UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2014


or  
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from__________ to __________
 
Commission File Number: 001-13779

W. P. CAREY INC.
(Exact name of registrant as specified in its charter) 
Maryland
45-4549771
(State of incorporation)
(I.R.S. Employer Identification No.)
 
 
50 Rockefeller Plaza
 
New York, New York
10020
(Address of principal executive offices)
(Zip Code)
 
Investor Relations (212) 492-8920
(212) 492-1100
(Registrant’s telephone numbers, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of exchange on which registered
Common Stock, $0.001 Par Value
New York Stock Exchange
 
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
 
 
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of last business day of the registrant’s most recently completed second fiscal quarter: $ 6.4 billion .
As of February 19, 2015 there were 105,186,095 shares of Common Stock of registrant outstanding.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
The registrant incorporates by reference its definitive Proxy Statement with respect to its 2015 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of its fiscal year, into Part III of this Annual Report on Form 10-K.
 



INDEX
 
 
 
Page No.
PART I
 
 
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
 
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
 
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
 
 
Item 15.
 

W. P. Carey 2014 10-K – 1


Forward-Looking Statements
This Annual Report on Form 10-K, or the Report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, in Item 7 of Part II of this Report, contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. These forward-looking statements include, but are not limited to, statements regarding capital markets, tenant credit quality, general economic overview, our expected range of Adjusted funds from operations, or AFFO, our corporate strategy, our capital structure, our portfolio lease terms, our international exposure and acquisition volume, our expectations about tenant bankruptcies and interest coverage, statements regarding estimated or future economic performance and results, including our underlying assumptions, occupancy rate, credit ratings, and possible new acquisitions by us and our investment management programs, the Managed REITs discussed herein, including their earnings, statements that we make regarding our ability to remain qualified for taxation as a real estate investment trust, or REIT, the amount and timing of any future dividends, our existing or future leverage and debt service obligations, our future prospects for growth, our projected assets under management, our future capital expenditure levels, our historical and anticipated funds from operations, our future financing transactions, our estimates of growth, and our plans to fund our future liquidity needs. These statements are based on the current expectations of our management. It is important to note that our actual results could be materially different from those projected in such forward-looking statements. There are a number of risks and uncertainties that could cause actual results to differ materially from these forward-looking statements. Other unknown or unpredictable factors could also have material adverse effects on our business, financial condition, liquidity, results of operations, AFFO, and prospects. You should exercise caution in relying on forward-looking statements as they involve known and unknown risks, uncertainties, and other factors that may materially affect our future results, performance, achievements, or transactions. Information on factors which could impact actual results and cause them to differ from what is anticipated in the forward-looking statements contained herein is included in this Report as well as in our other filings with the Securities and Exchange Commission, or the SEC, including but not limited to those described in Item 1A. Risk Factors of this Report. Moreover, because we operate in a very competitive and rapidly changing environment, new risks are likely to emerge from time to time. Given these risks and uncertainties, potential investors are cautioned not to place undue reliance on these forward-looking statements as a prediction of future results, which speak only as of the date of this presentation, unless noted otherwise. Except as may be required by federal securities laws and the rules and regulations of the SEC, we do not undertake to revise or update any forward-looking statements.
All references to “Notes” throughout the document refer to the footnotes to the consolidated financial statements of the registrant in Part II,  Item 8. Financial Statements and Supplementary Data .

W. P. Carey 2014 10-K – 2


PART I
 
Item 1. Business.

General Development of Business

Overview

W. P. Carey Inc., or W. P. Carey, is, together with our consolidated subsidiaries and predecessors, a self-managed diversified REIT and a leading global owner and manager of commercial real estate, primarily net leased to companies on a long-term basis. The majority of our revenues are lease revenues, which are derived from our owned real estate portfolio. In addition, we earn fee revenue by acting as an advisor to a series of income-oriented, non-traded REITs through our investment management business.

Our owned real estate portfolio, which is diversified, by property type, tenant, tenant industry and geographic location, is comprised primarily of single-tenant, office, industrial, warehouse/distribution, and retail facilities that are essential to our corporate tenants’ operations. We have 219 corporate tenants over 783 properties in 18 countries. As of December 31, 2014 , approximately 65% of our contractual minimum annualized base rent, or ABR, was generated by properties located in the United States and approximately 35% was generated by properties located outside the United States, primarily in Western and Northern European countries.

The vast majority of our leases specify a base rent with scheduled rent increases, either fixed or tied to an inflation-related index, and require our tenants to pay substantially all of the costs associated with operating and maintaining the property, including the real estate taxes, insurance, and maintenance of the facilities. See Our Portfolio below for more information on the characteristics of our properties. Furthermore, we actively manage our owned real estate portfolio to try to mitigate risk with respect to changes in tenant credit quality and the likelihood of lease renewal.

Originally founded in 1973, we operated primarily as a sponsor of and advisor to a series of income-generating investment programs under the Corporate Property Associates, or CPA ® , brand name until we reorganized as a REIT in September 2012 in connection with our merger with Corporate Property Associates 15 Incorporated, or CPA ® :15, referred to as the CPA ® :15 Merger. On January 31, 2014, Corporate Property Associates 16 – Global Incorporated, or CPA ® :16 – Global, merged with and into us, based on a merger agreement dated as of July 25, 2013, referred to as the CPA ® :16 Merger (Note 3).

Our shares of common stock are listed on the New York Stock Exchange under the ticker symbol “WPC”.

Headquartered in New York, we also have offices in Dallas, London, Amsterdam, Hong Kong, and Shanghai. At December 31, 2014 , we employed 272 individuals.

Financial Information About Segments

Our business operates in two segments – Real Estate Ownership and Investment Management, as described below.

Narrative Description of Business

Business Objectives and Strategy

Our primary business objective is to increase stockholder value through accretive acquisitions for our owned real estate portfolio and to grow the assets managed by our investment management operations, which in turn will allow us to grow earnings and to maintain or increase our dividend.

Our investment strategy primarily focuses on owning and actively managing a diverse portfolio of commercial real estate that is net leased to credit-worthy companies globally. We believe that many companies prefer to lease rather than own their corporate real estate. We structure long-term financing for our corporate tenants primarily in the form of sale-leaseback transactions, through which we acquire what we believe is a company’s essential real estate and then lease it back to them on a long-term net lease basis, which typically produces a more predictable income stream compared to other types of real estate investments and requires minimal capital expenditures.

We actively manage our real estate portfolio to mitigate risk with respect to any changes in tenant credit quality and probability of lease renewal. We believe that diversification with respect to property type, tenant, tenant industry, and geographic location

W. P. Carey 2014 10-K – 3


is an important component of portfolio risk management and that we own a portfolio of real estate that is well-diversified across each of these categories.

In addition to managing our owned real estate portfolio, we currently act as the advisor to a series of publicly-owned, non-traded REITs for which we raise equity capital through public offerings of their shares, invest those funds and manage their assets in return for fee revenue as specified in our advisory agreements with them. Since 1979, we have sponsored a series of 17 income-generating investment programs under the CPA ® brand name that invest primarily in commercial real estate properties net leased to single tenants. At December 31, 2014 , we were the advisor to Corporate Property Associates 17 – Global Incorporated, or CPA ® :17 – Global, and Corporate Property Associates 18 – Global Incorporated, or CPA ® :18 – Global. We were also the advisor to CPA ® :16 – Global until the CPA ® :16 – Global Merger on January 31, 2014. We refer to CPA ® :16 – Global, CPA ® :17 – Global, and CPA ® :18 – Global together as the CPA ®  REITs.

At December 31, 2014 , we were also the advisor to Carey Watermark Investors Incorporated, or CWI, a publicly-owned, non-traded REIT that invests in lodging and lodging-related properties. Together with the CPA ® REITs, we refer to these entities as the Managed REITs ( Note 4 ). Currently, we also serve as the advisor to Carey Watermark Investors 2 Incorporated, or CWI 2, a new non-traded lodging REIT, which commenced its public offering on February 9, 2015. We also have invested in Carey Credit Income Fund, or CCIF, a newly formed business development company, or BDC. We plan to serve as advisor to CCIF and to invest the funds that we raise on behalf of its two feeder funds, which will also be BDCs, in shares of CCIF. We refer collectively to CCIF and the two feeder funds as the BDCs and, together with the Managed REITs, as the Managed Programs. While we have filed registration statements with the SEC for each of the BDCs, none of these registration statements has been declared effective by the SEC, and there can be no assurance as to whether or when the public offerings of shares of the feeder funds will be commenced. See Significant Developments in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations , for a summary of the funds we have raised on behalf of the Managed REITs.

We believe that our owned real estate investments provide our stockholders with a stable, growing source of income, primarily from lease revenues. We also believe that the fee income we generate from our advisory contracts with the Managed REITs provides our stockholders with attractive sources of additional income, a portion of which is more variable in nature.

We have two primary reportable segments, Real Estate Ownership and Investment Management. These segments are each described below.

Real Estate Ownership

We own and invest in commercial real estate properties primarily located in the United States and Europe and leased on a triple-net lease basis, which requires the tenant to pay substantially all of the costs associated with operating and maintaining the property ( Note 17 ). We earn revenues or equity income from:

•
our wholly-owned commercial real estate investments;
•
our co-owned commercial real estate investments;
•
our investments in the shares of the Managed REITs; and
•
our participation in the cash flows of the Managed REITs.

Investment Management

We earn revenue as the advisor to the Managed REITs. Under the advisory agreements with the Managed REITs, we perform various services, including but not limited to the day-to-day management of the Managed REITs and transaction-related services, for which we earn revenues as follows:

•
We earn dealer manager fees in connection with the public offerings of the Managed REITs;
•
We structure and negotiate investments and debt placement transactions for the Managed REITs, for which we earn structuring revenue;
•
We manage the portfolios of the Managed REITs’ real estate investments, for which we earn asset-based management revenue;
•
The Managed REITs reimburse us for certain costs that we incur on their behalf, consisting primarily of broker-dealer commissions and marketing costs while we are raising funds for their public offerings, and certain personnel and overhead costs; and
•
We may also earn incentive and disposition revenue and receive other compensation in connection with providing liquidity alternatives to the Managed REITs’ stockholders.


W. P. Carey 2014 10-K – 4


Our business strategy includes exploring alternatives for expanding our investment management operations beyond advising the existing Managed REITs. Any such expansion could involve the purchase of properties or other investments as principal, either for our owned portfolio or with the intention of transferring such investments to a newly-created fund, as well as the sponsorship of one or more funds to make investments other than primarily net-lease investments, for example CWI, CWI2, and the BDCs.

Investment Strategies

In analyzing potential investments, we review various aspects of a transaction, including tenant and real estate fundamentals, to determine whether a potential investment and lease will satisfy our investment criteria. In evaluating net-lease transactions, we generally consider, among other things, the following aspects of each transaction:

Tenant/Borrower Evaluation — We evaluate each potential tenant or borrower for its creditworthiness, typically considering factors such as management experience, industry position and fundamentals, operating history, and capital structure, as well as other factors that may be relevant to a particular investment. We seek opportunities in which we believe the tenant may have a stable or improving credit profile or credit potential that has not been fully recognized by the market. Whether a prospective tenant or borrower is creditworthy is evaluated by our investment department and the investment committee, as described below. We define creditworthiness as a risk-reward relationship appropriate to our investment strategies, which may or may not coincide with ratings issued by the credit rating agencies. As such, creditworthy does not mean “investment grade,” as defined by the credit rating agencies.

We generally seek investments in facilities that we believe are critical to a tenant’s current business and that we believe have a low risk of tenant default. We rate each asset based on the asset’s market and liquidity and also based on the strategic value to the tenant in terms of how critical the asset is to the tenant’s operations. We also assess the relative risk of the portfolio quarterly. We evaluate the credit quality of our tenants utilizing an internal five-point credit rating scale, with one representing the highest credit quality (investment grade or equivalent) and five representing the lowest (bankruptcy or foreclosure). Investment grade ratings are provided by third-party rating agencies such as Standard & Poor’s Ratings Services or Moody’s Investors Service, although we may determine that a tenant is equivalent to investment grade even if the credit rating agencies have not made that determination. As of December 31, 2014 , we had 37 tenants that were rated investment grade. Ratings for other tenants are generated internally utilizing metrics such as interest coverage and debt-to-earnings before interest, taxes, depreciation and amortization, or EBITDA. These metrics are computed internally based on financial statements obtained from each tenant on a quarterly basis. Under the terms of our lease agreements, tenants are generally required to provide us with periodic financial statements. As of December 31, 2014 , we had 181 non-investment grade tenants, with a weighted-average credit rating of 3.2 .

Real Estate Evaluation — We review and evaluate the physical condition of the property and the market in which it is located. We consider a variety of factors, including current market rents, replacement cost, residual valuation, property operating history, demographic characteristics of the location and accessibility, competitive properties, and suitability for re-leasing. We obtain third-party environmental and engineering reports and market studies, if needed. We will also consider factors particular to the laws of foreign countries, in addition to the risks normally associated with real property investments, when considering an investment outside the United States.

Properties Critical to Tenant/Borrower Operations — We generally will focus on properties that we believe are critical to the current ongoing operations of the tenant. We believe that these properties provide better protection generally as well as in the event of a bankruptcy, since a tenant/borrower is less likely to risk the loss of a critically important lease or property in a bankruptcy proceeding or otherwise.

Diversification — We attempt to diversify our owned and managed portfolios to avoid dependence on any one particular tenant, borrower, collateral type, geographic location, or tenant/borrower industry. By diversifying these portfolios, we seek to reduce the adverse effect of a single under-performing investment or a downturn in any particular industry or geographic region. While we have not endeavored to maintain any particular standard of diversity in our owned portfolio, we believe that our owned portfolio is reasonably well-diversified.

Lease Terms — Generally, the net-leased properties in which we invest will be leased on a full-recourse basis to the tenants or their affiliates. In addition, we seek to include a clause in each lease that provides for increases in rent over the term of the lease. These increases are fixed or tied generally to increases in indices such as the Consumer Price Index, or CPI, or other similar index in the jurisdiction in which the property is located, but may contain caps or other limitations, either on an annual or overall basis. In the case of retail stores and hotels, the lease may provide for participation in gross revenues of the tenant

W. P. Carey 2014 10-K – 5


above a stated level, which is referred to as a percentage rent increase. Alternatively, a lease may provide for mandated rental increases on specific dates.

Transaction Provisions to Enhance and Protect Value — We attempt to include provisions in the leases that we believe may help protect an investment from changes in the operating and financial characteristics of a tenant that may affect its ability to satisfy its obligations or reduce the value of the investment. Such provisions include requiring our consent to specified tenant activity, requiring the tenant to provide indemnification protections, requiring the tenant to provide security deposits, and requiring the tenant to satisfy specific operating tests. We may also seek to enhance the likelihood of a tenant’s lease obligations being satisfied through a guaranty of obligations from the tenant’s corporate parent or other entity or through a letter of credit. This credit enhancement, if obtained, provides additional financial security. However, in markets where competition for net lease transactions is strong, some or all of these provisions may be difficult to negotiate. In addition, in some circumstances, tenants may retain the right to repurchase the property leased by the tenant. The option purchase price is generally the greater of the contract purchase price and the fair market value of the property at the time the option is exercised.

Other Equity Enhancements — We may attempt to obtain equity enhancements in connection with transactions. These equity enhancements may involve stock warrants exercisable at a future time to purchase stock of the tenant or borrower or their parent. If warrants are obtained, and become exercisable, and if the value of the stock subsequently exceeds the exercise price of the warrant, equity enhancements can help achieve the goal of increasing investor returns.

Investment Committee — We have an independent investment committee that provides services to us and to the CPA ®  REITs. Our investment department, under the oversight of our chief investment officer, is primarily responsible for evaluating, negotiating and structuring potential investment opportunities. The investment committee is not directly involved in originating or negotiating potential investments, but instead functions as a separate and final step in the investment process. We place special emphasis on having experienced individuals serve on our investment committee. The investment committee retains the authority to identify categories of transactions that may be entered into without its prior approval. The investment committee may delegate its authority, such as to investment advisory committees with specialized expertise in a particular geographic market. However, we do not currently expect that any investments delegated to these advisory committees will account for a significant portion of the investments we make in the near term.
 
Financing Strategies

We seek to maintain a conservative capital structure that enhances equity returns, maintains financial flexibility, and enables us to effectively match our assets and liabilities. Historically, we entered into secured debt such as mortgage financings collateralized by individual property assets to finance our business. In an effort to access a wider range of capital sources, we sought and received investment grade ratings from both Moody’s Investors Service and Standard & Poor’s Ratings Services. We are actively reducing our reliance on secured debt and increasing the level of unencumbered assets on our balance sheet by paying off individual mortgage loans as they mature. In January 2014, we recast our unsecured line of credit and increased the amounts available to borrow thereunder, as compared to the prior facility, subject to certain covenants ( Note 11 ). In January 2015, we exercised the Accordion Feature on our Senior Unsecured Credit Facility ( Note 11 ) to increase the amount available for borrowing and amended the credit agreement to establish a new accordion feature ( Note 19 ). In addition to funding our working capital needs, this increased line of credit capacity will assist with our transition to becoming more of an unsecured borrower by enhancing our ability to repay a portion of our mortgage debt. During 2014, we also issued corporate bonds ( Note 11 ) and shares of our common stock ( Note 13 ) in separate public offerings. In January 2015, we issued additional corporate bonds in two public offerings, one of which was denominated in euros ( Note 19 ). We expect to continue to have access to a wide variety of capital sources, including the public debt and equity markets.

Asset Management

We believe that effective management of our assets is essential to maintain and enhance property values. Important aspects of asset management include entering into new or modified transactions to meet the evolving needs of current tenants, re-leasing properties, refinancing debt, and selling properties.

We monitor, on an ongoing basis, compliance by tenants with their lease obligations and other factors that could affect the financial performance of any of our real estate investments. Monitoring involves receiving assurances that each tenant has paid real estate taxes, assessments, and other expenses relating to the properties it occupies and confirming that appropriate insurance coverage is being maintained by the tenant. For international compliance, we often engage third-party asset managers. We review financial statements of tenants and undertake regular physical inspections of the condition and maintenance of properties. Additionally, we periodically analyze each tenant’s financial condition, the industry in which each tenant operates, and each tenant’s relative strength in its industry.

W. P. Carey 2014 10-K – 6



Our Portfolio

At December 31, 2014 , our portfolio had the following characteristics:

•
Number of properties – 783 net-leased properties, two self-storage properties, and two hotels;
•
Total net-leased square footage – 87.3 million ; and
•
Occupancy rate – approximately 98.6% .

For more information about our portfolio, please see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Portfolio Overview .
 
Tenant/Lease Information

At December 31, 2014 , our tenants/leases had the following characteristics:

•
Number of tenants – 219 ;
•
Investment-grade tenants – 26% ;
•
Weighted-average remaining lease term – 9.1 years;
•
94% of our leases provide rent adjustments as follows:
◦
CPI and similar – 71%
◦
fixed – 23%

Competition
 
We face active competition in both our Real Estate Ownership segment and our Investment Management segment from many sources for investment opportunities in commercial properties net leased to tenants both domestically and internationally. In general, we believe that our management’s experience in real estate, credit underwriting, and transaction structuring should allow us to compete effectively for commercial properties. However, competitors may be willing to accept rates of return, lease terms, other transaction terms, or levels of risk that we may find unacceptable.
 
In our Investment Management segment, we face active competition in raising funds for the Managed REITs, from other funds with similar investment objectives such as publicly registered, non-traded funds, publicly-traded funds, and private funds, including hedge funds. In addition, we face broad competition from other forms of investment. Currently, we raise substantially all of the funds for investment by the Managed REITs within the United States.
 
