UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ | ☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2020
or
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| | For the quarterly period ended September 30, 2017 |
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or |
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o | ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| | For the transition period from to
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For the transition period from__________ to __________
Commission File Number: 000-54970
CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
(Exact name of registrant as specified in its charter) |
| | |
Maryland | | 90-0885534 |
(State of incorporation) | | (I.R.S. Employer Identification No.) |
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50 Rockefeller Plaza | | |
New York, | New York | | 10020 |
(Address of principal executive offices) | | (Zip Code) |
Investor Relations (212) 492-8920
(212) (212) 492-1100
(Registrant’s telephone numbers, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ☑ No o☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ☑ No o☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filero | ☐ | Accelerated filero | ☐ | Non-accelerated filerþ |
| | (Do not check if a smaller reporting company)☑ |
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Smaller reporting companyo | ☐ | Emerging growth companyo | ☐ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No þ☑
Registrant has 111,470,894118,756,873 shares of Class A common stock, $0.001 par value, and 31,562,43432,466,931 shares of Class C common stock, $0.001 par value, outstanding at November 10, 2017.August 7, 2020.
INDEX
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PART I — FINANCIAL INFORMATION | |
Item 1. Financial Statements (Unaudited) | |
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PART II — OTHER INFORMATION | |
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Forward-Looking Statements
This Quarterly Report on Form 10-Q or this Report,(this “Report”), including Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 2 of Part I of this Report, contains forward-looking statements within the meaning of the federal securities laws.
These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. These forward-looking statements include, but are not limited to, statements regarding: our corporate strategy and estimated or future economic performance and results, including our expectations surrounding the impacts of the novel coronavirus (“COVID-19”) pandemic on our business, tenants, and prospects; the timing of any future liquidity event; underlying assumptions about our portfolio, including our expectations regarding tenant rent collections, credit quality and bankruptcies, as well as the estimated fair values of our investments and properties; our future capital expenditure and leverage levels, debt service obligations, and plans to fund our liquidity needs; statements that we make regarding our ability to remain qualified for taxation as a real estate investment trust (“REIT”); and the impact of recently issued accounting pronouncements and other regulatory activity.
CPA:18 – Global 6/30/2020 10-Q– 1
These statements are based on the current expectations of our management. It is important to note that our actual results could be materially different from those projected in such forward-looking statements. There are a number of risks and uncertainties that could cause actual results to differ materially from these forward-looking statements. Other unknown or unpredictable risks or uncertainties, like the risks related to the effects of pandemics and global outbreaks of contagious diseases or the fear of such outbreaks (such as the current COVID-19 pandemic), could also have material adverse effects on our business, financial condition, liquidity, results of operations, Modified funds from operations (“MFFO”), and prospects. You should exercise caution in relying on forward-looking statements as they involve known and unknown risks, uncertainties, and other factors that may materially affect our future results, performance, achievements, or transactions. Information on factors that could impact our actual results and cause them to differ from what is anticipated in the forward-looking statements contained herein is included in this Report, as well as in our other filings with the Securities and Exchange Commission or the SEC,(“SEC”), including but not limited to those described in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2016,2019, as filed with the SEC on March 14, 2017, orFebruary 28, 2019 (the “2019 Annual Report”). Moreover, because we operate in a very competitive and rapidly changing environment, new risks are likely to emerge from time to time. Given these risks and uncertainties, shareholders are cautioned not to place undue reliance on these forward-looking statements as a prediction of future results, which speak only as of the 2016 Annual Report.date of this Report, unless noted otherwise. Except as required by federal securities laws and the rules and regulations of the SEC, we do not undertake to revise or update any forward-looking statements.
All references to “Notes” throughout the document refer to the footnotes to the condensed consolidated financial statements of the registrant in Part I, Item 1. Financial Statements (Unaudited).
CPA®:CPA:18 – Global 9/6/30/20172020 10-Q– 12
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share and per share amounts)
| | | September 30, 2017 | | December 31, 2016 | June 30, 2020 | | December 31, 2019 |
Assets | | | | | | |
Investments in real estate: | | | | | | |
Real estate — Land, buildings and improvements | $ | 1,246,813 |
| | $ | 990,810 |
| $ | 1,185,638 |
| | $ | 1,200,645 |
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Operating real estate — Land, buildings and improvements | 617,490 |
| | 606,558 |
| 504,860 |
| | 512,485 |
|
Real estate under construction | 102,413 |
| | 182,612 |
| 315,492 |
| | 235,751 |
|
Net investments in direct financing leases | 39,285 |
| | 49,596 |
| 30,392 |
| | 42,054 |
|
In-place lease intangible assets | 274,174 |
| | 260,469 |
| |
Other intangible assets | 35,378 |
| | 32,082 |
| |
In-place lease and other intangible assets | | 280,096 |
| | 284,097 |
|
Investments in real estate | 2,315,553 |
| | 2,122,127 |
| 2,316,478 |
| | 2,275,032 |
|
Accumulated depreciation and amortization | (233,418 | ) | | (168,974 | ) | (354,052 | ) | | (328,312 | ) |
Net investments in real estate | 2,082,135 |
| | 1,953,153 |
| 1,962,426 |
| | 1,946,720 |
|
Notes receivable | 66,500 |
| | 66,500 |
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Equity investment in real estate | 21,159 |
| | 14,694 |
| |
Cash and cash equivalents | 74,714 |
| | 72,028 |
| 70,750 |
| | 144,148 |
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Other assets, net | 79,570 |
| | 79,545 |
| |
Goodwill | 26,447 |
| | 23,526 |
| |
Total assets | $ | 2,350,525 |
| | $ | 2,209,446 |
| |
Accounts receivable and other assets, net | | 140,593 |
| | 143,935 |
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Total assets (a) | | $ | 2,173,769 |
| | $ | 2,234,803 |
|
Liabilities and Equity | | | | | | |
Debt: | | | | |
Non-recourse mortgages, net | $ | 1,115,677 |
| | $ | 1,019,158 |
| |
Bonds payable, net | 149,765 |
| | 138,253 |
| |
Debt, net | 1,265,442 |
| | 1,157,411 |
| |
Non-recourse secured debt, net | | $ | 1,207,475 |
| | $ | 1,201,913 |
|
Accounts payable, accrued expenses and other liabilities | 97,282 |
| | 69,006 |
| 144,779 |
| | 147,098 |
|
Due to affiliate | 29,263 |
| | 53,711 |
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Deferred income taxes | 61,342 |
| | 42,419 |
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Due to affiliates | | 10,190 |
| | 11,376 |
|
Distributions payable | 21,569 |
| | 20,995 |
| 8,809 |
| | 22,745 |
|
Total liabilities | 1,474,898 |
| | 1,343,542 |
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Total liabilities (a) | | 1,371,253 |
| | 1,383,132 |
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Commitments and contingencies (Note 10) |
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Preferred stock, $0.001 par value; 50,000,000 shares authorized; none issued | — |
| | — |
| — |
| | — |
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Class A common stock, $0.001 par value; 320,000,000 shares authorized; 110,334,936 and 107,460,081 shares, respectively, issued and outstanding | 110 |
| | 107 |
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Class C common stock, $0.001 par value; 80,000,000 shares authorized; 31,240,440 and 30,469,144 shares, respectively, issued and outstanding | 31 |
| | 30 |
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Class A common stock, $0.001 par value; 320,000,000 shares authorized; 118,259,860 and 117,179,578 shares, respectively, issued and outstanding | | 118 |
| | 117 |
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Class C common stock, $0.001 par value; 80,000,000 shares authorized; 32,369,603 and 32,238,513 shares, respectively, issued and outstanding | | 32 |
| | 32 |
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Additional paid-in capital | 1,250,980 |
| | 1,222,139 |
| 1,331,025 |
| | 1,319,584 |
|
Distributions and accumulated losses | (408,629 | ) | | (360,673 | ) | (518,253 | ) | | (470,326 | ) |
Accumulated other comprehensive loss | (35,195 | ) | | (61,704 | ) | (69,946 | ) | | (56,535 | ) |
Total stockholders’ equity | 807,297 |
| | 799,899 |
| 742,976 |
| | 792,872 |
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Noncontrolling interests | 68,330 |
| | 66,005 |
| 59,540 |
| | 58,799 |
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Total equity | 875,627 |
| | 865,904 |
| 802,516 |
| | 851,671 |
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Total liabilities and equity | $ | 2,350,525 |
| | $ | 2,209,446 |
| $ | 2,173,769 |
| | $ | 2,234,803 |
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__________
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(a) | See Note 2 for details related to variable interest entities (“VIEs”). |
See Notes to Condensed Consolidated Financial Statements.
CPA®:CPA:18 – Global 9/6/30/20172020 10-Q– 23
CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except share and per share amounts)
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| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 |
| 2016 | | 2017 | | 2016 |
Revenues | | | | | | | |
Lease revenues: | | | | | | | |
Rental income | $ | 26,726 |
| | $ | 23,620 |
| | $ | 74,628 |
| | $ | 69,887 |
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Interest income from direct financing leases | 909 |
| | 1,131 |
| | 2,789 |
| | 3,452 |
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Total lease revenues | 27,635 |
| | 24,751 |
| | 77,417 |
| | 73,339 |
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Other real estate income | 20,649 |
| | 18,711 |
| | 60,345 |
| | 52,190 |
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Other operating income | 3,103 |
| | 3,112 |
| | 9,545 |
| | 9,138 |
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Other interest income | 1,814 |
| | 710 |
| | 5,346 |
| | 2,130 |
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| 53,201 |
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| 47,284 |
| | 152,653 |
| | 136,797 |
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Operating Expenses | | | | | | | |
Depreciation and amortization | 18,926 |
| | 20,876 |
| | 56,606 |
| | 62,771 |
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Other real estate expenses | 8,593 |
| | 8,634 |
| | 25,074 |
| | 23,261 |
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Property expenses | 7,728 |
| | 6,946 |
| | 26,147 |
| | 19,676 |
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General and administrative | 1,856 |
| | 1,601 |
| | 5,337 |
| | 5,151 |
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Acquisition and other expenses | — |
| | 36 |
| | 46 |
| | 4,747 |
|
| 37,103 |
| | 38,093 |
| | 113,210 |
| | 115,606 |
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Other Income and Expenses | | | | | | | |
Interest expense | (12,430 | ) | | (11,025 | ) | | (35,673 | ) | | (31,705 | ) |
Other income and (expenses) | 5,963 |
| | 156 |
| | 18,084 |
| | 1,189 |
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Equity in losses of equity method investment in real estate | (341 | ) | | (69 | ) | | (694 | ) | | (69 | ) |
| (6,808 | ) | | (10,938 | ) | | (18,283 | ) | | (30,585 | ) |
Income (loss) before income taxes and loss on sale of real estate | 9,290 |
| | (1,747 | ) | | 21,160 |
| | (9,394 | ) |
Benefit from (provision for) income taxes | 2,825 |
| | (103 | ) | | 1,632 |
| | (303 | ) |
Income (loss) before loss on sale of real estate | 12,115 |
| | (1,850 | ) | | 22,792 |
| | (9,697 | ) |
Loss on sale of real estate, net of tax | — |
| | — |
| | — |
| | (63 | ) |
Net Income (Loss) | 12,115 |
| | (1,850 | ) | | 22,792 |
| | (9,760 | ) |
Net income attributable to noncontrolling interests (inclusive of Available Cash Distributions to a related party of $2,196, $1,662, $6,057, and $5,319, respectively) | (2,294 | ) | | (2,231 | ) | | (6,568 | ) | | (6,730 | ) |
Net Income (Loss) Attributable to CPA®:18 – Global | $ | 9,821 |
|
| $ | (4,081 | ) | | $ | 16,224 |
| | $ | (16,490 | ) |
Class A Common Stock | | | | | | | |
Net income (loss) attributable to CPA®:18 – Global | $ | 7,759 |
| | $ | (3,083 | ) | | $ | 12,936 |
| | $ | (12,569 | ) |
Basic and diluted weighted-average shares outstanding | 110,507,579 |
| | 106,279,055 |
| | 109,507,006 |
| | 105,148,891 |
|
Basic and diluted income (loss) per share | $ | 0.07 |
| | $ | (0.03 | ) | | $ | 0.12 |
| | $ | (0.12 | ) |
Distributions Declared Per Share | $ | 0.1563 |
| | $ | 0.1563 |
| | $ | 0.4689 |
| | $ | 0.4689 |
|
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Class C Common Stock | | | | | | | |
Net income (loss) attributable to CPA®:18 – Global | $ | 2,062 |
| | $ | (998 | ) | | $ | 3,288 |
| | $ | (3,921 | ) |
Basic and diluted weighted-average shares outstanding | 31,322,341 |
| | 30,205,326 |
| | 31,041,072 |
| | 29,964,756 |
|
Basic and diluted income (loss) per share | $ | 0.07 |
| | $ | (0.03 | ) | | $ | 0.11 |
| | $ | (0.13 | ) |
Distributions Declared Per Share | $ | 0.1384 |
| | $ | 0.1376 |
| | $ | 0.4146 |
| | $ | 0.4089 |
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| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 |
| 2019 | | 2020 | | 2019 |
Revenues | | | | | | | |
Lease revenues — net-leased | $ | 26,167 |
| | $ | 30,109 |
| | $ | 48,528 |
| | $ | 61,023 |
|
Lease revenues — operating real estate | 16,508 |
| | 17,297 |
| | 34,451 |
| | 34,562 |
|
Other operating and interest income | 1,253 |
| | 1,621 |
| | 3,829 |
| | 3,736 |
|
| 43,928 |
|
| 49,027 |
| | 86,808 |
| | 99,321 |
|
Operating Expenses | | | | | | | |
Depreciation and amortization | 14,660 |
| | 17,180 |
| | 29,190 |
| | 32,552 |
|
Operating real estate expenses | 6,540 |
| | 6,615 |
| | 13,264 |
| | 13,081 |
|
Property expenses, excluding reimbursable tenant costs | 3,958 |
| | 4,896 |
| | 9,042 |
| | 9,547 |
|
Reimbursable tenant costs | 3,468 |
| | 3,230 |
| | 6,596 |
| | 7,254 |
|
General and administrative | 1,956 |
| | 2,100 |
| | 3,853 |
| | 3,859 |
|
Allowance for credit losses | — |
| | — |
| | 4,865 |
| | — |
|
| 30,582 |
| | 34,021 |
| | 66,810 |
| | 66,293 |
|
Other Income and Expenses | | | | | | | |
Interest expense | (10,354 | ) | | (12,044 | ) | | (20,843 | ) | | (24,401 | ) |
Other gains and (losses) | 1,064 |
| | 1,302 |
| | (1,008 | ) | | 1,474 |
|
Equity in losses of equity method investment in real estate | (159 | ) | | (603 | ) | | (213 | ) | | (1,251 | ) |
Gain on sale of real estate, net | — |
| | 650 |
| | — |
| | 16,058 |
|
| (9,449 | ) | | (10,695 | ) | | (22,064 | ) | | (8,120 | ) |
Income (loss) before income taxes | 3,897 |
| | 4,311 |
| | (2,066 | ) | | 24,908 |
|
(Provision for) benefit from income taxes | (1,558 | ) | | 867 |
| | (1,164 | ) | | (57 | ) |
Net Income (Loss) | 2,339 |
| | 5,178 |
| | (3,230 | ) | | 24,851 |
|
Net income attributable to noncontrolling interests (inclusive of Available Cash Distributions to a related party of $2,029, $2,105, $3,945, and $3,953, respectively) | (3,530 | ) | | (2,100 | ) | | (6,141 | ) | | (6,946 | ) |
Net (Loss) Income Attributable to CPA:18 – Global | $ | (1,191 | ) |
| $ | 3,078 |
| | $ | (9,371 | ) | | $ | 17,905 |
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Class A Common Stock | | | | | | | |
Net (loss) income attributable to CPA:18 – Global | $ | (922 | ) | | $ | 2,442 |
| | $ | (7,321 | ) | | $ | 14,095 |
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Basic and diluted weighted-average shares outstanding | 118,482,095 |
| | 116,210,773 |
| | 118,225,178 |
| | 115,855,895 |
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Basic and diluted (loss) earnings per share | $ | (0.01 | ) | | $ | 0.02 |
| | $ | (0.06 | ) | | $ | 0.12 |
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Class C Common Stock | | | | | | | |
Net (loss) income attributable to CPA:18 – Global | $ | (269 | ) | | $ | 636 |
| | $ | (2,050 | ) | | $ | 3,810 |
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Basic and diluted weighted-average shares outstanding | 32,493,253 |
| | 32,058,663 |
| | 32,469,447 |
| | 31,969,341 |
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Basic and diluted (loss) earnings per share | $ | (0.01 | ) | | $ | 0.02 |
| | $ | (0.06 | ) | | $ | 0.12 |
|
See Notes to Condensed Consolidated Financial Statements.
CPA®:CPA:18 – Global 9/6/30/20172020 10-Q– 34
CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(in thousands)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2017 | | 2016 | | 2017 | | 2016 | 2020 | | 2019 | | 2020 | | 2019 |
Net Income (Loss) | $ | 12,115 |
| | $ | (1,850 | ) | | $ | 22,792 |
| | $ | (9,760 | ) | $ | 2,339 |
| | $ | 5,178 |
| | $ | (3,230 | ) | | $ | 24,851 |
|
Other Comprehensive Income | | | | | | | | |
Other Comprehensive Income (Loss) | | | | | | | | |
Foreign currency translation adjustments | 13,839 |
| | 2,963 |
| | 37,534 |
| | 8,739 |
| 12,306 |
| | 3,658 |
| | (11,776 | ) | | (584 | ) |
Realized and unrealized loss on derivative instruments | (2,145 | ) | | (928 | ) | | (6,426 | ) | | (4,678 | ) | |
Unrealized loss on derivative instruments | | (944 | ) | | (1,971 | ) | | (2,767 | ) | | (2,209 | ) |
| 11,694 |
| | 2,035 |
| | 31,108 |
| | 4,061 |
| 11,362 |
| | 1,687 |
| | (14,543 | ) | | (2,793 | ) |
Comprehensive Income (Loss) | 23,809 |
| | 185 |
| | 53,900 |
| | (5,699 | ) | 13,701 |
| | 6,865 |
| | (17,773 | ) | | 22,058 |
|
| | | | | | | | | | | | | | |
Amounts Attributable to Noncontrolling Interests | | | | | | | | | | | | | | |
Net income | (2,294 | ) | | (2,231 | ) | | (6,568 | ) | | (6,730 | ) | (3,530 | ) | | (2,100 | ) | | (6,141 | ) | | (6,946 | ) |
Foreign currency translation adjustments | (1,806 | ) | | (813 | ) | | (4,599 | ) | | (2,290 | ) | (1,396 | ) | | (331 | ) | | 1,129 |
| | (173 | ) |
Unrealized loss on derivative instruments | | — |
| | — |
| | 3 |
| | — |
|
Comprehensive income attributable to noncontrolling interests | (4,100 | ) | | (3,044 | ) | | (11,167 | ) | | (9,020 | ) | (4,926 | ) | | (2,431 | ) | | (5,009 | ) | | (7,119 | ) |
Comprehensive Income (Loss) Attributable to CPA®:18 – Global | $ | 19,709 |
| | $ | (2,859 | ) | | $ | 42,733 |
| | $ | (14,719 | ) | |
Comprehensive Income (Loss) Attributable to CPA:18 – Global | | $ | 8,775 |
| | $ | 4,434 |
| | $ | (22,782 | ) | | $ | 14,939 |
|
See Notes to Condensed Consolidated Financial Statements.
CPA®:CPA:18 – Global 9/6/30/20172020 10-Q– 45
CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
Nine Months EndedSeptember 30, 2017 and 2016
(in thousands, except share and per share amounts)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| CPA®:18 – Global Stockholders | | | | |
| | | | | | | | | Additional Paid-In Capital | | Distributions and Accumulated Losses | | Accumulated Other Comprehensive Loss | | Total CPA®:18 – Global Stockholders | | Noncontrolling Interests | | |
| Common Stock | | | | | | | |
| Class A | | Class C | | | | | | | |
| Shares | | Amount | | Shares | | Amount | | | | | | | Total |
Balance at January 1, 2017 | 107,460,081 |
| | $ | 107 |
| | 30,469,144 |
| | $ | 30 |
| | $ | 1,222,139 |
| | $ | (360,673 | ) | | $ | (61,704 | ) | | $ | 799,899 |
| | $ | 66,005 |
| | $ | 865,904 |
|
Shares issued | 3,198,924 |
| | 3 |
| | 1,034,160 |
| | 1 |
| | 33,431 |
| | | | | | 33,435 |
| |
| | 33,435 |
|
Shares issued to affiliate | 1,037,527 |
| | 1 |
| | | | | | 8,275 |
| | | | | | 8,276 |
| |
| | 8,276 |
|
Shares issued to directors | 12,658 |
| | — |
| | | | | | 100 |
| | | | | | 100 |
| | | | 100 |
|
Contributions from noncontrolling interests | | | | | | | | | | | | | | | — |
| | 3,143 |
| | 3,143 |
|
Distributions to noncontrolling interests | | | | | | | | | | | | | | | — |
| | (11,985 | ) | | (11,985 | ) |
Distributions declared ($0.4689 and $0.4146 per share to Class A and Class C, respectively) | | | | | | | | | | | (64,180 | ) | | | | (64,180 | ) | | | | (64,180 | ) |
Net income | | | | | | | | | | | 16,224 |
| | | | 16,224 |
| | 6,568 |
| | 22,792 |
|
Other comprehensive income: | | | | | | | | | | | | | | |
| | | |
|
Foreign currency translation adjustments | | | | | | | | | | | | | 32,935 |
| | 32,935 |
| | 4,599 |
| | 37,534 |
|
Realized and unrealized loss on derivative instruments | | | | | | | | | | | | | (6,426 | ) | | (6,426 | ) | | | | (6,426 | ) |
Repurchase of shares | (1,374,254 | ) | | (1 | ) | | (262,864 | ) | | — |
| | (12,965 | ) | | | | | | (12,966 | ) | | | | (12,966 | ) |
Balance at September 30, 2017 | 110,334,936 |
| | $ | 110 |
| | 31,240,440 |
| | $ | 31 |
| | $ | 1,250,980 |
| | $ | (408,629 | ) | | $ | (35,195 | ) | | $ | 807,297 |
| | $ | 68,330 |
| | $ | 875,627 |
|
| | | | | | | | | | | | | | | | | | | |
Balance at January 1, 2016 | 103,214,083 |
| | $ | 103 |
| | 29,536,899 |
| | $ | 30 |
| | $ | 1,178,990 |
| | $ | (247,995 | ) | | $ | (50,316 | ) | | $ | 880,812 |
| | $ | 71,896 |
| | $ | 952,708 |
|
Shares issued | 2,900,565 |
| | 3 |
| | 939,990 |
| | — |
| | 32,450 |
| | | | | | 32,453 |
| | | | 32,453 |
|
Shares issued to affiliate | 913,907 |
| | 1 |
| | | | | | 7,390 |
| | | | | | 7,391 |
| | | | 7,391 |
|
Shares issued to directors | 12,658 |
| | — |
| | | | | | 100 |
| | | | | | 100 |
| | | | 100 |
|
Contributions from noncontrolling interests | | | | | | | | | | | | | | | — |
| | 41 |
| | 41 |
|
Distributions to noncontrolling interests | | | | | | | | | | | | | | | — |
| | (11,588 | ) | | (11,588 | ) |
Distributions declared ($0.4689 and $0.4089 per share to Class A and Class C, respectively) | | | | | | | | | | | (61,599 | ) | | | | (61,599 | ) | | | | (61,599 | ) |
Net loss | | | | | | | | | | | (16,490 | ) | | | | (16,490 | ) | | 6,730 |
| | (9,760 | ) |
Other comprehensive loss: | | | | | | | | | | | | | | |
| | | |
|
Foreign currency translation adjustments | | | | | | | | | | | | | 6,449 |
| | 6,449 |
| | 2,290 |
| | 8,739 |
|
Realized and unrealized loss on derivative instruments | | | | | | | | | | | | | (4,678 | ) | | (4,678 | ) | | | | (4,678 | ) |
Repurchase of shares | (705,234 | ) | | (1 | ) | | (286,874 | ) | | — |
| | (7,895 | ) | | | | | | (7,896 | ) | | | | (7,896 | ) |
Balance at September 30, 2016 | 106,335,979 |
| | $ | 106 |
| | 30,190,015 |
| | $ | 30 |
| | $ | 1,211,035 |
| | $ | (326,084 | ) | | $ | (48,545 | ) | | $ | 836,542 |
| | $ | 69,369 |
| | $ | 905,911 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| CPA:18 – Global Stockholders | | | | |
| | | | | | | | | Additional Paid-In Capital | | Distributions and Accumulated Losses | | Accumulated Other Comprehensive Loss | | Total CPA:18 – Global Stockholders | | Noncontrolling Interests | | |
| Common Stock | | | | | | | |
| Class A | | Class C | | | | | | | |
| Shares | | Amount | | Shares | | Amount | | | | | | | Total |
Balance at April 1, 2020 | 117,627,430 |
| | $ | 117 |
| | 32,263,611 |
| | $ | 32 |
| | $ | 1,323,827 |
| | $ | (508,253 | ) | | $ | (79,912 | ) | | $ | 735,811 |
| | $ | 56,122 |
| | $ | 791,933 |
|
Shares issued | 937,611 |
| | 1 |
| | 289,651 |
| | — |
| | 10,933 |
| | | | | | 10,934 |
| | | | 10,934 |
|
Shares issued to affiliate | 288,652 |
| | 1 |
| | | | | | 2,502 |
| | | | | | 2,503 |
| | | | 2,503 |
|
Distributions to noncontrolling interests | | | | | | | | | | | | | | | — |
| | (1,508 | ) | | (1,508 | ) |
Distributions declared ($0.0625 and $0.0438 per share to Class A and Class C, respectively) | | | | | | | | | | | (8,809 | ) | | | | (8,809 | ) | | | | (8,809 | ) |
Net loss (income) | | | | | | | | | | | (1,191 | ) | | | | (1,191 | ) | | 3,530 |
| | 2,339 |
|
Other comprehensive income: | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustments | | | | | | | | | | | | | 10,910 |
| | 10,910 |
| | 1,396 |
| | 12,306 |
|
Unrealized loss on derivative instruments | | | | | | | | | | | | | (944 | ) | | (944 | ) | | | | (944 | ) |
Repurchase of shares | (593,833 | ) | | (1 | ) | | (183,659 | ) | | — |
| | (6,237 | ) | | | | | | (6,238 | ) | | | | (6,238 | ) |
Balance at June 30, 2020 | 118,259,860 |
| | $ | 118 |
| | 32,369,603 |
| | $ | 32 |
| | $ | 1,331,025 |
| | $ | (518,253 | ) | | $ | (69,946 | ) | | $ | 742,976 |
| | $ | 59,540 |
| | $ | 802,516 |
|
| | | | | | | | | | | | | | | | | | | |
Balance at April 1, 2019 | 115,444,107 |
| | $ | 115 |
| | 31,840,141 |
| | $ | 32 |
| | $ | 1,300,223 |
| | $ | (420,161 | ) | | $ | (54,915 | ) | | $ | 825,294 |
| | $ | 65,258 |
| | $ | 890,552 |
|
Shares issued | 959,968 |
| | 1 |
| | 294,171 |
| | — |
| | 10,949 |
| | | | | | 10,950 |
| | | | 10,950 |
|
Shares issued to affiliate | 164,709 |
| | — |
| | | | | | 1,438 |
| | | | | | 1,438 |
| | | | 1,438 |
|
Distributions to noncontrolling interests | | | | | | | | | | | | | | | — |
| | (4,605 | ) | | (4,605 | ) |
Distributions declared ($0.1563 and $0.1376 per share to Class A and Class C, respectively) | | | | | | | | | | | (22,539 | ) | | | | (22,539 | ) | | | | (22,539 | ) |
Net income | | | | | | | | | | | 3,078 |
| | | | 3,078 |
| | 2,100 |
| | 5,178 |
|
Other comprehensive income: | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustments | | | | | | | | | | | | | 3,327 |
| | 3,327 |
| | 331 |
| | 3,658 |
|
Unrealized loss on derivative instruments | | | | | | | | | | | | | (1,971 | ) | | (1,971 | ) | | | | (1,971 | ) |
Repurchase of shares | (535,456 | ) | | (1 | ) | | (131,698 | ) | | — |
| | (5,687 | ) | | | | | | (5,688 | ) | | | | (5,688 | ) |
Balance at June 30, 2019 | 116,033,328 |
| | $ | 115 |
| | 32,002,614 |
| | $ | 32 |
| | $ | 1,306,923 |
| | $ | (439,622 | ) | | $ | (53,559 | ) | | $ | 813,889 |
| | $ | 63,084 |
| | $ | 876,973 |
|
CPA:18 – Global 6/30/2020 10-Q– 6
CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
(Continued)
(in thousands, except share and per share amounts)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| CPA:18 – Global Stockholders | | | | |
| | | | | | | | | Additional Paid-In Capital | | Distributions and Accumulated Losses | | Accumulated Other Comprehensive Loss | | Total CPA:18 – Global Stockholders | | Noncontrolling Interests | | |
| Common Stock | | | | | | | |
| Class A | | Class C | | | | | | | |
| Shares | | Amount | | Shares | | Amount | | | | | | | Total |
Balance at January 1, 2020 | 117,179,578 |
| | $ | 117 |
| | 32,238,513 |
| | $ | 32 |
| | $ | 1,319,584 |
| | $ | (470,326 | ) | | $ | (56,535 | ) | | $ | 792,872 |
| | $ | 58,799 |
| | $ | 851,671 |
|
Cumulative-effect adjustment for the adoption of ASU 2016-13, Financial Instruments — Credit Losses (Note 2) | | | | | | | | | | | (6,903 | ) | | | | (6,903 | ) | | | | (6,903 | ) |
Shares issued | 1,903,909 |
| | 2 |
| | 580,538 |
| | — |
| | 21,871 |
| | | | | | 21,873 |
| |
| | 21,873 |
|
Shares issued to affiliate | 457,697 |
| | — |
| | | | | | 3,982 |
| | | | | | 3,982 |
| |
| | 3,982 |
|
Contributions from noncontrolling interests | | | | | | | | | | | | | | | — |
| | 595 |
| | 595 |
|
Distributions to noncontrolling interests | | | | | | | | | | | | | | | — |
| | (4,863 | ) | | (4,863 | ) |
Distributions declared ($0.2188 and $0.1820 per share to Class A and Class C, respectively) | | | | | | | | | | | (31,653 | ) | | | | (31,653 | ) | | | | (31,653 | ) |
Net (loss) income | | | | | | | | | | | (9,371 | ) | | | | (9,371 | ) | | 6,141 |
| | (3,230 | ) |
Other comprehensive loss: | | | | | | | | | | | | | | |
| | | |
|
Foreign currency translation adjustments | | | | | | | | | | | | | (10,647 | ) | | (10,647 | ) | | (1,129 | ) | | (11,776 | ) |
Unrealized loss on derivative instruments | | | | | | | | | | | | | (2,764 | ) | | (2,764 | ) | | (3 | ) | | (2,767 | ) |
Repurchase of shares | (1,281,324 | ) | | (1 | ) | | (449,448 | ) | | — |
| | (14,412 | ) | | | | | | (14,413 | ) | | | | (14,413 | ) |
Balance at June 30, 2020 | 118,259,860 |
| | $ | 118 |
| | 32,369,603 |
| | $ | 32 |
| | $ | 1,331,025 |
| | $ | (518,253 | ) | | $ | (69,946 | ) | | $ | 742,976 |
| | $ | 59,540 |
| | $ | 802,516 |
|
| | | | | | | | | | | | | | | | | | | |
Balance at January 1, 2019 | 114,589,333 |
| | $ | 114 |
| | 31,641,265 |
| | $ | 32 |
| | $ | 1,290,888 |
| | $ | (411,464 | ) | | $ | (50,593 | ) | | $ | 828,977 |
| | $ | 66,993 |
| | $ | 895,970 |
|
Cumulative-effect adjustment for the adoption of ASU 2016-02, Leases (Topic 842) | | | | | | | | | | | (1,108 | ) | | | | (1,108 | ) | | | | (1,108 | ) |
Shares issued | 1,925,165 |
| | 2 |
| | 591,233 |
| | 1 |
| | 21,967 |
| | | | | | 21,970 |
| | | | 21,970 |
|
Shares issued to affiliate | 384,947 |
| | — |
| | | | | | 3,360 |
| | | | | | 3,360 |
| | | | 3,360 |
|
Contributions from noncontrolling interests | | | | | | | | | | | | | | | — |
| | 2,520 |
| | 2,520 |
|
Distributions to noncontrolling interests | | | | | | | | | | | | | | | — |
| | (13,548 | ) | | (13,548 | ) |
Distributions declared ($0.3126 and $0.2749 per share to Class A and Class C, respectively) | | | | | | | | | | | (44,955 | ) | | | | (44,955 | ) | | | | (44,955 | ) |
Net income | | | | | | | | | | | 17,905 |
| | | | 17,905 |
| | 6,946 |
| | 24,851 |
|
Other comprehensive loss: | | | | | | | | | | | | | | |
| | | |
|
Unrealized loss on derivative instruments | | | | | | | | | | | | | (2,209 | ) | | (2,209 | ) | | | | (2,209 | ) |
Foreign currency translation adjustments | | | | | | | | | | | | | (757 | ) | | (757 | ) | | 173 |
| | (584 | ) |
Repurchase of shares | (866,117 | ) | | (1 | ) | | (229,884 | ) | | (1 | ) | | (9,292 | ) | | | | | | (9,294 | ) | | | | (9,294 | ) |
Balance at June 30, 2019 | 116,033,328 |
| | $ | 115 |
| | 32,002,614 |
| | $ | 32 |
| | $ | 1,306,923 |
| | $ | (439,622 | ) | | $ | (53,559 | ) | | $ | 813,889 |
| | $ | 63,084 |
| | $ | 876,973 |
|
See Notes to Condensed Consolidated Financial Statements.
CPA®:CPA:18 – Global 9/6/30/20172020 10-Q– 57
CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
| | | Nine Months Ended September 30, | Six Months Ended June 30, |
| 2017 | | 2016 | 2020 | | 2019 |
Cash Flows — Operating Activities |
| | |
| | |
Net Cash Provided by Operating Activities | $ | 67,777 |
| | $ | 56,005 |
| $ | 38,924 |
| | $ | 42,029 |
|
Cash Flows — Investing Activities | | | | | | |
Funding and advances for build-to-suit projects | (40,770 | ) | | (81,119 | ) | |
Acquisitions of real estate and direct financing leases | (27,924 | ) | | (55,307 | ) | |
Value added taxes refunded in connection with acquisitions of real estate | 12,414 |
| | 4,224 |
| |
Funding for development projects | | (79,636 | ) | | (57,639 | ) |
Value added taxes paid in connection with construction funding | | (5,514 | ) | | (3,502 | ) |
Capital expenditures on real estate | | (4,269 | ) | | (1,594 | ) |
Value added taxes refunded in connection with construction funding | | 2,435 |
| | 2,096 |
|
Payment of deferred acquisition fees to an affiliate | | (1,897 | ) | | (2,993 | ) |
Return of capital from equity investments | | 1,134 |
| | 332 |
|
Capital contributions to equity investment | (5,616 | ) | | (3,850 | ) | (731 | ) | | (400 | ) |
Capital expenditures on real estate | (4,640 | ) | | (5,363 | ) | |
Value added taxes paid in connection with acquisition of real estate | (3,667 | ) | | (7,994 | ) | |
Payment of deferred acquisition fees to an affiliate | (3,650 | ) | | (4,476 | ) | |
Deposits for investments | (716 | ) | | 4,000 |
| |
Return of capital from equity investments | 246 |
| | 2,243 |
| |
Change in investing restricted cash | 29 |
| | 340 |
| |
Other investing activities, net | (26 | ) | | 47 |
| 215 |
| | 98 |
|
Proceeds from repayment of notes receivable | | — |
| | 35,954 |
|
Proceeds from sale of real estate | — |
| | 40 |
| — |
| | 19,343 |
|
Proceeds from insurance settlements | | — |
| | 856 |
|
Net Cash Used in Investing Activities | (74,320 | ) | | (147,215 | ) | (88,263 | ) | | (7,449 | ) |
Cash Flows — Financing Activities | | | | | | |
Distributions paid | | (45,589 | ) | | (44,679 | ) |
Proceeds from mortgage financing | 72,415 |
| | 106,601 |
| 35,025 |
| | 25,133 |
|
Distributions paid | (63,606 | ) | | (60,900 | ) | |
Proceeds from issuance of shares | 31,778 |
| | 30,588 |
| 20,866 |
| | 20,924 |
|
Repayment of notes payable to affiliate | (19,696 | ) | | — |
| |
Repurchase of shares | | (14,413 | ) | | (9,294 | ) |
Scheduled payments and prepayments of mortgage principal | | (9,485 | ) | | (26,144 | ) |
Distributions to noncontrolling interests | (11,985 | ) | | (11,588 | ) | (4,863 | ) | | (11,717 | ) |
Proceeds from notes payable to affiliate | 11,196 |
| | — |
| |
Scheduled payments and prepayments of mortgage principal | (9,105 | ) | | (3,641 | ) | |
Repurchase of shares | (7,349 | ) | | (7,896 | ) | |
Other financing activities, net | | (925 | ) | | (624 | ) |
Contributions from noncontrolling interests | 2,339 |
| | 41 |
| 595 |
| | 2,520 |
|
Payment of deferred financing costs and mortgage deposits | (588 | ) | | (796 | ) | |
Other financing activities, net | (13 | ) | | — |
| |
Change in financing restricted cash | (8 | ) | | 5,171 |
| |
Net Cash Provided by Financing Activities | 5,378 |
| | 57,580 |
| |
Change in Cash and Cash Equivalents During the Period | | | | |
Effect of exchange rate changes on cash and cash equivalents | 3,851 |
| | 952 |
| |
Net increase (decrease) in cash and cash equivalents | 2,686 |
| | (32,678 | ) | |
Cash and cash equivalents, beginning of period | 72,028 |
| | 117,453 |
| |
Cash and cash equivalents, end of period | $ | 74,714 |
| | $ | 84,775 |
| |
Net Cash Used in Financing Activities | | (18,789 | ) | | (43,881 | ) |
Change in Cash and Cash Equivalents and Restricted Cash During the Period | | | | |
Effect of exchange rate changes on cash and cash equivalents and restricted cash | | (2,042 | ) | | (59 | ) |
Net decrease in cash and cash equivalents and restricted cash | | (70,170 | ) | | (9,360 | ) |
Cash and cash equivalents and restricted cash, beginning of period | | 163,398 |
| | 190,838 |
|
Cash and cash equivalents and restricted cash, end of period | | $ | 93,228 |
| | $ | 181,478 |
|
See Notes to Condensed Consolidated Financial Statements.
