Document


 

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 September 30, 2016
or 

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
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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 106,280,575 shares of common stock, $0.001 par value, outstanding at October 28, 2016.
 



INDEX
 
 
 
Page No.
PART I − FINANCIAL INFORMATION
 
Item 1. Financial Statements (Unaudited)
 
 
 
 
 
 
 
 
 
PART II − OTHER INFORMATION
 
Item 6. Exhibits

Forward-Looking Statements

This Quarterly Report on Form 10-Q, or this Report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 2 of Part I of this Report, contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. These forward-looking statements include, but are not limited to, statements regarding: capital markets; tenant credit quality; the general economic outlook; 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, including the effects of the United Kingdom’s referendum to approve an exit from the European Union; 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 and dispositions by us and our investment management programs; the Managed Programs 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 impact of a recently-issued pronouncement regarding accounting for leases; the amount and timing of any future dividends; our existing or future leverage and debt service obligations; our ability to sell shares under our “at the market” program and the use of proceeds from that program; our future prospects for growth; our projected assets under management; our future capital expenditure levels; 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, 2015, as filed with the SEC on February 26, 2016, or the 2015 Annual Report, and in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2016, as filed with the SEC on August 4, 2016. 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.


 
W. P. Carey 9/30/2016 10-Q – 1
                    


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 9/30/2016 10-Q – 2
                    


PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.

W. P. CAREY INC. 
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share and per share amounts)
 
September 30, 2016
 
December 31, 2015
Assets
 
 
 
Investments in real estate:
 
 
 
Real estate, at cost
$
5,221,986

 
$
5,309,925

Operating real estate
81,665

 
82,749

Accumulated depreciation
(455,613
)
 
(381,529
)
Net investments in properties
4,848,038

 
5,011,145

Net investments in direct financing leases
740,745

 
756,353

Assets held for sale, net
128,462

 
59,046

Net investments in real estate
5,717,245

 
5,826,544

Equity investments in the Managed Programs and real estate
294,690

 
275,473

Cash and cash equivalents
209,483

 
157,227

Due from affiliates
51,508

 
62,218

In-place lease and tenant relationship intangible assets, net
817,151

 
902,848

Goodwill
640,305

 
681,809

Above-market rent intangible assets, net
406,245

 
475,072

Other assets, net
331,658

 
360,898

Total assets
$
8,468,285

 
$
8,742,089

Liabilities and Equity
 
 
 
Liabilities:
 
 
 
Non-recourse debt, net
$
1,926,331

 
$
2,269,421

Senior Unsecured Notes, net
1,837,216

 
1,476,084

Senior Unsecured Credit Facility - Revolver
378,358

 
485,021

Senior Unsecured Credit Facility - Term Loan, net
249,915

 
249,683

Accounts payable, accrued expenses and other liabilities
258,977

 
342,374

Below-market rent and other intangible liabilities, net
125,790

 
154,315

Deferred income taxes
72,107

 
86,104

Distributions payable
106,545

 
102,715

Total liabilities
4,955,239

 
5,165,717

Redeemable noncontrolling interest
965

 
14,944

Commitments and contingencies (Note 11)


 


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; 106,274,673 and 104,448,777 shares, respectively, issued and outstanding
106

 
104

Additional paid-in capital
4,389,363

 
4,282,042

Distributions in excess of accumulated earnings
(834,868
)
 
(738,652
)
Deferred compensation obligation
50,576

 
56,040

Accumulated other comprehensive loss
(221,326
)
 
(172,291
)
Total W. P. Carey stockholders’ equity
3,383,851

 
3,427,243

Noncontrolling interests
128,230

 
134,185

Total equity
3,512,081

 
3,561,428

Total liabilities and equity
$
8,468,285

 
$
8,742,089


 See Notes to Consolidated Financial Statements.

 
W. P. Carey 9/30/2016 10-Q – 3
                    


W. P. CAREY INC. 
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except share and per share amounts)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Revenues
 
 
 
 
 
 
 
Owned Real Estate:
 
 
 
 
 
 
 
Lease revenues
$
163,786

 
$
164,741

 
$
506,358

 
$
487,480

Operating property revenues
8,524

 
8,107

 
23,696

 
23,645

Reimbursable tenant costs
6,537

 
5,340

 
19,237

 
17,409

Lease termination income and other
1,224

 
2,988

 
34,603

 
9,319

 
180,071

 
181,176

 
583,894

 
537,853

Investment Management:
 
 
 
 
 
 
 
Asset management revenue
15,978

 
13,004

 
45,596

 
36,236

Reimbursable costs from affiliates
14,540

 
11,155

 
46,372

 
28,401

Structuring revenue
12,301

 
8,207

 
30,990

 
67,735

Dealer manager fees
1,835

 
1,124

 
5,379

 
2,704

Other advisory revenue
522

 
—

 
522

 
203

 
45,176

 
33,490

 
128,859

 
135,279

 
225,247

 
214,666

 
712,753

 
673,132

Operating Expenses
 
 
 
 
 
 
 
Depreciation and amortization
62,802

 
75,512

 
213,835

 
206,079

Reimbursable tenant and affiliate costs
21,077

 
16,495

 
65,609

 
45,810

General and administrative
15,733

 
22,842

 
58,122

 
78,987

Impairment charges
14,441

 
19,438

 
49,870

 
22,711

Property expenses, excluding reimbursable tenant costs
10,193

 
11,120

 
38,475

 
31,504

Subadvisor fees
4,842

 
1,748

 
10,010

 
8,555

Stock-based compensation expense
4,356

 
3,966

 
14,964

 
16,063

Dealer manager fees and expenses
3,028

 
3,185

 
9,000

 
7,884

Property acquisition and other expenses
—

 
4,760

 
5,359

 
12,333

Restructuring and other compensation
—

 
—

 
11,925

 
—

 
136,472

 
159,066

 
477,169

 
429,926

Other Income and Expenses
 
 
 
 
 
 
 
Interest expense
(44,349
)
 
(49,683
)
 
(139,496
)
 
(145,325
)
Equity in earnings of equity method investments in the Managed Programs and real estate
16,803

 
12,635

 
48,243

 
38,630

Other income and (expenses)
5,101

 
6,608

 
9,398

 
9,944

 
(22,445
)
 
(30,440
)
 
(81,855
)
 
(96,751
)
Income before income taxes and gain on sale of real estate
66,330

 
25,160

 
153,729

 
146,455

(Provision for) benefit from income taxes
(3,154
)
 
(3,361
)
 
4,538

 
(20,352
)
Income before gain on sale of real estate
63,176

 
21,799

 
158,267

 
126,103

Gain on sale of real estate, net of tax
49,126

 
1,779

 
68,070

 
2,980

Net Income
112,302

 
23,578

 
226,337

 
129,083

Net income attributable to noncontrolling interests
(1,359
)
 
(1,833
)
 
(6,294
)
 
(7,874
)
Net Income Attributable to W. P. Carey
$
110,943

 
$
21,745

 
$
220,043

 
$
121,209

 
 
 
 
 
 
 
 
Basic Earnings Per Share
$
1.03

 
$
0.20

 
$
2.06

 
$
1.14

Diluted Earnings Per Share
$
1.03

 
$
0.20

 
$
2.05

 
$
1.13

Weighted-Average Shares Outstanding
 
 
 
 
 
 
 
Basic
107,221,668

 
105,813,237

 
106,493,145

 
105,627,423

Diluted
107,468,029

 
106,337,040

 
106,853,174

 
106,457,495


 
 
 
 
 
 
 
Distributions Declared Per Share
$
0.9850

 
$
0.9550

 
$
2.9392

 
$
2.8615

 

See Notes to Consolidated Financial Statements.

 
W. P. Carey 9/30/2016 10-Q – 4
                    


W. P. CAREY INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(in thousands) 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Net Income
$
112,302

 
$
23,578

 
$
226,337

 
$
129,083

Other Comprehensive Loss
 
 
 
 
 
 
 
Foreign currency translation adjustments
(11,824
)
 
(37,138
)
 
(41,999
)
 
(103,127
)
Realized and unrealized (loss) gain on derivative instruments
(3,093
)
 
1,289

 
(5,999
)
 
18,488

Change in unrealized (loss) gain on marketable securities
(7
)
 
—

 
(3
)
 
14

 
(14,924
)
 
(35,849
)
 
(48,001
)
 
(84,625
)
Comprehensive Income (Loss)
97,378

 
(12,271
)
 
178,336

 
44,458

 
 
 
 
 
 
 
 
Amounts Attributable to Noncontrolling Interests
 
 
 
 
 
 
 
Net income
(1,359
)
 
(1,833
)
 
(6,294
)
 
(7,874
)
Foreign currency translation adjustments
(218
)
 
(43
)
 
(1,051
)
 
3,515

Realized and unrealized loss on derivative instruments
17

 
—

 
17

 
—

Comprehensive income attributable to noncontrolling interests
(1,560
)
 
(1,876
)
 
(7,328
)
 
(4,359
)
Comprehensive Income (Loss) Attributable to W. P. Carey
$
95,818

 
$
(14,147
)
 
$
171,008

 
$
40,099

 
See Notes to Consolidated Financial Statements.

