Edgar Filing: W. P. Carey Inc.

WPC 2015 Q1 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2015

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from__________ to __________

Commission File Number: 001-13779

W. P. CAREY INC.

(Exact name of registrant as specified in its charter)



Maryland	45-4549771
(State of incorporation)	(I.R.S. Employer Identification No.)

50 Rockefeller Plaza
New York, New York	10020
(Address of principal executive offices)	(Zip Code)

Investor Relations (212) 492-8920

(212) 492-1100

(Registrant’s telephone numbers, including area code)

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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

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 104,337,911 shares of common stock, $0.001 par value, outstanding at May 8, 2015.

INDEX



		Page No.



PART I − FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
	Consolidated Balance Sheets	2
	Consolidated Statements of Income	3
	Consolidated Statements of Comprehensive (Loss) Income	4
	Consolidated Statements of Equity	5
	Consolidated Statements of Cash Flows	7
	Notes to Consolidated Financial Statements	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		38
Item 3. Quantitative and Qualitative Disclosures About Market Risk		64
Item 4. Controls and Procedures		67

PART II − OTHER INFORMATION
Item 1A. Risk Factors		68
Item 6. Exhibits		69
Signatures		70

Forward-Looking Statements

This Quarterly Report on Form 10-Q, or the 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 capital markets, tenant credit quality, general economic overview, our expected range of Adjusted funds from operations, or AFFO, our corporate strategy, our capital structure, our portfolio lease terms, our international exposure and acquisition volume, our expectations about tenant bankruptcies and interest coverage, statements regarding estimated or future economic performance and results, including our underlying assumptions, occupancy rate, credit ratings, and possible new acquisitions by us and our investment management programs, the Managed REITs discussed herein, including their earnings, statements that we make regarding our ability to remain qualified for taxation as a real estate investment trust, or REIT, the amount and timing of any future dividends, our existing or future leverage and debt service obligations, our future prospects for growth, our projected assets under management, our future capital expenditure levels, our historical and anticipated funds from operations, our future financing transactions, our estimates of growth, and our plans to fund our future liquidity needs. 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 factors could also have material adverse effects on our business, financial condition, liquidity, results of operations, AFFO, and prospects. You should exercise caution in relying on forward-looking statements as they involve known and unknown risks, uncertainties and other factors that may materially affect our future results, performance, achievements or transactions. Information on factors that could impact actual results and cause them to differ from what is anticipated in the forward-looking statements contained herein is included in this Report as well as in our other filings with the Securities and Exchange Commission, or the 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, 2014 as filed with the SEC on March 2, 2015, as amended by a Form 10-K/A filed with the SEC on March 17, 2015, or the 2014 Annual Report, and Part II, Item 1A "Risk Factors" of this Quarterly Report. Moreover, because we operate in a very competitive and rapidly changing environment, new risks are likely to emerge from time to time. Given these risks and uncertainties, potential investors are cautioned not to place undue reliance on these forward-looking statements as a prediction of future results, which speak only as of the date of this 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 consolidated financial statements of the registrant in Part I, Item 1. Financial Statements (Unaudited).

W. P. Carey 3/31/2015 10-Q – 1

PART I

Item 1. Financial Statements.

W. P. CAREY INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except share and per share amounts)



	March 31, 2015			December 31, 2014
Assets
Investments in real estate:
Real estate, at cost (inclusive of $183,540 and $184,417, respectively, attributable to variable interest entities, or VIEs)	$	5,159,139		$	5,006,682
Operating real estate, at cost (inclusive of $38,714 and $38,714, respectively, attributable to VIEs)	84,915			84,885
Accumulated depreciation (inclusive of $21,740 and $19,982, respectively, attributable to VIEs)	(286,953		)	(258,493		)
Net investments in properties	4,957,101			4,833,074
Net investments in direct financing leases (inclusive of $59,133 and $61,609, respectively, attributable to VIEs)	766,920			816,226
Assets held for sale	—			7,255
Net investments in real estate	5,724,021			5,656,555
Cash and cash equivalents (inclusive of $1,381 and $2,652, respectively, attributable to VIEs)	207,391			198,683
Equity investments in the Managed Programs and real estate	249,088			249,403
Due from affiliates	51,200			34,477
Goodwill	682,623			692,415
In-place lease and tenant relationship intangible assets, net (inclusive of $20,264 and $21,267, respectively, attributable to VIEs)	953,458			993,819
Above-market rent intangible assets, net (inclusive of $13,275 and $13,767, respectively, attributable to VIEs)	510,686			522,797
Other assets, net (inclusive of $19,377 and $18,603, respectively, attributable to VIEs)	352,063			300,330
Total assets	$	8,730,530		$	8,648,479
Liabilities and Equity
Liabilities:
Non-recourse debt, net (inclusive of $123,595 and $125,226, respectively, attributable to VIEs)	$	2,420,620		$	2,532,683
Senior Unsecured Credit Facility - Revolver	186,131			807,518
Senior Unsecured Credit Facility - Term Loan	250,000			250,000
Senior Unsecured Notes, net	1,479,473			498,345
Below-market rent and other intangible liabilities, net (inclusive of $8,847 and $9,305, respectively, attributable to VIEs)	174,126			175,070
Accounts payable, accrued expenses and other liabilities (inclusive of $4,315 and $5,573, respectively, attributable to VIEs)	298,217			293,846
Deferred income taxes (inclusive of $516 and $587, respectively, attributable to VIEs)	95,987			94,133
Distributions payable	101,350			100,078
Total liabilities	5,005,904			4,751,673
Redeemable noncontrolling interest	13,374			6,071
Commitments and contingencies (Note 12)
Equity:
W. P. Carey stockholders’ equity:
Preferred stock, $0.001 par value, 50,000,000 shares authorized; none issued	—			—
Common Stock, $0.001 par value, 450,000,000 shares authorized; 105,381,839 and 105,085,069 shares issued, respectively; and 104,337,423 and 104,040,653 shares outstanding, respectively	105			105
Additional paid-in capital	4,292,781			4,322,273
Distributions in excess of accumulated earnings	(537,525		)	(465,606		)
Deferred compensation obligation	56,749			30,624
Accumulated other comprehensive loss	(174,933		)	(75,559		)
Less: treasury stock at cost, 1,044,416 shares	(60,948		)	(60,948		)
Total W. P. Carey stockholders’ equity	3,576,229			3,750,889
Noncontrolling interests	135,023			139,846
Total equity	3,711,252			3,890,735
Total liabilities and equity	$	8,730,530		$	8,648,479

See Notes to Consolidated Financial Statements.

W. P. Carey 3/31/2015 10-Q – 2

W. P. CAREY INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except share and per share amounts)



	Three Months Ended March 31,
	2015			2014
Revenues
Real estate revenues:
Lease revenues	$	160,165		$	123,068
Operating property revenues	7,112			4,991
Reimbursable tenant costs	5,939			6,014
Lease termination income and other	3,209			1,187
	176,425			135,260
Revenues from the Managed Programs:
Structuring revenue	21,720			17,750
Asset management revenue	11,159			9,777
Reimbursable costs	9,607			39,732
Dealer manager fees	1,274			6,676
Incentive, termination and subordinated disposition revenue	203			—
	43,963			73,935
	220,388			209,195
Operating Expenses
Depreciation and amortization	65,400			52,673
General and administrative	29,768			22,671
Reimbursable tenant and affiliate costs	15,546			45,746
Property expenses, excluding reimbursable tenant costs	9,364			8,415
Stock-based compensation expense	7,009			7,043
Merger and property acquisition expenses	5,676			29,614
Impairment charges	2,683			—
Subadvisor fees	2,661			18
Dealer manager fees and expenses	2,372			5,425
	140,479			171,605
Other Income and Expenses
Interest expense	(47,949		)	(39,075		)
Other income and (expenses)	(4,306		)	(5,640		)
Equity in earnings of equity method investments in the Managed Programs and real estate	11,723			14,262
Gain on change in control of interests	—			105,947
	(40,532		)	75,494
Income from continuing operations before income taxes and gain on sale of real estate	39,377			113,084
Provision for income taxes	(1,980		)	(2,253		)
Income from continuing operations before gain on sale of real estate	37,397			110,831
Income from discontinued operations, net of tax	—			6,406
Gain on sale of real estate, net of tax	1,185			81
Net Income	38,582			117,318
Net income attributable to noncontrolling interests	(2,466		)	(1,578		)
Net income attributable to redeemable noncontrolling interest	—			(262		)
Net Income Attributable to W. P. Carey	$	36,116		$	115,478
Basic Earnings Per Share
Income from continuing operations attributable to W. P. Carey	$	0.34		$	1.21
Income from discontinued operations attributable to W. P. Carey	—			0.08
Net Income Attributable to W. P. Carey	$	0.34		$	1.29
Diluted Earnings Per Share
Income from continuing operations attributable to W. P. Carey	$	0.34		$	1.20
Income from discontinued operations attributable to W. P. Carey	—			0.07
Net Income Attributable to W. P. Carey	$	0.34		$	1.27
Weighted-Average Shares Outstanding
Basic	105,303,679			89,366,055
Diluted	106,109,877			90,375,311
Amounts Attributable to W. P. Carey
Income from continuing operations, net of tax	$	36,116		$	108,937
Income from discontinued operations, net of tax	—			6,541
Net Income	$	36,116		$	115,478
Distributions Declared Per Share	$	0.9525		$	0.8950

See Notes to Consolidated Financial Statements.

