W. P. CAREY INC. Management's Discussion and Analysis of Financial Condition and Results of Operations is intended to assist in understanding our financial statements and the reasons for changes in certain key components of our financial statements from period to period. This item also provides our perspective on our financial position and liquidity, as well as certain other factors that may affect our future results. The discussion also breaks down the financial results of our business by segment to provide a better understanding of how these segments and their results affect our financial condition and results of operations. The following discussion should be read in conjunction with our consolidated financial statements in Item 8 of this Report and the matters described under Item 1A. Risk Factors . Please see our Annual Report on Form 10-K for the year endedDecember 31, 2018 for discussion of our financial condition and results of operations for the year endedDecember 31, 2017 .
Business Overview
We are a diversified net lease REIT with a portfolio of operationally-critical, commercial real estate that includes 1,214 net lease properties covering approximately 140.0 million square feet and 21 operating properties as ofDecember 31, 2019 . We invest in high-quality single tenant industrial, warehouse, office, retail, and self-storage properties subject to long-term net leases with built-in rent escalators. Our portfolio is located primarily inthe United States and Northern andWestern Europe , and we believe it is well-diversified by tenant, property type, geographic location, and tenant industry. We also earn fees and other income by managing the portfolios of the Managed Programs through our investment management business. We no longer raise capital for new or existing funds, but currently expect to continue managing our existing Managed Programs through the end of their respective life cycles ( Note 1 ).
Significant Developments
CWI 1 and CWI 2 Proposed Merger
OnOctober 22, 2019 , CWI 1 and CWI 2 announced that they had entered into a definitive merger agreement under which the two companies intend to merge in an all-stock transaction, with CWI 2 as the surviving entity. OnJanuary 13, 2020 , the joint proxy statement/prospectus on Form S-4 previously filed with theSEC by CWI 1 and CWI 2 was declared effective. Each of CWI 1 and CWI 2 has scheduled a special meeting of stockholders forMarch 26, 2020 ; if the proposed transaction is approved, the merger is expected to close shortly thereafter. In connection with the CWI 1 and CWI 2 Proposed Merger, we have entered into an internalization agreement and transition services agreement. Immediately following the closing of the CWI 1 and CWI 2 Proposed Merger:
(i) the advisory agreements with each of CWI 1 and CWI 2 will terminate;
(ii) the operating partnerships of each of CWI 1 and CWI 2 will redeem the
special general partnership interests that we currently hold, for which we
will receive approximately
million in shares of CWI 2 preferred stock and 2,840,549 shares in CWI 2
common stock valued at approximately
(iii) CWI 2 will internalize the management services currently provided by us;
and
(iv) we will provide certain transition services at cost to CWI 2 for periods
generally up to 12 months from closing of the proposed merger.
Please see our Current Report on Form 8-K dated
Amended Credit Facility OnFebruary 20, 2020 , we amended and restated our Senior Unsecured Credit Facility. We increased the capacity of our unsecured line of credit under our Amended Credit Facility to$2.1 billion , which is comprised of a$1.8 billion revolving line of credit, a £150.0 million term loan, and a$105.0 million delayed draw term loan, all maturing in five years. The delayed draw term loan may be drawn within one year and allows for borrowings inU.S. dollars, euros, or British pounds sterling. The aggregate principal amount (of revolving and term loans) available under the Amended Credit Facility may be increased up to an amount not to exceed theU.S. dollar equivalent of$2.75 billion , subject to the conditions to increase provided in the related credit agreement. We will incur interest at LIBOR, or a LIBOR equivalent, plus 0.85% on the revolving line of credit, and LIBOR, or a LIBOR equivalent, plus 0.95% on the term loan and delayed draw term loan ( Note 20 ).
--------------------------------------------------------------------------------
Financial Highlights
During the year ended
Real Estate
Investments
• We acquired 23 investments totaling
• We completed seven construction projects at a cost totaling$122.5 million . Construction projects include build-to-suit and expansion projects ( Note 5 ). • We committed to purchase a warehouse and distribution facility in
construction of the property, which is expected to take place during the
second quarter of 2020 ( Note 5 ).
• We committed to purchase two warehouse facilities in Hillerød and
Hammelev,
rate of the Danish krone at
construction of the properties. One property was completed in
( Note 20 ) and the second property is expected to be completed during
the first quarter of 2020 ( Note 5 ).
• We committed to fund an aggregate of
rate of the euro at
for an existing tenant at an industrial and office facility in
Marktheidenfeld,
the second quarter of 2020 ( Note 5 ).
• We committed to fund an aggregate of
for an existing tenant at a warehouse facility in Wichita, Kansas . We
currently expect to complete in the third quarter of 2020 ( Note 5 ).
• We committed to fund an aggregate of
rate of the euro at December 31, 2019 ) for a build-to-suit project for a
headquarters and industrial facility in Langen, Germany , which we
currently expect to be completed in the first quarter of 2021 ( Note
5 ).
• We committed to fund an aggregate of
project at a warehouse facility in Bowling Green, Kentucky , which we
currently expect to be completed in the fourth quarter of 2021 ( Note
5 ).
Dispositions
• As part of our active capital recycling program, we disposed of 22
properties for total proceeds of
( Note 17 ). In
properties for gross proceeds of
attributable to a noncontrolling interest) ( Note 20 ).
Leasing Transactions
• We entered into net lease agreements for certain self-storage properties
previously classified as operating properties. As a result, in
and
properties, respectively, with an aggregate carrying value of
million from Land, buildings and improvements attributable to operating
properties to Land, buildings and improvements subject to operating
leases. Effective as of those times, we began recognizing lease revenues
from these properties, whereas previously we recognized operating property
revenues and expenses from these properties ( Note 5 ).
• We restructured the leases with a tenant on a portfolio of grocery store
and warehouse properties in Croatia . For 19 properties, we reached
agreements on new rents, reducing contractual rents, but increasing total
contractual minimum annualized base rent ("ABR") from $10.2 million to
$15.4 million . We extended the lease terms on these properties by a
weighted average of three years. We also agreed to a payment plan to
collect approximately 50% of unpaid back rents plus value-added tax, whichis being paid in ten monthly installments of €1.0 million each (equivalent
to approximately
and fourth quarters of 2019, such payments totaled approximately
million, which was included within Lease termination income and other on
our consolidated statements of income.
• We received proceeds totaling
prior tenant, which was included within Lease termination income and other
on our consolidated statements of income.
W. P. Carey 2019 10-K - 27
--------------------------------------------------------------------------------
Financing and Capital Markets Transactions
• On
million of 3.850% Senior Notes due 2029, at a price of 98.876% of par
value. These 3.850% Senior Notes due 2029 have a 10.1-year term and are
scheduled to mature on July 15, 2029 ( Note 11 ).
• On
1.350% Senior Notes due 2028, at a price of 99.266% of par value, issued
by our wholly owned finance subsidiary, WPC Eurobond B.V ., and fully and
unconditionally guaranteed by us. These 1.350% Senior Notes due 2028 have
an 8.6-year term and are scheduled to mature on April 15, 2028 ( Note
11 ).
• During the year ended
common stock under our ATM Programs at a weighted-average price of
per share for net proceeds of $523.3 million ( Note 14 ). Proceeds from
issuances of common stock under our ATM Programs were used primarily to
prepay certain non-recourse mortgage loans (as described below and in
Note 11 ) and to fund acquisitions.
• We reduced our mortgage debt outstanding by prepaying or repaying at
maturity a total of $1.2 billion of non-recourse mortgage loans with a
weighted-average interest rate of 4.4% ( Note 11 ).
Investment Management
As ofDecember 31, 2019 , we managed total assets of approximately$7.5 billion on behalf of the Managed Programs. Upon completion of the CPA:17 Merger ( Note 3 ), we ceased earning advisory fees and other income previously earned when we served as advisor to CPA:17 - Global. During 2018, through the date of the CPA:17 Merger, such fees and other income from CPA:17 - Global totaled$58.8 million . We expect to receive lower structuring and other advisory revenue from the Managed Programs going forward since they are fully invested and we no longer raise capital for new or existing funds.
Dividends to Stockholders
We declared cash dividends totaling
--------------------------------------------------------------------------------
Consolidated Results
(in thousands, except shares)
Years Ended December 31,
2019 2018 2017
Revenues from Real Estate $ 1,172,863 $ 779,125 $ 687,208
Revenues from Investment Management 59,903 106,607 161,094
Total revenues 1,232,766 885,732 848,302
Net income from Real Estate attributable to W.
P. Carey 272,065 307,236 192,139
Net income from Investment Management
attributable to W. P. Carey 33,178 104,330 85,150
Net income attributable to W. P. Carey 305,243 411,566 277,289
Dividends declared 713,588 502,819 433,834
Net cash provided by operating activities 812,077 509,166 520,659
Net cash (used in) provided by investing
activities (522,773 ) (266,132 ) 214,238
Net cash used in financing activities (457,778 ) (24,292 ) (745,466 )
Supplemental financial measures (a): Adjusted funds from operations attributable to W. P. Carey (AFFO) - Real Estate 811,193 516,502 456,865 Adjusted funds from operations attributable to W. P. Carey (AFFO) - Investment Management 45,277 118,084 116,114 Adjusted funds from operations attributable to W. P. Carey (AFFO) 856,470 634,586 572,979
Diluted weighted-average shares outstanding (b) 171,299,414 117,706,445 108,035,971
__________
(a) We consider Adjusted funds from operations ("AFFO"), a supplemental measure
that is not defined by GAAP (a "non-GAAP measure"), to be an important
measure in the evaluation of our operating performance. See Supplemental
Financial Measures below for our definition of this non-GAAP measure and a
reconciliation to its most directly comparable GAAP measure.
(b) Amounts for the years ended
impact of the 53,849,087 shares of our common stock issued to stockholders of
CPA:17 - Global in connection with the CPA:17 Merger on
( Note 3 ), as well as the dilutive impact of the 10,901,697 shares of our
common stock issued under our ATM Programs since
14 ).
Revenues and Net Income Attributable to
2019 vs. 2018 - Total revenues increased in 2019 as compared to 2018, due to increases within our Real Estate segment, partially offset by decreases within our Investment Management segment. Real Estate revenue increased due to an increase in lease revenues and operating property revenues, primarily from the properties we acquired in the CPA:17 Merger onOctober 31, 2018 ( Note 3 ) and other property acquisition activity, partially offset by the impact of property dispositions. We also received proceeds from a bankruptcy claim on a prior tenant during 2019 ( Note 5 ). Investment Management revenue decreased primarily due to the cessation of asset management revenue earned from CPA:17 - Global after the CPA:17 Merger onOctober 31, 2018 ( Note 3 ), as well as lower structuring and other advisory revenue earned from the Managed Programs. Net income attributable toW. P. Carey decreased in 2019 as compared to 2018, due to decreases within both our Investment Management and Real Estate segments. Net income from Investment Management attributable toW. P. Carey decreased primarily due to the cessation of revenues and distributions previously earned from CPA:17 - Global ( Note 3 ) and a gain on change in control of interests recognized during 2018 in connection with the CPA:17 Merger ( Note 3 ), partially offset by tax benefits recognized during 2019. Net income from Real Estate attributable toW. P. Carey decreased primarily due to a lower gain on sale of real estate recognized during 2019 as compared to 2018 ( Note 17 ), as well as higher impairment charges ( Note 9 ) and loss on extinguishment of debt ( Note 11 ). We also recognized a loss on change in control of interests during 2019 inW. P. Carey 2019 10-K - 29
--------------------------------------------------------------------------------
connection with the CPA:17 Merger, as compared to a gain on change in control of interests during 2018 ( Note 3 ). These decreases were partially offset by the impact of real estate acquisitions and properties acquired in the CPA:17 Merger ( Note 3 ), which we owned for a full year in 2019 as compared to two months in 2018. The increase in revenues from such properties was partially offset by corresponding increases in depreciation and amortization, interest expense, and property expenses. We also recognized significant merger expenses in 2018 related to the CPA:17 Merger ( Note 3 ) and unrealized gains on our investment in shares of a cold storage operator during 2019 ( Note 9 ), and received proceeds from a bankruptcy claim on a prior tenant during 2019 ( Note 5 ).