CPA®:CPA:18 – Global 9/6/30/20172020 10-Q– 68
CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Organization
Organization
Corporate Property Associates 18 – Global Incorporated or CPA®:(“CPA:18 – Global, together with its consolidated subsidiaries,Global”), is a publicly owned, non-traded real estate investment trust, or REIT, that invests primarily in a diversified portfolio of income-producing commercial real estate properties net leased to companies, and other real estate related assets, both domestically and internationally. In addition, our portfolio includes self-storage and student housing investments. We were formed in 2012 and are managed by W. P. Carey Inc., or WPC, (“WPC”) through one of its subsidiaries or collectively,(collectively our Advisor.“Advisor”). As a REIT, we are not subject to U.S. federal income taxationtaxes on income and gains that we distribute to our stockholders as long as we satisfy certain requirements, principally relating to the nature of our income and the level of our distributions, among other factors. We earn revenue primarily by leasing the properties we own to single corporate tenants, predominantly on a triple-net lease basis, which requires the tenant to pay substantially all of the costs associated with operating and maintaining the property. We derive self-storage revenue from rents received from customers who rent storage space primarily under month-to-month leases for personal or business use. We earn student housing revenue primarily from leases of one year or less with individual students. Revenue is subject to fluctuation due to the timing of new lease transactions, lease terminations, lease expirations, contractual rent adjustments, tenant defaults, sales of properties, and changes in foreign currency exchange rates.
Substantially all of our assets and liabilities are held by CPA®:CPA:18 Limited Partnership or the Operating Partnership,(the “Operating Partnership”), and at Septemberas of June 30, 20172020 we owned 99.97% of general and limited partnership interests in the Operating Partnership. The remaining interest in the Operating Partnership is held by a subsidiary of WPC.
At SeptemberAs of June 30, 2017,2020, our net lease portfolio was comprised of full or partial ownership interests in 5947 properties, the majoritysubstantially all of which were fully-occupied and triple-net leased to 9965 tenants totaling 10.19.6 million square feet. The remainder of our portfolio was comprised of our full or partial ownership interests in 6968 self-storage properties, 12 student housing development projects (10 of which will become subject to net lease agreements upon their completion) and nine multi-family2 student housing operating properties, totaling 6.8approximately 5.5 million square feet.
We operate in three reportable business segments: Net Lease, Self Storage, and Multi-Family.Other Operating Properties. Our Net Lease segment includes our investments in net-leased properties, whether they are accounted for as operating leases or direct financing leases. Our Self Storage segment is comprised of our investments in self-storage properties. Our Multi-FamilyOther Operating Properties segment is primarily comprised of our investments in student housing operating properties and multi-family residential properties and student-housing developments.(our last multi-family residential property was sold in January 2019). In addition, we have an All Other category that includes our notes receivable investments, (Note 12).one of which was repaid during the second quarter of 2019. Our reportable business segments and All Other category are the same as our reporting units.units (Note 12).
We raised aggregate gross proceeds in our initial public offering of approximately $1.2 billion through April 2, 2015, which is the date we closed our offering. We have fully invested the proceeds from our initial public offering. In addition, from inception through SeptemberJune 30, 2017, $108.42020, $200.7 million and $29.2$57.6 million of distributions to our shareholders were reinvested in our Class A and Class C common stock, respectively, through our Distribution Reinvestment Plan or DRIP.(“DRIP”).
CPA:18 – Global 6/30/2020 10-Q– 9
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 2. Basis of Presentation
Basis of Presentation
Our interim condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not necessarily include all information and footnotes necessary for a fair statement of our condensed consolidated financial position, results of operations, and cash flows in accordance with generally accepted accounting principles in the United States or(“GAAP”). The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP.
In the opinion of management, the unaudited financial information for the interim periods presented in this Report reflects all normal and recurring adjustments necessary for a fair statement of financial position, results of operations, and cash flows. Our interim condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and accompanying notes for the year ended December 31, 2016,2019, which are included in the 20162019 Annual Report, as certain disclosures that would substantially duplicate those contained in the audited consolidated financial statements have not been included in this Report. Operating results for interim periods are not necessarily indicative of operating results for an entire year.
CPA®:18 – Global 9/30/2017 10-Q– 7
Notes to Consolidated Financial Statements (Unaudited)
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in our condensed consolidated financial statements and the accompanying notes. Actual results could differ from those estimates.
Basis of Consolidation
Our condensed consolidated financial statements reflect all of our accounts, including those of our controlled subsidiaries. The portions of equity in consolidated subsidiaries that are not attributable, directly or indirectly, to us are presented as noncontrolling interests. All significant intercompany accounts and transactions have been eliminated.
When we obtain an economic interest in an entity, we evaluate the entity to determine if it should be deemed a variable interest entity, or VIE and, if so, whether we are the primary beneficiary and are therefore required to consolidate the entity. We apply accounting guidance for consolidation of VIEs to certain entitiesThere have been no significant changes in which the equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial supportour VIE policies from other parties. Fixed price purchase and renewal options within a lease, as well as certain decision-making rights within a loan or joint-venture agreement, can cause us to consider an entity a VIE. Limited partnerships and other similar entities that operate as a partnership will be considered a VIE unless the limited partners hold substantive kick-out rights or participation rights. Significant judgment is required to determine whether a VIE should be consolidated. We review the contractual arrangements provided forwhat was disclosed in the partnership agreement or other related contracts to determine whether the entity is considered a VIE2019 Annual Report.
As of both June 30, 2020 and to establish whether we have any variable interests in the VIE. We then compare our variable interests, if any, to those of the other variable interest holders to determine which party is the primary beneficiary of the VIE based on whether the entity (i) has the power to direct the activities that most significantly impact the economic performance of the VIE and (ii) has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. The liabilities of these VIEs are non-recourse to us and can only be satisfied from each VIE’s respective assets.
At September 30, 2017,December 31, 2019, we considered 1319 entities to be VIEs, 1218 of which we consolidated as we are considered the primary beneficiary. We previously determined that a build-to-suit project in Eindhoven, the Netherlands was a VIE. In May 2017, we made our final payment to the developer for this project and now own 100% of the voting rights (Note 4). As such, we no longer determine it to be a VIE. The following table presents a summary of selected financial data of the consolidated VIEs included in the condensed consolidated balance sheets (in thousands): |
| | | | | | | |
| June 30, 2020 | | December 31, 2019 |
Real estate — Land, buildings and improvements | $ | 351,709 |
| | $ | 359,886 |
|
Real estate under construction | 315,270 |
| | 233,220 |
|
In-place lease intangible assets | 100,007 |
| | 101,198 |
|
Accumulated depreciation and amortization | (84,645 | ) | | (78,598 | ) |
Total assets | 714,394 |
| | 642,648 |
|
| | | |
Non-recourse secured debt, net | $ | 302,176 |
| | $ | 276,124 |
|
Total liabilities | 361,527 |
| | 330,549 |
|
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Real estate — Land, buildings and improvements | $ | 456,786 |
| | $ | 371,385 |
|
Operating real estate — Land, buildings and improvements | 51,165 |
| | 43,948 |
|
Real estate under construction | 102,413 |
| | 162,371 |
|
Net investments in direct financing leases | — |
| | 10,516 |
|
In-place lease intangible assets | 89,510 |
| | 81,798 |
|
Other intangible assets | 25,062 |
| | 22,376 |
|
Accumulated depreciation and amortization | (53,360 | ) | | (37,412 | ) |
Cash and cash equivalents | 11,150 |
| | 15,260 |
|
Other assets, net | 31,044 |
| | 41,975 |
|
Total assets | 713,770 |
| | 712,217 |
|
| | | |
Non-recourse mortgages, net | $ | 226,426 |
| | $ | 235,425 |
|
Bonds payable, net | 62,330 |
| | 57,615 |
|
Deferred income taxes | 28,033 |
| | 20,437 |
|
Accounts payable, accrued expenses and other liabilities | 27,033 |
| | 30,946 |
|
Total liabilities | 343,822 |
| | 344,423 |
|
CPA®:18 – Global 9/30/2017 10-Q– 8
Notes to Consolidated Financial Statements (Unaudited)
AtAs of both SeptemberJune 30, 20172020 and December 31, 2016,2019, we hadone1 unconsolidated VIE, which we account for under the equity method of accounting. We do not consolidate this entity because we are not the primary beneficiary and the nature of our involvement in the activities of the entity allows us to exercise significant influence on, but does not give us power over, decisions that significantly affect the economic performance of the entity. As of SeptemberJune 30, 20172020 and December 31, 2016,2019, the net carrying amount of this equity investment was $21.2$13.8 million and $14.7$14.9 million, respectively, and our maximum exposure to loss in this entity is limited to our investment.
At times,
CPA:18 – Global 6/30/2020 10-Q– 10
Notes to Condensed Consolidated Financial Statements (Unaudited)
COVID-19
The global spread of COVID-19 has created significant uncertainty and economic disruption, both in the carrying valuenear-term and potentially longer-term. The extent to which this pandemic could affect our financial condition, liquidity, and results of operations is difficult to predict and depends on evolving factors, including: duration, scope, government actions, and other social responses.
Our Advisor is closely monitoring the impact of COVID-19 on all aspects of our equity investment may fall below zero for certain investments. We intendbusiness, including how it will impact our portfolio and tenant credit health (including our tenants’ ability to fundpay rent) as well as our shareliquidity, capital allocation, and balance sheet management. Our Advisor continues to actively engage in discussions with our tenants and with the third-party managers of our operating properties regarding the impact of COVID-19 on business operations, liquidity, prospects, and financial position.
The extent to which the COVID-19 pandemic impacts our operations and those of our tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity, and duration of the jointly owned investment’s future operating deficits shouldpandemic, the need arise. However, we have no legal obligationactions taken to pay for anycontain the pandemic or mitigate its impact, and the direct and indirect economic effects of the liabilitiespandemic and containment measures, among others. For both the three and six months ended June 30, 2020, approximately $3.0 million of such investments nor do we have any legal obligation to fund the operating deficits. At September 30, 2017, our sole equity investment didrent was not have a carrying value below zero.
Out-of-Period Adjustments
During the third quarter of 2017, we identified and recorded out-of-period adjustments relatedcollected due to the accounting for deferred foreign income taxes. We concluded that these adjustments were not material toadverse impact of COVID-19, which reduced lease revenues in our consolidated financial statements for any of the current or prior periods presented. The net adjustment is reflected as a $1.2 million and $0.8 million increase of our Benefit from income taxes in thecondensed consolidated statements of incomeoperations for those periods.
Foreign Currencies
We are subject to fluctuations in exchange rates between foreign currencies and the threeU.S. dollar (primarily the euro and nine months ended September 30, 2017, respectively.the Norwegian krone and, to a lesser extent, the British pound sterling). The following table reflects the end-of-period rate of the U.S. dollar in relation to foreign currencies:
|
| | | | | | | | | | |
| June 30, 2020 | | December 31, 2019 | | Percent Change |
British Pound Sterling | $ | 1.2273 |
| | $ | 1.3204 |
| | (7.1 | )% |
Euro | 1.1198 |
| | 1.1234 |
| | (0.3 | )% |
Norwegian Krone | 0.1026 |
| | 0.1139 |
| | (9.9 | )% |
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation.
InBeginning with the first quarter of 2020, we present Reimbursable tenant costs on its own line item in the condensed consolidated statements of operations. Previously, this line item was included within Property expenses (which is now presented as Property expenses, excluding reimbursable tenant costs).
Revenue Recognition
Lease revenue (including straight-line lease revenue) is only recognized when deemed probable of collection. Collectibility is assessed for each tenant receivable using various criteria including credit ratings, guarantees, past collection issues, and the current economic and business environment affecting the tenant. If collectibility of the contractual rent stream is not deemed probable, revenue will only be recognized upon receipt of cash from the tenant. During the six months ended June 30, 2020, we wrote off $7.0 million in straight-line rent receivables based on our current assessment of less than a 75% likelihood of collecting all remaining contractual rent on certain net lease hotels. Additionally, we did not recognize $3.0 million of rent that was not collected during the second quarter (as discussed in the COVID-19 section above).
CPA:18 – Global 6/30/2020 10-Q– 11
Notes to Condensed Consolidated Financial Statements (Unaudited)
Restricted Cash
The following table provides a reconciliation of 2017, we reclassified in-place lease intangiblecash and cash equivalents and restricted cash reported within the condensed consolidated balance sheets to the condensed consolidated statements of cash flows (in thousands):
|
| | | | | | | |
| June 30, 2020 | | December 31, 2019 |
Cash and cash equivalents | $ | 70,750 |
| | $ | 144,148 |
|
Restricted cash (a) | 22,478 |
| | 19,250 |
|
Total cash and cash equivalents and restricted cash | $ | 93,228 |
| | $ | 163,398 |
|
__________
| |
(a) | Restricted cash is included within Accounts receivable and other assets, net on our condensed consolidated balance sheets. |
Deferred Income Taxes
Our deferred tax liabilities were $45.6 million and $48.6 million at June 30, 2020 and December 31, 2019, respectively, and are included in Accounts payable, accrued expenses and other liabilities in the condensed consolidated financial statements. Our deferred tax assets, net of valuation allowances, was $1.4 million at both June 30, 2020 and December 31, 2019, and are included in Accounts receivable and other intangible assets, net to be included within Net investments in real estate in ourthe condensed consolidated balance sheets. The accumulated amortization on these assets is now included in Accumulated depreciation and amortization in our consolidated balance sheets. Prior period balances have been reclassified to conform to the current period presentation.financial statements.
Recent Accounting Pronouncements
Pronouncements Adopted as of June 30, 2020
In May 2014,June 2016, the Financial Accounting Standards Board or FASB,(“FASB”) issued Accounting Standards Update or ASU, 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. ASU 2014-09 does not apply to our lease revenues, which constitute a majority of our revenues, but will primarily apply to revenues generated from our operating properties. We will adopt this guidance for our interim and annual periods beginning January 1, 2018 using one of two methods: retrospective restatement for each reporting period presented at the time of adoption, or retrospectively with the cumulative effect of initially applying this guidance recognized at the date of initial application. We have not decided which method of adoption we will use. We are evaluating the impact of the new standard and have not yet determined if it will have a material impact on our business or our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 outlines a new model for accounting by lessees, whereby their rights and obligations under substantially all leases, existing and new, would be capitalized and recorded on the balance sheet. For lessors, however, the accounting remains largely unchanged from the current model, with the distinction between operating and financing leases retained, but updated to align with certain changes to the lessee model and the new revenue recognition standard. The new standard also replaces existing sale-leaseback guidance with a new model applicable to both lessees and lessors. In addition, it also requires lessors to record gross revenues and expenses associated with activities that do not transfer services to lessee (such as real estate taxes and insurance). Additionally, the new standard requires extensive quantitative and qualitative disclosures. The new standard must be adopted using a modified retrospective transition of the new guidance and provides for certain practical expedients. Transition will require application of the new model at the beginning of the earliest comparative period presented. We will adopt this guidance for our interim and annual periods beginning January 1, 2019. The ASU is expected to impact our consolidated financial statements as we have land lease arrangements for which we are the lessee. We are evaluating the impact of the new standard and have not yet determined if it will have a material impact on our business or our consolidated financial statements.
CPA®:18 – Global 9/30/2017 10-Q– 9
Notes to Consolidated Financial Statements (Unaudited)
In June 2016, the FASB issued ASU (“ASU”) 2016-13, Financial Instruments — Credit Losses.ASU 2016-13 introduces a newreplaces the “incurred loss” model for estimatingwith an “expected loss” model, resulting in the earlier recognition of credit losses based on current expected credit losses foreven if the risk of loss is remote. This standard applies to financial assets measured at amortized cost and certain types of financialother instruments, including loans receivable held-to-maturity debt securities, and net investments in direct financing leases. This standard does not apply to receivables arising from operating leases, amongst other financial instruments. ASU 2016-13 also modifieswhich are within the impairment model for available-for-sale debt securities and expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for losses. ASU 2016-13 will be effective for public business entities in fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early applicationscope of the guidance permitted. Topic 842.
We are in the process of evaluating the impact of adoptingadopted ASU 2016-13 on January 1, 2020 using the modified retrospective method, under which we recorded a cumulative-effect adjustment as a charge to retained earnings of $6.9 million, which is reflected within our condensed consolidated financial statements.statement of equity.
The allowance for credit losses, which is recorded as a reduction to Net investments in direct financing leases on our condensed consolidated balance sheets, was measured using a probability of default method based on the lessees’ respective credit ratings, and the expected value of the underlying collateral upon its repossession. Included in our model are factors that incorporate forward-looking information (Note 5).
In August 2016,March 2020, the FASB issued ASU 2016-15, Statement2020-04, Reference Rate Reform (Topic 848): Facilitation of Cash Flows (Topic 230): Classificationthe Effects of Certain Cash ReceiptsReference Rate Reform on Financial Reporting. ASU 2020-04 contains practical expedients for reference rate reform-related activities that impact debt, leases, derivatives, and Cash Payments.other contracts. The guidance in ASU 2016-15 intends2020-04 is optional and may be elected over time as reference rate reform activities occur. During the first quarter of 2020, we elected to reduce diversity in practiceapply the hedge accounting expedients related to probability and the assessments of effectiveness for certainfuture London Interbank Offered Rate (“LIBOR”) indexed cash flow classifications, including, but not limitedflows to (i) debt prepayment or debt extinguishment costs, (ii) contingent consideration payments made after a business combination, (iii) proceeds fromassume that the settlement of insurance claims, and (iv) distributions received from equity method investees. ASU 2016-15index upon which future hedged transactions will be effective for public business entities in fiscal years beginning after December 15, 2017, including interim periods within those fiscal years,based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with early application of the guidance permitted. We are in the process of evaluating the impact of adopting ASU 2016-15 on our consolidated financial statements and will retrospectively adopt the standard for the fiscal year beginning January 1, 2018.
In October 2016, the FASB issued ASU 2016-17, Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control. ASU 2016-17 changes how a reporting entity that is a decision maker should consider indirect interests in a VIE held through an entity under common control. If a decision maker must evaluate whether it is the primary beneficiary of a VIE, it will only need to consider its proportionate indirect interest in the VIE held through a common control party. ASU 2016-17 amends ASU 2015-02, which we adopted on January 1, 2016, and which currently directs the decision maker to treat the common control party’s interest in the VIE as if the decision maker held the interest itself. ASU 2016-17 is effective for public business entities in fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. We adopted ASU 2016-17 as of January 1, 2017 on a prospective basis.past presentation. The adoption of this standard did not have a material impact on our condensed consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. ASU 2016-18 intends to reduce diversity in practice for the classification and presentation of changes in restricted cash on the statement of cash flows. ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 will be effective for public business entities in fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. We are in the process of evaluating the impact of adopting ASU 2016-18 on our consolidated financial statements and will retrospectively adopt the standard for the fiscal year beginning January 1, 2018.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. ASU 2017-01 intends to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Under the current implementation guidance in Topic 805, there are three elements of a business: inputs, processes, and outputs. While an integrated set of assets and activities, collectively referred to as a “set,” that is a business usually has outputs, outputs are not required to be present. ASU 2017-01 provides a screen to determine when a set is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. ASU 2017-01 will be effective for public business entities in fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. We elected to early adopt ASU 2017-01 on January 1, 2017 on a prospective basis. While our acquisitions have historically been classified as either business combinations or asset acquisitions, certain acquisitions that were classified as business combinations by us likely would have been considered asset acquisitions under the new standard. As a result, transaction costs are more likely to be capitalized since we expect most of our future acquisitions to be classified as asset acquisitions under this new standard. In addition, goodwill that was previously allocated to businesses that were sold or held for sale will no longer be allocated and written off upon sale if future sales were deemed to be sales of assets and not businesses.
CPA®:CPA:18 – Global 9/6/30/20172020 10-Q– 1012
Notes to Condensed Consolidated Financial Statements (Unaudited)
In January 2017, the FASB issued ASU 2017-04, Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 removes step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. ASU 2017-04 will be effective for public business entities in fiscal years beginning after December 15, 2019, including interim periods within those fiscal years in which a goodwill impairment test is performed, with early adoption permitted. We adopted ASU 2017-04 as of April 1, 2017 on a prospective basis. The adoption of this standard did not have a material impact on our consolidated financial statements.
In February 2017, the FASB issued ASU 2017-05, Other Income — Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20). ASU 2017-05 clarifies that a financial asset is within the scope of Subtopic 610-20 if it meets the definition of an in substance nonfinancial asset. The amendments define the term “in substance nonfinancial asset,” in part, as a financial asset promised to a counterparty in a contract if substantially all of the fair value of the assets (recognized and unrecognized) that are promised to the counterparty in the contract is concentrated in nonfinancial assets. If substantially all of the fair value of the assets that are promised to the counterparty in a contract is concentrated in nonfinancial assets, then all of the financial assets promised to the counterparty are in substance nonfinancial assets within the scope of Subtopic 610-20. This amendment also clarifies that nonfinancial assets within the scope of Subtopic 610-20 may include nonfinancial assets transferred within a legal entity to a counterparty. For example, a parent company may transfer control of nonfinancial assets by transferring ownership interests in a consolidated subsidiary. ASU 2017-05 is effective for periods beginning after December 15, 2017, with early application permitted for fiscal years beginning after December 15, 2016. We are in the process of evaluating the impact of ASU 2017-05 on our consolidated financial statements and will adopt the standard for the fiscal year beginning January 1, 2018.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. ASU 2017-12 will make more financial and nonfinancial hedging strategies eligible for hedge accounting. It also amends the presentation and disclosure requirements and changes how companies assess hedge effectiveness. It is intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. ASU 2017-12 will be effective in fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. We are in the process of evaluating the impact of adopting ASU 2017-12 on our consolidated financial statements.
Note 3. Agreements and Transactions with Related Parties
Transactions with Our Advisor
We have an advisory agreement with our Advisor whereby our Advisor performs certain services for us under a fee arrangement, including the identification, evaluation, negotiation, purchase, day-to-day management, and disposition of real estate and related assets and mortgage loans; day-to-day management; and the performance of certain administrative duties.loans. We also reimburse our Advisor for general and administrative duties performed on our behalf. The advisory agreement has a term of one year and may be renewed for successive one-year periods. We may terminate the advisory agreement upon 60 days’days written notice without cause or penalty.
On July 16, 2020, we entered into a $25.0 million unsecured revolving line of credit with WPC (Note 13). The line of credit bears an interest rate equal to LIBOR plus 1.05%, and is currently scheduled to mature on January 16, 2021. As of the date of this Report, we have not drawn on the line of credit.
CPA®:18 – Global 9/30/2017 10-Q– 11
Jointly Owned Investments and Other Transactions with our Affiliates
Notes
As of June 30, 2020, we owned interests ranging from 50% to Consolidated Financial Statements (Unaudited)100% in jointly owned investments, with the remaining interests held by affiliates or by third parties. Since no other parties hold any rights that supersede our control, we consolidate all of these joint ventures, with the exception of our sole equity investment (Note 4), which we account for under the equity method of accounting.
The following tables present a summary of fees we paid, expenses we reimbursed, and distributions we made to our Advisor and other affiliates in accordance with the terms of the relevant agreements (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Amounts Included in the Condensed Consolidated Statements of Operations | | | | | | | |
Asset management fees | $ | 2,878 |
| | $ | 2,859 |
| | $ | 5,880 |
| | $ | 5,727 |
|
Available Cash Distributions | 2,029 |
| | 2,105 |
| | 3,945 |
| | 3,953 |
|
Personnel and overhead reimbursements | 606 |
| | 783 |
| | 1,331 |
| | 1,581 |
|
Interest expense on deferred acquisition fees and external joint venture loans | 133 |
| | 128 |
| | 256 |
| | 255 |
|
Disposition fees | — |
| | — |
| | — |
| | 1,117 |
|
| $ | 5,646 |
| | $ | 5,875 |
| | $ | 11,412 |
| | $ | 12,633 |
|
| | | | | | | |
Acquisition Fees Capitalized | | | | | | | |
Current acquisition fees | $ | — |
| | $ | — |
| | $ | 110 |
| | $ | 695 |
|
Deferred acquisition fees | — |
| | — |
| | 88 |
| | 555 |
|
Capitalized personnel and overhead reimbursements | — |
| | — |
| | 70 |
| | 89 |
|
| $ | — |
| | $ | — |
| | $ | 268 |
| | $ | 1,339 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Amounts Included in the Consolidated Statements of Operations | | | | | | | |
Asset management fees | $ | 2,902 |
| | $ | 2,547 |
| | $ | 8,378 |
| | $ | 7,424 |
|
Available Cash Distributions | 2,196 |
| | 1,662 |
| | 6,057 |
| | 5,319 |
|
Personnel and overhead reimbursements | 768 |
| | 601 |
| | 2,337 |
| | 2,210 |
|
Interest expense on deferred acquisition fees, interfund loan, and accretion of interest on annual distribution and shareholder servicing fee | 163 |
| | 203 |
| | 783 |
| | 631 |
|
Director compensation | 152 |
| | 152 |
| | 258 |
| | 259 |
|
Acquisition expenses | — |
| | — |
| | — |
| | 3,484 |
|
| $ | 6,181 |
| | $ | 5,165 |
| | $ | 17,813 |
| | $ | 19,327 |
|
| | | | | | | |
Acquisition Fees Capitalized | | | | | | | |
Current acquisition fees | $ | 250 |
| | $ | 1,166 |
| | $ | 1,643 |
| | $ | 2,987 |
|
Deferred acquisition fees | 200 |
| | 933 |
| | 1,314 |
| | 2,390 |
|
Personnel and overhead reimbursements | 196 |
| | 35 |
| | 380 |
| | 283 |
|
| $ | 646 |
| | $ | 2,134 |
| | $ | 3,337 |
| | $ | 5,660 |
|
The following table presents a summary of amounts included in Due to affiliateaffiliates in the condensed consolidated financial statements (in thousands):
|
| | | | | | | |
| June 30, 2020 | | December 31, 2019 |
Due to Affiliates | | | |
External joint venture loans, accounts payable, and other (a) | $ | 6,336 |
| | $ | 5,951 |
|
Deferred acquisition fees, including accrued interest | 2,614 |
| | 4,456 |
|
Asset management fees payable | 1,122 |
| | 961 |
|
Current acquisition fees | 118 |
| | 8 |
|
| $ | 10,190 |
| | $ | 11,376 |
|
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Due to Affiliate | | | |
Loan from WPC, including accrued interest | $ | 19,508 |
| | $ | 27,580 |
|
Deferred acquisition fees, including accrued interest | 5,944 |
| | 15,305 |
|
Accounts payable and other | 2,596 |
| | 2,454 |
|
Asset management fees payable | 967 |
| | 866 |
|
Current acquisition fees | 248 |
| | 84 |
|
Shareholder servicing fee liability | — |
| | 7,422 |
|
| $ | 29,263 |
| | $ | 53,711 |
|
___________
Loans from WPC
In July 2016, our board of directors and the board of directors of WPC approved unsecured loans from WPC to us, at the sole discretion of WPC’s management, of up to $50.0 million in the aggregate, at a rate equal to the rate at which WPC can borrow funds under its senior credit facility, for acquisition funding purposes.
On October 31, 2016, we borrowed $27.5 million from WPC to partially finance a new investment, and that amount remained outstanding at December 31, 2016. The annual interest rate equaled London Interbank Offered Rate, or LIBOR, as of the loan date plus 1.1% through February 22, 2017. After that date, the annual interest rate equaled LIBOR plus 1.0%, reflecting the lower rate available under WPC’s amended and restated senior credit facility. The scheduled maturity date of the loan was October 31, 2017.
On May 15, 2017, we borrowed an additional $11.2 million from WPC to partially finance the final payment to the developer for a build-to-suit project in Eindhoven, the Netherlands (Note 4). The scheduled maturity date of the loan is May 15, 2018.
CPA®:CPA:18 – Global 9/6/30/20172020 10-Q– 1213
Notes to Condensed Consolidated Financial Statements (Unaudited)
| |
(a) | Includes loans from our joint venture partners to the jointly owned investments that we consolidate. As of June 30, 2020 and December 31, 2019, loans due to our joint venture partners, including accrued interest, were $4.7 million and $4.6 million, respectively. |
During the nine months ended September 30, 2017, we repaid $19.7 million to WPC, and as a result, a total of $19.5 million remained outstanding, including accrued interest, to WPC at September 30, 2017. Subsequent to September 30, 2017, we repaid the remaining $19.5 million of loans outstanding to WPC, including accrued interest (Note 13).
Asset Management Fees
Pursuant to the advisory agreement, our Advisor is entitled to an annual asset management fee ranging from 0.5% to 1.5%, depending on the type of investment and based on the average market value or average equity value, as applicable, of our investments. Asset management fees are payable in cash and/or shares of our Class A common stock, at our option, afterboard of directors’ election in consultation with our Advisor. IfFor any portion of fees our Advisor receives all or a portion of its fees in shares, the number of shares issued is determined by dividing the dollar amount of fees by our most recently published estimated net asset value per share or NAV,(“NAV”) per Class A share, which was $8.24$8.29 as of June 30, 2017. For the three and nine months ended September 30, 2017,March 31, 2020. Effective January 1, 2019, our Advisor receivedagreed to receive 50% of the asset management fees in shares of our Class A common stock and 50% in cash. Effective April 1, 2020, our Advisor agreed to receive all of its asset management fees in shares of our Class A common stock. At SeptemberAs of June 30, 2017,2020, our Advisor owned 3,266,7236,211,580 shares, or 2.3%4.1%, of our outstanding Class A common stock outstanding.stock. Asset management fees are included in Property expenses, excluding reimbursable tenant costs in the condensed consolidated financial statements.
Annual Distribution and Shareholder Servicing Fee
Carey Financial LLC, or Carey Financial, the former broker-dealer subsidiary of our Advisor, received an annual distribution and shareholder servicing fee from us in connection with our Class C common stock, which it may have re-allowed to selected dealers. The amount of the annual distribution and shareholder servicing fee is 1.0% of the most recently published NAV of our Class C common stock. The annual distribution and shareholder servicing fee accrues daily and is payable quarterly in arrears. We will no longer incur the annual distribution and shareholder servicing fee beginning on the date at which, in the aggregate, underwriting compensation from all sources, including the annual distribution and shareholder servicing fee, any organizational and offering fee paid for underwriting and underwriting compensation paid by WPC and its affiliates, reaches 10.0% of the gross proceeds from our initial public offering, which it had not yet reached as of September 30, 2017. At December 31, 2016, the liability balance related to this fee was $7.4 million and was recorded within Due to affiliate in the consolidated financial statements to reflect the present value of the estimated future payments of the annual distribution and shareholder servicing fee. Beginning with the payment for the third quarter of 2017, paid during the first month of the fourth quarter, the annual distribution and shareholder servicing fees will be paid directly to selected dealers rather than through Carey Financial. There is no change in the amount of the distribution and shareholder servicing fees that we incur. As of September 30, 2017, the remaining liability balance of $6.1 million was due directly to the selected dealers and accordingly, we have reclassified the balance from Due to affiliate to Accounts payable, accrued expenses and other liabilities in the consolidated financial statements.
Acquisition and Disposition Fees
Our Advisor receives acquisition fees, a portion of which is payable upon acquisition, while the remaining portion is subordinated to a preferred return of a non-compounded cumulative distribution of 5.0% per annum (based initially on our invested capital). The initial acquisition fee and subordinated acquisition fee are 2.5% and 2.0%, respectively, of the aggregate total cost of our portion of each investment for all investments, other than those in readily marketable real estate securities purchased in the secondary market, for which our Advisor will not receive any acquisition fees. Deferred acquisition fees are scheduled to be paid in three3 equal annual installments following the quarter in which a property was purchased and are subject to the preferred return described above. The preferred return was achieved as of the periods ended SeptemberJune 30, 20172020 and December 31, 2016.2019. The preferred return will continue to be assessed on a cumulative basis for the remainder of the fiscal year. Unpaid installments of deferred acquisition fees are included in Due to affiliateaffiliates in the condensed consolidated financial statements and bear interest at an annual rate of 2.0%. The cumulative total acquisition costs, including acquisition fees paid to the advisor,Advisor, may not exceed 6.0% of the aggregate contract purchase price of all investments, which is measured at the end of each year.
In addition, pursuantprior to the advisory agreement,January 1, 2020, our Advisor may bewas entitled to receive a disposition fee equal to the lesser of (i) 50.0% of the competitive real estate commission (as defined in the advisory agreement) or (ii) 3.0% of the contract sales price of the investment being sold. These fees arewere paid at the discretion of our board of directors. Effective January 1, 2020, the Advisor has waived its right to disposition fees with respect to sales and dispositions of single investments and portfolios of investments. The Advisor may still be entitled to disposition fees in connection with a transaction or series of transactions related to a merger, liquidation, or other event, at the discretion of our board of directors.
CPA®:18 – Global 9/30/2017 10-Q– 13
Notes to Consolidated Financial Statements (Unaudited)
Personnel and Overhead Reimbursements
Under the terms of the advisory agreement, our Advisor allocates a portion of its personnel and overhead expenses to us and the other entities that are managed by WPC and its affiliates, including Corporate Property Associates 17 – Global,which as of June 30, 2020 included Carey European Student Housing Fund I L.P (WPC’s advisory agreements with Carey Watermark Investors Incorporated and Carey Watermark Investors 2 Incorporated and Carey European Housing Fund I L.P., which are collectively referredwere terminated on April 13, 2020).
CPA:18 – Global 6/30/2020 10-Q– 14
Notes to as the Managed Programs. Prior to September 11, 2017,Condensed Consolidated Financial Statements (Unaudited)
We reimburse our Advisor alsofor the allocated a portioncosts of its personnel and overhead expenses to Carey Credit Income Fund (now known as Guggenheim Credit Income Fund). Our Advisor allocates these expenses to us on the basis ofin managing our trailing four quarters of reported revenues in comparison to those of WPCday-to-day operations, including accounting services, stockholder services, corporate management, and other entities managed by WPCproperty management and its affiliates.
Weoperations. In addition, we reimburse our Advisor for various expenses it incurs in the course of providing services to us. We reimburse certain third-party expenses paid by our Advisor on our behalf, including property-specific costs, professional fees, and office expenses, and business development expenses. In addition, we reimburse our Advisor for the allocated costs of personnel and overhead in managing our day-to-day operations, including accounting services, stockholder services, corporate management, and property management and operations. We do not reimburse our Advisor for salaries and benefits paid to our named executive officers or for the cost of personnel if these personnelthat provide services for transactions for whichwhere our Advisor receives a transaction fee such(such as for acquisitions and dispositions.dispositions). Under the advisory agreement, currently in place, the amount of applicable personnel costs allocated to us wasis capped at 2.2% and 2.0%1.0% of our pro rata leasetotal revenues for 2016each of 2020 and 2017, respectively.2019. Our Advisor allocates overhead expenses to us based upon the percentage that our full-time employee equivalents comprised of the Advisor’s total full-time employee equivalents. Costs related to our Advisor’s legal transactions group are based on a schedule of expenses relating to services performed for different types of transactions, such as financing, lease amendments, and dispositions, among other categories, and includes 0.25% of the total investment cost of an acquisition.categories. In general, personnel and overhead reimbursements are included in General and administrative expenses in the condensed consolidated financial statements. However, we capitalize certain of the costs related to our Advisor’s legal transactions group if the costs relate to a transaction that is not considered to be a business combination.
Excess Operating Expenses
Our Advisor is obligated to reimburse us for the amount by which our operating expenses exceeds the “2%/25% guidelines” (the greater of 2% of average invested assets or 25% of net income) as defined in the advisory agreement for any 12-month period, subject to certain conditions. For the most recent trailing four trailing quarters, our operating expenses were below this threshold.
Available Cash Distributions
WPC’s interest in the Operating Partnership entitles it to receive distributions of up to 10.0% of the available cash generated by the Operating Partnership referred to as (“the Available Cash Distribution,Distribution”), which is defined as cash generated from operations, excluding capital proceeds, as reduced by operating expenses and debt service, excluding prepayments and balloon payments. Available Cash Distributions are included in Net income attributable to noncontrolling interests in the condensed consolidated financial statements.
Jointly Owned Investments and Other Transactions with our Affiliates
At September 30, 2017, we owned interests ranging from 50% to 97% in jointly owned investments, with the remaining interests held by affiliates or by third parties. We consolidate all of these joint ventures with exception to our sole equity investment (Note 4), which we account for under the equity method of accounting. Additionally, no other parties hold any rights that overcome our control. We account for the minority share of these investments as noncontrolling interests.
CPA®:18 – Global 9/30/2017 10-Q– 14
Notes to Consolidated Financial Statements (Unaudited)
Note 4. Real Estate, Operating Real Estate, Real Estate Under Construction, and Equity Investment in Real Estate
Real Estate — Land, Buildings and Improvements
Real estate, which consists of land and buildings leased to others, at cost, and which are subject to operating leases, is summarized as follows (in thousands):
|
| | | | | | | |
| June 30, 2020 | | December 31, 2019 |
Land | $ | 193,353 |
| | $ | 196,693 |
|
Buildings and improvements | 992,285 |
| | 1,003,952 |
|
Less: Accumulated depreciation | (148,173 | ) | | (135,922 | ) |
| $ | 1,037,465 |
| | $ | 1,064,723 |
|
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Land | $ | 203,918 |
| | $ | 173,184 |
|
Buildings and improvements | 1,042,895 |
| | 817,626 |
|
Less: Accumulated depreciation | (79,998 | ) | | (55,980 | ) |
| $ | 1,166,815 |
| | $ | 934,830 |
|
During the nine months ended September 30, 2017, the U.S. dollar weakened against the euro, as the end-of-period rate for the U.S. dollar in relation to the euro increased by 12.0% to $1.1806 from $1.0541. As a result, theThe carrying value of our Real estateEstate — land,Land, buildings and improvements increaseddecreased by $64.4$19.4 million from December 31, 20162019 to SeptemberJune 30, 2017.2020, reflecting the impact of exchange rate fluctuations during the same period (Note 2).
Depreciation expense, including the effect of foreign currency translation, on our real estate was $7.5$7.3 million and $6.5$7.4 million for the three months ended SeptemberJune 30, 20172020 and 2016,2019, respectively, and $20.5$14.4 million and $19.3$14.9 million for the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, respectively.