W. P. Carey 3/31/2015 10-Q – 3

W. P. CAREY INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (UNAUDITED)

(in thousands)



	Three Months Ended March 31,
	2015			2014
Net Income	$	38,582		$	117,318
Other Comprehensive (Loss) Income
Foreign currency translation adjustments	(131,349		)	4,545
Realized and unrealized gain (loss) on derivative instruments	26,818			(2,797		)
Change in unrealized gain on marketable securities	14			17
	(104,517		)	1,765
Comprehensive (Loss) Income	(65,935		)	119,083

Amounts Attributable to Noncontrolling Interests
Net income	(2,466		)	(1,578		)
Foreign currency translation adjustments	5,143			336
Comprehensive loss (income) attributable to noncontrolling interests	2,677			(1,242		)
Amounts Attributable to Redeemable Noncontrolling Interest
Net income	—			(262		)
Foreign currency translation adjustments	—			6
Comprehensive income attributable to redeemable noncontrolling interest	—			(256		)
Comprehensive (Loss) Income Attributable to W. P. Carey	$	(63,258	)	$	117,585

See Notes to Consolidated Financial Statements.

W. P. Carey 3/31/2015 10-Q – 4

W. P. CAREY INC.

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

Three Months Ended March 31, 2015

(in thousands, except share and per share amounts)



	W. P. Carey Stockholders
							Distributions					Accumulated
				Additional			in Excess of			Deferred		Other						Total
	$0.001 Par Value			Paid-in			Accumulated			Compensation		Comprehensive			Treasury			W. P. Carey			Noncontrolling
	Shares	Amount		Capital			Earnings			Obligation		Income (Loss)			Stock			Stockholders			Interests			Total
Balance at January 1, 2015	104,040,653	$	105	$	4,322,273		$	(465,606	)	$	30,624	$	(75,559	)	$	(60,948	)	$	3,750,889		$	139,846		$	3,890,735
Contributions from noncontrolling interests																					208			208
Exercise of stock options	3	—		—														—						—
Grants issued in connection with services rendered	279,621	—		(14,533		)												(14,533		)				(14,533		)
Shares issued under share incentive plans	17,146	—		(717		)												(717		)				(717		)
Deferral of vested shares				(24,288		)				24,288								—						—
Windfall tax benefits - share incentive plans				5,276														5,276						5,276
Amortization of stock-based compensation expense				7,009														7,009						7,009
Redemption value adjustment				(7,303		)												(7,303		)				(7,303		)
Distributions to noncontrolling interests																		—			(2,354		)	(2,354		)
Distributions declared ($0.9525 per share)				5,064			(108,035		)	1,837								(101,134		)				(101,134		)
Net income							36,116											36,116			2,466			38,582
Other comprehensive income (loss):
Foreign currency translation adjustments												(126,206		)				(126,206		)	(5,143		)	(131,349		)
Realized and unrealized gain on derivative instruments												26,818						26,818						26,818
Change in unrealized gain on marketable securities												14						14						14
Balance at March 31, 2015	104,337,423	$	105	$	4,292,781		$	(537,525	)	$	56,749	$	(174,933	)	$	(60,948	)	$	3,576,229		$	135,023		$	3,711,252

W. P. Carey 3/31/2015 10-Q – 5

W. P. CAREY INC.

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

(Continued)

Three Months Ended March 31, 2014

(in thousands, except share and per share amounts)



	W. P. Carey Stockholders
								Distributions					Accumulated
					Additional			in Excess of			Deferred		Other						Total
	$0.001 Par Value				Paid-in			Accumulated			Compensation		Comprehensive			Treasury			W. P. Carey			Noncontrolling
	Shares		Amount		Capital			Earnings			Obligation		Income (Loss)			Stock			Stockholders			Interests			Total
Balance at January 1, 2014	68,266,570		$	69	$	2,256,503		$	(318,577	)	$	11,354	$	15,336		$	(60,270	)	$	1,904,415		$	298,316		$	2,202,731
Shares issued to stockholders of CPA^®:16 – Global in connection with the CPA^®:16 Merger	30,729,878		31		1,815,490														1,815,521						1,815,521
Purchase of the remaining interests in less-than-wholly-owned investments that we already consolidate in connection with the CPA^®:16 Merger					(42,015		)												(42,015		)	(239,562		)	(281,577		)
Purchase of noncontrolling interests in connection with the CPA^®:16 Merger																			—			99,469			99,469
Exercise of stock options	2,961				91														91						91
Grants issued in connection with services rendered	352,188				(15,735		)												(15,735		)				(15,735		)
Shares issued under share incentive plans	7,735				(146		)												(146		)				(146		)
Deferral of vested shares					(14,146		)				14,146								—						—
Windfall tax benefits - share incentive plans					5,449														5,449						5,449
Amortization of stock-based compensation expense					7,043														7,043						7,043
Redemption value adjustment					306														306						306
Distributions to noncontrolling interests																			—			(6,045		)	(6,045		)
Distributions declared ($0.895 per share)					3,179			(97,114		)	3,842								(90,093		)				(90,093		)
Purchase of treasury stock from related party	(11,037	)														(678		)	(678		)				(678		)
Foreign currency translation																			—			(7		)	(7		)
Net income								115,478											115,478			1,578			117,056
Other comprehensive income (loss):
Foreign currency translation adjustments													4,887						4,887			(336		)	4,551
Realized and unrealized gain on derivative instruments													(2,797		)				(2,797		)				(2,797		)
Change in unrealized gain on marketable securities													17						17						17
Balance at March 31, 2014	99,348,295		$	100	$	4,016,019		$	(300,213	)	$	29,342	$	17,443		$	(60,948	)	$	3,701,743		$	153,413		$	3,855,156

See Notes to Consolidated Financial Statements.

