Exhibit 99.2
W. P. CAREY & CO. LLC
The pro forma consolidated financial statements of W. P. Carey & Co. LLC (the
"Company"), which are unaudited have been prepared based on the historical
financial statements of the Company. There are no differences from the
historical consolidated balance sheet of the Company at September 30, 2004
because a transaction relating to the acquisition of interests in 17 properties
was completed on September 1, 2004 and the effects of such transaction are
reflected in the historical balance sheet. The pro forma consolidated statements
of income for the year ended December 31, 2003 and the nine months ended
September 30, 2004 have been prepared as if the acquisition of the interests in
the properties and the related assumption of mortgage debt had occurred on
January 1, 2003. Pro forma adjustments are intended to reflect what the effect
would have been if the Company held its ownership interest and assumed mortgage
debt, where applicable, as of January 1, 2003 less amounts which have been
recorded in the historical consolidated statements of income. In management's
opinion, all adjustments necessary to reflect the effects of its acquisitions of
real estate have been made. The pro forma financial information should be read
in conjunction with the historical financial statements of the Company.
The unaudited pro forma consolidated statements of income are not necessarily
indicative of the financial condition or results of operations had the
acquisition occurred on January 1, 2003, nor are they necessarily indicative of
the financial position or results of operations of future periods.
5
W.P. CAREY & CO. LLC
PRO FORMA CONSOLIDATED STATEMENT OF INCOME (Unaudited)
For the Nine Months Ended September 30, 2004
(in thousands, except per share and share amounts)
<Table>
<Caption>
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
(Note 2)
Revenues:
Management income from affiliates $ 89,156 $ - $ 89,156
Incentive and subordinated disposition fees 42,095 - 42,095
Rental income 33,245 6,507 39,752
Interest income from direct financing leases 15,876 709 16,585
Other operating income 5,347 17 5,364
Revenue from other business operations 4,060 - 4,060
-------- ------ --------
189,779 7,233 197,012
-------- ------ --------
Operating expenses:
Depreciation 8,223 1,330 9,553
Amortization 7,871 2,982 10,853
General and administrative 39,684 - 39,684
Impairment charges and loan losses 9,300 - 9,300
Property expenses 4,477 229 4,706
Operating expenses from other business operations 4,761 - 4,761
-------- ------ --------
74,316 4,541 78,857
-------- ------ --------
Income from continuing operations before other interest income,
minority interest, equity income, gains, interest expense and
income taxes 115,463 2,692 118,155
Other interest income 2,221 - 2,221
Minority interest in income (1,340) - (1,340)
Income (loss) from equity investments 3,885 (654) 3,231
Gain on foreign currency transactions 569 - 569
Interest expense (10,632) (1,266) (11,898)
-------- ------ --------
Income from continuing operations before income taxes 110,166 772 110,938
Provision for income taxes (44,746) - (44,746)
-------- ---------- --------
Income from continuing operations $ 65,420 $ 772 $ 66,192
======== ====== ========
Basic earnings per share:
Earnings from continuing operations $1.75 $1.77
===== =====
Diluted earnings per share:
Earnings from continuing operations $1.69 $1.71
===== =====
Weighted average shares outstanding:
Basic 37,398,280 37,398,280
========== ==========
Diluted 38,761,745 38,761,745
========== ==========
</Table>
The accompanying notes are an integral part of the pro forma
consolidated financial statements.
