedrestated in February 2004.December 2018. The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding gains or losses from sales of property, impairment charges on real estate, gains or losses on changes in control of interests in real estate, and depreciation and amortization from real estate assets; and after adjustments 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.
We also modify the NAREIT computation of FFO to include other adjustments toadjust GAAP net income to adjust for certain non-cash charges, such as amortization of real estate-related intangibles, deferred income tax benefits and expenses, straight-line rents, stockrent and related reserves, other non-cash rent adjustments, non-cash allowance for credit losses on loans receivable and direct financing leases, stock-based compensation, gains or losses from extinguishmentnon-cash environmental accretion expense, amortization of discounts and premiums on debt, and deconsolidationamortization of subsidiaries, and unrealized foreign currency exchange gains and losses.deferred financing costs. Our assessment of our operations is focused on long-term sustainability and not on such non-cash items, which may cause short-term fluctuations in net income but have no impact on cash flows. Additionally, we exclude non-core income and expenses, such as certain lease termination income, restructuringgains or losses from extinguishment of debt and other compensation-related expenses resulting from a reduction in headcountmerger and employee severance arrangements, and other expenses (which includes expenses related to the formal strategic review that we completed in May 2016 and accruals for estimated one-time legal settlement expenses).acquisition expenses. We also exclude realized and unrealized gains/losses on foreign currency exchange transactionsrate movements (other than those realized on the settlement of foreign currency derivatives), which are not considered fundamental attributes of our business plan and do not affect our overall long-term operating performance. We refer to our modified definition of FFO as AFFO. We exclude these items from GAAP net income to arrive at AFFO as they are not the primary drivers in our decision makingdecision-making process and excluding these items provides investors a view of our portfolio performance over time and makes it more comparable to other REITs whichthat are currently not engaged in acquisitions, mergers, and restructuring, which are not part of our normal business operations. AFFO also reflects adjustments for unconsolidated partnerships and jointly owned investments. We use AFFO as one measure of our operating performance when we formulate corporate goals, evaluate the effectiveness of our strategies, and determine executive compensation.
We believe that AFFO is a useful supplemental measure for investors to consider as we believe it will help them to better assess the sustainability of our operating performance without the potentially distorting impact of these short-term fluctuations. However, there are limits on the usefulness of AFFO to investors. For example, impairment charges and unrealized foreign currency losses that we exclude may become actual realized losses upon the ultimate disposition of the properties in the form of lower cash proceeds or other considerations. We use our FFO and AFFO measures as supplemental financial measures of operating performance. We do not use our FFO and AFFO measures as, nor should they be considered to be, alternatives to net earningsincome computed under GAAP, or as alternatives to net cash fromprovided by operating activities computed under GAAP, or as indicators of our ability to fund our cash needs.
W. P. Carey 6/30/2022 10-Q– 61
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| W. P. Carey 9/30/2017 10-Q– 81
|
Consolidated FFO and AFFO were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Net income attributable to W. P. Carey | $ | 127,678 | | | $ | 120,245 | | | $ | 284,673 | | | $ | 171,879 | |
Adjustments: | | | | | | | |
Depreciation and amortization of real property | 114,333 | | | 112,997 | | | 228,979 | | | 222,201 | |
Gain on sale of real estate, net | (31,119) | | | (19,840) | | | (42,367) | | | (29,212) | |
Impairment charges | 6,206 | | | — | | | 26,385 | | | — | |
Proportionate share of adjustments to earnings from equity method investments (a) (b) | 2,934 | | | 3,434 | | | 10,617 | | | 13,740 | |
Proportionate share of adjustments for noncontrolling interests (c) | (4) | | | (4) | | | (8) | | | (8) | |
Total adjustments | 92,350 | | | 96,587 | | | 223,606 | | | 206,721 | |
FFO (as defined by NAREIT) attributable to W. P. Carey | 220,028 | | | 216,832 | | | 508,279 | | | 378,600 | |
Adjustments: | | | | | | | |
Other (gains) and losses (d) | 21,746 | | | (7,545) | | | (13,999) | | | 33,643 | |
Straight-line and other leasing and financing adjustments | (14,492) | | | (10,313) | | | (25,339) | | | (19,064) | |
Above- and below-market rent intangible lease amortization, net | 10,548 | | | 14,384 | | | 21,552 | | | 26,499 | |
Stock-based compensation | 9,758 | | | 9,048 | | | 17,591 | | | 14,429 | |
Amortization of deferred financing costs | 3,147 | | | 3,447 | | | 6,275 | | | 6,860 | |
Merger and other expenses (e) | 1,984 | | | (2,599) | | | (338) | | | (3,075) | |
Other amortization and non-cash items | 530 | | | 563 | | | 1,082 | | | 592 | |
Tax (benefit) expense — deferred and other | (355) | | | 217 | | | (1,597) | | | (3,170) | |