 
W. P. Carey 9/30/2016 10-Q – 5
                    


W. P. CAREY INC.
CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
Nine Months Ended September 30, 2016 and 2015
(in thousands, except share and per share amounts)
 
W. P. Carey Stockholders
 
 
 
 
 
 
 
 
 
 
 
Distributions
 
 
 
Accumulated
 
 
 
 
 
 
 
Common Stock
 
Additional
 
in Excess of
 
Deferred
 
Other
 
Total
 
 
 
 
 
$0.001 Par Value
 
Paid-in
 
Accumulated
 
Compensation
 
Comprehensive
 
W. P. Carey
 
Noncontrolling
 
 
 
Shares
 
Amount
 
Capital
 
Earnings
 
Obligation
 
Loss
 
Stockholders
 
Interests
 
Total
Balance at January 1, 2016
104,448,777

 
$
104

 
$
4,282,042

 
$
(738,652
)
 
$
56,040

 
$
(172,291
)
 
$
3,427,243

 
$
134,185

 
$
3,561,428

Shares issued under “at-the-market” offering, net
1,249,836

 
2

 
83,784

 
 
 
 
 
 
 
83,786

 
 
 
83,786

Shares issued to a third party in connection with the redemption of a redeemable noncontrolling interest
217,011

 
—

 
13,418

 
 
 
 
 
 
 
13,418

 
 
 
13,418

Contributions from noncontrolling interests (Note 2)
 
 
 
 
 
 
 
 
 
 
 
 
—

 
14,319

 
14,319

Shares issued upon delivery of vested restricted stock awards
326,176

 
—

 
(14,505
)
 
 
 
 
 
 
 
(14,505
)
 
 
 
(14,505
)
Shares issued upon exercise of stock options and purchases under employee share purchase plan
32,873

 
—

 
(1,491
)
 
 
 
 
 
 
 
(1,491
)
 
 
 
(1,491
)
Delivery of vested shares, net
 
 
 
 
5,712

 
 
 
(5,712
)
 
 
 
—

 
 
 
—

Deconsolidation of affiliate (Note 2)
 
 
 
 
 
 
 
 
 
 
 
 
—

 
(14,184
)
 
(14,184
)
Amortization of stock-based compensation expense
 
 
 
 
18,170

 
 
 
 
 
 
 
18,170

 
 
 
18,170

Redemption value adjustment
 
 
 
 
561

 
 
 
 
 
 
 
561

 
 
 
561

Distributions to noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
—

 
(13,418
)
 
(13,418
)
Distributions declared ($2.9392 per share)
 
 
 
 
1,672

 
(316,259
)
 
248

 
 
 
(314,339
)
 
 
 
(314,339
)
Net income
 
 
 
 
 
 
220,043

 
 
 
 
 
220,043

 
6,294

 
226,337

Other comprehensive loss:
 
 
 
 
 
 
 
 
 
 
 
 


 
 
 


Foreign currency translation adjustments
 
 
 
 
 
 
 
 
 
 
(43,050
)
 
(43,050
)
 
1,051

 
(41,999
)
Realized and unrealized loss on derivative instruments
 
 
 
 
 
 
 
 
 
 
(5,982
)
 
(5,982
)
 
(17
)
 
(5,999
)
Change in unrealized loss on marketable securities
 
 
 
 
 
 
 
 
 
 
(3
)
 
(3
)
 
 
 
(3
)
Balance at September 30, 2016
106,274,673

 
$
106

 
$
4,389,363

 
$
(834,868
)
 
$
50,576

 
$
(221,326
)
 
$
3,383,851

 
$
128,230

 
$
3,512,081





 
W. P. Carey 9/30/2016 10-Q – 6
                    



W. P. CAREY INC.
CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
(Continued)
Nine Months Ended September 30, 2016 and 2015
(in thousands, except share and per share amounts)
 
W. P. Carey Stockholders
 
 
 
 
 
 
 
 
 
 
 
Distributions
 
 
 
Accumulated
 
 
 
 
 
 
 
Common Stock
 
Additional
 
in Excess of
 
Deferred
 
Other
 
Total
 
 
 
 
 
$0.001 Par Value
 
Paid-in
 
Accumulated
 
Compensation
 
Comprehensive
 
W. P. Carey
 
Noncontrolling
 
 
 
Shares
 
Amount
 
Capital
 
Earnings
 
Obligation
 
Loss
 
Stockholders
 
Interests
 
Total
Balance at January 1, 2015
104,040,653

 
$
104

 
$
4,293,450

 
$
(497,730
)
 
$
30,624

 
$
(75,559
)
 
$
3,750,889

 
$
139,846

 
$
3,890,735

Contributions from noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
—

 
586

 
586

Shares issued upon delivery of vested restricted stock awards
308,146

 
—

 
(14,695
)
 
 
 
 
 
 
 
(14,695
)
 
 
 
(14,695
)
Shares issued upon exercise of stock options and purchases under employee share purchase plan
53,412

 
—

 
(1,388
)
 
 
 
 
 
 
 
(1,388
)
 
 
 
(1,388
)
Deferral of vested shares, net
 
 
 
 
(24,935
)
 
 
 
24,935

 
 
 
—

 
 
 
—

Windfall tax benefits - share incentive plans
 
 
 
 
7,028

 
 
 
 
 
 
 
7,028

 
 
 
7,028

Amortization of stock-based compensation expense
 
 
 
 
16,063

 
 
 
 
 
 
 
16,063

 
 
 
16,063

Redemption value adjustment
 
 
 
 
(8,551
)
 
 
 
 
 
 
 
(8,551
)
 
 
 
(8,551
)
Distributions to noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
—

 
(10,116
)
 
(10,116
)
Distributions declared ($2.8615 per share)
 
 
 
 
5,064

 
(310,698
)
 
1,836

 
 
 
(303,798
)
 
 
 
(303,798
)
Net income
 
 
 
 
 
 
121,209

 
 
 
 
 
121,209

 
7,874

 
129,083

Other comprehensive loss:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
 
 
 
 
 
 
 
 
 
(99,612
)
 
(99,612
)
 
(3,515
)
 
(103,127
)
Realized and unrealized gain on derivative instruments
 
 
 
 
 
 
 
 
 
 
18,488

 
18,488

 
 
 
18,488

Change in unrealized gain on marketable securities
 
 
 
 
 
 
 
 
 
 
14

 
14

 
 
 
14

Balance at September 30, 2015
104,402,211

 
$
104

 
$
4,272,036

 
$
(687,219
)
 
$
57,395

 
$
(156,669
)
 
$
3,485,647

 
$
134,675

 
$
3,620,322


See Notes to Consolidated Financial Statements.

 
W. P. Carey 9/30/2016 10-Q – 7
                    


W. P. CAREY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
 
Nine Months Ended September 30,
 
2016

2015
Cash Flows — Operating Activities
 
 
 
Net income
$
226,337

 
$
129,083

Adjustments to net income:
 
 
 
Depreciation and amortization, including intangible assets and deferred financing costs
216,002

 
212,273

Gain on sale of real estate
(68,070
)
 
(2,980
)
Impairment charges
49,870

 
22,711

Distributions of earnings from equity investments
48,303

 
35,854

Equity in earnings of equity method investments in the Managed Programs and real estate
(48,243
)
 
(38,630
)
Management income received in shares of Managed REITs and other
(22,088
)
 
(16,808
)
Straight-line rent, amortization of rent-related intangibles, and deferred rental revenue
(20,934
)
 
27,980

Deferred income taxes
(19,094
)
 
(4,537
)
Stock-based compensation expense
18,170

 
16,063

Allowance for credit losses
7,064

 
—

Realized and unrealized gain on foreign currency transactions, derivatives, extinguishment of debt, and other
(6,921
)
 
(3,368
)
Changes in assets and liabilities:
 
 
 
Deferred acquisition revenue received
18,161

 
20,105

Payments for withholding taxes upon delivery of equity-based awards and exercises of stock options
(15,943
)
 
(16,443
)
Increase in structuring revenue receivable
(5,310
)
 