W. P. Carey 3/31/2015 10-Q – 6

W. P. CAREY INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)



	Three Months Ended March 31, 2015
	2015			2014
Cash Flows — Operating Activities
Net income	$	38,582		$	117,318
Adjustments to net income:
Depreciation and amortization, including intangible assets and deferred financing costs	66,994			57,557
Straight-line rent and amortization of rent-related intangibles	10,364			10,497
Stock-based compensation expense	7,009			7,043
Realized and unrealized (loss) gain on foreign currency transactions, derivatives, extinguishment of debt and other	(5,941		)	718
Management income received in shares of Managed REITs and other	(4,988		)	(8,207		)
Impairment charges	2,683			—
Gain on sale of real estate	(1,185		)	(3,176		)
Equity in earnings of equity method investments in the Managed Programs and real estate in excess of distributions received	331			(1,222		)
Gain on change in control of interests	—			(105,947		)
Amortization of deferred revenue	—			(786		)
Changes in assets and liabilities:
Payments for withholding taxes upon delivery of equity-based awards and exercises of stock options	(15,250		)	(15,882		)
Deferred acquisition revenue received	8,738			6,469
Increase in structuring revenue receivable	(6,645		)	(8,121		)
Net changes in other operating assets and liabilities	(33,319		)	(12,565		)
Net Cash Provided by Operating Activities	67,373			43,696
Cash Flows — Investing Activities
Purchases of real estate	(385,603		)	(40,986		)
Proceeds from sale of real estate	13,119			105,095
Capital expenditures on owned real estate	(10,789		)	(2,152		)
Proceeds from repayment of note receivable	9,970			—
Change in investing restricted cash	6,852			3,646
Distributions received from equity investments in the Managed Programs and real estate in excess of equity income	1,473			7,970
Capital expenditures on corporate assets	(882		)	(3,342		)
Other investing activities, net	489			334
Proceeds from repayment of short-term loan to affiliate	—			1,080
Cash acquired in connection with the CPA^®:16 Merger	—			65,429
Purchase of securities	—			(7,664		)
Cash paid to stockholders of CPA^®:16 – Global in the CPA^®:16 Merger	—			(1,338		)
Capital contributions to equity investments	—			(453		)
Net Cash (Used in) Provided by Investing Activities	(365,371		)	127,619
Cash Flows — Financing Activities
Proceeds from issuance of Senior Unsecured Notes	1,022,303			498,195
Repayments of Senior Unsecured Credit Facility	(877,685		)	(1,280,000		)
Proceeds from Senior Unsecured Credit Facility	291,206			901,383
Distributions paid	(99,860		)	(68,159		)
Scheduled payments of mortgage principal	(18,247		)	(16,711		)
Payment of financing costs	(10,501		)	(11,894		)
Proceeds from mortgage financing	8,277			5,110
Windfall tax benefit associated with stock-based compensation awards	5,276			5,449
Distributions paid to noncontrolling interests	(2,354		)	(6,131		)
Contributions from noncontrolling interests	208			123
Change in financing restricted cash	175			(428		)
Prepayments of mortgage principal	—			(116,816		)
Proceeds from exercise of stock options	—			91
Purchase of treasury stock from related party	—			(678		)
Net Cash Provided by (Used in) Financing Activities	318,798			(90,466		)
Change in Cash and Cash Equivalents During the Period
Effect of exchange rate changes on cash	(12,092		)	579
Net increase in cash and cash equivalents	8,708			81,428
Cash and cash equivalents, beginning of period	198,683			117,519
Cash and cash equivalents, end of period	$	207,391		$	198,947

See Notes to Consolidated Financial Statements.

W. P. Carey 3/31/2015 10-Q – 7

W. P. CAREY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1. Business and Organization

W. P. Carey Inc., or W. P. Carey, is, together with its consolidated subsidiaries and predecessors, a real estate investment trust, or REIT, that provides long-term financing via sale-leaseback and build-to-suit transactions for companies worldwide and manages a global investment portfolio. We invest primarily in commercial properties domestically and internationally. We earn revenue principally by leasing the properties we own to single corporate tenants, primarily on a triple-net lease basis, which generally requires each tenant to pay substantially all of the costs associated with operating and maintaining the property. Through our taxable REIT subsidiaries, or TRSs, we also earn revenue as the advisor to publicly-owned, non-listed REITs, which are sponsored by us under the Corporate Property Associates, or CPA^®,brand name that invest in similar properties. At March 31, 2015, we were the advisor to Corporate Property Associates 17 – Global Incorporated, or CPA^®:17 – Global, and Corporate Property Associates 18 – Global Incorporated, or CPA^®:18 – Global. We were also the advisor to Corporate Property Associates 16 – Global Incorporated, or CPA^®:16 – Global, until its merger with us on January 31, 2014. We refer to CPA^®:16 – Global, CPA^®:17 – Global and CPA^®:18 – Global together as the CPA^® REITs. At March 31, 2015, we were also the advisor to Carey Watermark Investors Incorporated, or CWI (and also referred to as CWI 1), and Carey Watermark Investors 2 Incorporated, or CWI 2, two publicly-owned, non-listed REITs that invest in lodging and lodging-related properties. We refer to CWI, together with the CPA^® REITs, as the Managed REITs (Note 4). We also have invested in Carey Credit Income Fund, or CCIF, a newly formed business development company, or BDC (Note 7), with a third-party investment partner.

In September 2014, two feeder funds, which are also BDCs, each filed registration statements on Form N-2 with the SEC to sell up to 50,000,000 shares and 21,000,000 shares, respectively, of their beneficial interests in initial public offerings, with the proceeds to be invested in shares of CCIF. We serve as the advisor to CCIF. We refer to CCIF and the two feeder funds collectively as the Managed BDCs and, together with the Managed REITs, as the Managed Programs. As of the date of this Report, the registration statements, as amended, have not been declared effective by the SEC and there can be no assurance as to whether or when such offerings would be commenced.

Originally founded in 1973, we reorganized as a REIT in September 2012 in connection with our merger with Corporate Property Associates 15 Incorporated, or CPA^®:15. We refer to that merger as the CPA^®:15 Merger. Our shares of common stock are listed on the New York Stock Exchange under the symbol “WPC.”

On January 31, 2014, CPA^®:16 – Global merged with and into us based on a merger agreement, dated as of July 25, 2013 (Note 3). We refer to that merger as the CPA^®:16 Merger.

We have elected to be taxed as a REIT under Section 856 through 860 of the Internal Revenue Code. As a REIT, we are not generally subject to United States federal income taxation other than from our TRSs as long as we satisfy certain requirements, principally relating to the nature of our income and the level of our distributions, as well as other factors. We hold all of our real estate assets attributable to our Real Estate Ownership segment under the REIT structure, while the activities conducted by our Investment Management segment subsidiaries have been organized under TRSs.

Reportable Segments

Real Estate Ownership — We own and invest in commercial properties principally in the United States, Europe, and Asia that are then leased to companies, primarily on a triple-net lease basis. We have also invested in several operating properties, such as lodging and self-storage properties. We earn lease revenues from our wholly-owned and co-owned real estate investments that we control. In addition, we generate equity income through co-owned real estate investments that we do not control and through our ownership of shares of the Managed REITs (Note 7). Through our special member interests in the operating partnerships of the Managed REITs, we also participate in their cash flows (Note 4). At March 31, 2015, our owned portfolio was comprised of our full or partial ownership interests in 852 properties, substantially all of which were net leased to 219 tenants, with an occupancy rate of 98.4%, and totaled approximately 89.2 million square feet.

Investment Management — Through our TRSs, we structure and negotiate investments and debt placement transactions for the Managed REITs, for which we earn structuring revenue, and manage their portfolios of real estate investments, for which we earn asset-based management revenue. We earn disposition revenue when we negotiate and structure the sale of properties on behalf of the Managed REITs, and we may also earn incentive revenue and receive other compensation in connection with providing liquidity events for the Managed REITs’ stockholders. Collectively, at March 31, 2015, CPA^®:17 – Global and CPA^®:18 – Global owned all or a portion of 409 properties, including certain properties in which we have an ownership

W. P. Carey 3/31/2015 10-Q – 8

Notes to Consolidated Financial Statements (Unaudited)

interest. Substantially all of these properties, totaling approximately 45.0 million square feet, were net leased to 183 tenants, with an average occupancy rate of approximately 99.9%. The Managed REITs also had interests in 126 operating properties for an aggregate of approximately13.9 million square feet at March 31, 2015. We have begun to explore alternatives for expanding our investment management operations by raising funds beyond advising the existing Managed REITs. Any such expansion could involve the purchase of properties or other investments as principal, either for our owned portfolio or with the intention of transferring such investments to a newly-created fund, as well as the sponsorship of one or more funds to make investments other than primarily net lease investments, such as CWI, CWI 2 and the BDCs. These new funds could invest primarily in assets other than net-lease real estate and could include funds raised through publicly traded vehicles, either in the United States or internationally.

Note 2. Basis of Presentation

Basis of Presentation

Our interim 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 consolidated financial position, results of operations, and cash flows in accordance with accounting principles generally accepted in the United States, or 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 consolidated financial statements should be read in conjunction with our audited consolidated financial statements and accompanying notes for the year ended December 31, 2014, which are included in the 2014 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.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in our consolidated financial statements and the accompanying notes. Actual results could differ from those estimates.

Basis of Consolidation

Our consolidated financial statements reflect all of our accounts, including those of our controlled subsidiaries and our tenancy-in-common interests as described below. The portion of equity in a consolidated subsidiary that is not attributable, directly or indirectly, to us is presented as noncontrolling interests. All significant intercompany accounts and transactions have been eliminated.