6
W.P. CAREY & CO. LLC
PRO FORMA CONSOLIDATED STATEMENT of INCOME
For the Year Ended December 31, 2003
<Table>
<Caption>
Pro Forma
(In thousands except share and per share amounts) Historical Adjustments Pro Forma
---------- ----------- ---------
(Note) (Unaudited) (Unaudited)
(Note 2)
Revenues:
Management income from affiliates ............................................... $ 88,060 $ - $ 88,060
Rental income ................................................................... 44,296 10,078 54,374
Interest income from direct financing leases .................................... 20,655 1,087 21,742
Other income .................................................................... 5,288 87 5,375
Revenues of other business operations ........................................... 1,298 - 1,298
------------ ------------ -----------
159,597 11,252 170,849
------------ ------------ -----------
Expenses:
Depreciation .................................................................... 10,494 1,878 12,372
Amortization .................................................................... 7,280 4,209 11,489
General and administrative ...................................................... 43,698 - 43,698
Property expenses ............................................................... 5,998 428 6,426
Impairment charge on real estate and investments ................................ 1,480 - 1,480
Operating expenses of other business operations ................................. - - -
------------ ------------ -----------
68,950 6,515 75,465
------------ ------------ -----------
Income from continuing operations before other interest income, minority
interest, equity investments, gains and income taxes ..................... 90,647 4,737 95,384
Other interest income, interest expense ............................................ 2,581 2,581
Minority interest in income ........................................................ (370) - (370)
Income (loss) from equity investments .............................................. 4,008 (929) 3,079
Gain on foreign currency transactions and sale of securities ....................... 108 - 108
Interest expense ................................................................... (15,058) (1,971) (17,029)
------------ ------------ -----------
Income from continuing operations before income taxes ....................... 81,916 1,837 83,753
Provision for income taxes ......................................................... (19,116) - (19,116)
------------ ------------ -----------
Income from continuing operations ........................................... $ 62,800 $ 1,837 $ 64,637
============ ============ ===========
Basic earnings per share:
Income from continuing operations .............................................. $1.72 $1.77
============ ===========
Diluted earnings per share
Income from continuing operations .............................................. $1.65 $1.70
============ ===========
Weighted average shares outstanding:
Basic ........................................................................ 36,566,338 36,566,338
============ ===========
Diluted ...................................................................... 38,008,762 38,008,762
============ ===========
</Table>
The accompanying notes are an integral part of the pro forma
consolidated financial statements.
Note: The historical Statement of Income for the year ended December 31, 2003
has been derived from the audited consolidated financial statements
at that date.
7
W.P. CAREY & CO. LLC
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
Note 1. Basis of Presentation:
---------------------
The pro forma consolidated statement of income for the nine months ended
September 30, 2004 was derived from the historical unaudited condensed
consolidated statement of income for the nine-months ended September 30, 2004.
The pro forma consolidated statement of income for the year ended December 31,
2003 was derived from the historical audited consolidated statement of income
for the year ended December 31, 2003. Certain amounts in the historical audited
consolidated statement of income for the year ended December 31, 2003 have been
reclassified to conform to the current period presentation.
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from these
estimates.
The purchase cost of real estate assets acquired are allocated to tangible and
intangible assets as well as to liabilities (mortgage notes payable) based on
their estimated fair values. The value of tangible assets, consisting of land
and buildings were determined as if vacant. Intangibles consisting of
above-market or below-market value of leases, the value of in-place leases and
the value of tenant relationships were recorded at their relative fair values.
Such allocation is reflected in the historical balance sheet as of September 30,
2004.
Above-market and below-market lease values are recorded based on the present
value (using an interest rate reflecting the risks associated with the leases
acquired) of the difference between the contractual amounts of rents from the
acquired leases and management's estimate of fair value lease rates for the
property or equivalent property, measured over a period equal to the remaining
non-cancelable term of each lease. Above-market lease value is amortized as a
reduction of rental income over the remaining non-cancelable term of each lease.
The capitalized below-market lease value is amortized as an increase to rental
income over the initial term and any fixed rate renewal periods in the
respective leases.
In-place lease values and tenant relationship values are based on management's
evaluation of the specific characteristics of each tenant's lease. Factors
considered include the estimated carrying costs of the property during a
hypothetical lease-up period, current market conditions and costs to execute
similar leases. Estimated carrying costs include real estate taxes, insurance,
other property operating costs and estimates of lost rentals at market rates
during the hypothetical lease up periods. Estimated costs to execute leases
include commissions, tenant improvement allowances and free rental period
incentives.