Acquisition of Real Estate During 2017
On March 14, 2017, we acquired a 90% controlling interest in a warehouse facility in Iowa City, Iowa, which was deemedCPA:18 – Global 6/30/2020 10-Q– 15
Notes to
be an asset acquisition, at a total cost of $8.2 million, including net lease intangibles of $1.6 million (Note 6) and acquisition-related costs of $0.4 million that were capitalized. The seller retained a 10% interest in the property, which is the equivalent of $0.8 million of the purchase price.Condensed Consolidated Financial Statements (Unaudited)
Operating Real Estate — Land, Buildings and Improvements
Operating real estate, which consists of our self-storage and multi-familystudent housing properties at cost,(not subject to net lease agreements), is summarized as follows (in thousands): |
| | | | | | | |
| June 30, 2020 | | December 31, 2019 |
Land | $ | 77,649 |
| | $ | 78,240 |
|
Buildings and improvements | 427,211 |
| | 434,245 |
|
Less: Accumulated depreciation | (64,489 | ) | | (57,237 | ) |
| $ | 440,371 |
| | $ | 455,248 |
|
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Land | $ | 106,279 |
| | $ | 105,631 |
|
Buildings and improvements | 511,211 |
| | 500,927 |
|
Less: Accumulated depreciation | (40,485 | ) | | (26,937 | ) |
| $ | 577,005 |
| | $ | 579,621 |
|
The carrying value of our Operating real estate — land, buildings and improvements increaseddecreased by $4.0$8.0 million from December 31, 20162019 to SeptemberJune 30, 2017, due to2020, reflecting the weakeningimpact of the U.S. dollar relative to foreign currenciesexchange rate fluctuations during the period.same period (Note 2).
Depreciation expense, including the effect of foreign currency translation, on our operating real estate was $4.6$3.8 million and $4.1 million for both the three months ended SeptemberJune 30, 20172020 and 2016, respectively,2019, and $13.5 million and $11.9$7.6 million for both the ninesix months ended SeptemberJune 30, 20172020 and 2016, respectively.2019.
Leases
Operating Lease Income
Lease income related to operating leases recognized and included within Lease revenues — net-leased and Lease revenues — operating real estate in the condensed consolidated statements of operations are as follows (in thousands):
CPA®: |
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Lease revenues — net-leased | | | | | | | |
Lease income — fixed (a) | $ | 21,462 |
| | $ | 25,414 |
| | $ | 39,083 |
| | $ | 50,801 |
|
Lease income — variable (b) | 4,095 |
| | 3,757 |
| | 7,877 |
| | 8,318 |
|
Total operating lease income (c) | $ | 25,557 |
| | $ | 29,171 |
| | $ | 46,960 |
| | $ | 59,119 |
|
| | | | | | | |
Lease revenues — operating real estate | | | | | | | |
Lease income — fixed | $ | 16,013 |
| | $ | 16,639 |
| | $ | 33,315 |
| | $ | 33,280 |
|
Lease income — variable (d) | 495 |
| | 658 |
| | 1,136 |
| | 1,282 |
|
Total operating lease income | $ | 16,508 |
| | $ | 17,297 |
| | $ | 34,451 |
| | $ | 34,562 |
|
___________
| |
(a) | The six months ended June 30, 2020 includes a $7.0 million write-off of straight-line rent receivables based on our current assessment of less than 75% likelihood of collecting all remaining contractual rent on certain net lease hotels. For both the three and six months ended June 30, 2020, approximately $2.6 million of rent for these properties was not collected, and thus not recognized (Note 2). |
| |
(b) | Includes (i) rent increases based on changes in the Consumer Price Index (“CPI”) and other comparable indices and (ii) reimbursements for property taxes, insurance, and common area maintenance services. |
| |
(c) | Excludes interest income from direct financing leases of $0.6 million and $0.9 million for the three months ended June 30, 2020 and 2019, respectively, and $1.6 million and $1.9 million for the six months ended June 30, 2020 and 2019, respectively (Note 5). Approximately $0.4 million of rent for one of our tenants was not collected during the three and six months ended June 30, 2020, and thus not recognized (Note 2). Interest income from direct financing leases is included in Lease revenues — net-leased in the condensed consolidated statements of operations. |
| |
(d) | Primarily comprised of late fees and administrative fees revenues. |
CPA:18 – Global 9/6/30/20172020 10-Q– 1516
Notes to Condensed Consolidated Financial Statements (Unaudited)
Real Estate Under Construction
The following table provides the activity of our Real estate under construction (in thousands): |
| | | |
| Six Months Ended June 30, 2020 |
Beginning balance | $ | 235,751 |
|
Capitalized funds | 82,786 |
|
Placed into service | (6,065 | ) |
Capitalized interest | 4,232 |
|
Foreign currency translation adjustments | (1,212 | ) |
Ending balance | $ | 315,492 |
|
|
| | | |
| Nine Months Ended September 30, 2017 |
Beginning balance | $ | 182,612 |
|
Placed into service | (185,397 | ) |
Capitalized funds | 84,637 |
|
Foreign currency translation adjustments | 16,459 |
|
Capitalized interest | 4,102 |
|
Ending balance | $ | 102,413 |
|
Capitalized Funds
On May 17, 2017, we made our final payment to the developer for the build-to-suit project located in Eindhoven, the Netherlands for $18.7 million, which was based on the exchange rate of the euro on the date of the acquisition. The payment was included in the expected total investment amount when the first draw of the build-to-suit was funded in March 2015. Additionally, we also recorded $9.4 million of deferred tax liabilities in connection with our investment in this project. Simultaneous with the payment to the developer, the project was completed and placed into service.
During the nine months ended September 30, 2017, construction commenced on one of our previous build-to-suit investments (Note 5). The net investment of $10.7 million was reclassified to Real estate under construction from Net investments in direct financing leases during the nine months ended September 30, 2017.
Ghana — On February 19, 2016, we invested in a build-to-suit joint venture with a third party for a university complex development site located in Accra, Ghana. As of September 30, 2017, total capitalized funds related to this investment were $32.5 million, inclusive of accrued construction costs of $3.1 million and the effect of recording deferred tax liabilities of $3.7 million.
At the time of the investment, the joint venture obtained third-party financing in an amount up to $41.0 million from the Overseas Private Investment Corporation (“OPIC”), a financial institution of the U.S. Government, with an estimated interest rate based on the U.S. Treasury rate plus 300 basis points. Funding of this loan is subject to the tenant obtaining a letter of credit, which to date has not occurred. Because the tenant has not obtained the required letter of credit, it is in default under its concession agreement with us, and we are currently unable to estimate when this project will be completed, if at all. As a result, as of September 30, 2017, we had no amount outstanding under this financing arrangement. If the project is completed, our total investment is expected to be approximately $65.7 million.
We have evaluated this investment for impairment and probability-weighted different possible scenarios in estimating future undiscounted cash flows, including payment from the tenant or through the insurance policy that we have with regard to the completion of this project. Because we believe there is a high probability that we will recover the full amount we have invested, we have not recorded any impairment charge in connection with this investment as of September 30, 2017, although recovery may take a period of time from the date on which a claim is filed. We will continue to monitor the investment for impairment.
During the ninesix months ended SeptemberJune 30, 2017,2020, total capitalized funds primarily related to our build-to-suit projects, which were comprised primarily of initial funding of $20.1 million and construction draws of $55.2 million. Capitalized funds includefor our student housing development projects, and includes accrued costs of $3.4$6.4 million, which is a non-cash investing activity.
Placed into Service
During the six months ended June 30, 2020, a total of $6.1 million was placed into service, primarily relating to capital investment projects at 2 of our net lease properties, which is a non-cash investing activity.
Capitalized Interest
Capitalized interest includes interest incurred during construction as well as amortization of the mortgage discount and deferred financing costs, and interest incurred during construction, which totaled $4.1$4.2 million during the ninesix months ended SeptemberJune 30, 2017 and2020, which is a non-cash investing activity.
CPA®:18 – Global 9/30/2017 10-Q– 16
Notes to Consolidated Financial Statements (Unaudited)
Placed into Service
During the nine months ended September 30, 2017, we placed into service a partially completed hotel, two build-to-suit projects, and the remaining portion of a substantially completed student-housing development, which we sold subsequent to September 30, 2017 (Note 13), totaling $185.4 million, which is a non-cash investing activity. Of that total, $182.5 million was reclassified to Real estate — land, buildings and improvements and $2.9 million to Operating real estate — land, buildings and improvements.
Ending Balance
At SeptemberAs of June 30, 2017,2020, we had four open build-to-suit12 ongoing student housing development projects, and one open build-to-suit expansion project with aggregate unfunded commitments of approximately $116.2 million.$229.7 million, excluding capitalized interest, accrued costs, and capitalized acquisition fees for our Advisor.
Ghana Settlement Update
During the six months ended June 30, 2020, the collectibility of the value added tax (“VAT”) receivable to be refunded by the Ghanaian government was no longer deemed probable. As such, we recorded a $2.8 million loss to write-off the VAT receivable during the six months ended June 30, 2020, which is included within Other gains and (losses) on our condensed consolidated statements of operations.
Subsequent to June 30, 2020, in relation to the ongoing litigation with the joint venture partner on our previously owned Ghana investment, the arbitrator issued a final decision and awarded the joint venture partner $2.6 million in damages. Since this is a recognized subsequent event, we have recorded an additional noncontrolling interest payable amount of $1.4 million during the three months ended June 30, 2020, bringing the total noncontrolling interest payable to $2.6 million as of June 30, 2020 (Note 13).
Equity Investment in Real Estate
We classify distributions received from equity method investments using the cumulative earnings approach. Distributions received are considered returns on the investment and classified as cash inflows from operating activities. If, however, the investor’s cumulative distributions received, less distributions received in prior periods determined to be returns of investment, exceeds cumulative equity in earnings recognized, the excess is considered a return of investment and is classified as cash inflows from investing activities.
CPA:18 – Global 6/30/2020 10-Q– 17
Notes to Condensed Consolidated Financial Statements (Unaudited)
We have an interest in an unconsolidated investment in our Self Storage segment that relates to a joint venture for the development of four3 self-storage facilities in Canada. This investment isentity was jointly owned with a third party, which is also the general partner.partner of the joint venture. Our ownership and economic interest in the joint venture is 90%; the joint-venture partner is funding its equity interest with the distributions they are eligible100%. We continue to receive upon the properties being placed into service. As of September 30, 2017, the joint-venture partner had not funded their 10% equity interest. We do not consolidate this entity because we are not the primary beneficiary due to shared decision making with the general partner and the nature of our involvement in the activities, of the entitywhich allows us to exercise significant influence, but does not give us power over decisions that significantly affect the economic performance of the entity.
On January 26, 2017, the joint venture purchased a vacant parcelAs of land in Toronto, Ontario for $5.1 million, which is based on the exchange rate of the Canadian dollar at the date of acquisition. This parcel of land will be the site of our fourth self-storage development in Canada as a part of this joint venture.
During the nine months ended SeptemberJune 30, 2017, we commenced operations in two Canadian self-storage facilities upon the completion of distinct phases of the overall development, and as a result, placed $9.3 million and $10.1 million of the total amounts for these projects into service. During the three and nine months ended September 30, 2017, we incurred losses of $0.3 million and $0.7 million, respectively, relating to these distinct phases of the projects, which are included in Equity in losses of equity method investment in real estate on our consolidated financial statements.
At September 30, 20172020 and December 31, 2016,2019, our total equity investment balance for these self-storage properties was $21.2$13.8 million and $14.7$14.9 million, respectively, which is included in Accounts receivable and other assets, net in the condensed consolidated financial statements. As of June 30, 2020 and December 31, 2019, the joint venture had total third-party recourse debt of $20.3$30.3 million and $13.8$32.2 million, respectively.
Equity Investment Debt Covenants
At SeptemberJune 30, 2017,2020, we were in breach of debt yield covenants on loans for 2 self-storage properties accounted for as equity investments. As a result of the unfunded commitmentsbreaches, the lender has the right to require us to make principal reduction payments of $1.8 million and $0.7 million for these build-to-suit projects totaled approximately $28.2 million.the respective loans. As of the date of this Report, the lender has not requested any principal reduction payments be made.
CPA®:18 – Global 9/30/2017 10-Q– 17
Notes to Consolidated Financial Statements (Unaudited)
Note 5. Finance Receivables
Assets representing rights to receive money on demand or at fixed or determinable dates are referred to as finance receivables. Our finance receivables portfolio consists of our Notesnotes receivable (which are included in Accounts receivable and other assets, net in the condensed consolidated financial statements) and our Net investments in direct financing leases.leases (net of allowance for credit losses). Operating leases are not included in finance receivables as such amounts are not recognized as an asset in the consolidated financial statements.receivables.
Notes Receivable
Our NotesAs of June 30, 2020, our notes receivable at both September 30, 2017 and December 31, 2016 consistconsisted of a $28.0 million mezzanine tranche of 10-year commercial mortgage-backed securities on the Cipriani banquet halls in New York, New York with a maturity date of July 2024. The mezzanine tranche is subordinated to a $60.0 million senior loan on the properties. Interest-only payments at a rate of 10% per annum are due through its maturity date. As of both June 30, 2020 and a $38.5 million mezzanine loan collateralized by 27 retail stores in Minnesota, Wisconsin, and Iowa leased to Mills Fleet Farm Group LLC. We have and will continue to receive interest-only payments on each of these loans through maturity in July 2024 and October 2018, respectively. As a result,December 31, 2019, the balance for the receivables at September 30, 2017this note receivable remained $28.0 million. On July 28, 2020, we were notified that the borrower has defaulted on the mortgage loan senior to our mezzanine tranche. We are currently evaluating our rights and options in connection with the senior loan default (Note 13).
Interest income from our notes receivables was $0.7 million and $38.5$0.8 million respectively.for the three months ended June 30, 2020 and 2019, respectively, and $1.4 million and $2.7 million for the six months ended June 30, 2020 and 2019, respectively, and is included in Other operating and interest income in our condensed consolidated statements of operations.
CPA:18 – Global 6/30/2020 10-Q– 18
Notes to Condensed Consolidated Financial Statements (Unaudited)
Net Investments in Direct Financing Leases
Net investments in our direct financing lease investments is summarized as follows (in thousands):
|
| | | | | | | |
| June 30, 2020 | | December 31, 2019 |
Lease payments receivable | $ | 53,555 |
| | $ | 55,278 |
|
Unguaranteed residual value | 39,401 |
| | 39,401 |
|
| 92,956 |
| | 94,679 |
|
Less: unearned income | (50,796 | ) | | (52,625 | ) |
Less: allowance for credit losses (a) | (11,768 | ) | | — |
|
| $ | 30,392 |
| | $ | 42,054 |
|
___________
| |
(a) | Upon our adoption of ASU 2016-13 on January 1, 2020, we applied changes in loss reserves through a cumulative-effect adjustment to retained earnings totaling $6.9 million (Note 2). In addition, during the six months ended June 30, 2020, due to changes in expected economic conditions, we recorded an allowance for credit losses of $4.9 million, which was included in Allowance for credit losses in our condensed consolidated statements of operations. |
Interest income from direct financing leases was $0.9$0.6 million and $1.1$0.9 million for the three months ended SeptemberJune 30, 20172020 and 2016,2019, respectively, and $2.8$1.6 million and $3.5$1.9 million for the ninesix months ended SeptemberJune 30, 20172020 and 2016, respectively.2019, respectively, and is included in Lease revenues — net-leased in our condensed consolidated statements of operations.
In 2015, we invested in a joint venture with a third party to purchase an office building located in Cardiff, United Kingdom to be redeveloped into student-housing. The existing tenant vacated the building on January 31, 2017. Upon lease termination, construction commenced, and the net investment of $10.7 million was reclassified to Real estate under construction during the nine months ended September 30, 2017 (Note 4).
Credit Quality of Finance Receivables
We generally seek investmentsinvest in facilities that we believe are critical to a tenant’s business and therefore have a lowlower risk of tenant default. At both September 30, 2017 andDue to changes in expected economic conditions, we recorded an allowance for credit losses (as noted above). As of December 31, 2016,2019, we had no significant finance receivable balances that were past due and we had not established any allowances for credit losses.due. Additionally, there were no material modifications of finance receivables during the ninesix months ended SeptemberJune 30, 2017. 2020.
We evaluate the credit quality of our finance receivables utilizing an internal five-point credit rating scale, with one representing the highest credit quality and five representing the lowest. A credit quality of one through three indicates a range of investment grade to stable. A credit quality of four through five indicates inclusion on the watch list to risk of default. The credit quality evaluation of our finance receivables was lastis updated in the third quarter of 2017.quarterly.
A summary of our finance receivables by internal credit quality rating is as follows (dollars in thousands):
|
| | | | | | | | | | | | |
| | Number of Tenants/Obligors at | | Carrying Value at |
Internal Credit Quality Indicator | | June 30, 2020 | | December 31, 2019 | | June 30, 2020 | | December 31, 2019 |
1 – 3 | | 3 | | 4 | | $ | 16,956 |
| | $ | 45,457 |
|
4 | | 2 | | 1 | | 41,436 |
| | 24,597 |
|
5 | | — | | — | | — |
| | — |
|
| | 0 | | | | $ | 58,392 |
| | $ | 70,054 |
|
|
| | | | | | | | | | | | |
| | Number of Tenants/Obligors at | | Carrying Value at |
Internal Credit Quality Indicator | | September 30, 2017 | | December 31, 2016 | | September 30, 2017 | | December 31, 2016 |
1 | | — | | 1 | | $ | — |
| | $ | 10,516 |
|
2 | | 2 | | 1 | | 13,796 |
| | 9,154 |
|
3 | | 2 | | 2 | | 29,707 |
| | 29,679 |
|
4 | | 2 | | 3 | | 62,282 |
| | 66,747 |
|
5 | | — | | — | | — |
| | — |
|
| | 0 | | | | $ | 105,785 |
| | $ | 116,096 |
|
Note 6. Intangible Assets and Liabilities
In connection with our investment activity (Note 4) during the nine months ended September 30, 2017, we recorded In-place lease intangibles of $1.6 million that are being amortized over 14.4 years. In-place lease intangibles are included in In-place lease intangible assets in the consolidated financial statements. Below-market ground lease intangibles and above-market rent intangibles are included in OtherIn-place lease and other intangible assets in the condensed consolidated financial statements. Below-market rent intangibles and above-market ground lease intangibles are included in Accounts payable, accrued expenses and other liabilities in the condensed consolidated financial statements.
CPA®:18 – Global 9/30/2017 10-Q– 18
Notes to Consolidated Financial Statements (Unaudited)
The following table presents a reconciliation of our goodwill, whichGoodwill is included in our Net Lease reporting unit (in thousands):segment and included in Accounts receivable and other assets, net in the condensed consolidated financial statements. As a result of foreign currency translation adjustments, goodwill decreased from $26.0 million as of December 31, 2019 to $24.4 million as of June 30, 2020.
CPA:18 – Global 6/30/2020 10-Q– 19
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
| | | |
| Nine Months Ended September 30, 2017 |
Balance at January 1, 2017 | $ | 23,526 |
|
Foreign currency translation | 2,213 |
|
Other | 708 |
|
Balance at September 30, 2017 | $ | 26,447 |
|
Intangible assets and liabilities are summarized as follows (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | June 30, 2020 | | December 31, 2019 |
| Amortization Period (Years) | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Finite-Lived Intangible Assets | | | | | | | | | | | | | |
In-place lease | 6 – 23 | | $ | 235,791 |
| | $ | (136,939 | ) | | $ | 98,852 |
| | $ | 238,771 |
| | $ | (131,012 | ) | | $ | 107,759 |
|
Above-market rent | 7 – 30 | | 10,120 |
| | (4,451 | ) | | 5,669 |
| | 10,257 |
| | (4,141 | ) | | 6,116 |
|
| | | 245,911 |
| | (141,390 | ) | | 104,521 |
| | 249,028 |
| | (135,153 | ) | | 113,875 |
|
Indefinite-Lived Intangible Assets | | | | | | | | | | | | | |
Goodwill | | | 24,407 |
| | — |
| | 24,407 |
| | 26,024 |
| | — |
| | 26,024 |
|
Total intangible assets | | | $ | 270,318 |
| | $ | (141,390 | ) | | $ | 128,928 |
| | $ | 275,052 |
| | $ | (135,153 | ) | | $ | 139,899 |
|
| | | | | | | | | | | | | |
Finite-Lived Intangible Liabilities | | | | | | | | | | | | | |
Below-market rent | 6 – 30 | | $ | (14,964 | ) | | $ | 7,189 |
| | $ | (7,775 | ) | | $ | (14,974 | ) | | $ | 6,627 |
| | $ | (8,347 | ) |
Total intangible liabilities | | | $ | (14,964 | ) | | $ | 7,189 |
| | $ | (7,775 | ) | | $ | (14,974 | ) | | $ | 6,627 |
| | $ | (8,347 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, 2017 | | December 31, 2016 |
| Amortization Period (Years) | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Finite-Lived Intangible Assets | | | | | | | | | | | | | |
In-place lease | 1 - 23 | | $ | 274,174 |
| | $ | (108,482 | ) | | $ | 165,692 |
| | $ | 260,469 |
| | $ | (83,031 | ) | | $ | 177,438 |
|
Below-market ground lease | 15 - 99 | | 22,644 |
| | (1,110 | ) | | 21,534 |
| | 20,236 |
| | (706 | ) | | 19,530 |
|
Above-market rent | 3 - 30 | | 12,734 |
| | (3,343 | ) | | 9,391 |
| | 11,846 |
| | (2,320 | ) | | 9,526 |
|
| | | 309,552 |
| | (112,935 | ) | | 196,617 |
| | 292,551 |
| | (86,057 | ) | | 206,494 |
|
Indefinite-Lived Intangible Assets | | | | | | | | | | | | | |
Goodwill | | | 26,447 |
| | — |
| | 26,447 |
| | 23,526 |
| | — |
| | 23,526 |
|
Total intangible assets | | | $ | 335,999 |
| | $ | (112,935 | ) | | $ | 223,064 |
| | $ | 316,077 |
| | $ | (86,057 | ) | | $ | 230,020 |
|
| | | | | | | | | | | | | |
Finite-lived Intangible Liabilities | | | | | | | | | | | | | |
Below-market rent | 4 - 30 | | $ | (15,449 | ) | | $ | 4,255 |
| | $ | (11,194 | ) | | $ | (15,192 | ) | | $ | 3,234 |
| | $ | (11,958 | ) |
Above-market ground lease | 81 | | (109 | ) | | 4 |
| | (105 | ) | | (101 | ) | | 3 |
| | (98 | ) |
Total intangible liabilities | | | $ | (15,558 | ) | | $ | 4,259 |
| | $ | (11,299 | ) | | $ | (15,293 | ) | | $ | 3,237 |
| | $ | (12,056 | ) |
Net amortization of intangibles, including the effect of foreign currency translation, was $6.8$3.5 million and $10.3$5.9 million for the three months ended SeptemberJune 30, 20172020 and 2016,2019, respectively, and $22.4$7.0 million and $31.5$9.9 million for the ninesix months ended SeptemberJune 30, 2017 and 2016,2020, respectively. Amortization of below-market rent and above-market rent intangibles is recorded as an adjustment to Rental income; amortization of below-market and above-market ground lease intangibles is included in Property expenses; and amortization of in-place lease intangibles is included in Depreciation and amortization expense in theon our condensed consolidated financial statements.statements of operations.
Note 7. Fair Value Measurements
The fair value of an asset is defined as the exit price, which is the amount that would either be received when an asset is sold or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance establishes a three-tier fair value hierarchy based on the inputs used in measuring fair value. These tiers are: Level 1, for which quoted market prices for identical instruments are available in active markets, such as money market funds, equity securities, and U.S. Treasury securities; Level 2, for which there are inputs other than quoted prices included within Level 1 that are observable for the instrument, such as certain derivative instruments including interest rate caps, interest rate swaps, foreign currency forward contracts and foreign currency collars; and Level 3, for securities that do not fall into Level 1 or Level 2 and for which little or no market data exists, therefore requiring us to develop our own assumptions.
Items Measured at Fair Value on a Recurring Basis
The methods and assumptions described below were used to estimate the fair value of each class of financial instrument. For significant Level 3 items, we have also provided the unobservable inputs along with their weighted-average ranges.inputs.
CPA®:18 – Global 9/30/2017 10-Q– 19
Notes to Consolidated Financial Statements (Unaudited)
Derivative Assets and Liabilities — Our derivative assets and liabilities, which are included in OtherAccounts receivable and other assets, net and Accounts payable, accrued expenses and other liabilities, respectively, in the condensed consolidated financial statements, are comprised of foreign currency forward contracts, interest rate swaps, interest rate caps, and foreign currency collars (Note 8).
The valuation of our derivative instruments is determined using a discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, as well as observable market-based inputs, including interest rate curves, spot and forward rates, and implied volatilities. We incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative instruments for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. These derivative instruments were measured at fair value using readily observable market inputs, such as quotations on interest rates, and were classified as Level 2 as these instruments are custom, over-the-counter contracts with various bank counterparties that are not traded in an active market.
Derivative Liabilities — Our derivative liabilities, which are included in Accounts payable, accrued expenses and other liabilities in the consolidated financial statements, are comprised of interest rate swaps and foreign currency collars (Note 8). 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.
CPA:18 – Global 6/30/2020 10-Q– 20
Rent Guarantees — Our rent guarantees, which are included in Other assets, net in the consolidated financial statements, are relatedNotes to three of our international investments. These rent guarantees were measured at fair value using a discounted cash flow model, and were classified as Level 3 because the model uses unobservable inputs. At September 30, 2017 and December 31, 2016, our rent guarantees had a fair value of $0.8 million and $0.5 million, respectively. We determined the fair value of the rent guarantees based on an estimate of discounted cash flows using a discount rate that ranged from 7% to 9% and a growth rate that ranged from 1% to 2%, which are considered significant unobservable inputs. Significant increases or decreases to these inputs in isolation would result in a significant change in the fair value measurement. During the three and nine months ended September 30, 2017, we recognized $0.4 million and $0.9 million, respectively, of mark-to-market gains related to these rent guarantees within Other income and (expenses) on our consolidated financial statements. During the three and nine months ended September 30, 2016, we recognized $0.3 million and $1.1 million, respectively, of mark-to-market gains related to these rent guarantees within Other income and (expenses) on our consolidated financial statements.Condensed Consolidated Financial Statements (Unaudited)
We did not have any transfers into or out of Level 1, Level 2, and Level 3 measurements during the three and ninesix months ended SeptemberJune 30, 20172020 and 2016.2019. 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 condensed consolidated financial statements.
Our other financial instruments had the following carrying values and fair values as of the dates shown (dollars in thousands):
| | | | | September 30, 2017 | | December 31, 2016 | | | June 30, 2020 | | December 31, 2019 |
| Level | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value | Level | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
Debt, net (a) (b) | 3 | | $ | 1,265,442 |
| | $ | 1,292,328 |
| | $ | 1,157,411 |
| | $ | 1,177,409 |
| |
Non-recourse secured debt, net (a) (b) | | 3 | | $ | 1,207,475 |
| | $ | 1,228,468 |
| | $ | 1,201,913 |
| | $ | 1,239,004 |
|
Notes receivable (c) | 3 | | 66,500 |
| | 68,450 |
| | 66,500 |
| | 68,450 |
| 3 | | 28,000 |
| | 30,300 |
| | 28,000 |
| | 30,300 |
|
___________
| |
(a) | Debt, net consistsAs of Non-recourse debt, net and Bonds payable, net. At both SeptemberJune 30, 20172020 and December 31, 2016,2019, the carrying value of Non-recourse secured debt, net includes unamortized deferred financing costs of $7.6 million. At both September 30, 2017$6.0 million and December 31, 2016, the carrying value$5.8 million, respectively, and unamortized premium, net of Bonds payable, net includes unamortized deferred financing costs of $0.9$2.0 million and $2.1 million, respectively (Note 9). |
| |
(b) | We determined the estimated fair value of our Non-recourse secured debt, and Bonds payablenet using a discounted cash flow model that estimates the present value of the future loan payments by discounting such payments at current estimated market interest rates. The estimated market interest rates take into account interest rate risk and the value of the underlying collateral, which includes quality of the collateral, the credit quality of the tenant/obligor, and the time until maturity. |
| |
(c) | We determined the estimated fair value of our Notes receivable using a discounted cash flow model with rates that take into account the credit of the tenant/obligor, order of payment tranches, and interest rate risk. We also considered the value of the underlying collateral, taking into account the quality of the collateral, the credit quality of the tenant/obligor, the time until maturity, and the current market interest rate. |
We estimated that our other financial assets and liabilities (excluding net investments in direct financing leases) had fair values that approximated their carrying values atas of both SeptemberJune 30, 20172020 and December 31, 2016.2019.
CPA®:18 – Global 9/30/2017 10-Q– 20
Notes to Consolidated Financial Statements (Unaudited)
Note 8. Risk Management and Use of Derivative Financial Instruments
Risk Management
In the normal course of our ongoing business operations, we encounter economic risk. There are four main components of economic risk that impact us: interest rate risk, credit risk, market risk, and foreign currency risk. We are primarily subject to interest rate risk on our interest-bearing liabilities. Credit risk is the risk of default on our operations and our tenants’ inability or unwillingness to make contractually required payments. Market risk includes changes in the value of our properties and related loans, as well as changes in the value of our other investments due to changes in interest rates or other market factors. We own international investments, primarily in Europe, and are subject to risks associated with fluctuating foreign currency exchange rates.
Derivative Financial Instruments
When we use derivative instruments, it is generally to 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. The primary risks related to our use of derivative 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 valuepolicies from what was disclosed in the 2019 Annual Report. As of both June 30, 2020 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 change in its 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. At both September 30, 2017 and December 31, 2016, no2019, 0 cash collateral had been posted or received for any of our derivative positions.
CPA®:CPA:18 – Global 9/6/30/20172020 10-Q– 21
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table sets forth certain information regarding our derivative instruments (in thousands):
| | Derivatives Designated as Hedging Instruments | | Balance Sheet Location | | Asset Derivatives Fair Value at | | Liability Derivatives Fair Value at | | Balance Sheet Location | | Derivative Assets Fair Value at | | Derivative Liabilities Fair Value at |
| | September 30, 2017 | | December 31, 2016 | | September 30, 2017 | | December 31, 2016 | | | June 30, 2020 | | December 31, 2019 | | June 30, 2020 | | December 31, 2019 |
Foreign currency collars | | | Accounts receivable and other assets, net | | $ | 1,795 |
| | $ | 1,444 |
| | $ | — |
| | $ | — |
|
Foreign currency forward contracts | | Other assets, net | | $ | 2,721 |
| | $ | 5,502 |
| | $ | — |
| | $ | — |
| | Accounts receivable and other assets, net | | 368 |
| | 861 |
| | — |
| | — |
|
Interest rate caps | | | Accounts receivable and other assets, net | | 32 |
| | 116 |
| | — |
| | — |
|
Interest rate swaps | | Other assets, net | | 329 |
| | 393 |
| | — |
| | — |
| | Accounts receivable and other assets, net | | — |
| | 53 |
| | — |
| | — |
|
Foreign currency collars | | Other assets, net | | 111 |
| | 1,284 |
| | — |
| | — |
| |
Interest rate caps | | Other assets, net | | 1 |
| | 1 |
| | — |
| | — |
| |
Foreign currency collars | | Accounts payable, accrued expenses and other liabilities | | — |
| | — |
| | (2,648 | ) | | (33 | ) | |
Interest rate swaps | | Accounts payable, accrued expenses and other liabilities | | — |
| | — |
| | (1,104 | ) | | (1,151 | ) | | Accounts payable, accrued expenses and other liabilities | | — |
| | — |
| | (4,588 | ) | | (1,991 | ) |
| | | 2,195 |
| | 2,474 |
| | (4,588 | ) | | (1,991 | ) |
Derivatives Not Designated as Hedging Instruments | | | | | | | | | | | | | | | | |
Foreign currency collars | | Accounts payable, accrued expenses and other liabilities | | — |
| | — |
| | (321 | ) | | — |
| |
Total | | $ | 3,162 |
| | $ | 7,180 |
| | $ | (4,073 | ) | | $ | (1,184 | ) | |
Interest rate swap | | | Accounts payable, accrued expenses and other liabilities | | — |
| | — |
| | (34 | ) | | (48 | ) |
| | | — |
| | — |
| | (34 | ) | | (48 | ) |
Total derivatives | | | $ | 2,195 |
| | $ | 2,474 |
| | $ | (4,622 | ) | | $ | (2,039 | ) |
The following tables present the impact of our derivative instruments in the condensed consolidated financial statements (in thousands):
|
| | | | | | | | | | | | | | | | |
| | Amount of Loss Recognized on Derivatives in Other Comprehensive Income (Loss) |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
Derivatives in Cash Flow Hedging Relationships | | 2020 | | 2019 | | 2020 | | 2019 |
Foreign currency collars | | $ | (640 | ) | | $ | (84 | ) | | $ | 500 |
| | $ | 721 |
|
Foreign currency forward contracts | | (286 | ) | | (361 | ) | | (493 | ) | | (518 | ) |
Interest rate swaps | | (33 | ) | | (1,528 | ) | | (2,650 | ) | | (2,415 | ) |
Interest rate caps | | 15 |
| | 2 |
| | (124 | ) | | 3 |
|
Derivatives in Net Investment Hedging Relationship (a) | | | | | | | | |
Foreign currency collars | | (20 | ) | | (19 | ) | | 129 |
| | (18 | ) |
Foreign currency forward contracts | | — |
| | 15 |
| | — |
| | 15 |
|
Total | | $ | (964 | ) | | $ | (1,975 | ) | | $ | (2,638 | ) | | $ | (2,212 | ) |
|
| | | | | | | | | | | | | | | | |
| | Amount of Gain (Loss) Recognized on Derivatives in Other Comprehensive Income (Loss) (Effective Portion) |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
Derivatives in Cash Flow Hedging Relationships | | 2017 | | 2016 | | 2017 | | 2016 |
Foreign currency collars | | $ | (1,376 | ) | | $ | (544 | ) | | $ | (3,990 | ) | | $ | (976 | ) |
Foreign currency forward contracts | | (819 | ) | | (750 | ) | | (2,452 | ) | | (1,739 | ) |
Interest rate swaps | | 42 |
| | 366 |
| | 12 |
| | (1,947 | ) |
Interest rate caps | | 8 |
| | — |
| | 4 |
| | (16 | ) |
Derivatives in Net Investment Hedging Relationship (a) | | | | | | | | |
Foreign currency forward contracts | | (87 | ) | | (152 | ) | | (55 | ) | | (284 | ) |
Foreign currency collars | | (87 | ) | | (14 | ) | | (259 | ) | | (22 | ) |
Total | | $ | (2,319 | ) | | $ | (1,094 | ) | | $ | (6,740 | ) | | $ | (4,984 | ) |
___________
| |
(a) | The effective portion of the changes in fair value and the settlement of these contracts isare reported in the foreign currency translation adjustment section of Other comprehensive income (loss). |
|
| | | | | | | | | | | | | | | | | | |
| | | | Amount of Gain (Loss) on Derivatives Reclassified from Other Comprehensive Income (Loss) into Income (Effective Portion) |
Derivatives 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 forward contracts | | Other income and (expenses) | | $ | 278 |
| | $ | 315 |
| | $ | 968 |
| | $ | 944 |
|
Interest rate swaps | | Interest expense | | (142 | ) | | (230 | ) | | (529 | ) | | (660 | ) |
Interest rate caps | | Interest expense | | (17 | ) | | (1 | ) | | (32 | ) | | (1 | ) |
Foreign currency collars | | Other income and (expenses) | | 16 |
| | 27 |
| | 185 |
| | 66 |
|
Total | | | | $ | 135 |
| | $ | 111 |
| | $ | 592 |
| | $ | 349 |
|
CPA®:CPA:18 – Global 9/6/30/20172020 10-Q– 22
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
| | | | | | | | | | | | | | | | | | |
| | | | Amount of Gain on Derivatives Reclassified from Other Comprehensive Income (Loss) into Income |
Derivatives in Cash Flow Hedging Relationships | | Location of Gain (Loss) Recognized in Income | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
Interest rate swaps | | Interest expense | | $ | (434 | ) | | $ | 22 |
| | $ | (613 | ) | | $ | 49 |
|
Foreign currency forward contracts | | Other gains and (losses) | | 264 |
| | 338 |
| | 542 |
| | 684 |
|
Foreign currency collars | | Other gains and (losses) | | 235 |
| | 39 |
| | 355 |
| | 50 |
|
Interest rate caps | | Interest expense | | (20 | ) | | (3 | ) | | (37 | ) | | (6 | ) |
Total | | | | $ | 45 |
| | $ | 396 |
| | $ | 247 |
| | $ | 777 |
|
Amounts reported in Other comprehensive income (loss) related to our interest rate swapsderivative contracts will be reclassified to Interest expense as interest payments are madeis incurred on our variable-rate debt. Amounts reported in Other comprehensive income (loss) related to foreign currency derivative contracts will be reclassified to Other incomegains and (expenses)(losses) when the hedged foreign currency contracts are settled. At SeptemberAs of June 30, 2017,2020, we estimated that an additional $0.6$2.0 million and $0.7$1.2 million will be reclassified as Interest expense and Other expenses,gains and (losses), respectively, during the next 12 months.
The following table presents the impact of our derivative instruments in the condensed consolidated financial statements (in thousands):
| | | | Amount of Gain (Loss) on Derivatives Recognized in Income | | Amount of Gain 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, | | Location of Gain (Loss) Recognized in Income | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2017 | | 2016 | | 2017 | | 2016 | | | 2020 | | 2019 | | 2020 | | 2019 |
Foreign currency collars | | Other income and (expenses) | | $ | (193 | ) | | $ | (11 | ) | | $ | (238 | ) | | $ | (21 | ) | | Other gains and (losses) | | $ | (90 | ) | | $ | (5 | ) | | $ | (9 | ) | | $ | 113 |
|
Interest rate swap | | | Interest expense | | 3 |
| | — |
| | 11 |
| | — |
|
Foreign currency forward contracts | | | Other gains and (losses) | | — |
| | — |
| | 7 |
| | — |
|
Derivatives in Cash Flow Hedging Relationships | | | | | | | | | |
Interest rate swaps | | Interest expense | | (21 | ) | | — |
| | (44 | ) | | — |
| | Interest expense | | 434 |
| | 13 |
| | 613 |
| | 12 |
|
Derivatives in Cash Flow Hedging Relationships | | | | | | | | | |
Interest rate swaps (a) | | Interest expense | | 7 |
| | 5 |
| | 15 |
| | 1 |
| |
Foreign currency collars | | Other income and (expenses) | | (1 | ) | | — |
| | (5 | ) | | — |
| | Other gains and (losses) | | — |
| | — |
| | — |
| | 7 |
|
Total | | $ | (208 | ) | | $ | (6 | ) | | $ | (272 | ) | | $ | (20 | ) | | $ | 347 |
| | $ | 8 |
| | $ | 622 |
| | $ | 132 |
|
__________
| |
(a) | Relates to the ineffective portion of the hedging relationship. |
Interest Rate Swaps and Caps
We are exposed to the impact of interest rate changes primarily through our borrowing activities. To limit this exposure, we attempt to obtain mortgage financing on a long-term, fixed-rate basis. However, from time to time, we or our joint investment partners have obtained, and may in the future obtain, variable-rate non-recourse variable-rate mortgage loanssecured debt and, as a result, we have entered into, and may continue to enter into interest rate swap agreements or interest rate cap agreements with counterparties. Interest rate swaps, which effectively convert the variable-rate debt service obligations of a loan to a fixed rate, are agreements in which one party exchanges a stream of interest payments for a counterparty’s stream of cash flow over a specific period. The notional, or face, amount on which the swaps are based is not exchanged. Interest rate caps limit the effective borrowing rate of variable-rate debt obligations while allowing participants to share in downward shifts in interest rates. Our objective in using these derivatives is to limit our exposure to interest rate movements.