Net Cash Provided by Operating Activities
2019 vs. 2018 - Net cash provided by operating activities increased in 2019 as compared to 2018, primarily due to an increase in cash flow generated from properties acquired during 2018 and 2019, including properties acquired in the CPA:17 Merger, as well as proceeds from a bankruptcy claim on a prior tenant received during 2019 ( Note 5 ), partially offset by merger expenses recognized in 2018 related to the CPA:17 Merger ( Note 3 ) and a decrease in cash flow as a result of property dispositions during 2018 and 2019, as well as an increase in interest expense, primarily due to the assumption of non-recourse mortgage loans in the CPA:17 Merger and the issuance of senior unsecured notes inMarch 2018 ,October 2018 ,June 2019 , andSeptember 2019 .
AFFO
2019 vs. 2018 - AFFO increased in 2019 as compared to 2018, primarily due to higher Real Estate revenues, partially offset by higher interest expense and lower Investment Management revenues and cash distributions as a result of the CPA:17 Merger. Portfolio Overview Our portfolio is comprised of operationally-critical, commercial real estate assets net leased to tenants located primarily inthe United States and Northern andWestern Europe . We invest in high-quality single tenant industrial, warehouse, office, retail, and self-storage (net lease) properties subject to long-term leases with built-in rent escalators. Portfolio information is provided on a pro rata basis, unless otherwise noted below, to better illustrate the economic impact of our various net-leased jointly owned investments. See Terms and Definitions below for a description of pro rata amounts. Portfolio Summary As of December 31, 2019 2018 2017 Number of net-leased properties (a) 1,214 1,163 887 Number of operating properties (b) 21 48 2 Number of tenants (net-leased properties) 345 304 210 Total square footage (net-leased properties, in thousands) (c) 139,982 130,956 84,899 Occupancy (net-leased properties) 98.8 % 98.3 % 99.8 % Weighted-average lease term (net-leased properties, in years) 10.7 10.2 9.6 Number of countries (d) 25 25 17 Total assets (in thousands)$ 14,060,918 $
14,183,039
W. P. Carey 2019 10-K - 30
--------------------------------------------------------------------------------
Years Ended December 31,
2019 2018 2017
Acquisition volume (in millions) (e) $ 737.5 $ 824.8 $ 31.8
Construction projects completed (in millions)
(f) 122.5 102.5 65.4
Average U.S. dollar/euro exchange rate 1.1196 1.1813 1.1292
AverageU.S. dollar/British pound sterling exchange rate 1.2767 1.3356
1.2882
Change in the U.S. CPI (g) 2.3 % 1.9 % 2.1 % Change in the Germany CPI (g) 1.5 % 1.7 % 1.7 % Change in the Poland CPI (g) 3.2 % 1.2 % 2.2 % Change in the Netherlands CPI (g) 2.7 % 2.0 % 1.3 % Change in the Spain CPI (g) 0.8 % 1.2 % 1.1 % __________
(a) We acquired 273 net-leased properties (in which we did not already have an
ownership interest) in the CPA:17 Merger in
(b) At
properties (of which we consolidated ten, with an average occupancy of 91.3%
at that date), and two hotel properties, with an average occupancy of 85.4%
for the year ended
( Note 20 ). During the second quarter of 2019, we entered into net lease
agreements for certain self-storage properties previously classified as
operating properties. As a result, during the year ended
we reclassified 27 consolidated self-storage properties from operating
properties to net leases ( Note 5 ). We acquired 44 self-storage properties
and one hotel in the CPA:17 Merger in
acquired two self-storage properties in
sold a hotel in
properties also included two hotel properties. At
operating properties consisted of two hotel properties.
(c) Excludes total square footage of 1.6 million for our operating properties at
(d) We acquired investments in
( Note 17 ).
(e) Amount for 2018 excludes properties acquired in the CPA:17 Merger ( Note
3 ). Amount for 2018 includes a property valued at
acquired in exchange for 23 properties leased to the same tenant in a
nonmonetary transaction ( Note 5 ). Amount for 2018 includes the
acquisition of an equity interest in two self-storage properties for
million ( Note 8 ).
(f) Amount for 2017 includes projects that were partially completed in 2016.
(g) Many of our lease agreements include contractual increases indexed to changes
in the CPI or similar indices in the jurisdictions in which the properties
are located.
W. P. Carey 2019 10-K - 31
--------------------------------------------------------------------------------
Net-Leased Portfolio
The tables below represent information about our net-leased portfolio at
Top Ten Tenants by ABR (dollars in thousands) Tenant/Lease Number of Weighted-Average Guarantor Description Properties ABR ABR Percent Lease Term (Years) U-Haul Moving Partners Inc. and Mercury Partners, Net lease self-storage LP properties in the U.S. 78$ 38,751 3.5 % 4.3 Hellweg Die Profi-Baumärkte Do-it-yourself retail GmbH & Co. KG (a) properties in Germany 42 33,338 3.0 % 17.2 State of Government office Andalucía (a) properties in Spain 70 28,393 2.5 % 15.0 Metro Cash & Business-to-business Carry Italia wholesale stores in Italy S.p.A. (a) and Germany 20 27,119 2.4 % 7.3 Automotive dealerships in Pendragon PLC (a) the United Kingdom 69 22,449 2.0 % 10.4 Marriott Net lease hotel Corporation properties in the U.S. 18 20,065 1.8 % 3.9 Extra Space Net lease self-storage Storage, Inc. properties in the U.S. 27 19,519 1.7 % 24.3 Nord Anglia K-12 private schools in Education, Inc. the U.S. 3 18,734 1.7 % 23.7 Forterra, Inc. Industrial properties in (a) (b) the U.S. and Canada 27 18,394 1.7 % 23.5 Advance Auto Distribution facilities Parts, Inc. in the U.S. 30 18,345 1.6 % 13.1 Total 384$ 245,107 21.9 % 13.3 __________
(a) ABR amounts are subject to fluctuations in foreign currency exchange rates.
(b) Of the 27 properties leased to Forterra, Inc., 25 are located in the United
States and two are located in Canada .
W. P. Carey 2019 10-K - 32
--------------------------------------------------------------------------------
Portfolio Diversification by Geography
(in thousands, except percentages)
Square Square Footage
Region ABR ABR Percent Footage (a) Percent
United States
South
Texas $ 99,611 8.9 % 11,411 8.2 %
Florida 47,079 4.2 % 4,060 2.9 %
Georgia 28,197 2.5 % 4,024 2.9 %
Tennessee 15,721 1.4 % 2,260 1.6 %
Alabama 15,273 1.4 % 2,397 1.7 %
Other (b) 12,622 1.1 % 2,263 1.6 %
Total South 218,503 19.5 % 26,415 18.9 %
East
North Carolina 32,648 2.9 % 8,052 5.7 %
Pennsylvania 25,079 2.3 % 3,609 2.6 %
Massachusetts 21,395 1.9 % 1,397 1.0 %
New Jersey 19,330 1.7 % 1,100 0.8 %
South Carolina 15,570 1.4 % 4,437 3.2 %
Virginia 13,449 1.2 % 1,430 1.0 %
New York 12,919 1.2 % 1,392 1.0 %
Kentucky 11,220 1.0 % 3,063 2.2 %
Other (b) 22,818 2.0 % 3,531 2.5 %
Total East 174,428 15.6 % 28,011 20.0 %
Midwest
Illinois 51,385 4.6 % 5,974 4.3 %
Minnesota 25,652 2.3 % 2,362 1.7 %
Indiana 18,002 1.6 % 2,827 2.0 %
Wisconsin 15,874 1.4 % 2,984 2.1 %
Ohio 15,125 1.4 % 3,153 2.2 %
Michigan 13,898 1.2 % 2,132 1.5 %
Other (b) 27,471 2.5 % 4,697 3.4 %
Total Midwest 167,407 15.0 % 24,129 17.2 %
West
California 60,393 5.4 % 5,162 3.7 %
Arizona 33,826 3.0 % 3,648 2.6 %
Colorado 11,413 1.0 % 1,008 0.7 %
Other (b) 44,575 4.0 % 4,210 3.0 %
Total West 150,207 13.4 % 14,028 10.0 %
United States Total 710,545 63.5 % 92,583 66.1 %
International
Germany 62,653 5.6 % 6,769 4.8 %
Poland 52,066 4.6 % 7,215 5.1 %
The Netherlands 50,698 4.5 % 6,862 4.9 %
Spain 49,089 4.4 % 4,226 3.0 %
United Kingdom 42,592 3.8 % 3,309 2.4 %
Italy 25,513 2.3 % 2,386 1.7 %
Croatia 16,513 1.5 % 1,794 1.3 %
Denmark 13,991 1.3 % 2,320 1.7 %
France 13,336 1.2 % 1,359 1.0 %
Canada 12,867 1.2 % 2,103 1.5 %
Finland 11,376 1.0 % 949 0.7 %
Other (c) 57,280 5.1 % 8,107 5.8 %
International Total 407,974 36.5 % 47,399 33.9 %
Total $ 1,118,519 100.0 % 139,982 100.0 %
W. P. Carey 2019 10-K - 33
--------------------------------------------------------------------------------
Portfolio Diversification by Property Type
(in thousands, except percentages)
Square Square Footage
Property Type ABR ABR Percent Footage (a) Percent
Industrial $ 268,434 24.0 % 47,996 34.3 %
Office 251,519 22.5 % 16,894 12.1 %
Warehouse 240,200 21.5 % 46,169 33.0 %
Retail (d) 198,686 17.7 % 17,556 12.5 %
Self Storage (net lease) 58,270 5.2 % 5,810 4.1 %
Other (e) 101,410 9.1 % 5,557 4.0 %
Total $ 1,118,519 100.0 % 139,982 100.0 %
__________(a) Includes square footage for any vacant properties.
(b) Other properties within South include assets in
properties within Midwest include assets in
in
and
(c) Includes assets in
(d) Includes automotive dealerships.
(e) Includes ABR from tenants with the following property types: education
facility, hotel (net lease), fitness facility, laboratory, theater, and
student housing (net lease).