Environmental Matters  

We and the Managed REITs have invested, and expect to continue to invest, in properties currently or historically used as industrial, manufacturing, and commercial properties. Under various federal, state, and local environmental laws and regulations, current and former owners and operators of property may have liability for the cost of investigating, cleaning-up, or disposing of hazardous materials released at, on, under, in, or from the property. These laws typically impose responsibility and liability without regard to whether the owner or operator knew of or was responsible for the presence of hazardous materials or contamination, and liability under these laws is often joint and several. Third parties may also make claims against owners or operators of properties for personal injuries and property damage associated with releases of hazardous materials. As part of our efforts to mitigate these risks, we typically engage third parties to perform assessments of potential environmental risks when evaluating a new acquisition of property, and we frequently require sellers to address them before closing or obtain contractual protection (indemnities, cash reserves, letters of credit, or other instruments) from property sellers, tenants, a tenant’s parent company, or another third party to address known or potential environmental issues. With respect to our hotels and self-storage investments, which are not subject to net lease arrangements, there is no tenant of the property to provide indemnification, so we may be liable for costs associated with environmental contamination in the event any such circumstances arise after we acquire the property.

Financial Information About Geographic Areas

See Our Portfolio above and Note 17 for financial information pertaining to our geographic operations.


W. P. Carey 2014 10-K – 7


Available Information
 
All filings we make with the SEC, including this Report, our quarterly reports on Form 10-Q, and our current reports on Form 8-K, and any amendments to those reports, are available for free on our website, http://www.wpcarey.com, as soon as reasonably practicable after they are filed or furnished to the SEC. Our SEC filings are available to be read or copied at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information regarding the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. Our filings can also be obtained for free on the SEC’s Internet site at http://www.sec.gov. We are providing our website address solely for the information of investors. We do not intend our website to be an active link or to otherwise incorporate the information contained on our website into this report or other filings with the SEC. Our Code of Business Conduct and Ethics, which applies to all employees, including our Chief Executive Officer and Chief Financial Officer, is available on our website at www.wpcarey.com . We intend to make available on our website any future amendments or waivers to our Code of Business Conduct and Ethics within four business days after any such amendments or waivers. We will supply to any stockholder, upon written request and without charge, a copy of this Report as filed with the SEC. Generally, we also post the dates of our upcoming scheduled financial press releases, telephonic investor calls, and investor presentations on the Investor Relations portion of our website at least ten days prior to the event. Our investor calls are open to the public and remain available on our website for at least two weeks thereafter.

Item 1A. Risk Factors.
 
Risks Related to Our Business
 
Adverse changes in general economic conditions can adversely affect our business.
 
Our success is dependent upon economic conditions in the United States generally, and in the international geographic areas in which a substantial number of our investments are located. Adverse changes in national economic conditions or in the economic conditions of the regions in which we conduct substantial business likely would have an adverse effect on real estate values and, accordingly, our financial performance, the market prices of our securities, and our ability to pay dividends.

Changes in investor preferences or market conditions could limit our ability to raise funds or make new investments.
 
The majority of our and the CPA ®  REITs’ current investments, as well as the majority of the investments that we expect to originate for the CPA ®  REITs in the near term, are investments in single-tenant commercial properties that are subject to triple-net leases. In addition, we have relied predominantly on raising funds for investment on behalf of the Managed REITs from individual investors through the sale by participating selected dealers to their customers of the publicly-registered, but non-traded, securities of those REITs. Although we have increased the number of broker-dealers we use for fundraising, the majority of our fundraising efforts on behalf of the Managed REITs are through three major selected dealers. If, as a result of changes in market receptivity to investments that are not readily liquid and involve high selected dealer fees, or for other reasons, such as regulatory changes, this capital raising method were to become less available as a source of capital, our ability to raise funds for the Managed REITs, and consequently our ability to make investments on their behalf, could be adversely affected. While we are not limited to this particular method of raising funds for investment (and, among other things, the Managed REITs may themselves be able to borrow additional funds to invest), our experience with other means of raising capital is limited. Also, many factors, including changes in tax laws or accounting rules, may make these types of investments less attractive to potential sellers and lessees, which could negatively affect our ability to increase the amount of assets of this type under management.
 
We face active competition for investments.
 
We face active competition for our investments from many sources, including insurance companies, credit companies, pension funds, private individuals, financial institutions, finance companies, and investment companies, among others. These institutions may accept greater risk or lower returns, allowing them to offer more attractive terms to prospective tenants. In addition, our evaluation of the acceptability of rates of return on behalf of the Managed REITs is affected by such factors as the cost of raising capital, the amount of revenue we can earn, and the performance hurdle rates of the relevant Managed REITs. Such factors may limit the amount of new investments that we make on behalf of the Managed REITs, which will in turn limit the growth of revenues from our investment management operations. The investment community continues to remain risk averse. We believe that the net lease financing market is perceived as a relatively conservative investment vehicle. Accordingly, we expect increased competition for investments, both domestically and internationally. It is possible that further capital inflows into our marketplace will place additional pressure on the returns that we can generate from our investments as well as our willingness and ability to execute transactions.


W. P. Carey 2014 10-K – 8


A significant amount of our leases will expire within the next five years, and we may have difficulty in re-leasing or selling our properties if tenants do not renew their leases.
 
Within the next five years, approximately 25% of our leases, based on our ABR as of December 31, 2014, are due to expire. If these leases are not renewed, or if the properties cannot be re-leased on terms that yield payments comparable to those currently being received, then our lease revenues could be substantially adversely affected. The terms of any new or renewed leases of these properties may depend on market conditions prevailing at the time of lease expiration. In addition, if properties are vacated by the current tenants, we may incur substantial costs in attempting to re-lease such properties. We may also seek to sell these properties, in which event we may incur losses, depending upon market conditions prevailing at the time of sale.
 
Real estate investments are generally less liquid compared to many other financial assets, and this may limit our ability to quickly change our portfolio in response to changes in economic or other conditions. Some of our net leases are for properties that are specially suited to the particular needs of the tenant. With these properties, we may be required to renovate the property or to make rent concessions in order to lease the property to another tenant. In addition, if we are forced to sell the property, we may have difficulty selling it to a party other than the tenant due to the special purpose for which the property may have been designed. These and other limitations may affect our ability to re-lease or sell properties without adversely affecting returns to stockholders.

There may be competition among us and the Managed REITs for business opportunities.

We currently manage, and may in the future manage, REITs and other entities that have investment and/or rate of return objectives similar to our own. Those entities may be in competition with us with respect to properties, potential purchasers, sellers and lessees of properties, and mortgage financing for properties. We have agreed to implement certain procedures to help manage any perceived or actual conflicts among us and the Managed REITs, including:

•
allocating funds based on numerous factors, including cash available, diversification/concentration, transaction size, tax, leverage, and fund life;
•
all “split transactions,” where we co-invest with any CPA ® REIT, are subject to the approval of the independent directors of the CPA ® REIT;
•
investment allocations are reviewed as part of the annual advisory contract renewal process of each CPA ® REIT; and
•
quarterly review of all of our investment activities and the investment activities of the CPA ® REITs by the independent directors of the CPA ® REITs.

We are not required to meet any diversification standards; therefore, our investments may become subject to concentration of risk.

Subject to our intention to maintain our qualification as a REIT, there are no limitations on the number or value of particular types of investments that we may make. We are not required to meet any diversification standards, including geographic diversification standards. Therefore, our investments may become concentrated in type or geographic location, which could subject us to significant concentration of risk with potentially adverse effects on our investment objectives.

Because we invest in properties located outside the United States, we are exposed to additional risks.
 
We have invested in and may continue to invest in properties located outside the United States. At December 31, 2014 , our directly-owned real estate properties located outside of the United States represented 35% of current ABR. These investments may be affected by factors particular to the laws of the jurisdiction in which the property is located. These investments may expose us to risks that are different from and in addition to those commonly found in the United States, including:
 
•
changing governmental rules and policies;
•
enactment of laws relating to the foreign ownership of property and laws relating to the ability of foreign entities to remove invested capital or profits earned from activities within the country to the United States;
•
expropriation of investments;
•
legal systems under which our ability to enforce contractual rights and remedies may be more limited than would be the case under U.S. law;
•
difficulty in conforming obligations in other countries and the burden of complying with a wide variety of foreign laws, which may be more stringent than U.S. laws, including tax requirements and land use, zoning, and environmental laws, as well as changes in such laws;
•
adverse market conditions caused by changes in national or local economic or political conditions;

W. P. Carey 2014 10-K – 9


•
tax requirements vary by country, and existing foreign tax laws and interpretations may change, and as a result we may be subject to additional taxes on our international investments;
•
changes in relative interest rates;
•
changes in the availability, cost and terms of mortgage funds resulting from varying national economic policies;
•
changes in real estate and other tax rates and other operating expenses in particular countries;
•
changes in land use and zoning laws;
•
more stringent environmental laws or changes in such laws; and.
•
restrictions and/or significant costs in repatriating cash and cash equivalents held in foreign bank accounts.
 
In addition, the lack of publicly available information in certain jurisdictions in accordance with accounting principles generally accepted in the United States, or GAAP, could impair our ability to analyze transactions and may cause us to forego an investment opportunity for ourselves or the CPA ®  REITs. It may also impair our ability to receive timely and accurate financial information from tenants necessary to meet our and the CPA ®  REITs’ reporting obligations to financial institutions or governmental or regulatory agencies. Certain of these risks may be greater in emerging markets and less developed countries. Our expertise to date is primarily in the United States and Europe, and we have less experience in other international markets. We may not be as familiar with the potential risks to our and the CPA ®  REITs’ investments outside the United States and Europe and we could incur losses as a result.
 
Also, we may engage third-party asset managers in international jurisdictions to monitor compliance with legal requirements and lending agreements with respect to properties we own or manage on behalf of the CPA ®  REITs. Failure to comply with applicable requirements may expose us or our operating subsidiaries to additional liabilities.
 
Moreover, we are subject to changes in foreign exchange rates due to potential fluctuations in exchange rates between foreign currencies and the U.S. dollar. Our principal foreign currency exposure is to the euro. Because we have historically placed both our debt obligation to the lender and the tenant’s rental obligation to us in the same currency, our results of foreign operations benefit from a weaker U.S. dollar and are adversely affected by a stronger U.S. dollar relative to foreign currencies; that is, absent other considerations, a weaker U.S. dollar will tend to increase both our revenues and our expenses, while a stronger U.S. dollar will tend to reduce both our revenues and our expenses.

Our participation in joint ventures creates additional risk.
 
We have in the past participated, and may in the future participate, in joint ventures to purchase assets jointly with the Managed REITs and may do so as well with third parties. There are additional risks involved in joint venture transactions. As a co-investor in a joint venture, we may not be in a position to exercise sole decision-making authority relating to the property, joint venture, or other entity. In addition, there is the potential of our joint venture partner becoming bankrupt and the possibility of diverging or inconsistent economic or business interests of us and our partner. These diverging interests could result in, among other things, exposure to liabilities of the joint venture in excess of our proportionate share of these liabilities. The partition rights of each owner in a jointly-owned property could reduce the value of each portion of the divided property. In addition, the fiduciary obligation that members of our board may owe to our partner in an affiliated transaction may make it more difficult for us to enforce our rights.
 
Our property portfolio has a high concentration of properties in Germany, making us more vulnerable economically to an economic downturn.

At December 31, 2014 , approximately 9% of total ABR came from properties in Germany. As a result, we may be particularly subject to risks inherent in Germany. A downturn in the commercial real estate industry generally could significantly adversely affect the value of our properties. An economic downturn in Germany could particularly negatively affect lessees’ ability to make lease payments to us and our ability to make distributions to its stockholders.


W. P. Carey 2014 10-K – 10


If we recognize substantial impairment charges on our properties or investments, our net income may be reduced.
 
We recognized impairment charges totaling $23.8 million for the year ended December 31, 2014 . In the future, we may incur substantial impairment charges, which we are required to recognize: whenever we sell a property for less than its carrying value or we determine that the carrying amount of the property is not recoverable and exceeds its fair value; for direct financing leases, whenever the unguaranteed residual value of the underlying property has declined on an other than temporary basis; or, for equity investments, whenever the estimated fair value of the investment’s underlying net assets in comparison with the carrying value of our interest in the investment has declined on an other-than-temporary basis. By their nature, the timing or extent of impairment charges are not predictable. We may incur non-cash impairment charges in the future, which may reduce our net income.
 
Because we have used debt to finance investments, our cash flow could be adversely affected.
 
Historically, most of our investments were made by borrowing a portion of the total investment and securing the loan with a mortgage on the property. We generally borrowed on a non-recourse basis to limit our exposure on any property to the amount of equity invested in the property. If we are unable to make our debt payments on these loans as required, a lender could foreclose on the property or properties securing its debt. Additionally, lenders for our international mortgage loan transactions typically incorporated various covenants and other provisions that can cause a technical loan default, including a loan to value ratio, a debt service coverage ratio and a material adverse change in the borrower’s or tenant’s business. Accordingly, if the real estate value declines or the tenant defaults, the lender would have the right to foreclose on its security. If any of these events were to occur, it could cause us to lose part or all of our investment, which in turn could cause the value of our portfolio, and revenues available for distribution to our stockholders, to be reduced.
 
Some of our financing may also require us to make a balloon payment at maturity. Our ability to make balloon payments on debt may depend upon our ability either to refinance the obligation when due, invest additional equity in the property or sell the related property. When a balloon payment is due, we may be unable to make the payment with existing cash or cash resources, refinance the balloon payment on terms as favorable as the original loan or sell the property at a price sufficient to cover the balloon payment. Our ability to accomplish these goals will be affected by various factors existing at the relevant time, such as the state of the national and regional economies, local real estate conditions, available mortgage or interest rates, availability of credit, our equity in the mortgaged properties, our financial condition, the operating history of the mortgaged properties and tax laws. A refinancing or sale could affect the rate of return to stockholders and the projected time of disposition of our assets.
 
Our level of indebtedness increased upon the completion of the CPA ® :16 Merger and as a result of our recent capital market activities.

In connection with the CPA ® :16 Merger, we assumed approximately $1.8 billion of CPA ® :16 – Global’s indebtedness, a portion of which was repaid with the Unsecured Senior Credit Facility ( Note 11 ). In March 2014 we issued $500.0 million of 4.6% senior unsecured notes in our inaugural public debt offering. Our consolidated indebtedness as of December 31, 2014 was approximately $ 4.1 billion , equal to a leverage ratio (total debt less cash to EBITDA) of approximately 6.0 . In addition, in January 2015 we issued €500.0 million of 2.0% senior unsecured notes, and $450.0 million of 4.0% senior unsecured notes in two additional public offerings. We refer to the 4.6% senior unsecured notes, the 4.0% senior unsecured notes and the 2% senior unsecured notes collectively as our senior notes. As a result, we may be subject to an increased risk that our cash flow could be insufficient to meet required payments on our debt. Our increased indebtedness after these transactions, compared to our level of indebtedness prior to the CPA ® :16 Merger, could have important consequences to our stockholders, including:

•
increasing our vulnerability to general adverse economic and industry conditions;
•
limiting our ability to obtain additional financing to fund future working capital, capital expenditures, and other general corporate requirements;
•
requiring the use of a substantial portion of our cash flow from operations for the payment of principal and interest on its indebtedness, thereby reducing our ability to use our cash flow to fund working capital, acquisitions, capital expenditures, and general corporate requirements;
•
limiting our flexibility in planning for, or reacting to, changes in our business and industry; and
•
putting us at a disadvantage compared to our competitors with comparatively less indebtedness.


W. P. Carey 2014 10-K – 11


Our level of indebtedness and the limitations imposed on us by our debt agreements could have significant adverse consequences.

Our level of indebtedness and the limitations imposed on us by our debt agreements could have significant adverse consequences, including:

•
our cash flow may be insufficient to meet our debt service obligations with respect to our existing or potential future indebtedness, which would enable lenders and other debtholders to accelerate the maturity of their indebtedness, or may be insufficient to fund other important business uses after meeting such obligations;
•
we may violate restrictive covenants in our debt agreements, which would entitle lenders and other debtholders to accelerate the maturity of their indebtedness;
•
debt service requirements and financial covenants relating to our indebtedness may limit our ability to maintain our REIT qualification;
•
we may be unable to hedge our debt, counterparties may fail to honor their obligations under any of our hedge agreements, such agreements may not effectively hedge interest rate or currency fluctuation risk, and, upon the expiration of any of our hedge agreements, we would be exposed to then-existing market rates of interest or currency exchange rates and future rate volatility;
•
because a portion of our debt bears interest at variable rates, increases in interest rates could materially increase our interest expense;
•
we may be forced to dispose of one or more of our properties, possibly on disadvantageous terms, in order to pay our debt service or if we fail to meet our debt service obligations, in whole or in part;
•
upon any default on our secured indebtedness, the lenders may foreclose on our properties or our interests in the entities that own the properties that secure such indebtedness and receive an assignment of rents and leases; and
•
we may be unable to raise additional funds as needed or on favorable terms, which could, among other things, adversely affect our ability to capitalize upon acquisition opportunities or meet operational needs.

If any one of these events were to occur, our business, financial condition, liquidity, results of operations, earnings and prospects, as well as our ability to satisfy all of our debt obligations, including those under our Senior Unsecured Credit Facility, our senior notes or other similar debt securities that we may issue in the future, could be materially and adversely affected. Furthermore, foreclosures could create taxable income without accompanying cash proceeds, a circumstance that could hinder our ability to meet the REIT distribution requirements imposed by the Internal Revenue Code.

We may not be able to generate sufficient cash flow to meet all of our existing or potential future debt service obligations, including those under our Senior Unsecured Credit Facility, our senior notes or other similar debt securities that we may issue in the future.

Our ability to meet all of existing or potential future our debt service obligations, including those under our Senior Unsecured Credit Facility, our senior notes or other similar debt securities that we may issue in the future, to refinance our existing or potential future indebtedness, and to fund our operations, working capital, acquisitions, capital expenditures and other important business uses, depends on our ability to generate sufficient cash flow in the future. To a certain extent, our cash flow is subject to general economic, industry, financial, competitive, operating, legislative, regulatory and other factors, many of which are beyond our control.

We cannot assure you that our business will generate sufficient cash flow from operations or that future sources of cash will be available to us on favorable terms, or at all, in an amount sufficient to enable us to meet all of our existing or potential future debt service obligations, including those under our Senior Unsecured Credit Facility, our senior notes or other similar debt securities that we may issue in the future, or to fund our other important business uses or liquidity needs. Additionally, if we incur additional indebtedness in connection with future acquisitions or development projects or for any other purpose, our existing or potential future debt service obligations could increase significantly and our ability to meet those obligations could depend, in large part, on the returns from such acquisitions or projects, as to which no assurance can be given.
We may need to refinance all or a portion of our indebtedness at or prior to maturity. Our ability to refinance our indebtedness or obtain additional financing will depend on, among other things:

•
our business, financial condition, liquidity, results of operations, AFFO and prospects and market conditions at the time; and
•
restrictions in the agreements governing our indebtedness.

As a result, we may not be able to refinance any of our indebtedness, or obtain additional financing, on favorable terms, or at all.

W. P. Carey 2014 10-K – 12



If we do not generate sufficient cash flow from operations, and additional borrowings or refinancings are not available to us, we may be unable to meet all of our existing or potential future debt service obligations, including those under our Senior Unsecured Credit Facility, our senior notes or other similar debt securities that we may issue in the future. As a result, we would be forced to take other actions to meet those obligations, such as selling properties, raising equity or delaying capital expenditures, any of which could have a material adverse effect on us. Furthermore, we cannot assure you that we will be able to effect any of these actions on favorable terms, or at all.

The effective subordination of our senior notes or other similar debt securities that we may issue in the future may limit our ability to meet all of our debt service obligations, including those under our senior notes or under any potential future issuance of similar debt securities.

Our senior notes are unsecured and unsubordinated obligations and rank equally in right of payment with each other and with all of our unsecured and unsubordinated indebtedness. However, our senior notes are effectively subordinated in right of payment to all of our secured indebtedness to the extent of the value of the collateral securing such indebtedness. As of December 31, 2014, we had $2.5 billion of secured consolidated indebtedness outstanding. While the indenture governing our senior notes limits our ability to incur secured indebtedness in the future, it does not prohibit us from incurring such indebtedness if we and our subsidiaries are in compliance with certain financial ratios and other requirements at the time of its incurrence. In the event of a bankruptcy, liquidation, dissolution, reorganization or similar proceeding with respect to us, the holders of any secured indebtedness will be entitled to proceed directly against the collateral that secures the secured indebtedness. Therefore, such collateral will not be available for satisfaction of any amounts owed under our unsecured indebtedness, including our senior notes or other similar debt securities that we may issue in the future, until such secured indebtedness is satisfied in full.