Proportionate share of adjustments to earnings from equity method investments (b) | 1,486 | | | 4,650 | | | (295) | | | 9,861 | |
Proportionate share of adjustments for noncontrolling interests (c) | (6) | | | (8) | | | (11) | | | (13) | |
Total adjustments | 34,346 | | | 11,844 | | | 4,921 | | | 66,562 | |
AFFO attributable to W. P. Carey | $ | 254,374 | | | $ | 228,676 | | | $ | 513,200 | | | $ | 445,162 | |
| | | | | | | |
Summary | | | | | | | |
FFO (as defined by NAREIT) attributable to W. P. Carey | $ | 220,028 | | | $ | 216,832 | | | $ | 508,279 | | | $ | 378,600 | |
AFFO attributable to W. P. Carey | $ | 254,374 | | | $ | 228,676 | | | $ | 513,200 | | | $ | 445,162 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net income attributable to W. P. Carey | $ | 80,278 |
| | $ | 110,943 |
| | $ | 202,080 |
| | $ | 220,043 |
|
Adjustments: | | | | | | | |
Depreciation and amortization of real property | 62,621 |
| | 61,396 |
| | 185,439 |
| | 209,449 |
|
Gain on sale of real estate, net | (19,257 | ) | | (49,126 | ) | | (22,732 | ) | | (68,070 | ) |
Impairment charges | — |
| | 14,441 |
| | — |
| | 49,870 |
|
Proportionate share of adjustments for noncontrolling interests to arrive at FFO | (2,692 | ) | | (3,254 | ) | | (7,795 | ) | | (8,541 | ) |
Proportionate share of adjustments to equity in net income of partially owned entities to arrive at FFO | 866 |
| | 1,354 |
| | 4,416 |
| | 3,994 |
|
Total adjustments | 41,538 |
| | 24,811 |
| | 159,328 |
| | 186,702 |
|
FFO attributable to W. P. Carey (as defined by NAREIT) | 121,816 |
| | 135,754 |
| | 361,408 |
| | 406,745 |
|
Adjustments: | | | | | | | |
Above- and below-market rent intangible lease amortization, net (a) | 12,459 |
| | 12,564 |
| | 37,273 |
| | 23,851 |
|
Other amortization and non-cash items (b) (c) | 6,208 |
| | (4,897 | ) | | 14,995 |
| | (7,695 | ) |
Stock-based compensation | 4,635 |
| | 4,356 |
| | 14,649 |
| | 14,964 |
|
Straight-line and other rent adjustments (d) | (3,212 | ) | | (5,116 | ) | | (9,677 | ) | | (34,262 | ) |
Amortization of deferred financing costs | 2,184 |
| | 1,007 |
| | 6,126 |
| | 2,271 |
|
Loss on extinguishment of debt | 1,566 |
| | 2,072 |
| | 35 |
| | 3,885 |
|
Restructuring and other compensation (e) | 1,356 |
| | — |
| | 9,074 |
| | 11,925 |
|
Tax benefit — deferred | (1,234 | ) | | (2,999 | ) | | (8,167 | ) | | (22,522 | ) |
Realized (gains) losses on foreign currency | (449 | ) | | 1,559 |
| | (424 | ) | | 2,569 |
|
Other expenses (f) (g) | 65 |
| | — |
| | 1,138 |
| | 5,359 |
|
Allowance for credit losses | — |
| | — |
| | — |
| | 7,064 |
|
Proportionate share of adjustments to equity in net income of partially owned entities to arrive at AFFO | 3,064 |
| | 261 |
| | 5,592 |
| | 741 |
|
Proportionate share of adjustments for noncontrolling interests to arrive at AFFO | (216 | ) | | (90 | ) | | (1,105 | ) | | 1,278 |
|
Total adjustments | 26,426 |
| | 8,717 |
| | 69,509 |
| | 9,428 |
|
AFFO attributable to W. P. Carey | $ | 148,242 |
| | $ | 144,471 |
| | $ | 430,917 |
| | $ | 416,173 |
|
| | | | | | | |
Summary | | | | | | | |
FFO attributable to W. P. Carey (as defined by NAREIT) | $ | 121,816 |
| | $ | 135,754 |
| | $ | 361,408 |
| | $ | 406,745 |
|
AFFO attributable to W. P. Carey | $ | 148,242 |
| | $ | 144,471 |
| | $ | 430,917 |
| | $ | 416,173 |
|
W. P. Carey 6/30/2022 10-Q– 62
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| W. P. Carey 9/30/2017 10-Q– 82
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FFO and AFFO from Owned Real Estate were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Net income from Real Estate attributable to W. P. Carey | $ | 123,228 | | | $ | 114,687 | | | $ | 270,086 | | | $ | 159,274 | |
Adjustments: | | | | | | | |
Depreciation and amortization of real property | 114,333 | | | 112,997 | | | 228,979 | | | 222,201 | |
Gain on sale of real estate, net | (31,119) | | | (19,840) | | | (42,367) | | | (29,212) | |
Impairment charges | 6,206 | | | — | | | 26,385 | | | — | |
Proportionate share of adjustments to earnings from equity method investments (a) (b) | 2,934 | | | 3,434 | | | 10,617 | | | 13,740 | |
Proportionate share of adjustments for noncontrolling interests (c) | (4) | | | (4) | | | (8) | | | (8) | |
Total adjustments | 92,350 | | | 96,587 | | | 223,606 | | | 206,721 | |
FFO (as defined by NAREIT) attributable to W. P. Carey — Real Estate | 215,578 | | | 211,274 | | | 493,692 | | | 365,995 | |
Adjustments: | | | | | | | |
Other (gains) and losses (d) | 20,155 | | | (7,472) | | | (14,263) | | | 34,717 | |
Straight-line and other leasing and financing adjustments | (14,492) | | | (10,313) | | | (25,339) | | | (19,064) | |
Above- and below-market rent intangible lease amortization, net | 10,548 | | | 14,384 | | | 21,552 | | | 26,499 | |
Stock-based compensation | 9,758 | | | 9,048 | | | 17,591 | | | 14,429 | |
Amortization of deferred financing costs | 3,147 | | | 3,447 | | | 6,275 | | | 6,860 | |
Merger and other expenses (e) | 1,984 | | | (2,599) | | | (341) | | | (3,090) | |
Other amortization and non-cash items | 530 | | | 563 | | | 1,082 | | | 592 | |
Tax (benefit) expense — deferred and other | (324) | | | 208 | | | (1,513) | | | (2,387) | |
Proportionate share of adjustments to earnings from equity method investments (b) | 368 | | | 3,845 | | | 535 | | | 8,167 | |
Proportionate share of adjustments for noncontrolling interests (c) | (6) | | | (8) | | | (11) | | | (13) | |
Total adjustments | 31,668 | | | 11,103 | | | 5,568 | | | 66,710 | |
AFFO attributable to W. P. Carey — Real Estate | $ | 247,246 | | | $ | 222,377 | | | $ | 499,260 | | | $ | 432,705 | |