W. P. Carey 2019 10-K - 34
--------------------------------------------------------------------------------
Portfolio Diversification by Tenant Industry
(in thousands, except percentages)
Square Footage
Industry Type ABR ABR Percent Square Footage Percent
Retail Stores (a) $ 233,346 20.9 % 30,993 22.1 %
Consumer Services 113,588 10.1 % 8,429 6.0 %
Automotive 72,679 6.5 % 12,166 8.7 %
Cargo Transportation 60,211 5.4 % 9,345 6.7 %
Business Services 60,073 5.4 % 5,272 3.8 %
Grocery 56,574 5.1 % 6,549 4.7 %
Healthcare and Pharmaceuticals 51,010 4.6 % 4,281 3.1 %
Hotel, Gaming, and Leisure 43,663 3.9 % 2,423 1.7 %
Construction and Building 42,290 3.8 % 7,673 5.5 %
Capital Equipment 39,686 3.5 % 6,550 4.7 %
Sovereign and Public Finance 39,259 3.5 % 3,364 2.4 %
Beverage, Food, and Tobacco 37,825 3.4 % 4,862 3.5 %
Containers, Packaging, and Glass 35,718 3.2 % 6,186 4.4 %
High Tech Industries 30,444 2.7 % 3,384 2.4 %
Durable Consumer Goods 30,214 2.7 % 6,870 4.9 %
Insurance 24,875 2.2 % 1,759 1.3 %
Banking 19,239 1.7 % 1,247 0.9 %
Telecommunications 18,803 1.7 % 1,732 1.2 %
Non-Durable Consumer Goods 15,088 1.3 % 5,194 3.7 %
Media: Advertising, Printing, and
Publishing 14,785 1.3 % 1,435 1.0 %
Aerospace and Defense 13,539 1.2 % 1,279 0.9 %
Media: Broadcasting and
Subscription 12,787 1.1 % 784 0.6 %
Wholesale 12,206 1.1 % 2,005 1.4 %
Chemicals, Plastics, and Rubber 12,037 1.1 % 1,403 1.0 %
Other (b) 28,580 2.6 % 4,797 3.4 %
Total $ 1,118,519 100.0 % 139,982 100.0 %
__________(a) Includes automotive dealerships.
(b) Includes ABR from tenants in the following industries: metals and mining, oil
and gas, environmental industries, electricity, consumer transportation,
forest products and paper, real estate, and finance. Also includes square
footage for vacant properties.
W. P. Carey 2019 10-K - 35
--------------------------------------------------------------------------------
Lease Expirations
(in thousands, except percentages and number of leases)
Number of
Tenants
Year of Lease Number of with
Expiration Leases Leases Square Footage
(a) Expiring Expiring ABR ABR Percent Square Footage Percent
2020 25 22 $ 19,294 1.7 % 2,050 1.5 %
2021 77 23 33,967 3.0 % 3,899 2.8 %
2022 41 32 58,261 5.2 % 5,377 3.8 %
2023 31 28 46,954 4.2 % 5,919 4.2 %
2024 76 49 111,646 10.0 % 13,961 10.0 %
2025 61 30 58,023 5.2 % 7,194 5.1 %
2026 32 20 49,824 4.5 % 7,354 5.2 %
2027 45 27 71,604 6.4 % 8,237 5.9 %
2028 43 25 61,774 5.5 % 4,867 3.5 %
2029 31 18 36,289 3.2 % 4,561 3.3 %
2030 28 22 73,580 6.6 % 6,638 4.7 %
2031 66 16 68,973 6.2 % 8,155 5.8 %
2032 35 14 43,105 3.9 % 5,914 4.2 %
2033 19 13 48,275 4.3 % 6,672 4.8 %
Thereafter
(>2033) 172 84 336,950 30.1 % 47,554 34.0 %
Vacant - - - - % 1,630 1.2 %
Total 782 $ 1,118,519 100.0 % 139,982 100.0 %
__________(a) Assumes tenants do not exercise any renewal options or purchase options.
Terms and Definitions Pro Rata Metrics -The portfolio information above contains certain metrics prepared under the pro rata consolidation method. We refer to these metrics as pro rata metrics. We have a number of investments, usually with our affiliates, in which our economic ownership is less than 100%. Under the full consolidation method, we report 100% of the assets, liabilities, revenues, and expenses of those investments that are deemed to be under our control or for which we are deemed to be the primary beneficiary, even if our ownership is less than 100%. Also, for all other jointly owned investments, which we do not control, we report our net investment and our net income or loss from that investment. Under the pro rata consolidation method, we present our proportionate share, based on our economic ownership of these jointly owned investments, of the portfolio metrics of those investments. Multiplying each of our jointly owned investments' financial statement line items by our percentage ownership and adding or subtracting those amounts from our totals, as applicable, may not accurately depict the legal and economic implications of holding an ownership interest of less than 100% in our jointly owned investments.
ABR - ABR represents contractual minimum annualized base rent for our net-leased
properties, net of receivable reserves as determined by GAAP, and reflects
exchange rates as of
Results of Operations
We operate in two reportable segments: Real Estate and Investment Management. We evaluate our results of operations with a primary focus on increasing and enhancing the value, quality, and number of properties in our Real Estate segment. We focus our efforts on accretive investing and improving portfolio quality through re-leasing efforts, including negotiation of lease renewals, or selectively selling assets in order to increase value in our real estate portfolio. Through our Investment Management segment, we expect to continue to earn fees and other income from the management of the portfolios of the remaining Managed Programs until those programs reach the end of their respective life cycles.W. P. Carey 2019 10-K - 36
--------------------------------------------------------------------------------
Real Estate - Property Level Contribution
The following table presents the Property level contribution for our consolidated net-leased and operating properties within our Real Estate segment, as well as a reconciliation to Net income from Real Estate attributable toW. P. Carey (in thousands): Years Ended December 31, 2019 2018 Change 2018 2017 ChangeExisting Net-Leased Properties Lease revenues$ 634,557 $ 624,698 $ 9,859 $ 624,698 $ 603,889 $ 20,809 Depreciation and amortization (221,176 ) (228,060 ) 6,884 (228,060 ) (222,308 ) (5,752 ) Reimbursable tenant costs (25,800 ) (21,445 ) (4,355 ) (21,445 ) (19,590 ) (1,855 ) Property expenses (19,373 ) (17,201 ) (2,172 ) (17,201 ) (14,223 ) (2,978 ) Property level contribution 368,208 357,992 10,216 357,992 347,768 10,224 Net-Leased Properties Acquired in the CPA:17 Merger Lease revenues 349,518 55,403 294,115 55,403 - 55,403
Depreciation and amortization (152,757 ) (22,136 ) (130,621 )
(22,136 ) - (22,136 ) Reimbursable tenant costs (27,618 ) (5,062 ) (22,556 ) (5,062 ) - (5,062 ) Property expenses (15,454 ) (2,685 ) (12,769 ) (2,685 ) - (2,685 )
Property level contribution 153,689 25,520 128,169
25,520 - 25,520 Recently Acquired Net-Leased Properties Lease revenues 90,382 29,198 61,184 29,198 495 28,703
Depreciation and amortization (37,438 ) (12,730 ) (24,708 )
(12,730 ) (174 ) (12,556 ) Reimbursable tenant costs (1,928 ) (406 ) (1,522 ) (406 ) (3 ) (403 ) Property expenses (1,367 ) (400 ) (967 ) (400 ) (78 ) (322 ) Property level contribution 49,649 15,662 33,987 15,662 240 15,422 Existing Operating Property Operating property revenues 15,001 15,179 (178 ) 15,179 14,554 625
Depreciation and amortization (1,515 ) (1,947 ) 432
(1,947 ) (1,714 ) (233 ) Operating property expenses (11,742 ) (11,607 ) (135 ) (11,607 ) (11,358 ) (249 ) Property level contribution 1,744 1,625 119 1,625 1,482 143 Operating Properties Acquired in the CPA:17 Merger Operating property revenues 20,787 6,391 14,396 6,391 - 6,391
Depreciation and amortization (19,502 ) (6,040 ) (13,462 )
(6,040 ) - (6,040 )
Operating property expenses (8,205 ) (2,258 ) (5,947 )
(2,258 ) - (2,258 )
Property level contribution (6,920 ) (1,907 ) (5,013 )
(1,907 ) - (1,907 )
Properties Sold or Held for Sale
Lease revenues 11,918 35,199 (23,281 ) 35,199 47,513 (12,314 )
Operating property revenues 14,432 6,502 7,930 6,502 16,008 (9,506 )
Depreciation and amortization (9,681 ) (15,259 ) 5,578 (15,259 ) (23,947 ) 8,688
Reimbursable tenant costs (230 ) (1,163 ) 933 (1,163 ) (1,931 ) 768
Property expenses (3,351 ) (2,487 ) (864 ) (2,487 ) (3,029 ) 542
Operating property expenses (18,068 ) (6,285 ) (11,783 ) (6,285 ) (12,068 ) 5,783
Property level contribution (4,980 ) 16,507 (21,487 ) 16,507 22,546 (6,039 )
Property Level Contribution 561,390 415,399 145,991 415,399 372,036 43,363
Add: Lease termination income
and other 36,268 6,555 29,713 6,555 4,749 1,806
Less other expenses:
General and administrative (56,796 ) (47,210 ) (9,586 ) (47,210 ) (39,002 ) (8,208 )
Impairment charges (32,539 ) (4,790 ) (27,749 ) (4,790 ) (2,769 ) (2,021 )
Stock-based compensation expense (13,248 ) (10,450 ) (2,798 ) (10,450 ) (6,960 ) (3,490 )
Corporate depreciation and
amortization (1,231 ) (1,289 ) 58 (1,289 ) (1,289 ) -
Merger and other expenses (101 ) (41,426 ) 41,325 (41,426 ) (605 ) (40,821 )
Other Income and Expenses
Interest expense (233,325 ) (178,375 ) (54,950 ) (178,375 ) (165,775 ) (12,600 )
Other gains and (losses) 30,251 30,015 236 30,015 (5,655 ) 35,670
Gain on sale of real estate, net 18,143 118,605 (100,462 ) 118,605 33,878 84,727
(Loss) gain on change in control
of interests (8,416 ) 18,792 (27,208 ) 18,792 - 18,792
Equity in earnings of equity
method investments in real
estate 2,361 13,341 (10,980 ) 13,341 13,068 273
(190,986 ) 2,378 (193,364 ) 2,378 (124,484 ) 126,862
Income before income taxes 302,757 319,167 (16,410 ) 319,167 201,676 117,491
(Provision for) benefit from
income taxes (30,802 ) 844 (31,646 ) 844 (1,743 ) 2,587
Net Income from Real Estate 271,955 320,011 (48,056 ) 320,011 199,933 120,078
Net loss (income) attributable
to noncontrolling interests 110 (12,775 ) 12,885 (12,775 ) (7,794 ) (4,981 )
Net Income from Real Estate
Attributable to W. P. Carey $ 272,065 $ 307,236 $ (35,171 ) $ 307,236 $ 192,139 $ 115,097 Also refer to Note 18 for a table presenting the comparative results of our Real Estate segment.
--------------------------------------------------------------------------------
Property level contribution is a non-GAAP measure that we believe to be a useful supplemental measure for management and investors in evaluating and analyzing the financial results of our net-leased and operating properties included in our Real Estate segment over time. Property level contribution presents our lease and operating property revenues, less property expenses, reimbursable tenant costs, and depreciation and amortization. Reimbursable tenant costs (within Real Estate revenues) are now included within Lease revenues in the consolidated statements of income ( Note 2 ). We believe that Property level contribution allows for meaningful comparison between periods of the direct costs of owning and operating our net-leased assets and operating properties. While we believe that Property level contribution is a useful supplemental measure, it should not be considered as an alternative to Net income from Real Estate attributable toW. P. Carey as an indication of our operating performance.
