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. Our Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the 2021 Annual Report and subsequent reports filed under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Refer to Item 1 of the 2021 Annual Report for a description of our business.
Significant Developments
Proposed Merger with CPA:18 - Global
OnFebruary 27, 2022 , we, CPA:18 - Global, CPA:18 LP, and certain of our subsidiaries entered into the Merger Agreement, pursuant to which CPA:18 - Global will merge with and into one of our indirect subsidiaries in exchange for shares of our common stock and cash ( Note 1 ). Under the terms of the Merger Agreement, a special committee of the board of directors of CPA:18 - Global, consisting of all the independent directors of CPA:18 - Global, was allowed to solicit, receive, evaluate, and enter into negotiations with respect to alternative proposals from third parties for a 30-day period following the execution of the Merger Agreement. This "go-shop" period expired onMarch 30, 2022 , with no qualifying proposals or offers being received. OnApril 4, 2022 , we filed a registration statement on Form S-4 with theSEC to register the shares of our common stock to be issued in the Proposed Merger. OnApril 25, 2022 , we filed a Form S-4/A, which was declared effective by theSEC onApril 27, 2022 . CPA:18 - Global intends to mail the proxy statement/prospectus contained therein to CPA:18 - Global's stockholders in connection with the Proposed Merger in earlyMay 2022 . The Proposed Merger and related transactions are subject to a number of closing conditions, including approval by the stockholders of CPA:18 - Global at a special meeting scheduled forJuly 26, 2022 . If this approval is obtained and the other closing conditions are met, we currently expect the transaction to close in earlyAugust 2022 , although there can be no assurance that the Proposed Merger will be completed at such time or at all. COVID-19 We continue to actively engage in discussions with our tenants regarding the impact of the COVID-19 pandemic on their business operations, liquidity, and financial position. Through the date of this Report, we received from tenants over 99.7% of contractual base rent that was due during the first quarter of 2022 (based on contractual minimum annualized base rent ("ABR") as ofDecember 31, 2021 ). Given the ongoing uncertainty around the duration and severity of the impact of the COVID-19 pandemic, we are unable to predict the impact it will have on our tenants' continued ability to pay rent. Therefore, information provided in this Report regarding recent rent collections should not serve as an indication of expected future rent collections.
Financial Highlights
During the three months ended
Real Estate
Investments
•We acquired five investments totaling$265.0 million ( Note 4 ). •We completed two construction projects at a cost totaling$25.2 million ( Note 4 ). •We funded approximately$18.0 million for a construction loan to build a retail complex inLas Vegas, Nevada , during the three months endedMarch 31, 2022 . ThroughMarch 31, 2022 , we have funded$121.7 million ( Note 7 ). •We committed to fund two build-to-suit or expansion projects totaling$24.9 million . We currently expect to complete the projects in 2022 and 2023 ( Note 4 ).W. P. Carey 3/31/2022 10-Q - 37
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Dispositions
•As part of our active capital recycling program, we disposed of six properties for total proceeds, net of selling costs, of$26.7 million ( Note 14 ). •InJanuary 2022 , WLT redeemed in full our 1,300,000 shares of its preferred stock for gross proceeds of$65.0 million ( Note 8 ).
Financing and Capital Markets Transactions
•We issued 2,249,227 shares of our common stock under our ATM Program at a weighted-average price of$80.60 per share, for net proceeds of$179.0 million ( Note 12 ). Investment Management Assets Under Management •As ofMarch 31, 2022 , we managed total assets of approximately$2.6 billion on behalf of CPA:18 - Global and CESH. The vast majority of our Investment Management earnings are generated from asset management fees and our ownership interests in CPA:18 - Global and CESH. However, subject to the terms and conditions of the Merger Agreement, upon consummation of the Proposed Merger, we will no longer receive fees and distributions from CPA:18 - Global, and as a result, Investment Management earnings are expected to decline in future periods ( Note 1 ). Dividends to Stockholders
In
Consolidated Results
(in thousands, except shares)
Three Months Ended
2022 2021 Revenues from Real Estate$ 344,091 $ 306,171 Revenues from Investment Management 4,347 4,995 Total revenues 348,438 311,166 Net income from Real Estate attributable to W. P. Carey 146,858 44,587
Net income from Investment Management attributable to
10,137 7,047 Net income attributable to W. P. Carey 156,995 51,634 Dividends declared 205,497 187,481 Net cash provided by operating activities 235,882 188,444 Net cash used in investing activities (229,054) (76,466) Net cash provided by (used in) financing activities 35,697 (132,780)
Supplemental financial measures (a):
Adjusted funds from operations attributable to
252,014 210,328
Adjusted funds from operations attributable to
6,812 6,158
Adjusted funds from operations attributable to
258,826 216,486 Diluted weighted-average shares outstanding 192,416,642 176,965,510 __________ W. P. Carey 3/31/2022 10-Q - 38
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(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.
Revenues
Total revenues increased for the three months endedMarch 31, 2022 as compared to the same period in 2021. Real Estate revenue increased primarily due to higher lease revenues (substantially as a result of property acquisition activity and rent escalations, partially offset by property dispositions) and higher lease termination and other income ( Note 4 ).
