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, 2021 for discussion of our financial condition and results of operations for the year ended December 31, 2020. Refer to Item 1. Business for a description of our business.
Significant Developments
Board of Directors Change
On
Financial Highlights
During the year ended
Real Estate
CPA:18 Merger
On
•We acquired full or partial ownership interests in 42 properties in the CPA:18 Merger (including seven properties in which we already owned a partial ownership interest), substantially all of which were triple-net leased with a weighted-average lease term of 7.0 years, an occupancy rate of 99.3%, and an estimated ABR totaling$81.0 million . We also acquired 65 self-storage operating properties and two student housing operating properties totaling 5.1 million square feet. The related property-level debt was comprised of non-recourse mortgage loans with an aggregate consolidated fair value of approximately$900.2 million with a weighted-average annual interest rate of 5.1% as ofAugust 1, 2022 . •We issued the following to CPA:18 - Global stockholders as part of the merger consideration: (i) 13,786,302 shares of our common stock of approximately$1.2 billion , (ii)$3.00 per share of cash consideration totaling approximately$423.3 million , and (iii) cash of$0.1 million paid in lieu of issuing any fractional shares of our common stock. •Lease revenues and operating property revenues from properties acquired in the CPA:18 Merger were$42.7 million and$39.2 million , respectively, for the year endedDecember 31, 2022 . •We recognized a Gain on change in control of interests of$33.9 million in connection with the CPA:18 Merger during the year endedDecember 31, 2022 , of which$11.4 million was attributable to our Real Estate segment and$22.5 million was attributable to our Investment Management segment.W. P. Carey 2022
10-K - 23
--------------------------------------------------------------------------------
Investments
•We acquired 23 investments totaling$1.2 billion ( Note 5 , Note 6 ). •We completed six construction projects at a cost totaling$148.1 million ( Note 5 ). •We funded approximately$89.5 million for a construction loan to build a retail complex inLas Vegas, Nevada , during the year endedDecember 31, 2022 . ThroughDecember 31, 2022 , we have funded$193.2 million ( Note 8 ). •We committed to fund six build-to-suit or redevelopment projects totaling$20.3 million . We currently expect to complete the projects in 2023 ( Note 5 ).
Dispositions
•We disposed of 23 properties for total proceeds, net of selling costs, of$234.7 million ( Note 16 ). •InJanuary 2022 , WLT redeemed in full our 1,300,000 shares of its preferred stock for gross proceeds of$65.0 million ( Note 9 ). •InOctober 2022 , we received$82.6 million in cash proceeds as a result of certain private real estate funds' acquisition of all outstanding shares of WLT common stock. As of the date of acquisition, we owned 12,208,243 shares of WLT common stock. Upon completion of this transaction, we have no remaining interest in WLT ( Note 9 ).
Financing and Capital Markets Transactions
•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 . We used the approximately$300 million of proceeds from this increase in the capacity of our Unsecured Term Loans to partially repay amounts outstanding under our Unsecured Revolving Credit Facility ( Note 11 ). •OnMay 2, 2022 , we established a$1.0 billion ATM Program, under which we may issue shares directly or defer delivery to a later date through our ATM Forwards ( Note 13 ). •We issued 2,740,295 shares of our common stock under our prior ATM Program at a weighted-average price of$80.79 per share, for net proceeds of$218.1 million ( Note 13 ). •We settled our remaining Equity Forwards by delivering 3,925,000 shares of common stock for net proceeds of$284.3 million ( Note 13 ). •As ofDecember 31, 2022 , we had approximately$530.0 million of available proceeds under our ATM Forwards ( Note 13 ). •OnSeptember 28, 2022 , we completed a private placement of (i) €150 million of 3.41% Senior Notes due 2029, which have a seven-year term and are scheduled to mature onSeptember 28, 2029 , and (ii) €200 million of 3.70% Senior Notes due 2032, which have a ten-year term and are scheduled to mature onSeptember 28, 2032 ( Note 11 ). Investment Management •Upon completion of the CPA:18 Merger ( Note 3 ), we ceased earning advisory fees and other income previously earned when we served as advisor to CPA:18 - Global. During the year endedDecember 31, 2022 , through the date of the CPA:18 Merger, such fees and other income from CPA:18 - Global totaled$17.9 million . Investment Management fees and other income are expected to be minimal going forward. Dividends to Stockholders
We declared cash dividends totaling
W. P. Carey 2022
10-K - 24
--------------------------------------------------------------------------------
Consolidated Results
(in thousands, except shares)
Years Ended December 31,
2022 2021
Revenues from Real Estate $ 1,468,101 $ 1,312,126
Revenues from Investment Management 10,985 19,398
Total revenues 1,479,086 1,331,524
Net income from Real Estate attributable to W. P. Carey 591,603 384,766
Net income from Investment Management attributable to
25,222
Net income attributable to W. P. Carey 599,139 409,988
Dividends declared 859,655 781,626
Net cash provided by operating activities 1,003,556 926,479
Net cash used in investing activities (1,052,531) (1,566,727)
Net cash provided by financing activities 57,887 557,048
Supplemental financial measures (a):
Adjusted funds from operations attributable to
1,042,782 896,139
Adjusted funds from operations attributable to
17,816 25,352
Adjusted funds from operations attributable to
921,491
Diluted weighted-average shares outstanding 200,427,124 183,127,098
__________
(a)We consider Adjusted funds from operations ("AFFO"), a supplemental measure
that is not defined by U.S. generally accepted accounting principles ("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
Real Estate revenue increased in 2022 as compared to 2021, primarily due to
higher lease revenues (substantially as a result of property acquisition
activity and rent escalations, as well as the net-leased properties we acquired
in the CPA:18 Merger on August 1, 2022 ( Note 3 ), partially offset by the
impact of the weakening euro and British pound sterling) and higher operating
property revenues (primarily from the operating properties we acquired in the
CPA:18 Merger on August 1, 2022 ( Note 3 )), partially offset by lower other
lease-related income ( Note 5 ).