Existing Net-Leased Properties
Existing net-leased properties are those that we acquired or placed into service prior toJanuary 1, 2017 and that were not sold or held for sale during the periods presented. For the periods presented, there were 787 existing net-leased properties. 2019 vs. 2018 - For the year endedDecember 31, 2019 as compared to 2018, lease revenues from existing net-leased properties increased by$9.2 million due to new leases,$8.2 million related to scheduled rent increases,$4.4 million related to completed construction projects on existing properties, and$3.1 million primarily due to accelerated amortization of an above-market rent lease intangible during the prior year in connection with a lease restructuring. These increases were partially offset by decreases of$10.1 million as a result of the weakening of foreign currencies (primarily the euro) in relation to theU.S. dollar between the years and$7.3 million due to lease expirations or early termination options. Reimbursable tenant costs from existing net-leased properties increased primarily due to land lease payments for several properties recorded during the current year following the adoption of Accounting Standards Update 2016-02, Leases (Topic 842) as ofJanuary 1, 2019 ( Note 2 ), as a result of which we began recording such payments on a gross basis, as well as higher real estate taxes related to a domestic property. Depreciation and amortization expense from existing net-leased properties decreased primarily due to accelerated amortization of two in-place lease intangibles during the prior year in connection with lease terminations, as well as the weakening of foreign currencies (primarily the euro) in relation to theU.S. dollar between the years. Property expenses from existing net-leased properties increased primarily due to tenant vacancies during 2018 and 2019, which resulted in property expenses no longer being reimbursable.
Net-Leased Properties Acquired in the CPA:17 Merger
Net-leased properties acquired in the CPA:17 Merger onOctober 31, 2018 ( Note 3 ) consisted of 275 net-leased properties, as well as one property placed into service during the first quarter of 2019, which was an active build-to-suit project at the time of acquisition in the CPA:17 Merger. The 275 net-leased properties included 27 self-storage properties acquired in the CPA:17 Merger, which were reclassified from operating properties to net-leased properties during the year endedDecember 31, 2019 as a result of entering into net-lease agreements during the second quarter of 2019 ( Note 5 ). Net-leased properties acquired in the CPA:17 Merger contributed lease revenue, depreciation and amortization, and property expenses for a full year during 2019, as compared to two months during 2018.
Recently acquired net-leased properties are those that we acquired or placed into service subsequent toDecember 31, 2016 , excluding properties acquired in the CPA:17 Merger, and that were not sold or held for sale during the periods presented. SinceJanuary 1, 2017 , we acquired 40 investments, comprised of 121 properties (two of which we acquired in 2017, 75 of which we acquired in 2018, and 44 of which we acquired in 2019), and placed three properties into service (two in 2018 and one in 2019). 2019 vs. 2018 - For the year endedDecember 31, 2019 as compared to 2018, lease revenues increased by$23.3 million as a result of the 45 properties we acquired or placed into service during the year endedDecember 31, 2019 and$37.7 million as a result of the 77 properties we acquired or placed into service during the year endedDecember 31, 2018 . Depreciation and amortization expense increased by$8.8 million as a result of the 45 properties we acquired or placed into service during the year endedDecember 31, 2019 and$15.8 million as a result of the 77 properties we acquired or placed into service during the year endedDecember 31, 2018 .W. P. Carey 2019 10-K - 38
--------------------------------------------------------------------------------
Existing Operating Property
We have one hotel operating property with results of operations reflected in all
periods presented. In
For the year ended
Operating Properties Acquired in the CPA:17 Merger
Operating properties acquired in the CPA:17 Merger ( Note 3 ) consisted of ten self-storage properties (which excludes seven self-storage properties acquired in the CPA:17 Merger accounted for under the equity method). Aside from these ten operating properties, we acquired 27 self-storage properties in the CPA:17 Merger, which were reclassified from operating properties to net-leased properties during the year endedDecember 31, 2019 , as described in Net-Leased Properties Acquired in the CPA:17 Merger above. AtDecember 31, 2019 , we had one hotel operating property classified as held for sale ( Note 5 ), which was acquired in the CPA:17 Merger and is included in Properties Sold or Held for Sale below. Operating properties acquired in the CPA:17 Merger contributed operating property revenues, depreciation and amortization, and operating property expenses for a full year during 2019, as compared to two months during 2018.
Properties Sold or Held for Sale
During the year endedDecember 31, 2019 , we disposed of 22 properties, including the repayment of a loan receivable inJune 2019 ( Note 6 ). AtDecember 31, 2019 , we had one hotel operating property classified as held for sale ( Note 5 ), which we acquired in the CPA:17 Merger and sold inJanuary 2020 ( Note 20 ).
During the year ended
During the year ended
In addition to the impact on property level contribution related to properties we sold or classified as held for sale during the periods presented, we recognized gain (loss) on sale of real estate, lease termination income, impairment charges, and gain (loss) on extinguishment of debt. The impact of these transactions is described in further detail below and in Note 17 .
Other Revenues and Expenses
Lease Termination Income and Other
2019 - For the year endedDecember 31, 2019 , lease termination income and other was$36.3 million , primarily comprised of: (i) income of$9.1 million from receipt of proceeds from a bankruptcy claim on a prior tenant; (ii) income of$8.8 million related to a lease restructuring inMay 2019 that led to the recognition of$6.6 million in rent receipts during the third and fourth quarters of 2019 on claims that were previously deemed uncollectible, and a related value-added tax refund of$2.2 million that was recognized inMay 2019 ; (iii) interest income from our loans receivable totaling$6.2 million ; (iv) income of$6.2 million related to a lease termination and related master lease restructuring that occurred during the fourth quarter of 2019, for which payment will be received over the remaining lease term of properties held under that master lease; and (v) income substantially from a parking garage attached to one of our net-leased properties totaling$3.5 million . 2018 - For the year endedDecember 31, 2018 , lease termination income and other was$6.6 million , primarily comprised of lease termination income from a former tenant received in the third quarter of 2018 and income recognized during 2018 related to a lease termination that occurred during the fourth quarter of 2017. Lease termination income and other also consisted of interest income from our loans receivable. General and Administrative
General and administrative expenses recorded by our Real Estate segment are allocated based on time incurred by our personnel for the Real Estate and Investment Management segments.
--------------------------------------------------------------------------------
2019 vs. 2018 - For the year endedDecember 31, 2019 as compared to 2018, general and administrative expenses in our Real Estate segment increased by$9.6 million , primarily due to an increase in estimated time spent by management and personnel on Real Estate segment activities following the CPA:17 Merger ( Note 3 ). Impairment Charges
Our impairment charges are more fully described in Note 9 .
2019 - For the year endedDecember 31, 2019 , we recognized impairment charges totaling$32.5 million to reduce the carrying values of certain assets to their estimated fair values, consisting of the following:
•
investments in direct financing leases, primarily due to a lease
restructuring, based on the cash flows expected to be derived from the
underlying assets (discounted at the rate implicit in the lease), in
accordance with Accounting Standards Codification ("ASC") 310,
Receivables; and
•
( Note 20 ).
2018 - For the year ended December 31, 2018 , we recognized impairment charges
totaling $4.8 million to reduce the carrying values of certain assets to their
estimated fair values, consisting of the following:
•
•$1.0 million recognized on a property due to a tenant vacancy; this property was sold inJuly 2019 .
Stock-based Compensation Expense
For a description of our equity plans and awards, please see Note 15 .
2019 vs. 2018 - For the year endedDecember 31, 2019 as compared to 2018, stock-based compensation expense allocated to the Real Estate segment increased by$2.8 million , primarily due to an increase in time spent by management and personnel on Real Estate segment activities, partially offset by the impact of the modification of the restricted share units ("RSUs") and performance share units ("PSUs") held by our former chief executive officer in connection with his retirement inFebruary 2018 ( Note 15 ). Merger and Other Expenses
2018 - For the year ended
Interest Expense
2019 vs. 2018 - For the year endedDecember 31, 2019 as compared to 2018, interest expense increased by$55.0 million , primarily due to an increase of$47.8 million related to non-recourse mortgage loans assumed in the CPA:17 Merger ( Note 3 ). We incurred interest expense on such mortgage loans for a full year during 2019, as compared to two months during 2018. SinceJanuary 1, 2018 , we have (i) completed four offerings of senior unsecured notes totaling$2.1 billion (based on the exchange rate of the euro on the dates of issuance for our euro-denominated senior unsecured notes) with a weighted-average interest rate of 2.2% and (ii) reduced our mortgage debt outstanding by prepaying or repaying at maturity a total of$1.4 billion of non-recourse mortgage loans with a weighted-average interest rate of 4.3% ( Note 11 ). Our average outstanding debt balance was$6.3 billion and$4.9 billion during the years endedDecember 31, 2019 and 2018, respectively. Our weighted-average interest rate was 3.4% during both the years endedDecember 31, 2019 and 2018.
Other Gains and (Losses)
Other gains and (losses) primarily consists of gains and losses on foreign currency transactions, derivative instruments, and extinguishment of debt. For the year endedDecember 31, 2018 , gains and losses on foreign currency transactions were recognized on the remeasurement of certain of our euro-denominated unsecured debt instruments that were not designated as net investment hedges; such instruments were all designated as net investment hedges during the year endedDecember 31, 2019 ( Note 10 ). We also make certain foreign currency-denominated intercompany loans to a number of our foreign subsidiaries, most of which do not have theU.S. dollar as their functional currency. Remeasurement of foreign currency
--------------------------------------------------------------------------------
intercompany transactions that are scheduled for settlement, consisting primarily of accrued interest and short-term loans, are included in the determination of net income. In addition, we have certain derivative instruments, including common stock warrants and foreign currency forward and collar contracts, that are not designated as hedges for accounting purposes, for which realized and unrealized gains and losses are included in earnings. We also recognize unrealized gains and losses on movements in the fair value of certain investments within Other gains and (losses). The timing and amount of such gains or losses cannot always be estimated and are subject to fluctuation. 2019 - For the year endedDecember 31, 2019 , net other gains were$30.3 million . During the year, we recognized unrealized gains of$32.9 million related to an increase in the fair value of our investment in shares of a cold storage operator ( Note 9 ) and realized gains of$16.4 million related to the settlement of foreign currency forward contracts and foreign currency collars. These gains were partially offset by a net loss on extinguishment of debt totaling$14.8 million related to the prepayment of mortgage loans (primarily comprised of prepayment penalties) ( Note 11 ) and net realized and unrealized losses of$4.9 million on foreign currency transactions as a result of changes in foreign currency exchange rates. 2018 - For the year endedDecember 31, 2018 , net other gains were$30.0 million . During the year, we recognized net realized and unrealized gains of$21.3 million on foreign currency transactions as a result of changes in foreign currency exchange rates, realized gains of$9.5 million on the settlement of foreign currency forward contracts and foreign currency collars, and interest income of$2.5 million primarily related to our loans to affiliates ( Note 4 ). These gains were partially offset by a non-cash net loss on extinguishment of debt totaling$3.3 million related to the repayment of unsecured term loans and the payoff of certain mortgage loans.