Net Income Attributable to
Net income attributable toW. P. Carey increased for the three months endedMarch 31, 2022 as compared to the same period in 2021. Net income from Real Estate attributable toW. P. Carey increased primarily due to a lower loss on extinguishment of debt ( Note 10 ), a non-cash unrealized gain recognized on our investment in common shares of WLT ( Note 8 ), the impact of real estate acquisitions, and higher lease termination and other income, partially offset by higher impairment charges ( Note 8 ) and a non-cash unrealized gain recognized on our investment in shares of Lineage Logistics during the prior year period ( Note 8 ). AFFO AFFO increased for the three months endedMarch 31, 2022 as compared to the same period in 2021, primarily due to higher lease revenues from net investment activity and rent escalations, as well as higher lease termination and other income. 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 properties subject to long-term net 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
March 31, 2022 December 31, 2021 ABR (in thousands)$ 1,262,953 $ 1,247,764 Number of net-leased properties 1,336 1,304 Number of operating properties (a) 20 20 Number of tenants (net-leased properties) 356 352 Total square footage (net-leased properties, in thousands) 157,368 155,674 Occupancy (net-leased properties) 98.5 % 98.5 % Weighted-average lease term (net-leased properties, in years) 10.8 10.8 Number of countries 24 24 Total assets (in thousands)$ 15,569,532 $ 15,480,630 Net investments in real estate (in thousands) 13,067,807 13,037,369 Three Months Ended March 31, 2022 2021 Acquisition volume (in millions) (b)$ 283.0 $ 149.3 Construction projects completed (in millions) 25.2 55.1 Average U.S. dollar/euro exchange rate 1.1223 1.2051 Average U.S. dollar/British pound sterling exchange rate 1.3418 1.3775 __________ W. P. Carey 3/31/2022 10-Q - 39
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(a)At bothMarch 31, 2022 andDecember 31, 2021 , operating properties consisted of 19 self-storage properties (of which we consolidated ten, with an average occupancy of 95.3% as ofMarch 31, 2022 ) and one hotel property with an average occupancy of 49.7% for the three months endedMarch 31, 2022 (due to the adverse effect of the COVID-19 pandemic). (b)Amount for the three months endedMarch 31, 2022 includes$18.0 million of funding for a construction loan ( Note 7 ).
Net-Leased Portfolio
The tables below represent information about our net-leased portfolio at
Top Ten Tenants by ABR (dollars in thousands) Weighted-Average Lease Tenant/Lease Guarantor Description Number of Properties ABR ABR Percent Term (Years) U-Haul Moving Partners Inc. Net lease self-storage properties and Mercury Partners, LP in the U.S. 78$ 38,751 3.1 % 2.1 Government office properties in State of Andalucía (a) Spain 70 30,465 2.4 % 12.7 Hellweg Die Profi-Baumärkte Do-it-yourself retail properties GmbH & Co. KG (a) in Germany 35 28,361 2.3 % 14.9 Metro Cash & Carry Italia Business-to-business wholesale S.p.A. (a) stores in Italy and Germany 20 28,313 2.2 % 6.5 Do-it-yourself retail properties OBI Group (a) in Poland 26 22,994 1.8 % 8.4 Net lease self-storage properties Extra Space Storage, Inc. in the U.S. 27 22,957 1.8 % 22.1 Automotive dealerships in the Pendragon PLC (a) United Kingdom 66 22,607 1.8 % 12.7 Net lease hotel properties in the Marriott Corporation U.S. 18 21,350 1.7 % 1.8 Distribution facilities in the Advance Auto Parts, Inc. U.S. 29 19,851 1.6 % 10.8
3 19,473 1.5 % 21.5 Total 372$ 255,122 20.2 % 10.7 __________ (a)ABR amounts are subject to fluctuations in foreign currency exchange rates. W. P. Carey 3/31/2022 10-Q - 40
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Portfolio Diversification by Geography (in thousands, except percentages) Square Footage Region ABR ABR Percent Square Footage (a) PercentUnited States South Texas$ 104,269 8.2 % 11,869 7.6 % Florida 52,074 4.1 % 4,456 2.8 % Georgia 24,737 2.0 % 3,512 2.2 % Tennessee 24,072 1.9 % 3,980 2.5 % Alabama 18,456 1.5 % 3,085 2.0 % Other (b) 15,236 1.2 % 2,254 1.4 % Total South 238,844 18.9 % 29,156 18.5 % Midwest Illinois 60,434 4.8 % 8,328 5.3 % Minnesota 32,478 2.6 % 3,225 2.0 % Indiana 26,525 2.1 % 4,734 3.0 % Ohio 18,368 1.4 % 3,921 2.5 % Wisconsin 17,225 1.4 % 3,420 2.2 % Michigan 15,194 1.2 % 2,599 1.7 % Other (b) 32,668 2.6 % 5,073 3.2 % Total Midwest 202,892 16.1 % 31,300 19.9 % East North Carolina 36,174 2.9 % 8,098 5.2 % Pennsylvania 31,079 2.4 % 3,673 2.3 % New Jersey 22,953 1.8 % 1,235 0.8 % Massachusetts 21,964 1.7 % 1,387 0.9 % New York 18,881 1.5 % 2,221 1.4 % South Carolina 14,850 1.2 % 4,088 2.6 % Other (b) 47,714 3.8 % 8,009 5.1 % Total East 193,615 15.3 % 28,711 18.3 % West California 68,666 5.4 % 6,445 4.1 % Arizona 29,985 2.4 % 3,365 2.1 % Other (b) 62,858 5.0 % 6,720 4.3 % Total West 161,509 12.8 % 16,530 10.5 % United States Total 796,860 63.1 % 105,697 67.2 % International Spain 64,573 5.1 % 5,078 3.2 % Germany 60,910 4.8 % 6,440 4.1 % Poland 59,059 4.7 % 7,959 5.1 % United Kingdom 57,878 4.6 % 5,062 3.2 % The Netherlands 55,719 4.4 % 6,990 4.4 % Italy 26,625 2.1 % 2,386 1.5 % France 20,138 1.6 % 1,685 1.1 % Denmark 19,464 1.5 % 2,681 1.7 % Croatia 17,084 1.4 % 1,726 1.1 % Canada 15,246 1.2 % 2,376 1.5 % Other (c) 69,397 5.5 % 9,288 5.9 % International Total 466,093 36.9 % 51,671 32.8 % Total$ 1,262,953 100.0 % 157,368 100.0 % W. P. Carey 3/31/2022 10-Q - 41