Net Income Attributable to
Net income attributable toW. P. Carey increased in 2022 as compared to 2021. Net income from Real Estate attributable toW. P. Carey increased primarily due to a lower loss on extinguishment of debt ( Note 11 ), non-cash unrealized gains recognized on our investment in common shares of WLT ( Note 9 ), and the impact of real estate acquisitions, partially offset by higher interest expense and the impact of the weakening euro and British pound sterling. In addition, we recognized non-cash unrealized gains on our investment in shares of Lineage Logistics during both the current and prior year ( Note 9 ). Net income from Investment Management attributable toW. P. Carey decreased primarily due to an impairment charge recognized on goodwill within our Investment Management segment ( Note 9 ). In addition, we recognized a gain on change in control of interests during the current year in connection with the CPA:18 Merger ( Note 3 ).W. P. Carey 2022 10-K - 25
--------------------------------------------------------------------------------
AFFO
AFFO increased in 2022 as compared to 2021, primarily due to investment activity and rent escalations, higher other lease-related income (on an AFFO basis), and the accretive impact of the CPA:18 Merger ( Note 3 ), partially offset by the impact of the weakening euro and British pound sterling and higher interest expense.
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, Net-leased Properties 2022 2021 ABR (in thousands)$ 1,381,899 $ 1,247,764 Number of net-leased properties (a) 1,449
1,304
Number of tenants 392
352
Total square footage (in thousands) 175,957
155,674
Occupancy 98.8 % 98.5 % Weighted-average lease term (in years) 10.8
10.8
Operating Properties Number of operating properties: (b) 87
20
Number of self-storage operating properties 84
19
Number of student housing operating properties 2
-
Number of hotel operating properties 1
1
Occupancy (self-storage operating properties) 91.0 % 95.3 % Number of countries (c) 26 24 Total assets (in thousands)$ 18,102,035 $ 15,480,630 Net investments in real estate (in thousands) 15,488,898 13,037,369 Years Ended December 31, 2022 2021 Acquisition volume (in millions) (d)$ 1,265.5 $ 1,627.9 Construction projects completed (in millions) 148.1 88.2 Average U.S. dollar/euro exchange rate 1.0540 1.1830 Average U.S. dollar/British pound sterling exchange rate 1.2373 1.3755 __________ (a)We acquired 35 net-leased properties (in which we did not already have an ownership interest) in the CPA:18 Merger inAugust 2022 ( Note 3 ). (b)We acquired 65 self-storage properties, one student housing property, and one student housing development project in the CPA:18 Merger inAugust 2022 ( Note 3 ). (c)We acquired investments inBelgium during the year endedDecember 31, 2022 . We acquired an investment inMauritius in connection with the CPA:18 Merger inAugust 2022 ( Note 3 ). (d)Amount for the year endedDecember 31, 2022 excludes properties acquired in the CPA:18 Merger ( Note 3 ). Amounts for the years endedDecember 31, 2022 and 2021 include$19.8 million and$217.0 million , respectively, of sale-leasebacks classified as loans receivable ( Note 6 ). Amounts for the years endedDecember 31, 2022 and 2021 include$89.5 million and$103.7 million , respectively, of funding for a construction loan ( Note 8 ). W. P. Carey 2022
10-K - 26
--------------------------------------------------------------------------------
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 in
and Mercury Partners, LP the U.S. 78 $ 38,751 2.8 % 1.3
Government office properties in
State of Andalucía (a) Spain 70 29,271 2.1 % 12.0
Metro Cash & Carry Italia Business-to-business wholesale
S.p.A. (a) stores in Italy and Germany 20 27,512 2.0 % 5.8
Hellweg Die Profi-Baumärkte Do-it-yourself retail properties in
GmbH & Co. KG (a) Germany 35 27,250 2.0 % 14.2
Net lease self-storage properties in
Extra Space Storage, Inc. the U.S. 27 22,957 1.7 % 21.3
Do-it-yourself retail properties in
OBI Group (a) Poland 26 22,266 1.6 % 7.8
Net lease hotel properties in the
Marriott Corporation (b) U.S. 18 21,350 1.6 % 1.03 20,981 1.5 % 20.7 Advance Auto Parts, Inc. Distribution facilities in the U.S. 29 19,851 1.4 % 10.1 Eroski Sociedad Grocery stores and warehouses in Cooperativa (a) Spain 63 19,705 1.4 % 13.2 Total 369$ 249,894 18.1 % 10.1 __________ (a)ABR amounts are subject to fluctuations in foreign currency exchange rates. (b)ABR for this tenant includes$16.1 million from a lease that expired inJanuary 2023 . Upon lease expiration, these properties were converted from net lease properties to operating properties. W. P. Carey 2022
10-K - 27