We have an investment in a tenancy-in-common interest in various underlying international properties. Consolidation of this

investment is not required as such interest does not qualify as a VIE and does not meet the control requirement for consolidation. Accordingly, we account for this investment using the equity method of accounting. We use the equity method of

accounting because the shared decision-making involved in a tenancy-in-common interest investment provides us with

significant influence on the operating and financial decisions of this investment. We also have certain investments in wholly-owned tenancy-in-common interests, which we now consolidate after we obtained the remaining interests in the CPA®:16

Merger.

At March 31, 2015, we had 18 VIEs. We apply accounting guidance for consolidation of VIEs to certain entities in which the equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. Fixed price purchase and renewal options within a lease as well as certain decision-making rights within a loan can cause us to consider an entity a VIE.

Additionally, we own interests in single-tenant, net-leased properties leased to companies through noncontrolling interests in partnerships and limited liability companies that we do not control but over which we exercise significant influence. We account for these investments under the equity method of accounting. At times, the carrying value of our equity investments may fall below zero for certain investments. We intend to fund our share of the investments’ future operating deficits should the need arise. However, we have no legal obligation to pay for any of the liabilities of such investments nor do we have any legal obligation to fund operating deficits. At March 31, 2015, none of our equity investments had carrying values below zero.

W. P. Carey 3/31/2015 10-Q – 9

Notes to Consolidated Financial Statements (Unaudited)

In June 2014, CWI 2 filed a registration statement on Form S-11 with the SEC to sell up to $1.0 billion of common stock in an initial public offering plus up to an additional $400.0 million of its common stock under a dividend reinvestment plan. In January 2015, CWI 2 amended the registration statement to increase the offering size to $1.4 billion of its class A common stock plus up to an additional $600.0 million of its class A common stock through its dividend reinvestment plan. The registration statement was declared effective by the SEC on February 9, 2015. An amended registration statement adding the class T shares was declared effective by the SEC on April 13, 2015, so that the offering amounts noted can be in any combination of class A or class T shares. Through March 31, 2015, the financial activity of CWI 2, which had no significant assets, liabilities, or operations, was included in our consolidated financial statements. On May 15, 2015, upon CWI 2 reaching its minimum offering proceeds and admitting new stockholders, we deconsolidated CWI 2 and began to account for our interests in it under the equity method.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation. The consolidated financial

statements included in this Report have been retrospectively adjusted to reflect the disposition of certain properties as discontinued operations and certain adjustments related to purchase price allocation for all periods presented.

Recent Accounting Requirements

The following Accounting Standards Updates, or ASUs, promulgated by the Financial Accounting Standards Board are applicable to us:

ASU 2015-03, Interest-Imputation of Interest (Subtopic 835-30). ASU 2015-03 changes the presentation of debt issuance costs, which are currently recognized as a deferred charge (that is, an asset) and requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03 does not affect the recognition and measurement guidance for debt issuance costs. ASU 2015-03 is effective for periods beginning after December 15, 2015, early adoption is permitted and retrospective application is required. We are currently evaluating the impact of ASU 2015-03 on our consolidated financial statements

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, but will apply to reimbursed tenant costs and revenues generated from our operating properties and our Investment Management business. Additionally, this guidance modifies disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In April 2015, the Financial Accounting Standards Board issued a proposed ASU to defer the effective date of ASU 2014-09 by one year. Under the proposal, ASU 2014-09 would be effective beginning in 2018, and early adoption is permitted but not before 2017, the original public company effective date. We are currently evaluating the impact of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which we will adopt the standard.

Note 3. Merger with CPA^®:16 – Global

On July 25, 2013, we and CPA^®:16 – Global entered into a definitive agreement pursuant to which CPA^®:16 – Global would merge with and into one of our wholly-owned subsidiaries, subject to the approval of our stockholders and the stockholders of CPA^®:16 – Global. On January 24, 2014, our stockholders and the stockholders of CPA^®:16 – Global each approved the CPA^®:16 Merger, and the CPA^®:16 Merger closed on January 31, 2014.

In the CPA^®:16 Merger, CPA^®:16 – Global stockholders received 0.1830 shares of our common stock in exchange for each share of CPA^®:16 – Global stock owned, pursuant to an exchange ratio based upon a value of $11.25 per share of CPA^®:16 – Global and the volume weighted-average trading price of our common stock for the five consecutive trading days ending on the third trading day preceding the closing of the transaction on January 31, 2014. CPA^®:16 – Global stockholders received cash in lieu of any fractional shares in the CPA^®:16 Merger. We paid total merger consideration of approximately $1.8 billion, including the issuance of 30,729,878 shares of our common stock with a fair value of $1.8 billion based on the closing price of our common stock on January 31, 2014, of $59.08 per share, to the stockholders of CPA^®:16 – Global in exchange for the 168,041,772 shares of CPA^®:16 – Global common stock that we and our affiliates did not previously own, and cash of $1.3 million paid in lieu of issuing any fractional shares, or collectively, the Merger Consideration. As a condition of the CPA^®:16

W. P. Carey 3/31/2015 10-Q – 10

Notes to Consolidated Financial Statements (Unaudited)

Merger, we waived the subordinated disposition and termination fees that we would have been entitled to receive from CPA^®:16 – Global upon its liquidation pursuant to the terms of our advisory agreement with CPA^®:16 – Global (Note 4).

Immediately prior to the CPA^®:16 Merger, CPA^®:16 – Global’s portfolio was comprised of the consolidated full or partial interests in 325 leased properties, substantially all of which were triple-net leased with an average remaining life of 10.4 years and an estimated contractual minimum annualized base rent, or ABR, totaling $300.1 million, and two hotel properties. The related property-level debt was comprised of 92 fixed-rate and 18 variable-rate non-recourse mortgage loans with an aggregate fair value of approximately $1.8 billion and a weighted-average annual interest rate of 5.6% at that date. Additionally, CPA^®:16 – Global had a line of credit with an outstanding balance of $170.0 million on the date of the closing of the CPA^®:16 Merger. In addition, CPA^®:16 – Global had equity interests in 18 unconsolidated investments, 11 of which were consolidated by us prior to the CPA^®:16 Merger, five of which were consolidated by us subsequent to the CPA^®:16 Merger, and two of which were jointly-owned with CPA^®:17 – Global. These investments owned 140 properties, substantially all of which were triple-net leased with an average remaining life of 8.6 years and an estimated ABR totaling $63.9 million, as of January 31, 2014. The debt related to these equity investments was comprised of 17 fixed-rate and five variable-rate non-recourse mortgage loans with an aggregate fair value of approximately $0.3 billion and a weighted-average annual interest rate of 4.8% on January 31, 2014. The lease revenues and income from continuing operations from the properties acquired from the date of the CPA^®:16 Merger through March 31, 2014 were $45.8 million and $12.5 million (inclusive of $0.2 million attributable to noncontrolling interests), respectively.

During 2014, we sold all ten of the properties that were classified as held-for-sale upon acquisition in connection with the CPA^®:16 Merger (Note 15). The results of operations for all ten of these properties have been included in Income from discontinued operations, net of tax in the consolidated financial statements. In addition, we sold one property subject to a direct financing lease that we acquired in the CPA^®:16 Merger. The results of operations for this property have been included in Income from continuing operations before income taxes in the consolidated financial statements.

Purchase Price Allocation

We accounted for the CPA^®:16 Merger as a business combination under the acquisition method of accounting. After consideration of all applicable factors pursuant to the business combination accounting rules, we were considered the “accounting acquirer” due to various factors, including the fact that our stockholders held the largest portion of the voting rights in us upon completion of the CPA^®:16 Merger. Costs of $30.5 million related to the CPA^®:16 Merger were incurred in 2014, of which $29.5 million were incurred and expensed during the three months ended March 31, 2014 and classified within Merger and property acquisition expenses in the consolidated financial statements. In addition, CPA^®:16 – Global incurred a total of $10.6 million of merger expenses prior to January 31, 2014.