| | | | | | | |
Summary | | | | | | | |
FFO (as defined by NAREIT) attributable to W. P. Carey — Real Estate | $ | 215,578 | | | $ | 211,274 | | | $ | 493,692 | | | $ | 365,995 | |
AFFO attributable to W. P. Carey — Real Estate | $ | 247,246 | | | $ | 222,377 | | | $ | 499,260 | | | $ | 432,705 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net income from Owned Real Estate attributable to W. P. Carey (h) | $ | 56,492 |
| | $ | 87,497 |
| | $ | 137,990 |
| | $ | 174,736 |
|
Adjustments: | | | | | | | |
Depreciation and amortization of real property | 62,621 |
| | 61,396 |
| | 185,439 |
| | 209,449 |
|
Gain on sale of real estate, net | (19,257 | ) | | (49,126 | ) | | (22,732 | ) | | (68,070 | ) |
Impairment charges | — |
| | 14,441 |
| | — |
| | 49,870 |
|
Proportionate share of adjustments for noncontrolling interests to arrive at FFO | (2,692 | ) | | (3,254 | ) | | (7,795 | ) | | (8,541 | ) |
Proportionate share of adjustments to equity in net income of partially owned entities to arrive at FFO | 866 |
| | 1,354 |
| | 4,416 |
| | 3,994 |
|
Total adjustments | 41,538 |
| | 24,811 |
| | 159,328 |
| | 186,702 |
|
FFO attributable to W. P. Carey (as defined by NAREIT) — Owned Real Estate (h) | 98,030 |
| | 112,308 |
| | 297,318 |
| | 361,438 |
|
Adjustments: | | | | | | | |
Above- and below-market rent intangible lease amortization, net (a) | 12,459 |
| | 12,564 |
| | 37,273 |
| | 23,851 |
|
Other amortization and non-cash items (b) (c) | 6,808 |
| | (4,356 | ) | | 15,855 |
| | (7,587 | ) |
Straight-line and other rent adjustments (d) | (3,212 | ) | | (5,116 | ) | | (9,677 | ) | | (34,262 | ) |
Tax benefit — deferred | (2,694 | ) | | (3,387 | ) | | (5,121 | ) | | (19,712 | ) |
Amortization of deferred financing costs | 2,184 |
| | 1,007 |
| | 6,126 |
| | 2,271 |
|
Stock-based compensation | 1,880 |
| | 1,572 |
| | 4,733 |
| | 4,316 |
|
Loss on extinguishment of debt | 1,566 |
| | 2,072 |
| | 35 |
| | 3,885 |
|
Realized (gains) losses on foreign currency | (454 | ) | | 1,559 |
| | (441 | ) | | 2,518 |
|
Other expenses (f) (g) | 65 |
| | — |
| | 1,138 |
| | 2,975 |
|
Allowance for credit losses | — |
| | — |
| | — |
| | 7,064 |
|
Restructuring and other compensation (e) | — |
| | — |
| | — |
| | 4,413 |
|
Proportionate share of adjustments to equity in net income of partially owned entities to arrive at AFFO (h) | (79 | ) | | (103 | ) | | (605 | ) | | (390 | ) |
Proportionate share of adjustments for noncontrolling interests to arrive at AFFO | (216 | ) | | (90 | ) | | (1,105 | ) | | 1,278 |
|
Total adjustments | 18,307 |
| | 5,722 |
| | 48,211 |
| | (9,380 | ) |
AFFO attributable to W. P. Carey — Owned Real Estate (h) | $ | 116,337 |
| | $ | 118,030 |
| | $ | 345,529 |
| | $ | 352,058 |
|
| | | | | | | |
Summary | | | | | | | |
FFO attributable to W. P. Carey (as defined by NAREIT) — Owned Real Estate (h) | $ | 98,030 |
| | $ | 112,308 |
| | $ | 297,318 |
| | $ | 361,438 |
|
AFFO attributable to W. P. Carey — Owned Real Estate (h) | $ | 116,337 |
| | $ | 118,030 |
| | $ | 345,529 |
| | $ | 352,058 |
|
W. P. Carey 6/30/2022 10-Q– 63
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| W. P. Carey 9/30/2017 10-Q– 83
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FFO and AFFO from Investment Management were as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net income from Investment Management attributable to W. P. Carey (h) | $ | 23,786 |
| | $ | 23,446 |
| | $ | 64,090 |
| | $ | 45,307 |
|
FFO attributable to W. P. Carey (as defined by NAREIT) — Investment Management (h) | 23,786 |
| | 23,446 |
| | 64,090 |
| | 45,307 |
|
Adjustments: | | | | | | | |
Stock-based compensation | 2,755 |
| | 2,784 |
| | 9,916 |
| | 10,648 |
|
Tax expense (benefit) — deferred | 1,460 |
| | 388 |
| | (3,046 | ) | | (2,810 | ) |
Restructuring and other compensation (e) | 1,356 |
| | — |
| | 9,074 |
| | 7,512 |
|
Other amortization and non-cash items (b) | (600 | ) | | (541 | ) | | (860 | ) | | (108 | ) |
Realized losses on foreign currency | 5 |
| | — |
| | 17 |
| | 51 |
|
Other expenses (g) | — |
| | — |
| | — |
| | 2,384 |
|
Proportionate share of adjustments to equity in net income of partially owned entities to arrive at AFFO (h) | 3,143 |
| | 364 |
| | 6,197 |
| | 1,131 |
|
Total adjustments | 8,119 |
| | 2,995 |
| | 21,298 |
| | 18,808 |
|
AFFO attributable to W. P. Carey — Investment Management (h) | $ | 31,905 |
| | $ | 26,441 |
| | $ | 85,388 |
| | $ | 64,115 |
|
| | | | | | | |
Summary | | | | | | | |
FFO attributable to W. P. Carey (as defined by NAREIT) — Investment Management (h) | $ | 23,786 |
| | $ | 23,446 |
| | $ | 64,090 |
| | $ | 45,307 |
|
AFFO attributable to W. P. Carey — Investment Management (h) | $ | 31,905 |
| | $ | 26,441 |
| | $ | 85,388 |
| | $ | 64,115 |
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| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Net income from Investment Management attributable to W. P. Carey | $ | 4,450 | | | $ | 5,558 | | | $ | 14,587 | | | $ | 12,605 | |
FFO (as defined by NAREIT) attributable to W. P. Carey — Investment Management | 4,450 | | | 5,558 | | | 14,587 | | | 12,605 | |
Adjustments: | | | | | | | |
Other (gains) and losses | 1,591 | | | (73) | | | 264 | | | (1,074) | |
Tax (benefit) expense — deferred and other | (31) | | | 9 | | | (84) | | | (783) | |
Merger and other expenses | — | | | — | | | 3 | | | 15 | |
Proportionate share of adjustments to earnings from equity method investments (b) | 1,118 | | | 805 | | | (830) | | | 1,694 | |