--------------------------------------------------------------------------------
Portfolio Diversification by Geography
(in thousands, except percentages)
Square Footage
Region ABR ABR Percent Square Footage (a) Percent
United States
South
Texas $ 115,176 8.3 % 12,609 7.2 %
Florida 54,064 3.9 % 4,544 2.6 %
Georgia 28,411 2.1 % 4,721 2.7 %
Tennessee 25,545 1.8 % 4,136 2.3 %
Alabama 20,072 1.5 % 3,334 1.9 %
Other (b) 14,529 1.1 % 2,237 1.3 %
Total South 257,797 18.7 % 31,581 18.0 %
Midwest
Illinois 75,252 5.5 % 10,864 6.2 %
Minnesota 34,977 2.5 % 3,686 2.1 %
Indiana 29,312 2.1 % 5,222 3.0 %
Michigan 28,311 2.1 % 4,705 2.7 %
Ohio 28,303 2.0 % 6,181 3.5 %
Wisconsin 18,126 1.3 % 3,276 1.8 %
Other (b) 42,430 3.1 % 6,230 3.5 %
Total Midwest 256,711 18.6 % 40,164 22.8 %
East
North Carolina 38,333 2.8 % 8,302 4.7 %
Pennsylvania 32,169 2.3 % 3,527 2.0 %
New York 19,373 1.4 % 2,257 1.3 %
Kentucky 18,638 1.4 % 3,063 1.7 %
South Carolina 18,556 1.3 % 4,949 2.8 %
Massachusetts 18,209 1.3 % 1,387 0.8 %
New Jersey 15,735 1.1 % 943 0.5 %
Virginia 14,652 1.1 % 1,854 1.1 %
Other (b) 25,029 1.8 % 3,884 2.2 %
Total East 200,694 14.5 % 30,166 17.1 %
West
California 64,977 4.7 % 6,417 3.6 %
Arizona 30,417 2.2 % 3,437 2.0 %
Other (b) 64,897 4.7 % 6,994 4.0 %
Total West 160,291 11.6 % 16,848 9.6 %
United States Total 875,493 63.4 % 118,759 67.5 %
International
Germany 71,304 5.2 % 7,020 4.0 %
Spain 63,779 4.6 % 5,187 3.0 %
Poland 63,552 4.6 % 8,631 4.9 %
The Netherlands 55,666 4.0 % 7,054 4.0 %
United Kingdom 51,977 3.8 % 4,766 2.7 %
Italy 26,884 1.9 % 2,541 1.4 %
Denmark 23,526 1.7 % 3,039 1.7 %
France 19,920 1.4 % 1,679 1.0 %
Croatia 19,475 1.4 % 2,063 1.2 %
Canada 16,337 1.2 % 2,492 1.4 %
Norway 15,533 1.1 % 753 0.4 %
Other (c) 78,453 5.7 % 11,973 6.8 %
International Total 506,406 36.6 % 57,198 32.5 %
Total $ 1,381,899 100.0 % 175,957 100.0 %
W. P. Carey 2022 10-K - 28
--------------------------------------------------------------------------------
Portfolio Diversification by Property Type
(in thousands, except percentages)
Square Footage
Property Type ABR ABR Percent Square Footage (a) Percent
Industrial $ 366,777 26.5 % 62,521 35.6 %
Warehouse 333,713 24.1 % 63,192 35.9 %
Office 239,941 17.4 % 16,703 9.5 %
Retail (d) 231,839 16.8 % 20,290 11.5 %
Self Storage (net lease) 61,708 4.5 % 5,810 3.3 %
Other (e) 147,921 10.7 % 7,441 4.2 %
Total $ 1,381,899 100.0 % 175,957 100.0 %
__________
(a)Includes square footage for any vacant properties.
(b)Other properties within South include assets in Louisiana , Arkansas ,
Oklahoma , and Mississippi . Other properties within Midwest include assets in
Iowa , Missouri , Kansas , Nebraska , South Dakota , and North Dakota . Other
properties within East include assets in Maryland , Connecticut , West Virginia ,
New Hampshire , and Maine . Other properties within West include assets in Utah ,
Oregon , Colorado , Washington , Nevada , Hawaii , Idaho , New Mexico , Wyoming , and
Montana .
(c)Includes assets in Lithuania , Mexico , Finland , Belgium , Hungary , Mauritius ,
Slovakia , Portugal , the Czech Republic , Austria , Sweden , Japan , Latvia , and
Estonia .
(d)Includes automotive dealerships.
(e)Includes ABR from tenants with the following property types: hotel (net
lease), education facility, laboratory, specialty, fitness facility, research
and development, student housing (net lease), theater, funeral home, restaurant,
land, and parking.
W. P. Carey 2022 10-K - 29
--------------------------------------------------------------------------------
Portfolio Diversification by Tenant Industry
(in thousands, except percentages)
Square Footage
Industry Type ABR ABR Percent Square Footage Percent
Retail Stores (a) $ 283,868 20.5 % 36,457 20.7 %
Consumer Services 110,969 8.0 % 8,067 4.6 %
Beverage and Food 105,906 7.7 % 15,759 9.0 %
Automotive 85,966 6.2 % 13,477 7.7 %
Grocery 79,516 5.8 % 8,363 4.8 %
Cargo Transportation 63,473 4.6 % 9,550 5.4 %
Hotel and Leisure 57,132 4.1 % 3,060 1.7 %
Healthcare and Pharmaceuticals 55,806 4.0 % 5,557 3.2 %
Capital Equipment 55,593 4.0 % 8,459 4.8 %
Business Services 48,375 3.5 % 4,113 2.3 %
Containers, Packaging, and Glass 46,942 3.4 % 8,266 4.7 %
Durable Consumer Goods 46,761 3.4 % 10,300 5.9 %
Construction and Building 46,583 3.4 % 9,235 5.2 %
Sovereign and Public Finance 42,578 3.1 % 3,560 2.0 %
High Tech Industries 36,027 2.6 % 3,574 2.0 %
Insurance 30,862 2.2 % 2,024 1.1 %
Chemicals, Plastics, and Rubber 29,935 2.2 % 5,254 3.0 %
Non-Durable Consumer Goods 26,374 1.9 % 6,244 3.5 %
Banking 23,894 1.7 % 1,426 0.8 %
Metals 18,673 1.4 % 3,259 1.9 %
Telecommunications 16,839 1.2 % 1,686 1.0 %
Other (b) 69,827 5.1 % 8,267 4.7 %
Total $ 1,381,899 100.0 % 175,957 100.0 %
__________
(a)Includes automotive dealerships.