Equity Investments and Noncontrolling Interests

During the first quarter of 2014, we recognized a gain on change in control of interests of approximately $73.1 million, which was the difference between the carrying value of approximately $274.1 million and the preliminary estimated fair value of approximately $347.2 million of our previously-held equity interest in 38,229,294 shares of CPA^®:16 – Global’s common stock. During 2014, we identified certain measurement period adjustments that impacted the provisional accounting, which increased the estimated fair value of our previously-held equity interest in shares of CPA^®:16 – Global’s common stock by $2.6 million, resulting in an increase of $2.6 million in Gain on change in control of interests. In accordance with Accounting Standards Codification, or ASC, 805-10-25, we did not record the measurement period adjustments during the periods they occurred. Rather, such amounts are reflected in the financial statements for the three months ended March 31, 2014.

The CPA^®:16 Merger also resulted in our acquisition of the remaining interests in nine investments in which we already had a joint interest and accounted for under the equity method. Upon acquiring the remaining interests in these investments, we owned 100% of these investments and thus accounted for the acquisitions of these interests utilizing the purchase method of accounting. Due to the change in control of the nine jointly-owned investments that occurred, we recorded a gain on change in control of interests of approximately $30.2 million during the first quarter of 2014, which was the difference between our carrying values and the estimated fair values of our previously-held equity interests on the acquisition date of approximately $142.5 million and approximately $172.7 million, respectively. Subsequent to the CPA^®:16 Merger, we consolidate these wholly-owned investments.

In connection with the CPA^®:16 Merger, we also acquired the remaining interests in 12 less-than-wholly-owned investments that we already consolidate and recorded an adjustment to additional paid-in-capital of approximately $42.0 million during the first quarter of 2014 related to the difference between our carrying values and the preliminary estimated fair values of our

W. P. Carey 3/31/2015 10-Q – 11

Notes to Consolidated Financial Statements (Unaudited)

previously-held noncontrolling interests on the acquisition date of approximately $236.8 million and approximately $278.2 million, respectively. During 2014, we identified certain measurement period adjustments that impacted the provisional accounting, which increased the fair value of our previously-held noncontrolling interests on the acquisition date by $0.6 million, resulting in a reduction of $0.6 million to additional paid-in-capital.

Pro Forma Financial Information (Unaudited)

The following unaudited consolidated pro forma financial information has been presented as if the CPA^®:16 Merger had occurred on January 1, 2013 for the three months ended March 31, 2014. The pro forma financial information is not necessarily indicative of what the actual results would have been had the CPA^®:16 Merger occurred on that date, nor does it purport to represent the results of operations for future periods.

(in thousands, except share and per share amounts):



	Three Months Ended March 31, 2014
Pro forma total revenues	$	234,125

Pro forma net income from continuing operations, net of tax	$	37,940
Pro forma net income attributable to noncontrolling interests	(572		)
Pro forma net loss (income) attributable to redeemable noncontrolling interest	(262		)
Pro forma net income from continuing operations, net of tax attributable to W. P. Carey ^(a)	$	37,106

Pro forma earnings per share: ^(a)
Basic	$	0.37
Diluted	$	0.37

Pro forma weighted-average shares: ^(b)
Basic	99,724,441
Diluted	100,615,300

___________

(a)

The pro forma income attributable to W. P. Carey for the three months ended March 31, 2014 reflects the following income and expenses recognized related to the CPA^®:16 Merger as if the CPA^®:16 Merger had taken place on January 1, 2013: (i) combined merger expenses through December 31, 2014; (ii) an aggregate gain on change in control of interests; and (iii) an income tax expense from a permanent difference upon recognition of deferred revenue associated with accelerated vesting of shares previously issued by CPA^®:16 – Global for asset management and performance fees in connection with the CPA^®:16 Merger.


(b)	The pro forma weighted-average shares outstanding for the three months ended March 31, 2014 were determined as if the 30,729,878 shares of our common stock issued to CPA^®:16 – Global stockholders in the CPA^®:16 Merger were issued on January 1, 2013.

W. P. Carey 3/31/2015 10-Q – 12

Notes to Consolidated Financial Statements (Unaudited)

Note 4. Agreements and Transactions with Related Parties

Advisory Agreements with the Managed REITs

We have advisory agreements with each of the Managed REITs, pursuant to which we earn fees and are entitled to receive cash distributions. The following tables present a summary of revenue earned and/or cash received from the Managed REITs for the periods indicated, included in the consolidated financial statements (in thousands):



	Three Months Ended March 31,
	2015		2014
Structuring revenue	$	21,720	$	17,750
Asset management revenue	11,112		9,754
Reimbursable costs from affiliates	9,607		39,732
Distributions of Available Cash	8,806		10,445
Dealer manager fees	1,274		6,676
Incentive, termination and subordinated disposition revenue	203		—
Interest income on deferred acquisition fees and loans to affiliates	153		175
Deferred revenue earned	—		786
	$	52,875	$	85,318



	Three Months Ended March 31,
	2015		2014
CPA^®:16 – Global ^(a)	$	—	7,998
CPA^®:17 – Global ^(b)	21,676		15,828
CPA^®:18 – Global ^(b)	18,940		56,176
CWI ^(b)	12,259		5,316
	$	52,875	$	85,318

___________


(a)	The amount shown for the three months ended March 31, 2014 reflects transactions through January 31, 2014, the date of the CPA^®:16 Merger.


(b)	The advisory agreements with each of the CPA^®REITs are scheduled to expire on December 31, 2015 and the advisory agreement with CWI is scheduled to expire on September 30, 2015 unless otherwise renewed.

The following table presents a summary of amounts included in Due from affiliates (in thousands):



	March 31, 2015		December 31, 2014
Deferred acquisition fees receivable	25,170		$	26,913
Asset management fees receivable	5,991		—
Current acquisition fees receivable	6,839		2,463
Reimbursable costs	5,797		301
Accounts receivable	4,982		2,680
Organization and offering costs	2,421		2,120
	$	51,200	$	34,477

W. P. Carey 3/31/2015 10-Q – 13

Notes to Consolidated Financial Statements (Unaudited)

Asset Management Revenue

We earn asset management revenue, from each Managed REIT, based on each REITs Average Invested Assets (as defined in the respective advisory agreements). For CPA^®:16 – Global, prior to the CPA^®:16 Merger, we earned asset management revenue of 0.5% of average invested assets. For CPA^®:17 – Global and CPA^®:18 – Global, we earn asset management revenue ranging from 0.5% to 1.75% and 0.5% to 1.5%, respectively, depending on the type of investment and based on the average market value or average equity value, as applicable. For CWI, we earn asset management revenue of 0.5% of the average market value of lodging-related investments.

Through December 31, 2014, under the terms of the respective advisory agreements with the CPA^® REITs, we could elect to receive cash or shares of stock for asset management revenue due from each REIT. Effective January 1, 2015, the independent directors of the CPA^®REITs have the option to approve, after consultation with us, paying the annual asset management revenue due to us in cash, shares of stock, or a combination of both. In 2014, we elected to receive all asset management revenue from CPA^®:17 – Global, CPA^®:18 – Global, and CWI in their respective shares. For CPA^®:16 – Global, we elected to receive its January 2014 asset management revenue due to us in cash. In 2015, CPA^®:17 – Global elected to pay 50% of its asset management fees due to us in cash, with the remaining 50% paid in shares of its common stock, while CPA^®:18 – Global elected to pay its asset management fees due to us in shares of its common stock.

Under the terms of the advisory agreement with CWI, we may elect to receive the annual asset management fee in cash or in shares of CWI. For 2015, we elected to receive asset management fees due to us in cash.

Structuring Revenue

Under the terms of the advisory agreements, we earn revenue in connection with structuring and negotiating investments and related financing for the Managed REITs, which we refer to as acquisition revenue. We may receive acquisition revenue of 4.5% of the total aggregate cost of long-term net-lease investments made by each CPA^® REIT, of which 2.5% is paid when the transaction is completed, and 2.0% is paid in annual installments over three years, provided the relevant CPA^® REIT meets its performance criterion. For certain types of non-long term net-lease investments acquired on behalf of CPA^®:17 – Global, initial acquisition revenue may range from 0% to 1.75% of the equity invested plus the related acquisition revenue, with no deferred acquisition revenue being earned. For CWI, we earn initial acquisition revenue of 2.5% of the total investment cost of the properties acquired and loans originated by CWI with no deferred acquisition revenue being earned. Total acquisition revenue from Managed REITs cannot exceed 6.0% of the aggregate contract purchase price of all investments and loans. For CWI, we may also be entitled to fees for structuring loan refinancing transactions of up to 1.0% of the principal amount. This loan refinancing revenue, together with the acquisition revenue, is referred to as structuring revenue.