CPA:18 – Global 6/30/2020 10-Q– 23
Notes to Condensed Consolidated Financial Statements (Unaudited)
The interest rate swaps and caps that our consolidated subsidiaries had outstanding
at Septemberas of June 30,
20172020 are summarized as follows (currency in thousands):
| | Interest Rate Derivatives | | Number of Instruments | | Notional Amount | | Fair Value at September 30, 2017 (a) | | Number of Instruments | | Notional Amount | | Fair Value at June 30, 2020 (a) |
Interest rate swaps | | 8 | | 61,144 |
| USD | | $ | (747 | ) | | 10 | | 97,376 |
| USD | | $ | (4,588 | ) |
Interest rate swap | | 1 | | 10,386 |
| EUR | | (28 | ) | |
Interest rate caps | | 3 | | 27,700 |
| USD | | 1 |
| | 2 | | 59,000 |
| GBP | | 19 |
|
Interest rate cap | | | 1 | | 12,975 |
| EUR | | 13 |
|
Derivatives Not Designated as Hedging Instruments | | | | | |
Interest rate swap (b) | | | 1 | | 9,063 |
| EUR | | (34 | ) |
| | | | $ | (774 | ) | | | | $ | (4,590 | ) |
___________
| |
(a) | Fair value amount is based on the exchange rate of the euro at Septemberrespective currencies as of June 30, 2017,2020, 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. |
CPA®:18 – Global 9/30/2017 10-Q– 23
Notes to Consolidated Financial Statements (Unaudited)
Foreign Currency Contracts
We are exposed to foreign currency exchange rate movements, primarily in the euro and, to a lesser extent, the Norwegian krone. We manage foreign currency exchange rate movements by generally placing our debt service obligation on an investment in the same currency as the tenant’s rental obligation to us. This reduces our overall exposure to the net cash flow from that investment. However, we are subject to foreign currency exchange rate movements to the extent that there is a difference in the timing and amount of the rental obligation and the debt service. Realized and unrealized gains and losses recognized in earnings related to foreign currency transactions are included in Other incomegains and (expenses)(losses) in the condensed consolidated financial statements.
In order to hedge certain of our foreign currency cash flow exposures, we enter into foreign currency forward contracts and collars. A foreign currency forward contract is a commitment to deliver a certain amount of currency at a certain price on a specific date in the future. By entering into forward contracts and holding them to maturity, we are locked into a future currency exchange rate for the term of the contract. A foreign currency collar guarantees that the exchange rate of the currency will not fluctuate beyond the range of the options’ strike prices. Our foreign currency forward contracts and foreign currency collars have maturities of 7472 months or less.
The following table presents the foreign currency derivative contracts we had outstanding and their designations at Septemberas of June 30, 20172020 (currency in thousands):
|
| | | | | | | | | | |
Foreign Currency Derivatives | | Number of Instruments | | Notional Amount | | Fair Value at June 30, 2020 |
Designated as Cash Flow Hedging Instruments | | | | | | | |
Foreign currency collars | | 17 | | 13,902 |
| EUR | | $ | 1,305 |
|
Foreign currency collars | | 14 | | 25,130 |
| NOK | | 457 |
|
Foreign currency forward contracts | | 3 | | 1,240 |
| EUR | | 368 |
|
Designated as Net Investment Hedging Instruments | | | | | | | |
Foreign currency collar | | 1 | | 2,500 |
| NOK | | 33 |
|
| | | | | | | $ | 2,163 |
|
|
| | | | | | | | | | |
Foreign Currency Derivatives | | Number of Instruments | | Notional Amount | | Fair Value at September 30, 2017 |
Designated as Cash Flow Hedging Instruments | | | | | | | |
Foreign currency collars | | 52 | | 33,215 |
| EUR | | $ | (2,420 | ) |
Foreign currency forward contracts | | 25 | | 9,670 |
| EUR | | 1,915 |
|
Foreign currency forward contracts | | 19 | | 30,010 |
| NOK | | 762 |
|
Foreign currency collars | | 20 | | 47,670 |
| NOK | | (141 | ) |
Not Designated as Hedging Instruments | | | | | | | |
Foreign currency collars | | 2 | | 3,000 |
| EUR | | (321 | ) |
Designated as Net Investment Hedging Instruments | | | | | | | |
Foreign currency forward contracts | | 2 | | 4,504 |
| NOK | | 44 |
|
Foreign currency collars | | 4 | | 24,740 |
| NOK | | 24 |
|
| | | | | | | $ | (137 | ) |
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. NoNaN collateral was received as of SeptemberJune 30, 2017.2020. At SeptemberJune 30, 2017,2020, our total credit exposure was $1.8$1.6 million and the maximum exposure to any single counterparty was $1.5$0.9 million.
CPA:18 – Global 6/30/2020 10-Q– 24
Notes to Condensed 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 SeptemberAs of June 30, 2017,2020, 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 $4.1$4.8 million and $1.2$2.1 million at Septemberas of June 30, 20172020 and December 31, 2016,2019, respectively, which included accrued interest and any nonperformance risk adjustments. If we had breached any of these provisions at Septemberas of June 30, 20172020 or December 31, 2016,2019, we could have been required to settle our obligations under these agreements at their aggregate termination value of $4.3$5.1 million and $1.3$2.2 million, respectively.
Note 9. Non-Recourse MortgagesSecured Debt, Net
Non-recourse secured debt, net is collateralized by the assignment of real estate properties. As of June 30, 2020, the weighted-average interest rates for our fixed-rate and Bonds Payable
At September 30, 2017, ourvariable-rate non-recourse secured debt bore interest at fixed annual rates ranging from 1.6% to 5.8%were 3.9% and variable contractual annual rates ranging from 1.6% to 5.1%3.4%, respectively, with maturity dates ranging from 20182020 to 2039.
CPA®:18 – Global 9/30/2017 10-Q– 24
Notes to Consolidated Financial Statements (Unaudited)
Financing Activity During 20172020
During the nine months ended September 30, 2017,On March 13, 2020, we obtained four non-recourse mortgage financings totaling $23.2a construction loan of $22.5 million with a weighted-average annual interest rate of 5.2% and term to maturity of 5.7 years. In addition, we refinanced two non-recourse mortgage loans for a total of $17.0 million with a weighted-average interest rate of 2.6% and term to maturity of 4.5 years. We had an additional drawdown of $3.9 million (based(amount based on the exchange rate of the euro at the date of the drawdown)loan) for a student housing development project in Barcelona, Spain. The loan is comprised of four tranches with interest only payments due on a senior construction-to-term mortgage loan related to the developmentoutstanding draws through its scheduled maturity date of an office building located in Eindhoven, the Netherlands. Through August 31, 2017,December 2023. As part of obtaining the loan, bore aninitial drawdowns of $16.8 million were made with a weighted average variable interest rate of Euro Interbank Offered Rate, or EURIBOR, plus 2.5%, except when EURIBOR was below zero, in which case, each draw bore a rate of 2.5% plus the liquidity spread of 0.7% (for a total interest rate of 3.2%)2.1%. In the third quarter of 2017, the loan was converted to a seven-year term loan and now bears a fixed interest rate of 1.8%. Upon conversion of the loan, we drew down on the remaining $22.0 million available balance.
In addition, during the nine months ended September 30, 2017, we drew down $17.9 million (based on the exchange rate of the euro at the date of the drawdown) on the third-party non-recourse financing related to our build-to-suit investment in Hamburg, Germany. The loan bears a fixed interest rate of 2.1% with a term to maturity of seven years.
Scheduled Debt Principal Payments
Scheduled debt principal payments during the remainder of 2017,2020, each of the next four calendar years following December 31, 2017,2020, and thereafter are as follows (in thousands):
|
| | | | |
Years Ending December 31, | | Total |
2020 (remainder) | | $ | 86,112 |
|
2021 | | 126,675 |
|
2022 | | 188,571 |
|
2023 | | 214,327 |
|
2024 | | 198,798 |
|
Thereafter through 2039 | | 397,013 |
|
Total principal payments | | 1,211,496 |
|
Unamortized deferred financing costs | | (6,032 | ) |
Unamortized premium, net | | 2,011 |
|
Total | | $ | 1,207,475 |
|
|
| | | | |
Years Ending December 31, | | Total |
2017 (remainder) | | $ | 1,765 |
|
2018 | | 28,450 |
|
2019 | | 7,147 |
|
2020 | | 126,611 |
|
2021 | | 174,007 |
|
Thereafter through 2039 | | 935,043 |
|
| | 1,273,023 |
|
Unamortized deferred financing costs | | (8,506 | ) |
Unamortized premium, net | | 925 |
|
Total | | $ | 1,265,442 |
|
Certain amounts in the table above are based on the applicable foreign currency exchange rate at SeptemberJune 30, 2017.2020.
The carrying value of our Non-recourse mortgages,secured debt, net and Bonds payable, net increaseddecreased by $43.3$20.1 million in the aggregate from December 31, 20162019 to SeptemberJune 30, 2017,2020, reflecting the impact of the weakening of the U.S. dollar relative to certain foreign currencies (primarily the euro)exchange rate fluctuations during the same period.period (Note 2).
Covenants
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. We were in compliance with all of these non-recourse mortgage loan covenants at June 30, 2020.
At June 30, 2020, we were in breach of certain covenants related to our Equity investment recourse debt (Note 4).
CPA:18 – Global 6/30/2020 10-Q– 25
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 10. Commitments and Contingencies
At SeptemberSubsequent to June 30, 2017,2020, we received and recognized the arbitrator’s final decision for the ongoing litigation with the joint venture partner on our previously owned Ghana investment, which awarded the joint venture partner $2.6 million in damages (Note 13). As of June 30, 2020, we were not involved in any additional 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 condensed consolidated financial positionstatements of operations or results of operations.
See Note 4 for unfunded construction commitments.
CPA®:18 – Global 9/30/2017 10-Q– 25
Notes to Consolidated Financial Statements (Unaudited)
Note 11. Net Income (Loss) Earnings Per Share and Equity
Basic and Diluted Income (Loss) Earnings Per Share
The following table presents net income (loss) earnings per share (in thousands, except share and per share amounts):
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| 2020 | | 2019 |
| Basic and Diluted Weighted-Average Shares Outstanding | | Allocation of Net Loss | | Basic and Diluted Loss Per Share | | Basic and Diluted Weighted-Average Shares Outstanding | | Allocation of Net Income | | Basic and Diluted Earnings Per Share |
Class A common stock | 118,482,095 |
| | $ | (922 | ) | | $ | (0.01 | ) | | 116,210,773 |
| | $ | 2,442 |
| | $ | 0.02 |
|
Class C common stock | 32,493,253 |
| | (269 | ) | | (0.01 | ) | | 32,058,663 |
| | 636 |
| | 0.02 |
|
Net (loss) income attributable to CPA:18 – Global | | | $ | (1,191 | ) | | | | | | $ | 3,078 |
| | |
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2017 | | Three Months Ended September 30, 2016 |
| Basic and Diluted Weighted-Average Shares Outstanding | | Allocation of Net Income | | Basic and Diluted Net Income Per Share | | Basic and Diluted Weighted-Average Shares Outstanding | | Allocation of Net Loss | | Basic and Diluted Net Loss Per Share |
Class A common stock | 110,507,579 |
| | $ | 7,759 |
| | $ | 0.07 |
| | 106,279,055 |
| | $ | (3,083 | ) | | $ | (0.03 | ) |
Class C common stock | 31,322,341 |
| | 2,062 |
| | 0.07 |
| | 30,205,326 |
| | (998 | ) | | (0.03 | ) |
Net income (loss) attributable to CPA®:18 – Global | | | $ | 9,821 |
| | | | | | $ | (4,081 | ) | | |
|
| | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2020 | | 2019 |
| Basic and Diluted Weighted-Average Shares Outstanding | | Allocation of Net Loss | | Basic and Diluted Loss Per Share | | Basic and Diluted Weighted-Average Shares Outstanding | | Allocation of Net Income | | Basic and Diluted Earnings Per Share |
Class A common stock | 118,225,178 |
| | $ | (7,321 | ) | | $ | (0.06 | ) | | 115,855,895 |
| | $ | 14,095 |
| | $ | 0.12 |
|
Class C common stock | 32,469,447 |
| | (2,050 | ) | | (0.06 | ) | | 31,969,341 |
| | 3,810 |
| | 0.12 |
|
Net (loss) income attributable to CPA:18 – Global | | | $ | (9,371 | ) | | | | | | $ | 17,905 |
| | |
|
| | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2017 | | Nine Months Ended September 30, 2016 |
| Basic and Diluted Weighted-Average Shares Outstanding | | Allocation of Net Income | | Basic and Diluted Net Income Per Share | | Basic and Diluted Weighted-Average Shares Outstanding | | Allocation of Net Loss | | Basic and Diluted Net Loss Per Share |
Class A common stock | 109,507,006 |
| | $ | 12,936 |
| | $ | 0.12 |
| | 105,148,891 |
| | $ | (12,569 | ) | | $ | (0.12 | ) |
Class C common stock | 31,041,072 |
| | 3,288 |
| | 0.11 |
| | 29,964,756 |
| | (3,921 | ) | | (0.13 | ) |
Net income (loss) attributable to CPA®:18 – Global | | | $ | 16,224 |
| | | | | | $ | (16,490 | ) | | |
The allocation of Net (loss) income (loss) attributable to CPA®:CPA:18 – Global is calculated based on the basic and diluted weighted-average shares outstanding for Class A and Class C common stock for each respective period. For the three and nine months ended September 30, 2017, the allocation forThe Class AC common stock excluded $0.1 million and $0.4 million, respectively, ofallocation includes interest expense related to the accretion of interest on ourthe annual distribution and shareholder servicing fee liability which is only applicable to Class C common stock (Note 3). Forof less than $0.1 million for both the three and ninesix months ended SeptemberJune 30, 2016, the allocation for Class A common stock excluded $0.1 million2020 and $0.3 million, respectively, of interest expense related to the accretion of interest on our annual distribution and shareholder servicing fee liability, which is only applicable to Class C common stock2019 (Note 3).
Distributions
Distributions are declared at the discretion of our board of directors and are not guaranteed. For the three months ended SeptemberJune 30, 2017,2020, our board of directors declared quarterly distributions of $0.1563$0.0625 per share for our Class A common stock and $0.1384$0.0438 per share for our Class C common stock, which waswere paid on October 16, 2017July 15, 2020 to stockholders of record on October 5, 2017,June 30, 2020, in the amount of $21.6$8.8 million.
During the ninesix months ended SeptemberJune 30, 2017, our board of directors2020, we declared distributions in the aggregate amount of $51.3 milliontotaling $0.2188 and $0.1820 per share for our Class A common stock and $12.9 million per share for our Class C common stock, which equates to $0.4689 and $0.4146 per share, respectively.
Redemptions
For the three months ended September 30, 2017, the repurchase of shares of our common stock of $5.6 million pursuant to our redemption program were paid subsequent to September 30, 2017. As of September 30, 2017, the amount was recorded to Accounts payable, accrued expenses and other liabilities in the consolidated financial statements and is deemed a non-cash financing activity.
CPA®:CPA:18 – Global 9/6/30/20172020 10-Q– 26
Notes to Condensed Consolidated Financial Statements (Unaudited)
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 September 30, 2017 | Three Months Ended June 30, 2020 |
| Gains and Losses on Derivative Instruments | | Foreign Currency Translation Adjustments | | Total | Gains and (Losses) on Derivative Instruments | | Foreign Currency Translation Adjustments | | Total |
Beginning balance | $ | 1,306 |
| | $ | (46,389 | ) | | $ | (45,083 | ) | $ | (1,685 | ) | | $ | (78,227 | ) | | $ | (79,912 | ) |
Other comprehensive income before reclassifications | (2,010 | ) | | 13,839 |
| | 11,829 |
| (899 | ) | | 12,306 |
| | 11,407 |
|
Amounts reclassified from accumulated other comprehensive loss to: | | | | | | | | | | |
Other gains and (losses) | | (499 | ) | | — |
| | (499 | ) |
Interest expense | 159 |
| | — |
| | 159 |
| 454 |
| | — |
| | 454 |
|
Other income and (expenses) | (294 | ) | | — |
| | (294 | ) | |
Net current-period Other comprehensive income | (2,145 | ) | | 13,839 |
| | 11,694 |
| |
Net current-period Other comprehensive income attributable to noncontrolling interests | — |
| | (1,806 | ) | | (1,806 | ) | |
Net current-period other comprehensive income | | (944 | ) | | 12,306 |
| | 11,362 |
|
Net current-period other comprehensive income attributable to noncontrolling interests | | — |
| | (1,396 | ) | | (1,396 | ) |
Ending balance | $ | (839 | ) | | $ | (34,356 | ) | | $ | (35,195 | ) | $ | (2,629 | ) | | $ | (67,317 | ) | | $ | (69,946 | ) |
| | | Three Months Ended September 30, 2016 | Three Months Ended June 30, 2019 |
| Gains and Losses on Derivative Instruments | | Foreign Currency Translation Adjustments | | Total | Gains and (Losses) on Derivative Instruments | | Foreign Currency Translation Adjustments | | Total |
Beginning balance | $ | 1,610 |
| | $ | (51,377 | ) | | $ | (49,767 | ) | $ | 1,977 |
| | $ | (56,892 | ) | | $ | (54,915 | ) |
Other comprehensive income before reclassifications | (817 | ) | | 2,963 |
| | 2,146 |
| (1,575 | ) | | 3,658 |
| | 2,083 |
|
Amounts reclassified from accumulated other comprehensive loss to: | | | | | | | | | | |
Other gains and (losses) | | (377 | ) | | — |
| | (377 | ) |
Interest expense | 231 |
| | — |
| | 231 |
| (19 | ) | | — |
| | (19 | ) |
Other income and (expenses) | (342 | ) | | — |
| | (342 | ) | |
Net current-period Other comprehensive income | (928 | ) | | 2,963 |
| | 2,035 |
| |
Net current-period Other comprehensive income attributable to noncontrolling interests | — |
| | (813 | ) | | (813 | ) | |
Net current-period other comprehensive income | | (1,971 | ) | | 3,658 |
| | 1,687 |
|
Net current-period other comprehensive income attributable to noncontrolling interests | | — |
| | (331 | ) | | (331 | ) |
Ending balance | $ | 682 |
| | $ | (49,227 | ) | | $ | (48,545 | ) | $ | 6 |
| | $ | (53,565 | ) | | $ | (53,559 | ) |
CPA®:CPA:18 – Global 9/6/30/20172020 10-Q– 27
Notes to Condensed Consolidated Financial Statements (Unaudited)
| | | Nine Months Ended September 30, 2017 | Six Months Ended June 30, 2020 |
| Gains and Losses on Derivative Instruments | | Foreign Currency Translation Adjustments | | Total | Gains and (Losses) on Derivative Instruments | | Foreign Currency Translation Adjustments | | Total |
Beginning balance | $ | 5,587 |
| | $ | (67,291 | ) | | $ | (61,704 | ) | $ | 138 |
| | $ | (56,673 | ) | | $ | (56,535 | ) |
Other comprehensive income before reclassifications | (5,834 | ) | | 37,534 |
| | 31,700 |
| |
Other comprehensive loss before reclassifications | | (2,520 | ) | | (11,776 | ) | | (14,296 | ) |
Amounts reclassified from accumulated other comprehensive loss to: | | | | | | | | | | |
Other gains and (losses) | | (897 | ) | | — |
| | (897 | ) |
Interest expense | 561 |
| | — |
| | 561 |
| 650 |
| | — |
| | 650 |
|
Other income and (expenses) | (1,153 | ) | | — |
| | (1,153 | ) | |
Net current-period Other comprehensive income | (6,426 | ) | | 37,534 |
| | 31,108 |
| |
Net current-period Other comprehensive income attributable to noncontrolling interests | — |
| | (4,599 | ) | | (4,599 | ) | |
Net current-period other comprehensive loss | | (2,767 | ) | | (11,776 | ) | | (14,543 | ) |
Net current-period other comprehensive loss attributable to noncontrolling interests | | — |
| | 1,132 |
| | 1,132 |
|
Ending balance | $ | (839 | ) | | $ | (34,356 | ) | | $ | (35,195 | ) | $ | (2,629 | ) | | $ | (67,317 | ) | | $ | (69,946 | ) |
|
| | | | | | | | | | | |
| Six Months Ended June 30, 2019 |
| Gains and (Losses) on Derivative Instruments | | Foreign Currency Translation Adjustments | | Total |
Beginning balance | $ | 2,215 |
| | $ | (52,808 | ) | | $ | (50,593 | ) |
Other comprehensive loss before reclassifications | (1,432 | ) | | (584 | ) | | (2,016 | ) |
Amounts reclassified from accumulated other comprehensive loss to: | | | | | |
Other gains and (losses) | (734 | ) | | — |
| | (734 | ) |
Interest expense | (43 | ) | | — |
| | (43 | ) |
Net current-period other comprehensive loss | (2,209 | ) | | (584 | ) | | (2,793 | ) |
Net current-period other comprehensive income attributable to noncontrolling interests | — |
| | (173 | ) | | (173 | ) |
Ending balance | $ | 6 |
| | $ | (53,565 | ) | | $ | (53,559 | ) |
|
| | | | | | | | | | | |
| Nine Months Ended September 30, 2016 |
| Gains and Losses on Derivative Instruments | | Foreign Currency Translation Adjustments | | Total |
Beginning balance | $ | 5,360 |
| | $ | (55,676 | ) | | $ | (50,316 | ) |
Other comprehensive income before reclassifications | (4,329 | ) | | 8,739 |
| | 4,410 |
|
Amounts reclassified from accumulated other comprehensive loss to: | | | | | |
Interest expense | 661 |
| | — |
| | 661 |
|
Other income and (expenses) | (1,010 | ) | | — |
| | (1,010 | ) |
Net current-period Other comprehensive income | (4,678 | ) | | 8,739 |
| | 4,061 |
|
Net current-period Other comprehensive income attributable to noncontrolling interests | — |
| | (2,290 | ) | | (2,290 | ) |
Ending balance | $ | 682 |
| | $ | (49,227 | ) | | $ | (48,545 | ) |
See Note 8 for additional information on our derivative activity recognized within Other comprehensive income (loss) for the periods presented.
CPA®:CPA:18 – Global 9/6/30/20172020 10-Q– 28
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 12. Segment Reporting
We operate in three reportable business segments: Net Lease, Self Storage, and Multi-Family.Other Operating Properties. Our Net Lease segment includes our investments in net-leased properties, whether they are accounted for as operating leases or direct financing leases. Our Self Storage segment is comprised of our investments in self-storage properties. Our Multi-FamilyOther Operating Properties segment is primarily comprised of our investments in student housing operating properties and multi-family residential properties and student-housing developments.(our last multi-family residential property was sold in January 2019). In addition, we have an All Other category that includes our notes receivable investments, (Note 1).one of which was repaid during the second quarter of 2019. The following tables present a summary of comparative results and assets for these business segments (in thousands): |
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 (a) | | 2017 | | 2016 (a) |
Net Lease | | | | | | | |
Revenues (b) | $ | 30,736 |
| | $ | 27,869 |
| | $ | 86,988 |
| | $ | 82,500 |
|
Operating expenses (c) (d) | (16,688 | ) | | (15,448 | ) | | (51,036 | ) | | (46,170 | ) |
Interest expense | (7,723 | ) | | (7,516 | ) | | (21,905 | ) | | (22,096 | ) |
Other income and (expenses), excluding interest expense | 398 |
| | 382 |
| | 1,143 |
| | 1,093 |
|
Benefit from (provision for) income taxes | 2,787 |
| | (16 | ) | | 2,149 |
| | 210 |
|
Loss on sale of real estate, net of tax | — |
| | — |
| | — |
| | (63 | ) |
Net income attributable to noncontrolling interests | (108 | ) | | (607 | ) | | (545 | ) | | (1,441 | ) |
Net income attributable to CPA®:18 – Global | $ | 9,402 |
| | $ | 4,664 |
| | $ | 16,794 |
| | $ | 14,033 |
|
Self Storage | | | | | | | |
Revenues | $ | 14,128 |
| | $ | 13,079 |
| | $ | 41,178 |
| | $ | 35,785 |
|
Operating expenses (e) | (10,922 | ) | | (14,106 | ) | | (34,675 | ) | | (44,354 | ) |
Interest expense | (3,178 | ) | | (2,976 | ) | | (9,223 | ) | | (7,971 | ) |
Other income and (expenses), excluding interest expense (f) | (441 | ) | | (69 | ) | | (848 | ) | | (86 | ) |
Provision for income taxes | (44 | ) | | (12 | ) | | (170 | ) | | (103 | ) |
Net loss attributable to CPA®:18 – Global | $ | (457 | ) | | $ | (4,084 | ) | | $ | (3,738 | ) | | $ | (16,729 | ) |
Multi-Family | | | | | | | |
Revenues | $ | 6,523 |
| | $ | 5,626 |
| | $ | 19,141 |
| | $ | 16,382 |
|
Operating expenses | (4,632 | ) | | (4,327 | ) | | (13,518 | ) | | (12,375 | ) |
Interest expense | (1,229 | ) | | (1,221 | ) | | (3,625 | ) | | (3,640 | ) |
Other income and (expenses), excluding interest expense | 6 |
| | — |
| | 10 |
| | — |
|
Benefit from (provision for) income taxes | 142 |
| | (28 | ) | | (85 | ) | | (107 | ) |
Net income attributable to noncontrolling interests | 10 |
| | 38 |
| | 34 |
| | 30 |
|
Net income attributable to CPA®:18 – Global | $ | 820 |
| | $ | 88 |
| | $ | 1,957 |
| | $ | 290 |
|
All Other | | | | | | | |
Revenues | $ | 1,814 |
| | $ | 710 |
| | $ | 5,346 |
| | $ | 2,130 |
|
Operating expenses | — |
| | — |
| | (11 | ) | | — |
|
Net income attributable to CPA®:18 – Global | $ | 1,814 |
| | $ | 710 |
| | $ | 5,335 |
| | $ | 2,130 |
|
Corporate | | | | | | | |
Unallocated Corporate Overhead (g) | $ | 438 |
| | $ | (3,797 | ) | | $ | 1,933 |
| | $ | (10,895 | ) |
Net income attributable to noncontrolling interests — Available Cash Distributions | $ | (2,196 | ) | | $ | (1,662 | ) | | $ | (6,057 | ) | | $ | (5,319 | ) |
Total Company | | | | | | | |
Revenues | $ | 53,201 |
| | $ | 47,284 |
| | $ | 152,653 |
| | $ | 136,797 |
|
Operating expenses | (37,103 | ) | | (38,093 | ) | | (113,210 | ) | | (115,606 | ) |
Interest expense | (12,430 | ) | | (11,025 | ) | | (35,673 | ) | | (31,705 | ) |
Other income and (expenses), excluding interest expense | 5,622 |
| | 87 |
| | 17,390 |
| | 1,120 |
|
Benefit from (provision for) income taxes | 2,825 |
| | (103 | ) | | 1,632 |
| | (303 | ) |
Loss on sale of real estate, net of tax | — |
| | — |
| | — |
| | (63 | ) |
Net income attributable to noncontrolling interests | (2,294 | ) | | (2,231 | ) | | (6,568 | ) | | (6,730 | ) |
Net income (loss) attributable to CPA®:18 – Global | $ | 9,821 |
| | $ | (4,081 | ) | | $ | 16,224 |
| | $ | (16,490 | ) |
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Net Lease | | | | | | | |
Revenues (a) | $ | 26,538 |
| | $ | 30,731 |
| | $ | 50,605 |
| | $ | 61,723 |
|
Operating expenses (b) | (15,421 | ) | | (18,638 | ) | | (36,023 | ) | | (35,949 | ) |
Interest expense | (6,743 | ) | | (8,694 | ) | | (13,601 | ) | | (17,430 | ) |
Other gains and (losses) | 224 |
| | 503 |
| | (3,216 | ) | | 546 |
|
Gain on sale of real estate, net | — |
| | 650 |
| | — |
| | 1,547 |
|
(Provision for) benefit from income taxes | (1,341 | ) | | 1,366 |
| | (702 | ) | | 1,006 |
|
Net income attributable to noncontrolling interests | (1,526 | ) | | (45 | ) | | (2,226 | ) | | (254 | ) |
Net income (loss) attributable to CPA:18 – Global | $ | 1,731 |
| | $ | 5,873 |
| | $ | (5,163 | ) | | $ | 11,189 |
|
Self Storage | | | | | | | |
Revenues | $ | 14,670 |
| | $ | 15,167 |
| | $ | 30,026 |
| | $ | 30,006 |
|
Operating expenses | (9,080 | ) | | (8,872 | ) | | (18,175 | ) | | (17,617 | ) |
Interest expense | (3,374 | ) | | (3,450 | ) | | (6,730 | ) | | (6,876 | ) |
Other gains and (losses) (c) | (155 | ) | | (607 | ) | | (209 | ) | | (1,275 | ) |
Provision for income taxes | (17 | ) | | (11 | ) | | (48 | ) | | (44 | ) |
Net income attributable to CPA:18 – Global | $ | 2,044 |
| | $ | 2,227 |
| | $ | 4,864 |
| | $ | 4,194 |
|
Other Operating Properties | | | | | | | |
Revenues | $ | 2,010 |
| | $ | 2,307 |
| | $ | 4,757 |
| | $ | 4,929 |
|
Operating expenses | (1,324 | ) | | (1,544 | ) | | (2,809 | ) | | (3,178 | ) |
Interest expense | (192 | ) | | 166 |
| | (444 | ) | | 46 |
|
Other gains and (losses) | 4 |
| | (5 | ) | | 19 |
| | (44 | ) |
Gain on sale of real estate, net | — |
| | — |
| | — |
| | 14,514 |
|
Benefit from (provision for) income taxes | 38 |
| | (356 | ) | | 52 |
| | (379 | ) |
Net loss (income) attributable to noncontrolling interests | 25 |
| | 50 |
| | 30 |
| | (2,739 | ) |
Net income attributable to CPA:18 – Global | $ | 561 |
| | $ | 618 |
| | $ | 1,605 |
| | $ | 13,149 |
|
All Other (d) | | | | | | | |
Revenues | $ | 710 |
| | $ | 822 |
| | $ | 1,420 |
| | $ | 2,655 |
|
Operating expenses | — |
| | — |
| | — |
| | (1 | ) |
Net income attributable to CPA:18 – Global | $ | 710 |
| | $ | 822 |
| | $ | 1,420 |
| | $ | 2,654 |
|
Corporate | | | | | | | |
Unallocated Corporate Overhead (e) | $ | (4,208 | ) | | $ | (4,357 | ) | | $ | (8,152 | ) | | $ | (9,328 | ) |
Net income attributable to noncontrolling interests — Available Cash Distributions | $ | (2,029 | ) | | $ | (2,105 | ) | | $ | (3,945 | ) | | $ | (3,953 | ) |
Total Company | | | | | | | |
Revenues (a) | $ | 43,928 |
| | $ | 49,027 |
| | $ | 86,808 |
| | $ | 99,321 |
|
Operating expenses (b) | (30,582 | ) | | (34,021 | ) | | (66,810 | ) | | (66,293 | ) |
Interest expense | (10,354 | ) | | (12,044 | ) | | (20,843 | ) | | (24,401 | ) |
Other gains and (losses) (c) | 905 |
| | 699 |
| | (1,221 | ) | | 223 |
|
Gain on sale of real estate, net | — |
| | 650 |
|
| — |
| | 16,058 |
|
(Provision for) benefit from income taxes | (1,558 | ) | | 867 |
|
| (1,164 | ) | | (57 | ) |
Net income attributable to noncontrolling interests | (3,530 | ) | | (2,100 | ) |
| (6,141 | ) | | (6,946 | ) |
Net (loss) income attributable to CPA:18 – Global | $ | (1,191 | ) | | $ | 3,078 |
| | $ | (9,371 | ) | | $ | 17,905 |
|
CPA®:
CPA:18 – Global 9/6/30/20172020 10-Q– 29
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
| | | | | | | |
| Total Assets |
| June 30, 2020 | | December 31, 2019 |
Net Lease | $ | 1,513,872 |
| | $ | 1,517,659 |
|
Self Storage | 365,196 |
| | 369,883 |
|
Other Operating Properties | 223,107 |
| | 213,692 |
|
Corporate | 43,426 |
| | 105,407 |
|
All Other (d) | 28,168 |
| | 28,162 |
|
Total Company | $ | 2,173,769 |
| | $ | 2,234,803 |
|
|
| | | | | | | |
| Total Assets |
| September 30, 2017 | | December 31, 2016 |
Net Lease (h) | $ | 1,564,373 |
| | $ | 1,453,148 |
|
Self Storage | 403,696 |
| | 410,781 |
|
Multi-Family (h) | 274,931 |
| | 230,509 |
|
All Other | 66,909 |
| | 66,936 |
|
Corporate | 40,616 |
| | 48,072 |
|
Total Company | $ | 2,350,525 |
| | $ | 2,209,446 |
|
__________
| |
(a) | AmountsThe three months ended June 30, 2020 and 2019 includes straight-line rent amortization of $0.3 million and $0.8 million, respectively, and $1.0 million and $1.7 million for the six months ended June 30, 2020 and 2019, respectively. The six months ended June 30, 2020 includes a $7.0 million write-off of straight-line rent receivables (Note 2). Straight-line lease revenue is only recognized when deemed probable of collection, and is included within Lease revenues — net-leased within our condensed consolidated financial statements. For both the three and ninesix months ended SeptemberJune 30, 2016 are presented to conform2020, approximately $3.0 million of rent was not collected relating to the three reportable business segment presentation for the current period.second quarter of 2020, which reduced lease revenues (Note 2). |
| |
(b) | We recognized straight-line rent adjustments of $1.6 million and $1.0 million during the threeThe six months ended SeptemberJune 30, 2017 and 2016, respectively, and $3.72020 includes an allowance for credit losses of $4.9 million, and $3.2 million for the nine months ended September 30, 2017 and 2016, respectively, which increased Lease revenues within our consolidated financial statements for each period.in accordance with ASU 2016-13 (Note 5). |
| |
(c) | In April 2016, the Croatian government passed a special law assisting the restructuring of companies considered of systematic significance in Croatia. This law directly impacts one of our tenants, which is currently experiencing financial distress and received a credit downgrade from both Standard & Poor’s and Moody’s. As a result of the financial difficulties and the uncertainty regarding future rent collections from the tenant, we recorded bad debt expense of $2.0 million during the nine months ended September 30, 2017. |
| |
(d) | As a result of financial difficulties and uncertainty regarding future rent collections from a tenant in Stavanger, Norway, we recorded bad debt expense of $0.1 million and $1.2 million during the three and nine months ended September 30, 2017, respectively. |
| |
(e) | Includes acquisition expenses incurred in connection with self-storage transactions. Since adopting ASU 2017-01 as of January 1, 2017 (Note 2), no acquisitions have been deemed business combinations. |
| |
(f) | Includes Equity in losses of equity method investment in real estate. |
| |
(g)(d) | Included in the all other category are our notes receivable investments, one of which was repaid during the second quarter of 2019. |
| |
(e) | Included in unallocated corporate overhead are asset management feesexpenses and generalother gains and administrative expenses. These expenses(losses) that are calculated and reported at the portfolio level and not evaluated as part of any segment’s operating performance. |
| |
(h) | On January 31, 2017, construction commenced Such items include asset management fees, general and administrative expenses, and gains and losses on one of our previously acquired build-to-suit investments located in Cardiff, United Kingdom. Upon commencement of construction,foreign currency transactions and derivative instruments. Asset management fees totaled $2.9 million for both the net investment was reclassified to Real estate under construction from Net investments in direct financing leasesthree months ended June 30, 2020 and 2019, and $5.9 million and $5.7 million for the six months ended June 30, 2020 and 2019, respectively (Note 43). As the build-to-suit is intended to be a student-housing development, we reclassified the net investment to Multi-Family from Net Lease during 2017. |
Note 13. Subsequent Events
On July 16, 2020, we entered into a $25.0 million unsecured revolving line of credit with WPC at an interest rate equal to the LIBOR plus 1.05%. The line of credit has a scheduled maturity date of January 16, 2021. As of the date of this Report, we have not drawn on the line of credit (Note 3).
On July 28, 2020, we were notified that the borrower on our note receivable has defaulted on the mortgage loan senior to our mezzanine tranche. We are currently evaluating our rights and options in connection with the senior loan default (Note 5).
On October 11, 2017,July 31, 2020. we sold the student-housing property located in Reading, United Kingdom forobtained a purchase priceconstruction loan of $63.5$24.6 million (based on the exchange rate of the British pound sterlingeuro at June 30, 2020) for a student housing development project located in Seville, Spain. The loan bears a variable interest rate equal to the dateEuro Interbank Offered Rate plus 3.5% and is scheduled to mature in November 2023.
On August 4, 2020, in relation to the ongoing litigation with the joint venture partner on our previously owned Ghana investment, the arbitrator issued a final decision and awarded the joint venture partner $2.6 million in damages. Since this is a recognized subsequent event, we have recorded an additional noncontrolling interest payable amount of sale) with an estimated gain on sale$1.4 million during the three months ended June 30, 2020, bringing the total noncontrolling interest payable to $2.6 million as of $8.3 million.June 30, 2020.
On October 13, 2017, we repaidAugust 4, 2020, the remaining $19.5 million of loans outstanding77,504 square foot student housing project located in Barcelona, Spain was substantially completed and is subject to WPC, including accrued interest (Note 3).a net lease agreement.
CPA®:CPA:18 – Global 9/6/30/20172020 10-Q– 30
Item 2. Management’s Discussion and Analysis of Financial Condition andResults of Operations.
Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide the reader with information that will assist in understanding our financial statements and the reasons for changes in certain key components of our financial statements from period to period. Management’s Discussion and Analysis of Financial Condition and Results of Operations also provides the reader with our perspective on our financial position and liquidity, as well as certain other factors that may affect our future results. Our Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the 20162019 Annual Report and subsequent reports filed under the Securities Exchange Act of 1934.1934, as amended (“the Exchange Act”).