(b)Includes ABR from tenants in the following industries: media: broadcasting
and subscription, aerospace and defense, wholesale, media: advertising,
printing, and publishing, oil and gas, utilities: electric, environmental
industries, consumer transportation, forest products and paper, electricity, and
real estate. Also includes square footage for vacant properties.
W. P. Carey 2022 10-K - 30
--------------------------------------------------------------------------------
Lease Expirations
(dollars and square footage in thousands)
Number of
Year of Lease Number of Leases Tenants with Square Footage
Expiration (a) Expiring Leases Expiring ABR ABR Percent Square Footage Percent
2023 (b) 36 30 $ 54,228 3.9 % 5,500 3.1 %
2024 (c) 41 35 90,330 6.6 % 11,230 6.4 %
2025 53 32 61,241 4.4 % 7,068 4.0 %
2026 46 36 64,074 4.7 % 9,081 5.1 %
2027 57 33 82,953 6.0 % 8,906 5.1 %
2028 46 28 69,298 5.0 % 5,589 3.2 %
2029 57 29 68,802 5.0 % 8,337 4.7 %
2030 34 29 73,128 5.3 % 6,165 3.5 %
2031 37 21 70,249 5.1 % 8,749 5.0 %
2032 41 22 44,204 3.2 % 6,200 3.5 %
2033 31 24 81,864 5.9 % 11,377 6.5 %
2034 49 18 83,347 6.0 % 8,638 4.9 %
2035 14 14 29,388 2.1 % 4,957 2.8 %
2036 49 19 84,795 6.1 % 13,524 7.7 %
Thereafter (>2036) 261 107 423,998 30.7 % 58,555 33.3 %
Vacant - - - - % 2,081 1.2 %
Total 852 $ 1,381,899 100.0 % 175,957 100.0 %
__________
(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 that expired in January 2023 . Upon lease expiration, these properties were
converted from net lease properties to operating properties.
(c)Includes ABR of $38.8 million from a tenant (U-Haul Moving Partners, Inc. and
Mercury Partners, LP ) that holds an option to repurchase the 78 properties it is
leasing in April 2024 . There can be no assurance that such repurchase will be
completed.
Rent Collections
Through the date of this Report, we received from tenants over 99.3% of
contractual base rent that was due during the fourth quarter of 2022 (based on
contractual minimum ABR as of
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 ofDecember 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 2022
10-K - 31
--------------------------------------------------------------------------------
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 CESH portfolio until it
reaches the end of its life cycle. Refer to Note 17 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):
Years Ended December 31,
2022 2021 Change
Real Estate Revenues
Lease revenues from:
Existing net-leased properties $ 1,110,502 $ 1,103,945 $ 6,557
Recently acquired net-leased properties 140,431 53,687 86,744
Net-leased properties acquired in the CPA:18 Merger 36,040 - 36,040
Net-leased properties sold or held for sale 14,644 19,806 (5,162)
Total lease revenues (including reimbursable tenant costs)
1,301,617 1,177,438 124,179
Income from direct financing leases and loans receivable 74,266
67,555 6,711
Operating property revenues from:
Operating properties acquired in the CPA:18 Merger 39,193 - 39,193
Existing operating properties 20,037 13,478 6,559
Total operating property revenues 59,230 13,478 45,752
Other lease-related income 32,988 53,655 (20,667)
$ 1,468,101 $ 1,312,126 $ 155,975
W. P. Carey 2022 10-K - 32
--------------------------------------------------------------------------------
Lease Revenues
"Existing net-leased properties" are those that we acquired or placed into
service prior to
For the year ended
[[Image Removed: wpc-20221231_g3.jpg]] __________ (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 48 investments (comprised of 192 properties and six land parcels under buildings that we already own) and placed three properties into service. "Net-leased properties acquired in the CPA:18 Merger" onAugust 1, 2022 ( Note 3 ) consisted of 38 net-leased properties, which contributed five months of lease revenue, depreciation and amortization, and property expenses during the year endedDecember 31, 2022 . "Net-leased properties sold or held for sale" include (i) 23 net-leased properties disposed of during the year endedDecember 31, 2022 ; (ii) three net-leased properties classified as held for sale atDecember 31, 2022 , one of which was sold inJanuary 2023 ( Note 5 , Note 18 ); and (iii) 24 net-leased properties disposed of during the year endedDecember 31, 2021 . Our dispositions are more fully described in Note 16 .W. P. Carey 2022
10-K - 33
--------------------------------------------------------------------------------
Income from Direct Financing Leases and Loans Receivable
For the year endedDecember 31, 2022 as compared to 2021, income from direct financing leases and loans receivable decreased due to the following items (in millions):
[[Image Removed: wpc-20221231_g4.jpg]]
Operating Property Revenues and Expenses
"Operating properties acquired in the CPA:18 Merger" onAugust 1, 2022 ( Note 3 ) consisted of 65 self-storage properties and two student housing properties, which contributed five months of operating property revenues, depreciation and amortization, and operating property expenses during the year endedDecember 31, 2022 . "Existing operating properties" are those that we acquired or placed into service prior toJanuary 1, 2021 and that were not sold or held for sale during the periods presented. For the periods presented, we recorded operating property revenues from 11 existing 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$4.9 million and$2.8 million , respectively, for the year endedDecember 31, 2022 as compared to 2021, reflecting higher occupancy as the hotel's business recovers from the ongoing COVID-19 pandemic.