Total adjustments | 2,678 | | | 741 | | | (647) | | | (148) | |
AFFO attributable to W. P. Carey — Investment Management | $ | 7,128 | | | $ | 6,299 | | | $ | 13,940 | | | $ | 12,457 | |
| | | | | | | |
Summary | | | | | | | |
FFO (as defined by NAREIT) attributable to W. P. Carey — Investment Management | $ | 4,450 | | | $ | 5,558 | | | $ | 14,587 | | | $ | 12,605 | |
AFFO attributable to W. P. Carey — Investment Management | $ | 7,128 | | | $ | 6,299 | | | $ | 13,940 | | | $ | 12,457 | |
__________
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(a) | Amount for the nine months ended September 30, 2016 includes an adjustment of $15.6 million related to the acceleration of a below-market lease from a tenant of a domestic property that was sold during that period. |
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(b) | Represents primarily unrealized gains and losses from foreign exchange and derivatives. |
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(c) | Amounts for the three and nine months ended September 30, 2016 include an adjustment of $0.6 million to exclude a portion of a gain recognized on the deconsolidation of CESH I (Note 2). |
| |
(d) | Amount for the nine months ended September 30, 2016 includes an adjustment to exclude $27.2 million of the $32.2 million of lease termination income recognized in connection with a domestic property that was sold during that period, as such amount was determined to be non-core income (Note 15). Amount for the nine months ended September 30, 2016 also reflects an adjustment to include $1.8 million of lease termination income received in December 2015 that represented core income for the nine months ended September 30, 2016. |
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(e) | Amounts for the three and nine months ended September 30, 2017 represent restructuring expenses resulting from our exit from all non-traded retail fundraising activities, as of June 30, 2017. Amount for the nine months ended September 30, 2016 represents restructuring and other compensation-related expenses resulting from a reduction in headcount, including the RIF, and employee severance arrangements (Note 12). |
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(f) | Amount for the nine months ended September 30, 2017 is primarily comprised of an accrual for estimated one-time legal settlement expenses. |
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(g) | Amount for the nine months ended September 30, 2016 reflects expenses related to our formal strategic review, which was completed in May 2016. |
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(h) | As a result of our Board’s decision to exit all non-traded retail fundraising activities as of June 30, 2017, we have revised how we view and present a component of our two reportable segments. As such, beginning with the second quarter of 2017, we include equity in earnings of equity method investments in the Managed Programs in our Investment Management segment (Note 1). Earnings from our investment in CCIF continue to be included in our Investment Management segment. Results of operations for prior periods have been reclassified to conform to the current period presentation. |
(a)Amount for the six months ended June 30, 2022 includes our $4.6 million proportionate share of an impairment charge recognized on an equity method investment in real estate (Note 7). Amount for the six months ended June 30, 2021 includes a non-cash other-than-temporary impairment charge of $6.8 million recognized on an equity method investment in real estate (Note 8).
(b)Equity income, including amounts that are not typically recognized for FFO and AFFO, is recognized within Earnings (losses) from equity method investments on the consolidated statements of income. This represents adjustments to equity income to reflect FFO and AFFO on a pro rata basis.
(c)Adjustments disclosed elsewhere in this reconciliation are on a consolidated basis. This adjustment reflects our FFO or AFFO on a pro rata basis.
(d)Primarily comprised of gains and losses on extinguishment of debt, the mark-to-market fair value of equity securities, and foreign currency exchange rate movements, as well as non-cash allowance for credit losses on loans receivable and direct financing leases. |
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(e)Amounts for the three and six months ended June 30, 2022 and 2021 are primarily comprised of costs incurred in connection with the Proposed Merger (Note 1) and/or reversals of estimated liabilities for German real estate transfer taxes that were previously recorded in connection with mergers in prior years.
While we believe that FFO and AFFO are important supplemental measures, they should not be considered as alternatives to net income as an indication of a company’s operating performance. These non-GAAP measures should be used in conjunction with net income as defined by GAAP. FFO and AFFO, or similarly titled measures disclosed by other REITs, may not be comparable to our FFO and AFFO measures.
W. P. Carey 6/30/2022 10-Q– 64
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Market Risk
Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, and equity prices. The primary market risks that we are exposed to are interest rate risk and foreign currency exchange risk. risk; however, we do not use derivative instruments to hedge credit/market risks or for speculative purposes. From time to time, we may enter into foreign currency collars to hedge our foreign currency cash flow exposures.