Our senior notes are also effectively subordinated to all liabilities, whether secured or unsecured, and any preferred equity of our subsidiaries, which is particularly important because we have no significant operations or assets other than our equity interests in our subsidiaries. In the event of a bankruptcy, liquidation, dissolution, reorganization or similar proceeding with respect to any of our subsidiaries, we, as a common equity owner of such subsidiary, and therefore holders of our debt, including our senior notes or other similar debt securities that we may issue in the future, will be subject to the prior claims of such subsidiary's creditors, including trade creditors, and preferred equity holders. As of December 31, 2014, our subsidiaries had approximately $3.6 billion of indebtedness and other liabilities outstanding and no preferred equity. Furthermore, while the indenture governing our senior notes limits the ability of our subsidiaries to incur additional indebtedness in the future, it will not prohibit our subsidiaries from incurring such indebtedness if we and our subsidiaries are in compliance with certain financial ratios and other requirements at the time of its incurrence.

Despite our substantial outstanding indebtedness, we may still incur significantly more indebtedness in the future, which would exacerbate any or all of the risks described herein.

We may be able to incur substantial additional indebtedness in the future. Although the agreements governing our indebtedness do limit our ability to incur additional indebtedness, these restrictions are subject to a number of qualifications and exceptions and, under certain circumstances, debt incurred in compliance with these restrictions could be substantial. To the extent that we incur substantial additional indebtedness in the future, the risks associated with our substantial leverage described herein, including our inability to meet all of our debt service obligations, such as those under our Senior Unsecured Credit Facility, our senior notes or other similar debt securities that we may issue in the future, would be exacerbated.

The indenture governing our senior notes contains restrictive covenants that restricts our ability to expand or fully pursue our business strategies.

The indenture governing our senior notes contains financial and operating covenants that, among other things, restricts our ability to take specific actions, even if we believe them to be in our best interest, including (subject to various exceptions) restrictions on our ability to consummate a merger, consolidation or a transfer of all or substantially all of our consolidated assets to another person.

In addition, our current debt agreements require us to meet specified financial ratios and the indenture governing our senior notes requires us to limit the amount of our total debt and the amount of our secured debt before incurring new debt, to maintain at all times a specified ratio of unencumbered assets to unsecured debt and to meet a debt service coverage ratio before incurring new debt. These covenants may restrict our ability to expand or fully pursue our business strategies. Our ability to comply with these and other provisions of our debt agreements may be affected by changes in our operating and financial performance, changes in general business and economic conditions, adverse regulatory developments or other events

W. P. Carey 2014 10-K – 13


beyond our control. The breach of any of these covenants could result in a default under our indebtedness, which could result in the acceleration of the maturity of such indebtedness and potentially other indebtedness. If any of our indebtedness is accelerated prior to maturity, we may not be able to repay such indebtedness or refinance such indebtedness on favorable terms, or at all.

The market price of our senior notes may be volatile.

The market price of our senior notes may be highly volatile and be subject to wide fluctuations. The market price of our senior notes may fluctuate as a result of factors that are beyond our control or unrelated to our historical and projected business, financial condition, liquidity, results of operations, earnings and prospects, including due to changes in interest rates. It is impossible to assure investors that the market price of our senior notes will not fall in the future, and it may be difficult for investors to resell our senior notes at prices they find attractive, or at all. Furthermore, while the 2% senior unsecured notes, which are denominated in euros, have been listed on the New York Stock Exchange, there is currently no public market for the other senior notes, so if an active trading market does not develop for such senior notes or is not maintained for the 2% senior unsecured notes, investors may not be able to resell them on favorable terms when desired, or at all. The lack of an active trading market could adversely affect investors ability to sell our senior notes when desired, or at all, and the price at which investors may be able to sell our senior notes. The liquidity of the trading market, if any, and the future market price of our senior notes will depend on many factors, including, among other things, prevailing interest rates, our business, financial condition, liquidity, results of operations, AFFO and prospects, the market for similar securities and the overall securities market, and may be adversely affected by unfavorable changes in these factors. It is possible that the market for the senior notes will be subject to disruptions, which may have a negative effect on the holders of our senior notes, regardless of our business, financial condition, liquidity, results of operations, AFFO or prospects. Additionally, no assurance can be given that we will be able to maintain the listing of the 2% senior unsecured notes.

Volatility and disruption in capital markets could materially and adversely impact us.

The capital markets may experience extreme volatility and disruption, which could make it more difficult to raise capital. If we cannot access capital or if we cannot access capital upon favorable terms, we may be required to liquidate one or more investments in properties at times that may not permit us to realize the maximum return on those investments, which could also result in adverse tax consequences to us, and our ability to capitalize on acquisition opportunities and meet operational needs may be adversely affected. Moreover, market turmoil could lead to an increased lack of consumer confidence and widespread reduction of business activity generally, which may materially and adversely impact us, including our ability to acquire and dispose of properties.

A downgrade in our credit ratings could materially adversely affect our business and financial condition as well as the market price of our senior notes.

We plan to manage our operations to maintain investment grade status with a capital structure consistent with our current profile, but there can be no assurance that we will be able to maintain our current credit ratings. Our credit ratings could change based upon, among other things, our historical and projected business, financial condition, liquidity, results of operations, AFFO and prospects. These ratings are subject to ongoing evaluation by credit rating agencies, and we cannot make any assurance that any rating will not be changed or withdrawn by a rating agency in the future if, in its judgment, circumstances warrant. If any of the credit rating agencies that have rated us downgrades or lowers its credit rating, or if any credit rating agency indicates that it has placed any such rating on a so-called “watch list” for a possible downgrading or lowering or otherwise indicates that its outlook for that rating is negative, it could have a material adverse effect on our costs and availability of capital, which could in turn have a material adverse effect on us and on our ability to satisfy our debt service obligations, including those under our Senior Unsecured Credit Facility, our senior notes or other similar debt securities that we may issue in the future, and to make dividends and distributions on our common stock. Furthermore, any such action could negatively impact the market price of our senior notes.

Our leases may permit tenants to purchase a property at a predetermined price, which could limit our realization of any appreciation or result in a loss.
 
In some circumstances, we may grant tenants a right to repurchase the property they lease from us. The purchase price may be a fixed price or it may be based on a formula or the market value at the time of exercise. If a tenant exercises its right to purchase the property and the property’s market value has increased beyond that price, we could be limited in fully realizing the appreciation on that property. Additionally, if the price at which the tenant can purchase the property is less than our carrying value (for example, where the purchase price is based on an appraised value), we may incur a loss.
 

W. P. Carey 2014 10-K – 14


Our ability to fully control the maintenance of our net-leased properties may be limited.
 
The tenants or managers of net-leased properties are responsible for maintenance and other day-to-day management of the properties. If a property is not adequately maintained in accordance with the terms of the applicable lease, we may incur expenses for deferred maintenance expenditures or other liabilities once the property becomes free of the lease. While our leases generally provide for recourse against the tenant in these instances, a bankrupt or financially-troubled tenant may be more likely to defer maintenance and it may be more difficult to enforce remedies against such a tenant. In addition, to the extent tenants are unable to conduct their operation of the property on a financially-successful basis, their ability to pay rent may be adversely affected. Although we endeavor to monitor, on an ongoing basis, compliance by tenants with their lease obligations and other factors that could affect the financial performance of our properties, such monitoring may not in all circumstances ascertain or forestall deterioration either in the condition of a property or the financial circumstances of a tenant.
 
The value of our real estate is subject to fluctuation.
 
We are subject to all of the general risks associated with the ownership of real estate. While the revenues from our leases and those of the CPA ®  REITs are not directly dependent upon the value of the real estate owned, significant declines in real estate values could adversely affect us in many ways, including a decline in the residual values of properties at lease expiration; possible lease abandonments by tenants; a decline in the attractiveness of Managed REIT investments that may impede our ability to raise new funds for investment by the Managed REITs; and a decline in the attractiveness of triple-net lease transactions to potential sellers. We also face the risk that lease revenue will be insufficient to cover all corporate operating expenses and debt service payments on indebtedness we incur. General risks associated with the ownership of real estate include:

•
adverse changes in general or local economic conditions;
•
changes in the supply of or demand for similar or competing properties;
•
changes in interest rates and operating expenses;
•
competition for tenants;
•
changes in market rental rates;
•
inability to lease or sell properties upon termination of existing leases;
•
renewal of leases at lower rental rates;
•
inability to collect rents from tenants due to financial hardship, including bankruptcy;
•
changes in tax, real estate, zoning and environmental laws that may have an adverse impact upon the value of real estate;
•
uninsured property liability, property damage or casualty losses;
•
unexpected expenditures for capital improvements or to bring properties into compliance with applicable federal, state, and local laws;
•
exposure to environmental losses;
•
changes in foreign exchange rates; and
•
acts of God and other factors beyond the control of our management.
 
Because most of our properties are occupied by a single tenant, our success is materially dependent upon the tenant’s financial stability.

Most of our properties are occupied by a single tenant and, therefore, the success of our investments is materially dependent on the financial stability of our tenants. Revenues from several of our tenants/guarantors constitute a significant percentage of our lease revenues. We have one tenant/guarantor totaling approximately 5.6% of total ABR at December 31, 2014 . Lease payment defaults by tenants negatively impact our net income and reduce the amounts available for distributions to stockholders. As some of our tenants may not have a recognized credit rating, these tenants may have a higher risk of lease defaults than if those tenants had a recognized credit rating. In addition, the bankruptcy or default of a tenant could cause the loss of lease payments as well as an increase in the costs incurred to carry the property until it can be re-leased or sold. We have had, and may have in the future, tenants file for bankruptcy protection. In the event of a default, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting the investment and re-leasing the property. If a lease is terminated, there is no assurance that we will be able to re-lease the property for the rent previously received or sell the property without incurring a loss.


W. P. Carey 2014 10-K – 15


The bankruptcy or insolvency of tenants or borrowers may cause a reduction in our revenue and an increase in our expenses.
 
Bankruptcy or insolvency of a tenant or borrower could cause:
 
•
the loss of lease or interest and principal payments;
•
an increase in the costs incurred to carry the property;
•
litigation;
•
a reduction in the value of our shares; and
•
a decrease in distributions to our stockholders.
 
Under U.S. bankruptcy law, a tenant that is the subject of bankruptcy proceedings has the option of assuming or rejecting any unexpired lease. If the tenant rejects the lease, any resulting claim we have for breach of the lease (excluding collateral securing the claim) will be treated as a general unsecured claim. The maximum claim will be capped at the amount owed for unpaid rent prior to the bankruptcy unrelated to the termination, plus the greater of one year’s lease payments or 15% of the remaining lease payments payable under the lease (but no more than three years’ lease payments). In addition, due to the long-term nature of our leases and, in some cases, terms providing for the repurchase of a property by the tenant, a bankruptcy court could recharacterize a net lease transaction as a secured lending transaction. If that were to occur, we would not be treated as the owner of the property, but we might have rights as a secured creditor. Those rights would not include a right to compel the tenant to timely perform its obligations under the lease but may instead entitle us to “adequate protection,” a bankruptcy concept that applies to protect against a decrease in the value of the property if the value of the property is less than the balance owed to us.

Insolvency laws outside of the United States may not be as favorable to reorganization or to the protection of a debtor’s rights as tenants under a lease as are the laws in the United States. Our rights to terminate a lease for default may be more likely to be enforceable in countries other than the United States, in which a debtor/ tenant or its insolvency representative may be less likely to have rights to force continuation of a lease without our consent. Nonetheless, such laws may permit a tenant or an appointed insolvency representative to terminate a lease if it so chooses.
 
However, in circumstances where the bankruptcy laws of the United States are considered to be more favorable to debtors and to their reorganization, entities that are not ordinarily perceived as U.S. entities may seek to take advantage of the U.S. bankruptcy laws if they are eligible. An entity would be eligible to be a debtor under the U.S. bankruptcy laws if it had a domicile (state of incorporation or registration), place of business or assets in the United States. If a tenant became a debtor under the U.S. bankruptcy laws, then it would have the option of assuming or rejecting any unexpired lease. As a general matter, after the commencement of bankruptcy proceedings and prior to assumption or rejection of an expired lease, U.S. bankruptcy laws provide that until an unexpired lease is assumed or rejected, the tenant (or its trustee if one has been appointed) must timely perform obligations of the tenant under the lease. However, under certain circumstances, the time period for performance of such obligations may be extended by an order of the bankruptcy court.
 
We and certain of the CPA ®  REITs have had tenants file for bankruptcy protection and have been involved in bankruptcy-related litigation (including several international tenants). Four prior CPA ®  REITs reduced the rate of distributions to their investors as a result of adverse developments involving tenants.
 
Similarly, if a borrower under one of our loan transactions declares bankruptcy, there may not be sufficient funds to satisfy its payment obligations to us, which may adversely affect our revenue and distributions to our stockholders. The mortgage loans in which we may invest may be subject to delinquency, foreclosure and loss, which could result in losses to us.
 
Because we are subject to possible liabilities relating to environmental matters, we could incur unexpected costs and our ability to sell or otherwise dispose of a property may be negatively impacted.
 
We own commercial properties and are subject to the risk of liabilities under federal, state, and local environmental laws. These responsibilities and liabilities also exist for properties owned by the Managed REITs, and if they become liable for these costs, their ability to pay for our services could be materially affected. Some of these laws could impose the following on us:
 
•
responsibility and liability for the cost of investigation and removal or remediation of hazardous or toxic substances released on or from our property, generally without regard to our knowledge of, or responsibility for, the presence of these contaminants;
•
liability for the costs of investigation and removal or remediation of hazardous substances at disposal facilities for persons who arrange for the disposal or treatment of such substances;

W. P. Carey 2014 10-K – 16


•
liability for claims by third parties based on damages to natural resources or property, personal injuries, or costs of removal or remediation of hazardous or toxic substances in, on, or migrating from our property;
•
responsibility for managing asbestos-containing building materials, and third-party claims for exposure to those materials; and
•
claims being made against us by the Managed REITs for inadequate due diligence.
 
Our costs of investigation, remediation or removal of hazardous or toxic substances, or for third-party claims for damages, may be substantial. The presence of hazardous or toxic substances at any of our properties, or the failure to properly remediate a contaminated property, could give rise to a lien in favor of the government for costs it may incur to address the contamination or otherwise adversely affect our ability to sell or lease the property or to borrow using the property as collateral. While we attempt to mitigate identified environmental risks by contractually requiring sellers to acknowledge their responsibility for complying with environmental laws and to assume liability for environmental matters, circumstances may arise in which a seller fails, or is unable, to fulfill its contractual obligations. In addition, environmental liabilities, or costs or operating limitations imposed on a tenant to comply with environmental laws, could affect its ability to make rental payments to us. Also, and although we endeavor to avoid doing so, we may be required, in connection with any future divestitures of property, to provide buyers with indemnification against potential environmental liabilities.
 
Revenue and earnings from our investment management operations are subject to volatility, which may cause our investment management revenue to fluctuate.
 
Growth in revenue from our investment management operations is dependent in large part on future capital raising in existing or future managed entities, as well as on our ability to make investments that meet the investment criteria of these entities, both of which are subject to uncertainty with respect to capital market and real estate market conditions. This uncertainty creates volatility in our earnings because of the resulting fluctuation in transaction-based revenue. Asset management revenue may be affected by factors that include not only our ability to increase the Managed REITs’ portfolio of properties under management, but also changes in valuation of those properties, as well as sales of the Managed REIT properties. In addition, revenue from our investment management operations, including our ability to earn performance revenue, as well as the value of our holdings of the Managed REITs’ interests and dividend income from those interests, may be significantly affected by the results of operations of the Managed REITs. Each of the CPA ®  REITs has invested the majority of its assets (other than short-term investments) in triple-net leased properties substantially similar to those we hold, and consequently the results of operations of, and cash available for distribution by, each of the CPA ®  REITs are likely to be substantially affected by the same market conditions, and subject to the same risk factors, as the properties we own. In our history, four of the seventeen CPA ®  funds temporarily reduced the rate of distributions to their investors as a result of adverse developments involving tenants.
 
Each of the Managed REITs that we currently manage may incur significant debt, which either due to liquidity problems or restrictive covenants contained in their borrowing agreements could restrict their ability to pay revenue owed to us when due. In addition, the revenue payable under each of our current investment advisory agreements is subject to a variable annual cap based on a formula tied to the assets and income of that Managed REIT. This cap may limit the growth of our investment management revenue. Furthermore, our ability to earn revenue related to the disposition of properties is primarily tied to providing liquidity events for the Managed REIT investors. Our ability to provide such liquidity, and to do so under circumstances that will satisfy the applicable subordination requirements, will depend on market conditions at the relevant time, which may vary considerably over a period of years. In any case, liquidity events typically occur several years apart, and income from our investment management operations is likely to be significantly higher in those years in which such events occur.

Because the revenue streams from the advisory agreements we have with the Managed REITs are subject to limitation or cancellation, any such termination could have a material adverse effect on our business, results of operations and financial condition.
 
The advisory agreements under which we provide services to the Managed REITs are renewable annually and may generally be terminated by each Managed REIT upon 60 days’ notice, with or without cause. The advisory agreements with each of the CPA ® REITs are scheduled to expire on December 31, 2015 and the advisory agreement with CWI is scheduled to expire on September 30, 2015, unless otherwise renewed. There can be no assurance that these agreements will not expire or be terminated. CPA ® :17 – Global, CPA ® :18 – Global, and CWI each have the right, but not the obligation, upon certain terminations to repurchase our interests in their operating partnerships at fair market value. If such right is not exercised, we would remain as a limited partner of the respective operating partnerships. Nonetheless, any such termination would have a material adverse effect on our business, results of operations and financial condition.


W. P. Carey 2014 10-K – 17


A potential change in U.S. accounting standards regarding operating leases may make the leasing of facilities less attractive to our potential domestic tenants, which could reduce overall demand for our leasing services.
 
A lease is classified by a tenant as a capital lease if the significant risks and rewards of ownership are considered to reside with the tenant. This situation is generally considered to be met if, among other things, the non-cancelable lease term is more than 75% of the useful life of the asset or if the present value of the minimum lease payments equals 90% or more of the leased property’s fair value at lease inception. Under capital lease accounting for a tenant, both the leased asset and liability are reflected on their balance sheet. If the lease does not meet any of the criteria for a capital lease, the lease is considered an operating lease by the tenant and the obligation does not appear on the tenant’s balance sheet; rather, the contractual future minimum payment obligations are only disclosed in the footnotes thereto. Thus, entering into an operating lease can appear to enhance a tenant’s balance sheet in comparison to direct ownership. In response to concerns caused by a 2005 SEC study that the current model does not have sufficient transparency, the Financial Accounting Standards Board and the International Accounting Standards Board issued an Exposure Draft on a joint proposal that would dramatically transform lease accounting from the existing model. In May 2013, the Boards issued a revised exposure draft for public comment and the comment period ended in September 2013. As of the date of this Report, the Financial Accounting Standards Board and the International Accounting Standards Board continue their redeliberations of the proposals included in the May 2013 Exposure Draft based on the comments received and the proposed guidance has not yet been finalized. Changes to the accounting guidance could affect both our and the CPA ®  REITs’ accounting for leases as well as that of our and the CPA ® REITs’ tenants. These changes would impact most companies but are particularly applicable to those that are significant users of real estate. The proposal outlines a completely new model for accounting by lessees, whereby their rights and obligations under most leases, existing and new, would be capitalized and recorded on the balance sheet. For some companies, the new accounting guidance may influence whether or not, or the extent to which, they may enter into the type of sale-leaseback transactions in which we specialize.
 
The BDCs are subject to extensive regulation.

