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 2019 Annual Report and
subsequent reports filed under the Securities Exchange Act of 1934.
Business Overview
As described in more detail in Item 1 of the 2019 Annual Report, we are a
diversified net lease REIT with a portfolio
of operationally-critical, commercial real estate that includes 1,215 net lease
properties covering approximately 142 million square feet and 20 operating
properties as of September 30, 2020. We invest in high-quality single tenant
industrial, warehouse, office, retail, and self-storage properties subject to
long-term net leases with built-in rent escalators. Our portfolio is located
primarily in the United States and Northern and Western Europe, and we believe
it is well-diversified by tenant, property type, geographic location, and tenant
industry.
We also earn fees and other income by managing the portfolios of the Managed
Programs through our investment management business. We no longer raise capital
for new or existing funds, but currently expect to continue managing CPA:18 -
Global and CESH through the end of their respective life cycles ( Note 1 ,
Note 3 ).
Significant Developments
Issuance of Senior Unsecured Notes
On October 14, 2020, we completed an underwritten public offering of $500.0
million of 2.400% Senior Notes due 2031, at a price of 99.099% of par value.
These 2.400% Senior Notes due 2031 have a 10.3-year term and are scheduled to
mature on February 1, 2031. We intend to use the net proceeds from the issuance
of these 2.400% Senior Notes due 2031 to repay certain indebtedness, including
amounts outstanding under our Unsecured Revolving Credit Facility (which was
used in part to repay secured mortgage debt outstanding), to fund potential
future acquisitions, and for general corporate purposes ( Note 16 ).
Board of Directors Change
On September 18, 2020, we announced that Ms. Tonit M. Calaway, age 52, was
appointed to our Board. Please see our Current Report on Form 8-K filed on
September 18, 2020 for additional information.
COVID-19
We are closely monitoring the impact of the COVID-19 pandemic on all aspects of
our business, including the safety and health of our employees, our portfolio,
and tenant credit health (including our tenants' ability to pay rent), as well
as our liquidity, capital allocation, and balance sheet management.
One of our core principles is our proactive approach to asset management. As
such, we continue to actively engage in discussions with our tenants regarding
the impact of COVID-19 on their business operations, liquidity, and financial
position. Through the date of this Report, we received from tenants
approximately 98% of contractual base rent that was due during the third quarter
of 2020 (based on contractual minimum annualized base rent ("ABR") as of June
30, 2020) and approximately 99% of contractual base rent that was due in October
(based on ABR as of September 30, 2020).
Given the significant uncertainty around the duration and severity of the impact
of COVID-19, we are unable to predict the impact it will have on our tenants'
continued ability to pay rent. Therefore, information provided regarding recent
rent collections should not serve as an indication of expected future rent
collections.
Please see Part II, Item 1A. Risk Factors in this Report for information
about the global COVID-19 pandemic.
W. P. Carey 9/30/2020 10-Q - 44
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As of September 30, 2020, we had $152.2 million of cash and cash equivalents,
approximately $1.6 billion of available capacity under our Unsecured Revolving
Credit Facility (net of amounts reserved for standby letters of credit totaling
$20.1 million), and available proceeds under our forward sale agreements of
approximately $166.1 million (based on 2,510,709 remaining shares outstanding
and a net offering price of $66.14 as of that date). Our Senior Unsecured Credit
Facility, which we amended and restated on February 20, 2020, includes a $1.8
billion Unsecured Revolving Credit Facility and Unsecured Term Loans outstanding
totaling $304.2 million as of September 30, 2020 ( Note 10 ), and is scheduled
to mature on February 20, 2025. As of September 30, 2020, scheduled debt
principal payments total $28.7 million through December 31, 2020 and $172.8
million through December 31, 2021, and our Senior Unsecured Notes do not start
to mature until January 2023 ( Note 10 ).
The potential impact of COVID-19 on our tenants and properties could have a
material adverse effect on our business, financial condition, liquidity, results
of operations, and prospects.
Financial Highlights
During the nine months ended September 30, 2020, we completed the following (as
further described in the consolidated financial statements):
Real Estate
Investments
•We acquired seven investments totaling $354.6 million ( Note 4 ).
•We completed four construction projects at a cost totaling $168.1 million
( Note 4 ).
Dispositions
•As part of our active capital recycling program, we disposed of eight
properties for total proceeds, net of selling costs, of $168.0 million
(inclusive of $4.7 million attributable to a noncontrolling interest).