Business Overview
As described in more detail in Item 1 of the 20162019 Annual Report, we are a publicly owned, non-traded REIT that invests primarily in a diversified portfolio of income-producing commercial properties net leased to companies, and other real estate-related assets, both domestically and internationally. As opportunities arise, we also make other types of real estate-related investments, whichoutside the United States. In addition, our portfolio includes our self-storage and multi-family investments.student housing properties. As a REIT, we are not subject to U.S. federal income taxation as long as we satisfy certain requirements, principally relating to the nature of our income, the level of our distributions, and other factors. We earn revenue principally by leasing the properties we own to single corporate tenants, primarily on a triple-net lease basis, which requires the tenant to pay substantially all of the costs associated with operating and maintaining the property. We derive self-storage revenue from rents received from customers who rent storage space primarily under month-to-month leases for personal or business use. We earn student housing revenue primarily from leases of one year or less with individual students. Revenue is subject to fluctuation because of the timing of new lease transactions, completion of build-to-suit and development projects, lease terminations, lease expirations, contractual rent adjustments, tenant defaults, sales of properties, and foreign currency exchange rates. We commenced operations in May 2013 and are managed by our Advisor. We hold substantially all of our assets and conduct substantially all of our business through our Operating Partnership. We are the general partner of, and own 99.97% of the interests in, the Operating Partnership. The remaining interest in the Operating Partnership is held by a subsidiary of WPC.
Significant Developments
Non-Traded Retail Fundraising Platform ClosureCOVID-19
On June 15, 2017, WPC’s boardThe global spread of directors approvedCOVID-19 has created significant uncertainty and economic disruption, both in the near-term and likely longer-term. The extent to which this pandemic could affect our financial condition, liquidity, and results of operations is difficult to predict and depends on evolving factors, including: duration, scope, government actions, and, other social responses.
The impact of the pandemic both in the United States and globally has been rapidly evolving. The outbreak has triggered a planperiod of global economic slowdown with no known duration and is expected to exit all non-traded retail fundraising activities carried out by its wholly-owned broker-dealer subsidiary, Carey Financial, effective June 30, 2017. Ashave a continuing adverse impact on commercial and economic activity, leading to uncertainty in market conditions for the foreseeable future. The rapid development and fluidity of this situation is without precedent in modern history and the ultimate adverse impact of the COVID-19 pandemic is currently unknown. Consequently, the COVID-19 pandemic presents material uncertainty and risk with respect to our performance and financial results, including to our results of operations, and to the estimated fair values of our investments and properties. It is also increasing the likelihood of deterioration in the financial condition of our tenants (which could negatively impact defaults and occupancy, among other metrics) and is subjecting us to potential risks arising from rapid changes in law and regulatory policy. In addition, conditions in the bank lending, capital, and other financial markets may continue to deteriorate as a result we now payof the annual distributionpandemic, causing our access to capital and shareholder servicing fees relatedother sources of funding to our Class C common stock directly tobecome constrained, which could adversely affect the selected dealers, rather than through Carey Financial, beginning withterms or even availability of future borrowings, renewals, and refinancings.
Our Advisor is closely monitoring the fees for the third quarterimpact of 2017. There is no change in the amount of distribution and shareholder servicing fees that we incur.
Hurricane Harvey and Hurricane Irma
During the three months ended September 30, 2017, certainCOVID-19 on all aspects of our
business, portfolio, and tenant credit health, as well as our liquidity, capital allocation, and balance sheet management. Our net lease portfolio includes exposure to hotel and leisure and student housing properties
were damaged(see Item 3. Quantitative and Qualitative Disclosures About Market Risk for concentrations); these sectors have been significantly impacted by Hurricane Harvey and Hurricane Irma. As a result, we evaluated such properties to determine if any losses should be recognized. As a result, we recognized a loss of $0.1 million on one of our self-storage properties in Houston, Texas, which represents the estimated insurance deductible to be paid. After the payment of the deductible, we currently expect that all other costs will be covered by insurance.pandemic.
CPA®:CPA:18 – Global 9/6/30/20172020 10-Q– 31
Net Asset Value
Our Advisor calculatedcontinues to actively engage in discussions with our quarterly NAVstenants and with the third-party managers of our operating properties regarding the impact of COVID-19 on business operations, liquidity, and financial position. Through the date of this Report, we received from tenants approximately 83% of contractual base rent that was due in the second quarter (based on contractual minimum annualized base rent (“ABR”) as of March 31, 2020) and approximately 90% of net lease contractual base rent that was due in July (based on ABR as of June 30, 20172020). Certain tenants, including that of our net leased hotel property located in accordance withAlbion, Mauritius, pay rent on a quarterly basis and did not owe rent in July. Given the significant uncertainty around the duration and severity of the impact of COVID-19, we are unable to predict the impact it will have on our valuation policies,tenants’ continued ability to pay rent. Therefore, information provided regarding second quarter and July rent collections should not serve as an indication of expected future rent collections.
As of June 30, 2020, our debt and interest obligations due within one year totaled $194.0 million, as well as $2.5 million in principal reduction payments (which we must pay at the lender’s request due to debt covenant breaches on Septembertwo loans related to our equity investment; as of the date of this Report, the lender has not made such request). In addition, we expect to fund capital commitments of $181.3 million in the next year, primarily for our 12 2017,student housing development projects (five of which are scheduled to be completed in 2020). We believe we announced thathave sufficient liquidity to meet our liquidity and capital resource requirements primarily through available cash and cash equivalents, restricted cash, cash received under net lease and operating lease agreements, and undrawn capacity under our construction loans. Additional sources of liquidity, if necessary, includes leveraging our unleveraged properties (which had an aggregate carrying value of $224.0 million), refinancing existing debt obligations, asset sales, and paying all asset management fees to our Advisor had determined thatin shares (effective April 1, 2020, our Advisor agreed to receive all of the quarterly NAVasset management fees in shares of our Class A common stock). Additionally, in July 2020, we entered into a $25.0 million unsecured revolving line of credit with WPC (with a scheduled maturity date of January 16, 2021). In addition, we reduced our distributions declared for both our Class A and Class C common stock was $8.24,in the second quarter of 2020 by approximately 60%, as compared to the first quarter of 2020, which was 4.3% higher thanprovided us with additional cash flexibility.
The extent to which COVID-19 impacts our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak and actions taken to contain COVID-19 or treat its impact, among others. The potential impact of COVID-19 on our tenants and properties could have a material adverse effect on our business, financial condition, NAVs, liquidity, results of operations, and prospects.
Net Asset Values
Our Advisor calculates our NAVs at March 31, 2017. Our Advisor calculated our NAVsas of each quarter-end by relying in part on rolling update appraisals covering approximately 25% of our real estate portfolio each quarter, as of September 30, 2016, December 31, 2016, March 31, 2017 and June 30, 2017 and updated estimates ofadjusted to give effect to the estimated fair market value of our debt as of June 30, 2017, all(all provided by an independent third party, as described below. Utilizing the updated appraisals,party) and for other relevant factors. Since our Advisor then adjusted the resulting net equityquarterly NAVs are not based on an appraisal of our real estatefull portfolio, to the extent any new quarterly NAV adjustments are within 1% of our previously disclosed NAVs, our quarterly NAVs will remain unchanged. We monitor properties not appraised during the quarter to identify any that may have experienced a significant event and obtain updated third-party appraisals for certain items.such properties. Our NAVs are based on a number of variables, including individual tenant credits, lease terms, lending credit spreads, foreign currency exchange rates, share counts, tenant defaults, and development projects that are not yet generating income, among others. We do not control all of these variables and, as such, cannot predict how they will change in the future. The majority of our costsCosts associated with our development projects (which are not yet generating income) are not appraised quarterly and are carried at cost, which approximates fair value. These costs are included in Real estate under construction in our condensed consolidated financial statements and totaled approximately $102.4 millionstatements. Our NAVs as of September 30, 2017. For additional information regarding the calculation ofMarch 31, 2020 were $8.29 for both our quarterly NAVs at June 30, 2017, pleaseClass A and Class C common stock. Please see our Current Report on Form 8-K dated September 12, 2017.June 23, 2020 for additional information regarding the calculation of our NAVs. Our Advisor currently intends to determine our quarterly NAVs as of SeptemberJune 30, 20172020 during the fourththird quarter of 2017.2020.
Beginning with our quarterly NAVs as of September 30, 2016, we obtain a rolling appraisal of the fair market value of our real estate portfolio, whereby approximately 25% of our real estate assets (based on asset value) is appraised each quarter, and we obtain estimates of the fair market value of our debt as of the respective balance sheet date, both to be provided by an independent third party. Since the quarterly NAV estimates are not based on a full appraisal of the entire portfolio, to the extent any estimated NAV per share adjustments are within +/- 1% of the previously disclosed NAV per share, the quarterly NAV per share will remain unchanged. We monitor properties not appraised during the quarter to identify ones that may have experienced a significant event and obtain updated third-party appraisals for such properties.
The accrued distribution and shareholder servicing fee payable has been valued using a hypothetical liquidation value and, as a result, the NAVs do not reflect any obligation to pay future distribution and shareholder servicing fees. At SeptemberAs of June 30, 2017,2020, the liability balance for the distribution and shareholder servicing fee was $6.1 million.$0.9 million, which includes $0.5 million related to the second quarter of 2020. We currently expect that we will cease incurring the distribution and shareholder servicing fee during the third quarter of 2020, at which time the total underwriting compensation paid in respect of the offering will reach 10.0% of the gross offering proceeds (Note 3).
Acquisition and Financing Activity
CPA:18 – Global 6/30/2020 10-Q– 32
Financial Highlights
During the ninesix months ended SeptemberJune 30, 2017,2020, we acquired one new investment for an aggregate amount of $8.2 million and purchased a vacant parcel of land for a self-storage development projectcompleted the following, as part of our joint venture with a third party for $5.1 million (based onfurther described in the exchange rate of the Canadian dollar at the date of acquisition). Additionally, we made our final payment to the developer for a build-to-suit project located in Eindhoven, the Netherlands for $18.7 million, which is based on the exchange rate of the euro on the date of the acquisition.condensed consolidated financial statements.
During the nine months ended September 30, 2017,Financing Activity
On March 13, 2020, we obtained mortgage financing totaling $23.2a construction loan of $22.5 million and refinanced non-recourse mortgage loans totaling $17.0 million. In addition, we had draws of $25.9 million and $17.9 million (based(amount based on the exchange rate of the euro at the date of the drawdown)loan) for a student housing development project in Barcelona, Spain. The loan is comprised of four tranches with interest only payments due on third-party non-recourse financings related to twooutstanding draws through its scheduled maturity date of our build-to-suit investmentsDecember 2023. As part of obtaining the loan, initial drawdowns of $16.8 million were made with a weighted average variable interest rate of 2.1%. (Note 9). During the nine months ended September 30, 2017, we borrowed $11.2 million from WPC and repaid $19.7 million (Note 3). Subsequent to September 30, 2017, we repaid the remaining $19.5 million of loans outstanding to WPC, including accrued interest (Note 13).
Consolidated Results
(in thousands)
CPA®: |
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Total revenues | $ | 43,928 |
| | $ | 49,027 |
| | $ | 86,808 |
| | $ | 99,321 |
|
Net (loss) income attributable to CPA:18 – Global | (1,191 | ) | | 3,078 |
| | (9,371 | ) | | 17,905 |
|
| | | | | | | |
Cash distributions paid | 22,844 |
| | 22,415 |
| | 45,589 |
| | 44,679 |
|
Distributions declared (a) | 8,809 |
| | 22,539 |
| | 31,653 |
| | 44,955 |
|
| | | | | | | |
Net cash provided by operating activities | | | | | 38,924 |
| | 42,029 |
|
Net cash used in investing activities | | | | | (88,263 | ) | | (7,449 | ) |
Net cash used in financing activities | | | | | (18,789 | ) | | (43,881 | ) |
| | | | | | | |
Supplemental financial measures (b): | | | | | | | |
FFO attributable to CPA:18 – Global | 11,980 |
| | 17,876 |
| | 17,004 |
| | 34,304 |
|
MFFO attributable to CPA:18 – Global | 12,231 |
| | 16,607 |
| | 30,751 |
| | 32,283 |
|
Adjusted MFFO attributable to CPA:18 – Global | 13,506 |
| | 16,134 |
| | 31,147 |
| | 32,151 |
|
__________
| |
(a) | Quarterly distributions declared are generally paid in the subsequent quarter. |
| |
(b) | We consider the performance metrics listed above, including Funds from operations (“FFO”), MFFO, and Adjusted modified funds from operations (“Adjusted MFFO”), which are supplemental measures that are not defined by GAAP (“non-GAAP measures”), to be important measures in the evaluation of our operating performance. See Supplemental Financial Measures below for our definitions of these non-GAAP measures and reconciliations to their most directly comparable GAAP measures. |
CPA:18 – Global 9/6/30/20172020 10-Q– 3233
Revenues and Net (Loss) Income Attributable to CPA:18 – Global
Total revenues decreased for both the three and six months ended June 30, 2020 as compared to the same periods in 2019, primarily due to the adverse impact of COVID-19 on certain net lease properties, as well as the negative impact from our properties sold during 2019.
During the three and six months ended June 30, 2020, we recognized a Net loss attributable to CPA:18 – Global as compared to net income in the same periods in 2019, primarily due to the adverse impact of COVID-19 on our lease revenues (Note 2, Note 4); gains on sale of real estate recognized during the prior year periods; and the negative impact from our income tax positions. In addition, the six months ended June 30, 2020 was negatively impacted by the losses incurred relating to the allowance for credit losses recognized in accordance with ASU 2016-13 (Note 2) and loss as a result of the Ghana VAT receivable write-off (Note 4). These factors were partially offset by a decrease in interest expense due to the refinancings and dispositions of encumbered properties during the prior year periods, as well as increased capitalized interest on our student housing development projects. In addition, there was a decrease in amortization expense for both periods as a result of in-place lease intangible amortization being accelerated in connection with the lease restructure during the second quarter of 2019 with our tenant, Fortenova (formerly Agrokor). Lastly, the six months ended was impacted due to an increase in back rents plus VAT collected in connection with the settlement from this same lease restructuring, and termination income received for one of our properties during the first quarter of 2020.
FFO, MFFO, and Adjusted MFFO Attributable to CPA:18 – Global
FFO, MFFO, and Adjusted MFFO all decreased for the three and six months ended June 30, 2020 as compared to the same periods in 2019, primarily due to the impact of COVID-19 on rent collections at certain of our net leased properties, disposal of properties during 2019, and an increase in provision for income taxes.
FFO for the six months ended June 30, 2020 also decreased due to the allowance for credit losses and a loss due to the Ghana VAT receivable write-off (Note 4), partially offset by a decrease in interest expense (as noted above).
MFFO and Adjusted MFFO for the three and six months ended June 30, 2020 as compared to the same periods in 2019 were also impacted by decreased interest income as a result of the Mills Fleet mezzanine loan repayment in April 2019, partially offset by a decrease in interest expense, the collection of back rents, and termination income recognized in 2020 (six months ended June 30, 2020 only).
CPA:18 – Global 6/30/2020 10-Q– 34
Portfolio Overview
We intend to continue to acquirehold a diversified portfolio of income-producing commercial real estate properties and other real estate-related assets. We expect to make these investments both domestically and internationally. In addition, our portfolio includes self-storage and student housing properties for the periods presented below. Portfolio information is provided on a pro rata basis, unless otherwise noted below, to better illustrate the economic impact of our various net-leased, jointly owned net-leased and operating investments. See Terms and Definitions below for a description of pro rata amounts.
Portfolio Summary
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Number of net-leased properties (a) | 59 |
| | 59 |
|
Number of operating properties (b) | 78 |
| | 76 |
|
Number of tenants (a) | 99 |
| | 103 |
|
Total square footage (in thousands) | 16,838 |
| | 16,259 |
|
Occupancy — Single-tenant | 99.7 | % | | 100.0 | % |
Occupancy — Multi-tenant | 93.4 | % | | 98.4 | % |
Occupancy — Self-storage | 91.6 | % | | 91.0 | % |
Occupancy — Multi-family | 92.9 | % | | 93.9 | % |
Weighted-average lease term — Single-tenant properties (in years) | 10.8 |
| | 10.8 |
|
Weighted-average lease term — Multi-tenant properties (in years) | 7.1 |
| | 7.1 |
|
Number of countries | 11 |
| | 11 |
|
Total assets (consolidated basis in thousands) | $ | 2,350,525 |
| | $ | 2,209,446 |
|
Net investments in real estate (consolidated basis in thousands) (c) | 2,082,135 |
| | 1,953,153 |
|
Debt, net — pro rata (in thousands) | 1,173,921 |
| | 1,066,603 |
|
|
| | | | | | | |
| June 30, 2020 | | December 31, 2019 |
Number of net-leased properties | 47 |
| | 47 |
|
Number of operating properties (a) | 70 |
| | 70 |
|
Number of development projects | 12 |
| | 12 |
|
Number of tenants (net-leased properties) | 65 |
| | 61 |
|
Total portfolio square footage (in thousands) | 15,118 |
| | 15,130 |
|
Occupancy (net-leased properties) | 98.7 | % | | 99.4 | % |
Weighted-average lease term (net-leased properties in years) | 9.2 |
| | 9.4 |
|
Number of countries | 12 |
| | 12 |
|
Total assets (consolidated basis in thousands) | $ | 2,173,769 |
| | $ | 2,234,803 |
|
Net investments in real estate (consolidated basis in thousands) | 1,962,426 |
| | 1,946,720 |
|
Debt, net — pro rata (in thousands) | 1,132,138 |
| | 1,126,326 |
|
| | | Nine Months Ended September 30, | Six Months Ended June 30, |
(dollars in thousands, except exchange rate) | 2017 | | 2016 | |
Acquisition volume — consolidated (d) (e) | $ | 49,368 |
| | $ | 141,306 |
| |
Acquisition volume — pro rata (e) (f) | 66,187 |
| | 156,840 |
| |
(dollars in thousands, except exchange rates) | | 2020 | | 2019 |
Acquisition volume — consolidated (b) | | $ | — |
| | $ | 29,736 |
|
Acquisition volume — pro rata (c) | | — |
| | 29,736 |
|
Financing obtained — consolidated | 84,068 |
| | 136,206 |
| 35,101 |
| | 16,096 |
|
Financing obtained — pro rata (f) | 89,351 |
| | 145,795 |
| 33,575 |
| | 17,652 |
|
Average U.S. dollar/euro exchange rate | 1.1130 |
| | 1.1161 |
| 1.1013 |
| | 1.1297 |
|
Average U.S. dollar/Norwegian krone exchange rate | 0.1205 |
| | 0.1190 |
| 0.1029 |
| | 0.1161 |
|
Average U.S. dollar/British pound sterling exchange rate | 1.2751 |
| | 1.3939 |
| 1.2609 |
| | 1.2931 |
|
Change in the U.S. CPI (g)(d) | 2.2 | % | | 2.1 | % | 0.3 | % | | 1.9 | % |
Change in the Harmonized Index of Consumer Prices (g) | 0.8 | % | | 0.4 | % | |
Change in the Netherlands CPI (d) | | 0.7 | % | | 1.8 | % |
Change in the Norwegian CPI (g)(d) | 1.4 | % | | 3.2 | % | 0.7 | % | | 0.7 | % |
__________
| |
(a) | Represents our single-tenantAs of both June 30, 2020 and multi-tenant properties as well as our build-to-suit projects within our net-leased portfolio and, accordingly, excludes all operating properties. We consider a property to be multi-tenant if it does not have a single tenant that comprises more than 75% of the contractual minimum ABR for the property. See Terms and Definitions below for a description of ABR. |
| |
(b) | At September 30, 2017,December 31, 2019, our operating portfolio consisted of 6968 self-storage properties and nine multi-familytwo student housing operating properties, all of which are managed by third parties. Our operating portfolio also includes self-storage and multi-family build-to-suit projects.
|
| |
(c)(b) | In the second quarterComprised of 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). |
| |
(d) | Includes build-to-suitdevelopment project transactions includingand related budget amendments, which are reflected as the total commitment for the build-to-suitdevelopment project funding, and excludes investments in unconsolidated joint ventures. |
| |
(e) | Includes acquisition-related expenses, which were included in Acquisition expenses in the consolidated financial statements. |
CPA®:18 – Global 9/30/2017 10-Q– 33
| |
(f)(c) | IncludesComprised of development project transactions and related budget amendments, which are reflected as the total commitment for the development project funding, and includes investments in unconsolidated joint ventures, which include our equity investment in real estate (Note 4). |
| |
(g)(d) | Many of our lease agreements include contractual increases indexed to changes in the U.S. Consumer Price Index,CPI, Netherlands CPI, Norwegian CPI, or U.S. CPI, orother similar indices in the jurisdictions where the properties are located. |
CPA:18 – Global 6/30/2020 10-Q– 35
The tables below present information about our portfolio on a pro rata basis as of and for the period ended June 30, 2020. See Terms and Definitions below for a description of Pro Rata Metrics, stabilized net operating income (“Stabilized NOI”), and ABR.
Portfolio Diversification by Property Type
(dollars in thousands)
|
| | | | | | | |
Property Type | | Stabilized NOI | | Percent |
Net-Leased | | | | |
Office | | $ | 19,793 |
| | 32 | % |
Warehouse | | 6,510 |
| | 11 | % |
Hospitality (a) | | 4,154 |
| | 7 | % |
Industrial | | 3,999 |
| | 7 | % |
Retail | | 3,810 |
| | 6 | % |
Residential | | 527 |
| | 1 | % |
Net-Leased Total | | 38,793 |
| | 64 | % |
| | | | |
Operating | | | | |
Self Storage | | 18,735 |
| | 30 | % |
Other operating properties | | 3,479 |
| | 6 | % |
Operating Total | | 22,214 |
| | 36 | % |
Total | | $ | 61,007 |
| | 100 | % |
__________
| |
(a) | For the six months ended June 30, 2020, we did not recognize $2.6 million of uncollected contractual base rent from our net lease hotel properties that were adversely impacted by COVID-19 (Note 2, Note 4). |
CPA:18 – Global 6/30/2020 10-Q– 36
Portfolio Diversification by Geography
(dollars in thousands)
|
| | | | | | | |
Region | | Stabilized NOI | | Percent |
United States | | | | |
South | | $ | 14,514 |
| | 24 | % |
Midwest | | 11,104 |
| | 18 | % |
West | | 6,146 |
| | 10 | % |
East | | 4,750 |
| | 8 | % |
U.S. Total | | 36,514 |
| | 60 | % |
| | | | |
International | | | | |
Norway | | 4,849 |
| | 8 | % |
The Netherlands | | 4,792 |
| | 8 | % |
United Kingdom | | 3,479 |
| | 6 | % |
Germany (a) | | 2,974 |
| | 5 | % |
Poland | | 2,141 |
| | 3 | % |
Mauritius (a) | | 1,859 |
| | 3 | % |
Croatia | | 1,724 |
| | 3 | % |
Slovakia | | 1,178 |
| | 2 | % |
Canada | | 970 |
| | 1 | % |
Spain | | 527 |
| | 1 | % |
International Total | | 24,493 |
| | 40 | % |
Total | | $ | 61,007 |
| | 100 | % |
__________
| |
(a) | For the six months ended June 30, 2020, we did not recognize $2.6 million of uncollected contractual base rent from our net lease hotel properties that were adversely impacted by COVID-19 (Note 2, Note 4). |
Top Ten Tenants by Total Stabilized NOI
(dollars in thousands)
|
| | | | | | | | | | | | | |
Tenant/Lease Guarantor | | Property Type | | Tenant Industry | | Location | | Stabilized NOI | | Percent |
Sweetheart Cup Company, Inc. | | Warehouse | | Containers, Packaging and Glass | | University Park, Illinois | | $ | 3,104 |
| | 5 | % |
Rabobank Groep NV (a) | | Office | | Banking | | Eindhoven, Netherlands | | 2,851 |
| | 5 | % |
Bank Pekao S.A. (a) | | Office | | Banking | | Warsaw, Poland | | 2,141 |
| | 4 | % |
State Farm Automobile Co. | | Office | | Insurance | | Austin, Texas | | 1,971 |
| | 3 | % |
Albion Resorts (Club Med) (a) (b) | | Hospitality | | Hotel and Leisure | | Albion, Mauritius | | 1,859 |
| | 3 | % |
Siemens AS (a) | | Office | | Capital Equipment | | Oslo, Norway | | 1,841 |
| | 3 | % |
State of Iowa Board of Regents | | Office | | Sovereign and Public Finance | | Coralville and Iowa City, Iowa | | 1,744 |
| | 3 | % |
Belk, Inc. | | Warehouse | | Retail | | Jonesville, South Carolina | | 1,646 |
| | 3 | % |
Orbital ATK, Inc. | | Office | | Metals & Mining | | Plymouth, Minnesota | | 1,582 |
| | 3 | % |
Fentonir Trading & Investments Limited (a) (c) | | Hospitality | | Hotel and Leisure | | Munich and Stuttgart, Germany | | 1,537 |
| | 3 | % |
Total | | | | | | | | $ | 20,276 |
| | 35 | % |
__________
CPA:18 – Global 6/30/2020 10-Q– 37
| |
(a) | Stabilized NOI amounts for these properties are subject to fluctuations in foreign currency exchange rates. |
| |
(b) | For the six months ended June 30, 2020, we did not recognize $0.6 million of uncollected contractual base rent from this tenant due to the adverse impact of COVID-19 (Note 2, Note 4). |
| |
(c) | For the six months ended June 30, 2020, we did not recognize $2.0 million of uncollected contractual base rent from this tenant due to the adverse impact of COVID-19 (Note 2, Note 4). |
Net-Leased Portfolio
The tables below represent information about our net-leased portfolio on a pro rata basis and, accordingly, exclude all operating properties at Septemberas of June 30, 2017.2020. See Terms and Definitions below for a description of pro rata metricsPro Rata Metrics, Stabilized NOI and ABR.
Top Ten Tenants by ABR
(dollars in thousands)
|
| | | | | | | | | | | | | |
Tenant/Lease Guarantor | | Property Type | | Tenant Industry | | Location | | ABR | | Percent |
Rabobank Groep NV (a) | | Office | | Banking | | Eindhoven, Netherlands | | $ | 5,988 |
| | 6 | % |
Sweetheart Cup Company, Inc. | | Warehouse | | Containers, Packaging, and Glass | | University Park, Illinois | | 5,646 |
| | 6 | % |
Konzum d.d. (a) (b) | | Retail | | Grocery | | Split, Zadar, Zagreb (3), Croatia | | 5,355 |
| | 6 | % |
Albion Resorts (a) | | Hotel | | Hotel, Gaming, and Leisure | | Albion, Mauritius | | 5,162 |
| | 6 | % |
Siemens AS (a) | | Office | | Capital Equipment | | Oslo, Norway | | 4,774 |
| | 5 | % |
Bank Pekao S.A. (a) | | Office | | Banking | | Warsaw, Poland | | 4,453 |
| | 5 | % |
COOP Ost AS (a) | | Retail | | Grocery | | Oslo, Norway | | 3,972 |
| | 4 | % |
State Farm Automobile Co. | | Office | | Insurance | | Austin, Texas | | 3,766 |
| | 4 | % |
Royal Vopak NV (a) | | Office | | Oil and Gas | | Rotterdam, Netherlands | | 3,691 |
| | 4 | % |
Board of Regents, State of Iowa | | Office | | Sovereign and Public Finance | | Coralville and Iowa City, Iowa | | 3,512 |
| | 4 | % |
Total | | | | | | | | $ | 46,319 |
| | 50 | % |
__________
| |
(a) | ABR amounts are subject to fluctuations in foreign currency exchange rates. |
| |
(b) | In April 2016, the Croatian government passed a special law assisting the restructuring of companies considered of systematic significance in Croatia. This law directly impacts Konzum d.d., which is currently experiencing financial distress and received a credit downgrade from both Standard & Poor’s and Moody’s. As a result of the financial difficulties and the uncertainty regarding future rent collections from the tenant, we recorded bad debt expense of $2.0 million during the nine months ended September 30, 2017. |
CPA®:18 – Global 9/30/2017 10-Q– 34
Portfolio Diversification by Geography
(dollars in thousands)
|
| | | | | | | |
Region | | ABR |
| Percent |
United States | | | | |
Midwest | | $ | 22,376 |
| | 24 | % |
South | | 11,615 |
| | 12 | % |
East | | 3,421 |
| | 4 | % |
West | | 420 |
| | 1 | % |
U.S. Total | | 37,832 |
| | 41 | % |
| | | | |
International | | | | |
The Netherlands | | 15,122 |
| | 16 | % |
Norway | | 13,582 |
| | 14 | % |
Germany | | 5,588 |
| | 6 | % |
Croatia | | 5,355 |
| | 6 | % |
Mauritius | | 5,162 |
| | 5 | % |
Poland | | 4,522 |
| | 5 | % |
United Kingdom | | 3,538 |
| | 4 | % |
Slovakia | | 2,476 |
| | 3 | % |
International Total | | 55,345 |
| | 59 | % |
Total | | $ | 93,177 |
| | 100 | % |
Portfolio Diversification by Property Type
(dollars in thousands)
|
| | | | | | | |
Property Type | | ABR | | Percent |
Office | | $ | 46,894 |
| | 50 | % |
Industrial | | 13,171 |
| | 14 | % |
Warehouse | | 12,193 |
| | 13 | % |
Retail | | 11,752 |
| | 13 | % |
Hotel | | 9,167 |
| | 10 | % |
Total | | $ | 93,177 |
| | 100 | % |
CPA®:18 – Global 9/30/2017 10-Q– 35
Portfolio Diversification by Tenant Industry
(dollars in thousands)
| | Industry Type | | ABR | | Percent | | ABR | | Percent |
Hotel and Leisure (a) | | | $ | 14,595 |
| | 16 | % |
Banking | | $ | 10,441 |
| | 11 | % | | 10,585 |
| | 12 | % |
Grocery | | 9,328 |
| | 10 | % | | 6,568 |
| | 8 | % |
Hotel, Gaming, and Leisure | | 9,209 |
| | 10 | % | |
Sovereign and Public Finance | | 7,175 |
| | 8 | % | |
Containers, Packaging, and Glass | | 5,646 |
| | 6 | % | | 6,213 |
| | 7 | % |
Insurance | | | 4,857 |
| | 5 | % |
Capital Equipment | | 5,559 |
| | 6 | % | | 4,847 |
| | 5 | % |
Retail Stores | | 5,150 |
| | 6 | % | |
Insurance | | 4,666 |
| | 5 | % | |
Utilities: Electric | | 4,078 |
| | 4 | % | | 3,938 |
| | 5 | % |
Oil and Gas | | 3,879 |
| | 4 | % | | 3,748 |
| | 4 | % |
Retail | | | 3,724 |
| | 4 | % |
Metals and Mining | | | 3,686 |
| | 4 | % |
Sovereign and Public Finance | | | 3,490 |
| | 4 | % |
Advertising, Printing, and Publishing | | | 3,440 |
| | 4 | % |
High Tech Industries | | | 3,176 |
| | 4 | % |
Business Services | | 3,406 |
| | 4 | % | | 3,076 |
| | 3 | % |
Metals and Mining | | 3,327 |
| | 4 | % | |
High Tech Industries | | 3,295 |
| | 4 | % | |
Media: Advertising, Printing, and Publishing | | 3,259 |
| | 3 | % | |
Healthcare and Pharmaceutical | | 2,533 |
| | 3 | % | |
Consumer Services | | 2,118 |
| | 2 | % | |
Healthcare and Pharmaceuticals | | | 2,631 |
| | 3 | % |
Automotive | | 1,988 |
| | 2 | % | | 2,007 |
| | 2 | % |
Construction and Building | | 1,762 |
| | 2 | % | | 1,552 |
| | 2 | % |
Residential | | | 1,410 |
| | 2 | % |
Non-Durable Consumer Goods | | 1,265 |
| | 1 | % | | 1,262 |
| | 1 | % |
Telecommunications | | 1,039 |
| | 1 | % | | 1,095 |
| | 1 | % |
Electricity | | 1,027 |
| | 1 | % | | 1,073 |
| | 1 | % |
Wholesale | | 1,007 |
| | 1 | % | | 1,049 |
| | 1 | % |
Cargo Transportation | | 930 |
| | 1 | % | | 977 |
| | 1 | % |
Other (a)(b) | | 1,090 |
| | 1 | % | | 400 |
| | 1 | % |
Total | | $ | 93,177 |
| | 100 | % | | $ | 89,399 |
| | 100 | % |
__________
| |
(a) | For the six months ended June 30, 2020, we did not recognize $2.6 million of uncollected contractual base rent from our net lease hotel properties that were adversely impacted by COVID-19 (Note 2, Note 4). |
| |
(b) | Includes ABR from tenants in the following industries: environmental industries, durable consumer goods, and environmental industries.consumer services. |
CPA®:CPA:18 – Global 9/6/30/20172020 10-Q– 3638
Lease Expirations
| | Year of Lease Expiration (a) (b) | | Number of Leases Expiring | | ABR | | Percent | |
Remaining 2017 | | 2 |
| | $ | 100 |
| | — | % | |
2018 | | 6 |
| | 419 |
| | — | % | |
2019 | | 6 |
| | 1,006 |
| | 1 | % | |
2020 | | 7 |
| | 1,274 |
| | 1 | % | |
Year of Lease Expiration (a) | | | Number of Leases Expiring | | ABR | | Percent |
Remaining 2020 | | | 1 |
| | $ | 2 |
| | — | % |
2021 | | 6 |
| | 1,360 |
| | 2 | % | | 2 |
| | 936 |
| | 1 | % |
2022 | | 8 |
| | 2,119 |
| | 2 | % | | 2 |
| | 113 |
| | — | % |
2023 | | 13 |
| | 15,235 |
| | 16 | % | | 12 |
| | 14,525 |
| | 16 | % |
2024 | | 10 |
| | 5,081 |
| | 6 | % | | 16 |
| | 5,280 |
| | 6 | % |
2025 | | 9 |
| | 7,106 |
| | 8 | % | | 6 |
| | 4,623 |
| | 5 | % |
2026 | | 8 |
| | 6,831 |
| | 7 | % | | 5 |
| | 7,514 |
| | 8 | % |
2027 | | 8 |
| | 6,196 |
| | 7 | % | | 6 |
| | 6,108 |
| | 7 | % |
2028 | | 4 |
| | 5,210 |
| | 6 | % | | 4 |
| | 5,310 |
| | 6 | % |
2029 | | 5 |
| | 9,583 |
| | 10 | % | | 3 |
| | 9,069 |
| | 10 | % |
2030 | | 6 |
| | 4,372 |
| | 5 | % | | 2 |
| | 3,961 |
| | 5 | % |
Thereafter | | 18 |
| | 27,285 |
| | 29 | % | |
2031 | | | 4 |
| | 4,992 |
| | 6 | % |
2032 | | | 5 |
| | 8,707 |
| | 10 | % |
Thereafter (>2032) | | | 11 |
| | 18,259 |
| | 20 | % |
Total | | 116 |
| | $ | 93,177 |
| | 100 | % | | 79 |
| | $ | 89,399 |
| | 100 | % |
__________
| |
(a) | Assumes tenant does not exercise renewal option. |
| |
(b) | These maturities also include our multi-tenant properties, which generally have a shorter duration than our single-tenant properties, and on a combined basis represent pro rata ABR of $3.5 million. |
Lease Composition and Leasing Activities
Substantially all of our leases provide for either scheduled rent increases, periodic rent adjustments based on formulas indexed to changes in the CPI or similar indices, or percentage rents. As of June 30, 2020, approximately 50.0% of our leases (based on ABR) provided for adjustments based on formulas indexed to changes in the U.S. CPI (or similar indices for the jurisdiction in which the property is located), some of which are subject to caps and/or floors. In addition, 48.5% of our leases (based on ABR) have fixed rent adjustments, for a scheduled average ABR increase of 1.7% over the next 12 months. Lease revenues from our international investments are subject to exchange rate fluctuations, primarily from the euro. We recognize rents from percentage rents as reported by the lessees, which is after the level of sales requiring a rental payment to us is reached. Percentage rents are insignificant for the periods presented.