(21,574
)
Net changes in other operating assets and liabilities
(15,771
)
 
(28,826
)
Net Cash Provided by Operating Activities
361,533

 
330,903

Cash Flows — Investing Activities
 
 
 
Proceeds from sale of real estate
392,867

 
28,949

Purchases of real estate
(385,835
)
 
(529,812
)
Funding for real estate construction and expansion
(41,874
)
 
(27,976
)
Proceeds from repayment of short-term loans to affiliates
37,053

 
50,000

Funding of short-term loans to affiliates
(20,000
)
 
(155,447
)
Deconsolidation of affiliate (Note 2)
(15,408
)
 
—

Investment in assets of affiliate (Note 2)
(14,861
)
 
—

Proceeds from limited partnership units issued by affiliate (Note 2)
14,184

 
—

Change in investing restricted cash
7,775

 
24,607

Capital expenditures on owned real estate
(7,104
)
 
(3,416
)
Return of capital from equity investments
3,522

 
5,798

Other investing activities, net
2,223

 
1,486

Value added taxes refunded in connection with acquisition of real estate
1,037

 
—

Value added taxes paid in connection with acquisition and construction of real estate
(1,004
)
 
(10,263
)
Capital expenditures on corporate assets
(846
)
 
(3,482
)
Proceeds from repayments of note receivable
293

 
10,258

Capital contributions to equity investments in real estate
(6
)
 
(15,903
)
Net Cash Used in Investing Activities
(27,984
)
 
(625,201
)
Cash Flows — Financing Activities
 
 
 
Repayments of Senior Unsecured Credit Facility
(837,575
)
 
(1,104,522
)
Proceeds from Senior Unsecured Credit Facility
720,568

 
758,665

Proceeds from issuance of Senior Unsecured Notes
348,887

 
1,022,303

Distributions paid
(310,509
)
 
(302,205
)
Prepayments of mortgage principal
(193,030
)
 
(9,678
)
Scheduled payments of mortgage principal
(113,420
)
 
(54,422
)
Proceeds from shares issued under “at-the-market” offering, net of selling costs
84,093

 
—

Proceeds from mortgage financing
33,935

 
22,667

Distributions paid to noncontrolling interests
(13,418
)
 
(10,116
)
Payment of financing costs
(2,949
)
 
(10,878
)
Change in financing restricted cash
1,051

 
(10,406
)
Proceeds from exercise of stock options and employee purchases under the employee share purchase plan
204

 
360

Contributions from noncontrolling interests
135

 
586

Other financing activities, net
(125
)
 
—

Windfall tax benefit associated with stock-based compensation awards
—

 
7,028

Net Cash (Used in) Provided by Financing Activities
(282,153
)
 
309,382

Change in Cash and Cash Equivalents During the Period
 
 
 
Effect of exchange rate changes on cash
860

 
(22,449
)
Net increase in cash and cash equivalents
52,256

 
(7,365
)
Cash and cash equivalents, beginning of period
157,227

 
198,683

Cash and cash equivalents, end of period
$
209,483

 
$
191,318

 
See Notes to Consolidated Financial Statements.

 
W. P. Carey 9/30/2016 10-Q – 8
                    


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, a 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.

Originally founded in 1973, we reorganized as a REIT in September 2012 in connection with our merger with Corporate Property Associates 15 Incorporated. We refer to that merger as the CPA®:15 Merger. On January 31, 2014, Corporate Property Associates 16 – Global Incorporated, or CPA®:16 – Global, merged with and into us, which we refer to as the CPA®:16 Merger. Our shares of common stock are listed on the New York Stock Exchange under the symbol “WPC.”

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 taxable REIT subsidiaries, or 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 Owned Real Estate segment under the REIT structure, while the activities conducted by our Investment Management segment subsidiaries have been organized under TRSs.

Through our 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 and invest in similar properties. At September 30, 2016, 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 refer to CPA®:17 – Global and CPA®:18 – Global together as the CPA® REITs. At September 30, 2016, we were also the advisor to Carey Watermark Investors Incorporated, or 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 1 and CWI 2 together as the CWI REITs and, together with the CPA® REITs, as the Managed REITs (Note 3). At September 30, 2016, we also served as the advisor to Carey Credit Income Fund, or CCIF, a business development company, or BDC, and three feeder funds of CCIF, or the CCIF Feeder Funds, which are also BDCs (Note 6). In May 2016, one of the CCIF Feeder Funds, Carey Credit Income Fund 2017 T, filed a registration statement on Form N-2 with the SEC to sell up to 106,382,978 shares of its beneficial interest in an initial public offering, with the proceeds to be invested in shares of CCIF. The registration statement was declared effective by the SEC in October 2016 but fundraising has not yet commenced. We refer to CCIF and the CCIF Feeder Funds collectively as the Managed BDCs. At September 30, 2016, we were also the advisor to Carey European Student Housing Fund I, L.P., or CESH I, a limited partnership we formed for the purpose of developing, owning, and operating student housing properties and similar investments in Europe. We refer to the Managed REITs, Managed BDCs, and CESH I collectively as the Managed Programs.

On May 4, 2016, we filed a registration statement with the SEC for Corporate Property Associates 19 – Global Incorporated, or CPA®:19 – Global, a diversified non-traded REIT, for a capital raise of up to $2.0 billion, which includes $500.0 million of shares allocated to CPA®:19 – Global’s distribution reinvestment plan. CPA®:19 – Global’s registration statement remains subject to review by the SEC and state securities regulators, so there can be no assurances as to whether or when the related offering will commence. Through September 30, 2016, the financial activity of CPA®:19 – Global, which has no significant assets, liabilities, or operations, was included in our consolidated financial statements. We will continue to consolidate the financial activity of CPA®:19 – Global until the point at which it has sufficient equity to finance its operations.

Reportable Segments
 
Owned Real Estate — We own and invest in commercial properties principally in the United States, Europe, Australia, 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 Programs (Note 6). Through our special member interests in the operating partnerships of the Managed REITs, we also participate in their cash flows (Note 3). At September 30, 2016, our owned portfolio was comprised of our full or partial ownership interests in 910 properties, totaling approximately 91.8 million square feet, substantially all of which were net leased to 222 tenants, with an occupancy rate of 99.1%.


 
W. P. Carey 9/30/2016 10-Q – 9
                    
 
Notes to Consolidated Financial Statements (Unaudited)

Investment Management — Through 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 management revenue. We earn asset management revenue from CCIF based on the average of its gross assets at fair value. We also earn asset management revenue from CESH I based on gross assets at fair value as determined on the last day of each calendar quarter. We may 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 through our advisory agreements with certain of the Managed Programs, including in connection with providing liquidity events for the Managed REITs’ stockholders. At September 30, 2016, CPA®:17 – Global and CPA®:18 – Global collectively owned all or a portion of 439 properties, including certain properties in which we have an ownership interest. Substantially all of these properties, totaling approximately 50.1 million square feet, were net leased to 210 tenants, with an average occupancy rate of approximately 99.7%. The Managed REITs and CESH I also had interests in 156 operating properties, totaling approximately 19.6 million square feet, in the aggregate. We continue to explore alternatives for expanding our investment management operations beyond advising the existing Managed Programs. 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. These new funds could invest primarily in assets other than net-lease real estate and could include funds raised through private placements, such as CESH I, or 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 generally accepted accounting principles 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, 2015, which are included in the 2015 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 interest as described below. The portions of equity in consolidated subsidiaries that are not attributable, directly or indirectly, to us are presented as noncontrolling interests. All significant intercompany accounts and transactions have been eliminated.

On January 1, 2016, we adopted the Financial Accounting Standards Board’s, or FASB’s, Accounting Standards Update, or ASU, 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, as described in the Recent Accounting Pronouncements section below, which amends the current consolidation guidance, including introducing a separate consolidation analysis specific to limited partnerships and other similar entities. When we obtain an economic interest in an entity, we evaluate the entity to determine if it should be deemed a variable interest entity, or VIE, and, if so, whether we are the primary beneficiary and are therefore required to consolidate the entity. We apply accounting guidance for consolidation of VIEs to certain entities in which the equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. Fixed price purchase and renewal options within a lease, as well as certain decision-making rights within a loan or joint-venture agreement, can cause us to consider an entity a VIE. Limited partnerships and other similar entities that operate as a partnership will be considered a VIE unless the limited partners hold substantive kick-out rights or participation rights. Significant judgment is required to determine whether a VIE should be consolidated. We review the contractual arrangements provided for in the partnership agreement or other related contracts to determine whether the entity is considered a VIE, and to

 
W. P. Carey 9/30/2016 10-Q – 10
                    
 
Notes to Consolidated Financial Statements (Unaudited)

establish whether we have any variable interests in the VIE. We then compare our variable interests, if any, to those of the other variable interest holders to determine which party is the primary beneficiary of the VIE based on whether the entity (i) has the power to direct the activities that most significantly impact the economic performance of the VIE and (ii) has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. We performed this analysis on all of our subsidiary entities following the guidance in ASU 2015-02 to determine whether they qualify as VIEs and whether they should be consolidated or accounted for as equity investments in an unconsolidated venture. As a result of this change in guidance, we determined that 13 entities that were previously classified as voting interest entities should now be classified as VIEs as of January 1, 2016 and therefore included in our VIE disclosures. However, there was no change in determining whether or not we consolidate these entities as a result of the new guidance. We elected to retrospectively adopt ASU 2015-02, which resulted in changes to our VIE disclosures within the consolidated balance sheets. There were no other changes to our consolidated balance sheets or results of operations for the periods presented. The liabilities of these VIEs are non-recourse to us and can only be satisfied from each VIE’s respective assets.