We are also exposed to further market risk as a result of tenant concentrations in certain industries and/or geographic regions, since adverse market factors (such as the COVID-19 pandemic) can affect the ability of tenants in a particular industry/region to meet their respective lease obligations. In order to manage this risk, we view our collective tenant roster as a portfolio and we attempt to diversify such portfolio so that we are not overexposed to a particular industry or geographic region.
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 and related fixed-rate debt obligations, andas well as the values of our note receivable investmentsunsecured debt obligations, are subject to fluctuations based on changes in interest rates. The value of our real estate is also subject to fluctuations based on local and regional economic conditions (including the ongoing impact of the COVID-19 pandemic) and changes in the creditworthiness of lessees, which may affect our ability to refinance property-level mortgage debt when balloon payments are scheduled, if we do not choose to repay the debt when due. Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political conditions, and other factors beyond our control. An increase in interest rates would likely cause the fair value of our owned and managed assets to decrease, which would create lower revenues from managed assets and lower investment performance for the Managed REITs.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 historically attempted to obtain non-recourse mortgagegenerally seek long-term 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 and, as a result, we have entered into, and may continue to enter into, interest rate swap agreements or interest rate cap agreements with lenders. Interest rate swap agreements effectively convert the variable-rate debt service obligations of a loan to a fixed rate, while interest rate cap agreements limit the underlying interest rate from exceeding a specified strike rate. Interest rate swaps are agreements in which one party exchanges a stream of interest paymentscounterparties. See Note 9 for a counterparty’s stream of cash flows over a specific period, and interest rate caps limit the effective borrowing rate of variable-rate debt obligations while allowing participants to share in downward shifts in interest rates. These interest rate swaps and caps are derivative instruments that, where applicable, are designated as cash flow hedgesadditional information on the forecasted interest payments on the debt obligation. The face amount on which the swaps or caps are based is not exchanged. Our objective in using these derivatives is to limit our exposure to interest rate movements. At September 30, 2017, we estimated that the total fair value of our interest rate swaps and cap, which are included in Other assets, net and Accounts payable, accrued expenses and other liabilities in the consolidated financial statements, was in a net liability position of $1.6 million (Note 9).caps.
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At SeptemberJune 30, 2017,2022, a significant portion (approximately 83.2%85.0%) of our long-term debt either bore interest at fixed rates or was swapped or capped to a fixed rate, or bore interest at fixed rates that were scheduled to convert to then-prevailing market fixed rates at certain future points during their term. The annual interest rates on our fixed-rate debt at September 30, 2017 ranged from 2.0% to 7.8%. The contractual annual interest rates on our variable-rate debt at September 30, 2017 ranged from 0.9% to 6.9%.rate. Our debt obligations are more fully described in Note 10 and Liquidity and Capital Resources — Summary of Financing in Item 2 above. The following table presents principal cash outflows for the remainder of 2017, each of the next four calendar years following December 31, 2017, and thereafter,flows based upon expected maturity dates of our debt obligations outstanding at SeptemberJune 30, 20172022 (in thousands): | | | | | | | | | | | | | | | | | | | | 2022 (Remainder) | | 2023 | | 2024 | | 2025 | | 2026 | | Thereafter | | Total | | Fair Value |
| 2017 (Remainder) | | 2018 | | 2019 | | 2020 | | 2021 | | Thereafter | | Total | | Fair value | |
Fixed-rate debt (a) | $ | 38,805 |
| | $ | 135,368 |
| | $ | 86,143 |
| | $ | 178,496 |
| | $ | 116,682 |
| | $ | 2,911,666 |
| | $ | 3,467,160 |
| | $ | 3,572,112 |
| |
Fixed-rate debt (a) (b) | | Fixed-rate debt (a) (b) | $ | 18,392 | | | $ | 87,272 | | | $ | 1,043,216 | | | $ | 498,911 | | | $ | 901,421 | | | $ | 3,185,790 | | | $ | 5,735,002 | | | $ | 5,191,465 | |
Variable-rate debt (a) | $ | 1,979 |
| | $ | 142,795 |
| | $ | 13,241 |
| | $ | 43,051 |
| | $ | 267,322 |
| | $ | 408,374 |
| | $ | 876,762 |
| | $ | 874,357 |
| Variable-rate debt (a) | $ | 12,325 | | | $ | 91,047 | | | $ | 13,599 | | | $ | 967,563 | | | $ | — | | | $ | — | | | $ | 1,084,534 | | | $ | 1,081,834 | |
__________
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(a) | Amounts are based on the exchange rate at September 30, 2017, as applicable. |
(a)Amounts are based on the exchange rate at June 30, 2022, as applicable.
(b)Amounts after 2023 are primarily comprised of principal payments for our Senior Unsecured Notes (Note 10).
The estimated fair value of our fixed-rate debt and our variable-rate debt that currently bears interest at fixed rates or has effectively been converted to a fixed rate through the use of interest rate swaps, or that has been subject to interest rate caps, is affected by changes in interest rates. Annual interest expense on our unhedged variable-rate debt that does not bear interest at fixed rates at
SeptemberJune 30,
20172022 would increase or decrease by
$7.2$5.2 million
for our euro-denominated debt, by $3.3 million for our British pound sterling-denominated debt, by $1.5 million for our U.S. dollar-denominated debt, and by $0.2 million for our Japanese yen-denominated debt, for each respective 1% change in annual interest rates.
As more fully described under Liquidity and Capital Resources — Summary of Financing in Item 2 above, a portion of the debt classified as variable-rate debt in the tables above bore interest at fixed rates at September 30, 2017 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.