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Portfolio Diversification by Property Type (in thousands, except percentages) Square Footage Property Type ABR ABR Percent Square Footage (a) Percent Industrial$ 326,127 25.8 % 54,559 34.7 % Warehouse 300,249 23.8 % 55,922 35.5 % Office 242,852 19.2 % 16,050 10.2 % Retail (d) 221,266 17.5 % 19,243 12.2 % Self Storage (net lease) 61,708 4.9 % 5,810 3.7 % Other (e) 110,751 8.8 % 5,784 3.7 % Total$ 1,262,953 100.0 % 157,368 100.0 % __________ (a)Includes square footage for any vacant properties. (b)Other properties within South include assets inLouisiana ,Arkansas ,Oklahoma , andMississippi . Other properties within Midwest include assets inMissouri ,Kansas ,Nebraska ,Iowa ,North Dakota , andSouth Dakota . Other properties within East include assets inVirginia ,Kentucky ,Maryland ,Connecticut ,West Virginia ,New Hampshire , andMaine . Other properties within West include assets inOregon ,Utah ,Colorado ,Washington ,Nevada ,Hawaii ,New Mexico ,Idaho ,Wyoming , andMontana . (c)Includes assets inLithuania ,Finland ,Norway ,Mexico ,Hungary ,Portugal , theCzech Republic ,Austria ,Sweden ,Slovakia ,Japan ,Latvia , andEstonia . (d)Includes automotive dealerships. (e)Includes ABR from tenants within the following property types: education facility, hotel (net lease), laboratory, theater, fitness facility, student housing (net lease), funeral home, restaurant, and land. W. P. Carey 3/31/2022 10-Q
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Portfolio Diversification by Tenant Industry (in thousands, except percentages) Square Footage Industry Type ABR ABR Percent Square Footage Percent Retail Stores (a)$ 272,676 21.6 % 34,127 21.7 % Consumer Services 108,941 8.6 % 8,092 5.1 % Automotive 80,974 6.4 % 12,310 7.8 % Beverage and Food 79,467 6.3 % 10,182 6.5 % Grocery 73,081 5.8 % 7,756 4.9 % Cargo Transportation 63,939 5.1 % 9,491 6.0 % Healthcare and Pharmaceuticals 60,000 4.8 % 5,372 3.4 % Construction and Building 50,964 4.0 % 9,077 5.8 % Business Services 48,092 3.8 % 4,018 2.5 % Capital Equipment 44,679 3.5 % 7,387 4.7 % Durable Consumer Goods 44,568 3.5 % 10,276 6.5 % Hotel and Leisure 42,100 3.3 % 2,214 1.4 % Containers, Packaging, and Glass 40,121 3.2 % 6,713 4.3 % Sovereign and Public Finance 40,082 3.2 % 3,241 2.1 % High Tech Industries 31,275 2.5 % 3,315 2.1 % Insurance 26,114 2.1 % 1,749 1.1 % Banking 19,625 1.6 % 1,216 0.8 % Non-Durable Consumer Goods 17,710 1.4 % 5,940 3.8 % Aerospace and Defense 15,791 1.3 % 1,358 0.9 % Metals 15,376 1.2 % 3,124 2.0 % Telecommunications 15,152 1.2 % 1,479 0.9 % Chemicals, Plastics, and Rubber 14,372 1.1 % 1,853 1.2 % Media: Broadcasting and Subscription 13,227 1.0 % 784 0.5 % Wholesale 12,988 1.0 % 2,005 1.3 % Other (b) 31,639 2.5 % 4,289 2.7 % Total$ 1,262,953 100.0 % 157,368 100.0 % __________ (a)Includes automotive dealerships. (b)Includes ABR from tenants in the following industries: media: advertising, printing, and publishing, oil and gas, environmental industries, consumer transportation, forest products and paper, real estate, and electricity. Also includes square footage for vacant properties. W. P. Carey 3/31/2022 10-Q
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Lease Expirations (in thousands, except percentages, number of leases, and number of tenants) Number of Year of Lease Number of Leases Tenants with Square Square Footage Expiration (a) Expiring Leases Expiring ABR ABR Percent Footage Percent Remaining 2022 25 19$ 24,465 1.9 % 1,587 1.0 % 2023 (b) 34 29 48,340 3.8 % 5,187 3.3 % 2024 (c) 44 38 96,381 7.6 % 12,401 7.9 % 2025 51 30 60,040 4.8 % 7,116 4.5 % 2026 41 29 58,300 4.6 % 8,248 5.2 % 2027 58 34 85,309 6.8 % 8,895 5.7 % 2028 42 24 63,359 5.0 % 5,572 3.5 % 2029 50 23 55,590 4.4 % 6,702 4.3 % 2030 27 23 65,025 5.2 % 5,520 3.5 % 2031 33 17 64,767 5.1 % 8,055 5.1 % 2032 40 20 54,239 4.3 % 7,227 4.6 % 2033 28 22 76,691 6.1 % 10,158 6.5 % 2034 47 15 75,574 6.0 % 7,765 4.9 % 2035 14 14 26,919 2.1 % 4,906 3.1 % Thereafter (>2035) 261 104 407,954 32.3 % 55,668 35.4 % Vacant - - - - % 2,361 1.5 % Total 795$ 1,262,953 100.0 % 157,368 100.0 % __________ (a)Assumes tenants do not exercise any renewal options or purchase options. (b)Includes ABR of$16.1 million from a tenant (Marriott Corporation ) with a lease expiration inJanuary 2023 . (c)Includes ABR of$38.8 million from a tenant (U-Haul Moving Partners, Inc. andMercury Partners, LP ) that holds an option to repurchase the 78 properties it is leasing inApril 2024 . There can be no assurance that such repurchase will be completed. Terms and Definitions Pro Rata Metrics - The portfolio information above contains certain metrics prepared on a pro rata basis. 