Leases accounted for under the direct financing method are recorded at their net
investment. Unearned income is deferred and amortized to income over the lease
terms so as to produce a constant periodic rate of return on the net investment
in the lease. Minimum rental revenue on real estate leased to others under the
operating method is recognized on a straight-line basis over
8
W. P. CAREY & CO. LLC
NOTES TO CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS (Continued)
(in thousands)
the term of the related leases and expenses (including depreciation) are charged
to operations as incurred.
The interests in equity investments were allocated by determining the fair value
of the underlying pro rata assets and liabilities. Differences between such fair
value and the underlying equity in the net assets of the equity investee are
amortized over the remaining non-cancelable term of the lease of the equity
investee as a reduction of income from equity investments.
The fair value of mortgage notes payable was evaluated using a discount cash
flow model with rates that take into account the credit of the tenant and
interest rate risk. Differences between the fair value and the underlying
balance outstanding on the related mortgage note assumed are amortized as an
adjustment to interest expense over the remaining term of the mortgage note.
Note 2. Pro Forma Adjustments:
---------------------
On September 1, 2004, W.P. Carey & Co. LLC (the "Company") acquired interests in
17 properties from Carey Institutional Properties Incorporated, an affiliate,
for $142,161 for approximately $115,158 and the assumption of $27,003 in limited
recourse mortgage debt (the "Acquisition") based on the pro rata interests
acquired and liabilities assumed (i.e., mortgage notes payable). The purchase
price of the properties was based on a third party valuation of the properties.
Property interests acquired consist of (i) 100% interests in properties leased
to Omnicom Group, Inc; Fiskars Corporation; Michigan Mutual Life Insurance
Corporation; Sears Logistics, Inc.; Hibbett Sporting Goods, Inc.; Qwest
Communications, Inc.; Xerox Corporation; Kmart Corporation; Lucent Technologies,
Inc. and Affiliated Foods Southwest, Inc., (ii) a 100% interest in a vacant
property in Denton, Texas (iii) a 50% noncontrolling interest in a limited
partnership which leases property to Sicor, Inc. and (iv) an 81.46% interest in
a limited partnership which leases property to Titan Corporation ("Titan"). The
noncontrolling interests, which consist of ownership in joint ventures which own
properties leased on a net lease basis to a single tenant, are accounted for
under the equity method. Prior to the Acquisition, the Company owned an 18.54%
noncontrolling interest in the Titan property limited partnership and it was
accounted for under the equity method. As a result of obtaining the remaining
81.54% interest, the amounts relating to the 18.54% Titan interests in the
historical results of operations have been reclassified from income from equity
investments; however, the amounts reclassified were not adjusted to fair value.
The Acquisition is more fully described in the Company's Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 2004.
Pro forma adjustments represent the revenues, expenses and income from equity
investments from the interests acquired in the Acquisition, less amounts
included in the historical results of operations (for the nine months ended
September 30, 2004) and the effect of reclassifying amounts relating to the
18.54% interest in the Titan limited partnership held by the Company prior to
the Acquisition.
9
W. P. CAREY & CO. LLC
PRO FORMA CONSOLIDATED STATEMENT OF TAXABLE INCOME AND
AFTER-TAX CASH FLOW
For the year ended September 30, 2004
(Unaudited)
(in thousands)
<Table>
<Caption>
Consolidated pro forma income from continuing operations for the year ended September 30, 2004 .................... $ 82,351
Adjustment to interest income on direct financing lease, rental income and interest expense for
tax purposes (1A) .............................................................................................. (5,867)
Depreciation adjustment for tax purposes (1B) ..................................................................... (1,182)
REIT taxable income (1C) .......................................................................................... 627
Adjustment for variable interest entity consolidated for financial reporting purposes under
Financial Interpretation No. 46 (1D)............................................................................ 1,166
Adjustment to equity income for tax purposes....................................................................... 301
--------
Pro forma taxable income ................................................................................. 77,396
Add: Tax basis depreciation ....................................................................................... 17,892
Distributions to minority interests in excess of minority interest in tax earnings, net of
distributions from equity investments in excess of tax earnings (1E) ........................................ (2,061)
Company's share of principal paid on mortgage loans (1F) ....................................................... (9,956)
Taxes accrued for financial reporting purposes but not currently payable (1G) .................................. 13,025
--------
Pro forma after-tax cash flow ............................................................................ $ 96,296
========
</Table>
The accompanying notes are an integral part of the consolidated
financial statements
10
W. P. CAREY & CO. LLC
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF TAXABLE INCOME AND
AFTER-TAX CASH FLOW
(In thousands)
Note 1. Pro Forma Adjustments:
---------------------
The Pro Forma Consolidated Statement of Taxable Income and After-Tax Cash Flow
has been prepared based on pro forma net income for the twelve-month period
ended September 30, 2004 with adjustments to derive pro forma taxable income and
pro forma after-tax cash flow.