At September 30, 2016, we considered 33 entities VIEs, 26 of which we consolidated as we are considered the primary beneficiary. The following table presents a summary of selected financial data of the consolidated VIEs included in the consolidated balance sheets (in thousands):
 
September 30, 2016
 
December 31, 2015
Net investments in properties
$
874,736

 
$
890,454

Net investments in direct financing leases
61,672

 
61,454

In-place lease and tenant relationship intangible assets, net
206,908

 
214,924

Above-market rent intangible assets, net
75,570

 
80,901

Total assets
1,268,451

 
1,297,276

 
 
 
 
Non-recourse debt, net
$
425,706

 
$
439,285

Total liabilities
570,170

 
590,596


At September 30, 2016 and December 31, 2015, our seven unconsolidated VIEs included our interests in six unconsolidated real estate investments and one unconsolidated entity among our interests in the Managed Programs, all of which we account for under the equity method of accounting. We do not consolidate these entities because we are not the primary beneficiary and the nature of our involvement in the activities of these entities allows us to exercise significant influence but does not give us power over decisions that significantly affect the economic performance of these entities. As of September 30, 2016 and December 31, 2015, the net carrying amount of our investments in these entities was $153.6 million and $154.8 million, respectively, and our maximum exposure to loss in these entities was limited to our investments.

At September 30, 2016, we had 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.

At times, the carrying value of our equity investments may fall below zero for certain investments. We intend to fund our share of the jointly-owned 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 September 30, 2016, none of our equity investments had carrying values below zero.

On April 20, 2016, we formed a limited partnership, CESH I, for the purpose of developing, owning, and operating student housing properties and similar investments in Europe. CESH I commenced fundraising in July 2016 through a private placement with an initial offering of $100.0 million and a maximum offering of $150.0 million. Through August 30, 2016, the financial results and balances of CESH I were included in our consolidated financial statements, and we had collected $14.2 million of net proceeds from limited partnership units issued in the private placement offering primarily to independent investors. On August 31, 2016, we determined that CESH I had sufficient equity to finance its operations, and as a result we deconsolidated CESH I and began to account for our interest in it at fair value by electing the equity method fair value option available under U.S. GAAP. As of August 31, 2016, CESH I had assets totaling $30.3 million on our consolidated balance sheet, including $14.9 million in Other assets, net and $15.4 million in Cash and cash equivalents. In connection with the deconsolidation, we recorded offsetting amounts of $14.2 million for the nine months ended September 30, 2016 in

 
W. P. Carey 9/30/2016 10-Q – 11
                    
 
Notes to Consolidated Financial Statements (Unaudited)

Contributions from noncontrolling interests and Deconsolidation of affiliate in the consolidated statements of equity, and in Proceeds from limited partnership units issued by affiliates and Deconsolidation of affiliate in the consolidated statements of cash flows. We recognized a gain on deconsolidation of $1.9 million, which is included in Other income and (expenses) in the consolidated statements of income for the three and nine months ended September 30, 2016. The deconsolidation did not have a material impact on our financial position or results of operations. Following the deconsolidation, we continued to serve as advisor to CESH I (Note 3).

As of September 30, 2016, CPA®:19 – Global had not yet commenced fundraising through its offering. Therefore, we included the financial activity of CPA®:19 – Global in our consolidated financial statements and eliminated all intercompany accounts and transactions in consolidation. For the three and nine months ended September 30, 2016, the consolidated results of operations from CPA®:19 – Global were insignificant. All assets and liabilities of CPA®:19 – Global were insignificant as of September 30, 2016.

Out-of-Period Adjustments

During the second quarter of 2016, we identified and recorded out-of-period adjustments related to adjustments to prior period income tax returns. We concluded that these adjustments were not material to our consolidated financial statements for any of the current or prior periods presented. The net adjustment is reflected as a $3.0 million reduction of our Benefit from income taxes in the consolidated statements of income for the nine months ended September 30, 2016, with a net increase to Accounts payable, accrued expenses and other liabilities and Accumulated other comprehensive loss in the consolidated balance sheet as of September 30, 2016.

Reclassifications

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

During the year ended December 31, 2015, we determined that our presentation of common shares repurchased should be classified as a reduction to Common stock, for the par amount of the common shares repurchased, Additional paid-in capital, and Distributions in excess of accumulated earnings, and included as shares unissued within the consolidated financial statements. We previously classified common shares repurchased as Treasury stock in the consolidated financial statements. We evaluated the impact of this correction on previously-issued financial statements and concluded that they were not materially misstated. In order to conform previously-issued financial statements to the current period, we elected to revise previously-issued financial statements the next time such financial statements are filed to include the elimination of Treasury stock of $60.9 million, with corresponding reductions of Common stock and Additional paid-in capital of $28.8 million, and Distributions in excess of accumulated earnings of $32.1 million as of September 30, 2015. These revisions resulted in no change in Total equity within the consolidated balance sheet as of September 30, 2015 and the consolidated statement of equity for the nine months ended September 30, 2015. The accompanying consolidated statement of equity for the nine months ended September 30, 2015 has been revised accordingly. The misclassification had no impact on the previously-reported consolidated statements of income, consolidated statements of comprehensive income, or consolidated statements of cash flows.

On January 1, 2016, we adopted ASU 2015-03, Interest-Imputation of Interest (Subtopic 835-30) as described in the Recent Accounting Pronouncements section below. ASU 2015-03 changes the presentation of debt issuance costs, which were previously recognized as an asset and requires that they be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. As a result of adopting this guidance, we reclassified $12.6 million of deferred financing costs, net from Other assets, net to Non-recourse debt, net, Senior Unsecured Notes, net, and Senior Unsecured Credit Facility - Term Loan, net as of December 31, 2015.


 
W. P. Carey 9/30/2016 10-Q – 12
                    
 
Notes to Consolidated Financial Statements (Unaudited)

Recent Accounting Pronouncements

In May 2014, the FASB issued 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 August 2015, the FASB issued ASU 2015-14, which defers the effective date of ASU 2014-09 for all entities by one year, beginning in 2018, with early adoption 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.

In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810). ASU 2015-02 amends the current consolidation guidance, including modification of the guidance for evaluating whether limited partnerships and similar legal entities are VIEs or voting interest entities. The guidance does not amend the existing disclosure requirements for VIEs or voting interest model entities. The guidance, however, modified the requirements to qualify under the voting interest model. Under the revised guidance, ASU 2015-02 requires an entity to classify a limited liability company or a limited partnership as a VIE unless the partnership provides partners with either substantive kick-out rights or substantive participating rights over the managing member or general partner. Please refer to the discussion in the Basis of Consolidation section above.

In April 2015, the FASB issued ASU 2015-03, Interest-Imputation of Interest (Subtopic 835-30). ASU 2015-03 changes the presentation of debt issuance costs, which were previously recognized as an asset, and requires that they be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. 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, and retrospective application is required. We adopted ASU 2015-03 on January 1, 2016 and have disclosed the reclassification of our debt issuance costs in the Reclassifications section above.