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%. On a full consolidation basis, 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. On a pro rata basis, we generally present our proportionate share, based on our economic ownership of these jointly owned investments, of the portfolio metrics of those investments. Multiplying each of 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 and reflects exchange rates as ofMarch 31, 2022 . If there is a rent abatement, we annualize the first monthly contractual base rent following the free rent period. ABR is not applicable to operating properties. W. P. Carey 3/31/2022 10-Q
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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. Refer to Note 15 for tables presenting the comparative results of our Real Estate and Investment Management segments.
Real Estate
Revenues
The following table presents revenues within our Real Estate segment (in thousands): Three Months Ended March 31, 2022 2021 Change Real Estate Revenues Lease revenues from: Existing net-leased properties$ 281,290 $ 279,523 $ 1,767 Recently acquired net-leased properties 26,541 2,413 24,128 Net-leased properties sold or held for sale (106) 2,729 (2,835)
Total lease revenues (includes reimbursable tenant costs)
307,725 284,665 23,060 Income from direct financing leases and loans receivable 18,379 17,742 637 Lease termination income and other 14,122 1,585 12,537 Operating property revenues 3,865 2,179 1,686$ 344,091 $ 306,171 $ 37,920 Lease Revenues
"Existing net-leased properties" are those that we acquired or placed into
service prior to
For the three months ended
[[Image Removed: wpc-20220331_g2.jpg]] __________W. P. Carey 3/31/2022 10-Q - 45
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(a)Excludes fixed minimum rent increases, which are reflected as straight-line rent adjustments within lease revenues. (b)Primarily related to (i) straight-line rent adjustments and (ii) write-offs of above/below-market rent intangibles. "Recently acquired net-leased properties" are those that we acquired or placed into service subsequent toDecember 31, 2020 and that were not sold or held for sale during the periods presented. SinceJanuary 1, 2021 , we acquired 31 investments (comprised of 104 properties and six land parcels under buildings that we already own) and placed one property into service. "Net-leased properties sold or held for sale" include (i) six net-leased properties disposed of during the three months endedMarch 31, 2022 and (ii) 24 net-leased properties disposed of during the year endedDecember 31, 2021 . Our dispositions are more fully described in Note 14 .
Income from Direct Financing Leases and Loans Receivable
We currently present Income from direct financing leases and loans receivable on its own line item in the consolidated statements of income. Previously, income from direct financing leases was included within Lease revenues and income from loans receivable was included within Lease termination income and other in the consolidated statements of income. Prior period amounts have been reclassified to conform to the current period presentation.
For the three months ended
[[Image Removed: wpc-20220331_g3.jpg]]
Lease Termination Income and Other
Lease termination income and other is described in Note 4 .
Operating Property Revenues and Expenses
For the periods presented, we recorded operating property revenues from 11 operating properties, comprised of ten self-storage operating properties (which excludes nine self-storage properties accounted for under the equity method) and one hotel operating property. For our hotel operating property, revenues and expenses increased by$1.4 million and$0.9 million , respectively, for the three months endedMarch 31, 2022 as compared to the same period in 2021, reflecting higher occupancy as the hotel's business recovers from the ongoing COVID-19 pandemic.W. P. Carey 3/31/2022 10-Q - 46
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Operating Expenses
Depreciation and Amortization
The following table presents depreciation and amortization expense within our Real Estate segment (in thousands):
Three Months Ended March
31,
2022 2021 Change Depreciation and Amortization Net-leased properties$ 113,962 $ 108,503 $ 5,459 Operating properties 684 696 (12) Corporate 747 1,123 (376)$ 115,393 $ 110,322 $ 5,071 For the three months endedMarch 31, 2022 as compared to the same period in 2021, depreciation and amortization expense for net-leased properties increased primarily due to the impact of net acquisition activity, partially offset by the weakening of foreign currencies (primarily the euro) in relation to theU.S. dollar between the periods. General and Administrative
All general and administrative expenses are attributed to our Real Estate segment.