We serve as the investment adviser for three closed-end funds that have elected to be treated as BDCs. These BDCs are subject to certain provisions of the Investment Company Act of 1940, as amended, and the rules and regulations thereunder, collectively referred to herein as the Investment Company Act. Failure to comply with such rules and regulations could result in liability and/or adversely affect the operation of the BDCs and our ability to successfully raise funds for, and generate revenue as the advisor to, the BDCs.

Our investment advisory agreement with CCIF may be terminated upon short notice.

The management and incentive fees that we will be paid for managing CCIF will generally be subject to the contractual right of CCIF’s board of trustees to terminate our management of CCIF on as little as 60 days' prior notice. Termination of this agreement would eliminate our ability to generate revenue from the BDCs, which could have a material adverse effect on our results of operations.

The BDCs may be affected by poor investment performance.

Poor investment returns for the BDCs, due to either general market conditions or underperformance by the BDCs relative to our competitors or to benchmarks, may affect our ability to retain assets of the BDCs and/or to attract new borrowers or additional assets from existing borrowers. This could affect the management and incentive fees that we earn on assets under our supervision.

The success of the BDCs is dependent upon a joint venture.

We manage the BDCs as part of a joint venture with Guggenheim Partners Investment Management, LLC. If Guggenheim Partners Investment Management, LLC were to exit the joint venture, our ability to manage the BDCs on a going-forward basis could be adversely affected.


W. P. Carey 2014 10-K – 18


Our operations could be restricted if we become subject to the Investment Company Act and your investment return, if any, may be reduced if we are required to register as an investment company under the Investment Company Act.

A person will generally be deemed to be an “investment company” for purposes of the Investment Company Act if:

•
it is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, or trading in securities; or
•
it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis.

We believe that we and our subsidiaries are engaged primarily in the business of acquiring and owning interests in real estate. We do not hold ourselves out as being engaged primarily in the business of investing, reinvesting, or trading in securities. Accordingly, we do not believe that we are an investment company as defined under the Investment Company Act. If we were obligated to register as an investment company, we would have to comply with a variety of substantive requirements under the Investment Company Act that impose, among other things, (i) limitations on our capital structure, (ii) restrictions on specified investments, (iii) prohibitions on proposed transactions with affiliates, and (iv) compliance with reporting, record keeping, voting, proxy disclosure, and other rules and regulations that would significantly increase our operating expenses.

Although we intend to monitor our portfolio, there can be no assurance that we will be able to maintain an exclusion or exemption from registration as an investment company under the Investment Company Act. In order to maintain compliance with an Investment Company Act exemption or exclusion, we may be unable to sell assets that we would otherwise want to sell and may need to sell assets we would otherwise wish to retain. In addition, we may have to acquire additional income or loss generating assets that we might not otherwise have acquired or may have to forego opportunities to acquire interests in companies that we would otherwise want to acquire and would be important to our investment strategy. If we were required to register as an investment company, we may be prohibited from engaging in our business as currently conducted because, among other things, the Investment Company Act imposes significant limitations on an investment company’s leverage. Furthermore, if we fail to comply with the Investment Company Act, criminal and civil actions could be brought against us, our contracts could be unenforceable, and a court could appoint a receiver to take control of us and liquidate our business. Were any of these results to occur, your investment return, if any, may be reduced.

We depend on key personnel for our future success, and the loss of key personnel or inability to attract and retain personnel could harm our business.
 
Our future success depends in large part on our ability to hire and retain a sufficient number of qualified personnel. Our future success also depends upon the continued service of our executive officers: Trevor P. Bond, our President and Chief Executive Officer; Catherine D. Rice, our Chief Financial Officer; Thomas E. Zacharias, our Chief Operating Officer and the head of our Asset Management Department; John D. Miller, our Chief Investment Officer; and Mark Goldberg, President of Carey Financial, LLC. The loss of the services of any of these officers could have a material adverse effect on our operations.
 
Our accounting policies and methods are fundamental to how we record and report our financial position and results of operations, and they require management to make estimates, judgments, and assumptions about matters that are inherently uncertain.
 
Our accounting policies and methods are fundamental to how we record and report our financial position and results of operations. We have identified several accounting policies as being critical to the presentation of our financial position and results of operations because they require management to make particularly subjective or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be recorded under different conditions or using different assumptions. Because of the inherent uncertainty of the estimates, judgments, and assumptions associated with these critical accounting policies, we cannot provide any assurance that we will not make subsequent significant adjustments to our consolidated financial statements. If our judgments, assumptions, and allocations prove to be incorrect, or if circumstances change, our business, financial condition, revenues, operating expense, results of operations, liquidity, ability to pay dividends, or stock price may be materially adversely affected.
 

W. P. Carey 2014 10-K – 19


Our charter and Maryland law contain provisions that may delay or prevent a change of control transaction.
 
Our charter contains 7.9% ownership limits. Our charter, subject to certain exceptions, authorizes our directors to take such actions as are necessary and desirable to limit any person to beneficial or constructive ownership of either (i) owning more than 7.9% in value or in number of shares, whichever is more restrictive, of the aggregate outstanding shares of our stock excluding any outstanding shares of our stock not treated as outstanding for federal income tax purposes or (ii) owning more than 7.9% in value or in number of shares, whichever is more restrictive, of our aggregate outstanding shares of common stock excluding any of our outstanding shares of common stock not treated as outstanding for federal income tax purposes. Our board of directors, in its sole discretion, may exempt a person from the ownership limits. However, our board of directors may not grant an exemption from the ownership limits to any person unless our board of directors obtains such representations, covenants and undertakings as our board of directors may deem appropriate in order to determine that granting the exemption would not result in losing our status as a REIT. Our board of directors may also increase or decrease the common stock ownership limit and/or the aggregate stock ownership limit so long as the change would not result in five or fewer persons beneficially owning more than 49.9% in value of our outstanding stock. The ownership limits and the other restrictions on ownership of our stock contained in our charter may delay or prevent a transaction or a change of control that might involve a premium price for our common stock or otherwise be in the best interests of our stockholders.

Our board of directors may modify our authorized shares of stock of any class or series and may create and issue a class or series of common stock or preferred stock without stockholder approval.
 
Our board of directors is empowered under our charter from time to time to amend our charter to increase or decrease the aggregate number of shares of our stock or the number of shares of stock of any class or series that we have authority to issue, and from time to time to classify any unissued shares of common stock or preferred stock and to reclassify any previously classified, but unissued, shares of common stock or preferred stock into one or more classes or series of stock and to issue such shares of stock so classified or reclassified, without stockholder approval. Our board of directors may determine the relative rights, preferences, and privileges of any class or series of common stock or preferred stock issued. As a result, we may issue series or classes of common stock or preferred stock with preferences, dividends, powers, and rights, voting or otherwise, senior to the rights of holders of our common stock. The issuance of any such classes or series of common stock or preferred stock could also have the effect of delaying or preventing a change of control transaction that might otherwise be in the best interests of our stockholders.
 
Certain provisions of Maryland law could inhibit changes in control.
 
Certain provisions of the Maryland General Corporation Law may have the effect of inhibiting a third party from making a proposal to acquire us or impeding a change of control under circumstances that otherwise could provide our stockholders with the opportunity to realize a premium over the then-prevailing market price of our common stock, including:
 
•
“business combination” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our outstanding voting stock), or an affiliate thereof for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter impose special appraisal rights and supermajority voting requirements on these combinations; and
•
“control share” provisions that provide that holders of “control shares” of our company (defined as voting shares which, when aggregated with all other shares owned or controlled by the stockholder, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of issued and outstanding “control shares”) have no voting rights except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.
 
The statute permits various exemptions from its provisions, including business combinations that are exempted by a board of directors prior to the time that the “interested stockholder” becomes an interested stockholder. Our board of directors has, by resolution, exempted any business combination between us and any person who is an existing, or becomes in the future, an “interested stockholder.” Consequently, the five-year prohibition and the supermajority vote requirements will not apply to business combinations between us and any such person. As a result, such person may be able to enter into business combinations with us that may not be in the best interest of our stockholders, without compliance with the supermajority vote requirements and the other provisions of the statute. Additionally, this resolution may be altered, revoked, or repealed in whole or in part at any time and we may opt back into the business combination provisions of the Maryland General Corporation Law. If this resolution is revoked or repealed, the statute may discourage others from trying to acquire control of us and increase the

W. P. Carey 2014 10-K – 20


difficulty of consummating any offer. In the case of the control share provisions of the Maryland General Corporation Law, we have elected to opt out of these provisions of the Maryland General Corporation Law pursuant to a provision in our bylaws.
 
Additionally, Title 3, Subtitle 8 of the Maryland General Corporation Law permits our board of directors, without stockholder approval and regardless of what is currently provided in our charter or our bylaws, to implement certain governance provisions, some of which we do not currently have. We have opted out of Section 3-803 of the Maryland General Corporation Law, which permits a board of directors to be divided into classes pursuant to Title 3, Subtitle 8 of the Maryland General Corporation Law. Any amendment or repeal of this resolution must be approved in the same manner as an amendment to our charter. The remaining provisions of Title 3, Subtitle 8 of the Maryland General Corporation Law may have the effect of inhibiting a third party from making an acquisition proposal for our company or of delaying, deferring, or preventing a change in control of our company under circumstances that otherwise could provide the holders of our common stock with the opportunity to realize a premium over the then-current market price. Our charter, our Bylaws, and Maryland law also contain other provisions that may delay, defer, or prevent a transaction or a change of control that might involve a premium price for our common stock or otherwise be in the best interests of our stockholders.
 
Future issuances of equity securities could dilute the interest of our stockholders.
 
Our future growth will depend, in part, upon our ability to raise additional capital, including through the issuance of equity securities. For example, in September 2014, we issued 4,600,000 shares of our common stock in a public offering, which we refer to as the Equity Offering ( Note 13 ), that raised total net proceeds of $282.2 million . If we were to raise additional capital through the issuance of equity securities, we could further dilute the interests of a significant number of our stockholders. In addition, we issued shares of our common stock to the former stockholders of both CPA ® :15 and CPA ® :16 – Global (excluding us and our subsidiaries) as merger consideration in the CPA ® :15 Merger and the CPA ® :16 Merger, respectively. The interests of our stockholders could also be diluted by the issuance of shares of common stock upon the exercise of outstanding options or pursuant to stock incentive plans. Likewise, our board of directors is empowered under our charter from time to time to amend our charter to increase or decrease the aggregate number of shares of our stock or the number of shares of stock of any class or series that we have authority to issue, and from time to time to classify any unissued shares of common stock or preferred stock and to or reclassify any previously classified, but unissued, shares of common stock or preferred stock into one or more classes or series of stock and to issue such shares of stock so classified or reclassified, without stockholder approval. See the section above titled “Our board of directors may modify our authorized shares of stock of any class or series and may create and issue a class or series of common stock or preferred stock without stockholder approval.”
 
Future issuances or sales of our common stock may cause the market price of our common stock to decline.

The issuance or sale of substantial amounts of our common stock, whether, in the case of a sale, directly by us or in the secondary market, the perception that such issuances or sales of common stock could occur or the availability for future issuance or sale of shares of our common stock, or securities convertible into or exchangeable or exercisable for our common stock, could materially and adversely affect the market price of our common stock and our ability to raise capital through future offerings of equity or equity-related securities.

Future issuances of debt securities, which would rank senior to our common stock upon our liquidation, and future issuances of equity securities, which would dilute the holdings of our existing common stockholders and may be senior to our common stock for the purposes of making distributions, periodically or upon liquidation, may negatively affect the market price of our common stock.

In the future, we may issue debt or equity securities or incur additional borrowings. Upon our liquidation, holders of our debt securities and other loans and preferred stock will receive a distribution of our available assets before common stockholders. If we incur debt in the future, our future interest costs could increase and adversely affect our liquidity, AFFO and results of operations. We are not required to offer any additional equity securities to existing common stockholders on a preemptive basis. Therefore, additional common stock issuances, directly or through convertible or exchangeable securities, warrants or options, will dilute the holdings of our existing common stockholders and such issuances or the perception of such issuances may reduce the market price of our common stock. Our preferred stock, if issued, would likely have a preference on distribution payments, periodically or upon liquidation, which could eliminate or otherwise limit our ability to make distributions to common stockholders. Because our decision to issue additional debt or equity securities or incur additional borrowings in the future will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing, nature or success of our future capital raising efforts. Thus, common stockholders bear the risk that our future issuances of debt or equity securities or our incurrence of additional borrowings will negatively affect the market price of our common stock.


W. P. Carey 2014 10-K – 21


The trading volume and market price of shares of our common stock may fluctuate or be adversely impacted by various factors.

Our current or historical trading volume and share price may not be indicative of the number of shares of our common stock that will trade going forward or how the market will value shares of our common stock in the future. One of the factors that may influence the price of our common stock will be the yield from distributions on our common stock compared to yields on other financial instruments. If, for example, an increase in market interest rates results in higher yields on other financial instruments, the market price of our common stock could be adversely affected. In addition, our use of taxable REIT subsidiaries, or TRSs, may cause the market to value our common stock differently than the shares of other REITs, which may not use TRSs as extensively as we currently expect to do. In addition, the trading volume and market price of our common stock may fluctuate significantly and be adversely impacted in response to a number of factors, including:

•
actual or anticipated variations in our operating results, earnings, or liquidity, or those of our competitors;
•
changes in our dividend policy;
•
publication of research reports about us, our competitors, our tenants or the REIT industry;
•
changes in market valuations of similar companies;
•
speculation in the press or investment community;
•
our failure to meet, or the lowering of, our earnings estimates or those of any securities analysts;
•
increases in market interest rates, which may lead investors to demand a higher dividend yield for our common stock and would result in increased interest expense on our debt;
•
adverse market reaction to the amount of maturing debt in the near and medium term and our ability to refinance such debt and the terms thereof;
•
adverse market reaction to any additional indebtedness we incur or equity or equity-related securities we issue in the future;
•
changes in our credit ratings;
•
actual or perceived conflicts of interest;
•
additions or departures of key management personnel;
•
our compliance with generally accepted accounting principles and policies;
•
our compliance with the listing requirements of the New York Stock Exchange;
•
the financial condition, liquidity, results of operations and prospects of our tenants;
•
failure to maintain our REIT qualification;
•
actions by institutional stockholders;
•
speculation in the investment community or the press;
•
general market and economic conditions, including the current state of the credit and capital markets; and
•
the realization of any of the other risk factors presented in this Report or in subsequent reports that we file with the SEC.

Compliance or failure to comply with the Americans with Disabilities Act and other similar regulations could result in substantial costs.
 
Under the Americans with Disabilities Act, places of public accommodation must meet certain federal requirements related to access and use by disabled persons. Noncompliance could result in the imposition of fines by the federal government or the award of damages to private litigants. If we are required to make unanticipated expenditures to one or more of our properties in order to comply with the Americans with Disabilities Act, then our cash flow and the amounts available to make distributions and payments to our stockholders may be adversely affected. We have not conducted an audit or investigation of all of our properties to determine our compliance and we cannot predict the ultimate cost of compliance with the Americans with Disabilities Act or other legislation.

Our properties are also subject to various federal, state, and local regulatory requirements, such as state and local fire and life-safety requirements. We could incur fines or private damage awards if we fail to comply with these requirements. While we believe that our properties are currently in material compliance with these regulatory requirements, the requirements may change or new requirements may be imposed that could require significant unanticipated expenditures by us that will affect our cash flow and results of operations.


W. P. Carey 2014 10-K – 22


The occurrence of cyber incidents, or a deficiency in our cyber security, could negatively impact our business by causing a disruption to our operations, a compromise or corruption of our confidential information, and/or damage to our business relationships, all of which could negatively impact our financial results.
 
A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity, or availability of our information resources. More specifically, a cyber incident is an intentional attack or an unintentional event that can include gaining unauthorized access to systems to disrupt operations, corrupt data, or steal confidential information. As our reliance on technology has increased, so have the risks posed to our systems, both internal and those we have outsourced. We may also store or come into contact with sensitive information and data. If, in handling this information, we or our partners fail to comply with applicable privacy or data security laws, we could face significant legal and financial exposure to claims of governmental agencies and parties whose privacy is compromised. Our three primary risks that could directly result from the occurrence of a cyber incident include operational interruption, damage to our relationship with our tenants, and private data exposure. We maintain insurance intended to cover some of these risks, but this insurance may not be sufficient to cover all of the losses from any future breaches of our systems. We have implemented processes, procedures, and controls to help mitigate these risks, but these measures, as well as our increased awareness of a risk of a cyber incident, do not guarantee that our financial results will not be negatively impacted by such an incident.
 
Potential impairment of Goodwill resulting from the consummation of our mergers may adversely affect our results of operations.
 
Potential impairment of goodwill resulting from the CPA ® :15 Merger or the CPA ® :16 Merger could adversely affect our financial condition and results of operations. We assess our goodwill and other intangible assets for impairment annually and more frequently when required by GAAP. We are required to record an impairment charge if circumstances indicate that the asset carrying values exceed their fair values. Our assessment of goodwill or other intangible assets could indicate that an impairment of the carrying value of such assets may have occurred that could result in a material, non-cash write-down of such assets, which could have a material adverse effect on our results of operations and future earnings. We are also required to write off a portion of goodwill whenever we dispose of a property that constitutes a business under GAAP from a reporting unit with goodwill. We allocate a portion of the reporting unit’s goodwill to that business in determining the gain loss on the disposal of the business. The amount of goodwill allocated to the business is based on the relative fair value of the business for the reporting unit.
 
Our future results may suffer if we do not effectively manage our expanded operations.

Our operations expanded significantly as a result of the CPA ® :16 Merger, and we may continue to expand our operations through additional acquisitions and other strategic transactions, some of which may involve complex challenges. Our future success will depend, in part, upon our ability to manage our expansion opportunities, integrate new operations into our existing business in an efficient and timely manner, successfully monitor our operations, costs, regulatory compliance, and service quality, and maintaining other necessary internal controls. There can be no assurance that our expansion or acquisition opportunities will be successful, or that we will realize our expected operating efficiencies, cost savings, revenue enhancements, synergies, or other benefits.

There can be no assurance that we will be able to maintain cash dividends, and certain agreements relating to our indebtedness may, under certain circumstances, prohibit or otherwise restrict our ability to pay dividends to holders of our common stock.

Our ability to continue to pay dividends in the future may be adversely affected by the risk factors described in this Report. More specifically, while we expect to continue our current dividend practices, we can give no assurance that we will be able to maintain dividends, and our stockholders may not receive the same dividends in the future for various reasons, including the following:

•
as a result of the issuances of shares of our common stock in connection with the CPA ® :16 Merger and the Equity Offering, the total amount of cash required for us to pay dividends at our current rate has increased;
•
there is no assurance that rents from our properties will increase, or that future acquisitions will increase our cash available for distribution to stockholders, and we may not have enough cash to pay such dividends due to changes in our cash requirements, capital plans, cash flow, or financial position;
•
decisions on whether, when, and in which amounts to make any future distributions will remain at all times entirely at the discretion of our board of directors, which reserves the right to change our dividend practices at any time and for any reason, including but not limited to, our earnings, our financial condition, maintaining our REIT status,

W. P. Carey 2014 10-K – 23


contractual limitations relating to our indebtedness, Maryland law and other factors our board of directors deems relevant from time to time; and
•
the amount of dividends that our subsidiaries may distribute to us may be subject to restrictions imposed by state law, restrictions that may be imposed by state regulators, and restrictions imposed by the terms of any current or future indebtedness that these subsidiaries may incur;

Furthermore, certain agreements relating to our borrowings may, under certain circumstances, prohibit or otherwise restrict our ability to pay dividends to our common stockholders. Future dividends, if any, are expected to be based upon our earnings, financial condition, cash flows and liquidity, debt service requirements, capital expenditure requirements for our properties, financing covenants and applicable law. If we do not have sufficient cash available to pay dividends, we may need to fund the shortage out of working capital or revenues from future acquisitions, if any, or borrow to provide funds for such dividends, which would reduce the amount of funds available for real estate investments and increase our future interest costs. Our inability to pay dividends, or to pay dividends at expected levels, could adversely impact the per share trading price of our common stock.