In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805). ASU 2015-16 eliminates the requirement that an acquirer in a business combination account for measurement period adjustments retrospectively. Instead, an acquirer will recognize a measurement period adjustment during the period in which it determines the amount of the adjustment, including the effect on earnings of any amounts it would have recorded in previous periods if the accounting had been completed at the acquisition date. ASU 2015-16 is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years, early adoption is permitted and prospective application is required for adjustments that are identified after the effective date of this update. We elected to early adopt ASU 2015-16 and implemented the standard prospectively beginning July 1, 2015. The adoption and implementation of the standard did not have a material impact on our consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 outlines a new model for accounting by lessees, whereby their rights and obligations under substantially all leases, existing and new, would be capitalized and recorded on the balance sheet. For lessors, however, the accounting remains largely unchanged from the current model, with the distinction between operating and financing leases retained, but updated to align with certain changes to the lessee model and the new revenue recognition standard. The new standard also replaces existing sale-leaseback guidance with a new model applicable to both lessees and lessors. Additionally, the new standard requires extensive quantitative and qualitative disclosures. ASU 2016-02 is effective for U.S. GAAP public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years; for all other entities, the final lease standard will be effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early application will be permitted for all entities. The new standard must be adopted using a modified retrospective transition of the new guidance and provides for certain practical expedients. Transition will require application of the new model at the beginning of the earliest comparative period presented. We are evaluating the impact of the new standard and have not yet determined if it will have a material impact on our business or our consolidated financial statements.

In March 2016, the FASB issued ASU 2016-05, Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships. ASU 2016-05 clarifies that a change in counterparty to a derivative contract, in and of itself, does not require the dedesignation of a hedging relationship. ASU 2016-05 is effective for fiscal years beginning after December 15, 2016, including interim periods within those years. Early adoption is permitted and entities have the option of adopting this guidance on a prospective basis to new derivative contracts or on a modified retrospective basis. We elected to

 
W. P. Carey 9/30/2016 10-Q – 13
                    
 
Notes to Consolidated Financial Statements (Unaudited)

early adopt ASU 2016-05 on January 1, 2016 on a prospective basis, and there was no impact on our consolidated financial statements.

In March 2016, the FASB issued ASU 2016-07, Investments – Equity Method and Joint Ventures (Topic 323). ASU 2016-07 simplifies the transition to the equity method of accounting. ASU 2016-07 eliminates the requirement to apply the equity method of accounting retrospectively when a reporting entity obtains significant influence over a previously held investment. Instead the equity method of accounting will be applied prospectively from the date significant influence is obtained. The new standard should be applied prospectively for investments that qualify for the equity method of accounting in interim and annual periods beginning after December 15, 2016. Early adoption is permitted, and we elected to early adopt this standard as of January 1, 2016. The adoption of this standard had no impact on our consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 amends Accounting Standards Codification Topic 718, Compensation-Stock Based Compensation to simplify various aspects of how share-based payments are accounted for and presented in the financial statements including (i) reflecting income tax effects of share-based payments through the income statement, (ii) allowing statutory tax withholding requirements at the employees’ maximum individual tax rate without requiring awards to be classified as liabilities and (iii) permitting an entity to make an accounting policy election for the impact of forfeitures on the recognition of expense. ASU 2016-09 is effective for public business entities for annual reporting periods beginning after December 15, 2016, and interim periods within that reporting period, with early adoption permitted. We are in the process of evaluating the impact of adopting ASU 2016-09 on our consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses. ASU 2016-13 introduces a new model for estimating credit losses for certain types of financial instruments, including loans receivable, held-to-maturity debt securities, and net investments in direct financing leases, amongst other financial instruments. ASU 2016-13 also modifies the impairment model for available-for-sale debt securities and expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for losses. ASU 2016-13 will be effective for public business entities in fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early application of the guidance permitted. We are in the process of evaluating the impact of adopting ASU 2016-13 on our consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 intends to reduce diversity in practice for certain cash flow classifications, including, but not limited to (i) debt prepayment or debt extinguishment costs, (ii) contingent consideration payments made after a business combination, (iii) proceeds from the settlement of insurance claims, and (iv) distributions received from equity method investees. ASU 2016-15 will be effective for public business entities in fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early application of the guidance permitted. We are in the process of evaluating the impact of adopting ASU 2016-15 on our consolidated financial statements.

In October 2016, the FASB issued ASU 2016-17, Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control. ASU 2016-17 changes how a reporting entity that is a decision maker should consider indirect interests in a VIE held through an entity under common control. If a decision maker must evaluate whether it is the primary beneficiary of a VIE, it will only need to consider its proportionate indirect interest in the VIE held through a common control party. ASU 2016-17 amends ASU 2015-02, which we adopted on January 1, 2016, and which currently directs the decision maker to treat the common control party’s interest in the VIE as if the decision maker held the interest itself. ASU 2016-17 will be effective for public business entities in fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, with early adoption permitted. We are in the process of evaluating the impact of adopting ASU 2016-17 on our consolidated financial statements.

Note 3. Agreements and Transactions with Related Parties
 
Advisory Agreements with the Managed Programs
 
We have advisory agreements with each of the Managed Programs, pursuant to which we earn fees and are entitled to receive reimbursement for fund management expenses, as well as cash distributions. We also earn fees for serving as the dealer-manager of the offerings of the Managed Programs. The advisory agreements with each of the Managed REITs have terms of one year, may be renewed for successive one-year periods, and are scheduled to expire on December 31, 2016, unless otherwise renewed. The advisory agreement with CCIF, which commenced February 27, 2015, is subject to renewal on or before February 26, 2017. The advisory agreement with CESH I, which commenced June 3, 2016, will continue until terminated pursuant to its terms.

 
W. P. Carey 9/30/2016 10-Q – 14
                    
 
Notes to Consolidated Financial Statements (Unaudited)


The following tables present a summary of revenue earned and/or cash received from the Managed Programs for the periods indicated, included in the consolidated financial statements. Asset management revenue excludes amounts received from third parties (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Asset management revenue
$
15,955

 
$
12,981

 
$
45,535

 
$
36,167

Reimbursable costs from affiliates
14,540

 
11,155

 
46,372

 
28,401

Structuring revenue
12,301

 
8,207

 
30,990

 
67,735

Distributions of Available Cash
10,876

 
10,182

 
32,018

 
28,244

Dealer manager fees
1,835

 
1,124

 
5,379

 
2,704

Other advisory revenue
522

 
—

 
522

 
203

Interest income on deferred acquisition fees and loans to affiliates
130

 
576

 
492

 
1,172

 
$
56,159

 
$
44,225

 
$
161,308

 
$
164,626

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
CPA®:17 – Global
$
16,616

 
$
17,654

 
$
51,820

 
$
59,815

CPA®:18 – Global 
5,259

 
12,725

 
22,851

 
56,392

CWI 1
7,771

 
7,581

 
26,453

 
36,735

CWI 2
19,924

 
6,265

 
49,233

 
11,684

CCIF
3,388

 
—

 
7,750

 
—

CESH I
3,201

 
—

 
3,201

 
—

 
$
56,159

 
$
44,225

 
$
161,308

 
$
164,626


The following table presents a summary of amounts included in Due from affiliates in the consolidated financial statements (in thousands):
 
September 30, 2016
 
December 31, 2015
Accounts receivable
$
21,903

 
$
15,711

Deferred acquisition fees receivable
20,599

 
33,386

Reimbursable costs
3,840

 
5,579

Asset management fees receivable
2,529

 
2,172

Organization and offering costs
1,809

 
461

Current acquisition fees receivable
828

 
4,909

 
$
51,508

 
$
62,218



 
W. P. Carey 9/30/2016 10-Q – 15
                    
 
Notes to Consolidated Financial Statements (Unaudited)

Asset Management Revenue
 
Under the advisory agreements with the Managed Programs, we earn asset management revenue for managing their investment portfolios. The following table presents a summary of our asset management fee arrangements with the Managed Programs:
Managed Program
 
Rate
 
Payable
 
Description
CPA®:17 – Global
 
0.5% - 1.75%
 
50% in cash and 50% in shares of its common stock
 
Rate depends on the type of investment and is based on the average market or average equity value, as applicable
CPA®:18 – Global
 
0.5% - 1.5%
 
In shares of its class A common stock
 
Rate depends on the type of investment and is based on the average market or average equity value, as applicable
CWI 1
 
0.5%
 
In cash
 
Rate is based on the average market value of the investment; we are required to pay 20% of the asset management revenue we receive to the subadvisor
CWI 2
 
0.55%
 
In shares of its class A common stock
 
Rate is based on the average market value of the investment; we are required to pay 25% of the asset management revenue we receive to the subadvisor
CCIF
 
1.75% - 2.00%
 
In cash
 
Based on the average of gross assets at fair value; we are required to pay 50% of the asset management revenue we receive to the subadvisor
CESH I
 
1.0%
 
In cash
 
Based on gross assets at fair value

Incentive Fees

We are entitled to receive a quarterly incentive fee on income from CCIF equal to 100% of quarterly net investment income, before incentive fee payments, in excess of 1.875% of CCIF’s average adjusted capital up to a limit of 2.344%, plus 20% of net investment income, before incentive fee payments, in excess of 2.344% of average adjusted capital. We are also entitled to receive from CCIF an incentive fee on realized capital gains of 20%, net of (i) all realized capital losses and unrealized depreciation on a cumulative basis, and (ii) the aggregate amount, if any, of previously paid incentive fees on capital gains since inception.