W. P. Carey 6/30/2022 10-Q– 65
Foreign Currency Exchange Rate Risk
We own international investments, primarily in Europe, Australia, Asia,Canada, and Canada,Japan, and as a result are subject to risk from the effects of exchange rate movements in various foreign currencies, primarily the euro, the British pound sterling, the AustralianCanadian dollar, and the Canadian dollar,Japanese yen, which may affect future costs and cash flows. We managehave obtained, and may in the future obtain, non-recourse mortgage financing in the local currency. We have also completed several offerings of euro-denominated senior notes, and have borrowed under our Senior Unsecured Credit Facility in foreign currencies, including the euro, British pound sterling, and Japanese yen (Note 10). Volatile market conditions arising from the ongoing effects of the COVID-19 global pandemic, as well as other macroeconomic factors, may result in significant fluctuations in foreign currency exchange rate movements by generally placing ourrates. To the extent that currency fluctuations increase or decrease rental revenues, as translated to U.S. dollars, the change in debt service obligation(comprised of principal and interest, excluding balloon payments), as translated to U.S. dollars, will partially offset the lendereffect of fluctuations in revenue and, to some extent, mitigate the risk from changes in foreign currency exchange rates. We estimate that, for a 1% increase or decrease in the exchange rate between the euro, British pound sterling, or Japanese yen and the tenant’s rental obligation to usU.S. dollar, there would be a corresponding change in the same currency. This reduces our overall exposure to the netprojected estimated cash flow from that investment. (scheduled future rental revenues, net of scheduled future debt service payments for the next 12 months) for our consolidated foreign operations at June 30, 2022 of $2.6 million, $0.4 million, and less than $0.1 million, respectively, excluding the impact of our derivative instruments.
In addition, we may use currency hedging to further reduce the exposure to our equity cash flow. We are generally a net receiver of these currencies (we receive more cash than we pay out), and therefore our foreign operations benefit from a weaker U.S. dollar and are adversely affected by a stronger U.S. dollar, relative to the foreign currency. As part of our investment strategy, 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. For the nine months ended September 30, 2017, we recognized net foreign currency transaction losses (included in Other income and (expenses) in the consolidated financial statements) of $15.9 million, primarily due to the weakening of the U.S. dollar relative to the euro during the period. The end-of-period rate for the U.S. dollar in relation to the euro at September 30, 2017 increased by 12.0% to $1.1806 from $1.0541 at December 31, 2016.
The June 23, 2016 referendum by voters in the United Kingdom to exit the European Union, a process commonly referred to as “Brexit,” adversely impacted global markets, including the currencies, and resulted in a sharp decline in the value of the British pound sterling and, to a lesser extent, the euro, as compared to the U.S. dollar. Volatility in exchange rates is expected to continue as the United Kingdom negotiates its likely exit from the European Union. As of September 30, 2017, 4.9% and 24.0% of our total ABR was from the United Kingdom and other European Union countries, respectively. We currently hedge a portion of our British pound sterling exposure and our euro exposure through the next five years, thereby significantly reducing our currency risk. Any impact from Brexit on us will depend, in part, on the outcome of tariff, trade, regulatory, and other negotiations. Although it is unknown what the result of those negotiations will be, it is possible that new terms may adversely affect our operations and financial results.
We enter into foreign currency forward contracts and collars to hedge certain of our foreign currency cash flow exposures. A foreign currency forward contract is a commitment to deliver a certain amount of foreign currency at a certain priceSee Note 9 for additional information on a specific date in the future. A foreign currency collar consists of a written call option and a purchased put option to sell the foreign currency at a range of predetermined exchange rates. 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
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| W. P. Carey 9/30/2017 10-Q– 86
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exchange rate of the currency will not fluctuate beyond the range of the options’ strike prices. The estimated fair value of our foreign currency forward contracts and collars, which are included in Other assets, net and Accounts payable, accrued expenses and other liabilities in the consolidated financial statements, was in a net asset position of $17.0 million at September 30, 2017 (Note 9). We have obtained, and may in the future obtain, non-recourse mortgage financing in the local currency. We have also issued the euro-denominated 2.0% Senior Notes and 2.25% Senior Notes, and have borrowed under our Unsecured Revolving Credit Facility and Unsecured Term Loans in foreign currencies, including the euro and the British pound sterling. 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.collars.
Scheduled future minimum rents, exclusive of renewals, under non-cancelable operating leases for our consolidated foreign operations as of September 30, 2017 for the remainder of 2017, each of the next four calendar years following December 31, 2017, and thereafter are as follows (in thousands):
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Lease Revenues (a) | | 2017 (Remainder) | | 2018 | | 2019 | | 2020 | | 2021 | | Thereafter | | Total |
Euro (b) | | $ | 42,817 |
| | $ | 171,565 |
| | $ | 168,207 |
| | $ | 164,933 |
| | $ | 160,199 |
| | $ | 1,251,640 |
| | $ | 1,959,361 |
|
British pound sterling (c) | | 8,357 |
| | 33,337 |
| | 33,592 |
| | 33,919 |
| | 34,165 |
| | 278,974 |
| | 422,344 |
|
Australian dollar (d) | | 3,150 |
| | 12,498 |
| | 12,498 |
| | 12,532 |
| | 12,498 |
| | 160,492 |
| | 213,668 |
|
Other foreign currencies (e) | | 4,051 |
| | 16,322 |
| | 16,819 |
| | 15,073 |
| | 15,299 |
| | 152,029 |
| | 219,593 |
|
| | $ | 58,375 |
| | $ | 233,722 |
| | $ | 231,116 |
| | $ | 226,457 |
| | $ | 222,161 |
| | $ | 1,843,135 |
| | $ | 2,814,966 |
|
Scheduled debt service payments (principal and interest) for our Unsecured Senior Notes, Senior Unsecured Credit Facility, and non-recourse mortgage notes payable for our consolidated foreign operations as of September 30, 2017 for the remainder of 2017, each of the next four calendar years following December 31, 2017, and thereafter are as follows (in thousands):
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Debt Service (a) (f) | | 2017 (Remainder) | | 2018 | | 2019 | | 2020 | | 2021 | | Thereafter | | Total |
Euro (b) | | $ | 41,096 |
| | $ | 174,748 |
| | $ | 42,970 |
| | $ | 86,502 |
| | $ | 179,220 |
| | $ | 1,650,182 |
| | $ | 2,174,718 |
|
British pound sterling (c) | | 210 |
| | 840 |
| | 840 |
| | 840 |
| | 840 |
| | 11,595 |
| | 15,165 |
|
Thai baht | | 497 |
| | 9,231 |
| | — |
| | — |
| | — |
| | — |
| | 9,728 |
|
| | $ | 41,803 |
| | $ | 184,819 |
| | $ | 43,810 |
| | $ | 87,342 |
| | $ | 180,060 |
| | $ | 1,661,777 |
| | $ | 2,199,611 |
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__________
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(a) | Amounts are based on the applicable exchange rates at September 30, 2017. Contractual rents and debt obligations are denominated in the functional currency of the country of each property.