Risks Related to REIT Structure
 
While we believe that we are properly organized as a REIT in accordance with applicable law, we cannot guarantee that the Internal Revenue Service will find that we have qualified as a REIT.
 
We believe that we are organized in conformity with the requirements for qualification as a REIT under the Internal Revenue Code beginning with our 2012 taxable year, and that our current and anticipated investments and plan of operation will enable us to meet and continue to meet the requirements for qualification and taxation as a REIT under the Internal Revenue Code. Investors should be aware, however, that the United States Internal Revenue Service or any court could take a position different from our own. Given the highly complex nature of the rules governing REITs, the ongoing importance of factual determinations, and the possibility of future changes in our circumstances, no assurance can be given that we will so qualify for any particular year.
 
Furthermore, our qualification and taxation as a REIT will depend on our satisfaction of certain asset, income, organizational, distribution, stockholder ownership, and other requirements on a continuing basis. Our ability to satisfy the quarterly asset tests under applicable Internal Revenue Code provisions and Treasury Regulations will depend in part upon the our board of directors’ good faith analysis of the fair market values of our assets, some of which are not susceptible to a precise determination. Our compliance with the REIT income and quarterly asset requirements also depends upon our ability to successfully manage the composition of our income and assets on an ongoing basis. While we believe that we will satisfy these tests, we cannot guarantee that this will be the case on a continuing basis.

If we fail to qualify as a REIT or fail to remain qualified as a REIT, we would be subject to federal income tax at corporate income tax rates and would not be able to deduct distributions to stockholders when computing our taxable income.
 
Following the consummation of our REIT conversion, we believe that we are organized in conformity with the requirements for qualification as a REIT under the Internal Revenue Code beginning with our 2012 taxable year. In order to qualify as a REIT, we plan to hold our non-qualifying REIT assets and conduct our non-qualifying REIT income activities in or through one or more TRSs.
 
If, in any taxable year, we fail to qualify for taxation as a REIT, and are not entitled to relief under the Internal Revenue Code:
 
•
we will not be allowed a deduction for distributions to stockholders in computing our taxable income;
•
we will be subject to federal and state income tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates; and
•
we would not be eligible to qualify as a REIT for the four taxable years following the year during which we were so disqualified.
 
Any such corporate tax liability could be substantial and would reduce the amount of cash available for distributions to our stockholders, which in turn could have an adverse impact on the value of our common stock. This adverse impact could last for five or more years because, unless we are entitled to relief under certain statutory provisions, we will be taxed as a corporation, beginning in the year in which the failure occurs, and we will not be allowed to re-elect to be taxed as a REIT for the following four years.
 

W. P. Carey 2014 10-K – 24


If we fail to qualify for taxation as a REIT, we may need to borrow funds or liquidate some investments to pay the additional tax liability. Were this to occur, funds available for investment would be reduced. REIT qualification involves the application of highly technical and complex provisions of the Internal Revenue Code to our operations, as well as various factual determinations concerning matters and circumstances not entirely within our control. There are limited judicial or administrative interpretations of these provisions. Although we plan to continue to operate in a manner consistent with the REIT qualification rules, we cannot assure you that we will so qualify or remain so qualified.
 
If we fail to make required distributions, we may be subject to federal corporate income tax.
 
We intend to declare regular quarterly distributions, the amount of which will be determined, and is subject to adjustment, by our board of directors. To continue to qualify and be taxed as a REIT, we will generally be required to distribute at least 90% of our REIT taxable income (determined without regard to the dividends paid deduction and excluding net capital gain) each year to our stockholders. Generally, we expect to distribute all or substantially all of our REIT taxable income. If our cash available for distribution falls short of our estimates, we may be unable to maintain the proposed quarterly distributions that approximate our taxable income, and we may fail to qualify for taxation as a REIT. In addition, our cash flows from operations may be insufficient to fund required distributions as a result of differences in timing between the actual receipt of income and the recognition of income for federal income tax purposes, or the effect of nondeductible expenditures, such as capital expenditures, payments of compensation for which Section 162(m) of the Internal Revenue Code denies a deduction, the creation of reserves, or required debt service or amortization payments.
 
To the extent that we satisfy the 90% distribution requirement, but distribute less than 100% of our REIT taxable income, we will be subject to federal corporate income tax on our undistributed taxable income. In addition, we will be subject to a 4.0% nondeductible excise tax if the actual amount that we pay out to our stockholders for a calendar year is less than a minimum amount specified under the Internal Revenue Code.
 
In addition, in order to continue to qualify as a REIT, any C-corporation earnings and profits to which we succeed must be distributed as of the close of the taxable year in which we accumulate or acquire such C-corporation’s earnings and profits.
 
Because certain covenants in our debt instruments may limit our ability to make required REIT distributions, we could be subject to taxation.
 
Our existing debt instruments include, and our future debt instruments may include, covenants that limit our ability to make required REIT distributions. If the limits set forth in these covenants prevent us from satisfying our REIT distribution requirements, we could fail to qualify for federal income tax purposes as a REIT. If the limits set forth in these covenants do not jeopardize our qualification for taxation as a REIT but do nevertheless prevent us from distributing 100% of our REIT taxable income, we will be subject to federal corporate income tax, and potentially a nondeductible excise tax, on the retained amounts.
 
Because we will be required to satisfy numerous requirements imposed upon REITs, we may be required to borrow funds, sell assets, or raise equity on terms that are not favorable to us.
 
In order to meet the REIT distribution requirements and maintain our qualification and taxation as a REIT, we may need to borrow funds, sell assets or raise equity, even if the then-prevailing market conditions are not favorable for these borrowings, sales, or offerings. Any insufficiency of our cash flows to cover our REIT distribution requirements could adversely impact our ability to raise short- and long-term debt, to sell assets, or to offer equity securities in order to fund distributions required to maintain our qualification and taxation as a REIT. Furthermore, the REIT distribution requirements may increase the financing we need to fund capital expenditures, future growth, and expansion initiatives. This would increase our total leverage.
 
In addition, if we fail to comply with certain asset ownership tests at the end of any calendar quarter, we must generally correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification. As a result, we may be required to liquidate otherwise attractive investments. These actions may reduce our income and amounts available for distribution to our stockholders.


W. P. Carey 2014 10-K – 25


Because the REIT rules require us to satisfy certain rules on an ongoing basis, our flexibility or ability to pursue otherwise attractive opportunities may be limited.
 
To qualify as a REIT for federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders, and the ownership of our common stock. Thus, compliance with these tests will require us to refrain from certain activities and may hinder our ability to make certain attractive investments, including the purchase of non-qualifying assets, the expansion of non-real estate activities, and investments in the businesses to be conducted by our TRSs, and to that extent limit our opportunities and our flexibility to change our business strategy. Furthermore, acquisition opportunities in domestic and international markets may be adversely affected if we need or require the target company to comply with some REIT requirements prior to closing. In addition, our conversion to a REIT may result in investor pressures not to pursue growth opportunities that are not immediately accretive.
 
To meet our annual distribution requirements, we may be required to distribute amounts that may otherwise be used for our operations, including amounts that may otherwise be invested in future acquisitions, capital expenditures, or repayment of debt and it is possible that we might be required to borrow funds, sell assets, or raise equity to fund these distributions, even if the then-prevailing market conditions are not favorable for these borrowings, sales or offerings.
 
Because the REIT provisions of the Internal Revenue Code limit our ability to hedge effectively, the cost of our hedging may increase, and we may incur tax liabilities.
 
The REIT provisions of the Internal Revenue Code limit our ability to hedge assets as well as liabilities that are not incurred to acquire or carry real estate. Generally, income from hedging transactions that have been properly identified for tax purposes, and that we enter into to manage risk of interest rate changes with respect to borrowings made or to be made to acquire or carry real estate assets and income from certain currency hedging transactions related to our non-U.S. operations, does not constitute “gross income” for purposes of the REIT gross income tests. To the extent that we enter into other types of hedging transactions, the income from those transactions is likely to be treated as non-qualifying income for purposes of the REIT gross income tests. As a result of these rules, we may need to limit our use of advantageous hedging techniques or implement those hedges through a TRS. This could increase the cost of our hedging activities because our TRSs could be subject to tax on income or gains resulting from hedges entered into by them or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear. In addition, losses in any of our TRSs generally will not provide any tax benefit, except for being carried forward for use against future taxable income in the TRSs.
 
Because the REIT rules limit our ability to receive distributions from TRSs, our ability to fund distribution payments using cash generated through our TRSs may be limited.
 
Our ability to receive distributions from our TRSs is limited by the rules with which we must comply to maintain our status as a REIT. In particular, at least 75% of our gross income for each taxable year as a REIT must be derived from real estate-related sources, which principally includes gross income from the leasing of our properties. Consequently, no more than 25% of our gross income may consist of dividend income from our TRSs and other non-qualifying types of income. Thus, our ability to receive distributions from our TRSs may be limited and may impact our ability to fund distributions to our stockholders using cash flows from our TRSs. Specifically, if our TRSs became highly profitable, we might become limited in our ability to receive net income from our TRSs in an amount required to fund distributions to our stockholders commensurate with that profitability.

We intend to use TRSs, which may cause us to fail to qualify as a REIT.
 
The net income of our TRSs is not required to be distributed to us, and income that is not distributed to us generally will not be subject to the REIT income distribution requirement. However, there may be limitations on our ability to accumulate earnings in our TRSs and the accumulation or reinvestment of significant earnings in our TRSs could result in adverse tax treatment. In particular, if the accumulation of cash in our TRSs causes the fair market value of our securities in our TRSs and certain other non-qualifying assets to exceed 25% of the fair market value of our assets, we would fail to qualify as a REIT or not be as tax efficient.
 

W. P. Carey 2014 10-K – 26


Our ownership of our TRSs will be subject to limitations that could prevent us from growing our investment management business and our transactions with our TRSs could cause us to be subject to a 100% penalty tax on certain income or deductions if those transactions are not conducted on an arm’s-length basis.
 
Overall, no more than 25% of the value of a REIT’s assets may consist of stock or securities of one or more TRSs, and compliance with this limitation could limit our ability to grow our investment management business. In addition, the Internal Revenue Code limits the deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation. The Internal Revenue Code also imposes a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm’s-length basis. We will monitor the value of our respective investments in our TRSs for the purpose of ensuring compliance with TRS ownership limitations and will structure our transactions with our TRSs on terms that we believe are arm’s-length to avoid incurring the 100% excise tax described above. There can be no assurance, however, that we will be able to comply with the 25% TRS limitation or to avoid application of the 100% excise tax.
 
Because our board of directors determines in its sole discretion our dividend rate on a quarterly basis, our cash distributions are not guaranteed and may fluctuate.
 
Our board of directors, in its sole discretion, will determine on a quarterly basis the amount of cash to be distributed to our stockholders based on a number of factors including, but not limited to, our results of operations, cash flow and capital requirements, economic conditions, tax considerations, borrowing capacity, applicable provisions of the Maryland General Corporation Law, and other factors, including debt covenant restrictions that may impose limitations on cash payments, and future acquisitions and divestitures. Consequently, our distribution levels may fluctuate.
 
Because distributions payable by REITs generally do not qualify for reduced tax rates, the value of our common stock could be adversely affected.
 
Certain distributions payable by domestic or qualified foreign corporations to individuals, trusts, and estates that stockholders in the United States are currently eligible for federal income tax at a maximum rate of 20%. Distributions payable by REITs, in contrast, generally are not eligible for the current reduced rates unless the distributions are attributable to dividends received by the REIT from other corporations that would be eligible for the reduced rates. The more favorable rates applicable to regular corporate distributions could cause investors who are individuals, trusts, and estates to perceive investments in REITs to be relatively less attractive than investments in the stock of non-REIT corporations that pay distributions, which could adversely affect the value of the stock of REITs, including our common stock.

Even if we continue to qualify as a REIT, certain of our business activities will be subject to corporate level income tax and foreign taxes, which will continue to reduce our cash flows, and we will have potential deferred and contingent tax liabilities.
 
Even if we qualify for taxation as a REIT, we may be subject to certain federal, state, local, and foreign taxes on our income and assets, including alternative minimum taxes, taxes on any undistributed income and state, local, or foreign income, and franchise, property, and transfer taxes. In addition, we could in certain circumstances be required to pay an excise or penalty tax, which could be significant in amount, in order to utilize one or more relief provisions under the Internal Revenue Code to maintain qualification for taxation as a REIT.
 
Any TRS assets and operations would continue to be subject, as applicable, to federal and state corporate income taxes and to foreign taxes in the jurisdictions in which those assets and operations are located. Any of these taxes would decrease our earnings and our cash available for distributions to stockholders.
 
We will also be subject to a federal corporate level tax at the highest regular corporate rate (35% for year 2014 ) on all or a portion of the gain recognized from a sale of assets formerly held by any C-corporation that we acquire in a carry-over basis transaction occurring within a specified period (generally, ten years) after we acquire such assets, to the extent the built-in gain based on the fair market value of those assets on the effective date of the REIT election is in excess of our then tax basis. The tax on subsequently sold assets will be based on the fair market value and built-in gain of those assets as of the beginning of our holding period. Gains from a sale of an asset occurring after the specified period ends will not be subject to this corporate level tax. We expect to have only a de minimis amount of assets subject to these corporate tax rules and do not expect to dispose of any significant assets subject to these corporate tax rules.


W. P. Carey 2014 10-K – 27


Because dividends received by foreign stockholders are generally taxable, we may be required to withhold a portion of our distributions to such persons.
 
Ordinary dividends received by foreign stockholders that are not effectively connected with the conduct of a United States trade or business generally are subject to U.S. withholding tax at a rate of 30%, unless reduced by an applicable income tax treaty. Additional rules will apply to any foreign stockholders that will own more than 5% of our common stock with respect to certain capital gain distributions.
 
The ability of our board of directors to revoke our REIT qualification, without stockholder approval, may cause adverse consequences to our stockholders.
 
Our charter provides that the board of directors may revoke or otherwise terminate the REIT election, without the approval of our stockholders, if it determines that it is no longer in our best interest to continue to qualify as a REIT. If we cease to be a REIT, we will not be allowed a deduction for dividends paid to stockholders in computing our taxable income, and we will be subject to federal income tax at regular corporate rates and state and local taxes, which may have adverse consequences on the total return to our stockholders.

Federal income tax laws governing REITs and related interpretations may change at any time, and any such legislative or other actions affecting REITs could have a negative effect on us and our stockholders.

At any time, federal and state income tax laws governing REITs or the administrative interpretations of those laws may be amended. Federal, state, and foreign tax laws are under constant review by persons involved in the legislative process, at the Internal Revenue Service and the U.S. Department of the Treasury, and at various state and foreign tax authorities. Changes to the tax laws, regulations, and administrative interpretations, which may have retroactive application, could adversely affect us or our stockholders. We cannot predict with certainty whether, when, in what forms, or with what effective dates, the tax laws, regulations, and administrative interpretations applicable to us or our stockholders may be changed. Accordingly, we cannot assure you that any such change will not significantly affect our ability to qualify for taxation as a REIT or the federal income tax consequences to you or us of such qualification.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.
 
Our principal corporate offices are located at 50 Rockefeller Plaza, New York, NY 10020, and our primary international investment offices are located in London and Amsterdam. We have additional office space domestically in New York, Dallas, Texas and internationally in Hong Kong and Shanghai. We lease all of these offices and believe these leases are suitable for our operations for the foreseeable future.
 
See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Portfolio Overview — Net-Leased Portfolio for a discussion of the properties we hold for rental operations and Part II,  Item 8. Financial Statements and Supplementary Data — Schedule III — Real Estate and Accumulated Depreciation for a detailed listing of such properties.

Item 3. Legal Proceedings.
 
On December 31, 2013 , Mr. Ira Gaines and entities affiliated with him commenced a purported class action (Ira Gaines, et al. v. Corporate Property Associates 16 – Global Incorporated, Index. No. 650001/2014, N.Y. Sup. Ct., N.Y. County) against us, WPC REIT Merger Sub Inc., CPA ® :16 – Global, and the directors of CPA ® :16 – Global. On April 11, 2014, we and the other defendants filed a motion to dismiss the complaint, as amended, and on October 15, 2014, the judge granted the defendants’ motion to dismiss the amended complaint in its entirety. The plaintiffs filed a Notice of Appeal on November 24, 2014 and have until August 24, 2015 to file that appeal. We believe that the plaintiffs’ claims are without merit, and if the plaintiffs file a timely appeal, we intend to continue to defend the case vigorously.

Various other claims and lawsuits arising in the normal course of business are pending against us. The results of these proceedings are not expected to have a material adverse effect on our consolidated financial position or results of operations.


W. P. Carey 2014 10-K – 28


Item 4. Mine Safety Disclosures.
 
Not applicable.

W. P. Carey 2014 10-K – 29


PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
 
Common Stock and Distributions
 
Our common stock is listed on the New York Stock Exchange under the ticker symbol “WPC.” At December 31, 2014 there were 10,516 holders of record of our common stock. The following table shows the high and low prices per share and quarterly cash distributions declared for the past two fiscal years:
 
 
2014
 
2013
Period
 
High
 
Low
 
Cash
Distributions
Declared
 
High
 
Low
 
Cash
Distributions
Declared
First quarter
 
$
64.96

 
$
55.23

 
$
0.895

 
$
68.99

 
$
51.60

 
$
0.820

Second quarter
 
65.85

 
59.05

 
0.900

 
79.34

 
61.90

 
0.840

Third quarter
 
70.04

 
63.33

 
0.940

 
72.19

 
63.20

 
0.860

Fourth quarter
 
72.88

 
63.53

 
0.950

 
67.84

 
59.75

 
0.980 (a)

 ____________
(a)
Cash distributions declared in the fourth quarter of 2013 include a special distribution of $0.110 per share paid in January 2014 to stockholders of record at December 31, 2013 .

Our Senior Unsecured Credit Facility (as described in Item 7 ) contains covenants that restrict the amount of distributions that we can pay.
 
Stock Price Performance Graph
 
The graph below provides an indicator of cumulative total stockholder returns for our common stock for the period December 31, 2009 to December 31, 2014 compared with the S&P 500 Index and the FTSE NAREIT Equity REITs Index. The graph assumes a $100 investment on December 31, 2009, together with the reinvestment of all dividends.


W. P. Carey 2014 10-K – 30


 
 
At December 31,
 
 
2009
 
2010
 
2011
 
2012
 
2013
 
2014
W. P. Carey Inc. (a)
 
$
100.00

 
$
121.09

 
$
167.50

 
$
224.37

 
$
278.33

 
$
336.51

S&P 500 Index
 
100.00

 
115.06

 
117.49

 
136.30

 
180.44

 
205.14

FTSE NAREIT Equity REITs Index
 
100.00

 
127.96

 
138.57

 
163.60

 
167.63

 
218.16

 
___________
(a)
Prices in the tables above reflect the price of the Listed Shares of our predecessor through the date of the CPA ® :15 Merger and our REIT conversion on September 28, 2012 ( Note 3 ) and the price of our common stock thereafter.
 
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
 
Securities Authorized for Issuance Under Equity Compensation Plans
 
This information will be contained in our definitive proxy statement for the 2015 Annual Meeting of Stockholders, to be filed within 120 days following the end of our fiscal year, and is incorporated by reference.
 


W. P. Carey 2014 10-K – 31


Item 6. Selected Financial Data.
 