Gain on Sale of Real Estate, Net
Gain on sale of real estate, net, consists of gain on the sale of properties that were disposed of during the years endedDecember 31, 2019 , 2018, and 2017. Our dispositions are more fully described in Note 17 . 2019 - During the year endedDecember 31, 2019 , we sold 14 properties for total proceeds of$308.0 million , net of selling costs, and recognized a net gain on these sales totaling$10.9 million (inclusive of income taxes totaling$1.2 million recognized upon sale). InJune 2019 , a loan receivable was repaid in full to us for$9.3 million , which resulted in a net loss of$0.1 million ( Note 6 ). InOctober 2019 , we transferred ownership of six properties and the related non-recourse mortgage loan, which had an aggregate asset carrying value of$42.3 million and a mortgage carrying value of$43.4 million (including a$13.8 million discount on the mortgage loan), respectively, on the date of transfer, to the mortgage lender, resulting in a net gain of$8.3 million (outstanding principal balance was$56.4 million and we wrote off$5.6 million of accrued interest payable). In addition, inDecember 2019 , we transferred ownership of a property and the related non-recourse mortgage loan, which had an aggregate asset carrying value of$10.4 million and a mortgage carrying value of$8.2 million (including a$0.5 million discount on the mortgage loan), respectively, on the date of transfer, to the mortgage lender, resulting in a net loss of$1.0 million (outstanding principal balance was$8.7 million and we wrote off$0.9 million of accrued interest payable). 2018 - During the year endedDecember 31, 2018 , we sold 49 properties for total proceeds of$431.6 million , net of selling costs, and recognized a net gain on these sales totaling$112.3 million (inclusive of income taxes totaling$21.8 million recognized upon sale). Disposition activity included the sale of one of our hotel operating properties inApril 2018 . In addition, inJune 2018 , we completed a nonmonetary transaction, in which we disposed of 23 properties in exchange for the acquisition of one property leased to the same tenant. This swap was recorded based on the fair value of the property acquired of$85.5 million , which resulted in a net gain of$6.3 million , and was a non-cash investing activity ( Note 5 ).
(Loss) Gain on Change in Control of Interests
2019 - During the third quarter of 2019, we identified certain measurement period adjustments that impacted the provisional accounting for an investment we acquired in the CPA:17 Merger ( Note 3 ), in which we had a joint interest and accounted for under the equity method pre-merger. As a result, we recorded a loss on change in control of interests of$8.4 million during the year endedDecember 31, 2019 , reflecting adjustments to the difference between our carrying value and the preliminary estimated fair value of this former equity interest onOctober 31, 2018 ( Note 6 ). Subsequent to the CPA:17 Merger, we consolidated this wholly owned investment.
--------------------------------------------------------------------------------
2018 - In connection with the CPA:17 Merger, we acquired the remaining interests in six investments in which we already had a joint interest and accounted for under the equity method. Due to the change in control of these six jointly owned investments, we recorded a gain on change in control of interests of$18.8 million reflecting the difference between our carrying values and the preliminary estimated fair values of our previously held equity interests onOctober 31, 2018 . Subsequent to the CPA:17 Merger, we consolidated these wholly owned investments ( Note 3 ).
Equity in Earnings of Equity Method Investments in Real Estate
In connection with the CPA:17 Merger ( Note 3 ), we acquired the remaining interests in six investments, in which we already had a joint interest and accounted for under the equity method, and equity interests in seven unconsolidated investments ( Note 8 ). InNovember 2018 , we acquired an equity interest in two self-storage properties ( Note 8 ); this acquisition was related to a jointly owned investment in seven self-storage properties that we acquired in the CPA:17 Merger. InFebruary 2019 , we received full repayment of our preferred equity interest in an investment, which is now retired ( Note 8 ). The following table presents the details of our Equity in earnings of equity method investments in real estate (in thousands): Years Ended
2019 2018 2017
Equity in earnings of equity method investments in real estate: Equity investments acquired in the CPA:17 Merger$ 2,510 $ 342 $ - Recently acquired equity investment (409 ) (115 ) - Retired equity investment 260 1,275 1,275 Equity investments consolidated after the CPA:17 Merger - 11,839 11,793 Equity in earnings of equity method investments in real estate$ 2,361 $ 13,341 $ 13,068
(Provision for) Benefit from Income Taxes
2019 vs. 2018 - For the year endedDecember 31, 2019 , we recorded a provision for income taxes of$30.8 million , compared to a benefit from income taxes of$0.8 million recognized during the year endedDecember 31, 2018 within our Real Estate segment. For the year endedDecember 31, 2019 as compared to 2018, provision for income taxes related to properties acquired in the CPA:17 Merger onOctober 31, 2018 ( Note 3 ) increased by$19.6 million , since we owned the properties for a full year in 2019 compared to two months in 2018. In addition, during the year endedDecember 31, 2019 , we recognized deferred tax expenses totaling approximately$8.6 million as a result of the increase in the fair value of our investment in shares of a cold storage operator, as described above under Other Gains and (Losses). Also, during the year endedDecember 31, 2018 , we recognized a deferred tax benefit of approximately$6.2 million as a result of the release of a deferred tax liability relating to a property holding company that was no longer required due to a change in tax classification.
Net Loss (Income) Attributable to Noncontrolling Interests
2019 vs. 2018 - For the year endedDecember 31, 2019 , we recorded loss attributable to noncontrolling interests of$0.1 million , compared to income attributable to noncontrolling interests of$12.8 million for the year endedDecember 31, 2018 . During the prior year, through the CPA:17 Merger onOctober 31, 2018 ( Note 3 ), we consolidated seven less-than-wholly-owned investments, for which the remaining interests were owned by CPA:17 - Global or a third party. Following the CPA:17 Merger, we consolidate two less-than-wholly-owned investments (for which the remaining interest was owned by a third party), resulting in a decrease in amounts attributable to noncontrolling interests during the current year as compared to the prior year.
--------------------------------------------------------------------------------
Investment Management
We earn revenue as the advisor to the Managed Programs. For the periods presented, we acted as advisor to the following affiliated Managed Programs: CPA:17 - Global (throughOctober 31, 2018 ), CPA:18 - Global, CWI 1, CWI 2, CCIF (throughSeptember 10, 2017 ), and CESH. The CWI 1 and CWI 2 Proposed Merger is expected to close in the first quarter of 2020, subject to the approval of stockholders of each of CWI 1 and CWI 2, among other conditions. Each of CWI 1 and CWI 2 has scheduled a special meeting of stockholders forMarch 26, 2020 . Immediately following the closing of the CWI 1 and CWI 2 Proposed Merger, the advisory agreements with each of CWI 1 and CWI 2 will terminate and CWI 2 will internalize the management services currently provided by us ( Note 4 ). In connection with the CWI 1 and CWI 2 Proposed Merger, we expect to record an impairment charge on a significant portion of goodwill within our Investment Management segment, which had a carrying value of$63.6 million as ofDecember 31, 2019 . Our accounting policies for evaluating impairment of goodwill are described in Note 2 . Upon completion of the CPA:17 Merger onOctober 31, 2018 ( Note 3 ), the advisory agreements with CPA:17 - Global were terminated, and we ceased earning revenue from CPA:17 - Global. We no longer raise capital for new or existing funds, but we currently expect to continue to manage all existing Managed Programs and earn the various fees described below through the end of their respective life cycles ( Note 1 , Note 4 ). As ofDecember 31, 2019 , we managed total assets of approximately$7.5 billion on behalf of the remaining Managed Programs.W. P. Carey 2019 10-K - 43
--------------------------------------------------------------------------------
Below is a summary of comparative results of our Investment Management segment
(in thousands):
Years Ended December 31,
2019 2018 Change 2018 2017 Change
Revenues
Asset management revenue
CPA:17 - Global $ - $ 24,884 $ (24,884 ) $ 24,884 $ 29,363 $ (4,479 )
CPA:18 - Global 11,539 12,087 (548 ) 12,087 11,293 794
CWI 1 14,052 14,136 (84 ) 14,136 14,499 (363 )
CWI 2 10,734 10,400 334 10,400 8,669 1,731
CCIF - - - - 5,229 (5,229 )
CESH 2,807 2,049 758 2,049 1,072 977
39,132 63,556 (24,424 ) 63,556 70,125 (6,569 )
Reimbursable costs from
affiliates
CPA:17 - Global - 6,233 (6,233 ) 6,233 9,775 (3,542 )
CPA:18 - Global 3,934 4,207 (273 ) 4,207 4,055 152
CWI 1 6,936 6,653 283 6,653 6,039 614
CWI 2 4,364 4,171 193 4,171 22,331 (18,160 )
CCIF - - - - 6,591 (6,591 )
CESH 1,313 661 652 661 2,654 (1,993 )
16,547 21,925 (5,378 ) 21,925 51,445 (29,520 )
Structuring and other advisory
revenue
CPA:17 - Global - 1,184 (1,184 ) 1,184 9,103 (7,919 )
CPA:18 - Global 2,322 18,900 (16,578 ) 18,900 3,999 14,901
CWI 1 1,365 953 412 953 4,976 (4,023 )
CWI 2 225 245 (20 ) 245 10,889 (10,644 )
CESH 312 (156 ) 468 (156 ) 6,127 (6,283 )
4,224 21,126 (16,902 ) 21,126 35,094 (13,968 )
Dealer manager fees - - - - 4,430 (4,430 )
59,903 106,607 (46,704 ) 106,607 161,094 (54,487 )
Operating Expenses
General and administrative 18,497 21,127 (2,630 ) 21,127 31,889 (10,762 )
Reimbursable costs from
affiliates 16,547 21,925 (5,378 ) 21,925 51,445 (29,520 )
Subadvisor fees 7,579 9,240 (1,661 ) 9,240 13,600 (4,360 )
Stock-based compensation expense 5,539 7,844 (2,305 ) 7,844 11,957 (4,113 )
Depreciation and amortization 3,835 3,979 (144 ) 3,979 3,902 77
Restructuring and other
compensation - - - - 9,363 (9,363 )
Dealer manager fees and expenses - - - - 6,544 (6,544 )
51,997 64,115 (12,118 ) 64,115 128,700 (64,585 )
Other Income and Expenses
Equity in earnings of equity
method investments in the
Managed Programs 20,868 48,173 (27,305 ) 48,173 51,682 (3,509 )
Other gains and (losses) 1,224 (102 ) 1,326 (102 ) 2,042 (2,144 )
Gain on change in control of
interests - 29,022 (29,022 ) 29,022 - 29,022
22,092 77,093 (55,001 ) 77,093 53,724 23,369
Income before income taxes 29,998 119,585 (89,587 ) 119,585 86,118 33,467
Benefit from (provision for)
income taxes 4,591 (15,255 ) 19,846 (15,255 ) (968 ) (14,287 )
Net Income from Investment
Management 34,589 104,330 (69,741 ) 104,330 85,150 19,180
Net income attributable to
noncontrolling interests (1,411 ) - (1,411 ) - - -
Net Income from Investment
Management Attributable to W. P.