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(b) | 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 cash flow at September 30, 2017 of $2.2 million, excluding the impact of our derivative instruments. Amounts included the equivalent of $590.3 million of 2.0% Senior Notes outstanding maturing in January 2023; the equivalent of $590.3 million of 2.25% Senior Notes outstanding maturing in July 2024; the equivalent of $383.7 million borrowed in euro in aggregate under our Unsecured Term Loans, which are scheduled to mature on February 22, 2022; and the equivalent of $111.2 million borrowed in euro under our Unsecured Revolving Credit Facility, which is scheduled to mature on February 22, 2021 unless extended pursuant to its terms, but may be prepaid prior to that date pursuant to its terms (Note 10). |
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(c) | 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 cash flow at September 30, 2017 of $4.1 million, excluding the impact of our derivative instruments. |
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(d) | We estimate that, for a 1% increase or decrease in the exchange rate between the Australian dollar and the U.S. dollar, there would be a corresponding change in the projected estimated cash flow at September 30, 2017 of $2.1 million. There is no related mortgage loan on this investment. |
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(e) | Other foreign currencies for future minimum rents consist of the Canadian dollar, the Swedish krona, the Norwegian krone, and the Thai baht. |
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(f) | Interest on unhedged variable-rate debt obligations was calculated using the applicable annual interest rates and balances outstanding at September 30, 2017. |
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| W. P. Carey 9/30/2017 10-Q– 87
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As a result of scheduled balloon payments on certain of our international non-recourse mortgage loans, projected debt service obligations denominated in euros exceed projected lease revenues denominated in euros in 2018. In 2018, balloon payments denominated in euros totaling $130.1 million are due on three non-recourse mortgage loans that are collateralized by properties that we own. We currently anticipate that, by their respective due dates, we will have refinanced or repaid these loans using our cash resources, including unused capacity on our Unsecured Revolving Credit Facility, as well as proceeds from dispositions of properties.
Projected debt service obligations denominated in euros exceed projected lease revenues denominated in euros in 2021 and thereafter, primarily due to amounts borrowed in euros under our Unsecured Term Loans, Unsecured Revolving Credit Facility, 2.0% Senior Notes, and 2.25% Senior Notes, as described above.
Concentration of Credit Risk
Concentrations of credit risk arise when a number of tenants are engaged in similar business activities or have similar economic risks or conditions that could cause them to default on their lease obligations to us. We regularly monitor our portfolio to assess potential concentrations of credit risk. While we believe our portfolio is reasonably well diversified,well-diversified, it does contain concentrations in certain areas. There have been no material changes in our concentration of credit risk from what was disclosed in the 2021 Annual Report.
For the nine months ended September 30, 2017, our consolidated portfolio had the following significant characteristics in excess of 10%, based on the percentage of our consolidated total revenues:
68% related to domestic operations; and
32% related to international operations.
At September 30, 2017, our net-lease portfolio, which excludes our operating properties, had the following significant property and lease characteristics in excess of 10% in certain areas, based on the percentage of our ABR as of that date:
65% related to domestic properties;
35% related to international properties;W. P. Carey 6/30/2022 10-Q– 66
30% related to industrial facilities, 25% related to office facilities, 16% related to retail facilities, and 14% related to warehouse facilities; and
18% related to the retail stores industry and 11% related to the consumer services industry.
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Item 4. 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, or 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 SeptemberJune 30, 2017,2022, have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were effective as of SeptemberJune 30, 20172022 at a reasonable level of assurance.
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.
W. P. Carey 6/30/2022 10-Q– 67
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PART II — OTHER INFORMATION
Item 1A. Risk Factors
We are including the following additional risk factor, which should be read in conjunction with our description of risk factors provided in Part I, Item 1A. Risk Factors in our 2021 Annual Report:
Risks Related to Our Proposed Merger with CPA:18 – Global
Failure to complete the Proposed Merger could negatively affect us.
It is possible that the Proposed Merger may not be completed. The parties’ respective obligations to complete the Proposed Merger are subject to the satisfaction or waiver of specified conditions, some of which are beyond the control of CPA:18 – Global and us. If the Proposed Merger is not completed, we may be subject to a number of material risks, including the following:
•we will have incurred substantial costs and expenses related to the Proposed Merger, such as legal, accounting, and financial advisor fees, which will be payable by us even if the Proposed Merger is not completed, and are only subject to reimbursement from CPA:18 – Global under certain limited circumstances; and
•we may be required to pay CPA:18 – Global’s out-of-pocket expenses incurred in connection with the Proposed Merger if the Merger Agreement is terminated under certain circumstances.