 
W. P. Carey 9/30/2016 10-Q – 16
                    
 
Notes to Consolidated Financial Statements (Unaudited)

Structuring Revenue
 
Under the terms of the advisory agreements with the Managed REITs and CESH I, we earn revenue for structuring and negotiating investments and related financing. We do not earn any structuring revenue from the Managed BDCs. The following table presents a summary of our structuring fee arrangements with the Managed REITs and CESH I:
Managed Program
 
Rate
 
Payable
 
Description
CPA®:17 – Global
 
1% - 1.75%, 4.5%
 
In cash; for non net-lease investments, 1% - 1.75% upon completion; for net-lease investments, 2.5% upon completion, with 2% deferred and payable in three interest-bearing annual installments
 
Based on the total aggregate cost of the net-lease investments made; also based on the total aggregate cost of the non net-lease investments made; total limited to 6% of the contract prices in aggregate
CPA®:18 – Global
 
4.5%
 
In cash; for all investments, other than readily marketable real estate securities for which we will not receive any acquisition fees, 2.5% upon completion, with 2% deferred and payable in three interest-bearing annual installments
 
Based on the total aggregate cost of the investments made; total limited to 6% of the contract prices in aggregate
CWI REITs
 
2.5%
 
In cash upon completion
 
Based on the total aggregate cost of the lodging investments made; loan refinancing transactions up to 1% of the principal amount; we are required to pay 20% and 25% to the subadvisor of CWI 1 and CWI 2, respectively; total for each CWI REIT limited to 6% of the contract prices in aggregate
CESH I
 
2.0%
 
In cash upon completion
 
Based on the total aggregate cost of investments made, including the acquisition, development, construction, or re-development of the investments

Reimbursable Costs from Affiliates
 
The Managed Programs reimburse us for certain costs that we incur on their behalf, which consist primarily of broker-dealer commissions, marketing costs, an annual distribution and shareholder servicing fee, or Shareholder Servicing Fee, and certain personnel and overhead costs, as applicable. The following tables present summaries of such fee arrangements:

Broker-Dealer Selling Commissions
Managed Program
 
Rate
 
Payable
 
Description
CWI 2 Class A Shares
 
$0.70
 
In cash upon share settlement; 100% re-allowed to broker-dealers
 
Per share sold
CPA®:18 – Global Class C Shares
 
$0.14
 
In cash upon share settlement; 100% re-allowed to broker-dealers
 
Per share sold; this offering closed in April 2015
CWI 2 Class T Shares
 
$0.19
 
In cash upon share settlement; 100% re-allowed to broker-dealers
 
Per share sold
CCIF Feeder Funds
 
0% - 3%
 
In cash upon share settlement; 100% re-allowed to broker-dealers
 
Based on the selling price of each share sold
CESH I
 
Up to 7.0% of gross offering proceeds
 
In cash upon limited partnership unit settlement; 100% re-allowed to broker-dealers
 
Based on the selling price of each limited partnership unit sold


 
W. P. Carey 9/30/2016 10-Q – 17
                    
 
Notes to Consolidated Financial Statements (Unaudited)

Dealer Manager Fees
Managed Program
 
Rate
 
Payable
 
Description
CWI 2 Class A Shares
 
$0.30
 
Per share sold
 
In cash upon share settlement; a portion may be re-allowed to broker-dealers
CPA®:18 – Global Class C Shares
 
$0.21
 
Per share sold
 
In cash upon share settlement; a portion may be re-allowed to broker-dealers; this offering closed in April 2015
CWI 2 Class T Shares
 
$0.26
 
Per share sold
 
In cash upon share settlement; a portion may be re-allowed to broker-dealers
CCIF Feeder Funds
 
2.75% - 3.0%
 
Based on the selling price of each share sold
 
In cash upon share settlement; a portion may be re-allowed to broker-dealers
CESH I
 
Up to 3.0% of gross offering proceeds
 
Per limited partnership unit sold
 
In cash upon limited partnership unit settlement; a portion may be re-allowed to broker-dealers

Annual Distribution and Shareholder Servicing Fee
Managed Program
 
Rate
 
Payable
 
Description
CPA®:18 – Global Class C Shares
 
1.0%
 
Accrued daily and payable quarterly in arrears in cash; a portion may be re-allowed to selected dealers
 
Based on the purchase price per share sold or, once it was reported, the net asset value per share; cease paying when underwriting compensation from all sources equals 10% of gross offering proceeds
CWI 2 Class T Shares
 
1.0%
 
Accrued daily and payable quarterly in arrears in cash; a portion may be re-allowed to selected dealers
 
Based on the purchase price per share sold or, once it was reported, the net asset value per share; cease paying on the earlier of six years or when underwriting compensation from all sources equals 10% of gross offering proceeds

Personnel and Overhead Costs
Managed Program
 
Payable
 
Description
CPA®:17 – Global and CPA®:18 – Global
 
In cash
 
Personnel and overhead costs, excluding those related to our legal transactions group, our senior management, and our investments team, are charged to the CPA® REITs based on the average of the trailing 12-month aggregate reported revenues of the Managed Programs and us, and are capped at 2.2% and 2.4% of each CPA® REIT’s pro rata lease revenues for 2016 and 2015, respectively; for the legal transactions group, costs are charged according to a fee schedule
CWI 1
 
In cash
 
Actual expenses incurred; allocated between the CWI REITs based on the percentage of their total pro rata hotel revenues for the most recently completed quarter
CWI 2
 
In cash
 
Actual expenses incurred; allocated between the CWI REITs based on the percentage of their total pro rata hotel revenues for the most recently completed quarter
CCIF and CCIF Feeder Funds
 
In cash
 
Actual expenses incurred
CESH I
 
In cash
 
Actual expenses incurred


 
W. P. Carey 9/30/2016 10-Q – 18
                    
 
Notes to Consolidated Financial Statements (Unaudited)

Organization and Offering Costs
Managed Program
 
Payable
 
Description
CWI 2
 
In cash; within 60 days after the end of the quarter in which the offering terminates
 
Actual costs incurred from 1.5% through 4.0% of the gross offering proceeds, depending on the amount raised
CCIF and CCIF Feeder Funds
 
In cash; payable monthly
 
Up to 1.5% of the gross offering proceeds
CESH I
 
N/A
 
In lieu of reimbursing us for organization and offering costs, CESH I will pay us limited partnership units, as described below under Other Advisory Revenue

For CCIF, total reimbursements to us for personnel and overhead costs and organization and offering costs may not exceed 18% of total Front End Fees, as defined in its Declaration of Trust, so that total funds available for investment may not be lower than 82% of total gross proceeds.

Other Advisory Revenue

Under the limited partnership agreement we have with CESH I, we pay all organization and offering costs regarding CESH I, and instead of being reimbursed by CESH I on a dollar-for-dollar basis for those costs, we receive limited partnership units of CESH I equal to 2.5% of its gross offering proceeds. This revenue is included in Other advisory revenue in the consolidated statements of income and totaled $0.5 million for both the three and nine months ended September 30, 2016, representing activity following the deconsolidation of CESH I on August 31, 2016 (Note 2).

Expense Support and Conditional Reimbursements

Under the expense support and conditional reimbursement agreement we have with each of the CCIF Feeder Funds, we and the CCIF subadvisor are obligated to reimburse the CCIF Feeder Funds for 50% of the excess of the cumulative distributions paid to the CCIF Feeder Funds’ shareholders over the available operating funds on a monthly basis. Following any month in which the available operating funds exceed the cumulative distributions paid to its shareholders, the excess operating funds are used to reimburse us and the CCIF subadvisor for any expense payment we made within three years prior to the last business day of such months that have not been previously reimbursed by the CCIF Feeder Fund, up to the lesser of (i) 1.75% of each CCIF Feeder Fund’s average net assets or (ii) the percentage of each CCIF Feeder Fund’s average net assets attributable to its common shares represented by other operating expenses during the fiscal year in which such expense support payment from us and the CCIF’s subadvisor was made, provided that the effective rate of distributions per share at the time of reimbursement is not less than such rate at the time of expense payment.
 
Distributions of Available Cash
 
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 described in their respective operating partnership agreements, payable quarterly in arrears.