A. For tax purposes, rents are recognized on a contractual basis and
differences between contractual rent and rent recognized on a straight-line
basis and interest income recognized at a constant rate of interest are
eliminated. Mortgage assumed in connection with the Acquisition have been
recorded for financial reporting purposes at fair value and for tax purposes
on a carryover basis (i.e., historical cost). The difference between the
fair value and the carryover basis is amortized to interest expense for
financial reporting purposes over the remaining terms of the mortgages and
eliminated for tax purposes.
For tax purposes, certain changes for equity grants which have no cash
effect and are not currently taxable have been added back. Certain fee
revenue which is not currently collectible has been eliminated and the cash
amount received from such deferred fees have been added back.
B. The Company's real estate assets are being depreciated for tax purposes over
various lives and methods of depreciation. The Company was formed in 1998
through the merger of various partnerships at which time, for financial
reporting purposes, assets and liabilities were accounted for under the
purchase method of accounting and depreciable assets were recorded at fair
value. For tax purposes, the tax basis of the real estate assets acquired
were carried over with no adjustment. In connection with the acquisition,
the real estate assets will have a new tax basis based on their respective
purchase prices with depreciation recognized on a straight-line basis over
39 or 40 years; however, this does not apply to three properties leased to
two lessees which are owned through limited partnerships interests.
For financial reporting purposes, no depreciation is recorded on direct
financing leases. Depreciation is recorded for the purpose of determining
taxable income. Annual taxable depreciation is computed based on the tax
basis of building and improvements.
For financial reporting purposes, a portion of the underlying assets of the
operating leases have been classified as intangible assets and are being
amortized on a straight-line basis over the initial term or renewable terms
of the leases. Such assets are classified as buildings and improvements for
tax purposes and are being depreciated on a straight-line basis over 39 or
40 years.
C. The Company holds interests in two properties through controlling interests
in real estate investment trusts and which are consolidated for financial
reporting purposes. For tax purposes, REIT taxable income is based on the
taxable portion of dividends received and may differ from the net income
recorded for financial reporting purposes.
11
W. P. CAREY & CO. LLC
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF TAXABLE INCOME AND
AFTER-TAX CASH FLOW (Continued)
(In thousands)
D. The Company consolidates an entity, Livho, Inc., ("Livho") for financial
reporting purposes in accordance with Financial Interpretation No. 46
"Consolidation of Variable Interest Entities." For tax purposes, the Company
has no ownership interest in Livho and does not recognize any of Livho's
taxable income. The Company leases property to Livho and recognizes rental
income from the lease. For financial reporting purposes such rental income
is eliminated and the revenue from the lease is added back.
E. Difference between taxable income from equity investments or applicable
minority interests was computed by adding back depreciable expense on a
taxable basis and deducting scheduled principal amortization and computing
the pro rata share.
F. Principal paid on mortgage loans includes actual scheduled principal
payments made by the Company for the twelve-months ended September 30, 2004
with pro forma adjustments for mortgage loans assumed in the acquisition.
G. Represents deferred taxes and amounts deducted for tax purposes for equity
grants which are credited directly to Members' Equity for financial
reporting purposes. The charge for deferred taxes is a noncash item and the
credit to Members' Equity reflects an amount which reduces actual tax
payments made by the Company.
12