For the three months ended
Impairment Charges
Our impairment charges are more fully described in Note 8 .
Property Expenses, Excluding Reimbursable Tenant Costs
For the three months endedMarch 31, 2022 as compared to the same period in 2021, property expenses, excluding reimbursable tenant costs, increased by$2.9 million , primarily due to higher carrying costs related to tenant vacancies (which resulted in property expenses no longer being reimbursable) and costs associated with repositioning certain properties.
Stock-based Compensation Expense
Stock-based compensation expense is fully recognized within our Real Estate segment.
For the three months ended
Merger and Other Expenses For the three months endedMarch 31, 2022 , merger and other expenses allocated to our Real Estate segment totaled benefits of$2.3 million , primarily comprised of (i)$3.6 million of reversals of estimated liabilities for German real estate transfer taxes that were previously recorded in connection with mergers in prior years and (ii)$0.9 million of costs incurred in connection with the Proposed Merger ( Note 1 ).W. P. Carey 3/31/2022 10-Q - 47
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Other Income and (Expenses), and Provision for Income Taxes
Interest Expense
For the three months endedMarch 31, 2022 as compared to the same period in 2021, interest expense decreased by$5.6 million , primarily due to the reduction of our mortgage debt outstanding by prepaying or repaying at or close to maturity a total of$785.9 million of non-recourse mortgage loans with a weighted-average interest rate of 4.9% sinceJanuary 1, 2021 ( Note 10 ) and the redemption of the €500.0 million of 2.0% Senior Notes due 2023 inMarch 2021 , partially offset by three senior unsecured notes issuances totaling$1.4 billion (based on the exchange rate of the euro on the date of issuance for our euro-denominated senior unsecured notes) with a weighted-average interest rate of 1.7% completed sinceJanuary 1, 2021 . The following table presents certain information about our outstanding debt (dollars in thousands): Three Months EndedMarch 31, 2022 2021
Average outstanding debt balance
Weighted-average interest rate 2.5 % 2.8 % Other Gains and (Losses) Other gains and (losses) primarily consists of gains and losses on (i) the mark-to-market fair value of equity securities, (ii) extinguishment of debt, and (iii) foreign currency transactions. The timing and amount of such gains or losses cannot always be estimated and are subject to fluctuation. All of our foreign currency-denominated unsecured debt instruments were designated as net investment hedges during the three months endedMarch 31, 2022 and 2021. Therefore, no gains and losses on foreign currency transactions were recognized on the remeasurement of such instruments during those periods ( Note 9 ). The following table presents other gains and (losses) within our Real Estate segment (in thousands): Three Months Ended March 31, 2022 2021 Change
Other Gains and (Losses)
Non-cash unrealized gains related to an increase in the fair
value of our investment in common shares of WLT ( Note 8 )
$ -
18,688 - 18,688
Net realized and unrealized losses on foreign currency transactions (a)
(11,074) (7,451) (3,623) Loss on extinguishment of debt (b) (892) (59,882) 58,990
Change in allowance for credit losses on finance receivables ( Note 5 )
(773) 1,358 (2,131) Non-cash unrealized gains related to an increase in the fair value of our investment in shares of Lineage Logistics ( Note 8 ) - 23,381 (23,381) Other 429 405 24$ 34,418 $ (42,189) $ 76,607 __________ (a)We 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 amortizing loans, are included in other gains and (losses). (b)Amount for the three months endedMarch 31, 2021 is related to the prepayment of mortgage loans (primarily comprised of prepayment penalties totaling$31.8 million ) and redemption of the €500.0 million of 2.0% Senior Notes due 2023 inMarch 2021 (primarily comprised of a "make-whole" amount of$26.2 million related to the redemption) ( Note 10 ).
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 reporting period. Our dispositions are more fully described in Note 14 .W. P. Carey 3/31/2022 10-Q - 48
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Non-Operating Income
Non-operating income primarily consists of realized gains and losses on derivative instruments, dividends from securities, and interest income on our loans to affiliates and cash deposits.
The following table presents non-operating income within our Real Estate segment (in thousands): Three Months Ended March 31, 2022 2021 Change
Non-Operating Income Cash dividends from our investment in Lineage Logistics ( Note 8 )
$ 4,308 $ 6,438 $ (2,130)
Realized gains (losses) on foreign currency collars ( Note 9 )
3,312 (180) 3,492
Cash dividends from our investment in preferred shares of WLT ( Note 8 )
912 - 912 Interest income related to our loans to affiliates and cash deposits 10 14 (4)$ 8,542 $ 6,272 $ 2,270
Losses from Equity Method Investments in Real Estate
Our equity method investments in real estate are more fully described in Note 7 . The following table presents losses from equity method investments in real estate (in thousands):
Three Months Ended
2022 2021 Change
Losses from Equity Method Investments in Real Estate Proportionate share of impairment charge recognized on Bank Pekao ( Note 7 )
$ (4,610) $ -$ (4,610) Earnings from Las Vegas Retail Complex 1,558 - 1,558 Earnings from Johnson Self Storage (a) 939 401 538 Earnings from Kesko Senukai (b) 655 (1,171) 1,826 Other-than-temporary impairment charge on State Farm Mutual Automobile Insurance Co. ( Note 8 ) - (6,830) 6,830 Losses from WLT (c) - (4,483) 4,483 Other 671 964 (293)$ (787) $ (11,119) $ 10,332 __________ (a)Increase for the three months endedMarch 31, 2022 as compared to the same period in 2021 are primarily due to higher occupancy rates at these self-storage facilities. (b)Increase for the three months endedMarch 31, 2022 as compared to the same period in 2021 is primarily due to higher rent collections at these retail properties, which were adversely impacted by the COVID-19 pandemic. (c)Loss for the prior year period was primarily due to the adverse impact of the COVID-19 pandemic on WLT's operations. We recorded losses from this investment on a one quarter lag. This investment was reclassified to equity securities at fair value within Other assets, net on our consolidated balance sheets inJanuary 2022 ( Note 8 ).