Carey $ 33,178 $ 104,330 $ (71,152 ) $ 104,330 $ 85,150 $ 19,180
W. P. Carey 2019 10-K - 44
--------------------------------------------------------------------------------
Asset Management Revenue
During the periods presented, we earned asset management revenue from (i) CPA:17 - Global, prior to the CPA:17 Merger, and CPA:18 - Global based on the value of their real estate-related assets under management, (ii) the CWI REITs based on the value of their lodging-related assets under management, and (iii) CESH based on its gross assets under management at fair value. We also earned asset management revenue from CCIF, prior to our resignation as its advisor in the third quarter of 2017, based on the average of its gross assets under management at fair value, which was payable in cash. Asset management revenue may increase or decrease depending upon changes in the Managed Programs' asset bases as a result of purchases, sales, or changes in the appraised value of the real estate-related and lodging-related assets in their investment portfolios. For 2019, (i) we received asset management fees from CPA:18 - Global 50% in cash and 50% in shares of its common stock, (ii) we received asset management fees from the CWI REITs in shares of their common stock, and (iii) we received asset management fees from CESH in cash. As a result of the CPA:17 Merger ( Note 3 ), we no longer receive asset management revenue from CPA:17 - Global. 2019 vs. 2018 - For the year endedDecember 31, 2019 as compared to 2018, asset management revenue decreased by$24.4 million , primarily as a result of the cessation of asset management fees earned from CPA:17 - Global after the CPA:17 Merger onOctober 31, 2018 ( Note 3 ).
Reimbursable Costs from Affiliates
Reimbursable costs from affiliates represent costs incurred by us on behalf of the Managed Programs ( Note 4 ). Following the CPA:17 Merger ( Note 3 ), we no longer receive reimbursement of certain personnel costs and overhead costs from CPA:17 - Global, which totaled$6.2 million for the year endedDecember 31, 2018 .
Structuring and Other Advisory Revenue
We earn structuring revenue when we structure investments and debt placement transactions for the Managed Programs. Structuring revenue is dependent on investment activity, which is subject to significant period-to-period variation, and is expected to continue to decline on an annual basis in future periods because the Managed Programs are fully invested, we no longer raise capital for new or existing funds, and as a result of the CPA:17 Merger. Going forward, investment activity for the Managed Programs will be generally limited to capital recycling. In addition, we may earn disposition revenue when we complete dispositions for the Managed Programs. 2019 vs. 2018 - For the year endedDecember 31, 2019 as compared to 2018, structuring revenue decreased by$16.9 million . Structuring and other advisory revenue from CPA:18 - Global decreased by$16.6 million as a result of lower investment and debt placement volume during 2019. Structuring revenue from CPA:18 - Global for the year endedDecember 31, 2018 includes a$2.6 million reversal of an adjustment recorded in 2017 related to a development deal for one of the Managed Programs, in accordance with ASC 605, Revenue Recognition.
General and Administrative
General and administrative expenses recorded by our Investment Management segment are allocated based on time incurred by our personnel for the Real Estate and Investment Management segments. As discussed in Note 4 , certain personnel costs and overhead costs are charged to CPA:18 - Global based on the trailing 12-month reported revenues of the Managed Programs and us. We allocate certain personnel and overhead costs to the CWI REITs and CESH based on the time incurred by our personnel.
2019 vs. 2018 - For the year ended
Subadvisor Fees
Pursuant to the terms of the subadvisory agreements we have with the third-party subadvisors in connection with both CWI 1 and CWI 2, we pay a subadvisory fee equal to 20% of the amount of fees paid to us by CWI 1 and 25% of the amount of fees paid to us by CWI 2, including but not limited to: acquisition fees, asset management fees, loan refinancing fees, property management fees, and subordinated disposition fees, each as defined in the advisory agreements we have with each of CWI 1 and CWI 2. We also pay to each subadvisor 20% and 25% of the net proceeds resulting from any sale, financing, or recapitalization or sale of securities of CWI 1 and CWI 2, respectively, by us, the advisor. In addition, in connection with theW. P. Carey 2019 10-K - 45
--------------------------------------------------------------------------------
multi-family properties acquired on behalf of CPA:18 - Global, we entered into agreements with third-party advisors for the day-to-day management of the properties, for which we paid 100% of asset management fees paid to us by CPA:18 - Global, as well as disposition fees. In 2018, CPA:18 - Global sold five of its six multi-family properties and inJanuary 2019 CPA:18 - Global sold its remaining multi-family property. We also terminated the related subadvisory agreements, so subadvisor fees related to CPA:18 - Global have ceased.
2019 vs. 2018 - For the year ended
Stock-based Compensation Expense
For a description of our equity plans and awards, please see Note 15 .
2019 vs. 2018 - For the year endedDecember 31, 2019 as compared to 2018, stock-based compensation expense allocated to our Investment Management segment decreased by$2.3 million , primarily due to the modification of RSUs and PSUs in connection with the retirement of our former chief executive officer inFebruary 2018 ( Note 15 ), as well as a decrease in time spent by management and personnel on Investment Management segment activities.
Equity in Earnings of Equity Method Investments in the Managed Programs
Equity in earnings of equity method investments in the Managed Programs is
recognized in accordance with GAAP ( Note 8 ). In addition, we are entitled to
receive distributions of Available Cash ( Note 4 ) from the operating
partnerships of each of the Managed REITs. The net income of our unconsolidated
investments fluctuates based on the timing of transactions, such as new leases
and property sales, as well as the level of impairment charges. The following
table presents the details of our Equity in earnings of equity method
investments in the Managed Programs (in thousands):
Years Ended
2019 2018 2017
Equity in earnings of equity method investments in the Managed Programs: Equity in (losses) earnings of equity method investments in the Managed Programs (a)$ (621 ) $ 1,564 $ 3,820 Distributions of Available Cash: (b) CPA:17 - Global (a) - 26,308 26,675 CPA:18 - Global 8,132 9,692 8,650 CWI 1 7,095 5,142 7,459 CWI 2 6,262 5,467 5,078 Equity in earnings of equity method investments in the Managed Programs$ 20,868 $ 48,173 $ 51,682 __________
(a) As a result of the completion of the CPA:17 Merger on
( Note 3 ), we no longer recognize equity income from our investment in
shares of common stock of CPA:17 - Global or receive distributions of
Available Cash from CPA:17 - Global.
(b) We are entitled to receive distributions of up to 10% of the Available Cash
from the operating partnerships of each of the Managed REITs, as defined in
their respective operating partnership agreements ( Note 4 ). We are
required to pay 20% and 25% of such distributions to the subadvisors of CWI 1
and CWI 2, respectively. Distributions of Available Cash received and earned
from the Managed REITs fluctuate based on the timing of certain events,
including acquisitions, dispositions, and weather-related disruptions.
Gain on Change in Control of Interests
2018 - In connection with the CPA:17 Merger, we recognized a gain on change in control of interests of$29.0 million within our Investment Management segment related to the difference between the carrying value and the preliminary estimated fair value of our previously held equity interest in shares of CPA:17 - Global's common stock ( Note 3 ).
--------------------------------------------------------------------------------
Benefit from (Provision for) Income Taxes
2019 vs. 2018 - For the year endedDecember 31, 2019 , we recorded a benefit from income taxes of$4.6 million , compared to a provision for income taxes of$15.3 million recognized during the year endedDecember 31, 2018 , within our Investment Management segment, primarily as a result of lower pre-tax income within that segment, as well as a current tax benefit of approximately$6.3 million recognized during the current year due to a change in tax position for state and local taxes. In addition, we incurred one-time current taxes during the prior year upon the recognition of taxable income associated with the accelerated vesting of shares previously issued by CPA:17 - Global to us for asset management services performed, in connection with the CPA:17 Merger.
Liquidity and Capital Resources
Sources and Uses of Cash During the Year
We use the cash flow generated from our investments primarily to meet our operating expenses, service debt, and fund dividends to stockholders. Our cash flows fluctuate periodically due to a number of factors, which may include, among other things: the timing of our equity and debt offerings; the timing of purchases and sales of real estate; the timing of the repayment of mortgage loans and receipt of lease revenues; the timing and amount of other lease-related payments; the receipt of the asset management fees in either shares of the common stock or limited partnership units of the Managed Programs or cash; the timing of distributions from equity investments in the Managed Programs and real estate; the receipt of distributions of Available Cash from the Managed REITs; the timing of settlement of foreign currency transactions; and changes in foreign currency exchange rates. We no longer receive certain fees and distributions from CPA:17 - Global following the completion of the CPA:17 Merger onOctober 31, 2018 ( Note 3 ). Despite these fluctuations, we believe that we will generate sufficient cash from operations to meet our normal recurring short-term and long-term liquidity needs. We may also use existing cash resources, available capacity under our Amended Credit Facility, proceeds from dispositions of properties, net contributions from noncontrolling interests, and the issuance of additional debt or equity securities, such as sales of our stock through our ATM Program, in order to meet these needs. We assess our ability to access capital on an ongoing basis. Our sources and uses of cash during the period are described below.
2019
Operating Activities - Net cash provided by operating activities increased by$302.9 million during 2019 as compared to 2018, primarily due to an increase in cash flow generated from properties acquired during 2018 and 2019, including properties acquired in the CPA:17 Merger, as well as proceeds from a bankruptcy claim on a prior tenant received during 2019 ( Note 5 ), partially offset by merger expenses recognized in 2018 related to the CPA:17 Merger ( Note 3 ) and a decrease in cash flow as a result of property dispositions during 2018 and 2019, as well as an increase in interest expense, primarily due to the assumption of non-recourse mortgage loans in the CPA:17 Merger and the issuance of senior unsecured notes inMarch 2018 ,October 2018 ,June 2019 , andSeptember 2019 .
Investing Activities - Our investing activities are generally comprised of real estate-related transactions (purchases and sales) and capitalized property-related costs.