The future results of the combined company will suffer if the combined company does not effectively manage its expanded operations following the Proposed Merger.
Following the Proposed Merger, the combined company may continue to expand its operations through additional acquisitions and other strategic transactions, some of which may involve complex challenges. The future success of the combined company will depend, in part, upon its ability to manage its expansion opportunities, integrate new operations into its existing business in an efficient and timely manner, successfully monitor its operations, costs, regulatory compliance and service quality, and maintain other necessary internal controls. There can be no assurance that the combined company’s expansion or acquisition opportunities will be successful, or that the combined company will realize its expected operating efficiencies, cost savings, revenue enhancements, synergies or other benefits.
Goodwill resulting from the consummation of the Proposed Merger may adversely affect the combined company’s results of operations.
Potential impairment of goodwill resulting from the Proposed Merger could adversely affect the combined company’s financial condition and results of operations. The combined company will assess its goodwill and other intangible assets and long-lived assets for impairment annually and more frequently when required by GAAP. The combined company will be required to record an impairment charge if circumstances indicate that the asset carrying values exceed their fair values the combined company’s assessment of goodwill, other intangible assets, or long-lived assets could indicate that an impairment of the carrying value of such assets may have occurred that could result in a material, non-cash write-down of such assets, which could have a material adverse effect on its results of operations and future earnings.
W. P. Carey 6/30/2022 10-Q– 68
Item 6. Exhibits.
The following exhibits are filed with this Report. Documents other than those designated as being filed herewith are incorporated herein by reference.
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Exhibit No. |
| Description | Description | | Method of Filing |
31.110.1 |
| | Equity Sales Agreement, dated May 2, 2022, by and among W. P. Carey Inc. and each of Barclays Capital Inc., BMO Capital Markets Corp., BNY Mellon Capital Markets, LLC, BofA Securities, Inc., BTIG, LLC, Capital One Securities, Inc., Fifth Third Securities, Inc., Jefferies LLC, JMP Securities LLC, J.P. Morgan Securities LLC, RBC Capital Markets, LLC, Regions Securities LLC, Scotia Capital (USA) Inc., and Wells Fargo Securities, LLC, as agents, and each of Barclays Bank PLC, Bank of Montreal, The Bank of New York Mellon, Bank of America, N.A., Jefferies LLC, JPMorgan Chase Bank, National Association, Regions Securities LLC, Royal Bank of Canada, The Bank of Nova Scotia and Wells Fargo Bank, National Association, as forward purchasers | | Incorporated by reference to Exhibit 1.1 to Current Report on Form 8-K, filed May 3, 2022 |
| | | | |
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 |
| | | | |
101101.INS |
| XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL Document | The following materials from W. P. Carey Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at September 30, 2017 and December 31, 2016, (ii) Consolidated Statements of Income for the three and nine months ended September 30, 2017 and 2016, (iii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2017 and 2016, (iv) Consolidated Statements of Equity for the nine months ended September 30, 2017 and 2016, (v) Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016, and (vi) Notes to Consolidated Financial Statements. | | Filed herewith |
|
| | | | |
101.SCH | W. P. Carey 9/30/2017 10-Q– 90
| 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 |
W. P. Carey 6/30/2022 10-Q– 69
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this reportReport to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | | | | |
| | | W. P. Carey Inc. |
Date: | July 29, 2022 | | |
| | By: | /s/ ToniAnn Sanzone |
| | | ToniAnn Sanzone |
| | | Chief Financial Officer |
| | | (Principal Financial Officer) |
| | | |
Date: | July 29, 2022 | | W. P. Carey Inc. |
Date: | November 3, 2017 | | |
| | By: | /s/ ToniAnn Sanzone |
| | | ToniAnn Sanzone |
| | | Chief Financial Officer |
| | | (Principal Financial Officer) |
| | | |
Date: | November 3, 2017 | | |
| | By: | /s/ Arjun Mahalingam |
| | | Arjun Mahalingam |
| | | Chief Accounting Officer |
| | | (Principal Accounting Officer) |
|
| | By: | /s/ Arjun Mahalingam |
| W. P. Carey 9/30/2017 10-Q– 91
| | Arjun Mahalingam |
| | | Chief Accounting Officer |
| | | (Principal Accounting Officer) |
W. P. Carey 6/30/2022 10-Q– 70
EXHIBIT INDEX
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 | Description | | Method of Filing |
31.110.1 |
| | Equity Sales Agreement, dated May 2, 2022, by and among W. P. Carey Inc. and each of Barclays Capital Inc., BMO Capital Markets Corp., BNY Mellon Capital Markets, LLC, BofA Securities, Inc., BTIG, LLC, Capital One Securities, Inc., Fifth Third Securities, Inc., Jefferies LLC, JMP Securities LLC, J.P. Morgan Securities LLC, RBC Capital Markets, LLC, Regions Securities LLC, Scotia Capital (USA) Inc., and Wells Fargo Securities, LLC, as agents, and each of Barclays Bank PLC, Bank of Montreal, The Bank of New York Mellon, Bank of America, N.A., Jefferies LLC, JPMorgan Chase Bank, National Association, Regions Securities LLC, Royal Bank of Canada, The Bank of Nova Scotia and Wells Fargo Bank, National Association, as forward purchasers | | |
| | | | |
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 | | |
| | | | |
101101.INS |
| XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL Document | The following materials from W. P. Carey Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at September 30, 2017 and December 31, 2016, (ii) Consolidated Statements of Income for the three and nine months ended September 30, 2017 and 2016, (iii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2017 and 2016, (iv) Consolidated Statements of Equity for the nine months ended September 30, 2017 and 2016, (v) Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016, and (vi) Notes to Consolidated Financial Statements.
| | 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 |