The following selected financial data should be read in conjunction with the consolidated financial statements and related notes in Item 8 (in thousands, except per share data):
 
Years Ended December 31,
 
2014
 
2013
 
2012
 
2011
 
2010
Operating Data
 
 
 
 
 
 
 
 
 
Revenues from continuing operations (a) (b)
$
906,193

 
$
489,851

 
$
352,361

 
$
309,711

 
$
246,105

Income from continuing operations (a) (b)
212,751

 
93,985

 
87,514

 
153,041

 
83,870

Net income
246,069

 
132,165

 
62,779

 
139,138

 
74,951

Net (income) loss attributable to noncontrolling interests
(6,385
)
 
(32,936
)
 
(607
)
 
1,864

 
314

Net loss (income) attributable to redeemable noncontrolling interests
142

 
(353
)
 
(40
)
 
(1,923
)
 
(1,293
)
Net income attributable to W. P. Carey
239,826

 
98,876

 
62,132

 
139,079

 
73,972

 
 
 
 
 
 
 
 
 
 
Basic Earnings Per Share:
 

 
 

 
 

 
 

 
 

Income from continuing operations attributable to W. P. Carey
2.08

 
1.22

 
1.83

 
3.78

 
2.09

Net income attributable to W. P. Carey
2.42

 
1.43

 
1.30

 
3.44

 
1.86

 
 
 
 
 
 
 
 
 
 
Diluted Earnings Per Share:
 

 
 

 
 

 
 

 
 

Income from continuing operations attributable to W. P. Carey
2.06

 
1.21

 
1.80

 
3.76

 
2.08

Net income attributable to W. P. Carey
2.39

 
1.41

 
1.28

 
3.42

 
1.86

 
 
 
 
 
 
 
 
 
 
Cash distributions declared per share (c)
3.69

 
3.50

 
2.44

 
2.19

 
2.03

Balance Sheet Data
 
 
 
 
 
 
 
 
 
Total assets
$
8,637,328

 
$
4,678,950

 
$
4,609,042

 
$
1,462,623

 
$
1,172,326

Net investments in real estate (d) (e)
5,656,555

 
2,803,634

 
2,675,573

 
679,182

 
624,681

Non-recourse debt, net
2,532,683

 
1,492,410

 
1,715,397

 
356,209

 
255,232

Senior credit facilities and senior unsecured
 notes, net (f)
1,555,863

 
575,000

 
253,000

 
233,160

 
141,750

Other Information
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities
$
399,092

 
$
207,908

 
$
80,643

 
$
80,116

 
$
86,417

Cash distributions paid
347,902

 
220,395

 
113,867

 
85,814

 
92,591

Payments of mortgage principal (g)
205,024

 
391,764

 
54,964

 
25,327

 
14,324

 
_______________
(a)
The year ended December 31, 2014 includes the impact of the CPA ® :16 Merger, which was completed on January 31, 2014. The years ended December 31, 2014 , 2013 , and 2012 include the impact of the CPA ® :15 Merger, which was completed on September 28, 2012 ( Note 3 ).
(b)
The year ended December 31, 2011 includes $52.5 million of incentive, termination and subordinated disposition revenue recognized in connection with the merger between CPA ® :16 – Global and Corporate Property Associates 14 Incorporated, or CPA ® :14, in May 2011.
(c)
The year ended December 31, 2013 includes a special distribution of $0.110 per share paid in January 2014 to stockholders of record at December 31, 2013.
(d)
Net investments in real estate consists of Net investments in properties, Net investments in direct financing leases, and Assets held for sale, as applicable.
(e)
Certain prior period amounts have been reclassified to conform to the current period presentation.
(f)
The year ended December 31, 2014 includes our $500.0 million 4.6% senior unsecured notes. The year ended December 31, 2013 includes the $300.0 million unsecured term loan obtained in July 2013, or the Unsecured Term Loan, and the year ended December 31, 2012 includes the $175.0 million term loan facility ( Note 11 ), which was drawn down in full in connection with the CPA ® :15 Merger ( Note 3 ).
(g)
Represents scheduled mortgage principal payments.

W. P. Carey 2014 10-K – 32


Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide the reader with information that will assist in understanding our financial statements and the reasons for changes in certain key components of our financial statements from period to period. Management’s Discussion and Analysis of Financial Condition and Results of Operations also provides the reader with our perspective on our financial position and liquidity, as well as certain other factors that may affect our future results. The discussion also provides information about the financial results of the segments of our business 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 included in Item 8 of this report and the matters described under Item 1A. Risk Factors .

Business Overview
 
We provide long-term financing via sale-leaseback and build-to-suit transactions for companies worldwide and, as of December 31, 2014 , manage a global investment portfolio of 1,168 properties, including 783 net-leased properties and four operating properties within our owned real estate portfolio. Our business operates in two segments – Real Estate Ownership and Investment Management, as described below.
 
Real Estate Ownership – We own and invest in commercial properties, primarily in the United States and Europe, that are then leased to companies, primarily on a triple-net lease basis, which requires the tenant to pay substantially all of the costs associated with operating and maintaining the property. We earn lease revenues from our wholly-owned and co-owned real estate investments. In addition, we generate equity income through our investments in the shares of the Managed REITs and certain co-owned real estate investments that we do not control. In addition, through our ownership of special member interests in the operating partnerships of the Managed REITs, we participate in the cash flows of those REITs. 

Investment Management – We earn revenue as the advisor to the Managed REITs. Under the advisory agreements with the Managed REITs, we perform various services, including but not limited to the day-to-day management of the Managed REITs and transaction-related services. We earn dealer manager fees in connection with the initial public offerings of the Managed REITs. We structure and negotiate investments and debt placement transactions for the Managed REITs, for which we earn structuring revenue, and we manage their portfolios of real estate investments, for which we earn asset-based management revenue. The Managed REITs reimburse us for certain costs that we incur on their behalf, consisting primarily of broker-dealer commissions and marketing costs while we are raising funds for their public offerings, and certain personnel and overhead costs.


W. P. Carey 2014 10-K – 33


Economic Overview

In the United States, the overall economic environment continued to improve in 2014. Gross Domestic Product growth outpaced 2013 levels, and the unemployment rate fell to its lowest mark since 2008. General business conditions continued to recover, and the Federal Reserve completed the tapering of its bond-buying stimulus program in October. Despite the sharp increase in long-term rates in May 2013, interest rates declined over the course of 2014 and remain at historic lows. The interest rate environment contributed to a lower cost of capital for investors purchasing commercial properties. A low cost of capital in conjunction with moderate new supply and strong demand resulted in commercial property yields, or capitalization rates, declining over the course of the year as competition for assets, including net-leased properties, in the United States remained high. In addition, interest rate sensitive stocks, such as REITs, outperformed in 2014. The decline in energy prices in 2014 had a negative impact on the CPI, a useful measure of economic growth and inflation, which experienced 0.8% growth.

In Europe, the economic environment continued to be mixed in 2014. Conditions in most countries across northern and western Europe generally remained stable with some countries, including the United Kingdom and Germany, experiencing modest economic growth rates and lower relative unemployment rates. However, many European countries, including those considered emerging economies, continued to operate at recessionary levels and have negative economic growth and high unemployment. The strengthening and stability of the euro relative to the dollar reversed course in 2014 as the euro / dollar exchange rate reached multi-year lows, and interest rates remain at historically low levels. In addition, the Harmonized Index of Consumer Prices, an indicator of inflation and price stability in the European Union, decreased 0.2% during the year. In an effort to prevent deflation and combat economic weakness, the European Central Bank cut key interest rates in 2014 and, more recently, announced an approximately €1.1 trillion “quantitative easing” program to buy financial assets, including sovereign bonds. Attractive borrowing rates, in conjunction with higher capitalization rates on commercial properties with similar risk profiles to those in the United States, contributed to a favorable climate for investing in net-lease assets in Europe.

Significant Developments

Real Estate Ownership

CPA ® :16 Merger

On January 31, 2014, CPA ® :16 – Global merged with and into us ( Note 3 ).

Investment Transactions

During 2014 , we acquired five domestic investments totaling $ 211.5 million , four investments in Europe totaling $557.1 million , and one investment in Australia for $138.3 million ( Note 5 ), inclusive of acquisition-related costs. We have an active capital recycling program, with a goal of extending our average lease term and improving portfolio credit quality through dispositions and acquisitions of assets, increasing the asset criticality factor in our portfolio, and/or executing strategic dispositions of assets. As part of our capital recycling program, we sold 30 domestic properties, two international properties, and a parcel of land during 2014 for total gross proceeds of $ 303.6 million .

Equity Offering

In September 2014, we completed the Equity Offering, pursuant to which we issued 4,600,000 shares of our common stock at a price of $ 64.00 per share and received net proceeds of $ 282.2 million ( Note 13 ).

Financing Transactions

Since January 2014, we increased our unsecured borrowings and our borrowing capacity by more than $2.0 billion in the aggregate, as follows:

•
On March 14, 2014, we issued $500.0 million of 4.6% senior unsecured notes, at a price of 99.639% of par value, in our inaugural public debt offering. These senior unsecured notes have a ten-year term and are scheduled to mature on April 1, 2024.
•
On January 15, 2015 ( Note 19 ), we exercised the Accordion Feature on our Senior Unsecured Credit Facility ( Note 11 ), which increased the maximum borrowing capacity under our Revolver from $1.0 billion to $1.5 billion. We also amended the Senior Unsecured Credit Facility as follows: (i) established a new $500.0 million accordion feature that, if exercised, subject to lender commitments, would increase our maximum borrowing capacity to $2.25 billion, and

W. P. Carey 2014 10-K – 34


(ii) increased the amount under our Revolver that may be borrowed in certain currencies other than the U.S. dollar from $500.0 million to $750.0 million. All other existing terms remain unchanged.
•
On January 21, 2015, we issued €500.0 million ($591.7 million) of 2.0% senior unsecured notes, at a price of 99.22% of par value, in a registered public offering ( Note 19 ). These 2.0% senior unsecured notes have an eight-year term and are scheduled to mature on January 20, 2023.
•
On January 26, 2015, we issued $450.0 million of 4.0% senior unsecured notes, at a price of 99.372% of par value, in a registered public offering ( Note 19 ). These 4.0% senior unsecured notes have a ten-year term and are scheduled to mature on February 1, 2025.

During the year ended December 31, 2014 , in connection with our long-term plan to become a primarily unsecured borrower, we prepaid 20 non-recourse mortgage loans with an aggregate outstanding principal balance of $ 220.8 million ( Note 11 ).

Distributions

Our cash distributions totaled $ 3.715 per share during the year ended December 31, 2014 , comprised of four quarterly cash distributions of $ 0.870 , $ 0.895 , $ 0.900 and $ 0.940 per share paid on January 15, 2014, April 15, 2014, July 15, 2014 and October 15, 2014, respectively, totaling $ 3.605 per share, and a special cash distribution of $ 0.110 per share paid on January 15, 2014. In addition, during the fourth quarter of 2014, our Board of Directors declared a quarterly distribution of $ 0.950 per share, or $ 3.800 on an annualized basis, which was paid on January 15, 2015 to stockholders of record on December 31, 2014 .

Investment Management

During 2014 , we managed three funds: CPA ® :17 – Global, CPA ® :18 – Global, and CWI. We also managed CPA ® :16 – Global until the consummation of the CPA ® :16 Merger on January 31, 2014 ( Note 3 ). Currently, we also serve as advisor to CWI 2, a new non-listed lodging REIT.

Investment Transactions

•
During 2014 , we invested $25.0 million in a BDC ( Note 7 ), which we formed as part of our efforts to diversify the funds that we manage. In February 2015, one of our subsidiaries became a registered investment advisor with regard to that BDC.
•
During 2014 , we structured investments in ten properties, two follow-on equity investments, and a foreign debenture for an aggregate of $291.3 million , inclusive of acquisition-related costs, on behalf of CPA ® :17 – Global. Two of these investments are jointly-owned with CPA ® :18 – Global. Approximately $ 202.3 million was invested internationally and $ 89.0 million was invested in the United States.
•
During 2014 , we structured investments in 54 properties and a note receivable for an aggregate of $911.7 million , inclusive of acquisition-related costs, on behalf of CPA ® :18 – Global. Two of these investments are jointly-owned with CPA ® :17 – Global. Approximately $ 469.2 million was invested in the United States, $ 373.3 million was invested in Europe, and $69.2 million was invested in Africa.
•
During 2014 , we structured investments in nine domestic hotels for a total of $ 677.2 million , inclusive of acquisition-related costs, on behalf of CWI.
•
On July 25, 2013, CPA ® :16 – Global, which commenced operations in 2003, entered into a definitive merger agreement with us and we completed the CPA ® :16 Merger, which we structured as a liquidity event for the stockholders of CPA ® :16 – Global, on January 31, 2014 ( Note 3 ).

Financing Transactions

•
During 2014 , we arranged mortgage financing totaling $ 92.8 million for CPA ® :17 – Global, $ 466.4 million for CPA ® :18 – Global, and $ 408.8 million for CWI.

Investor Capital Inflows

•
CPA ® :18 – Global commenced its initial public offering in May 2013 and through December 31, 2014 raised approximately $ 1.1 billion , of which $ 905.8 million was raised during the year ended December 31, 2014 .
•
In May 2014, the board of directors of CPA ® :18 – Global approved the discontinuation of sales of its class A shares of common stock as of June 30, 2014 in order to moderate the pace of its fundraising. In order to facilitate the final sales of its class A shares and the continued sales of its class C shares of common stock, the board of directors of CPA ® :18 – Global also approved the reallocation of up to $250.0 million of its shares of common stock registered under its dividend reinvestment plan, to its initial public offering. In December 2014, CPA ® :18 – Global announced that it

W. P. Carey 2014 10-K – 35


intended to close the offering of its class C shares on or about February 27, 2015, which was later extended to be on or about March 27, 2015.
•
CWI commenced its follow-on offering in December 2013, after completion of its initial public offering in September 2013. In August 2014, CWI reallocated $200.0 million of its common stock registered under its dividend reinvestment plan to its follow-on offering. In December 2014, CWI reallocated an additional $60.0 million of its common stock registered under its dividend reinvestment plan to its follow-on offering. CWI completed fundraising in its follow-on offering on December 31, 2014. Through the initial public offering and the follow-on offering, CWI raised a total of $ 1.2 billion , of which $ 577.4 million was raised through its follow on-offering during the year ended December 31, 2014 .
•
In June 2014, CWI 2 filed a registration statement on Form S-11 with the SEC to sell up to $1.0 billion of its common stock, in an initial public offering plus up to an additional $400.0 million of its common stock under its dividend reinvestment plan. In January, 2015, CWI 2 amended its registration statement, so that the offering is for up to $1.4 billion of its common stock plus up to an additional $600 million of its common stock through its dividend reinvestment plan. The registration statement was declared effective by the SEC on February 9, 2015. As of the date of this Report, CWI 2 has not yet admitted any shareholders.
•
In September 2014, two feeder funds for CCIF, a BDC, each filed registration statements on Form N-2 with the SEC to sell up to 50,000,000 and 21,000,000 shares of common stock, respectively, and intend to invest the net proceeds of their public offerings in CCIF. We refer to the feeder funds together with CCIF as the BDCs. As of the date of this Report, these registration statements have not been declared effective by the SEC, and there can be no assurance as to whether or when any such offerings would be commenced.

Proposed Regulatory Changes

The SEC has approved amendments to the rules of the Financial Industry Regulatory Authority, Inc. applicable to securities of unlisted REITs, like the Managed REITs, and direct participation programs. The amendments are scheduled to become effective on April 11, 2016. The rule changes provide, among other things, that: (i) Financial Industry Regulatory Authority, Inc. members, such as our broker dealer subsidiary, Carey Financial, LLC, include in customer account statements the net asset value per share, of the unlisted entity that have been developed using a methodology reasonably designed to ensure the net asset value per share’s reliability; and (ii) net asset value per share disclosed from and after 150 days following the second anniversary of the admission of shareholders of the unlisted entity's public offering be based on an appraised valuation developed by, or with the material assistance of, a third-party expert and updated on at least an annual basis, which is consistent with our current practice regarding our Managed REITs. The rule changes also propose that account statements include additional disclosure regarding the sources of distributions to shareholders of unlisted entities. It is not practicable at this time to determine whether these rules will adversely affect market demand for shares of unlisted REITs. We will continue to assess the potential impact of the rule changes on our Investment Management business.

Financial Highlights
 
Our results for the year ended December 31, 2014 as compared to 2013 included the following significant items:

•
Lease revenue and property level contribution from properties acquired in the CPA ® :16 Merger on January 31, 2014 were $250.5 million and $142.6 million , respectively, for the year ended December 31, 2014 ;
•
We recognized a Gain on change in control of interests of $105.9 million in connection with the CPA ® :16 Merger during the year ended December 31, 2014 ( Note 3 );
•
We received an aggregate of $13.5 million in lease termination income in connection with the early termination of two leases during the second quarter of 2014;
•
Asset management revenue from CPA ® :16 – Global decreased by $16.3 million for the year ended December 31, 2014 as compared to 2013 due to the cessation of asset management fees from CPA ® :16 – Global upon completion of the CPA ® :16 Merger on January 31, 2014;
•
We incurred interest expense on our $500.0 million 4.6% senior unsecured notes issued in March 2014 of $18.5 million during the year ended December 31, 2014 ( Note 11 );
•
We incurred costs in connection with the CPA ® :16 Merger of $30.5 million during the year ended December 31, 2014 ;
•
We issued 30,729,878 shares on January 31, 2014 to stockholders of CPA ® :16 – Global as part of the merger consideration in connection with the CPA ® :16 Merger;
•
We paid cash distributions on shares issued in connection with the CPA ® :16 Merger totaling $84.0 million during the year ended December 31, 2014 ; and
•
We issued 4,600,000 shares in the Equity Offering in September 2014.


W. P. Carey 2014 10-K – 36


Our results for the years ended December 31, 2013 as compared to 2012 included the following significant items:

•
We recognized a net gain of $39.6 million on the sale of 19 self-storage properties during 2013 , inclusive of amounts attributable to noncontrolling interests of $24.4 million;
•
Lease revenue and property level contribution was favorably impacted by $166.5 million and $96.5 million, respectively, for the year ended December 31, 2013 as compared to 2012 , due to revenue generated from the properties acquired in the CPA ® :15 Merger on September 28, 2012;
•
Asset management revenue decreased by $18.5 million for the year ended December 31, 2013 as compared to 2012, as a result of the CPA ® :15 Merger in September 2012 , which reduced the asset base from which we earn Asset management revenue;
•
We incurred costs in connection with the CPA ® :16 Merger of $5.0 million in 2013 and the CPA ® :15 Merger of $31.7 million in 2012 ;
•
We paid cash distributions on shares issued in connection with the CPA ® :15 Merger totaling $89.6 million during the year ended December 31, 2013 ; and
•
We issued of 28,170,643 shares on September 28, 2012 to stockholders of CPA ® :15 in connection with the CPA ® :15 Merger.

(In thousands, except shares)
 
Years Ended December 31,
 
2014
 
2013
 
2012
Real estate revenues (excluding reimbursable tenant costs)
$
618,268

 
$
302,651

 
$
121,713

Investment management revenues (excluding reimbursable costs from affiliates)
132,851

 
100,314

 
124,935

Total revenues (excluding reimbursable costs)
751,119

 
402,965

 
246,648

Net income attributable to W. P. Carey
239,826

 
98,876

 
62,132

 
 
 
 
 
 
Cash distributions paid
347,902

 
220,395

 
113,867

 
 
 
 
 
 
Net cash provided by operating activities
399,092

 
207,908

 
80,643

Net cash (used in) provided by investing activities
(640,226
)
 
(6,374
)
 
126,466

Net cash provided by (used in) financing activities
343,140

 
(210,588
)
 
(113,292
)
 
 
 
 
 
 
Supplemental financial measure:
 
 
 

 
 

Adjusted funds from operations (AFFO) (a)
480,466

 
294,151

 
180,631

 
 
 
 
 
 
Diluted weighted-average shares outstanding (b) (c)
99,827,356

 
69,708,008

 
48,078,474

___________
(a)
We consider the performance metrics listed above, including Adjusted funds from operations, previously referred to as Funds from operations – as adjusted, or AFFO, a supplemental measure that is not defined by GAAP, referred to as a non-GAAP measure, to be important measures in the evaluation of our results of operations and capital resources. We evaluate our results of operations with a primary focus on the ability to generate cash flow necessary to meet our objective of funding distributions to stockholders. See Supplemental Financial Measures below for our definition of this non-GAAP measure and a reconciliation to its most directly comparable GAAP measure.
(b)
Amount for the year ended December 31, 2014 includes the dilutive impact of the 4,600,000 shares issued in the Equity Offering on September 30, 2014 and the 30,729,878 shares issued to stockholders of CPA ® :16 – Global in connection with the CPA ® :16 Merger on January 31, 2014.
(c)
Amount for the year ended December 31, 2013 includes the dilutive impact of the 28,170,643 shares issued to stockholders of CPA ® :15 in connection with the CPA ® :15 Merger on September 28, 2012.