During 2019, we used$717.7 million to acquire 23 investments ( Note 5 ). We sold 14 properties for net proceeds totaling$308.0 million ( Note 17 ). We also used$165.5 million to fund construction projects and other capital expenditures on certain properties within our real estate portfolio. We used$36.8 million to fund short-term loans to the Managed Programs, while$46.6 million of such loans were repaid during the year ( Note 4 ). We received$19.7 million from the repayment of loans receivable ( Note 6 ). We also received$19.4 million in distributions from equity method investments in the Managed Programs and real estate in excess of cumulative equity income and$15.0 million in proceeds from the full repayment of a preferred equity interest ( Note 8 ).W. P. Carey 2019 10-K - 47
--------------------------------------------------------------------------------
Financing Activities - During 2019, gross borrowings under our Senior Unsecured Credit Facility were$1.3 billion and repayments were$1.2 billion ( Note 11 ). We made prepaid and scheduled non-recourse mortgage loan principal payments of$1.0 billion and$210.4 million , respectively. Additionally, we received$870.6 million in aggregate net proceeds from the issuances of the 3.850% Senior Notes due 2029 inJune 2019 and the 1.350% Senior Notes due 2028 inSeptember 2019 , which we used primarily to pay down the outstanding balance on our Unsecured Revolving Credit facility and to repay certain non-recourse mortgage loans ( Note 11 ). In connection with the issuances of these senior unsecured notes ( Note 11 ), we incurred financing costs totaling$6.7 million . We paid dividends to stockholders totaling$704.4 million related to the fourth quarter of 2018 and the first, second, and third quarters of 2019. We also received$523.3 million in net proceeds from the issuance of shares under our ATM Program ( Note 14 ). 2018 Operating Activities - Net cash provided by operating activities decreased by$11.5 million during 2018 as compared to 2017, primarily due to merger expenses recognized in 2018 related to the CPA:17 Merger ( Note 3 ), a decrease in structuring revenue received from the Managed Programs as a result of their lower investment volume during 2018, an increase in interest expense, and a decrease in cash flow as a result of property dispositions during 2017 and 2018. These decreases were partially offset by an increase in cash flow generated from properties acquired during 2017 and 2018, including properties acquired in the CPA:17 Merger ( Note 3 ). Investing Activities - Our investing activities are generally comprised of real estate-related transactions (purchases and sales) and capitalized property-related costs. In connection with the CPA:17 Merger, we acquired$113.6 million of cash and restricted cash, and paid$1.7 million in cash for the fractional shares of CPA:17 - Global. During 2018, we used$719.5 million to acquire 14 investments ( Note 5 ). We sold 49 properties for net proceeds totaling$431.6 million ( Note 17 ). We also used$107.7 million to fund construction projects and other capital expenditures on certain properties within our real estate portfolio. We used$10.0 million to fund short-term loans to the Managed Programs, while$37.0 million of such loans were repaid during the year ( Note 4 ). We also made$18.2 million in contributions to jointly owned investments, primarily comprised of$17.9 million to acquire a 90% noncontrolling interest in two self-storage properties ( Note 8 ), and received$16.4 million in distributions from equity method investments in the Managed Programs and real estate in excess of cumulative equity income. Financing Activities - During 2018, gross borrowings under our Senior Unsecured Credit Facility were$1.4 billion , including amounts borrowed to repay in full$180.3 million outstanding under CPA:17 - Global's senior credit facility in connection with the CPA:17 Merger ( Note 3 ), and repayments were$2.1 billion ( Note 11 ). We received the equivalent of approximately$1.2 billion in aggregate net proceeds from the issuance of (i) €500.0 million of 2.125% Senior Notes due 2027 inMarch 2018 and (ii) €500.0 million of 2.250% Senior Notes due 2026 inOctober 2018 , which we used to repay in full the outstanding balance on our euro-denominated unsecured term loans inMarch 2018 , prepay certain euro-denominated non-recourse mortgage loans, and pay down the euro-denominated outstanding balance under our Unsecured Revolving Credit Facility at the respective times ( Note 11 ). In connection with the issuances of these Senior Unsecured Notes ( Note 11 ), we incurred financing costs totaling$8.1 million . Additionally, we paid dividends to stockholders totaling$440.4 million related to the fourth quarter of 2017 and the first, second, and third quarters of 2018; and also paid distributions of$18.2 million to affiliates that hold noncontrolling interests in various entities with us. We received$287.5 million in net proceeds from the issuance of shares under our ATM Program ( Note 14 ). We also made scheduled and prepaid non-recourse mortgage loan principal payments of$100.4 million and$207.5 million , respectively.
--------------------------------------------------------------------------------
Summary of Financing
The table below summarizes our Senior Unsecured Notes, our non-recourse mortgages, and our Senior Unsecured Credit Facility (dollars in thousands):
December 31,
2019 2018
Carrying Value
Fixed rate:
Senior Unsecured Notes (a) $ 4,390,189 $ 3,554,470
Non-recourse mortgages (a) 1,232,898 1,795,460
5,623,087 5,349,930
Variable rate:
Unsecured Revolving Credit Facility 201,267 91,563
Non-recourse mortgages (a): Amount subject to interest rate swaps and caps 157,518 561,959 Floating interest rate mortgage loans
72,071 375,239
430,856 1,028,761
$ 6,053,943 $ 6,378,691
Percent of Total Debt
Fixed rate 93 % 84 %
Variable rate 7 % 16 %
100 % 100 %
Weighted-Average Interest Rate at End of Year
Fixed rate 3.3 % 3.7 %
Variable rate (b) 2.1 % 3.4 %
Total debt 3.2 % 3.6 %
____________
(a) Aggregate debt balance includes unamortized discount, net, totaling
million and
unamortized deferred financing costs totaling
as of
(b) The impact of our derivative instruments is reflected in the weighted-average
interest rates.
Cash Resources
At
• cash and cash equivalents totaling
million, at then-current exchange rates, was held in foreign subsidiaries,
and we could be subject to restrictions or significant costs should we
decide to repatriate these amounts;
• our Unsecured Revolving Credit Facility, with available capacity of
billion; and
• unleveraged properties that had an aggregate asset carrying value of
billion at
would be able to obtain financing for these properties.
We have also accessed the capital markets through additional debt and equity offerings, such as (i) the$325.0 million of 3.850% Senior Notes due 2029 that we issued inJune 2019 ( Note 11 ), (ii) the €500.0 million of 1.350% Senior Notes due 2028 that we issued inSeptember 2019 ( Note 11 ), and (iii) the 6,672,412 shares of common stock that we issued under our ATM Programs during the year endedDecember 31, 2019 at a weighted-average price of$79.70 per share, for net proceeds of$523.3 million . As ofDecember 31, 2019 ,$616.6 million remained available for issuance under our ATM Program ( Note 14 ).
Our cash resources can be used for working capital needs and other commitments and may be used for future investments.
--------------------------------------------------------------------------------
Cash Requirements and Liquidity
During the next 12 months, we expect that our cash requirements will include: payments to acquire new investments; funding capital commitments such as construction projects; paying dividends to our stockholders; paying distributions to our affiliates that hold noncontrolling interests in entities we control; making scheduled interest payments on the Senior Unsecured Notes, scheduled principal and balloon payments on our mortgage loan obligations, and prepayments of certain of our mortgage loan obligations; making loans to certain of the Managed Programs ( Note 4 ); and other normal recurring operating expenses. We expect to fund these cash requirements through cash generated from operations, cash received from dispositions of properties, the use of our cash reserves or unused amounts on our Unsecured Revolving Credit Facility, issuances of shares through our ATM Program, and/or additional equity or debt offerings. OnFebruary 20, 2020 , we entered into our Amended Credit Facility and increased the capacity of our unsecured line of credit to$2.1 billion , which is comprised of a$1.8 billion revolving line of credit, a £150.0 million term loan, and a$105.0 million delayed draw term loan, all of which will mature in five years ( Note 20 ). Our liquidity would be adversely affected by unanticipated costs and greater-than-anticipated operating expenses. To the extent that our working capital reserve is insufficient to satisfy our cash requirements, additional funds may be provided from cash from operations to meet our normal recurring short-term and long-term liquidity needs. We may also use existing cash resources, available capacity under our Unsecured Revolving Credit Facility, net contributions from noncontrolling interests, mortgage loan proceeds, and the issuance of additional debt or equity securities, such as through our ATM Program, to meet these needs.
Off-Balance Sheet Arrangements and Contractual Obligations
The table below summarizes our debt, off-balance sheet arrangements, and other contractual obligations (primarily our capital commitments) atDecember 31, 2019 and the effect that these arrangements and obligations are expected to have on our liquidity and cash flow in the specified future periods (in thousands): Less than More than Total 1 year 1-3 years 3-5 years 5 years Senior Unsecured Notes - principal (a) (b)$ 4,433,500 $ - $ -$ 1,623,400 $ 2,810,100 Non-recourse mortgages - principal (a) 1,469,250 164,682 704,587 460,895 139,086 Senior Unsecured Credit Facility - principal (c) 201,267 - 201,267 - - Interest on borrowings (d) 935,444 193,812 343,555 233,263 164,814 Capital commitments and tenant expansion allowances (e) 367,001 271,876 85,607 3,000 6,518 Lease commitments (f) 96,147 - 10,469 11,965 73,713$ 7,502,609 $ 630,370 $ 1,345,485 $ 2,332,523 $ 3,194,231 ___________
(a) Excludes unamortized deferred financing costs totaling
unamortized discount on the Senior Unsecured Notes of
aggregate, and the aggregate unamortized fair market value discount of
million, primarily resulting from the assumption of property-level debt in
connection with business combinations, including the CPA:17 Merger ( Note
3 ).
(b) Our Senior Unsecured Notes are scheduled to mature from 2023 through 2029
( Note 11 ).
(c) Our Unsecured Revolving Credit Facility was scheduled to mature on February
22, 2021. However, on
Facility and increased the capacity of our unsecured line of credit to
billion, which is comprised of a
a £150.0 million term loan, and a
of which will mature in five years ( Note 20 ).
(d) Interest on unhedged variable-rate debt obligations was calculated using the
applicable annual variable interest rates and balances outstanding at
(e) Capital commitments include (i)
projects, including
has not exercised the associated construction option, (ii)
related to purchase commitments, and (iii)
tenant improvements, including certain discretionary commitments.
(f) Represents a contractual rent commitment to lease office space. The lease was
executed during 2019 but does not commence until the second quarter of 2020;
therefore, it is not reflected as an office lease right-of-use asset ( Note
2 ) on our consolidated balance sheets as of December 31, 2019 .
W. P. Carey 2019 10-K - 50
--------------------------------------------------------------------------------
Amounts in the table above that relate to our foreign operations are based on the exchange rate of the local currencies atDecember 31, 2019 , which consisted primarily of the euro. AtDecember 31, 2019 , we had no material capital lease obligations for which we were the lessee, either individually or in the aggregate.
Environmental Obligations
In connection with the purchase of many of our properties, we required the sellers to perform environmental reviews. We believe, based on the results of these reviews, that our properties were in substantial compliance with federal, state, and foreign environmental statutes at the time the properties were acquired. However, portions of certain properties have been subject to some degree of contamination, principally in connection with leakage from underground storage tanks, surface spills, or other on-site activities. In most instances where contamination has been identified, tenants are actively engaged in the remediation process and addressing identified conditions. Sellers are generally subject to environmental statutes and regulations regarding the discharge of hazardous materials and any related remediation obligations, and we frequently require sellers to address them before closing or obtain contractual protection (e.g., indemnities, cash reserves, letters of credit, or other instruments) from sellers when we acquire a property. In addition, certain of our leases require tenants to indemnify us from all liabilities and losses related to the leased properties and the provisions of such indemnifications specifically address environmental matters. Such leases generally include provisions that allow for periodic environmental assessments, paid for by the tenant, and allow us to extend leases until such time as a tenant has satisfied its environmental obligations. Certain of our leases allow us to require financial assurances from tenants, such as performance bonds or letters of credit, if the costs of remediating environmental conditions are, in our estimation, in excess of specified amounts. With respect to our operating properties or vacant net lease properties, which are not subject to net lease arrangements, there is no tenant to provide for indemnification, so we may be liable for costs associated with environmental contamination in the event any such circumstances arise. However, we believe that the ultimate resolution of any environmental matters should not have a material adverse effect on our financial condition, liquidity, or results of operations. We record environmental obligations within Accounts payable, accrued expenses and other liabilities in the consolidated financial statements.
Critical Accounting Estimates
Our significant accounting policies are described in Note 2 . Many of these accounting policies require judgment and the use of estimates and assumptions when applying these policies in the preparation of our consolidated financial statements. On a quarterly basis, we evaluate these estimates and judgments based on historical experience as well as other factors that we believe to be reasonable under the circumstances. These estimates are subject to change in the future if underlying assumptions or factors change. Certain accounting policies, while significant, may not require the use of estimates. Those accounting policies that require significant estimation and/or judgment are described under Critical Accounting Policies and Estimates in Note 2 . The proposed accounting changes that may potentially impact our business are described under Recent Accounting Pronouncements in Note 2 .