Other Lease-Related Income
Other lease-related income is described in Note 5 .
Operating Expenses
Depreciation and Amortization
For the year endedDecember 31, 2022 as compared to 2021, depreciation and amortization expense for net-leased properties and self-storage operating properties increased primarily due to the impact of net acquisition activity (including properties acquired in the CPA:18 Merger ( Note 3 )), partially offset by the weakening of foreign currencies (primarily the euro and British pound sterling) in relation to theU.S. dollar between the periods.W. P. Carey 2022
10-K - 34
--------------------------------------------------------------------------------
General and Administrative
All general and administrative expenses are recognized within our Real Estate segment.
For the year ended
Property Expenses, Excluding Reimbursable Tenant Costs
For the year endedDecember 31, 2022 as compared to 2021, property expenses, excluding reimbursable tenant costs, increased by$2.9 million , primarily due to due to tenant vacancies during 2021 and 2022 (which resulted in property expenses no longer being reimbursable) and property expenses incurred on acquisitions sinceJanuary 1, 2021 ( Note 3 ).
Impairment Charges
Our impairment charges are described in Note 9 .
Stock-based Compensation Expense
For a description of our equity plans and awards, please see Note 14 . Stock-based compensation expense is fully recognized within our Real Estate segment.
For the year ended
Merger and Other Expenses
For the years endedDecember 31, 2022 and 2021, merger and other expenses are primarily comprised of costs incurred in connection with the CPA:18 Merger ( Note 3 ) and/or reversals of estimated liabilities for German real estate transfer taxes that were previously recorded in connection with mergers in prior years.
Other Income and (Expenses), and (Provision for) Benefit from Income Taxes
Interest Expense
For the year endedDecember 31, 2022 as compared to 2021, interest expense increased by$22.3 million , primarily due to (i)$20.1 million of interest expense incurred from August throughDecember 2022 related to non-recourse mortgage loans assumed in the CPA:18 Merger ( Note 3 ), (ii) higher outstanding balances and interest rates on our Senior Unsecured Credit Facility, and (iii) five senior unsecured notes issuances totaling$1.7 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 2.1% completed sinceJanuary 1, 2021 , partially offset by (i) the weakening of foreign currencies (primarily the euro and British pound sterling) in relation to theU.S. dollar between the periods and (ii) the reduction of our mortgage debt outstanding by prepaying or repaying at or close to maturity a total of$892.9 million of non-recourse mortgage loans with a weighted-average interest rate of 4.8% sinceJanuary 1, 2021 .
The following table presents certain information about our outstanding debt (dollars in thousands):
Years Ended December 31,
2022 2021
Average outstanding debt balance $ 7,392,208 $ 6,906,997
Weighted-average interest rate 2.7 % 2.6 %
The weighted-average interest rate for our debt instruments as of
W. P. Carey 2022 10-K - 35
--------------------------------------------------------------------------------
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 exchange rate movements. 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 years endedDecember 31, 2022 and 2021. Therefore, no gains and losses on foreign currency exchange rate movements were recognized on the remeasurement of such instruments during those periods ( Note 10 ). The following table presents other gains and (losses) within our Real Estate segment (in thousands): Years Ended December 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 9 )
$ 49,233 $ -$ 49,233 Non-cash unrealized gains related to an increase in the fair value of our investment in shares of Lineage Logistics ( Note 9 ) 38,582 76,312 (37,730)
Net realized and unrealized losses on foreign currency exchange rate movements (a)
(26,866) (15,608) (11,258)
Non-cash unrealized gains related to an increase in the fair value of our investment in preferred shares of WLT ( Note 9 )
18,688 - 18,688
Change in allowance for credit losses on finance
receivables ( Note 6 ) 14,363 (266) 14,629
Gain on repayment of secured loan receivable (b) 10,613 - 10,613
Adjustment to insurance receivable acquired as part of a prior merger (c)
(9,358) - (9,358)
Gain (loss) on extinguishment of debt (d) 1,301 (75,339) 76,640
Other 593 1,225 (632)
$ 97,149 $ (13,676) $ 110,825
__________
(a)We make certain foreign currency-denominated intercompany loans to a number
of our foreign subsidiaries, most of which do not have the U.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)We acquired a secured loan receivable with a fair value of $23.4 million in
our merger with a former affiliate, Corporate Property Associates 17 - Global
Incorporated , in October 2018 ("CPA:17 Merger"), for which the outstanding
principal of $34.0 million was fully repaid to us in September 2022 ( Note
6 ). Therefore, we recorded a $10.6 million gain on repayment of this secured
loan receivable.
(c)This insurance receivable was acquired in the CPA:17 Merger.
(d)Amount for the year ended December 31, 2021 is related to the prepayment of
mortgage loans (primarily comprised of prepayment penalties totaling $45.2
million ) and redemption of the €500.0 million of 2.0% Senior Notes due 2023 in
March 2021 (primarily comprised of a "make-whole" amount of $26.2 million
related to the redemption) ( Note 11 ).
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 16 .