Other Transactions with Affiliates
 
Loans to Affiliates

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, CWI 1 and CWI 2 of up to $110.0 million in the aggregate, and CCIF of up to $50.0 million, at our sole discretion, with each loan at a rate equal to the rate at which we are able to borrow funds under our senior credit facility (Note 10), for the purpose of facilitating acquisitions approved by their respective investment committees that they would not otherwise have had sufficient available funds to complete. In April 2016, our board of directors approved unsecured loans from us to CESH I of up to $35.0 million, under the same terms and for the same purpose.


 
W. P. Carey 9/30/2016 10-Q – 19
                    
 
Notes to Consolidated Financial Statements (Unaudited)

During 2015, various loans aggregating $185.4 million were made to the Managed Programs, all of which were repaid during 2015. All of the loans were made at an interest rate equal to the London Interbank Offered Rate, or LIBOR, as of the issue date, plus 1.1%. During 2015, we arranged credit agreements for each of CPA®:17 – Global, CWI 1, and CCIF, and our board of directors terminated its previous authorizations to provide loans to CPA®:17 – Global and CWI 1. In January 2016, our board of directors terminated its previous authorizations to provide loans to CPA®:18 – Global and CCIF. However, in July 2016, our board of directors approved unsecured loans from us to CPA®:18 – Global of up to $50.0 million, at our sole discretion, with a rate equal to the rate at which we are able to borrow funds under our senior credit facility (Note 10), for the purpose of facilitating investments approved by CPA®:18 – Global’s investment committee. See Note 17, Subsequent Events.

On January 20, 2016, we made a $20.0 million loan to CWI 2, which was repaid in full on February 20, 2016.

In May 2016, we made a total of $17.1 million in loans to CESH I, at an annual interest rate of LIBOR plus 1.1%, which were repaid in full in September 2016, subsequent to the commencement of CESH I’s private placement offering (Note 2).

Other

On February 2, 2016, an entity in which we, one of our employees, and third parties owned 38.3%, 0.5%, and 61.2%, respectively, and which we consolidated, sold a self-storage property (Note 15). In connection with the sale, we made a distribution of $0.1 million to the employee, representing the employee’s share of the net proceeds from the sale.

At September 30, 2016, we owned interests ranging from 3% to 90% in jointly-owned investments, including a jointly-controlled tenancy-in-common interest in several properties, with the remaining interests generally held by affiliates, stock of each of the Managed REITs and CCIF, and limited partnership units of CESH I. We consolidate certain of these investments and account for the remainder either (i) under the equity method of accounting or (ii) at fair value by electing the equity method fair value option available under U.S. GAAP (Note 6).

Note 4. 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):
 
September 30, 2016
 
December 31, 2015
Land
$
1,119,158

 
$
1,160,567

Buildings
4,065,395

 
4,147,644

Real estate under construction
37,433

 
1,714

Less: Accumulated depreciation
(444,538
)
 
(372,735
)
 
$
4,777,448

 
$
4,937,190

 
During the nine months ended September 30, 2016, the U.S. dollar strengthened against the British pound sterling, as the end-of-period rate for the U.S. dollar in relation to the British pound sterling at September 30, 2016 decreased by 12.6% to $1.2962 from $1.4833 at December 31, 2015. Additionally, during the same period the U.S. dollar weakened against the euro, as the end-of-period rate for the U.S. dollar in relation to the euro increased by 2.5% to $1.1161 from $1.0887. As a result of these fluctuations in foreign exchange rates, the carrying value of our real estate decreased by $1.5 million from December 31, 2015 to September 30, 2016, with the impact of the U.S. dollar strengthening against the British pound sterling more than offsetting the impact of the weakening of the U.S. dollar against the euro.

Depreciation expense for Net investments in properties was $36.5 million and $35.7 million for the three months ended September 30, 2016 and 2015, respectively, and $110.5 million and $105.5 million for the nine months ended September 30, 2016 and 2015, respectively.


 
W. P. Carey 9/30/2016 10-Q – 20
                    
 
Notes to Consolidated Financial Statements (Unaudited)

Acquisitions of Real Estate

During the nine months ended September 30, 2016, we entered into the following investments, which were deemed to be real estate asset acquisitions because we acquired the sellers’ properties and simultaneously entered into new leases in connection with the acquisitions, at a total cost of $385.8 million, including land of $103.7 million, buildings of $213.1 million (including acquisition-related costs of $1.8 million, which were capitalized), and net lease intangibles of $69.0 million (Note 7):

•
an investment of $167.7 million for three private school campuses in Coconut Creek, Florida on April 1, 2016 and in Windermere, Florida and Houston, Texas on May 31, 2016. We also committed to fund an additional $128.1 million of build-to-suit financing over the next four years in order to fund expansions of the existing facilities; and
•
an investment of $218.2 million for 43 manufacturing facilities in various locations in the United States and six manufacturing facilities in various locations in Canada on April 5 and 14, 2016.

Real Estate Under Construction

During the nine months ended September 30, 2016, we capitalized real estate under construction totaling $46.4 million, including accrued costs of $8.6 million, primarily related to construction projects on our properties. Of this total, $14.3 million related to an expansion of one of the three private school campuses that we acquired during the nine months ended September 30, 2016. As of September 30, 2016, we had three construction projects in progress. As of December 31, 2015, we had an outstanding commitment related to a tenant expansion allowance, for which construction had not yet commenced, and no other open construction projects. Aggregate unfunded commitments totaled approximately $119.2 million and $12.2 million as of September 30, 2016 and December 31, 2015, respectively.

Dispositions of Real Estate

During the nine months ended September 30, 2016, we sold eight properties and a parcel of vacant land, excluding the sale of one property that was classified as held for sale as of December 31, 2015, transferred ownership of another property to the related mortgage lender, and disposed of another property through foreclosure (Note 15). As a result, the carrying value of our real estate decreased by $280.5 million from December 31, 2015 to September 30, 2016.

Future Dispositions of Real Estate

During the nine months ended September 30, 2016, two tenants each exercised an option to repurchase their respective properties during 2017 for an aggregate of $21.6 million. At September 30, 2016, the properties had an aggregate asset carrying value of $16.6 million. There is no accounting impact during 2016 related to the exercise of these options.

Operating Real Estate
 
At September 30, 2016, Operating real estate consisted of our investments in two hotels. At December 31, 2015, Operating real estate consisted of our investments in two hotels and one self-storage property. During the first quarter of 2016, we sold our remaining self-storage property, and as a result, the carrying value of our Operating real estate decreased by $2.3 million from December 31, 2015 to September 30, 2016 (Note 15). Below is a summary of our Operating real estate (in thousands): 
 
September 30, 2016
 
December 31, 2015
Land
$
6,041

 
$
6,578

Buildings
75,624

 
76,171

Less: Accumulated depreciation
(11,075
)
 
(8,794
)
 
$
70,590

 
$
73,955



 
W. P. Carey 9/30/2016 10-Q – 21
                    
 
Notes to Consolidated Financial Statements (Unaudited)

Assets Held for Sale, Net

Below is a summary of our properties held for sale (in thousands):
 
September 30, 2016
 
December 31, 2015
Real estate, net
$
117,504

 
$
59,046

Intangible assets and liabilities, net
9,938

 
—

Goodwill
1,020

 
—

Assets held for sale, net
$
128,462

 
$
59,046


At September 30, 2016, we had 16 properties classified as Assets held for sale, net, including:

•
a portfolio of 14 international properties with a carrying value of $115.4 million. These properties were disposed of subsequent to September 30, 2016 (Note 17); and
•
two international properties with an aggregate carrying value of $13.1 million. These properties were disposed of subsequent to September 30, 2016 (Note 17).

At December 31, 2015, we had two properties classified as Assets held for sale, net, one of which was sold during the nine months ended September 30, 2016 (Note 15).

Note 5. Finance Receivables
 
Assets representing rights to receive money on demand or at fixed or determinable dates are referred to as finance receivables. Our finance receivables portfolio consists of our 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
 
Interest income from direct financing leases, which was included in Lease revenues in the consolidated financial statements, was $17.6 million and $18.7 million for the three months ended September 30, 2016 and 2015, respectively, and $53.9 million and $56.1 million for the nine months ended September 30, 2016 and 2015, respectively. During the nine months ended September 30, 2016, the U.S. dollar weakened against the euro and strengthened against the British pound sterling, resulting in a $3.1 million increase in the carrying value of Net investments in direct financing leases from December 31, 2015 to September 30, 2016, with the impact of the weakening of the U.S. dollar against the euro more than offsetting the impact of the U.S. dollar strengthening against the British pound sterling. During the nine months ended September 30, 2016, we reclassified 31 properties with a carrying value of $9.7 million from Net investments in direct financing leases to Real estate, at cost, in connection with the extensions of the underlying leases.