Investment Management
We earn revenue as the advisor to the Managed Programs. For the periods presented, we acted as advisor to the following Managed Programs: CPA:18 - Global and CESH. The CWI 1 and CWI 2 Merger closed onApril 13, 2020 , and as a result, CWI 2 was renamed Watermark Lodging Trust, Inc., for which we provided certain services pursuant to a transition services agreement, which was terminated onOctober 13, 2021 ( Note 3 ). We no longer raise capital for new or existing funds, but we currently expect to continue managing CPA:18 - Global and CESH and earn the various fees described below through the end of their respective life cycles. Upon the expected completion of the Proposed Merger, we will no longer receive fees and distributions from CPA:18 - Global, and as a result, Investment Management earnings are expected to decline in future periods ( Note 1 ). As ofMarch 31, 2022 , we managed total assets of approximately$2.6 billion on behalf of the Managed Programs.W. P. Carey 3/31/2022 10-Q - 49
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Revenues
The following table presents revenues within our Investment Management segment (in thousands): Three Months Ended March 31, 2022 2021 Change Investment Management Revenues Asset management and other revenue CPA:18 - Global$ 3,058 $ 3,138 $ (80) CESH 362 816 (454) 3,420 3,954 (534) Reimbursable costs from affiliates CPA:18 - Global 773 648 125 CESH 154 285 (131) WLT - 108 (108) 927 1,041 (114)$ 4,347 $ 4,995 $ (648)
Asset Management and Other Revenue
Asset management and other revenue includes asset management revenue, structuring revenue, and other advisory revenue. During the periods presented, we earned asset management revenue from (i) CPA:18 - Global based on the value of its real estate-related assets under management and (ii) CESH based on its gross assets under management at fair value. 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 2022, we receive asset management fees from (i) CPA:18 - Global in shares of its common stock throughFebruary 28, 2022 ; effective as ofMarch 1, 2022 , we receive asset management fees from CPA:18 - Global in cash in light of the Proposed Merger ( Note 3 ), and (ii) CESH in cash. We earn structuring and other advisory revenue when we structure new investments on behalf of the Managed Programs. Since we no longer raise capital for new or existing funds, structuring and other advisory revenue has recently been and is expected to be insignificant going forward.
Other Income and Expenses
Earnings from Equity Method Investments in the Managed Programs
Earnings from our equity method investments in the Managed Programs 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 earnings from equity method investments in the Managed Programs ( Note 7 ) (in thousands): Three Months EndedMarch 31, 2022 2021
Earnings from equity method investments in the Managed Programs: Earnings (losses) from equity method investments in the Managed Programs (a)
$ 2,972 $ (153) Distributions of Available Cash from CPA:18 - Global (b) 2,587 1,539
Earnings from equity method investments in the Managed Programs
__________ (a)Increase for the three months endedMarch 31, 2022 as compared to the same period in 2021 was due to an increase of$3.1 million from our investment in shares of CPA:18 - Global. (b)We are entitled to receive distributions of up to 10% of the Available Cash from the operating partnership of CPA:18 - Global, as defined in its operating partnership agreement ( Note 3 ). Distributions of Available Cash received and earned from CPA:18 - Global fluctuate based on the timing of certain events, including acquisitions and dispositions.W. P. Carey 3/31/2022 10-Q
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Liquidity and Capital Resources
Sources and Uses of Cash During the Period
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 timing of settlement of foreign currency transactions; changes in foreign currency exchange rates; the receipt of asset management fees in either shares of the common stock of CPA:18 - Global or cash; the timing of distributions from equity method investments; and the receipt of distributions of Available Cash from CPA:18 - Global. 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 Senior Unsecured Credit Facility, proceeds from dispositions of properties, and the issuance of additional debt or equity securities, such as issuances of common stock through our Equity Forwards and ATM Program ( Note 12 ), 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. Operating Activities - Net cash provided by operating activities increased by$47.4 million during the three months endedMarch 31, 2022 as compared to the same period in 2021, primarily due to an increase in cash flow generated from net investment activity and scheduled rent increases at existing properties, higher lease termination and other income, and lower interest expense. Investing Activities - Our investing activities are generally comprised of real estate-related transactions (purchases and sales) and funding for build-to-suit activities and other capital expenditures on real estate. In addition to these types of transactions, during the three months endedMarch 31, 2022 , we used$18.0 million to fund short-term loans to the Managed Programs, while$7.0 million of such loans were repaid ( Note 3 ). We also received$1.4 million in distributions from equity method investments. Financing Activities - Our financing activities are generally comprised of borrowings and repayments under our Unsecured Revolving Credit Facility, issuances of the Senior Unsecured Notes, payments and prepayments of non-recourse mortgage loans, and payments of dividends to stockholders. In addition to these types of transactions, during the three months endedMarch 31, 2022 , we received$179.0 million in net proceeds from the issuance of shares under our ATM Program ( Note 12 ).W. P. Carey 3/31/2022 10-Q