CPA®:CPA:18 – Global 9/6/30/20172020 10-Q– 3739
Operating Properties
At SeptemberAs of June 30, 2017,2020, our operating portfolio consisted of 6968 self-storage properties which had an average occupancy rateand two student housing operating properties. As of 91.6%, and nine multi-family properties (including student-housing developments), which had an average occupancy rate of 92.9%. At SeptemberJune 30, 2017,2020, our operating portfolio was comprised as follows (square footage in thousands):
| | Location | | Number of Properties | | Square Footage | | Number of Properties | | Square Footage |
Florida | | 23 |
| | 2,277 |
| | 21 |
| | 1,779 |
|
Texas | | 13 |
| | 1,201 |
| | 12 |
| | 843 |
|
California | | 10 |
| | 860 |
| | 10 |
| | 860 |
|
Georgia | | 5 |
| | 593 |
| |
Nevada | | 3 |
| | 243 |
| | 3 |
| | 243 |
|
Delaware | | 3 |
| | 241 |
| | 3 |
| | 241 |
|
North Carolina | | 2 |
| | 403 |
| |
Georgia | | | 3 |
| | 171 |
|
Illinois | | 2 |
| | 100 |
| | 2 |
| | 100 |
|
Hawaii | | 2 |
| | 95 |
| | 2 |
| | 95 |
|
Kentucky | | 1 |
| | 121 |
| | 1 |
| | 121 |
|
District of Columbia | | 1 |
| | 67 |
| |
North Carolina | | | 1 |
| | 121 |
|
Washington, D.C. | | | 1 |
| | 67 |
|
South Carolina | | 1 |
| | 63 |
| | 1 |
| | 63 |
|
New York | | 1 |
| | 61 |
| | 1 |
| | 61 |
|
Louisiana | | 1 |
| | 59 |
| | 1 |
| | 59 |
|
Massachusetts | | 1 |
| | 58 |
| | 1 |
| | 58 |
|
Missouri | | 1 |
| | 41 |
| | 1 |
| | 41 |
|
Oregon | | 1 |
| | 40 |
| | 1 |
| | 40 |
|
U.S. Total | | 71 |
| | 6,523 |
| | 65 |
| | 4,963 |
|
Canada (a) | | 4 |
| | 150 |
| | 3 |
| | 317 |
|
United Kingdom (b) | | 3 |
| | 103 |
| | 2 |
| | 215 |
|
International Total | | 7 |
| | 253 |
| | 5 |
| | 532 |
|
Total | | 78 |
| | 6,776 |
| | 70 |
| | 5,495 |
|
__________
| |
(a) | Represents four build-to-suit projects for self-storage facilities that are unconsolidated and included in the Equity investments in real estate in the consolidated financial statements. |
| |
(b) | Includes two build-to-suit projects for student-housing developments. |
CPA®:CPA:18 – Global 9/6/30/20172020 10-Q– 3840
Build-to-Suit and Development Projects
As of SeptemberJune 30, 2017,2020, we had the following 12 consolidated development properties and joint-venturestudent housing development projects, including joint ventures, which remainremained under construction as of that date (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | | | |
Estimated Completion Date | | Property Type | | Location | | Ownership Percentage (a) | | Number of Buildings | | Square Footage | | Estimated Project Totals (b) | | Amount Funded (b) (c) |
Q4 2017 | | Hotel | | Munich, Germany (d) | | 94.9 | % | | 1 |
| | 244,176 |
| | $ | 75,843 |
| | $ | 67,882 |
|
Q3 2018 | | Student Housing | | Portsmouth, England | | 97.0 | % | | 1 |
| | 126,807 |
| | 65,704 |
| | 21,512 |
|
Q3 2018 | | Student Housing | | Cardiff, Wales | | 94.5 | % | | 1 |
| | 96,983 |
| | 42,252 |
| | 15,687 |
|
Q4 2018 | | Hotel | | Stuttgart, Germany (e) | | 94.9 | % | | 1 |
| | 244,513 |
| | 3,634 |
| | 3,634 |
|
TBD | | Office/Student Housing | | Accra, Ghana (f) | | 100.0 | % | | 6 |
| | 506,537 |
| | 60,630 |
| | 23,164 |
|
| | | | | | | | 10 |
| | 1,219,016 |
| | $ | 248,063 |
| | 131,879 |
|
Third-party contributions (g) | | | | | | | | | | | | (641 | ) |
Total | | | | | | | | | | | | | | $ | 131,238 |
|
|
| | | | | | | | | | | | | | | | | | | |
Location | | Ownership Percentage (a) | | Number of Buildings | | Square Footage | | Estimated Project Totals (b) (c) | | Amount Funded (b) (c) | | Estimated Completion Date |
Austin, Texas | | 90.0 | % | | 1 |
| | 185,720 |
| | $ | 74,469 |
| | $ | 62,627 |
| | Q3 2020 |
San Sebastian, Spain (d) | | 100.0 | % | | 1 |
| | 126,075 |
| | 32,316 |
| | 27,209 |
| | Q3 2020 |
Barcelona, Spain (d) (e) | | 100.0 | % | | 3 |
| | 77,504 |
| | 29,143 |
| | 25,186 |
| | Q3 2020 |
Malaga, Spain (d) | | 100.0 | % | | 2 |
| | 230,329 |
| | 41,122 |
| | 24,557 |
| | Q4 2020 |
Porto, Portugal (d) | | 98.5 | % | | 1 |
| | 102,112 |
| | 22,653 |
| | 15,811 |
| | Q4 2020 |
Coimbra, Portugal (d) | | 98.5 | % | | 1 |
| | 135,076 |
| | 30,432 |
| | 15,195 |
| | Q1 2021 |
Bilbao, Spain (d) | | 100.0 | % | | 1 |
| | 179,279 |
| | 48,134 |
| | 11,441 |
| | Q3 2021 |
Seville, Spain (d) | | 75.0 | % | | 1 |
| | 163,477 |
| | 42,921 |
| | 17,376 |
| | Q3 2021 |
Pamplona, Spain (d) | | 100.0 | % | | 1 |
| | 91,363 |
| | 27,666 |
| | 10,680 |
| | Q3 2021 |
Swansea, United Kingdom (f) | | 97.0 | % | | 1 |
| | 176,496 |
| | 83,621 |
| | 30,277 |
| | Q3 2022 |
Valencia, Spain (d) | | 98.7 | % | | 1 |
| | 100,423 |
| | 26,213 |
| | 7,388 |
| | Q3 2022 |
Granada, Spain (d) | | 98.5 | % | | 1 |
| | 75,557 |
| | 21,594 |
| | 4,761 |
| | Q3 2022 |
| | | | 15 |
| | 1,643,411 |
| | $ | 480,284 |
| | 252,508 |
| | |
Third-party contributions (g) | | | | | | | | | | (7,267 | ) | | |
Total | | | | | | | | | | $ | 245,241 |
| | |
__________
| |
(a) | Represents our expected ownership percentage upon the completion of each respective development project. |
| |
(b) | Amounts related to certain of our build-to-suit11 international development projects are denominated in a foreign currency. For these projects, amounts are based on their respective spotexchange rates as of SeptemberJune 30, 2017, where applicable.2020. |
| |
(c) | Amounts presented include certain costs that have been fully funded as of September 30, 2017 and are included in Other assets, net but not yet used in construction and therefore not included in Real estate under construction. These amounts also exclude capitalized interest, accrued costs, and capitalized acquisition fees forpaid to our Advisor, which are all included in Real estate under construction.construction on our condensed consolidated balance sheets. |
| |
(d) | During the three months ended September 30, 2017, we partially commenced operations on theIncluded as part of an agreement with a third-party to become a net-leased development, and as a result, $54.1 millionproperty upon completion of the total project was placed into service. The remainder of the project is currently expected to be placed into service during the fourth quarter of 2017.construction. |
| |
(e) | ThisOn August 4, 2020, this project relates to a net-leased build-to-suit expansion of an existing hotel, which we have fully funded but was still under development as of September 30, 2017.substantially completed (Note 13). |
| |
(f) | On February 19, 2016,Amount funded for the joint venture obtained third-party financingproject includes a $6.7 million right-of-use (“ROU”) land lease asset that is included in an amount up to $41.0 million, subject to the tenant obtaining a letter of credit. Since the tenant has not obtained the required letter of credit as of the date of this Report, we are currently unable to estimate when this project will be completed, if at all (Note 4). In-place lease and other intangible assets on our condensed consolidated balance sheets. |
| |
(g) | Amount represents the funds contributed from our joint-venture partners. |
As of September 30, 2017, we had the following unconsolidated development properties and joint-venture development projects, which remain under construction (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | | | |
Estimated Completion Date | | Property Type | | Location (a) (b) | | Ownership Percentage (c) | | Number of Buildings | | Square Footage | | Estimated Project Totals (d) | | Amount Funded (d) |
Q2 2018 | | Self Storage | | Toronto, Canada | | 89.9 | % | | 1 |
| | 119,000 |
| | $ | 16,978 |
| | $ | 6,905 |
|
Q3 2018 | | Self Storage | | Vaughan, Canada | | 90.0 | % | | 1 |
| | 95,475 |
| | 15,590 |
| | 3,046 |
|
Q4 2018 | | Self Storage | | Vaughan, Canada | | 90.0 | % | | 1 |
| | 105,150 |
| | 15,827 |
| | 11,917 |
|
| | | | | | | | 3 |
| | 319,625 |
| | $ | 48,395 |
| | $ | 21,868 |
|
__________
| |
(a) | These properties all relate to an unconsolidated investment, which we account for under the equity method of accounting. |
| |
(b) | During the nine months ended September 30, 2017, we commenced operations in two Canadian self-storage facilities upon the completion of distinct phases of the overall development, and as a result, placed $9.3 million and $10.1 million of these projects into service. During the three and nine months ended September 30, 2017, we incurred losses of $0.3 million and $0.7 million, respectively, relating to these distinct phases of the projects, which are included in Equity in losses of equity method investment in real estate on our consolidated financial statements. |
CPA®:CPA:18 – Global 9/6/30/20172020 10-Q– 3941
| |
(c) | Represents our expected ownership percentage upon the completion of each respective development project. As of September 30, 2017, the joint-venture partner had not yet purchased its 10% equity interest, which will be funded by the distributions they are eligible to receive upon the properties being placed into service (Note 4). |
| |
(d) | Amounts related to our Canadian build-to-suit projects are denominated in Canadian dollars, which have been partially funded with third-party financing. For these projects, U.S. dollar amounts are based on their respective exchange rate as of September 30, 2017. |
Terms and Definitions
Pro Rata Metrics— The portfolio information above contains certain metrics prepared under the pro rata consolidation method. We refer to these metrics as pro rata metrics.method (“Pro Rata Metrics”). We have a number of investments usually with our affiliates, in which our economic ownership is less than 100%. Under the full consolidation method, we report 100% of the assets, liabilities, revenues, and expenses of those investments that are deemed to be under our control or for which we are deemed to be the primary beneficiary, even if our ownership is less than 100%. Also, for all other jointly owned investments, which we do not control, we report our net investment and our net (loss) income or loss from that investment. Under the pro rata consolidation method, we generally present our proportionate share, based on our economic ownership of these jointly owned investments, of the portfolio metrics of those investments. Multiplying each of 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, 2017.2020. If there is a rent abatement, we annualize the first monthly contractual base rent following the free rent period. ABR is not applicable to operating properties.
NOI — Net operating income (“NOI”) is a non-GAAP measure intended to reflect the performance of our entire portfolio of properties and investments. We define NOI as lease revenues and other operating and interest income less non-reimbursable property and corporate expenses as determined by GAAP. We believe that NOI is a helpful measure that both investors and management can use to evaluate the financial performance of our properties and it allows for comparison of our portfolio performance between periods and to other REITs. While we believe that NOI is a useful supplemental measure, it should not be considered as an alternative to Net (loss) income as an indication of our operating performance. Financial Highlights
Stabilized NOI — We use Stabilized NOI, a non-GAAP measure, as a metric to evaluate the performance of our entire portfolio of properties. Stabilized NOI for development projects and newly acquired operating properties that are not yet substantially leased up are not included in our portfolio information until one year after the project has been substantially completed and placed into service, or the property has been substantially leased up (and the project or property has not been disposed of during or prior to the current period). In addition, any newly acquired stabilized operating property is included in our portfolio of Stabilized NOI information upon acquisition. Stabilized NOI for a net-leased property is included in our portfolio information upon acquisition or in the period when it is placed into service (as the property will already have a lease in place).
Stabilized NOI is adjusted for corporate expenses, such as asset management fees and the Available Cash Distributions to our Advisor (Note 3), as well as other gains and (losses) that are calculated and reported at the corporate level and not evaluated as part of any property’s operating performance. Additionally, non-cash adjustments (such as straight-line rent adjustments) and interest income related to our notes receivable (which is non-property related) are not included in Stabilized NOI. Lastly, non-core income is excluded from Stabilized NOI as this income is generally not recurring in nature.
We believe that Stabilized NOI is a helpful measure that both investors and management can use to evaluate the financial performance of our properties and it allows for comparison of our portfolio performance between periods and to other REITs. While we believe that Stabilized NOI is a useful supplemental measure, it should not be considered as an alternative to Net (loss) income as an indication of our operating performance.
CPA:18 – Global 6/30/2020 10-Q– 42
Reconciliation of Net Income (Loss) (GAAP) to Net Operating Income Attributable to CPA:18 – Global (non-GAAP) (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Total revenues | $ | 53,201 |
| | $ | 47,284 |
| | $ | 152,653 |
| | $ | 136,797 |
|
Acquisition and other expenses | — |
| | 36 |
| | 46 |
| | 4,747 |
|
Net income (loss) attributable to CPA®:18 – Global | 9,821 |
| | (4,081 | ) | | 16,224 |
| | (16,490 | ) |
| | | | | | | |
Cash distributions paid | 21,396 |
| | 20,566 |
| | 63,606 |
| | 60,900 |
|
| | | | | | | |
Net cash provided by operating activities | | | | | 67,777 |
| | 56,005 |
|
Net cash used in investing activities | | | | | (74,320 | ) | | (147,215 | ) |
Net cash provided by financing activities | | | | | 5,378 |
| | 57,580 |
|
| | | | | | | |
Supplemental financial measures: | | | | | | | |
FFO attributable to CPA®:18 – Global (a) | 27,261 |
| | 15,297 |
| | 68,413 |
| | 41,859 |
|
MFFO attributable to CPA®:18 – Global (a) | 19,404 |
| | 14,395 |
| | 47,097 |
| | 43,000 |
|
Adjusted MFFO attributable to CPA®:18 – Global (a) | 16,411 |
| | 14,786 |
| | 45,270 |
| | 43,732 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Net Income (Loss) (GAAP) | $ | 2,339 |
| | $ | 5,178 |
| | $ | (3,230 | ) | | $ | 24,851 |
|
Adjustments: | | | | | | | |
Depreciation and amortization | 14,660 |
| | 17,180 |
| | 29,190 |
| | 32,552 |
|
Allowance for credit losses | — |
| | — |
| | 4,865 |
| | — |
|
Interest expense | 10,354 |
| | 12,044 |
| | 20,843 |
| | 24,401 |
|
Other gains and (losses) | (1,064 | ) | | (1,302 | ) | | 1,008 |
| | (1,474 | ) |
Equity in losses of equity method investment in real estate | 159 |
| | 603 |
| | 213 |
| | 1,251 |
|
Gain on sale of real estate, net | — |
| | (650 | ) | | — |
| | (16,058 | ) |
Provision for (benefit from) income taxes | 1,558 |
| | (867 | ) | | 1,164 |
| | 57 |
|
NOI related to noncontrolling interests (1) | (2,991 | ) | | (3,247 | ) | | (5,976 | ) | | (6,341 | ) |
NOI related to equity method investment in real estate (2) | 339 |
| | 48 |
| | 970 |
| | 187 |
|
Net Operating Income Attributable to CPA:18 – Global (Non-GAAP) | $ | 25,354 |
| | $ | 28,987 |
| | $ | 49,047 |
| | $ | 59,426 |
|
| | | | | | | |
(1) NOI related to noncontrolling interests: | | | | | | | |
Net income attributable to noncontrolling interests (GAAP) | $ | (3,530 | ) | | $ | (2,100 | ) | | $ | (6,141 | ) | | $ | (6,946 | ) |
Depreciation and amortization | (1,515 | ) | | (2,006 | ) | | (3,049 | ) | | (3,616 | ) |
Interest expense | (1,086 | ) | | (1,176 | ) | | (2,220 | ) | | (2,432 | ) |
Other gains and (losses) | 1,288 |
| | (105 | ) | | 1,629 |
| | (215 | ) |
Gain on sale of real estate, net | — |
| | — |
| | — |
| | 2,874 |
|
(Provision for) benefit from income taxes | (177 | ) | | 35 |
| | (140 | ) | | 41 |
|
Available Cash Distributions to a related party (Note 3) | 2,029 |
| | 2,105 |
| | 3,945 |
| | 3,953 |
|
NOI related to noncontrolling interests | $ | (2,991 | ) | | $ | (3,247 | ) | | $ | (5,976 | ) | | $ | (6,341 | ) |
| | | | | | | |
(2) NOI related to equity method investment in real estate: | | | | | | | |
Equity in losses of equity method investment in real estate (GAAP) | $ | (159 | ) | | $ | (603 | ) | | $ | (213 | ) | | $ | (1,251 | ) |
Depreciation and amortization | 202 |
| | 190 |
| | 410 |
| | 503 |
|
Interest expense | 476 |
| | 407 |
| | 934 |
| | 848 |
|
Other gains and (losses) | (180 | ) | | (9 | ) | | (175 | ) | | (15 | ) |
Benefit from income taxes | — |
| | 63 |
| | 14 |
| | 102 |
|
NOI related to equity method investment in real estate | $ | 339 |
| | $ | 48 |
| | $ | 970 |
| | $ | 187 |
|
__________
CPA:18 – Global 6/30/2020 10-Q– 43
Reconciliation of Stabilized NOI to Net Operating Income Attributable to CPA:18 – Global (Non-GAAP) (pro rata, in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Net-leased | $ | 18,256 |
| | $ | 21,607 |
| | $ | 38,793 |
| | $ | 42,851 |
|
Self storage | 8,897 |
| | 9,330 |
| | 18,735 |
| | 18,430 |
|
Other operating properties | 1,444 |
| | — |
| | 3,479 |
| | — |
|
Stabilized NOI | 28,597 |
| | 30,937 |
| | 61,007 |
| | 61,281 |
|
Other NOI: | | | | | | | |
Corporate (a) | (4,664 | ) | | (5,099 | ) | | (9,775 | ) | | (9,715 | ) |
Notes receivable | 710 |
| | 822 |
| | 1,420 |
| | 2,654 |
|
Straight-line rent adjustments (b) | 461 |
| | 926 |
| | (5,345 | ) | | 1,900 |
|
Non-core income (c) | 304 |
| | — |
| | 1,842 |
| | — |
|
Disposed properties | (33 | ) | | (109 | ) | | (54 | ) | | 240 |
|
| 25,375 |
| | 27,477 |
| | 49,095 |
| | 56,360 |
|
Build-to-Suit and Development Projects (d) | (21 | ) | | (159 | ) | | (48 | ) | | (253 | ) |
Recently-opened operating properties (e) | — |
| | 1,669 |
| | — |
| | 3,319 |
|
Net Operating Income Attributable to CPA:18 – Global (Non-GAAP) | $ | 25,354 |
| | $ | 28,987 |
| | $ | 49,047 |
| | $ | 59,426 |
|
_________
| |
(a) | We considerIncludes expenses such as asset management fees, the performance metrics listed above, including Funds from operations, or FFO, Modified funds from operations, or MFFO,Available Cash Distributions to our Advisor, as well as other gains and Adjusted modified funds from operations, or Adjusted MFFO, which are supplemental measures(losses) that are calculated and reported at the corporate level and not defined by GAAP, referred to hereinevaluated as non-GAAP measures, to be important measures in the evaluationpart of ourany property’s operating performance. See
|
| |
(c) | Includes NOI related to back rents collected from tenants that were previously reserved in prior periods as well as termination income received. |
| |
(d) | The three and six months ended June 30, 2020 includes NOI for our definitionsongoing student housing development projects. The three and six months ended June 30, 2019 includes NOI for a student housing development project that was placed into service during the third quarter of these non-GAAP measures2019, as well as phases of the Canadian self-storage properties that were placed into service during the year ended December 31, 2018. Refer to the Development Projects table above for a listing of all current projects. |
| |
(e) | The three and reconciliations to their most directly comparable GAAP measures.six months ended June 30, 2019 includes NOI for the student housing operating properties located in Portsmouth and Cardiff, United Kingdom, which were completed during the third quarter of 2018. |
CPA®:CPA:18 – Global 9/6/30/20172020 10-Q– 40
Total revenues improved for both the three and nine months ended September 30, 2017 as compared to the same periods in 2016, primarily as a result of the accretive impact of our investments acquired or placed into service during 2016 and 2017.
Net income attributable to CPA®:18 – Global and FFO improved for both the three and nine months ended September 30, 2017 as compared to the same periods in 2016, primarily as a result of the accretive impact of our investments acquired or placed into service during 2016 and 2017. Additional improvements resulted from an increase in realized and unrealized foreign currency transaction gains related to our international investments, as well as a decrease in acquisition expenses. The increases were offset by provisions for bad debt expense related to two tenants and an increase in interest expense.
MFFO and Adjusted MFFO increased for both the three and nine months ended September 30, 2017 as compared to the same periods in 2016, primarily due to the accretive impact of our investments acquired or placed into service during 2016 and 2017. The increases were offset by provisions for bad debt expense related to two tenants and an increase in interest expense.
CPA®:18 – Global 9/30/2017 10-Q– 4144
Results of Operations
We evaluate our results of operations with a primary focus onon: (i) our ability to generate the cash flow necessary to meet our objectives of funding distributions to stockholders and (ii) increasing the value of our real estate investments. As a result, our assessment of operating results gives less emphasis to the effect of unrealized gains and losses, which may cause fluctuations in net (loss) income for comparable periods but have no impact on cash flows, and to other non-cash charges, such as depreciation and impairment charges.
The following table presents the comparative results of operations (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change |
Revenues | | | | | | | | | | | |
Lease revenues | $ | 27,635 |
| | $ | 24,751 |
| | $ | 2,884 |
| | $ | 77,417 |
| | $ | 73,339 |
| | $ | 4,078 |
|
Other real estate income — operating property revenues | 20,649 |
| | 18,711 |
| | 1,938 |
| | 60,345 |
| | 52,190 |
| | 8,155 |
|
Reimbursable tenant costs | 3,034 |
| | 3,017 |
| | 17 |
| | 9,201 |
| | 8,793 |
| | 408 |
|
Interest income and other | 1,883 |
| | 805 |
| | 1,078 |
| | 5,690 |
| | 2,475 |
| | 3,215 |
|
| 53,201 |
| | 47,284 |
| | 5,917 |
| | 152,653 |
| | 136,797 |
| | 15,856 |
|
Operating Expenses | | | | | | | | | | | |
Depreciation and amortization: | | | | |
| | | | | | |
Net-leased properties | 12,005 |
| | 11,151 |
| | 854 |
| | 33,622 |
| | 34,145 |
| | (523 | ) |
Operating properties | 6,921 |
| | 9,725 |
| | (2,804 | ) | | 22,984 |
| | 28,626 |
| | (5,642 | ) |
| 18,926 |
| | 20,876 |
| | (1,950 | ) | | 56,606 |
| | 62,771 |
| | (6,165 | ) |
Property expenses: | | | | | | | | | | | |
Operating properties | 8,593 |
| | 8,634 |
| | (41 | ) | | 25,074 |
| | 23,261 |
| | 1,813 |
|
Reimbursable tenant costs | 3,034 |
| | 3,017 |
| | 17 |
| | 9,201 |
| | 8,793 |
| | 408 |
|
Asset management fees | 2,902 |
| | 2,547 |
| | 355 |
| | 8,378 |
| | 7,424 |
| | 954 |
|
Net-leased properties | 1,792 |
| | 1,382 |
| | 410 |
| | 8,568 |
| | 3,459 |
| | 5,109 |
|
| 16,321 |
| | 15,580 |
| | 741 |
| | 51,221 |
| | 42,937 |
| | 8,284 |
|
General and administrative | 1,856 |
| | 1,601 |
| | 255 |
| | 5,337 |
| | 5,151 |
| | 186 |
|
Acquisition and other expenses | — |
| | 36 |
| | (36 | ) | | 46 |
| | 4,747 |
| | (4,701 | ) |
| 37,103 |
| | 38,093 |
| | (990 | ) | | 113,210 |
| | 115,606 |
| | (2,396 | ) |
Other Income and Expenses | | | | |
| | | | | | |
Interest expense | (12,430 | ) | | (11,025 | ) | | (1,405 | ) | | (35,673 | ) | | (31,705 | ) | | (3,968 | ) |
Other income and (expenses) | 5,963 |
| | 156 |
| | 5,807 |
| | 18,084 |
| | 1,189 |
| | 16,895 |
|
Equity in losses of equity method investment in real estate | (341 | ) | | (69 | ) | | (272 | ) | | (694 | ) | | (69 | ) | | (625 | ) |
| (6,808 | ) | | (10,938 | ) | | 4,130 |
| | (18,283 | ) | | (30,585 | ) | | 12,302 |
|
Income (loss) before income taxes and loss on sale of real estate | 9,290 |
| | (1,747 | ) | | 11,037 |
| | 21,160 |
| | (9,394 | ) | | 30,554 |
|
Benefit from (provision for) income taxes | 2,825 |
| | (103 | ) | | 2,928 |
| | 1,632 |
| | (303 | ) | | 1,935 |
|
Income (loss) before loss on sale of real estate | 12,115 |
| | (1,850 | ) | | 13,965 |
| | 22,792 |
| | (9,697 | ) | | 32,489 |
|
Loss on sale of real estate, net of tax | — |
| | — |
| | — |
| | — |
| | (63 | ) | | 63 |
|
Net Income (Loss) | 12,115 |
| | (1,850 | ) | | 13,965 |
| | 22,792 |
| | (9,760 | ) | | 32,552 |
|
Net income attributable to noncontrolling interests | (2,294 | ) | | (2,231 | ) | | (63 | ) | | (6,568 | ) | | (6,730 | ) | | 162 |
|
Net Income (Loss) Attributable to CPA®:18 – Global | $ | 9,821 |
| | $ | (4,081 | ) | | $ | 13,902 |
| | $ | 16,224 |
| | $ | (16,490 | ) | | $ | 32,714 |
|
CPA®:18 – Global 9/30/2017 10-Q– 42
Lease Composition and Leasing Activities
As of September 30, 2017, approximately 57.3% of our leases, based on ABR, provide for adjustments based on formulas indexed to changes in the U.S. CPI, or similar indices for the jurisdiction where the property is located, some of which have caps and/or floors. In addition, 37.9% of our leases on that same basis have fixed rent adjustments, for which ABR is scheduled to increase by an average of 3.3% in 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, or second generation leases, and renewed leases with existing tenants for the periods presented and, therefore, does not include new acquisitions for our portfolio during the periods presented.
During the three months ended September 30, 2017, we signed six leases totaling 61,751 square feet of leased space. Of these leases, two were with new tenants and four were lease modifications with existing tenants. The weighted average new rent for these leases is $9.13 per square foot. For lease modifications, the new rent is $7.40 compared to the weighted average former rent of $8.22 per square foot.
During the nine months ended September 30, 2017, we signed seven leases totaling 67,151 square feet of leased space. Of these leases, two were with new tenants and five were lease modifications with existing tenants. The weighted average new rent for these leases is $9.97 per square foot. For lease modifications, the new rent is $9.09 compared to the weighted average former rent of $9.80 per square foot.
CPA®:18 – Global 9/30/2017 10-Q– 43
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 Netnet (loss) income (loss) attributable to CPA®:CPA:18 – Global (in thousands):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change | 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change |
Existing Net-Leased Properties | | | | | | | | | | | | | | | | | | | | | | |
Lease revenues | $ | 25,363 |
| | $ | 24,751 |
| | $ | 612 |
| | $ | 74,136 |
| | $ | 73,339 |
| | $ | 797 |
| $ | 25,821 |
| | $ | 29,295 |
| | $ | (3,474 | ) | | $ | 47,836 |
| | $ | 59,304 |
| | $ | (11,468 | ) |
Depreciation and amortization | (11,074 | ) | | (11,152 | ) | | 78 |
| | (32,334 | ) | | (34,145 | ) | | 1,811 |
| (10,692 | ) | | (13,104 | ) | | 2,412 |
| | (21,360 | ) | | (24,274 | ) | | 2,914 |
|
Reimbursable tenant costs | | (3,468 | ) | | (3,155 | ) | | (313 | ) | | (6,597 | ) | | (7,079 | ) | | 482 |
|
Property expenses | (1,723 | ) | | (1,382 | ) | | (341 | ) | | (8,343 | ) | | (3,459 | ) | | (4,884 | ) | (968 | ) | | (1,803 | ) | | 835 |
| | (2,988 | ) | | (3,400 | ) | | 412 |
|
Property level contribution | 12,566 |
| | 12,217 |
| | 349 |
| | 33,459 |
| | 35,735 |
| | (2,276 | ) | 10,693 |
| | 11,233 |
| | (540 | ) | | 16,891 |
| | 24,551 |
| | (7,660 | ) |
Recently Acquired Net-Leased Properties | | | | | | | | | | | | |
Recently Net-Leased Student Housing Properties | | | | | | | | | | | | |
Lease revenues | 2,272 |
| | — |
| | 2,272 |
| | 3,281 |
| | — |
| | 3,281 |
| 346 |
| | — |
| | 346 |
| | 692 |
| | — |
| | 692 |
|
Depreciation and amortization | (931 | ) | | — |
| | (931 | ) | | (1,288 | ) | | — |
| | (1,288 | ) | (173 | ) | | — |
| | (173 | ) | | (241 | ) | | — |
| | (241 | ) |
Property expenses | (69 | ) | | — |
| | (69 | ) | | (225 | ) | | — |
| | (225 | ) | (112 | ) | | — |
| | (112 | ) | | (174 | ) | | — |
| | (174 | ) |
Property level contribution | 1,272 |
| | — |
| | 1,272 |
| | 1,768 |
| | — |
| | 1,768 |
| 61 |
| | — |
| | 61 |
| | 277 |
| | — |
| | 277 |
|
Existing Operating Properties | | | | | | | | | | | | | | | | | | | | | | |
Revenues | 17,784 |
| | 16,702 |
| | 1,082 |
| | 52,090 |
| | 48,030 |
| | 4,060 |
| |
Operating property revenues | | 16,680 |
| | 17,474 |
| | (794 | ) | | 34,783 |
| | 34,580 |
| | 203 |
|
Operating property expenses | | (6,540 | ) | | (6,610 | ) | | 70 |
| | (13,264 | ) | | (13,018 | ) | | (246 | ) |
Depreciation and amortization | (5,053 | ) | | (8,206 | ) | | 3,153 |
| | (17,432 | ) | | (25,405 | ) | | 7,973 |
| (3,795 | ) | | (3,753 | ) | | (42 | ) | | (7,589 | ) | | (7,589 | ) | | — |
|
Property level contribution | | 6,345 |
| | 7,111 |
| | (766 | ) | | 13,930 |
| | 13,973 |
| | (43 | ) |
Properties Sold, Held for Sale, or Transferred | | | | | | | | | | | | |
Lease revenues | | — |
| | 814 |
| | (814 | ) | | — |
| | 1,719 |
| | (1,719 | ) |
Operating property revenues | | — |
| | — |
| | — |
| | — |
| | 355 |
| | (355 | ) |
Depreciation and amortization | | — |
| | (323 | ) | | 323 |
| | — |
| | (689 | ) | | 689 |
|
Reimbursable tenant costs | | — |
| | (75 | ) | | 75 |
| | — |
| | (175 | ) | | 175 |
|
Property expenses | (7,626 | ) | | (7,575 | ) | | (51 | ) | | (22,372 | ) | | (21,607 | ) | | (765 | ) | — |
| | (234 | ) | | 234 |
| | — |
| | (419 | ) | | 419 |
|
Property level contribution | 5,105 |
| | 921 |
| | 4,184 |
| | 12,286 |
| | 1,018 |
| | 11,268 |
| |
Recently Acquired Operating Properties | | | | | | | | | | | | |
Revenues | 2,865 |
| | 2,009 |
| | 856 |
| | 8,255 |
| | 4,160 |
| | 4,095 |
| |
Depreciation and amortization | (1,868 | ) | | (1,518 | ) | | (350 | ) | | (5,552 | ) | | (3,221 | ) | | (2,331 | ) | |
Property expenses | (967 | ) | | (1,059 | ) | | 92 |
| | (2,702 | ) | | (1,654 | ) | | (1,048 | ) | |
Operating property expenses | | — |
| | (5 | ) | | 5 |
| | — |
| | (63 | ) | | 63 |
|
Property level contribution | 30 |
| | (568 | ) | | 598 |
| | 1 |
| | (715 | ) | | 716 |
| — |
| | 177 |
| | (177 | ) | | — |
| | 728 |
| | (728 | ) |
Property Level Contribution | 18,973 |
| | 12,570 |
| | 6,403 |
| | 47,514 |
| | 36,038 |
| | 11,476 |
| 17,099 |
| | 18,521 |
| | (1,422 | ) | | 31,098 |
| | 39,252 |
| | (8,154 | ) |
Add other income: | | | | | | | | | | | | | | | | | | | | | | |
Interest income and other | 1,883 |
| | 805 |
| | 1,078 |
| | 5,690 |
| | 2,475 |
| | 3,215 |
| 1,081 |
| | 1,444 |
| | (363 | ) | | 3,498 |
| | 3,363 |
| | 135 |
|
Less other expenses: | | | | | | | | | | | | | | | | | | | | | | |
Asset management fees | (2,902 | ) | | (2,547 | ) | | (355 | ) | | (8,378 | ) | | (7,424 | ) | | (954 | ) | (2,878 | ) | | (2,859 | ) | | (19 | ) | | (5,880 | ) | | (5,728 | ) | | (152 | ) |
General and administrative | (1,856 | ) | | (1,601 | ) | | (255 | ) | | (5,337 | ) | | (5,151 | ) | | (186 | ) | (1,956 | ) | | (2,100 | ) | | 144 |
| | (3,853 | ) | | (3,859 | ) | | 6 |
|
Acquisition and other expenses | — |
| | (36 | ) | | 36 |
| | (46 | ) | | (4,747 | ) | | 4,701 |
| |
Allowance for credit losses | | — |
| | — |
| | — |
| | (4,865 | ) | | — |
| | (4,865 | ) |
| | 13,346 |
| | 15,006 |
| | (1,660 | ) | | 19,998 |
| | 33,028 |
| | (13,030 | ) |
Other Income and Expenses | | | | | | | | | | | | | | | | | | | | | | |
Interest expense | (12,430 | ) | | (11,025 | ) | | (1,405 | ) | | (35,673 | ) | | (31,705 | ) | | (3,968 | ) | (10,354 | ) | | (12,044 | ) | | 1,690 |
| | (20,843 | ) | | (24,401 | ) | | 3,558 |
|
Other income and (expenses) | 5,963 |
| | 156 |
| | 5,807 |
| | 18,084 |
| | 1,189 |
| | 16,895 |
| |
Other gains and (losses) | | 1,064 |
| | 1,302 |
| | (238 | ) | | (1,008 | ) | | 1,474 |
| | (2,482 | ) |
Equity in losses of equity method investment in real estate | (341 | ) | | (69 | ) | | (272 | ) | | (694 | ) | | (69 | ) | | (625 | ) | (159 | ) | | (603 | ) | | 444 |
| | (213 | ) | | (1,251 | ) | | 1,038 |
|
Gain on sale of real estate, net | | — |
| | 650 |
| | (650 | ) | | — |
| | 16,058 |
| | (16,058 | ) |
| (6,808 | ) | | (10,938 | ) | | 4,130 |
| | (18,283 | ) | | (30,585 | ) | | 12,302 |
| (9,449 | ) | | (10,695 | ) | | 1,246 |
| | (22,064 | ) | | (8,120 | ) | | (13,944 | ) |
Income (loss) before income taxes and loss on sale of real estate | 9,290 |
| | (1,747 | ) | | 11,037 |
| | 21,160 |
| | (9,394 | ) | | 30,554 |
| |
Benefit from (provision for) income taxes | 2,825 |
| | (103 | ) | | 2,928 |
| | 1,632 |
| | (303 | ) | | 1,935 |
| |
Income (loss) before loss on sale of real estate | 12,115 |
| | (1,850 | ) | | 13,965 |
| | 22,792 |
| | (9,697 | ) | | 32,489 |
| |
Loss on sale of real estate, net of tax | — |
| | — |
| | — |
| | — |
| | (63 | ) | | 63 |
| |
Income (loss) before income taxes | | 3,897 |
| | 4,311 |
| | (414 | ) | | (2,066 | ) | | 24,908 |
| | (26,974 | ) |
(Provision for) benefit from income taxes | | (1,558 | ) | | 867 |
| | (2,425 | ) | | (1,164 | ) | | (57 | ) | | (1,107 | ) |
Net Income (Loss) | 12,115 |
| | (1,850 | ) | | 13,965 |
| | 22,792 |
| | (9,760 | ) | | 32,552 |
| 2,339 |
| | 5,178 |
| | (2,839 | ) | | (3,230 | ) | | 24,851 |
| | (28,081 | ) |
Net income attributable to noncontrolling interests | (2,294 | ) | | (2,231 | ) | | (63 | ) | | (6,568 | ) | | (6,730 | ) | | 162 |
| (3,530 | ) | | (2,100 | ) | | (1,430 | ) | | (6,141 | ) | | (6,946 | ) | | 805 |
|
Net Income (Loss) Attributable to CPA®:18 – Global | $ | 9,821 |
| | $ | (4,081 | ) | | $ | 13,902 |
| | $ | 16,224 |
| | $ | (16,490 | ) | | $ | 32,714 |
| |
Net (Loss) Income Attributable to CPA:18 – Global | | $ | (1,191 | ) | | $ | 3,078 |
| | $ | (4,269 | ) | | $ | (9,371 | ) | | $ | 17,905 |
| | $ | (27,276 | ) |
CPA®:CPA:18 – Global 9/6/30/20172020 10-Q– 4445
Property level contribution is a non-GAAP measure that we believe to be a useful supplemental measure for management and investors in evaluating and analyzing the financial results of our net-leased and operating properties over time. Property level contribution presents the lease and operating property revenues, less property expenses, reimbursable tenant costs, and depreciation and amortization. Reimbursable tenant costs (revenues) are included within Lease revenues in the condensed consolidated statements of operations. 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 (loss) income (loss) attributable to CPA®:CPA:18 – Global as an indication of our operating performance.
Existing Net-Leased Properties
Existing net-leased properties are those we acquired or placed into service prior to January 1, 2016.2019 and were not sold during the periods presented. For the periods presented, there were 5446 existing net-leased properties.
For the three and six months ended SeptemberJune 30, 20172020 as compared to the same periodperiods in 2016, property level contribution from existing net-leased properties increased by $0.3 million, primarily due to the strengthening of the euro and Norwegian krone between the periods, which increased the lease revenues on several of our properties denominated in these currencies.
For the nine months ended September 30, 2017 compared to the same period in 2016,2019, property level contribution from existing net-leased properties decreased by $2.3$0.5 million primarily due to increased property expenses resulting from bad debt expense of $3.2and $7.7 million, associated with two of our jointly owned investments during 2017. Offsetting the increase in property expenses was a decrease of $1.8 million in depreciation and amortizationrespectively, primarily due to the fulladverse impact of COVID-19 on certain net lease properties. At March 31, 2020, we wrote off $7.0 million of straight-line rent receivables for certain net lease hotels. For the three months ended June 30, 2020, we did not collect and thus did not recognize $3.0 million in rent on these properties. The decrease in lease revenues for the three and six months ended June 30, 2020 was partially offset by a reduction in amortization expense, primarily due to the acceleration of an in-place lease intangible asset subsequent to September 30, 2016.intangibles as a result of a lease restructuring at one of our properties during the second quarter of 2019.
Recently Acquired Net-Leased Student Housing Properties
Recently acquired net-leased student housing properties are those that we acquired or placed into service subsequent to December 31, 2015.2018 or remain under construction as a development project (and are subject to net leases upon completion of construction). For the periods presented, there were three11 recently acquired net-leased properties.
For the three and nine months ended September 30, 2017, compared to the same periods in 2016,student housing properties, which is comprised of a student housing property level contribution from recently acquired net-leased properties increased by $1.3 million and $1.8 million, respectively, primarily due to an acquisition in the first quarter of 2017 and two build-to-suit projects that were placed into service during the secondthird quarter of 2017.2019, and ten ongoing student housing development projects.
Existing Operating Properties
Existing operating properties are those we acquired or placed into service prior to January 1, 2016.2019 and were not sold during the periods presented. For the periods presented, there were 6267 existing operating properties.properties, which excludes two student housing development projects currently under construction.
For the three months ended SeptemberJune 30, 20172020 as compared to the same period in 2016,2019, property level contribution from existing operating properties increaseddecreased by $4.2$0.8 million, primarily due to an increasereduced occupancy at our student housing properties in revenuesthe United Kingdom impacted by the COVID-19 pandemic, as well as a $0.3 million write-off of $1.1 million and a decrease in depreciation and amortization expense of $3.2 million. The increase in revenues was primarily due to an increase ofreceivables during the average occupancy rate for ourcurrent year period at various self-storage properties from Septemberbased on a collectibility assessment at June 30, 2016 to September 30, 2017, which rose from 91.3% to 91.6%, respectively. The decrease in depreciation and amortization expense was primarily due to certain in-place lease intangible assets becoming fully amortized subsequent to September 30, 2016.2020.