Note Receivable

At September 30, 2016 and December 31, 2015, we had a note receivable with an outstanding balance of $10.4 million and $10.7 million, respectively, representing the expected future payments under a sales type lease, which was included in Other assets, net in the consolidated financial statements. Earnings from our note receivable are included in Lease termination income and other in the consolidated financial statements.

Deferred Acquisition Fees Receivable
 
As described in Note 3, 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.
 
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. As of September 30, 2016 and December 31, 2015, we had allowances for credit losses of $15.8 million and

 
W. P. Carey 9/30/2016 10-Q – 22
                    
 
Notes to Consolidated Financial Statements (Unaudited)

$8.7 million, respectively, on a single direct financing lease. During the nine months ended September 30, 2016, we increased the allowance by $7.1 million, which was recorded in Property expenses, excluding reimbursable tenant costs in the consolidated financial statements, due to a decline in the estimated amount of future payments we will receive from the tenant, including the possible early termination of the direct financing lease. At both September 30, 2016 and December 31, 2015, none of the balances of our finance receivables were past due. Other than the lease extensions noted under Net Investments in Direct Financing Leases above and the allowance for credit losses discussed above, there were no modifications of finance receivables during the nine months ended September 30, 2016 or the year ended December 31, 2015. We evaluate the credit quality of our finance receivables utilizing an internal five-point credit rating scale, with one representing the highest credit quality and five representing the lowest. A credit quality of one through three indicates a range of investment grade to stable. A credit quality of four through five indicates a range of watch list to risk of default. The credit quality evaluation of our finance receivables was last updated in the third quarter of 2016. 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, excluding our deferred acquisition fees receivable, is as follows (dollars in thousands):
 
 
Number of Tenants / Obligors at
 
Carrying Value at
Internal Credit Quality Indicator
 
September 30, 2016
 
December 31, 2015
 
September 30, 2016
 
December 31, 2015
1 - 3
 
27
 
28
 
$
640,359

 
$
657,034

4
 
6
 
6
 
109,092

 
110,002

5
 
1
 
—
 
1,731

 
—

 
 
 
 
 
 
$
751,182

 
$
767,036


Note 6. Equity Investments in the Managed Programs and Real Estate
 
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 amortization of basis differences related to purchase accounting adjustments (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Distributions of Available Cash (Note 3)
$
10,876

 
$
10,182

 
$
32,018

 
$
28,244

Proportionate share of earnings (losses) from equity investments in the Managed Programs
2,962

 
(431
)
 
7,396

 
565

Amortization of basis differences on equity investments in the Managed Programs
(265
)
 
(208
)
 
(756
)
 
(582
)
Total equity earnings from the Managed Programs
13,573

 
9,543

 
38,658

 
28,227

Equity earnings from other equity investments
4,197

 
4,034

 
12,456

 
13,188

Amortization of basis differences on other equity investments
(967
)
 
(942
)
 
(2,871
)
 
(2,785
)
Equity in earnings of equity method investments in the Managed Programs and real estate
$
16,803

 
$
12,635

 
$
48,243

 
$
38,630

 
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. Operating results of the Managed REITs and CESH I are included in the Owned Real Estate segment and operating results of CCIF are included in the Investment Management segment.
 

 
W. P. Carey 9/30/2016 10-Q – 23
                    
 
Notes to Consolidated Financial Statements (Unaudited)

The following table sets forth certain information about our investments in the Managed Programs (dollars in thousands):
 
 
% of Outstanding Interests Owned at
 
Carrying Amount of Investment at
Fund
 
September 30, 2016
 
December 31, 2015
 
September 30, 2016
 
December 31, 2015
CPA®:17 – Global
 
3.358
%
 
3.087
%
 
$
98,702

 
$
87,912

CPA®:17 – Global operating partnership
 
0.009
%
 
0.009
%
 
—

 
—

CPA®:18 – Global
 
1.384
%
 
0.735
%
 
16,007

 
9,279

CPA®:18 – Global operating partnership
 
0.034
%
 
0.034
%
 
209

 
209

CWI 1
 
1.114
%
 
1.131
%
 
11,731

 
12,619

CWI 1 operating partnership
 
0.015
%
 
0.015
%
 
—

 
—

CWI 2
 
0.633
%
 
0.379
%
 
3,771

 
949

CWI 2 operating partnership
 
0.015
%
 
0.015
%
 
300

 
300

CCIF
 
16.514
%
 
47.882
%
 
23,083

 
22,214

CESH I (a)
 
2.121
%
 
—
%
 
908

 
—

 
 
 
 
 
 
$
154,711

 
$
133,482

__________
(a)
Investment is accounted for at fair value.

CPA®:17 – Global — The carrying value of our investment in CPA®:17 – Global at September 30, 2016 includes asset management fees receivable, for which 119,368 shares of CPA®:17 – Global common stock were issued during the fourth quarter of 2016. We received distributions from this investment during the nine months ended September 30, 2016 and 2015 of $5.5 million and $4.5 million, respectively. We received distributions from our investment in the CPA®:17 – Global operating partnership during the nine months ended September 30, 2016 and 2015 of $17.8 million and $17.7 million, respectively.

CPA®:18 – Global — The carrying value of our investment in CPA®:18 – Global at September 30, 2016 includes asset management fees receivable, for which 107,154 shares of CPA®:18 – Global class A common stock were issued during the fourth quarter of 2016. We received distributions from this investment during the nine months ended September 30, 2016 and 2015 of $0.6 million and $0.1 million, respectively. We received distributions from our investment in the CPA®:18 – Global operating partnership during the nine months ended September 30, 2016 and 2015 of $5.3 million and $2.3 million, respectively.

CWI 1 — We received distributions from this investment during both the nine months ended September 30, 2016 and 2015 of $0.6 million. We received distributions from our investment in the CWI 1 operating partnership during the nine months ended September 30, 2016 and 2015 of $6.9 million and $6.4 million, respectively.

CWI 2 — The carrying value of our investment in CWI 2 at September 30, 2016 includes asset management fees receivable, for which 46,042 shares of CWI 2 class A common stock were issued during the fourth quarter of 2016. We received distributions from this investment during the nine months ended September 30, 2016 of less than $0.1 million. We did not receive distributions from this investment during the nine months ended September 30, 2015. On March 27, 2015, we purchased a 0.015% special general partnership interest in the CWI 2 operating partnership for $0.3 million. This special general partnership interest entitles us to receive distributions of our proportionate share of earnings up to 10% of the Available Cash from the CWI 2 operating partnership (Note 3). We received distributions from our investment in the CWI 2 operating partnership during the nine months ended September 30, 2016 and 2015 of $2.0 million and $0.2 million, respectively.

CCIF — We received $0.6 million of distributions from our investment in CCIF during the nine months ended September 30, 2016. We did not receive distributions from this investment during the nine months ended September 30, 2015.

CESH I — Under the limited partnership agreement we have with CESH I, we pay all organization and offering costs regarding CESH I, and instead of being reimbursed by CESH I on a dollar-for-dollar basis for those costs, we receive limited partnership units of CESH I equal to 2.5% of its gross offering proceeds (Note 3). We have elected to account for our investment in CESH I at fair value by selecting the equity method fair value option available under U.S. GAAP. We did not receive distributions from this investment during the nine months ended September 30, 2016 or 2015.


 
W. P. Carey 9/30/2016 10-Q – 24
                    
 
Notes to Consolidated Financial Statements (Unaudited)

At September 30, 2016 and December 31, 2015, the aggregate unamortized basis differences on our equity investments in the Managed Programs were $30.7 million and $27.4 million, respectively.

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.

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):
 
 
 
 
 
 
Carrying Value at
Lessee
 
Co-owner
 
Ownership Interest
 
September 30, 2016
 
December 31, 2015
The New York Times Company
 
CPA®:17 – Global
 
45%
 
$
69,772

 
$
70,976

Frontier Spinning Mills, Inc.
 
CPA®:17 – Global
 
40%
 
24,149

 
24,288

Beach House JV, LLC (a)
 
Third Party
 
N/A
 
15,105

 
15,318

Actebis Peacock GmbH (b)
 
CPA®:17 – Global
 
30%
 
11,981

 
12,186

C1000 Logistiek Vastgoed B.V. (b) (c)
 
CPA®:17 – Global
 
15%
 
9,481

 
9,381

Waldaschaff Automotive GmbH and Wagon Automotive Nagold GmbH (b)
 
CPA®:17 – Global
 
33%
 
9,113

 
9,507

Wanbishi Archives Co. Ltd. (d)
 
CPA®:17 – Global
 
3%
 
378