Unpaid deferred acquisition fees, including accrued interest, are included in Due from affiliates in the consolidated financial statements. Unpaid deferred acquisition fees bear interest at annual rates ranging from 2.0% to 5.0%.

Reimbursable Costs from Affiliates and Dealer Manager Fees

The Managed REITs reimburse us for certain costs we incur on their behalf, primarily broker-dealer commissions, marketing costs, an annual distribution and shareholder servicing fee, or Shareholder Servicing Fee, and certain personnel and overhead costs. Personnel and overhead costs are charged to the CPA^®REITs based on the average of the trailing 12-month reported revenues of the CPA^®REITs, CWI and us. Under the amended and restated advisory agreements for the CPA^® REITs, in 2015 and 2016, the amount of personnel costs, excluding costs related to our legal transactions group, allocated to the CPA^®REITs is capped at 2.4% and 2.2%, respectively, of pro rata lease revenues for each year. In 2017 and thereafter, the cap decreases to 2.0% of pro rata lease revenues for that year. Costs related to our legal transactions group are based on a schedule of expenses for different types of transactions, including 0.25% of the total investment cost of an acquisition. We allocate personnel and overhead costs to CWI based on the time incurred by our personnel. For 2015, we will receive personnel cost reimbursements from CWI in cash, but for 2014, we agreed to receive such reimbursements from CWI in shares of its common stock.

During CWI’s follow-on offering, which began in December 2013 and terminated in December 2014, we earned a selling commission of $0.70 per share sold and a dealer manager fee of $0.30 per share sold.

For CPA^®:18 – Global’s initial public offering which commenced in May 2013 and terminated in April 2015, we received selling commissions, depending on the class of common stock sold, of $0.70 or $0.14 per share sold, and a dealer manager fee of $0.30 or $0.21 per share sold, for its class A common stock and class C common stock, respectively. CPA^®:18 – Global completed sales of its class A common stock and class C common stock during June 2014 and April 2015, respectively. We also

W. P. Carey 3/31/2015 10-Q – 14

Notes to Consolidated Financial Statements (Unaudited)

receive a Shareholder Servicing Fee paid in connection with investor purchases of shares of class C common stock. The amount of the Shareholder Servicing Fee is 1% of the purchase price per share (or, once reported, the amount of the estimated NAV per share) for the shares of class C common stock sold in the offering. The Shareholder Servicing Fee is accrued daily and is payable quarterly in arrears. CPA^®:18 – Global will cease paying the Shareholder Servicing Fee on the date at which, in the aggregate, underwriting compensation from all sources, including the Shareholder Servicing Fee, any organizational and offering fee paid for underwriting, and underwriting compensation paid by us, equals 10% of the gross proceeds from the initial public offering.

We re-allowed all of the selling commissions and Shareholder Servicing Fees and re-allowed a portion of the dealer manager fees to selected dealers in the offerings for CWI and CPA^®:18 – Global. Dealer manager fees that were not re-allowed and Shareholder Servicing Fees were classified as Dealer manager fees in the consolidated financial statements.

Pursuant to its advisory agreement, CWI is obligated to reimburse us for all organization costs and a portion of offering costs incurred in connection with its initial and follow-on public offerings up to a maximum amount (excluding selling commissions and the dealer manager fee) of 2% and 4%, respectively, of the gross proceeds of its offering and distribution reinvestment plan. Through March 31, 2015, we incurred organization and offering costs on behalf of CWI of approximately $13.2 million, which CWI is obligated to reimburse us, and $12.9 million had been reimbursed as of March 31, 2015.

Pursuant to its advisory agreement, CPA^®:18 – Global is obligated to reimburse us for all organization costs and a portion of offering costs incurred in connection with its initial public offering. CPA^®:18 – Global is obligated to reimburse us up to 1.5% of the gross proceeds within 60 days after the end of the quarter in which the offering terminates. Through March 31, 2015, we incurred organization and offering costs on behalf of CPA^®:18 – Global of approximately $8.5 million, and based on total funds raised, the entire amount is expected to be reimbursed by CPA^®:18 – Global. As of March 31, 2015, $8.3 million had been reimbursed.

Distributions of Available Cash and Deferred Revenue Earned

We are entitled to receive distributions of up to 10% of the Available Cash (as defined in the respective advisory agreements) from the operating partnerships of each of the Managed REITs, as defined in their respective operating partnership agreements. In May 2011, we acquired a special member interest, or the Special Member Interest, in CPA^®:16 – Global’s operating partnership. We initially recorded this Special Member Interest at its fair value, and amortized it into earnings through the date of the CPA^®:16 Merger. Cash distributions of our proportionate share of earnings from the Managed REITs’ operating partnerships as well as deferred revenue earned from our Special Member Interest in CPA^®:16 – Global’s operating partnership are recorded as Equity in earnings of equity method investments in real estate and the Managed REITs within the Real Estate Ownership segment.

CWI 2

On February 9, 2015, we entered into an advisory agreement with CWI 2 whereby we perform various services, including but

not limited to the day-to-day management of CWI 2 and transaction-related services. We also entered into a dealer manager

agreement with CWI 2 to manage its public offering of common stock. As of March 31, 2015, we had not earned any income from CWI 2 because CWI 2 had not acquired any properties and had not reached its minimum offering proceeds to admit stockholders.

W. P. Carey 3/31/2015 10-Q – 15

Notes to Consolidated Financial Statements (Unaudited)

Other Transactions with Affiliates

Loans to Managed REITs

During 2015 and 2014, our board of directors approved unsecured loans from us to CPA^®:17 – Global of up to $75.0 million, CPA^®:18 – Global of up to $100.0 million and to CWI and CWI 2 of up to $110.0 million in the aggregate, with each loan at a rate equal to the rate at which we are able to borrow funds under our senior credit facility (Note 11), for the purpose of facilitating acquisitions approved by their respective investment committees, that they would not otherwise have sufficient available funds to complete, with any loans to be made solely at our Management’s discretion. In April and May 2015 we made loans to CWI 2 of $37.2 million and $65.3 million, respectively, in order to facilitate two acquisitions and an anticipated acquisition by CWI 2. The loans mature in March 2016 and December 2015, respectively and each loan bears interest at LIBOR plus 1.1%. On June 25, 2014, in order to facilitate an acquisition by CWI, we made an $11.0 million loan to CWI, with an annual interest rate of London Interbank Offered Rate, or LIBOR, plus 1.1% and a scheduled maturity date of June 30, 2015. The loan, including accrued interest, was repaid in full prior to maturity on July 22, 2014.

Treasury Stock

In February 2014, we repurchased 11,037 shares of our common stock for $0.7 million in cash from the former independent directors of CPA^®:16 – Global at a price per share equal to the volume weighted-average trading price of our stock utilized in the CPA^®:16 Merger. These shares were issued to them as their portion of the Merger Consideration in exchange for their shares of CPA^®:16 – Global common stock (Note 3) and were repurchased by agreement in order to satisfy the independence requirements set forth in the organizational documents of the remaining CPA^® REITs, for which these individuals also serve as independent directors.

Other

We own interests in entities ranging from 3% to 90%, as well as jointly-controlled tenancy-in-common interests in properties, with the remaining interests generally held by affiliates, and own common stock in each of the Managed REITs. We consolidate certain of these investments and account for the remainder under the equity method of accounting.

Note 5. Net Investments in Properties

Real Estate

Real estate, which consists of land and buildings leased to others, at cost, and which are subject to operating leases, and real estate under construction, is summarized as follows (in thousands):



	March 31, 2015			December 31, 2014
Land	$	1,155,190		$	1,146,704
Buildings	3,965,923			3,829,981
Real estate under construction	38,026			29,997
Less: Accumulated depreciation	(281,041		)	(253,627		)
	$	4,878,098		$	4,753,055

During the three months ended March 31, 2015, the U.S. dollar strengthened against the euro, as the end-of-period rate for the U.S. dollar in relation to the euro at March 31, 2015 decreased by 11.5% to $1.0759 from $1.2156 at December 31, 2014. The impact of this strengthening was a $190.3 million decrease in the carrying value of Real estate from December 31, 2014 to March 31, 2015.