Disposition activity included the sale of one of our two hotel operating
properties in January 2020 for total proceeds, net of selling costs, of $103.5
million (inclusive of $4.7 million attributable to a noncontrolling interest)
( Note 14 ).
W. P. Carey 9/30/2020 10-Q - 45
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Financing and Capital Markets Transactions
•On February 20, 2020, we amended and restated our Senior Unsecured Credit
Facility to increase its capacity to $2.1 billion, which is comprised of a $1.8
billion Unsecured Revolving Credit Facility, a £150.0 million Term Loan, and a
€96.5 million Delayed Draw Term Loan, all maturing in five years. On that date,
we drew down our Term Loan in full by borrowing £150.0 million (equivalent to
$193.1 million). On March 27, 2020, we drew down our Delayed Draw Term Loan in
full by borrowing €96.5 million (equivalent to $105.9 million) ( Note 10 ).
•On June 17, 2020, we entered into an underwriting agreement, as well as certain
forward sale agreements, with a syndicate of banks acting as underwriters,
forward sellers, and/or forward purchasers in connection with an underwritten
public offering of 4,750,000 shares of common stock at an initial forward sale
price of $68.35 per share. The underwriters were granted a 30-day option to
purchase up to an additional 712,500 shares of common stock at the initial
forward sale price, which they fully exercised on June 18, 2020. Therefore, at
closing on June 22, 2020, the forward purchasers borrowed from third parties and
sold to the underwriters an aggregate of 5,462,500 shares of common stock, which
the underwriters sold at a gross offering price of $70.00 per share, for gross
proceeds of approximately $382.4 million. During the three and nine months ended
September 30, 2020, we settled a portion of the equity forwards by physically
delivering 1,488,291 and 2,951,791 shares, respectively, of common stock to
certain forward purchasers for net proceeds of $99.8 million and $199.7 million,
respectively, which were primarily used to partially pay down amounts
outstanding under our Unsecured Revolving Credit Facility and for general
corporate purposes. As of September 30, 2020, 2,510,709 shares remained
outstanding under the forward sale agreements. We expect to settle the forward
sale agreements in full within 18 months of the offering date via physical
delivery of the outstanding shares of common stock in exchange for cash
proceeds, although we may elect cash settlement or net share settlement for all
or a portion of our obligations under the forward sale agreements, subject to
certain conditions ( Note 12 ).
•We reduced our mortgage debt outstanding by repaying at or close to maturity a
total of $202.5 million of non-recourse mortgage loans with a weighted-average
interest rate of 5.0% ( Note 1 0 ).
Investment Management
CWI 1 and CWI 2 Merger
On April 13, 2020, the CWI 1 and CWI 2 Merger closed ( Note 3 ).
•In connection with the termination of our advisory agreements with CWI 1 and
CWI 2, the operating partnerships of each of CWI 1 and CWI 2 redeemed the
special general partner interests that we previously held, for which we received
1,300,000 shares of CWI 2 preferred stock with a fair value of $46.3 million and
2,840,549 shares in CWI 2 Class A common stock with a fair value of $11.6
million; in connection with this redemption, we recognized a non-cash net gain
on sale of $33.0 million, which was included within Equity in earnings (losses)
of equity method investments in the Managed Programs and real estate in the
consolidated statements of income for the nine months ended September 30, 2020.
The carrying value of our investment in WLT preferred stock (formerly CWI 2
preferred stock) was $46.3 million as of September 30, 2020, and is included
within Other assets, net on our consolidated balance sheets as
available-for-sale debt securities ( Note 8 ).
•We exchanged our 6,074,046 shares of CWI 1 common stock for 5,531,025 shares of
CWI 2 Class A common stock, based on the exchange ratio set forth in the merger
agreement. In addition, prior to the closing of the CWI 1 and CWI 2 Merger, we
owned 3,836,669 shares of CWI 2 Class A common stock. Together with the
2,840,549 shares in CWI 2 Class A common stock received (as described above),
following the closing of the CWI 1 and CWI 2 Merger (and CWI 2 being renamed
WLT), we own 12,208,243 shares of WLT Class A common stock, which we account for
as an equity method investment and which had a carrying value of $48.4 million
as of September 30, 2020 ( Note 7 ). The aggregate carrying value of our
investments in preferred shares and shares of common stock of WLT totaled
approximately $94.7 million as of September 30, 2020.
Assets Under Management
•As of September 30, 2020, we managed total assets of approximately $2.8 billion
on behalf of CPA:18 - Global and CESH. We expect that the vast majority of our
Investment Management earnings going forward will be generated from asset
management fees and our ownership interests in CPA:18 - Global and CESH.
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