Supplemental Financial Measures
In the real estate industry, analysts and investors employ certain non-GAAP
supplemental financial measures in order to facilitate meaningful comparisons
between periods and among peer companies. Additionally, in the formulation of
our goals and in the evaluation of the effectiveness of our strategies, we use
Funds from Operations ("FFO") and AFFO, which are non-GAAP measures defined by
our management. We believe that these measures are useful to investors to
consider because they may assist them to better understand and measure the
performance of our business over time and against similar companies. A
description of FFO and AFFO and reconciliations of these non-GAAP measures to
the most directly comparable GAAP measures are provided below.
Funds from Operations and Adjusted Funds from Operations
Due to certain unique operating characteristics of real estate companies, as discussed below, theNational Association of Real Estate Investment Trusts, Inc. ("NAREIT"), an industry trade group, has promulgated a non-GAAP measure known as FFO, which we believe to be an appropriate supplemental measure, when used in addition to and in conjunction with results presented in accordance with GAAP, to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplemental non-GAAP measure. FFO is not equivalent to, nor a substitute for, net income or loss as determined under GAAP.
--------------------------------------------------------------------------------
We define FFO, a non-GAAP measure, consistent with the standards established by the White Paper on FFO approved by theBoard of Governors of NAREIT, as restated inDecember 2018 . The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding gains or losses from sales of property, impairment charges on real estate, gains or losses on changes in control of interests in real estate, and depreciation and amortization from real estate assets; and after adjustments for unconsolidated partnerships and jointly owned investments. Adjustments for unconsolidated partnerships and jointly owned investments are calculated to reflect FFO. We also modify the NAREIT computation of FFO to adjust GAAP net income for certain non-cash charges, such as amortization of real estate-related intangibles, deferred income tax benefits and expenses, straight-line and other non-cash rent adjustments, stock-based compensation, non-cash environmental accretion expense, and amortization of deferred financing costs. Our assessment of our operations is focused on long-term sustainability and not on such non-cash items, which may cause short-term fluctuations in net income but have no impact on cash flows. Additionally, we exclude non-core income and expenses, such as gains or losses from extinguishment of debt, restructuring and other compensation-related expenses, and merger and acquisition expenses. We also exclude realized and unrealized gains/losses on foreign currency exchange transactions (other than those realized on the settlement of foreign currency derivatives), which are not considered fundamental attributes of our business plan and do not affect our overall long-term operating performance. We refer to our modified definition of FFO as AFFO. We exclude these items from GAAP net income to arrive at AFFO as they are not the primary drivers in our decision-making process and excluding these items provides investors a view of our portfolio performance over time and makes it more comparable to other REITs that are currently not engaged in acquisitions, mergers, and restructuring, which are not part of our normal business operations. AFFO also reflects adjustments for unconsolidated partnerships and jointly owned investments. We use AFFO as one measure of our operating performance when we formulate corporate goals, evaluate the effectiveness of our strategies, and determine executive compensation. We believe that AFFO is a useful supplemental measure for investors to consider as we believe it will help them to better assess the sustainability of our operating performance without the potentially distorting impact of these short-term fluctuations. However, there are limits on the usefulness of AFFO to investors. For example, impairment charges and unrealized foreign currency losses that we exclude may become actual realized losses upon the ultimate disposition of the properties in the form of lower cash proceeds or other considerations. We use our FFO and AFFO measures as supplemental financial measures of operating performance. We do not use our FFO and AFFO measures as, nor should they be considered to be, alternatives to net income computed under GAAP, or as alternatives to net cash provided by operating activities computed under GAAP, or as indicators of our ability to fund our cash needs.
--------------------------------------------------------------------------------
Consolidated FFO and AFFO were as follows (in thousands):
Years Ended
2019 2018 2017
Net income attributable to W. P. Carey $ 305,243 $ 411,566 $ 277,289
Adjustments:
Depreciation and amortization of real property 442,096 286,164 248,042
Impairment charges 32,539 4,790 2,769
Gain on sale of real estate, net (18,143 ) (118,605 ) (33,878 ) Loss (gain) on change in control of interests (a) (b) 8,416 (47,814 )
-
Proportionate share of adjustments to equity in net income of partially owned entities (c)
15,826 4,728 5,293 Proportionate share of adjustments for noncontrolling interests (d)
(69 ) (8,966 ) (10,491 )
Total adjustments 480,665 120,297 211,735
FFO (as defined by NAREIT) attributable to W. P. Carey 785,908 531,863 489,024
Adjustments:
Above- and below-market rent intangible lease
amortization, net 64,383 52,314 55,195
Straight-line and other rent adjustments (e) (31,787 ) (14,460 ) (11,679 )
Stock-based compensation 18,787 18,294 18,917
Amortization of deferred financing costs 11,714 6,184 8,169
Other (gains) and losses (f) (8,924 ) (15,704 ) 17,163
Tax expense (benefit) - deferred and other (g) (h) 5,974 1,079 (18,664 )
Other amortization and non-cash items 3,198 920 (912 )
Merger and other expenses (i) 101 41,426 605
Restructuring and other compensation - - 9,363 Proportionate share of adjustments to equity in net income of partially owned entities (c)
7,165 12,439 8,476 Proportionate share of adjustments for noncontrolling interests (d)
(49 ) 231 (2,678 )
Total adjustments 70,562 102,723 83,955
AFFO attributable to W. P. Carey $ 856,470 $
634,586
Summary
FFO (as defined by NAREIT) attributable to
$ 856,470 $ 634,586 $ 572,979 W. P. Carey 2019 10-K - 53
--------------------------------------------------------------------------------
FFO and AFFO from Real Estate were as follows (in thousands):
Years Ended
2019 2018 2017
Net income from Real Estate attributable to W. P.
Carey $ 272,065 $ 307,236 $ 192,139
Adjustments:
Depreciation and amortization of real property 442,096 286,164 248,042
Impairment charges 32,539 4,790 2,769
Gain on sale of real estate, net (18,143 ) (118,605 ) (33,878 ) Loss (gain) on change in control of interests (a) 8,416 (18,792 )
-
Proportionate share of adjustments to equity in net income of partially owned entities (c)
15,826 4,728 5,293 Proportionate share of adjustments for noncontrolling interests (d)
(69 ) (8,966 ) (10,491 )
Total adjustments 480,665
149,319 211,735
FFO (as defined by NAREIT) attributable to
752,730 456,555 403,874
Adjustments:
Above- and below-market rent intangible lease
amortization, net 64,383 52,314 55,195
Straight-line and other rent adjustments (e) (31,787 ) (14,460 ) (11,679 )
Stock-based compensation 13,248 10,450 6,960
Amortization of deferred financing costs 11,714 6,184 8,169
Other (gains) and losses (f) (9,773 ) (18,025 ) 18,063
Tax expense (benefit) - deferred and other 7,971 (18,790 ) (20,168 )
Other amortization and non-cash items 2,540 330 (912 )
Merger and other expenses (i) 101 41,426 605
Proportionate share of adjustments to equity in net income of partially owned entities (c)
115 287 (564 ) Proportionate share of adjustments for noncontrolling interests (d)
(49 ) 231 (2,678 )
Total adjustments 58,463
59,947 52,991
AFFO attributable to
Summary
FFO (as defined by NAREIT) attributable to
$ 752,730 $
456,555
W. P. Carey 2019 10-K - 54
--------------------------------------------------------------------------------
FFO and AFFO from Investment Management were as follows (in thousands):
Years Ended
2019 2018 2017
Net income from Investment Management attributable to
$ 33,178 $ 104,330 $ 85,150 Adjustments: Gain on change in control of interests (b) - (29,022 ) - Total adjustments - (29,022 ) - FFO (as defined by NAREIT) attributable toW. P. Carey - Investment Management 33,178 75,308 85,150 Adjustments: Stock-based compensation 5,539 7,844 11,957 Tax (benefit) expense - deferred and other (g) (h) (1,997 ) 19,869 1,504 Other (gains) and losses (f) 849 2,321 (900 ) Other amortization and non-cash items 658 590 - Restructuring and other compensation -
- 9,363 Proportionate share of adjustments to equity in net income of partially owned entities (c)
7,050 12,152 9,040
Total adjustments 12,099 42,776 30,964
AFFO attributable to W. P. Carey - Investment
Management $ 45,277 $
118,084
Summary
FFO (as defined by NAREIT) attributable to
$ 33,178 $ 75,308 $ 85,150 AFFO attributable toW. P. Carey - Investment Management$ 45,277 $ 118,084 $ 116,114 __________
(a) Amount for the year ended
the purchase of the remaining interest in a real estate investment from
CPA:17 - Global in the CPA:17 Merger, which we had previously accounted for
under the equity method. We recognized this loss because we identified
certain measurement period adjustments during the third quarter of 2019 that
impacted the provisional accounting for this investment ( Note 3 , Note
6 ). Amount for the year ended
recognized on the purchase of the remaining interests in six investments from
CPA:17 - Global in the CPA:17 Merger, which we had previously accounted for
under the equity method ( Note 3 ).
(b) Amount for the year ended
our previously held interest in shares of CPA:17 - Global common stock in
connection with the CPA:17 Merger ( Note 3 ).
(c) Equity income, including amounts that are not typically recognized for FFO
and AFFO, is recognized within Equity in earnings of equity method
investments in the Managed Programs and real estate on the consolidated
statements of income. This represents adjustments to equity income to reflect
FFO and AFFO on a pro rata basis.
(d) Adjustments disclosed elsewhere in this reconciliation are on a consolidated
basis. This adjustment reflects our FFO or AFFO on a pro rata basis.
(e) Amount for the year ended
and reflected within AFFO over the remaining master lease term.
(f) Primarily comprised of unrealized gains and losses on derivatives, and gains
and losses from foreign currency movements, extinguishment of debt, and
marketable securities. Beginning in the second quarter of 2019, we aggregated
(gain) loss on extinguishment of debt and realized (gains) losses on foreign
currency (both of which were previously disclosed as separate AFFO adjustment
line items), as well as certain other adjustments, within this line item,
which is comprised of adjustments related to Other gains and (losses) on our
consolidated statements of income. Prior period amounts have been
reclassified to conform to the current period presentation.
(g) Amount for the year ended
upon the recognition of taxable income associated with the accelerated
vesting of shares previously issued by CPA:17 - Global to us for asset
management services performed, in connection with the CPA:17 Merger.
(h) Amount for the year ended
which is excluded from AFFO as it was incurred as a result of the CPA:17
Merger.
(i) Amount for the year ended
incurred in connection with the CPA:17 Merger, including advisory fees,
transfer taxes, and legal, accounting, and tax-related professional fees
( Note 1 , Note 3 ).
W. P. Carey 2019 10-K - 55
--------------------------------------------------------------------------------
While we believe that FFO and AFFO are important supplemental measures, they should not be considered as alternatives to net income as an indication of a company's operating performance. These non-GAAP measures should be used in conjunction with net income as defined by GAAP. FFO and AFFO, or similarly titled measures disclosed by other REITs, may not be comparable to our FFO and AFFO measures.W. P. Carey 2019 10-K - 56
--------------------------------------------------------------------------------
© Edgar Online, source