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Summary of Financing
The table below summarizes our Senior Unsecured Notes, our non-recourse mortgages, and our Senior Unsecured Credit Facility (dollars in thousands):
March 31, 2022 December 31, 2021 Carrying Value Fixed rate: Senior Unsecured Notes (a)$ 5,647,833 $ 5,701,913 Non-recourse mortgages (a) 223,925 235,898 5,871,758 5,937,811 Variable rate: Unsecured Revolving Credit Facility 476,085 410,596 Unsecured Term Loans (a) 303,138 310,583 Non-recourse mortgages (a): Amount subject to interest rate swaps and caps 75,548 79,055 Floating interest rate mortgage loans 51,702 53,571 906,473 853,805$ 6,778,231 $ 6,791,616 Percent of Total Debt Fixed rate 87 % 87 % Variable rate 13 % 13 % 100 % 100 % Weighted-Average Interest Rate at End of Period Fixed rate 2.7 % 2.7 % Variable rate (b) 1.3 % 1.1 % Total debt 2.5 % 2.5 % __________ (a)Aggregate debt balance includes unamortized discount, net, totaling$29.1 million and$30.9 million as ofMarch 31, 2022 andDecember 31, 2021 , respectively, and unamortized deferred financing costs totaling$27.4 million and$28.8 million as ofMarch 31, 2022 andDecember 31, 2021 , respectively. (b)The impact of our interest rate swaps and caps is reflected in the weighted-average interest rates.
Cash Resources
At
•cash and cash equivalents totaling$205.4 million . Of this amount,$76.4 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 approximately$1.3 billion (net of amounts reserved for standby letters of credit totaling$0.6 million ); •available proceeds under our Equity Forwards of approximately$289.1 million (based on 3,925,000 remaining shares outstanding and a net offering price of$73.67 per share as ofMarch 31, 2022 ); and •unleveraged properties that had an aggregate asset carrying value of approximately$12.4 billion atMarch 31, 2022 , although there can be no assurance that we would be able to obtain financing for these properties.W. P. Carey 3/31/2022 10-Q
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Historically, we have also accessed the capital markets through additional debt (denominated in bothU.S. dollars and euros) and equity offerings. During the three months endedMarch 31, 2022 , we issued 2,249,227 shares of common stock under our ATM Program for net proceeds of$179.0 million ( Note 12 ). As ofMarch 31, 2022 , we had approximately$289.1 million of available proceeds under our Equity Forwards and$90.8 million remained available for issuance under our ATM Program ( Note 12 ). See Note 1 6 , Subsequent Events for issuances under our ATM Program subsequent toMarch 31, 2022 and through the date of this Report.
Our cash resources can be used for working capital needs and other commitments and may be used for future investments.
Cash Requirements and Liquidity
As ofMarch 31, 2022 , we had$205.4 million of cash and cash equivalents, approximately$1.3 billion of available capacity under our Unsecured Revolving Credit Facility (net of amounts reserved for standby letters of credit totaling$0.6 million ), and available proceeds under our Equity Forwards of approximately$289.1 million (based on 3,925,000 remaining shares outstanding and a net offering price of$73.67 per share as of that date). Our Senior Unsecured Credit Facility includes a$1.8 billion Unsecured Revolving Credit Facility and Unsecured Term Loans outstanding totaling$303.1 million as ofMarch 31, 2022 ( Note 10 ), and is scheduled to mature onFebruary 20, 2025 . As ofMarch 31, 2022 , scheduled debt principal payments total$39.7 million throughDecember 31, 2022 and$227.1 million throughDecember 31, 2023 , and our Senior Unsecured Notes do not start to mature untilApril 2024 ( Note 10 ). InApril 2022 , we increased the Term Loan to £270.0 million and the Delayed Draw Term Loan to €215.0 million, thereby increasing the total capacity of our Senior Unsecured Credit Facility to approximately$2.4 billion ( Note 16 ).
During the next 12 months following
•paying dividends to our stockholders; •funding acquisitions of new investments ( Note 4 ); •funding future capital commitments and tenant improvement allowances ( Note 4 ); •making scheduled principal and balloon payments on our debt obligations ( Note 10 ); •making scheduled interest payments on our debt obligations (future interest payments total$877.3 million , with$170.4 million due during the next 12 months; interest on unhedged variable-rate debt obligations was calculated using the applicable annual variable interest rates and balances outstanding atMarch 31, 2022 ); •costs related to the Proposed Merger ( Note 1 ); 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 (as described above), issuances of common stock through our Equity Forwards and/or ATM Program ( Note 12 ), and potential issuances of additional debt or equity securities. We may also choose to pursue prepayments of certain of our non-recourse mortgage loan obligations, depending on our capital needs and market conditions at that time. Our liquidity could be adversely affected by unanticipated costs, greater-than-anticipated operating expenses, and the adverse impact of the continuing COVID-19 pandemic. 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, mortgage loan proceeds, and the issuance of additional debt or equity securities to meet these needs. The extent to which the COVID-19 pandemic impacts our liquidity and debt covenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence. The potential impact of the COVID-19 pandemic on our tenants and properties could also have a material adverse effect on our liquidity and debt covenants.