W. P. Carey 2022 10-K - 36
--------------------------------------------------------------------------------
Non-Operating Income
Non-operating income primarily consists of realized gains and losses on derivative instruments, dividends from equity 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):
Years Ended December 31,
2022 2021 Change
Non-Operating Income
Realized gains on foreign currency collars ( Note 10 ) $ 24,058 $ 2,357 $ 21,701
Cash dividend from our investment in Lineage Logistics
( Note 9 ) 4,308 6,438 (2,130)
Interest income related to our loans to affiliates and cash deposits
1,011 90 921
Cash dividends from our investment in preferred shares of
WLT ( Note 9 ) 912 4,893 (3,981)
$ 30,289 $ 13,778 $ 16,511 Earnings (Losses) from Equity Method Investments in Real Estate
Our equity method investments in real estate are more fully described in Note 8 . The following table presents earnings (losses) from equity method investments in real estate (in thousands):
Years Ended
2022 2021 Change
Earnings (Losses) from Equity Method Investments in Real
Estate
Existing Equity Method Investments:
Earnings from Las Vegas Retail Complex $ 10,077 $ 3,017 $ 7,060
Earnings from Johnson Self Storage (a) 4,334 2,460 1,874
Earnings from Kesko Senukai (b) 3,908 841 3,067
Earnings from Harmon Retail Center 1,051 1,108 (57)
Losses from WLT (c) - (10,790) 10,790
19,370 (3,364) 22,734
Equity Method Investments Consolidated after the CPA:18
Merger ( Note 3 ):
Proportionate share of impairment charge or
other-than-temporary impairment charge recognized on Bank
Pekao ( Note 8 , Note 9 ) (4,610) (13,220) 8,610
Earnings from Fortenova Grupa d.d. (d) 136 1,542 (1,406)
Other-than-temporary impairment charge on
- (6,830) 6,830
Other 1,325 2,223 (898)
(3,149) (16,285) 13,136
$ 16,221 $ (19,649) $ 35,870
__________
(a)Increase is primarily due to higher occupancy and unit rates at these
self-storage facilities.
(b)Increase is primarily due to higher rent collections at these retail
properties, where certain rents were previously disputed and subsequently
collected.
(c)Loss for 2021 is 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 in January 2022 ( Note
9 ).
(d)Amount for 2021 reflects our proportionate share of a gain recognized on the
sale of one of the properties in this portfolio.
W. P. Carey 2022 10-K - 37
--------------------------------------------------------------------------------
(Provision for) Benefit from Income Taxes
For the year endedDecember 31, 2022 as compared to 2021, provision for income taxes within our Real Estate segment decreased by$7.3 million , primarily due to (i) deferred tax benefits totaling$3.5 million recognized during 2022 related to the release of valuation allowances on certain foreign properties, (ii) trade taxes of$1.8 million recognized during 2021 as a result of the completion of a tax review on a portfolio of properties inGermany , and (iii) tax benefits of$0.7 million recognized on certain foreign properties during 2022 as a result of a tax court ruling. 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 (throughAugust 1, 2022 ), CWI 1 and CWI 2 (throughApril 13, 2020 ), and CESH. Upon completion of the CPA:18 Merger onAugust 1, 2022 ( Note 3 ), the advisory agreement with CPA:18 - Global was terminated, and we ceased earning revenue from CPA:18 - Global. 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 4 ). We no longer raise capital for new or existing funds, but we currently expect to continue managing CESH and earn the various fees described below through the end of its life cycle ( Note 1 , Note 4 ).
Revenues
The following table presents revenues within our Investment Management segment
(in thousands):
Years Ended December 31,
2022 2021 Change
Investment Management Revenues
Asset management and other revenue
CPA:18 - Global $ 6,956 $ 12,528 $ (5,572)
CESH 1,511 2,835 (1,324)
8,467 15,363 (6,896)
Reimbursable costs from affiliates
CPA:18 - Global 2,040 2,874 (834)
CESH 478 878 (400)
WLT - 283 (283)
2,518 4,035 (1,517)
$ 10,985 $ 19,398 $ (8,413) Asset Management and Other Revenue
During the periods presented, we earned asset management revenue from (i) CPA:18 - Global (prior to the CPA:18 Merger) 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. For 2022, we received 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 CPA:18 Merger, which closed onAugust 1, 2022 ( Note 3 ), and (ii) CESH in cash. Asset management revenues from CESH are expected to decline as assets are sold.
Operating Expenses
Impairment Charges - Investment Management Goodwill
Our impairment charges on Investment Management goodwill are more fully
described in Note 9 .
W. P. Carey 2022 10-K - 38
--------------------------------------------------------------------------------
Other Income and Expenses, and (Provision for) Benefit from Income Taxes
Earnings from Equity Method Investments in the Managed Programs
The following table presents the details of our earnings from equity method investments in the Managed Programs ( Note 8 ) (in thousands):
Years Ended
2022 2021
Earnings from equity method investments in the Managed Programs: Distributions of Available Cash from CPA:18 - Global (a)
$
8,746
4,542 1,475
Earnings from equity method investments in the Managed Programs
__________ (a)As a result of the completion of the CPA:18 Merger onAugust 1, 2022 ( Note 3 ), we no longer recognize equity income from our investment in shares of common stock of CPA:18 - Global or receive distributions of Available Cash from CPA:18 - Global. (b)The increase for the year endedDecember 31, 2022 as compared to 2021 was primarily due to an increase of$3.1 million from our investment in shares of CPA:18 - Global.
(Provision for) Benefit from Income Taxes
For the year endedDecember 31, 2022 we recorded a provision for income taxes of$6.3 million , compared to a benefit from income taxes of$0.2 million recognized during the year endedDecember 31, 2021 , within our Investment Management segment. During 2022, in connection with the CPA:18 Merger, we incurred one-time current taxes upon the recognition of taxable income associated with the accelerated vesting of shares previously issued by CPA:18 - Global to us for asset management services performed.