W. P. Carey 2014 10-K – 37


Consolidated Results

Revenues and Net Income Attributable to W. P. Carey

2014 vs. 2013 — Total revenues and Net income attributable to W. P. Carey increased significantly in 2014 as compared to 2013 , primarily due to increases within our Real Estate Ownership Segment. The growth in revenues and income within our Real Estate Ownership segment was generated substantially from the properties we acquired in the CPA ® :16 Merger on January 31, 2014 ( Note 3 ). Additionally, total revenues and Net income within our Investment Management segment increased as a result of a significant increase in Structuring revenue due to higher investment volume on behalf of the Managed REITs in 2014 as compared to 2013.

2013 vs. 2012 — Total revenues and Net income attributable to W. P. Carey increased significantly in 2013 as compared to 2012 , due to increases within our Real Estate Ownership segment. The growth in revenues and income was generated substantially from the properties we acquired in the CPA ® :15 Merger in September 2012 ( Note 3 ). These increases were partially offset by decreases in Total revenues and Net income in our Investment Management segment, primarily due to the CPA ® :15 Merger, which reduced the total asset base from which we earn asset management revenue.

Net Cash Provided by Operating Activities

2014 vs. 2013 — Net cash provided by operating activities increased significantly in 2014 as compared to the same period in 2013 , primarily due to operating cash flow generated from the properties we acquired in the CPA ® :16 Merger, which was partially offset by a decrease in cash received for providing asset-based management services to the Managed REITs because we no longer provided such services to CPA ® :16 – Global after the completion of the CPA ® :16 Merger.

2013 vs. 2012 — Net cash provided by operating activities increased significantly in 2013 as compared to the same period in 2012 , primarily due to operating cash flow generated from the properties we acquired in the CPA ® :15 Merger, which was partially offset by a decrease in cash received for providing asset-based management services to the Managed REITs because we no longer provided such services to CPA ® :15 after the completion of the CPA ® :15 Merger.

AFFO

2014 vs. 2013 — AFFO increased significantly in 2014 as compared to 2013 , primarily due to income generated from the properties we acquired in the CPA ® :16 Merger and an increase in Structuring revenue due to higher investment volume on behalf of the Managed REITs in 2014, partially offset by the cessation of asset management revenue received from CPA ® :16 – Global after the completion of the CPA ® :16 Merger.

2013 vs. 2012 — AFFO increased significantly in 2013 as compared to 2012, primarily due to income generated from the properties we acquired in the CPA ® :15 Merger, partially offset by the cessation of asset management revenue received from CPA ® :15 after the completion of the CPA ® :15 Merger.


W. P. Carey 2014 10-K – 38


Portfolio Overview

We intend to continue to acquire a diversified portfolio of income-producing commercial real estate properties and other real estate-related assets. We expect to make these investments both domestically and outside of the United States. 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,
 
2014
 
2013
 
2012
Number of net-leased properties (a)
783

 
418

 
423

Number of operating properties (b)
4

 
2

 
22

Number of tenants (net-leased properties)
219

 
128

 
124

Total square footage (net-leased properties, in thousands)
87,300

 
39,500

 
38,500

Occupancy (net-leased properties)
98.6
%
 
98.9
%
 
98.7
%
Weighted-average lease term (net-leased properties, in years)
9.1

 
8.1

 
8.9

Number of countries
18

 
10

 
10

Total assets (consolidated basis, in thousands)
$
8,637,328

 
$
4,678,950

 
$
4,609,042

Net investments in real estate (consolidated basis, in thousands)
5,656,555

 
2,803,634

 
2,675,573

 
Years Ended December 31,
 
2014
 
2013
 
2012
Financing obtained (in millions, pro rata and consolidated basis) (c)
$
1,750.0

 
$
415.6

 
$
198.8

Acquisition volume (in millions, pro rata and consolidated basis) (d)
906.9

 
347.1

 
24.6

New equity investments (millions)
25.0

 
—

 
1.3

Average U.S. dollar/euro exchange rate (e)
1.3295

 
1.3284

 
1.2861

Increase in the U.S. CPI (f)
0.8
 %
 
1.5
%
 
1.7
%
Increase in the German CPI (f)
0.2
 %
 
1.4
%
 
2.0
%
Increase in the French CPI (f)
0.1
 %
 
0.7
%
 
1.3
%
Increase in the Finnish CPI (f)
0.5
 %
 
1.6
%
 
2.4
%
(Decrease) increase in the Spanish CPI  (f)
(1.0
)%
 
0.3
%
 
2.8
%
____________
(a)
Amounts represent net-leased properties as of December 31, 2014 , including 335 properties acquired from CPA ® :16 – Global in the CPA ® :16 Merger in January 2014 with a total fair value of approximately $ 3.7 billion ( Note 3 ), 11 of which were sold during the year ended December 31, 2014 .
(b)
Operating properties include two self-storage properties with an average occupancy of 92.3% at December 31, 2014 , and two hotel properties acquired from CPA ® :16 – Global in the CPA ® :16 Merger with an average occupancy of 83.2% for the year ended December 31, 2014 . Operating properties at December 31, 2013 and 2012 were held within one consolidated investment, which was jointly-owned with an unrelated third-party and two employees, in 20 jointly-owned self-storage properties, as well as a hotel and a wholly-owned self-storage property. We sold 19 of the jointly-owned self-storage properties and the hotel in the fourth quarter of 2013.
(c)
The amount for the year ended December 31, 2014 includes our $500.0 million 4.6% senior unsecured notes and our $1.25 billion Senior Unsecured Credit Facility ( Note 11 ). The amount for the year ended December 31, 2013 includes a $300.0 million Unsecured Term Loan, and the amount for the year ended December 31, 2012 includes a $175.0 million term loan facility obtained in connection with the CPA ® :15 Merger ( Note 3 ), each of which was repaid in full and terminated on January 31, 2014 when we entered into our Senior Unsecured Credit Facility.
(d)
Amount for the year ended December 31, 2014 includes acquisition-related costs, recognized as expense in the consolidated financial statements. Amount for the year ended December 31, 2012 does not include our acquisition of a 52.63% ownership interest in Marcourt Investments Inc., or Marcourt, in connection with the CPA ® :15 Merger.
(e)
The average conversion rate for the U.S. dollar in relation to the euro increased during each of the years ended December 31, 2014 and 2013 , as compared to their respective prior years, resulting in a positive impact on earnings in 2014 and 2013 from our euro-denominated investments.

W. P. Carey 2014 10-K – 39


(f)
Many of our lease agreements and those of the CPA ® REITs include contractual increases indexed to changes in the CPI or similar indices in the jurisdictions in which the properties are located.

Net-Leased Portfolio

The tables below represent information about our net-leased portfolio at December 31, 2014 on a pro rata basis and, accordingly, exclude all operating properties. See Terms and Definitions below for a description of pro rata amounts and ABR.

Top Ten Tenants by ABR
(in thousands, except percentages)
Tenant/Lease Guarantor
 
ABR
 
Percent
Hellweg Die Profi-Baumärkte GmbH & Co. KG (a)
 
$
37,716

 
5.6
%
U-Haul Moving Partners Inc. and Mercury Partners, LP
 
31,853

 
4.7
%
Carrefour France SAS (a)
 
30,078

 
4.4
%
State of Andalusia, Spain (a) (b)
 
28,692

 
4.2
%
OBI Group (a)
 
16,545

 
2.5
%
Marcourt Investments Inc.
 
16,100

 
2.4
%
True Value Company
 
14,775

 
2.2
%
UTI Holdings, Inc.
 
14,621

 
2.2
%
Advanced Micro Devices, Inc.
 
12,769

 
1.9
%
Dick’s Sporting Goods, Inc.
 
11,831

 
1.7
%
Total
 
$
214,980

 
31.8
%
__________
(a)
ABR amounts are subject to fluctuations in foreign currency exchange rates.
(b)
We acquired this investment in December 2014.


W. P. Carey 2014 10-K – 40


Portfolio Diversification by Geography
(in thousands, except percentages)
Region
 
ABR
 
Percent
 
Square
Footage
 
Percent
United States
 
 
 
 
 
 
 
 
East
 
 
 
 
 
 
 
 
New Jersey
 
$
25,177

 
3.7
%
 
1,694

 
1.9
%
North Carolina
 
18,631

 
2.8
%
 
4,435

 
5.1
%
Pennsylvania
 
17,936

 
2.7
%
 
2,526

 
2.9
%
New York
 
17,565

 
2.6
%
 
1,178

 
1.4
%
Massachusetts
 
14,584

 
2.2
%
 
1,390

 
1.6
%
Virginia
 
7,780

 
1.1
%
 
1,089

 
1.2
%
Other (a)
 
23,415

 
3.5
%
 
4,758

 
5.5
%
Total East
 
125,088

 
18.6
%
 
17,070

 
19.6
%
 
 
 
 
 
 
 
 
 
West
 
 
 
 
 
 
 
 
California
 
55,021

 
8.1
%
 
3,540

 
4.1
%
Arizona
 
25,659

 
3.8
%
 
2,934

 
3.4
%
Colorado
 
10,949

 
1.6
%
 
1,340

 
1.5
%
Utah
 
6,854

 
1.0
%
 
960

 
1.1
%
Other (a)
 
20,026

 
3.0
%
 
2,336

 
2.7
%
Total West
 
118,509

 
17.5
%
 
11,110

 
12.8
%
 
 
 
 
 
 
 
 
 
South
 
 
 
 
 
 
 
 
Texas
 
46,496

 
6.9
%
 
6,758

 
7.7
%
Georgia
 
26,374

 
3.9
%
 
3,497

 
4.0
%
Florida
 
17,786

 
2.6
%
 
1,855

 
2.1
%
Tennessee
 
15,411

 
2.3
%
 
1,803

 
2.1
%
Other (a)
 
8,494

 
1.3
%
 
1,767

 
2.0
%
Total South
 
114,561

 
17.0
%
 
15,680

 
17.9
%
 
 
 
 
 
 
 
 
 
Midwest
 
 
 
 
 
 
 
 
Illinois
 
25,897

 
3.8
%
 
3,741

 
4.3
%
Michigan
 
11,697

 
1.7
%
 
1,386

 
1.6
%
Indiana
 
9,072

 
1.3
%
 
1,418

 
1.6
%
Ohio
 
7,888

 
1.2
%
 
1,813

 
2.1
%
Other (a)
 
27,446

 
4.1
%
 
4,922

 
5.6
%
Total Midwest
 
82,000

 
12.1
%
 
13,280

 
15.2
%
United States Total
 
440,158

 
65.2
%
 
57,140

 
65.5
%
 
 
 
 
 
 
 
 
 
International
 
 
 
 
 
 
 
 
Germany
 
61,584

 
9.1
%
 
7,009

 
8.0
%
France
 
46,939

 
6.9
%
 
8,166

 
9.3
%
Spain
 
30,371

 
4.5
%
 
2,926

 
3.4
%
Finland
 
30,062

 
4.4
%
 
2,133

 
2.4
%
Poland
 
18,601

 
2.7
%
 
2,189

 
2.5
%
United Kingdom
 
12,877

 
1.9
%
 
973

 
1.1
%
Australia
 
10,906

 
1.6
%
 
3,160

 
3.6
%
Other (b)
 
25,159

 
3.7
%
 
3,651

 
4.2
%
International Total
 
236,499

 
34.8
%
 
30,207

 
34.5
%
 
 
 
 
 
 
 
 
 
Total
 
$
676,657

 
100.0
%
 
87,347

 
100.0
%


W. P. Carey 2014 10-K – 41


Portfolio Diversification by Property Type
(in thousands, except percentages)
Property Type
 
ABR
 
Percent
 
Square
Footage
 
Percent
Office
 
$
214,147

 
31.6
%
 
13,616

 
15.6
%
Industrial
 
172,907

 
25.7
%
 
34,192

 
39.2
%
Warehouse/Distribution
 
121,974

 
18.0
%
 
24,856

 
28.5
%
Retail
 
83,372

 
12.3
%
 
7,716

 
8.8
%
Self-Storage
 
31,853

 
4.7
%
 
3,535

 
4.0
%
Other Properties  (c)
 
52,404

 
7.7
%
 
3,432

 
3.9
%
 
 
$
676,657

 
100.0
%
 
87,347

 
100.0
%
________
(a)
Other properties in the East include assets in Connecticut, South Carolina, Kentucky, Maryland, New Hampshire, Vermont, and West Virginia. Other properties in the West include assets in Washington, New Mexico, Nevada, Oregon, Wyoming, and Alaska. Other properties in the South include assets in Alabama, Louisiana, Arkansas, Mississippi, and Oklahoma. Other properties in the Midwest include assets in Missouri, Minnesota, Kansas, Wisconsin, Nebraska, and Iowa.
(b)
Includes assets in Norway, the Netherlands, Hungary, Belgium, Sweden, Canada, Mexico, Thailand, Malaysia, and Japan.
(c)
Includes ABR from tenants within the following property types: hotels, learning center, sports facility, theater, and residential.


W. P. Carey 2014 10-K – 42


Portfolio Diversification by Tenant Industry
(in thousands, except percentages)
Industry Type
 
ABR
 
Percent
 
Square
Footage
 
Percent
Retail Stores
 
$
132,682

 
19.6
%
 
19,945

 
22.8
%
Business and Commercial Services
 
57,504

 
8.5
%
 
5,418

 
6.2
%
Electronics
 
43,566

 
6.4
%
 
3,462

 
4.0
%
Federal, State, Local and Foreign Government
 
42,660

 
6.3
%
 
3,363

 
3.9
%
Healthcare, Education, and Childcare
 
41,412

 
6.1
%
 
3,165

 
3.6
%
Chemicals, Plastics, Rubber, and Glass
 
39,074

 
5.8
%
 
6,881

 
7.9
%
Automobile
 
36,061

 
5.3
%
 
6,213

 
7.1
%
Beverages, Food, and Tobacco
 
33,775

 
5.0
%
 
7,303

 
8.4
%
Media: Printing and Publishing
 
23,136

 
3.4
%
 
1,930

 
2.2
%
Machinery
 
21,593

 
3.2
%
 
3,325

 
3.8
%
Buildings and Real Estate
 
20,703

 
3.2
%
 
2,298

 
2.6
%
Insurance
 
17,894

 
2.6
%
 
1,053

 
1.2
%
Telecommunications
 
17,751

 
2.6
%
 
1,227

 
1.4
%
Transportation - Cargo
 
16,573

 
2.4
%
 
1,990

 
2.3
%
Hotels and Gaming
 
16,100

 
2.4
%
 
1,036

 
1.2
%
Construction and Building
 
15,600

 
2.3
%
 
4,589

 
5.2
%
Leisure, Amusement, and Entertainment
 
14,758

 
2.2
%
 
768

 
0.9
%
Aerospace and Defense
 
14,475

 
2.2
%
 
1,572

 
1.8
%
Transportation - Personal
 
11,360

 
1.7
%
 
1,263

 
1.4
%
Consumer and Durable Goods
 
11,091

 
1.6
%
 
2,381

 
2.7
%
Grocery
 
11,007

 
1.6
%
 
1,185

 
1.4
%
Oil and Gas
 
8,578

 
1.3
%
 
368

 
0.4
%
Consumer Non-Durable Goods
 
7,785

 
1.2
%
 
1,532

 
1.8
%
Textiles, Leather, and Apparel
 
6,988

 
1.0
%
 
1,773

 
2.0
%
Other (a)
 
14,531

 
2.1
%
 
3,307

 
3.8
%
 
 
$
676,657

 
100.0
%
 
87,347

 
100.0
%
__________
(a)
Includes ABR from tenants in the following industries: banking; mining, metals, and primary metal industries; and forest products and paper.


W. P. Carey 2014 10-K – 43


Lease Expirations
(in thousands, except number of leases and percentages)
Year of Lease Expiration (a)
 
Number of Leases Expiring
 
ABR
 
Percent
 
Square
Footage
 
Percent
2015 (b)
 
15

 
$
21,354

 
3.2
%
 
1,882

 
2.2
%
2016
 
18

 
22,124

 
3.3
%
 
2,822

 
3.2
%
2017
 
21

 
20,380

 
3.0
%
 
3,243

 
3.7
%
2018
 
30

 
58,806

 
8.7
%
 
8,114

 
9.3
%
2019
 
28

 
47,083

 
7.0
%
 
4,746

 
5.4
%
2020
 
24

 
34,810

 
5.1
%
 
3,578

 
4.1
%
2021
 
77

 
42,859

 
6.3
%
 
7,042

 
8.1
%
2022
 
38

 
62,034

 
9.2
%
 
8,557

 
9.8
%
2023
 
15

 
47,581

 
7.0
%
 
5,669

 
6.5
%
2024
 
42

 
90,124

 
13.3
%
 
11,120

 
12.7
%
2025
 
17

 
20,752

 
3.1
%
 
2,477

 
2.8
%
2026
 
21

 
17,329

 
2.5
%
 
2,484

 
2.8
%
2027
 
16

 
35,253

 
5.2
%
 
5,380

 
6.2
%
2028
 
8

 
21,462

 
3.2
%
 
2,853

 
3.3
%
Thereafter
 
63

 
134,706

 
19.9
%
 
16,190

 
18.5
%
Vacant
 
—

 
—

 
—
%
 
1,190

 
1.4
%
 
 
433

 
$
676,657

 
100.0
%
 
87,347

 
100.0
%
__________
(a)
Assumes tenant does not exercise renewal option.
(b)
Month-to-month leases are included in 2015 ABR.

Terms and Definitions

Pro Rata Metrics —The portfolio information above contains certain metrics prepared under the pro rata consolidation method. We refer to these metrics as pro rata metrics. We have a number of investments, usually with our affiliates, in which our economic ownership is less than 100%. Under the full consolidation method, we report 100% of the assets, liabilities, revenues, and expenses of those investments that are deemed to be under our control or for which we are deemed to be the primary beneficiary, even if our ownership is less than 100%. Also, for all other jointly-owned investments, we report our net investment and our net income or loss from that investment. Under the pro rata consolidation method, we generally present our proportionate share, based on our economic ownership of these jointly-owned investments, of the assets, liabilities, revenues, and expenses of those investments.

ABR — ABR represents contractual minimum annualized base rent for our net-leased properties. ABR is not applicable to operating properties.

Results of Operations

We have two reportable segments – Real Estate Ownership 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 Ownership segment as well as assets owned by the Managed REITs, which are managed by our Investment Management segment. We focus our efforts on improving underperforming assets through re-leasing efforts, including negotiation of lease renewals, or selectively selling assets in order to increase value in our real estate portfolio. The ability to increase assets under management by structuring investments on behalf of the Managed REITs is affected, among other things, by our ability to raise capital on behalf of the Managed REITs and our ability to identify and enter into appropriate investments and financing.