W. P. Carey 3/31/2015 10-Q – 16

Notes to Consolidated Financial Statements (Unaudited)

Acquisitions of Real Estate

During the three months ended March 31, 2015, we entered into the following investments, which were deemed to be business combinations because we assumed the existing leases on the properties, for which the sellers were not the lessees, at a total cost of $388.3 million, including land of $66.4 million, buildings of $264.3 million, and net lease intangibles of $57.6 million (Note 8):


•	an investment of $345.9 million for 73 auto dealership properties in various locations in the United Kingdom on January 28, 2015; and


•	an investment of $42.4 million for a logistics facility in Rotterdam, the Netherlands on February 11, 2015.

In connection with these transactions, we also expensed acquisition-related costs totaling $5.9 million, which are included in Merger and property acquisition expenses in the consolidated financial statements. Dollar amounts are based on the exchange rates of the foreign currencies on the dates of acquisitions.

Operating Real Estate

Operating real estate, which consists of our investments in two hotels and two self-storage properties, at cost, is summarized as follows (in thousands):



	March 31, 2015			December 31, 2014
Land	$	7,074		$	7,074
Buildings	77,841			77,811
Less: Accumulated depreciation	(5,912		)	(4,866		)
	$	79,003		$	80,019

Assets Held for Sale

Below is a summary of our properties held for sale (in thousands):



	March 31, 2015		December 31, 2014
Real estate, net	$	—	$	5,969
Above-market rent intangible assets, net	—		838
In-place lease intangible assets, net	—		448
Assets held for sale	$	—	$	7,255

At December 31, 2014, we had four properties classified as Assets held for sale, all of which were sold during the three months ended March 31, 2015.

Note 6. 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 Net investments in direct financing leases, notes receivable, and deferred acquisition fees. Operating leases are not included in finance receivables as such amounts are not recognized as an asset in the consolidated financial statements.

Net Investments in Direct Financing Leases

Net investments in direct financing leases is summarized as follows (in thousands):



	March 31, 2015			December 31, 2014
Minimum lease payments receivable	$	847,087		$	904,788
Unguaranteed residual value	769,425			818,334
	1,616,512			1,723,122
Less: unearned income	(849,592		)	(906,896		)
	$	766,920		$	816,226

Interest income from direct financing leases, which was included in Lease revenues in the consolidated financial statements, was $18.8 million and $17.2 million for the three months ended March 31, 2015 and 2014, respectively. During the three months ended March 31, 2015, the U.S. dollar strengthened against the euro, as the end-of-period rate for the U.S. dollar in relation to the euro at March 31, 2015 decreased by 11.5% to $1.0759 from $1.2156 at December 31, 2014. The impact of this strengthening was a $47.4 million decrease in the carrying value of Net investments in direct financing leases from December 31, 2014 to March 31, 2015. During the three months ended March 31, 2014, we reclassified a property with a carrying value of $6.2 million from Net investments in direct financing leases to Real estate (Note 5), in connection with the restructuring of the underlying lease.

At both March 31, 2015 and December 31, 2014, Other assets, net included $1.4 million of accounts receivable related to amounts billed under these direct financing leases.

Notes Receivable

At March 31, 2015, our note receivable, which was included in Other assets, net in the consolidated financial statements, consisted of a note with an outstanding balance of $10.8 million, representing the expected future payments under a sales type lease.

In February 2015, our B-note, which we acquired in the CPA^®:16 Merger and which had an outstanding balance of $10.0 million, was repaid in full.

Deferred Acquisition Fees Receivable

As described in Note 4, we earn revenue in connection with structuring and negotiating investments and related mortgage financing for the CPA^® REITs. A portion of this revenue is due in equal annual installments over three years, provided the CPA^® REITs meet their respective performance criteria. Unpaid deferred installments, including accrued interest, from the CPA^® REITs were included in Due from affiliates in the consolidated financial statements.

W. P. Carey 3/31/2015 10-Q – 17

Notes to Consolidated Financial Statements (Unaudited)

Credit Quality of Finance Receivables

We generally seek investments in facilities that we believe are critical to a tenant’s business and that we believe have a low risk of tenant default. At both March 31, 2015 and December 31, 2014, none of the balances of our finance receivables were past due and we had not established any allowances for credit losses. Other than the lease restructurings noted under “Net Investment in Direct Financing Leases” above, there were no modifications of finance receivables during the three months ended March 31, 2015 or the year ended December 31, 2014. 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. The credit quality evaluation of our finance receivables was last updated in the first quarter of 2015. We believe the credit quality of our deferred acquisition fees receivable falls under category one, as the CPA^® REITs are expected to have the available cash to make such payments.

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	March 31, 2015	December 31, 2014	March 31, 2015		December 31, 2014
1	3	3	$	134,071	$	79,343
2	3	4	27,217		37,318
3	22	22	497,960		592,631
4	7	7	118,490		127,782
5	—	—	—		—
			$	777,738	$	837,074

Note 7. Equity Investments in Real Estate and the Managed Programs

We own interests in certain unconsolidated real estate investments with the Managed Programs and also own interests in the Managed Programs. We account for our interests in these investments under the equity method of accounting (i.e., at cost, increased or decreased by our share of earnings or losses, less distributions, plus contributions and other adjustments required by equity method accounting, such as basis differences).

The following table presents Equity in earnings of equity method investments in the Managed Programs and real estate, which represents our proportionate share of the income or losses of these investments as well as certain adjustments related to other-than-temporary impairment charges and amortization of basis differences related to purchase accounting adjustments (in thousands):



	Three Months Ended March 31,
	2015			2014
Proportionate share of earnings from equity investments in the Managed Programs	$	307		$	782
Amortization of basis differences on equity investments in the Managed Programs	(295		)	(390		)
Other-than-temporary impairment charges on the Special Member Interest in CPA^®:16 – Global’s operating partnership	—			(735		)
Distributions of Available Cash (Note 4)	8,806			10,445
Deferred revenue earned (Note 4)	—			786
Total equity earnings from the Managed Programs	8,818			10,888
Equity earnings from other equity investments	3,816			3,956
Amortization of basis differences on other equity investments	(911		)	(582		)
Equity in earnings of equity method investments in the Managed Programs and real estate	$	11,723		$	14,262

W. P. Carey 3/31/2015 10-Q – 18

Notes to Consolidated Financial Statements (Unaudited)

Managed Programs

We own interests in the Managed Programs and account for these interests under the equity method, because, as their advisor and through our ownership of their common stock, we do not exert control over, but we do have the ability to exercise significant influence on, the Managed Programs.

The following table sets forth certain information about our investments in the Managed Programs (dollars in thousands):



	% of Outstanding Shares Owned at				Carrying Amount of Investment at
Fund	March 31, 2015		December 31, 2014		March 31, 2015 ^{(a) (b)}		December 31, 2014^(a) ^(b)
CPA^®:17 – Global ^(c)	2.795	%	2.676	%	$	81,589	$	79,429
CPA^®:17 – Global operating partnership ^(d)	0.009	%	0.009	%	—		—
CPA^®:18 – Global	0.302	%	0.221	%	4,061		2,784
CPA^®:18 – Global operating partnership ^(e)	0.034	%	0.034	%	223		209
CWI	1.155	%	1.088	%	13,326		13,940
CWI operating partnership ^(f)	0.015	%	0.015	%	—		—
Carey Credit Income Fund ^(g)	50.000	%	50.000	%	24,993		25,000
					$	124,192	$	121,362

___________


(a)	Includes asset management fees receivable, for which 125,774 shares and 48,799 class A shares of common stock of CPA^®:17 – Global and CPA^®:18 – Global, respectively, were issued during the second quarter of 2015.


(b)	At March 31, 2015 and December 31, 2014, the aggregate unamortized basis differences on our equity investments in the Managed Programs were $21.4 million and $20.2 million, respectively.


(c)	We received distributions of $1.4 million and $1.0 million from this affiliate during the three months ended March 31, 2015 and 2014, respectively.