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 timing of settlement of foreign currency transactions; changes in foreign currency exchange rates; and the timing of distributions from equity method investments. We no longer receive certain fees and distributions from CPA:18 - Global following the completion of the CPA:18 Merger onAugust 1, 2022 ( 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 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 ATM Forwards ( Note 13 ), 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$77.1 million during 2022 as compared to 2021, primarily due to an increase in cash flow generated from net investment activity (including properties acquired in the CPA:18 Merger ( Note 3 )) and scheduled rent increases at existing properties. These increases were partially offset by higher interest expense and merger expenses recognized during the current year related to the CPA:18 Merger ( Note 3 ).W. P. Carey 2022 10-K - 39
--------------------------------------------------------------------------------
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 connection with the CPA:18 Merger, we paid$423.4 million in cash consideration, and acquired$331.1 million of cash and restricted cash. We received$147.6 million of proceeds from the redemption of WLT preferred stock and cash exchanged for WLT common stock ( Note 9 ). In addition, during the year endedDecember 31, 2022 , we used$26.0 million to fund short-term loans to the Managed Programs, all of which were repaid during that period ( Note 4 ). We also received$7.1 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 and Unsecured Term Loans, 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 year endedDecember 31, 2022 , we received (i)$284.3 million in net proceeds from the issuance of common stock under our Equity Forwards ( Note 14 ) and (ii)$218.1 million in net proceeds from the issuance of shares under our prior ATM Program ( Note 14 ). 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,
2022 2021
Carrying Value
Fixed rate:
Senior Unsecured Notes (a) $ 5,916,400 $ 5,701,913
Non-recourse mortgages (a) 824,270 235,898
6,740,670 5,937,811
Variable rate:
Unsecured Term Loans (a) 552,539 310,583
Unsecured Revolving Credit Facility 276,392 410,596
Non-recourse mortgages (a): Floating interest rate mortgage loans 213,958
53,571
Amount subject to interest rate swaps and caps 94,189 79,055
1,137,078 853,805
$ 7,877,748 $ 6,791,616
Percent of Total Debt
Fixed rate 86 % 87 %
Variable rate 14 % 13 %
100 % 100 %
Weighted-Average Interest Rate at End of Year
Fixed rate 2.9 % 2.7 %
Variable rate (b) 3.6 % 1.1 %
Total debt 3.0 % 2.5 %
____________
(a)Aggregate debt balance includes unamortized discount, net, totaling $35.9
million and $30.9 million as of December 31, 2022 and 2021, respectively, and
unamortized deferred financing costs totaling $26.0 million and $28.8 million as
of December 31, 2022 and 2021, respectively.
(b)The impact of our interest rate swaps and caps is reflected in the
weighted-average interest rates.
W. P. Carey 2022 10-K - 40
--------------------------------------------------------------------------------
Cash Resources
At
•cash and cash equivalents totaling$168.0 million . Of this amount,$96.6 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$1.5 billion (net of amounts reserved for standby letters of credit totaling$0.6 million ); •available proceeds under our ATM Forwards of approximately$530.0 million ; and •unleveraged properties that had an aggregate asset carrying value of approximately$13.1 billion atDecember 31, 2022 , although there can be no assurance that we would be able to obtain financing for these properties.
We may also access the capital markets through additional debt (denominated in
both
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 ofDecember 31, 2022 , we had (i)$168.0 million of cash and cash equivalents, (ii) approximately$1.5 billion of available capacity under our Unsecured Revolving Credit Facility (net of amounts reserved for standby letters of credit totaling$0.6 million ), and (iii) available proceeds under our ATM Forwards of approximately$530.0 million . Our Senior Unsecured Credit Facility includes a$1.8 billion Unsecured Revolving Credit Facility and Unsecured Term Loans outstanding totaling$552.5 million as ofDecember 31, 2022 ( Note 11 ), and is scheduled to mature onFebruary 20, 2025 . As ofDecember 31, 2022 , scheduled debt principal payments total$456.7 million throughDecember 31, 2023 and$1.7 billion throughDecember 31, 2024 , and our Senior Unsecured Notes do not start to mature untilApril 2024 ( Note 11 ).
During the next 12 months following
•paying dividends to our stockholders; (which we expect to be higher, following the issuance of 13,786,302 shares of our common stock in the CPA:18 Merger ( Note 3 )); •funding acquisitions of new investments ( Note 5 ); •funding future capital commitments and tenant improvement allowances ( Note 5 ); •making scheduled principal and balloon payments on our debt obligations ( Note 11 ); •making scheduled interest payments on our debt obligations (future interest payments total$927.7 million , with$231.6 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 atDecember 31, 2022 ); 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 ATM Program ( Note 13 ), and potential issuances of additional debt or equity securities. We may also choose to prepay 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 ongoing impact of the 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.
Certain amounts disclosed above are based on the applicable foreign currency
exchange rate at
W. P. Carey 2022
10-K - 41
--------------------------------------------------------------------------------
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. 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. See Item 1A. Risk Factors for further discussion of potential environmental risks.
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 .