For the ninesix months ended SeptemberJune 30, 20172020 as compared to the same period in 2016,2019, property level contribution from existing operating properties increased by $11.3 million, primarilywas substantially flat due to an increasehigher occupancy rates in revenuesthe first quarter compared to the same period in 2019, offset by the decrease for the three months ended June 30, 2020 compared to the same period in 2019.
Properties Sold, Held for Sale, or Transferred
During 2019, we sold 11 properties in our United Kingdom net lease portfolio, as well as our last multi-family residential property located in Fort Walton Beach, Florida. During the three and six months ended June 30, 2019 we recognized gains on sale of $4.1 million and a decrease in depreciation and amortization expense of $8.0 million. The increase in revenues was primarily due to an increase of the average occupancy rate for our self-storage properties from September 30, 2016 to September 30, 2017, which rose from 91.3% to 91.6%, respectively. The decrease in depreciation and amortization expense was primarily due to certain in-place lease intangible assets becoming fully amortized subsequent to September 30, 2016.real estate, as further described below.
Recently Acquired Operating Properties
Recently acquired operating properties are those that we acquired or placed into service subsequent to December 31, 2015. For the periods presented, there were ten recently acquired operating properties.
CPA®:CPA:18 – Global 9/6/30/20172020 10-Q– 4546
Interest Income and Other
For the three months ended SeptemberJune 30, 20172020 as compared to the same period in 2016, property level contribution from recently acquired operating properties increased2019, interest income and other decreased by $0.6$0.4 million, primarily due to increased lease revenuesa $0.3 million decrease related to one-time VAT credit notes issued during the second quarter of $0.9 million, which were partially2019 by the Croatian tax authorities in connection with the settlement plan for the restructure of our Fortenova (formerly Agrokor) tenant during their financial difficulties. This was offset by increased depreciation and amortization expensethe second quarter 2020 collection of $0.4 million. These increases were dueback rents plus VAT from the tenant that resulted from a lease restructure as part of the settlement. The lease restructure included a payment agreement to the operating properties we acquired and placed into service, primarily a completed student-housing development, during 2016 and 2017.collect approximately 50% of unpaid back rents plus VAT in ten monthly installments starting in July 2019 through April 2020.
For the ninesix months ended SeptemberJune 30, 20172020 as compared to the same period in 2016, property level contribution from recently acquired operating properties increased by $0.7 million, primarily due to increased lease revenues of $4.1 million, which were partially offset by increased depreciation and amortization expense and property expenses of $2.3 million and $1.0 million, respectively. These increases were due to the operating properties we acquired and placed into service, primarily a completed student-housing development, during 2016 and 2017.
Other Revenues and Expenses
Interest Income and Other
For the three and nine months ended September 30, 2017 compared to the same periods in 2016,2019, interest income and other increased by $1.1$0.1 million, and $3.2 million, respectively, primarily due to $0.8 million of termination income recognized during 2020 and a $0.5 million total increase from the lease restructuring in 2019 that included back rents being collected subsequent to June 30, 2019 (offset by the VAT credit notes as noted above), partially offset by a $1.2 million decrease in interest earned on ourincome as a result of the Mills Fleet mezzanine loan investment that was acquiredrepayment in November 2016.April 2019.
Property Expenses — Asset Management Fees
ForOur Advisor is entitled to an annual asset management fee, which is further described in Note 3.
Allowance for Credit Losses
In accordance with our adoption of ASU 2016-13 (Note 2), we recorded an allowance for credit losses due to changes in expected economic conditions relating to a net investment in direct financing lease during the three and ninesix months ended SeptemberJune 30, 2017 compared to the same periods in 2016, asset management fees increased by $0.4 million2020 (Note 5).
Other Income and $1.0 million, respectively, due to investment volume during 2017 and 2016, which increased the asset base from which our Advisor earns a fee.
General and Administrative
For the three and nine months ended September 30, 2017 compared to the same period in 2016, general and administrative expenses increased by $0.3 million and $0.2 million, respectively, primarily due to an increase in personnel and overhead expenses reimbursed to our Advisor. The increase was due to our higher trailing four quarters of reported revenues compared to those of the other Managed Programs during the three and nine months ended September 30, 2017.
Acquisition and Other Expenses
Acquisition expenses represent direct costs incurred to acquire properties in transactions that are accounted for as business combinations, whereby such costs are required to be expensed as incurred (Note 2). On January 1, 2017, we adopted ASU 2017-01 (Note 2), and as a result, future transaction costs are more likely to be capitalized since we expect most of our future acquisitions to be classified as asset acquisitions under this new accounting standard. In addition, goodwill will no longer be allocated and written off upon sale if future sales are deemed to be sales of assets and not businesses.
For the three months ended September 30, 2017 compared to the same period in 2016, acquisition expenses remained relatively flat.
For the nine months ended September 30, 2017 compared to the same period in 2016, acquisition expenses decreased by $4.7 million, primarily because none of our 2017 acquisitions were deemed to be business combinations.
Interest Expense
Our interest expense is directly impacted by the mortgage loansfinancings obtained, assumed, or other financing obtained or assumedextinguished in connection with our investing and disposition activity (Note 9).
For the three and six months ended SeptemberJune 30, 20172020 as compared to the same periodperiods in 2016,2019, interest expense increaseddecreased by $1.4$1.7 million and $3.6 million, respectively, primarily due to an increasea decrease in mortgage and bond financing obtained or assumed in connection withweighted-average interest rates on our investing activity during the respective periods.average outstanding debt. Our average outstanding debt balance was $1.3 billion and $1.1 billion during the three months ended September 30, 2017 and 2016, respectively. Our weighted-average interest rate was 4.0% during both the three and six months ended SeptemberJune 30, 20172020 and 2016, respectively.
CPA®:18 – Global 9/30/2017 10-Q– 46
For2019, with weighted-average annual interest rates of 3.9% and 4.4% for the ninerespective three months ended SeptemberJune 30, 2017 compared to2020 and 2019, and 4.0% and 4.5% for the same period in 2016, interest expense increased by $4.0 million. Our average outstanding debt balance was $1.2 billion and $1.1 billion during the ninerespective six months ended SeptemberJune 30, 20172020 and 2016, respectively. Our weighted-average interest rate was 4.0% and 4.1% during the nine months ended September 30, 2017 and 2016, respectively.2019.
Other IncomeGains and (Expenses)(Losses)
Other incomegains and (expenses)(losses) primarily consists of gains and losses on foreign currency transactions and derivative instruments. 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 (loss) income. We also recognize gains or losses on foreign currency transactions when we repatriate cash from our foreign investments or hold foreign currencies inheld by entities with athe U.S. dollar as their functional currency designation. In addition, we have certain derivative instruments, includingdue to fluctuations in foreign currency contracts, that are not designated as hedges for accounting purposes, for which realized and unrealized gains and losses are included in earnings.exchange rates. The timing and amount of such gains or losses cannot always be estimated and are subject to fluctuation.
For the three months ended SeptemberJune 30, 2017, we recognized2020 as compared to the same period in 2019, net other income of $6.0 million, whichgains and (losses) was primarily comprised of $5.6 million of realized and unrealized foreign currency transaction gains related to our international investments, primarily related to our short-term intercompany loans, and $0.4 million of gains recognized on the change in fair value of rent guarantees.relatively flat.
For the ninesix months ended SeptemberJune 30, 2017, we recognized2020 as compared to the same period in 2019, net other income of $18.1gains and (losses) decreased by $2.5 million, whichprimarily due to a $2.8 million loss recognized in 2020 for the Ghana VAT receivable write-off as collectibility was primarily comprised of $16.2 million of realized and unrealized foreign currency transaction gains related to our international investments, $0.9 million of realized gains recognized on foreign currency forward contracts and collars, and $0.9 million of gains recognized on the change in the fair value of rent guarantees.no longer deemed probable (Note 4).
For the three months ended September 30, 2016, we recognized net other income of $0.2 million, which was primarily comprised of $0.3 million of gains recognized on a change in fair value of rent guarantees and $0.3 million of gains recognized on foreign currency forward contracts and collars, partially offset by $0.6 million of realized and unrealized foreign currency transaction losses related to our international investments.
For the nine months ended September 30, 2016, we recognized net other income of $1.2 million, which was primarily comprised of the $1.1 million of gains recognized on the change in fair value of rent guarantees, $0.4 million of interest income received on our cash balances held with financial institutions, and $0.2 million of gains recognized on derivatives, partially offset by $0.4 million of realized and unrealized foreign currency transaction losses related to our international investments.CPA:18 – Global 6/30/2020 10-Q– 47
Equity in Losses of Equity Method Investment in Real Estate
We have an interest in an unconsolidated investment in our Self Storage segment that relates to a joint venture for three self-storage facilities in Canada.
For the three and nine months ended SeptemberJune 30, 20172020 as compared to the same periodsperiod in 2016,2019, equity in losses of equity method investment in real estate increaseddecreased by $0.3$0.4 million, and $0.6 million, respectively, primarily due to reduced property and real estate tax expenses resulting from a lower 2019 tax assessment.
For the commencement of operations in two Canadian self-storage facilities (upon completion of distinct phases of the overall development) in 2017six months ended June 30, 2020, as compared to onethe same period in July 2016.2019, equity in losses of equity method investment in real estate decreased by $1.0 million, primarily due an increase in operating revenues as occupancy rates increased, as well as reduced property and real estate tax expenses.
Gain on Sale of Real Estate, Net
During the three months ended June 30, 2019, we sold two industrial properties in Edinburgh, United Kingdom for total proceeds of $3.0 million, net of closing costs, and recorded an aggregate gain on sale of $0.7 million. In addition, during the six months ended June 30, 2019, we sold our last domestic multi-family residential property, located in Fort Walton Beach, Florida, and a retail building located in Edinburgh, United Kingdom for total proceeds of $17.4 million, net of selling costs, and recorded an aggregate gain on sale of $16.6 million (which includes a $2.9 million gain attributable to noncontrolling interest). The gains on sale of real estate recognized for these dispositions were partially offset by the $1.1 million of disposition fees incurred during the six months ended June 30, 2019 in connection with certain 2018 and 2019 dispositions (Note 3).
(Provision for) Benefit from (Provision for) Income Taxes
Our provision fornet (provision for) benefit from income taxes is primarily related to our international properties.
DuringFor the three and ninesix months ended SeptemberJune 30, 2017,2020, we recorded net provisions for income taxes of $1.6 million and $1.2 million, respectively, primarily due to updated projections regarding the utilization of interest carryforwards at one of our net lease hotel properties in Germany and a change in tax election as part of the tax return filing for our Norwegian properties. The six months ended June 30, 2020 provision was reduced by a first quarter decrease in the deferred tax liability at the same property in Germany as a result of a straight-line rent receivable write-off based on our assessment that there was a less than 75% likelihood of collecting all remaining contractual rent at the property.
For the three months ended June 30, 2019, we recorded a net benefit from income taxes of $2.8$0.9 million, and $1.6 million, respectively, comprisedprimarily due to the deferred tax asset recorded in association with the capital gains tax anticipated for the sale of current income taxes of $0.1 million and $1.3 million, respectively, and a benefit from deferred income taxes of $2.9 millionour Truffle portfolio, which was to be applicable to non-residents for investments in both periods.
During the three and nine months ended September 30, 2016, we recorded aUnited Kingdom effective April 1, 2019. Our provision for income taxes of $0.1 million and $0.3 million, respectively, comprised of current income taxes of $0.1 million and $0.7 million, respectively, and a benefit from deferred income taxes of less than $0.1 million and $0.4 million, respectively.during the six months ended June 30, 2019 was insignificant to our financial statements.
CPA®:18 – Global 9/30/2017 10-Q– 47
Net Income Attributable to Noncontrolling Interests
For the three months ended SeptemberJune 30, 20172020 compared to the same period in 2016,2019, net income attributable to noncontrolling interests remained relatively flat.increased by $1.4 million, primarily due to the final settlement in relation to the ongoing litigation with the joint venture partner on our previously owned Ghana investment (Note 4, Note 13).
For the ninesix months ended SeptemberJune 30, 20172020 compared to the same period in 2016,2019, net income attributable to noncontrolling interests decreased by $0.2$0.8 million, primarily due to the bad debt expense associated with two jointly owned investments,gain on sale of our joint venture real estate disposal in the first quarter of 2019, partially offset by an increasethe Ghana settlement noted above and back rents collected in 2020 relating to a lease restructuring at one of our joint-venture properties during the available cash generated by the Operating Partnership, which we refer to as the Available Cash Distribution (Note 3).second quarter of 2019.
Liquidity and Capital Resources
We use the cash flow generated from our investments primarily to meet our operating expenses, service debt, and fund distributions to stockholders. We currently expect that, for the short-term, the aforementioned cash requirements will be funded by our cash on hand and financings.cash flow from operations. We may also use proceeds from financings and asset sales for the acquisition of real estateto fund development projects, build-to-suit investments, and real estate-related investments.short-term cash requirements.
CPA:18 – Global 6/30/2020 10-Q– 48
Our liquidity would be adversely affected by unanticipated costs, and greater-than-anticipated operating expenses.expenses, and the adverse impact of COVID-19, such as tenants not paying rental obligations. To the extent that our working capital reserve is insufficient to satisfy our cash requirements, additional funds may be provided from cash generated from operations or through short-term borrowings. In addition,Effective April 1, 2020, our Advisor agreed to receive all of its asset management fees in shares of our Class A common stock. Additionally, on July 16, 2020, we entered into a $25.0 million unsecured revolving line of credit with WPC, which has a scheduled maturity date of January 16, 2021 (Note 3, Note 13). Lastly, we may incur indebtedness in connection with the acquisition of real estate, refinance theby refinancing debt thereon,on existing properties, or arrange for the leveraging of any previously unfinanced property, or reinvest the proceeds of financings or refinancings in additional properties.property.
Sources and Uses of Cash During the Period
We closed our initial public offering on April 2, 2015 and have investeduse the proceeds of that offering. We expect to continue to invest, primarily in a diversified portfolio of income-producing commercial properties and other real estate-related assets, with our primary source of operating cash flow to be generated from cash flow from our investments. We expect that theseinvestments primarily to meet our operating expenses, fund construction projects, service debt, and fund distributions to stockholders. Our cash flows will fluctuate periodically due to a number of factors, which may include, among other things: the timing of purchasesfunding for our build-to-suit and sales of real estate;development projects; the timing of the receipt of proceeds from, and the repayment of, non-recourse mortgage loanssecured debt and bonds payable,the WPC line of credit, and the receipt of lease revenues; whether our Advisor receives fees in shares of our common stock or cash, which our board of directors must elect after consultation with our Advisor; the timing and characterization of distributions received from equity investments in real estate; the timing of payments of the Available Cash Distributions to our Advisor; and changes in foreign currency exchange rates. Despite these fluctuations, we believe our investments will generate sufficient cash from operations to meet our normal recurring short-term and long-term liquidity needs. We may also use existing cash resources, the proceeds of non-recourse mortgage loans,secured debt, sales of assets, and distributions reinvested in our common stock through our DRIP and the issuance of additional equity securities 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 $11.8decreased $3.1 million during the ninesix months ended SeptemberJune 30, 20172020 as compared to the same period in 2016,2019, primarily reflectingdue to reduced rent collections at certain properties, which were adversely impacted by the impact of investments acquired or placed into service during 2016 and 2017.COVID-19 pandemic (Note 2).
Investing Activities — Our investing activities are generally comprised of real estate purchases, funding of build-to-suit development projects, capitalized property-related costs, and payment of deferred acquisition fees to our Advisor for asset acquisitions (Note 3).
Financing Activities — Our financing activities are generally comprised of borrowings, repayments and capitalized property-related costs.
Net cash used in investing activities totaled $74.3 million for the nine months ended September 30, 2017. This was primarily the result of cash outflows of $40.8 million to fund construction costsprepayments of our build-to-suit projects (Note 4), $27.9 million for our real estate investments, $5.6 million for capital contributionsnon-recourse secured debt, and activity relating to our equity investments, $4.6 million for capital expenditures oncommon stock, which includes (i) payments of distributions to stockholders, (ii) distributions that are reinvested by stockholders in shares of our owned real estate, $3.7 million for value added taxes paid in connection with acquisitions of real estate, and $3.7 million for payment of deferred acquisition fees to WPC. We also had cash inflows of $12.4 million for value added taxes refunded in connection with real estate acquisitions.
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Financing Activities — Net cash provided by financing activities totaled $5.4 million for the nine months ended September 30, 2017. This was primarily due to cash inflows of $72.4 million from non-recourse mortgage financings (Note 9), $31.8 million of net proceeds receivedcommon stock through our DRIP, and $2.3 million in contributions from noncontrolling interests. We had cash outflows of $63.6 million related to distributions paid to our stockholders, $12.0 million for distributions to noncontrolling interests, $9.1 million for scheduled payments and prepayments of mortgage loan principal, $8.5 million in net repayments of notes payable to WPC (Note 3), and $7.3 million for the repurchase(iii) repurchases of shares of our common stock pursuant to our redemption program.program as described below. In addition, cash paid and received in accordance with our individual agreements with our joint-venture partners are considered financing cash flow activities.
Distributions
Our objectives are to generate sufficient cash flow over time to provide stockholders with distributions and to continue to seek investments with potential for capital appreciation throughout varying economic cycles.distributions. For the ninesix months ended SeptemberJune 30, 2017,2020, we declared distributions to stockholders of $64.2$31.7 million, which were comprised of $30.8$16.6 million of cash distributions and $33.4$15.1 million reinvested by stockholders in shares of our common stock pursuant to our DRIP. From inception through SeptemberJune 30, 2017,2020, we have declared distributions to stockholders totaling $280.5$512.4 million, which were comprised of cash distributions of $131.9$249.9 million and $148.6$262.5 million reinvested by stockholders in shares of our common stock pursuant to our DRIP. In order to create additional cash flow flexibility, we reduced our distributions declared for both Class A and Class C common stock in the second quarter of 2020 by approximately 60%, as compared to the first quarter of 2020.
We believe that FFO, a non-GAAP measure, is the mostan appropriate metric to evaluate our ability to fund distributions to stockholders. For a discussion of FFO, see Supplemental Financial Measures below.
Over the life of our company, Since inception, the regular quarterly cash distributions
that we pay
are expected to behave principally
sourced from ourbeen covered by FFO or cash flow from operations. However, we have funded a portion of our cash distributions to date using net proceeds from our initial public offering and there can be no assurance that our FFO or cash flow from operations will be sufficient to cover our future distributions.
We fully coveredOur distribution coverage using FFO was approximately 53.7% of total distributions declared for the
ninesix months ended
SeptemberJune 30,
20172020 (which includes a non-cash allowance for credit loss of $4.9 million and straight-line rent write-offs of $7.0 million (Note 2)). Our distribution coverage using FFO (excluding the non-cash allowance for credit loss and our distribution coverage on a cumulative basis through that datestraight-line rent write-offs) was approximately 42.3%, with the balance funded primarily with proceeds from our offering and, to a lesser extent, other sources. We funded all91.1% of thesetotal distributions declared for the ninesix months ended SeptemberJune 30, 2017 from Net cash provided by operating activities. Since inception, we have funded 62.6% of2020, while our cumulative distributions from Netnet cash provided by operating activities with the remaining 37.4%, or $104.8 million, being funded primarily with proceeds from our offering and, to a lesser extent, other sources. FFO and cash flow from operations are first applied to current periodfully covered total distributions then to any deficit from prior period cumulative negative FFO or cumulative negative cash flow, as applicable, and finally to future period distributions. As we have fully invested the proceeds of our offering, we expect that in the future, if distributions cannot be fully sourced from FFO or cash flow from operations, they may be sourced from the proceeds of financings or the sales of assets. In determining our distribution policy to date, we have placed primary emphasis on projections of cash flow from operations, together with cash distributions from our unconsolidated investments, rather than on historical results of operations (though these and other factors may be a part of our consideration). Thus, in setting a distribution rate, we focus primarily on expected returns from those investments we have already made, including ongoing build-to-suit projects that have not yet been placed into service, as well as our anticipated rate of return from any future investments, to assess the sustainability of a particular distribution rate over time.declared.
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Redemptions
We maintain a quarterly redemption program pursuant to which we may, at the discretion of our board of directors, redeem shares of our common stock from stockholders seeking liquidity. DuringFor the ninesix months ended SeptemberJune 30, 2017,2020, we redeemed 1,376,438received requests to redeem 1,299,388 and 262,864443,648 shares of Class A and Class C common stock, respectively, comprised of 342237 and 6399 redemption requests, respectively, andwhich we fulfilled at an average price per share of $7.96$8.30 and $7.69$8.37 per share for the Class A and Class C common stock.stock, respectively. As of the date of this Report, we have fulfilled all of the valid redemption requests that we received duringfor the ninesix months ended SeptemberJune 30, 2017.2020. Except for redemptions sought in certain defined special circumstances, the redemption price of the shares listed above was 95% of our most recently published quarterly NAV.NAVs. For shares redeemed under such special circumstances, the redemption price was the greater of the price paid to acquire the shares from us or 95% of our most recently published quarterly NAV.NAVs.
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Summary of Financing
The table below summarizes our non-recourse mortgages and bonds payablesecured debt, net (dollars in thousands):
| | | September 30, 2017 | | December 31, 2016 | June 30, 2020 | | December 31, 2019 |
Carrying Value (a) | | | | | | |
Fixed rate | $ | 1,122,371 |
| | $ | 1,009,817 |
| $ | 933,388 |
| | $ | 951,748 |
|
Variable rate: | | | | | | |
Amount subject to interest rate swaps and caps | 100,328 |
| | 83,007 |
| 194,303 |
| | 184,361 |
|
Amount subject to floating interest rate | 42,743 |
| | 39,319 |
| 79,784 |
| | 65,804 |
|
Amount of variable rate debt subject to interest rate reset features | — |
| | 25,268 |
| |
| 143,071 |
| | 147,594 |
| 274,087 |
| | 250,165 |
|
| $ | 1,265,442 |
| | $ | 1,157,411 |
| $ | 1,207,475 |
| | $ | 1,201,913 |
|
Percent of Total Debt | | | | | | |
Fixed rate | 89 | % | | 87 | % | 77 | % | | 79 | % |
Variable rate | 11 | % | | 13 | % | 23 | % | | 21 | % |
| 100 | % | | 100 | % | 100 | % | | 100 | % |
Weighted-Average Interest Rate at End of Period | | | | | | |
Fixed rate | 4.0 | % | | 4.1 | % | 3.9 | % | | 3.9 | % |
Variable rate (b) | 3.8 | % | | 3.8 | % | 3.4 | % | | 3.8 | % |
Total debt | | 3.8 | % | | 3.9 | % |
___________
| |
(a) | Aggregate debt balance includes unamortized deferred financing costs totaling $8.5$6.0 million and $8.9$5.8 million as of SeptemberJune 30, 20172020 and December 31, 2016,2019, respectively, and unamortized premium, totaling $0.9net of $2.0 million and $0.5$2.1 million as of SeptemberJune 30, 20172020 and December 31, 2016, respectively.2019, respectively (Note 9). |
| |
(b) | The impact of our derivative instruments is reflected in the weighted-average interest rates. |
Cash Resources
At SeptemberAs of June 30, 2017,2020, our cash resources consisted of cash and cash equivalents totaling $74.7$70.8 million. Of this amount, $34.8$13.9 million (at then-current exchange rates) was held in foreign subsidiaries, but wewhich may be subject to restrictions or significant costs should we decide to repatriate these amounts.funds. In addition, we had a restricted cash balance of $22.5 million primarily consisting of funds held in escrow per the terms of certain non-recourse mortgage loan agreements as well as the provisions set forth in our lease agreements with certain tenants. As of SeptemberJune 30, 2017,2020, we utilized the remaining fundshad $14.2 million and $10.3 million available to borrow under our third-party and external joint-venture financing arrangements, respectively, primarily for either funding of construction or mortgage financing upon completion of certain development projects. Additionally, on July 16, 2020, we entered into a $25.0 million unsecured revolving line of our build-to-suit and development projectscredit with WPC, which is scheduled to mature on January 16, 2021 (Note 93), which excludes $41.0 million related to the university complex development located in Accra, Ghana (Note 413) that remains subject to the tenant obtaining a letter of credit.. Our cash resources may be used for future investments and can be used forconstruction costs, working capital needs, other commitments, and distributions to our stockholders. In addition, our unleveraged properties had an aggregate carrying value of $206.0$224.0 million at Septemberas of June 30, 2017,2020, although there can be no assurance that we would be able to obtain financing for these properties.
In July 2016, our board of directors and the board of directors of WPC approved unsecured loans from WPC to us, at the sole discretion of WPC’s management, of up to $50.0 million in the aggregate, at a rate equal to the rate at which WPC can borrow funds under its senior credit facility, for acquisition funding purposes. At September 30, 2017, we had $19.5 million of such loans outstanding from WPC, including accrued interest. The annual interest rate equaled LIBOR plus 1.1% through February 22, 2017. After that date, the annual interest rate equaled LIBOR plus 1.0%. Subsequent to September 30, 2017, we repaid the remaining $19.5 million of loans outstanding to WPC, including accrued interest (Note 13).
CPA®:CPA:18 – Global 9/6/30/20172020 10-Q– 50
Cash Requirements
During the next 12 months following the date of this Report, we expect that our cash requirements will include making payments to acquire new investments, fundingfund capital commitments such as build-to-suitdevelopment projects, paying distributions to our stockholders and to our affiliates that hold noncontrolling interests in entities we control, making share repurchases pursuant to our redemption plan, and making scheduled debt servicingservice payments, as well as other normal recurring operating expenses. BalloonTotal principal payments of $149.5 million, including balloon payments totaling $16.4$140.8 million on our consolidated mortgage loan obligations, to third parties are due during the next 12 months. OurIn addition, we may be required to pay $2.5 million in principal reduction payments for debt covenant breaches on two loans related to an equity investment (as of the date of this Report, the lender has not made such request). Lastly, we have 30 days to make payment on the awarded amount of $2.6 million to the joint venture partner of our previously owned Ghana investment (Note 13).
We believe we have sufficient liquidity to meet our liquidity and capital resource requirements primarily through available cash and cash equivalents, restricted cash, cash received under net lease and operating lease agreements, and undrawn capacity under our construction loans. In addition, our Advisor is actively seekingprovided us with additional cash flexibility by agreeing to refinance certainreceive all asset management fees in shares of these loans, although thereour Class A common stock, effective April 1, 2020, and by providing us with a $25.0 million unsecured revolving line of credit on July 16, 2020 (Note 3, Note 13). We reduced our distributions declared for both Class A and Class C common stock in the second quarter of 2020 by approximately 60%, as compared to the first quarter of 2020, in order to enable us to retain cash and preserve financial flexibility. Lastly, if necessary, we can be no assuranceaccess additional sources of liquidity through leveraging our unleveraged properties and asset sales.
Through the date of this Report, we received 83% from tenants net lease contractual base rent that
was due in the second quarter, and 90% of net lease contractual base rent that was due in July. In addition, we did not recognize $3.0 million of rent that was uncollected during the second quarter as a result of COVID-19, which reduced lease revenues in our condensed consolidated statements of operations. Given the significant uncertainty around the duration and severity of the impact of COVID-19, we are unable to predict the impact it will
be able to do so on favorable terms, or at all. Additionally, we had two outstanding loans from WPC that were set to mature in October 2017 and May 2018, which were fully repaid subsequent to September 30, 2017 (Note 3). We expect to fund $90.3 million related to capital and other lease commitments during the next 12 months. We expect to fund future investments, capital commitments, any capital expenditures on existing properties, and scheduled and unscheduled debt paymentshave on our mortgage loans throughtenants’ continued ability to pay rent.
The extent to which COVID-19 impacts our liquidity and debt covenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the useduration of the outbreak and actions taken to contain COVID-19 or treat its impact, among others. The potential impact of COVID-19 on our cash reserves, cash generated from operations,tenants and proceeds from financingsproperties could have a material adverse effect on our liquidity and asset sales.debt covenants. Our liquidity would be adversely affected by unanticipated costs, greater-than-anticipated operating expenses, and the adverse impact of COVID-19.
Off-Balance Sheet Arrangements and Contractual Obligations
The table below summarizes our debt, off-balance sheet arrangements, and other contractual obligations (primarily our capital commitments and lease obligations) at Septembercommitments) as of June 30, 20172020 and the effect that these arrangements and obligations are expected to have on our liquidity and cash flow in the specified future periods (in thousands):
|
| | | | | | | | | | | | | | | | | | | |
| Total | | Less than 1 year | | 1-3 years | | 3-5 years | | More than 5 years |
Debt, net — principal (a) | $ | 1,273,023 |
| | $ | 22,827 |
| | $ | 109,822 |
| | $ | 364,491 |
| | $ | 775,883 |
|
Interest on borrowings and deferred acquisition fees | 307,253 |
| | 50,880 |
| | 98,606 |
| | 81,957 |
| | 75,810 |
|
Capital commitments (b) | 151,214 |
| | 89,579 |
| | 61,635 |
| | — |
| | — |
|
Loan from WPC, including accrued interest (c) | 19,508 |
| | 19,508 |
| | — |
| | — |
| | — |
|
Operating and other lease commitments (d) | 12,536 |
| | 756 |
| | 1,513 |
| | 869 |
| | 9,398 |
|
Annual distribution and shareholder servicing fee (e) | 6,145 |
| | 485 |
| | 4,278 |
| | 1,382 |
| | — |
|
Deferred acquisition fees — principal (f) | 5,682 |
| | 4,893 |
| | 789 |
| | — |
| | — |
|
Asset retirement obligations (g) | 2,835 |
| | — |
| | — |
| | — |
| | 2,835 |
|
| $ | 1,778,196 |
| | $ | 188,928 |
| | $ | 276,643 |
| | $ | 448,699 |
| | $ | 863,926 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Total | | Less than 1 year | | 1-3 years | | 3-5 years | | More than 5 years |
Debt — principal (a) | $ | 1,211,496 |
| | $ | 149,474 |
| | $ | 329,788 |
| | $ | 579,850 |
| | $ | 152,384 |
|
Capital commitments (b) | 230,698 |
| | 181,252 |
| | 49,446 |
| | — |
| | — |
|
Interest on borrowings | 167,691 |
| | 44,547 |
| | 72,968 |
| | 41,781 |
| | 8,395 |
|
External joint venture loans, including interest (c) | 6,731 |
| | 311 |
| | 669 |
| | 1,656 |
| | 4,095 |
|
Deferred acquisition fees (d) | 2,503 |
| | 2,503 |
| | — |
| | — |
| | — |
|
| $ | 1,619,119 |
| | $ | 378,087 |
| | $ | 452,871 |
| | $ | 623,287 |
| | $ | 164,874 |
|
__________
| |
(a) | Represents the non-recourse secured debt, and bonds payablenet that we obtained in connection with our investments. At September 30, 2017, thisinvestments and excludes $8.5$6.0 million of deferred financing costs and $0.9$2.0 million of unamortized premium, net.net (Note 9). |
| |
(b) | Capital commitments includeis comprised of estimated construction funding for our current build-to-suitdevelopment projects totaling $144.4$227.8 million (Note 4), a $6.7$1.9 million of outstanding commitmentcommitments on a build-to-suit projectdevelopment projects that hashave been placed into service, and $0.1$1.0 million related to other construction commitments.of tenant improvement allowances at certain properties. |
| |
(c) | On October 13, 2017, we repaid the remaining $19.5 millionComprised of loans outstandingand related interest from our joint venture partners to WPC, including accrued interestthe jointly owned investments that we consolidate (Note 133). |
CPA:18 – Global 6/30/2020 10-Q– 51
| |
(d) | Operating commitments consist of rental obligations under ground leases. Other lease commitments consist of our share of future rents payable pursuant to the advisory agreement for the purpose of leasing office space used for the administration of real estate entities, which is calculated as our allocable portion of WPC’s future minimum rent amounts using the allocation percentages for overhead reimbursement as of September 30, 2017 (Note 3). |
| |
(e) | Represents the estimated liability for the present value of the remaining annual distribution and shareholder servicing fee in connection with our Class C common stock (Note 3). |
| |
(f) | Represents deferred acquisition fees and related interest due to our Advisor as a result of our acquisitions.acquisitions (Note 3). These fees are scheduled to be paid in three equal annual installments following the quarter in which a property was purchased. |
| |
(g) | Represents the amount of future obligations estimated for the removal of asbestos and environmental waste in connection with certain of our acquisitions, payable upon the retirement or sale of the assets. |
Amounts in the table above that relate to our foreign operations are based on the exchange rate of the local currencies at Septemberas of June 30, 20172020, which consisted primarily of the euro and Norwegian krone and, to a lesser extent, the British pound sterling. At SeptemberAs of June 30, 20172020, we had no material capital lease obligations for which we were the lessee, either individually or in the aggregate.
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Equity Method Investment
We have an interest in an unconsolidated investment that relates to a joint venture for the development of self-storage facilities in Canada. This investment is jointly owned with a third party, which is also the general partner. At September 30, 2017, the total equity investment balance for these properties was $21.2 million. The joint venture also had total third-party recourse debt of $20.3 million.
Supplemental Financial Measures
In the real estate industry, analysts and investors employ certain non-GAAP supplemental financial measures in order to facilitate meaningful comparisons between periods and among peer companies. Additionally, in the formulation of our goals and in the evaluation of the effectiveness of our strategies, we use FFO, MFFO, and Adjusted MFFO, which are non-GAAP measures. We believe that these measures are useful to investors to consider because they may assist them to better understand and measure the performance of our business over time and against similar companies. A description of FFO, MFFO, and Adjusted MFFO and reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are provided below.
FFO MFFO, and Adjusted MFFO
Due to certain unique operating characteristics of real estate companies, as discussed below, the National Association of Real Estate Investment Trusts, Inc. (“NAREIT”), 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 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, and depreciation and amortization from real estate assets; and after adjustments for unconsolidated partnerships and jointly owned investments. Adjustments for unconsolidated partnerships and jointly owned investments are calculated to reflect FFO. Our FFO calculation complies with NAREIT’s policy described above. However, NAREIT’s definition of FFO does not distinguish between the conventional method of equity accounting and the hypothetical liquidation at book value method of accounting for unconsolidated partnerships and jointly owned investments.
The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time, especially if such assets are not adequately maintained or repaired and renovated as required by relevant circumstances and/or is requested or required by lessees for operational purposes in order to maintain the value disclosed.improvements. We believe that, since real estate values historically rise and fall with market conditions, including inflation, interest rates, the business cycle, unemployment, and consumer spending, presentations of operating results for a REIT using historical accounting for depreciation may be less informative. Historical accounting for real estate involves the use of GAAP. Any other method of accounting for real estate such as the fair value method cannot be construed to be any more accurate or relevant than the comparable methodologies of real estate valuation found in GAAP. Nevertheless, we believe that the use of FFO, which excludes the impact of real estate-related depreciation and amortization, as well as impairment charges of real estate-related assets, provides a more complete understanding of our performance to investors and to management; and when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income. In particular, we believe it is appropriate to disregard impairment charges, as this is a fair value adjustment that is largely based on market fluctuations and assessments regarding general market conditions, which can change over time. An asset will only be evaluated for impairment if certain impairment indicators exist. Then a two-step process is performed, of which first is to determine whether an asset is impaired by comparing the carrying value, or book value, to the total estimated undiscounted future cash flows (including net rental and lease revenues, net proceeds on the sale of the property, and any other ancillary cash flows at a property or group level under GAAP) from such asset, then measure the impairment loss as the excess of the carrying value over its estimated fair value. It should be noted, however, that determinations of whether impairment charges have been incurred are based partly on anticipated operating performance, because estimated undiscounted future cash flows from a property (including estimated future net rental and lease revenues, net proceeds on the sale of the property, and certain other ancillary cash flows) are taken into account in determining whether an impairment charge has been incurred. While impairment charges are excluded from the calculation of FFO
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described above due to the fact that impairments are based on estimated future undiscounted cash flows, it could be difficult to recover any impairment charges. However, FFO, MFFO and Adjusted MFFO, as described below, should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or in its applicability in evaluating the operating performance of the company. The method utilized to evaluate the value and performance of real estate under GAAP should be construed as a more relevant measure of operational performance and considered more prominently than the non-GAAP measures FFO, MFFO, and Adjusted MFFO and the adjustments to GAAP in calculating FFO, MFFO, and Adjusted MFFO.
Changes in the accounting and reporting promulgations under GAAP (for acquisition fees and expenses from a capitalization/depreciation model to an expensed-as-incurred model) were put into effect in 2009. These changes to GAAP accounting for real estate subsequent to the establishment of NAREIT’s definition of FFO have prompted an increase in cash-settled expenses, such as acquisition fees that are typically accounted for as operating expenses. Management believes these fees and expenses do not affect our overall long-term operating performance. Publicly registered, non-traded REITs typically have a significant amount of acquisition activity and are substantially more dynamic during their initial years of investment and operation. While other start-up entities may also experience significant acquisition activity during their initial years, we believe that non-listednon-traded REITs are unique in that they have a limited life with targeted exit strategies within a relatively limited time frame after acquisition activity ceases. We currently intend to begin the process of achieving a liquidity event (i.e., listing of our common stock on a national exchange, a merger or sale of our assets, or another similar transaction) beginning in April 2022, which is seven years following the closing of our initial public offering. Due to the above factors and other unique features of publicly registered, non-traded REITs, the Investment Program Association,Institute for Portfolio Alternatives (the “IPA”), an industry trade group, has standardized a measure known as MFFO, which the Investment Program AssociationIPA has recommended as a supplemental measure for publicly registered non-traded REITs and which we believe to be another appropriate non-GAAP measure to reflect the operating performance of a non-traded REIT having the characteristics described above.our operations. MFFO is not equivalent to our net income or loss as determined under GAAP and MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate with a limited life and targeted exit strategy as(as currently intended. We believe that, becauseintended). Since MFFO excludes costs that we consider more reflective of investing activities and other non-operating items included in FFO, and also excludes acquisition fees and expenseswe believe that affect our operations only in periods in which properties are acquired, MFFO can provide, on a going forward basis,it provides an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance after the period in which we are acquiring properties and once our portfolio is in place. By providinginitial property-acquisition phase. We believe that MFFO we believe we are presenting useful information that assistsallows investors and analysts to better assess the sustainability of our operating performance now that our initial public offering has been completedis complete and once essentially all of our properties have been acquired.the proceeds are invested. We also believe that MFFO is a recognized measure of sustainable operating performance by the non-traded REIT industry. Further, we believe MFFO is useful in comparing the sustainability of our operating performance, with the sustainability of the operating performance of other real estate companies that are not as involved in acquisition activities. MFFO should only be used to assess the sustainability of a company’s operating performance after a company’s offering has been completed and properties have been acquired, as it excludes acquisition costs that have a negative effect on a company’s operating performance during the periods in which properties are acquired.