(d)	We received distributions of $6.1 million and $4.7 million from this affiliate during the three months ended March 31, 2015 and 2014, respectively.


(e)	We received distributions of $0.9 million and $0.1 million from this affiliate during the three months ended March 31, 2015 and 2014, respectively.


(f)	We received distributions of $1.8 million and $0.9 million from this affiliate during the three months ended March 31, 2015 and 2014, respectively.


(g)	As of March 31, 2015, CCIF has not yet admitted any additional shareholders other than our joint venture partner.

The following tables present estimated combined summarized financial information for the Managed Programs. Amounts provided are expected total amounts attributable to the Managed Programs and do not represent our proportionate share (in thousands):



	March 31, 2015			December 31, 2014
Real estate, net	$	5,739,527		$	5,969,011
Other assets	2,644,280			2,293,065
Total assets	8,383,807			8,262,076
Debt	(3,527,119		)	(3,387,795		)
Accounts payable, accrued expenses and other liabilities	(532,209		)	(496,857		)
Total liabilities	(4,059,328		)	(3,884,652		)
Noncontrolling interests	(160,586		)	(170,249		)
Stockholders’ equity	$	4,163,893		$	4,207,175

W. P. Carey 3/31/2015 10-Q – 19

Notes to Consolidated Financial Statements (Unaudited)



	Three Months Ended March 31,
	2015			2014
Revenues	235,710			$	193,830
Expenses	(233,363		)	(189,055		)
Income from continuing operations	$	2,347		$	4,775
Net loss attributable to the Managed Programs ^(a) (b)	$	(9,082	)	$	(3,015	)

___________


(a)	Inclusive of impairment charges recognized by the Managed Programs totaling $0.6 million during the three months ended March 31, 2015. These impairment charges reduced our income earned from these investments by less than $0.1 million during the three months ended March 31, 2015. There were no such impairment charges recognized by the Managed Programs during the three months ended March 31, 2014.


(b)	Amounts included net gains on sale of real estate recorded by the Managed Programs totaling $2.2 million for the three months ended March 31, 2015. There were no such gains recognized by the Managed Programs during the three months ended March 31, 2014.

Interests in Other Unconsolidated Real Estate Investments

We own equity interests in single-tenant net-leased properties that are generally leased to companies through noncontrolling interests (i) in partnerships and limited liability companies that we do not control but over which we exercise significant influence or (ii) as tenants-in-common subject to common control. Generally, the underlying investments are jointly-owned with affiliates. We account for these investments under the equity method of accounting. Earnings for each investment are recognized in accordance with each respective investment agreement. Investments in unconsolidated investments are required to be evaluated periodically. We periodically compare an investment’s carrying value to its estimated fair value and recognize an impairment charge to the extent that the carrying value exceeds fair value and such decline is determined to be other than temporary.

The following table sets forth our ownership interests in our equity investments in real estate, excluding the Managed Programs, and their respective carrying values (dollars in thousands):



		Ownership Interest at	Carrying Value at
Lessee	Co-owner(s)	March 31, 2015	March 31, 2015		December 31, 2014
Existing Equity Investments ^{(a) (b)}
C1000 Logistiek Vastgoed B.V. ^(c)	CPA^®:17 – Global	15%	$	9,429	$	11,192
Waldaschaff Automotive GmbH and Wagon Automotive Nagold GmbH	CPA^®:17 – Global	33%	6,192		6,949
Wanbishi Archives Co. Ltd.	CPA^®:17 – Global	3%	344		341
			15,965		18,482
Equity Investments Acquired in the CPA^®:16 Merger
The New York Times Company	CPA^®:17 – Global	45%	72,208		72,476
Frontier Spinning Mills, Inc.	CPA^®:17 – Global	40%	15,639		15,609
Actebis Peacock GmbH ^(a)	CPA^®:17 – Global	30%	5,979		6,369
			93,826		94,454
Recently Acquired Equity Investment
Beach House JV, LLC ^(d)	Third Party	N/A^(d)	15,105		15,105
			$	124,896	$	128,041

___________


(a)	The carrying value of this investment is affected by the impact of fluctuations in the exchange rate of the foreign currency.


(b)	Represents equity investments we acquired prior to January 1, 2014.

(c)

This investment represents a tenancy-in-common interest, whereby the property is encumbered by the debt for which we are jointly and severally liable. For this investment, the co-obligor is CPA^®:17 – Global and the amount due under the arrangement was approximately $72.8 million at March 31, 2015. Of this amount, $10.9 million represents the amount we agreed to pay and is included within the carrying value of the investment at March 31, 2015.

W. P. Carey 3/31/2015 10-Q – 20

Notes to Consolidated Financial Statements (Unaudited)

(d)

In March 2014, we received a preferred equity position in Beach House JV, LLC, as part of the sale of the Soho House investment. During the three months ended March 31, 2015, we recognized $0.3 million of income and distribution related to this investment, which is included in Equity in earnings of equity method investments in the Managed Programs and real estate in the consolidated financial statements.

We received aggregate distributions of $3.1 million and $2.3 million from our other unconsolidated real estate investments for the three months ended March 31, 2015 and 2014, respectively. At both March 31, 2015 and December 31, 2014, the aggregate unamortized basis differences on our unconsolidated real estate investments were $5.8 million.

Note 8. Goodwill and Other Intangibles

In connection with our acquisitions of properties, we have recorded net lease intangibles that are being amortized over periods ranging from one year to 40 years. In addition, we have several ground lease intangibles that are being amortized over periods of up to 250 years. Intangibles relating to in-place lease and tenant relationship, and above-market rent are included in In-place lease and tenant relationship intangible assets, net and Above-market rent intangible assets, net, respectively, in the consolidated financial statements. Below-market ground lease (as lessee), trade name, management contracts, and software license intangibles are included in Other assets, net in the consolidated financial statements. Below-market rent, above-market ground lease (as lessee), and below-market purchase option intangibles are included in Below-market rent and other intangible liabilities, net in the consolidated financial statements.

In connection with our investment activity during the three months ended March 31, 2015, we recorded net lease intangibles comprised as follows (life in years, dollars in thousands):



	Weighted-Average Life	Amount
Amortizable Intangible Assets
In-place lease	13.9	$	39,855
Above-market rent	15.3	17,318
Below-market ground lease	223.4	6,963
		$	64,136

Amortizable Intangible Liabilities
Below-market rent	14.6	(6,492		)
		$	(6,492	)

The following table presents a reconciliation of our goodwill (in thousands):



	Real Estate Ownership			Investment Management		Total
Balance at January 1, 2015	$	628,808		$	63,607	$	692,415
Allocation of goodwill to the cost basis of properties sold or classified as held-for-sale	(303		)	—		(303		)
Foreign currency translation adjustments and other	(9,489		)	—		(9,489		)
Balance at March 31, 2015	$	619,016		$	63,607	$	682,623

W. P. Carey 3/31/2015 10-Q – 21

Notes to Consolidated Financial Statements (Unaudited)

Intangible assets, intangible liabilities, and goodwill are summarized as follows (in thousands):



	March 31, 2015								December 31, 2014
	Gross Carrying Amount			Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Amortizable Intangible Assets
Management contracts	$	32,765		$	(32,765	)	$	—	$	32,765	$	(32,765	)	$	—
Internal-use software development costs	18,044			(617		)	17,427		17,584		(26		)	17,558
	50,809			(33,382		)	17,427		50,349		(32,791		)	17,558
Lease Intangibles:
In-place lease and tenant relationship	1,166,486			(213,028		)	953,458		1,185,692		(191,873		)	993,819
Above-market rent	641,401			(130,715		)	510,686		639,370		(116,573		)	522,797
Below-market ground lease	22,825			(512		)	22,313		17,771		(435		)	17,336
	1,830,712			(344,255		)	1,486,457		1,842,833		(308,881		)	1,533,952
Unamortizable Goodwill and Indefinite-Lived Intangible Assets
Goodwill	682,623			—			682,623		692,415		—			692,415
Trade name	3,975			—			3,975		3,975		—			3,975
	686,598			—			686,598		696,390		—			696,390
Total intangible assets	$	2,568,119		$	(377,637	)	$	2,190,482	$	2,589,572	$	(341,672	)	$	2,247,900

Amortizable Intangible Liabilities
Below-market rent	$	(171,535	)	$	25,855