Certain amounts disclosed above are based on the applicable foreign currency
exchange rate at
W. P. Carey 3/31/2022 10-Q
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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 rent and related reserves, other non-cash rent adjustments, non-cash allowance for credit losses on loans receivable and direct financing leases, stock-based compensation, non-cash environmental accretion expense, amortization of discounts and premiums on debt, 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 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.W. P. Carey 3/31/2022 10-Q
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Consolidated FFO and AFFO were as follows (in thousands):
Three
Months Ended
2022 2021 Net income attributable to W. P. Carey$ 156,995 $ 51,634 Adjustments: Depreciation and amortization of real property 114,646 109,204 Impairment charges 20,179 - Gain on sale of real estate, net (11,248) (9,372)
Proportionate share of adjustments to earnings from equity method investments (a) (b)
7,683 10,306
Proportionate share of adjustments for noncontrolling interests (c)
(4) (4) Total adjustments 131,256 110,134 FFO (as defined by NAREIT) attributable to W. P. Carey 288,251 161,768
Adjustments:
Other (gains) and losses (d) (35,745) 41,188
Above- and below-market rent intangible lease amortization, net 11,004
12,115 Straight-line and other leasing and financing adjustments (10,847) (8,751) Stock-based compensation 7,833 5,381 Amortization of deferred financing costs 3,128 3,413 Merger and other expenses (e) (2,322) (476) Tax benefit - deferred and other (1,242) (3,387) Other amortization and non-cash items 552 29
Proportionate share of adjustments to earnings from equity method investments (b)
(1,781) 5,211
Proportionate share of adjustments for noncontrolling interests (c)
(5) (5) Total adjustments (29,425) 54,718 AFFO attributable to W. P. Carey $
258,826
Summary
FFO (as defined by NAREIT) attributable to W. P. Carey$ 288,251 $ 161,768 AFFO attributable to W. P. Carey$ 258,826 $ 216,486 W. P. Carey 3/31/2022 10-Q - 55
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FFO and AFFO from Real Estate were as follows (in thousands):
Three
Months Ended
2022 2021 Net income from Real Estate attributable to W. P. Carey$ 146,858 $ 44,587 Adjustments: Depreciation and amortization of real property 114,646 109,204 Impairment charges 20,179 - Gain on sale of real estate, net (11,248) (9,372)
Proportionate share of adjustments to earnings from equity method investments (a) (b)
7,683 10,306
Proportionate share of adjustments for noncontrolling interests (c)
(4) (4) Total adjustments 131,256 110,134 FFO (as defined by NAREIT) attributable toW. P. Carey - Real Estate 278,114 154,721 Adjustments: Other (gains) and losses (d) (34,418) 42,189
Above- and below-market rent intangible lease amortization, net 11,004
12,115 Straight-line and other leasing and financing adjustments (10,847) (8,751) Stock-based compensation 7,833 5,381 Amortization of deferred financing costs 3,128 3,413 Merger and other expenses (e) (2,325) (491) Tax benefit - deferred and other (1,189) (2,595) Other amortization and non-cash items 552 29
Proportionate share of adjustments to earnings from equity method investments (b)
167 4,322
Proportionate share of adjustments for noncontrolling interests (c)
(5) (5) Total adjustments (26,100) 55,607 AFFO attributable to W. P. Carey - Real Estate $
252,014
Summary
FFO (as defined by NAREIT) attributable to
$ 278,114 $ 154,721 AFFO attributable to W. P. Carey - Real Estate$ 252,014 $ 210,328 W. P. Carey 3/31/2022 10-Q - 56
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FFO and AFFO from Investment Management were as follows (in thousands):
Three Months Ended
2022 2021
Net income from Investment Management attributable to
$ 10,137$ 7,047 FFO (as defined by NAREIT) attributable toW. P. Carey - Investment Management 10,137 7,047 Adjustments: Other (gains) and losses (1,327) (1,001) Tax benefit - deferred and other (53) (792) Merger and other expenses 3 15
Proportionate share of adjustments to earnings from equity method investments (b)
(1,948) 889 Total adjustments (3,325) (889)
AFFO attributable to
Summary
FFO (as defined by NAREIT) attributable to
$
10,137
__________ (a)Amount for the three months endedMarch 31, 2022 includes our$4.6 million proportionate share of an impairment charge recognized on an equity method investment in real estate ( Note 7 ). Amount for the three months endedMarch 31, 2021 includes a non-cash other-than-temporary impairment charge of$6.8 million recognized on an equity method investment in real estate ( Note 8 ). (b)Equity income, including amounts that are not typically recognized for FFO and AFFO, is recognized within Earnings (losses) from equity method investments on the consolidated statements of income. This represents adjustments to equity income to reflect FFO and AFFO on a pro rata basis. (c)Adjustments disclosed elsewhere in this reconciliation are on a consolidated basis. This adjustment reflects our FFO or AFFO on a pro rata basis. (d)Primarily comprised of gains and losses on extinguishment of debt, the mark-to-market fair value of equity securities, and foreign currency transactions, as well as non-cash allowance for credit losses on loans receivable and direct financing leases. (e)Amount for the three months endedMarch 31, 2022 is primarily comprised of (i)$3.6 million of reversals of estimated liabilities for German real estate transfer taxes that were previously recorded in connection with mergers in prior years and (ii)$0.9 million of costs incurred in connection with the Proposed Merger ( Note 1 ). 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.
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