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 or other assets incidental to the company's main business, 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 rate movements (other than those realized on the settlement of foreign currency derivatives), which are not considered fundamental attributes of our business planW. P. Carey 2022
10-K - 42
--------------------------------------------------------------------------------
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
2022 2021
Net income attributable to W. P. Carey $ 599,139 $ 409,988 Adjustments:
Depreciation and amortization of real property 500,764 470,554 Gain on sale of real estate, net (43,476) (40,425) Impairment charges - real estate 39,119 24,246 Gain on change in control of interests (a) (b) (33,931) - Impairment charges - Investment Management goodwill (c) 29,334 -
Proportionate share of adjustments to earnings from equity method investments (d) (e)
15,155 32,213
Proportionate share of adjustments for noncontrolling interests (f)
(491) (16)
Total adjustments 506,474 486,572
FFO (as defined by NAREIT) attributable to W. P. Carey 1,105,613 896,560
Adjustments:
Other (gains) and losses (g) (96,038) 12,885 Straight-line and other leasing and financing adjustments (h) (54,431) (83,267) Above- and below-market rent intangible lease amortization, net 41,390 53,585 Stock-based compensation 32,841 24,881 Merger and other expenses (i) 19,387 (4,546) Amortization of deferred financing costs 17,203 13,523 Tax benefit - deferred and other (3,759) (5,967) Other amortization and non-cash items 1,931 1,709
Proportionate share of adjustments to earnings from equity method investments (e)
(2,770) 12,152
Proportionate share of adjustments for noncontrolling interests (f)
(769) (24)
Total adjustments (45,015) 24,931
AFFO attributable to W. P. Carey $ 1,060,598 $ 921,491 Summary
FFO (as defined by NAREIT) attributable to W. P. Carey$ 1,105,613 $ 896,560 AFFO attributable to W. P. Carey$ 1,060,598 $ 921,491 W. P. Carey 2022 10-K - 43
--------------------------------------------------------------------------------
FFO and AFFO from Real Estate were as follows (in thousands):
Years Ended
2022 2021
Net income from Real Estate attributable to W. P. Carey $ 591,603 $ 384,766 Adjustments:
Depreciation and amortization of real property 500,764 470,554 Gain on sale of real estate, net (43,476) (40,425) Impairment charges - real estate 39,119 24,246 Gain on change in control of interests (a) (b) (11,405) -
Proportionate share of adjustments to earnings from equity method investments (d) (e)
15,155 32,213
Proportionate share of adjustments for noncontrolling interests (f)
(491) (16)
Total adjustments 499,666 486,572
FFO (as defined by NAREIT) attributable to
871,338
Adjustments:
Other (gains) and losses (g) (97,149) 13,676 Straight-line and other leasing and financing adjustments (h) (54,431) (83,267) Above- and below-market rent intangible lease amortization, net 41,390 53,585 Stock-based compensation 32,841 24,881 Merger and other expenses (i) 19,384 (4,597) Amortization of deferred financing costs 17,203 13,523 Tax benefit - deferred and other (8,164) (4,938) Other amortization and non-cash items 1,931 1,709
Proportionate share of adjustments to earnings from equity method investments (e)
(723) 10,253
Proportionate share of adjustments for noncontrolling interests (f)
(769) (24)
Total adjustments (48,487) 24,801
AFFO attributable to W. P. Carey - Real Estate $ 1,042,782 $ 896,139 Summary
FFO (as defined by NAREIT) attributable to
$ 871,338 AFFO attributable to W. P. Carey - Real Estate$ 1,042,782 $ 896,139 W. P. Carey 2022 10-K - 44
--------------------------------------------------------------------------------
FFO and AFFO from Investment Management were as follows (in thousands):
Years Ended
2022 2021
Net income from Investment Management attributable to W. P. Carey $ 7,536 $ 25,222
Adjustments:
Impairment charges - Investment Management goodwill (c) 29,334 -
Gain on change in control of interests (a) (b) (22,526) -
Total adjustments 6,808 -
FFO (as defined by NAREIT) attributable to
14,344 25,222
Adjustments:
Tax expense (benefit) - deferred and other 4,405 (1,029) Other (gains) and losses (g) 1,111 (791) Merger and other expenses 3 51
Proportionate share of adjustments to earnings from equity method investments (e)
(2,047) 1,899
Total adjustments 3,472 130
AFFO attributable to W. P. Carey - Investment Management $
17,816
Summary
FFO (as defined by NAREIT) attributable to
$ 14,344 $ 25,222 AFFO attributable to W. P. Carey - Investment Management$ 17,816 $ 25,352 __________ (a)Amount for the year endedDecember 31, 2022 represents a gain recognized on the remaining interests in four investments acquired in the CPA:18 Merger, which we had previously accounted for under the equity method ( Note 3 ). (b)Amount for the year endedDecember 31, 2022 represents a gain recognized on our previously held interest in shares of CPA:18 - Global common stock in connection with the CPA:18 Merger ( Note 3 ). (c)Amount for the year endedDecember 31, 2022 represents an impairment charge recognized on goodwill within our Investment Management segment, since future Investment Management cash flows are expected to be minimal ( Note 7 , Note 9 ). (d)Amount for the year endedDecember 31, 2022 includes our$4.6 million proportionate share of an impairment charge recognized on an equity method investment in real estate ( Note 8 ). Amount for the year endedDecember 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 9 ) (e)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. (f)Adjustments disclosed elsewhere in this reconciliation are on a consolidated basis. This adjustment reflects our FFO or AFFO on a pro rata basis. (g)Primarily comprised of gains and losses on extinguishment of debt, the mark-to-market fair value of equity securities, and foreign currency exchange rate movements, as well as non-cash allowance for credit losses on loans receivable and direct financing leases. (h)Amount for the year endedDecember 31, 2021 includes an adjustment to exclude$37.8 million of lease termination fees received from a tenant, as such amount was determined to be non-core income ( Note 5 ). (i)Amounts for the years endedDecember 31, 2022 and 2021 are primarily comprised of costs incurred in connection with the CPA:18 Merger ( Note 3 ) and/or reversals of estimated liabilities for German real estate transfer taxes that were previously recorded in connection with mergers in prior years. 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 2022 10-K - 45
--------------------------------------------------------------------------------
© Edgar Online, source