We define MFFO, a non-GAAP measure, consistent with the Investment Program Association’sIPA’s Practice Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-ListedNon-Traded REITs: Modified Funds from Operations or the Practice Guideline,(the “Practice Guideline”), issued by the Investment Program Association in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for the following items, included in the determination of GAAP net income, as applicable: acquisition fees and expenses; amounts relating to deferred rent receivablesstraight-line rents and amortization of above- and below-market leases and liabilities (which are adjusted in order to reflect such payments from a GAAP accrual basis to a cash accrual basis of disclosing the rent and lease payments); accretion of discounts and amortization of premiums on debt investments; nonrecurring impairments of real estate-related investments (i.e., infrequent or unusual, not reasonably likely to recur in the ordinary course of business); mark-to-market adjustments included in net income; nonrecurring gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives, or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and jointly owned investments, with such adjustments calculated to reflect MFFO on the same basis. The accretion of discounts and amortization of premiums on debt investments, unrealized gains and losses on hedges, foreign exchange, derivatives or securities holdings, unrealized gains and losses resulting from consolidations, as well as other listed cash flow adjustments, are adjustments made to net income in calculating the cash flows provided by operating activities and, in some cases, reflect gains or losses that are unrealized and may not ultimately be realized.
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Our MFFO calculation complies with the Investment Program Association’sIPA’s Practice Guideline described above. In calculating MFFO, we exclude acquisition-related expenses,above and is adjusted for certain items, such as accretion of discounts and amortizations of premiums on borrowings (as such adjustments are comparable to the permitted adjustments for debt investments), allowance for credit losses, non-cash accretion of environmental liabilities and amortization of above- and below-market leases, fair value adjustments of derivative financial instruments, deferred rent receivables, and the adjustments of such items related to noncontrolling interests. Under GAAP, acquisition fees and expenses are characterized asROU assets, which management believes is helpful in assessing our operating expenses in determining operating net income. These expenses are paid in cash by a company. All paid and accrued acquisition fees and expenses will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by the company, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property, these fees and expenses, and other costs related to such property. Further, under GAAP, certain contemplated non-cash fair value and other non-cash adjustments are considered operating non-cash adjustments to net income in determining cash flow from operating activities.performance.
Our management uses MFFO and the adjustments used to calculate it in order to evaluate our performance against other non-traded REITs, which also have limited lives with short and defined acquisition periods and targeted exit strategies shortly thereafter.strategies. As noted above, MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate in this manner. We believe that MFFO and the adjustments used to calculate it allow us to present our performance in a manner that takes into account certain characteristics unique to non-traded REITs, such as their limited life, defined acquisition period, and targeted exit strategy, and is therefore a useful measure for investors. For example, acquisition costs are generally funded from the proceeds of our offering and other financing sources and not from operations. By excluding expensed acquisition costs, the use of MFFO provides information consistent with management’s analysis of the operating performance of the properties. Additionally, fair value adjustments, which are based on the impact of current market fluctuations and underlying assessments of general market conditions, but can also result from operational factors such as rental and occupancy rates, may not be directly related or attributable to our current operating performance. By excluding such changes that may reflect anticipated and unrealized gains or losses, we believe MFFO provides useful supplemental information.
Adjusted MFFO
In addition, our management uses Adjusted MFFO as another measure of sustainable operating performance. Adjusted MFFO adjusts MFFO for deferred income tax expenses and benefits, which are non-cash items that may cause short-term fluctuations in net income, but have no impact on current period cash flows. Additionally, we adjust MFFO to reflect the realized gains/losses on the settlement of foreign currency derivatives to arrive at Adjusted MFFO. Foreign currency derivatives are a fundamental part of our operations in that they help us manage the foreign currency exposure we have associated with cash flows from our international investments.
CPA:18 – Global 6/30/2020 10-Q– 53
FFO, MFFO, and Adjusted MFFO
Presentation of this information is intended to provide useful information to investors as they compare the operating performance of different REITs, although it should be noted that not all REITs calculate FFO, MFFO, and Adjusted MFFO the same way, so comparisons with other REITs may not be meaningful. Furthermore, FFO, MFFO, and Adjusted MFFO are not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income as an indication of our performance, as an alternative to cash flows from operations as an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. FFO, MFFO, and Adjusted MFFO should be reviewed in conjunction with other GAAP measurements as an indication of our performance.
Neither the SEC, NAREIT, nor any other regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate FFO, MFFO, and Adjusted MFFO. In the future, the SEC, NAREIT, or another regulatory body may decide to standardize the allowable adjustments across the non-traded REIT industry and we would have to adjust our calculation and characterization of FFO, MFFO, or Adjusted MFFO accordingly.
CPA®:18 – Global 9/30/2017 10-Q– 54
FFO, MFFO, and Adjusted MFFO were as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net income (loss) attributable to CPA®:18 – Global | $ | 9,821 |
| | $ | (4,081 | ) | | $ | 16,224 |
| | $ | (16,490 | ) |
Adjustments: | | | | | | | |
Depreciation and amortization of real property | 18,999 |
| | 20,978 |
| | 56,813 |
| | 63,078 |
|
Loss on sale of real estate, net of tax | — |
| | — |
| | — |
| | 63 |
|
Proportionate share of adjustments to equity in net loss of partially owned entities to arrive at FFO | 125 |
| | — |
| | 228 |
| | — |
|
Proportionate share of adjustments for noncontrolling interests to arrive at FFO | (1,684 | ) | | (1,600 | ) | | (4,852 | ) | | (4,792 | ) |
Total adjustments | 17,440 |
| | 19,378 |
| | 52,189 |
| | 58,349 |
|
FFO attributable to CPA®:18 – Global (as defined by NAREIT) | 27,261 |
| | 15,297 |
| | 68,413 |
| | 41,859 |
|
Adjustments: | | | | | | | |
Unrealized (gains) losses on foreign currency, derivatives, and other | (5,266 | ) | | 680 |
| | (15,768 | ) | | 1,276 |
|
Straight-line and other rent adjustments (a) | (1,697 | ) | | (1,127 | ) | | (4,052 | ) | | (3,535 | ) |
Realized gains on foreign currency, derivatives, and other | (705 | ) | | (786 | ) | | (2,139 | ) | | (1,890 | ) |
Amortization of premium/discount on debt investments and fair market value adjustments, net | (218 | ) | | 330 |
| | 391 |
| | 951 |
|
Loss on extinguishment of debt | — |
| | — |
| | 54 |
| | — |
|
Above- and below-market rent intangible lease amortization, net (b) | (25 | ) | | (124 | ) | | (98 | ) | | (616 | ) |
Acquisition and other expenses (c) | 1 |
| | 36 |
| | 47 |
| | 4,747 |
|
Proportionate share of adjustments for noncontrolling interests to arrive at MFFO | 53 |
| | 89 |
| | 249 |
| | 208 |
|
Total adjustments | (7,857 | ) | | (902 | ) | | (21,316 | ) | | 1,141 |
|
MFFO attributable to CPA®:18 – Global | 19,404 |
| | 14,395 |
| | 47,097 |
| | 43,000 |
|
Adjustments: | | | | | | | |
Hedging gains | 293 |
| | 343 |
| | 1,152 |
| | 1,012 |
|
Deferred taxes | (3,286 | ) | | 48 |
| | (2,979 | ) | | (280 | ) |
Total adjustments | (2,993 | ) | | 391 |
| | (1,827 | ) | | 732 |
|
Adjusted MFFO attributable to CPA®:18 – Global | $ | 16,411 |
| | $ | 14,786 |
| | $ | 45,270 |
| | $ | 43,732 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Net (loss) income attributable to CPA:18 – Global | $ | (1,191 | ) | | $ | 3,078 |
| | $ | (9,371 | ) | | $ | 17,905 |
|
Adjustments: | | | | | | | |
Depreciation and amortization of real property | 14,660 |
| | 17,264 |
| | 29,190 |
| | 32,720 |
|
Gain on sale of real estate, net | — |
| | (650 | ) | | — |
| | (16,058 | ) |
Proportionate share of adjustments for noncontrolling interests to arrive at FFO (a) | (1,515 | ) | | (2,006 | ) | | (3,049 | ) | | (766 | ) |
Proportionate share of adjustments to equity in net income of partially owned entities | 26 |
| | 190 |
| | 234 |
| | 503 |
|
Total adjustments | 13,171 |
| | 14,798 |
| | 26,375 |
| | 16,399 |
|
FFO (as defined by NAREIT) attributable to CPA:18 – Global | 11,980 |
| | 17,876 |
| | 17,004 |
| | 34,304 |
|
Adjustments: | | | | | | | |
Other (gains) and losses (b) (c) | (978 | ) | | (862 | ) | | 1,306 |
| | (879 | ) |
Straight-line and other rent adjustments (d) | (382 | ) | | (960 | ) | | 5,801 |
| | (2,007 | ) |
Amortization of premiums and discounts | 363 |
| | 563 |
| | 605 |
| | 937 |
|
Above and below market rent intangible lease amortization, net (e) | (159 | ) | | (87 | ) | | (334 | ) | | (172 | ) |
Other amortization and non-cash items | 139 |
| | — |
| | 219 |
| | — |
|
Acquisition and other expenses | 33 |
| | 76 |
| | 33 |
| | 76 |
|
Allowance for credit losses (f) | — |
| | — |
| | 4,865 |
| | — |
|
Proportionate share of adjustments for noncontrolling interests (g) | 1,239 |
| | 1 |
| | 1,251 |
| | 24 |
|
Proportionate share of adjustments for partially owned entities | (4 | ) | | — |
| | 1 |
| | — |
|
Total adjustments | 251 |
| | (1,269 | ) | | 13,747 |
| | (2,021 | ) |
MFFO attributable to CPA:18 – Global | 12,231 |
| | 16,607 |
| | 30,751 |
| | 32,283 |
|
Adjustments: | | | | | | | |
Tax expense, deferred | 802 |
| | (850 | ) | | (562 | ) | | (887 | ) |
Hedging gains | 473 |
| | 377 |
| | 958 |
| | 755 |
|
Total adjustments | 1,275 |
| | (473 | ) | | 396 |
| | (132 | ) |
Adjusted MFFO attributable to CPA:18 – Global | $ | 13,506 |
| | $ | 16,134 |
| | $ | 31,147 |
| | $ | 32,151 |
|
__________
| |
(a) | The six months ended June 30, 2019 includes a gain on sale with regard to our joint venture real estate disposal. |
CPA:18 – Global 6/30/2020 10-Q– 54
| |
(b) | Primarily comprised of gains and losses from foreign currency movements, gains and losses on derivatives, and loss on extinguishment of debt. The six months ended June 30, 2020 includes a $2.8 million loss to write-off the VAT receivable at Ghana as collectibility was no longer deemed probable (Note 4). |
| |
(c) | At September 30, 2019, we aggregated loss on extinguishment of debt and realized (gains) and losses on foreign currency (both of which were previously disclosed as separate MFFO adjustment line items), as well as certain other adjustments, within this line item, which is comprised of adjustments related to Other gains and (losses) on our condensed consolidated statements of operations. Prior period amounts have been reclassified to conform to current period presentation. |
| |
(d) | Amount for the six months ended June 30, 2020 includes a $7.0 million write-off of straight-line rent receivables (Note 2). Under GAAP, rental receipts are allocated to periods using an accrual basis.recorded on a straight-line basis over the life of the lease. This may result in timing of income recognition that is significantly different than underlying contract terms. By adjusting for these items (to reflect such payments from a GAAPon an accrual basis to a cash basis of disclosing the rent and lease payments), management believes that MFFO, and Adjusted MFFO provides useful supplemental information on the realized economic impact of lease terms and debt investments, provides insight on the contractual cash flows of such lease terms and debt investments, and aligns results with management’s analysis of operating performance.basis. |
| |
(b)(e) | Under GAAP, certain intangibles are accounted for at cost and reviewed at least annually for impairment, and certain intangibles are assumed to diminish predictably in value over time and amortized, similar to depreciation and amortization of other real estate related assets that are excluded from FFO. However, because real estate values and market lease rates historically rise or fall with market conditions, management believes that by excluding charges relating to amortization of these intangibles, MFFO, and Adjusted MFFO provides useful supplemental information on the performance of the real estate. |
CPA®:18 – Global 9/30/2017 10-Q– 55
| |
(c)(f) | In evaluating investmentsaccordance with ASU 2016-13, we recorded an allowance for credit losses due to changes in real estate, management differentiatesexpected economic conditions during the costs to acquire the investment from the operations derived from the investment. Such information would be comparable only for non-traded REITs that have completed their acquisition activitysix months ended June 30, 2020 (Note 5). |
| |
(g) | The three and have other similar operating characteristics. By excluding expensed acquisition costs, management believes MFFO and Adjusted MFFO provide useful supplemental information that is comparable for each type of real estate investment and is consistent with management’s analysissix months ended June 30, 2020 includes a gain as a result of the investing and operating performance oflitigation settlement with the joint venture partner on our properties. Acquisition fees and expenses include payments to our Advisor or third parties. Acquisition fees and expenses under GAAP are considered operating expenses and expenses included in the determination of net income (loss)previously owned Ghana investment (Note 4, which is a performance measure under GAAP. All paid and accrued acquisition fees and expenses will have negative effects on returns to stockholders, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of properties are generated to cover the purchase price of the property, these fees and expenses, and other costs related to the property.Note 13). |
CPA®:CPA:18 – Global 9/6/30/20172020 10-Q– 5655
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Market and Credit Risk
Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, and equity prices. The primary risks that weWe are exposed to are interest rate risk and foreign currency exchange risk, however, we generally do not use derivative instruments to hedge credit/market risks or for speculative purposes. From time to time, we may enter into foreign currency forward contracts and collars to hedge our foreign currency cash flow exposures.
Concentrations of credit risk arise when a number of tenants are engaged in similar business activities or have similar economic risks or conditions that could cause them to default on their lease obligations to us. We regularly monitor our portfolio to assess potential concentrations of credit risk. While we believe our portfolio is well-diversified, it does contain concentrations in certain areas. Aside from the impact of COVID-19, discussed below, there have been no material changes in our concentration of credit risk from what was disclosed in the 2019 Annual Report.
The impact of the COVID-19 pandemic both in the Unites States and globally continues to cause uncertainty and volatility in financial markets, including interest rates and foreign currency exchange rates. The outbreak is expected to have a continued adverse impact on market conditions for the foreseeable future and to trigger a period of global economic slowdown with no known duration. At June 30, 2020, our net-lease portfolio (which excludes operating properties) had the following concentrations for property types with heightened risk as a result of the COVID-19 pandemic (as a percentage of our ABR):
16.3% related to hotel and leisure properties;
5.3% related to retail facilities (primarily from convenience and wholesale stores);
4.2% related to oil and gas;
3.9% related to advertising, printing, and publishing;
2.3% related to automotive; and
1.6% related to student housing (net lease) properties;
Our operating properties portfolio had a concentration of 5.7% (based on Stabilized NOI) in student housing properties, which has heightened risk due to the impact of the COVID-19 pandemic on the individual students from which we earn student housing revenue.
There may be an impact across all industries and geographic regions in which our tenants operate as a result of COVID-19. Given the significant uncertainty around the duration and severity of COVID-19, we are unable to predict the impact it will have on our tenants’ continued ability to pay rent.
We are also exposed to further market risk as a result of tenant concentrations in certain industries and/or geographic regions, since adverse market factors (such as the COVID-19 pandemic) can affect the ability of tenants in a particular industry/region to meet their respective lease obligations. In order to manage this risk, our Advisor views our collective tenant roster as a portfolio and attempts to diversify such portfolio so that we are not overexposed to a particular industry or geographic region.
Generally, we do not use derivative instruments to hedge credit/market risks or for speculative purposes. However, from time to time, we may enter into foreign currency forward contracts and collars to hedge our foreign currency cash flow exposures.
Interest Rate Risk
The values of our real estate, related fixed-rate debt obligations, and notes receivable investmentsinvestment 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 COVID-19) and changes in the creditworthiness of lessees, which may affect our ability to refinance property-level mortgage debt when balloon payments are scheduled if(if we do not choose to repay the debt when due.due). Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political conditions, and other factors beyond our control. An increase in interest rates would likely cause the fair value of our assets to decrease. Increases in interest rates may also have an impact on the credit profile of certain tenants.
We are exposed to the impact of interest rate changes primarily through our borrowing activities. To limit this exposure, we have historically attempted to obtain non-recourse mortgagesecured debt financing on a long-term, fixed-rate basis. However, from time to time, we or our joint investment partners have obtained, and may in the future obtain, variable-rate non-recourse mortgage loans,secured debt, and, as a result, we have entered into, and may continue to enter into, interest rate swap agreements or interest rate cap agreements with 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 8 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 caps, which are included in Other assets, net and Accounts payable, accrued expenses and other liabilities in the consolidated financial statements, was incaps.
CPA:18 – Global 6/30/2020 10-Q– 56
As of June 30, 2020, a net liability positionsignificant portion (approximately 93.4%) of $0.8 million (Note 8).
At September 30, 2017, our outstanding debt either bore interest at fixed rates, or was swapped or capped to a fixed rate or, in the case of one of our Norwegian investments, inflation-linked to the Norwegian CPI. The annual interest rates on our fixed-rate debt at September 30, 2017 ranged from 1.6% to 5.8%. The contractual annual interest rates on our variable-rate debt at September 30, 2017 ranged from 1.6% to 5.1%.rate. Our debt obligations are more fully described in Note 9 and Liquidity and Capital Resources — Summary of Financing in Item 2 above. The following table presents principal cash outflows for the remainder of 2017,2020, each of the next four calendar years following December 31, 2017,2020, and thereafter, based upon expected maturity dates of our debt obligations outstanding at Septemberas of June 30, 20172020 (in thousands): | |
| 2017 (a) (Remainder) | | 2018 | | 2019 | | 2020 | | 2021 | | Thereafter | | Total |
| Fair value | 2020 (Remainder) | | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter | | Total |
| Fair value |
Fixed-rate debt (b)(a) | $ | 1,376 |
| | $ | 4,628 |
| | $ | 5,274 |
| | $ | 118,994 |
| | $ | 162,779 |
| | $ | 839,355 |
|
| $ | 1,132,406 |
|
| $ | 1,139,281 |
| $ | 51,157 |
| | $ | 109,776 |
| | $ | 98,513 |
| | $ | 152,986 |
| | $ | 176,564 |
| | $ | 350,006 |
|
| $ | 939,002 |
|
| $ | 946,881 |
|
Variable rate debt (b)(a) | $ | 389 |
| | $ | 23,822 |
| | $ | 1,873 |
| | $ | 7,617 |
| | $ | 11,228 |
| | $ | 95,688 |
|
| $ | 140,617 |
|
| $ | 153,047 |
| $ | 34,955 |
| | $ | 16,899 |
| | $ | 90,058 |
| | $ | 61,341 |
| | $ | 22,234 |
| | $ | 47,007 |
|
| $ | 272,494 |
|
| $ | 281,587 |
|
__________
| |
(a) | Excludes $19.5 million, including accrued interest, of loan proceeds from WPC, in aggregate, used to partially finance a new investment and the final payment to the developer for a build-to-suit project (Note 3). On October 13, 2017, we repaid the remaining $19.5 million of loans outstanding to WPC, including accrued interest (Note 13). |
| |
(b) | Amounts are based on the exchange rate at Septemberas of June 30, 2017,2020, as applicable. |
CPA®:18 – Global 9/30/2017 10-Q– 57
The estimated fair value of our fixed-rate debt and variable-rate debt which(which either have effectuallyeffectively been converted to a fixed rate through the use of interest rate swaps or, in the case of one our Norwegian investments,swaps) is inflation-linked to the Norwegian CPI, ismarginally affected by changes in interest rates. A decrease or increase in interest rates of 1% would change the estimated fair value of this debt at Septemberas of June 30, 20172020 by an aggregate increase of $58.3$32.9 million or an aggregate decrease of $64.5$38.1 million, respectively. Annual interest expense on our unhedged variable-rate debt at Septemberas of June 30, 20172020 would increase or decrease by $0.4$0.8 million 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 our variable-rate debt in the table above bore interest at fixed rates at Septemberas of June 30, 20172020, 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.
Foreign Currency Exchange Rate Risk
We own international investments, primarily in Europe and, as a result, are subject to risk from the effects of exchange rate movements in various foreign currencies, primarily the euro and the Norwegian krone, which may affect future costs and cash flows. Although most of our foreign investments through the second quarter of 20172020 were conducted in these currencies, we may conduct business in other currencies in the future. Volatile market conditions arising from the COVID-19 global pandemic may result in significant fluctuations in foreign currency exchange rates. We manage foreign currency exchange rate movements by generally placing both our debt service obligation to the lender and the tenant’s rental obligation to us in the same currency. This reduces our overall exposure to the actual equity that we have invested and the equity portion of our cash flow. In addition, we may use currency hedging to further reduce the exposure to our equity cash flow. We are generally a net receiver of these currencies (we receive more cash than we pay out), therefore our foreign operations benefit from a weaker U.S. dollar and are adversely affected by a stronger U.S. dollar, relative to the foreign currency.
WeAs noted above, we have obtained, and may in the future obtain, non-recourse mortgage and bondsecured debt financing in local currencies. To the extent that currency fluctuations increase or decrease rental revenues, as translated to U.S. dollars, the change in debt service, as translated to U.S. dollars, will partially offset the effect of fluctuations in revenue and, to some extent, mitigate the risk from changes in foreign currency exchange rates.
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 has resulted in a decline in the value of the British pound sterling 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% and 35% of our total pro rata ABR was from the United Kingdom and other European Union countries, respectively. Any impact from Brexit on us will depend, in part, on the outcome of the related 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.
Scheduled future minimum rents,lease payments to be received, exclusive of renewals, under non-cancelable operating leases for our consolidated foreign operations as of SeptemberJune 30, 20172020 during the remainder of 2017,2020, each of the next four calendar years following December 31, 2017,2020, and thereafter, are as follows (in thousands):
| | Lease Revenues (a) | | 2017 (Remainder) | | 2018 | | 2019 | | 2020 | | 2021 | | Thereafter | | Total | |
Lease Revenues (a) (b) | | | 2020 (Remainder) | | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter | | Total |
Euro (b)(c) | | $ | 10,837 |
| | $ | 44,128 |
| | $ | 44,067 |
| | $ | 43,184 |
| | $ | 43,092 |
| | $ | 351,542 |
| | $ | 536,850 |
| | $ | 22,383 |
| | $ | 44,620 |
| | $ | 44,600 |
| | $ | 39,253 |
| | $ | 36,091 |
| | $ | 334,442 |
| | $ | 521,389 |
|
Norwegian krone (c)(d) | | 3,463 |
| | 13,754 |
| | 13,770 |
| | 13,492 |
| | 12,775 |
| | 68,783 |
| | 126,037 |
| | 5,598 |
| | 10,505 |
| | 10,067 |
| | 10,067 |
| | 7,225 |
| | 28,666 |
| | 72,128 |
|
British pound sterling (d) | | 813 |
| | 3,067 |
| | 3,261 |
| | 3,021 |
| | 2,756 |
| | 12,683 |
| | 25,601 |
| |
| | $ | 15,113 |
| | $ | 60,949 |
| | $ | 61,098 |
| | $ | 59,697 |
| | $ | 58,623 |
| | $ | 433,008 |
| | $ | 688,488 |
| | $ | 27,981 |
| | $ | 55,125 |
| | $ | 54,667 |
| | $ | 49,320 |
| | $ | 43,316 |
| | $ | 363,108 |
| | $ | 593,517 |
|
CPA®:CPA:18 – Global 9/6/30/20172020 10-Q– 5857
Scheduled debt service payments (principal and interest) for mortgage notes and bonds payable, for our foreign operations as of SeptemberJune 30, 2017,2020, during the remainder of 2017,2020, each of the next four calendar years following December 31, 2017,2020, and thereafter, are as follows (in thousands):
| | Debt Service (a) (e) | | 2017 (Remainder) | | 2018 | | 2019 | | 2020 | | 2021 | | Thereafter | | Total | | 2020 (Remainder) | | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter | | Total |
Euro (b)(c) | | $ | 4,037 |
| | $ | 11,677 |
| | $ | 12,064 |
| | $ | 96,615 |
| | $ | 79,394 |
| | $ | 146,579 |
| | $ | 350,366 |
| | $ | 53,713 |
| | $ | 73,897 |
| | $ | 50,168 |
| | $ | 87,349 |
| | $ | 72,831 |
| | $ | 12,252 |
| | $ | 350,210 |
|
Norwegian krone (c)(d) | | 3,382 |
| | 6,017 |
| | 6,017 |
| | 6,017 |
| | 50,920 |
| | 119,070 |
| | 191,423 |
| | 3,120 |
| | 42,014 |
| | 3,659 |
| | 3,659 |
| | 3,659 |
| | 92,258 |
| | 148,369 |
|
British pound sterling (d)(b) | | 253 |
| | 1,005 |
| | 1,005 |
| | 25,484 |
| | — |
| | — |
| | 27,747 |
| | 1,053 |
| | 2,101 |
| | 74,614 |
| | — |
| | — |
| | — |
| | 77,768 |
|
| | $ | 7,672 |
| | $ | 18,699 |
| | $ | 19,086 |
| | $ | 128,116 |
| | $ | 130,314 |
| | $ | 265,649 |
| | $ | 569,536 |
| | $ | 57,886 |
| | $ | 118,012 |
| | $ | 128,441 |
| | $ | 91,008 |
| | $ | 76,490 |
| | $ | 104,510 |
| | $ | 576,347 |
|
__________
| |
(a) | Amounts are based on the applicable exchange rates at Septemberas of June 30, 20172020. Contractual rents and debt obligations are denominated in the functional currency of the country where each property is located. |
| |
(b) | The revenues generated from our student housing operating properties located in the United Kingdom are excluded, as they do not meet the criteria of non-cancelable operating leases. We estimate that, for a 1% increase or decrease in the exchange rate between the British pound sterling and the U.S. dollar, there would be a corresponding change in the projected estimated property-level cash flow as of June 30, 2020 of $0.8 million. |
| |
(c) | We estimate that, for a 1% increase or decrease in the exchange rate between the euro and the U.S. dollar, there would be a corresponding change in the projected estimated property-level cash flow at Septemberas of June 30, 20172020 of $1.9$1.7 million. |
| |
(c)(d) | We estimate that, for a 1% increase or decrease in the exchange rate between the Norwegian krone and the U.S. dollar, there would be a corresponding change in the projected estimated property-level cash flow at Septemberas of June 30, 20172020 of $0.7$0.8 million. |
| |
(d) | We estimate that, for a 1% increase or decrease in the exchange rate between the British pound sterling and the U.S. dollar, there would be an insignificant corresponding change in the projected estimated property-level cash flow at September 30, 2017. |
| |
(e) | Interest on unhedged variable-rate debt obligations was calculated using the applicable annual interest rates and balances outstanding at Septemberas of June 30, 2017.2020. |
As a result of scheduled balloon payments on certain of our international debt obligations, projected debt service obligations exceed projected lease revenues in 2020 and 2021 for investments denominated in the euro, in 2020 for the British pound sterling, and after 2020 for the Norwegian krone. We currently anticipate that, by their respective due dates, we will have refinanced certain of these loans, but there can be no assurance that we will be able to do so on favorable terms, if at all. If refinancing has not occurred, we would expect to use our cash resources to make these payments, if necessary.
Concentration of Credit Risk
Concentrations of credit risk arise when a number of tenants are engaged in similar business activities or have similar economic risks or conditions that could cause them to default on their lease obligations to us. We regularly monitor our portfolio to assess potential concentrations of credit risk as we make additional investments. While we believe our portfolio is reasonably well-diversified, it does contain concentrations in excess of 10% based on the percentage of our consolidated total revenues or pro rata ABR.
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:
67% related to domestic properties, which included concentrations of 14% and 12% in Florida and Texas, respectively; and
33% related to international properties.
At September 30, 2017, our net-leased 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 pro rata ABR as of that date:
41% related to domestic properties, which included a concentration of 10% in Illinois;
59% related to international properties, which included a concentration in the Netherlands of 16% and Norway of 15%;
50% related to office properties, 14% related to industrial properties, 13% related to warehouse properties, 13% related to retail properties, 10% related to hotel properties; and
11% related to the banking industry, 10% related to the grocery industry, and 10% related to the hotel, gaming, and leisure industry.
CPA®:CPA:18 – Global 9/6/30/20172020 10-Q– 5958
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, 20172020, 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, 20172020 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.
CPA®:CPA:18 – Global 9/6/30/20172020 10-Q– 6059
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 2019 Annual Report.
We face risks related to the recent spread of the novel coronavirus (“COVID-19”), which could have a material adverse impact on our business, financial condition, NAVs, liquidity, results of operations, and prospects.
We face risks related to the global COVID-19 pandemic, which has and is likely to continue to adversely affect global, national, and local economies and the global financial markets. The impact of the COVID-19 pandemic both in the United States and globally has been rapidly evolving. The outbreak has triggered a period of global economic slowdown with no known duration and is expected to have a continuing adverse impact on commercial and economic activity, leading to uncertainty in market conditions for the foreseeable future. The rapid development and fluidity of this situation is without precedent in modern history and the ultimate adverse impact of the COVID-19 pandemic is currently unknown. Consequently, the COVID-19 pandemic presents material risks with respect to our performance and financial results, including to our results of operations and NAVs, to the estimated fair values of our investments and properties, increasing the risk of deterioration in the financial condition of our tenants (which could negatively impact defaults and occupancy, among other metrics), and subjecting us to potential risks arising from rapid changes in law and regulatory policy.
Our Advisor is closely monitoring the impact of the COVID-19 pandemic on all aspects of our business, including how it is impacting our tenants and properties. The ongoing economic downturn and market volatility has eroded the financial conditions of certain of our tenants and operating properties, which could materially adversely affect our financial condition (including our ability to maintain our current distributions levels or redemption program), liquidity, results of operations, and prospects, as well as our NAVs. Given the significant uncertainty around the duration and severity of the impact of the COVID-19 pandemic, we are unable to predict the impact that it will have on our tenants’ continued ability to pay rent. Therefore, information provided regarding historical rent collections should not serve as an indication of expected future rent collections. Our Advisor continues to actively engage our tenants in discussions regarding the impact of the COVID-19 pandemic on their business operations, liquidity, ability to pay rent and other payments due to us and other parties, as well as their overall financial position.
It is likely that the COVID-19 pandemic will continue to cause severe economic, market, and other disruptions worldwide. We cannot assure you that conditions in the bank lending and other financial markets will not continue to deteriorate as a result of the pandemic, causing our access to funding to become constrained, which could adversely affect our ability to meet our financial covenants, the terms or even availability of future borrowings, renewals, and refinancings. The extent to which COVID-19 impacts our operations will depend on future developments, including the duration of the outbreak and actions taken to contain COVID-19 or mitigate its impacts, all of which are highly uncertain and cannot be predicted with confidence.
CPA:18 – Global 6/30/2020 10-Q– 60
Item 2. Unregistered Sales of Equity Securities.
Unregistered Sales of Equity Securities
During the three months ended SeptemberJune 30, 2017,2020, we issued 351,431288,652 shares of our Class A common stock to our Advisor as consideration for asset management fees. These sharesfees, which were issued at our most recently published NAV at the date of $8.24 per share. issuance. The shares issued for April and May 2020 (167,925 shares) were based on the NAV as of December 31, 2019 ($8.94), and the shares issued in June 2020 (120,727 shares) were based on the NAV as of March 31, 2020 ($8.29). In acquiring our shares, our Advisor represented that such interests were being acquired by it for investment purposes and not with a view to the distribution thereof. Since none of these transactions were considered to have involved a “public offering” within the meaning of Section 4(a)(2) of the Securities Act of 1933, the shares issued were deemed to be exempt from registration. In acquiring
All other prior sales of unregistered securities have been reported in our shares, our Advisor represented that such interests were being acquired by it for investment purposespreviously filed quarterly and not with a view to the distribution thereof. From inceptionannual reports on Form 10-Q and through September 30, 2017, we have issued a total of 3,266,723 shares of our Class A common stock to our Advisor as consideration for asset management fees.Form 10-K, respectively.
Issuer Purchases of Equity Securities
The following table provides information with respect to repurchases of our common stock pursuant to our redemption plan during the three months ended SeptemberJune 30, 20172020:
|
| | | | | | | | | | | | | | | | | | |
| | Class A | | Class C | | | | |
2017 Period | | Total number of Class A shares purchased (a) | | Average price paid per share | | Total number of Class C shares purchased (a) | | Average price paid per share | | Total number of shares purchased as part of publicly announced plans or program (a) | | Maximum number (or approximate dollar value)of shares that may yet be purchased under the plans or program (a) |
July | | — |
| | $ | — |
| | — |
| | $ | — |
| | N/A | | N/A |
August | | — |
| | — |
| | — |
| | — |
| | N/A | | N/A |
September | | 554,005 |
| | 8.26 |
| | 135,340 |
| | 7.83 |
| | N/A | | N/A |
Total | | 554,005 |
| | | | 135,340 |
| | | | | | |
|
| | | | | | | | | | | | | | | | | | |
| | Class A | | Class C | | | | |
2020 Period | | Total number of Class A shares purchased (a) | | Average price paid per share | | Total number of Class C shares purchased (a) | | Average price paid per share | | Total number of shares purchased as part of publicly announced plans or program (a) | | Maximum number (or approximate dollar value)of shares that may yet be purchased under the plans or program (a) |
April 1-30 | | — |
| | $ | — |
| | — |
| | $ | — |
| | N/A | | N/A |
May 1-31 | | — |
| | — |
| | — |
| | — |
| | N/A | | N/A |
June 1-30 | | 616,397 |
| | 8.00 |
| | 179,380 |
| | 8.06 |
| | N/A | | N/A |
Total | | 616,397 |
| | | | 179,380 |
| | | | | | |
___________
| |
(a) | Represents shares of our Class A and Class C common stock requested to be repurchased under our redemption plan, pursuant to which we may elect to redeem shares at the request of our stockholders, subject to certain exceptions, conditions, and limitations. The maximum amount of shares purchasable by us in any period depends on a number of factors and is at the discretion of our board of directors. During the three months ended SeptemberJune 30, 2017,2020, we redeemed 120received 99 and 2342 redemption requests for Class A and Class C common stock, respectively. As of the date of this Report, we have fulfilled all of the valid redemptionsredemption requests that we received during the three months ended SeptemberJune 30, 2017.2020. We generally receive fees in connection with share redemptions. The average price paid per share will vary depending on the number of redemption requests that were made during the period, the number of redemption requests that qualify for special circumstances, and the most recently published quarterly NAV. For shares redeemed under such special circumstances, the redemption price was the greater of the price paid to acquire the shares from us or 95% of our most recently published NAVs. |
CPA®:CPA:18 – Global 9/6/30/20172020 10-Q– 61
Item 6. Exhibits.
The following exhibits are filed with this Report, except where indicated.Report. Documents other than those designated as being filed herewith are incorporated herein by reference.
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| | | | |
Exhibit No. | | Description | | Method of Filing |
10.1 | | Second Amendment to Amended and Restated Advisory Agreement, dated as of May 11, 2020, among Corporate Property Associates 18 – Global Incorporated, CPA:18 Limited Partnership and Carey Asset Management Corp | | Filed herewith |
| | | | |
10.2 | | Loan Agreement, dated as of July 16, 2020, between CPA:18 Limited Partnership, as Borrower, and W. P. Carey Inc., as Lender. | | Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed July 22, 2020 |
| | | | |
10.3 | | Promissory Note, made as of July 16, 2020, by CPA:18 Limited Partnership, as Borrower | | Incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed July 22, 2020 |
| | | | |
10.4 | | Payment Guaranty, made as of July 16, 2020, by Corporate Property Associates 18 – Global Incorporated, as Guarantor, in favor of W. P. Carey Inc., as Lender. | | Incorporated by reference to Exhibit 10.3 to Current Report on Form 8-K filed July 22, 2020 |
| | | | |
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 | | The following materials from Corporate Property Associates 18 – Global Incorporated’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 Operations for the three and nine months ended September 30, 2017 and 2016, (iii) Consolidated Statements of Comprehensive Income (Loss) 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) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016, and (vi) Notes to Consolidated Financial Statements.Instance Document | | Filed herewith |
| | | | |
101.SCH | | XBRL Taxonomy Extension Schema Document | | Filed herewith |
| | | | |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document | | Filed herewith |
| | | | |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document | | Filed herewith |
| | | | |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document | | Filed herewith |
| | | | |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document | | Filed herewith |
CPA®:CPA:18 – Global 9/6/30/20172020 10-Q– 62
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.
|
| | | |
| | | Corporate Property Associates 18 – Global Incorporated |
Date: | November 13, 2017August 11, 2020 | | |
| | By: | /s/ Mallika SinhaToniAnn Sanzone |
| | | Mallika SinhaToniAnn Sanzone |
| | | Chief Financial Officer |
| | | (Principal Financial Officer) |
| | | |
Date: | November 13, 2017August 11, 2020 | | |
| | By: | /s/ Kristin SabiaArjun Mahalingam |
| | | Kristin SabiaArjun Mahalingam |
| | | Chief Accounting Officer |
| | | (Principal Accounting Officer) |
CPA®:CPA:18 – Global 9/6/30/20172020 10-Q– 63
EXHIBIT INDEX
The following exhibits are filed with this Report, except where indicated.Report. Documents other than those designated as being filed herewith are incorporated herein by reference.
|
| | | | |
Exhibit No. | | Description | | Method of Filing |
10.1 | | Second Amendment to Amended and Restated Advisory Agreement, dated as of May 11, 2020, among Corporate Property Associates 18 – Global Incorporated, CPA:18 Limited Partnership and Carey Asset Management Corp | | |
| | | | |
10.2 | | Loan Agreement, dated as of July 16, 2020, between CPA:18 Limited Partnership, as Borrower, and W. P. Carey Inc., as Lender. | | |
| | | | |
10.3 | | Promissory Note, made as of July 16, 2020, by CPA:18 Limited Partnership, as Borrower | | |
| | | | |
10.4 | | Payment Guaranty, made as of July 16, 2020, by Corporate Property Associates 18 – Global Incorporated, as Guarantor, in favor of W. P. Carey Inc., as Lender. | | |
| | | | |
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 | | The following materials from Corporate Property Associates 18 – Global Incorporated’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 Operations for the three and nine months ended September 30, 2017 and 2016, (iii) Consolidated Statements of Comprehensive Income (Loss) 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) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016, and (vi) Notes to Consolidated Financial Statements. Instance Document | | Filed herewith |
| | | | |
101.SCH | | XBRL Taxonomy Extension Schema Document | | Filed herewith |
| | | | |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document | | Filed herewith |
| | | | |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document | | Filed herewith |
| | | | |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document | | Filed herewith |
| | | | |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document | | Filed herewith |