W. P. Carey 2014 10-K – 44


Real Estate Ownership

The following table presents the comparative results of our Real Estate Ownership segment (in thousands):
 
Years Ended December 31,
 
2014
 
2013
 
Change
 
2013
 
2012
 
Change
Revenues
 

 
 

 
 

 
 

 
 

 
 

Lease revenues
$
573,829

 
$
299,624

 
$
274,205

 
$
299,624

 
$
119,296

 
$
180,328

Operating property revenues
28,913

 
956

 
27,957

 
956

 
925

 
31

Reimbursable tenant costs
24,862

 
13,314

 
11,548

 
13,314

 
7,468

 
5,846

Lease termination income and other
15,526

 
2,071


13,455


2,071

 
1,492


579

 
643,130

 
315,965

 
327,165

 
315,965

 
129,181

 
186,784

Operating Expenses
 

 
 

 
 

 
 

 
 

 
 

Depreciation and amortization:
 
 
 
 
 
 
 
 
 
 
 
Net-leased properties
229,210

 
117,271

 
111,939

 
117,271

 
40,478

 
76,793

Operating properties
3,889

 
178


3,711


178


205


(27
)
 
233,099

 
117,449

 
115,650

 
117,449

 
40,683

 
76,766

Property expenses:
 
 
 
 
 
 
 
 
 
 
 
Reimbursable tenant costs
24,862

 
13,314

 
11,548

 
13,314

 
7,468

 
5,846

Operating property expenses
20,847

 
577

 
20,270

 
577

 
494

 
83

Net-leased properties
15,493

 
6,416

 
9,077

 
6,416

 
3,753

 
2,663

Property management fees
1,385


1,089


296


1,089


308


781

 
62,587

 
21,396

 
41,191

 
21,396

 
12,023

 
9,373

General and administrative
38,797


18,993


19,804


18,993


7,885


11,108

Merger and property acquisition expenses
34,465


9,230


25,235


9,230


31,639


(22,409
)
Impairment charges
23,067


4,741


18,326


4,741


—


4,741

Stock-based compensation expense
12,659


7,153


5,506


7,153


211


6,942

 
404,674

 
178,962

 
225,712

 
178,962

 
92,441

 
86,521

Segment Net Operating Income
238,456

 
137,003

 
101,453

 
137,003

 
36,740

 
100,263

Other Income and Expenses
 
 
 

 
 

 
 

 
 

 
 

Interest expense
(178,122
)
 
(103,728
)
 
(74,394
)
 
(103,728
)
 
(46,448
)
 
(57,280
)
Gain on change in control of interests
105,947

 
—

 
105,947

 
—

 
20,744

 
(20,744
)
Equity in earnings of equity method investments in real estate and the Managed REITs
44,116

 
52,731

 
(8,615
)
 
52,731

 
62,392

 
(9,661
)
Other income and (expenses)
(12,252
)
 
8,420

 
(20,672
)
 
8,420

 
1,109

 
7,311

 
(40,311
)
 
(42,577
)
 
2,266

 
(42,577
)
 
37,797

 
(80,374
)
Income from continuing operations before income taxes
198,145

 
94,426

 
103,719

 
94,426

 
74,537

 
19,889

Benefit from (provision for) income taxes
916

 
(4,703
)
 
5,619

 
(4,703
)
 
(4,001
)
 
(702
)
Income from continuing operations before gain (loss) on sale of real estate
199,061

 
89,723

 
109,338

 
89,723

 
70,536

 
19,187

Income (loss) from discontinued operations, net of tax
33,318

 
38,180

 
(4,862
)
 
38,180

 
(24,735
)
 
62,915

Gain (loss) on sale of real estate, net of tax
1,581

 
(332
)
 
1,913

 
(332
)
 
2,339

 
(2,671
)
Net Income from Real Estate Ownership
233,960

 
127,571

 
106,389

 
127,571

 
48,140

 
79,431

Net income attributable to noncontrolling interests
(5,573
)
 
(33,056
)
 
27,483

 
(33,056
)
 
(3,245
)
 
(29,811
)
Net Income from Real Estate Ownership
attributable to W. P. Carey
$
228,387

 
$
94,515

 
$
133,872

 
$
94,515

 
$
44,895

 
$
49,620



W. P. Carey 2014 10-K – 45


Lease Composition and Leasing Activities

As of December 31, 2014 , 94% of our net leases, based on ABR, have rent increases, of which 71% have adjustments based on CPI or similar indices and 23% have fixed rent increases. CPI and similar rent adjustments are based on formulas indexed to changes in the CPI, or other similar indices for the jurisdiction in which the property is located, some of which have caps and/or floors. Over the next 12 months, fixed rent escalations are scheduled to increase ABR by an average of 3% . Lease revenues from our international investments are also subject to fluctuations in exchange rate movements in foreign currencies.

The following discussion presents a summary of rents on existing properties arising from leases with new tenants, or second generation leases, and renewed leases with existing tenants for the periods presented and, therefore, does not include new acquisitions for our portfolio during the years presented or properties acquired in the CPA ® :15 Merger or the CPA ® :16 Merger.

2014 — During 2014 , we entered into 29 leases totaling approximately 2.0 million square feet of leased space. Of these leases, two were with new tenants and 27 were lease renewals, extensions or expansions with existing tenants. The estimated average new rent for these leases over their respective lease terms is $7.34 per square foot and the average in place former rent was $7.95 per square foot, reflecting current market conditions. We provided tenant improvement allowances totaling $4.1 million on 15 of these leases.

2013 — During 2013 , we entered into 16 leases totaling approximately 0.8 million square feet of leased space. Of these leases, four were with new tenants, nine were lease renewals or extensions with existing tenants, and three were lease restructurings. The estimated average new rent for these leases over their respective lease terms is $ 8.49 per square foot and the average in place former rent was $ 10.53 per square foot, reflecting market conditions at that time. We provided total tenant improvement allowances of $ 0.6 million on two of these leases. In addition, in January 2013 we entered into a lease extension regarding a 0.4 million square foot building and committed to an expansion of 0.1 million square feet at an expected cost of $6.4 million. The expansion was completed in September 2013.

2012 — During 2012 , we entered into 22 leases totaling approximately 2.0 million square feet of leased space. Of these leases, three were with new tenants and 19 were lease renewals or extensions with existing tenants. The estimated average new rent for these leases over their respective lease terms is $7.37 per square foot and the average former rent was $8.80 per square foot, reflecting market conditions at that time. We provided tenant improvement allowances and other incentives totaling $3.0 million on two of these leases. 


W. P. Carey 2014 10-K – 46


Property Level Contribution

Property level contribution includes lease and operating property revenues, less property expenses and depreciation and amortization. When a property is leased on a net-lease basis, reimbursable tenant costs are recorded as both income and property expense and, therefore, have no impact on the property level contribution. The following table presents the property level contribution for our consolidated leased and operating properties as well as a reconciliation to Segment net operating income (in thousands):
 
Years Ended December 31,
 
2014
 
2013
 
Change
 
2013
 
2012
 
Change
Same Store Net-Leased Properties
 
 
 
 
 
 
 
 
 
 
 
Lease revenues
$
62,373

 
$
61,740

 
$
633

 
$
61,740

 
$
62,315

 
$
(575
)
Property expenses
(1,699
)
 
(1,586
)
 
(113
)
 
(1,586
)
 
(1,053
)
 
(533
)
Depreciation and amortization
(18,492
)
 
(17,967
)
 
(525
)
 
(17,967
)
 
(17,473
)
 
(494
)
Property level contribution
42,182

 
42,187

 
(5
)
 
42,187

 
43,789

 
(1,602
)
Net-Leased Properties Acquired in the CPA ® :15 Merger
 
 
 
 
 
 
 
 
 
 
 
Lease revenues
217,512

 
216,815

 
697

 
216,815

 
53,207

 
163,608

Property expenses
(2,901
)
 
(2,176
)
 
(725
)
 
(2,176
)
 
(1,721
)
 
(455
)
Depreciation and amortization
(86,828
)
 
(87,604
)
 
776

 
(87,604
)
 
(21,709
)
 
(65,895
)
Property level contribution
127,783

 
127,035

 
748

 
127,035

 
29,777

 
97,258

Net-Leased Properties Acquired in the CPA ® :16 Merger

















Lease revenues
250,536

 
—


250,536


—

 
—


—

Property expenses
(6,492
)
 
—


(6,492
)

—

 
—


—

Depreciation and amortization
(101,397
)
 
—


(101,397
)

—

 
—


—

Property level contribution
142,647


—


142,647


—


—


—

Recently Acquired Net-Leased Properties
 
 
 
 
 
 
 
 
 
 
 
Lease revenues
39,128

 
15,131

 
23,997

 
15,131

 
536

 
14,595

Property expenses
(2,495
)
 
(278
)
 
(2,217
)
 
(278
)
 
—

 
(278
)
Depreciation and amortization
(20,820
)
 
(9,405
)
 
(11,415
)
 
(9,405
)
 
(252
)
 
(9,153
)
Property level contribution
15,813

 
5,448

 
10,365

 
5,448

 
284

 
5,164

Properties Sold or Held-for-Sale
 
 
 
 
 
 
 
 
 
 
 
Lease revenues
4,280

 
5,938

 
(1,658
)
 
5,938

 
3,238

 
2,700

Property expenses
(1,906
)
 
(2,376
)
 
470

 
(2,376
)
 
(979
)
 
(1,397
)
Depreciation and amortization
(1,673
)
 
(2,295
)
 
622

 
(2,295
)
 
(1,044
)
 
(1,251
)
Property level contribution
701

 
1,267

 
(566
)
 
1,267

 
1,215

 
52

Operating Properties
 
 
 
 
 
 
 
 
 
 
 
Revenues
28,913

 
956

 
27,957

 
956

 
925

 
31

Property expenses
(20,847
)
 
(577
)
 
(20,270
)
 
(577
)
 
(494
)
 
(83
)
Depreciation and amortization
(3,889
)
 
(178
)
 
(3,711
)
 
(178
)
 
(205
)
 
27

Property level contribution
4,177

 
201

 
3,976

 
201

 
226

 
(25
)
Property Level Contribution
333,303

 
176,138

 
157,165

 
176,138

 
75,291

 
100,847

Add: Lease termination income and other
15,526

 
2,071

 
13,455

 
2,071

 
1,492

 
579

Less other expenses:
 
 
 
 
 
 
 
 
 
 
 
General and administrative
(38,797
)
 
(18,993
)
 
(19,804
)
 
(18,993
)
 
(7,885
)
 
(11,108
)
Merger and property acquisition expenses
(34,465
)
 
(9,230
)
 
(25,235
)
 
(9,230
)
 
(31,639
)
 
22,409

Impairment charges
(23,067
)
 
(4,741
)
 
(18,326
)
 
(4,741
)
 
—

 
(4,741
)
Property management fees
(1,385
)
 
(1,089
)
 
(296
)
 
(1,089
)
 
(308
)
 
(781
)
Stock-based compensation expense
(12,659
)
 
(7,153
)
 
(5,506
)
 
(7,153
)
 
(211
)
 
(6,942
)
Segment Net Operating Income
$
238,456

 
$
137,003

 
$
101,453

 
$
137,003

 
$
36,740

 
$
100,263



W. P. Carey 2014 10-K – 47


Same Store Net-Leased Properties

Same store net-leased properties are those that we acquired prior to January 1, 2012 and that were not sold during the periods presented. At December 31, 2014 , there were 101 same store net-leased properties.

2014 vs. 2013 — For the year ended December 31, 2014 as compared to 2013 , property level contribution from same store net-leased properties was substantially the same. An increase in Lease revenues of $0.6 million was substantially offset by an increase in Depreciation and amortization expense of $0.5 million . Lease revenues increased by $0.5 million as a result of scheduled rent increases at certain properties. Depreciation and amortization expenses increased due to the reclassification of several properties from direct financing leases to operating leases.

2013 vs. 2012 — For the year ended December 31, 2013 as compared to 2012 , property level contribution from same store net-leased properties decreased by $1.6 million , primarily due to a decrease in lease revenues of $0.6 million and increases in both property expenses and depreciation and amortization expenses of $0.5 million . Lease revenues decreased by $1.8 million as a result of restructuring of leases at several properties. This decrease was partially offset by an increase in lease revenues of $0.9 million as a result of scheduled rent increases at several properties.

Net-Leased Properties Acquired in the CPA ® :15 Merger

Net-leased properties acquired in the CPA ® :15 Merger in September 2012 represents the 305 properties we acquired at that time, less 22 of those properties that were disposed of through December 31, 2014 .

2014 vs. 2013 — For the year ended December 31, 2014 as compared to 2013 , property level contribution from net-leased properties acquired in the CPA ® :15 Merger increased by $0.7 million . This increase was primarily due to an increase in lease revenues of $2.2 million as a result of scheduled rent increases at several properties, partially offset by a decrease in lease revenues of $1.5 million as a result of restructuring of leases at several properties.

2013 vs. 2012 — For the year ended December 31, 2013 as compared to 2012 , property level contribution from net-leased properties acquired in the CPA ® :15 Merger in September 2012 increased by $97.3 million , primarily due to the impact of a full year of ownership of the assets acquired as compared to that of one quarter in 2012.

Net-Leased Properties Acquired in the CPA ® :16 Merger

Net-leased properties acquired in the CPA ® :16 Merger in January 2014 represents the 333 net-leased properties we acquired at that time, less 11 of those properties that were sold during the year ended December 31, 2014 , which are further discussed in Note 16 .

For the year ended December 31, 2014 , property level contribution from net-leased properties acquired in the CPA ® :16 Merger was $142.6 million , representing activity for the 11-month period from the date of that merger to December 31, 2014 .

Recently Acquired Net-Leased Properties

Recently acquired net-leased properties are those that we acquired subsequent to December 31, 2011, excluding those acquired in the CPA ® :15 Merger and the CPA ® :16 Merger. During 2014 , we acquired ten investments with total ABR of approximately $55.4 million. During 2013, we acquired seven investments with total ABR of approximately $22.4 million. During 2012, we acquired one investment with ABR of approximately $1.7 million.

2014 vs. 2013 — For the year ended December 31, 2014 as compared to 2013 , property level contribution from recently acquired net-leased properties increased by $10.4 million .

2013 vs. 2012 — For the year ended December 31, 2013 as compared to 2012 , property level contribution from recently acquired net-leased properties increased by $5.2 million .


W. P. Carey 2014 10-K – 48


Properties Sold or Held-for-Sale

Properties sold or held-for-sale discussed in this section represent only those properties that did not qualify for classification as discontinued operations. We discuss properties sold or held-for sale that did qualify for classification as discontinued operations under Other Revenues and Expenses, Income (Loss) from Discontinued Operations, Net of Tax, below and in Note 16 .

During the year ended December 31, 2014 , we sold 13 properties, including a property subject to a direct financing lease that we acquired in the CPA ® :16 Merger and a parcel of land that was conveyed to the local government. At December 31, 2014 , we also had four properties classified as held-for-sale. Property level contribution from properties sold or held-for-sale for the year ended December 31, 2014 was $0.7 million .

During the year ended December 31, 2013 , we sold one investment in a property subject to a direct financing lease. Property level contribution from properties sold or held-for-sale for the year ended December 31, 2013 was $1.3 million .

During the year ended December 31, 2012 , we sold one investment in a property subject to a direct financing lease. Property level contribution from properties sold or held-for-sale for the year ended December 31, 2012 was $1.2 million .

Operating Properties

Operating properties consist of our investments in two hotels acquired in the CPA ® :16 Merger for 2014 and two self-storage properties for all periods presented.
 
2014 vs. 2013 — For the year ended December 31, 2014 as compared to 2013 , property level contribution from operating properties increased by $4.0 million , primarily as a result of the two hotels we acquired in the CPA ® :16 Merger.

2013 vs. 2012 — For the year ended December 31, 2013 as compared to 2012 , property level contribution from operating properties was substantially the same.

Other Revenues and Expenses

Lease Termination Income and Other

2014 vs. 2013 — For the year ended December 31, 2014 as compared to 2013 , Lease termination income and other increased by $13.5 million due to lease termination income from the early termination of three leases during the year ended December 31, 2014 .

2013 vs. 2012 — For the year ended December 31, 2013 as compared to 2012 , Lease termination income and other increased by $0.6 million .

General and Administrative

As discussed in  Note 4 , certain personnel and overhead costs are charged to the CPA ®  REITs and our real estate portfolio based on the trailing 12-month reported revenues of the CPA ®  REITs, CWI, and us. We began to allocate personnel and overhead costs to CWI on January 1, 2014 based on the time incurred by our personnel.

2014 vs. 2013 — For the year ended December 31, 2014 as compared to 2013 , general and administrative expenses in the Real Estate Ownership segment increased by $19.8 million , primarily due to higher compensation costs and professional fees. Compensation costs increased by $ 15.0 million primarily due to the increased allocation of personnel costs to the Real Estate Ownership segment resulting from the increased revenues in that segment after the CPA ® :16 Merger. Additionally, compensation costs were higher due to an increase in both headcount and acquisition-related commissions. Professional fees increased by $ 3.8 million primarily due to consulting fees associated with the planned implementation of a new software system that will be used in our accounting, tax, and financial reporting functions.
 
2013 vs. 2012 — For the year ended December 31, 2013 as compared to 2012 , general and administrative expenses in the Real Estate Ownership segment increased by $11.1 million , primarily due to increases in personnel costs of $ 7.4 million as a result of higher allocation of personnel and overhead costs to the Real Estate Ownership segment due to the increased segment revenues after the CPA ® :15 Merger.


W. P. Carey 2014 10-K – 49


Merger and Property Acquisition Expenses

2014 — For the year ended December 31, 2014 , Merger and property acquisition expenses were $34.5 million , which consisted of merger-related expenses of $30.5 million and other acquisition-related expenses of $4.0 million . Merger-related expenses during  2014  represent costs incurred in connection with the CPA ® :16 Merger, which was completed on January 31, 2014. Acquisition expenses consist primarily of acquisition-related costs incurred on the investments we entered into during the year ended  December 31, 2014 , which were accounted for as business combinations and for which such costs were required to be expensed under current accounting guidance.

2013 — For the year ended December 31, 2013 , Merger and property acquisition expenses were $9.2 million , which consisted of merger-related expenses of $5.0 million and other acquisition-related expenses of $4.2 million. Merger-related expenses during 2013 represent costs incurred in connection with the CPA ® :16 Merger, the agreement for which was announced in July 2013. Acquisition expenses consist primarily of acquisition-related costs incurred on three investments we entered into during the year ended  December 31, 2013 , which were accounted for as business combinations and for which such costs were required to be expensed under current accounting guidance.

2012 — For the year ended December 31, 2012 , merger and property acquisition expenses were $31.6 million , reflecting costs incurred in connection with the CPA ® :15 Merger.

Impairment Charges
 
We periodically assess whether there are any indicators that the value of our assets may be impaired or that their carrying value may not be recoverable. If there is an indicator of impairment and we determine that the undiscounted cash flows for an asset, when considering and evaluating the various alternative courses of action that may occur, are less than the asset’s carrying value, we recognize an impairment charge to reduce the carrying value of the asset to its estimated fair value. Further, it is possible that we may sell an asset for a price below its estimated fair value and record a loss on sale. Our impairment charges are more fully described in Note 9 .

2014 — For the year ended December 31, 2014 , we recognized impairment charges totaling $23.1 million to reduce the carrying values of certain assets to their estimated fair values, consisting of the following:

•
$14.0 million recognized on a property as a result of tenant not renewing the lease;
•
$3.8 million recognized on ten properties with expiring leases and one tenant that vacated a property;
•
$3.5 million recognized on a property previously leased to a tenant who filed for bankruptcy and vacated the property;
•
$0.6 million recognized on two properties as a result of an other-than-temporary declines in the estimated fair values of the buildings’ residual values; and
•
$1.2 million recognized on two other properties that are vacant.
 
2013 — For the year ended December 31, 2013 , we recognized an impairment charge of $4.7 million on a property in France. This impairment was the result of writing down the property’s carrying value to its estimated fair value in connection with the tenant vacating the property.

See Equity in earnings of equity method investments in real estate and the Managed REITs and Loss from Discontinued Operations below for additional impairment charges incurred.

Stock-Based Compensation Expense

For a description of our equity plans and awards, please see Note 14 .

2014 vs. 2013 — For the year ended December 31, 2014 as compared to 2013 , stock-based compensation expense allocated to the Real Estate Ownership segment increased by $5.5 million , primarily due to an increase in owned real estate as a result of the CPA ® :16 Merger.

2013 vs. 2012 — For the year ended December 31, 2013 as compared to 2012 , stock-based compensation expense allocated to the Real Estate Ownership segment increased by $6.9 million , primarily due to an increase in owned real estate as a result of the CPA ® :15 Merger.

W. P. Carey 2014 10-K – 50


Equity in Earnings of Equity Method Investments in Real Estate and the Managed REITs
 
Equity in earnings of equity method investments in real estate and the Managed REITs is recognized in accordance with the respective investment agreements for each of our equity method investments. In addition, we are entitled to receive distributions of Available Cash ( Note 4 ) from the operating partnerships of each of the Managed REITs. The net income of our unconsolidated investments fluctuates based on the timing of transactions, such as new leases and property sales, as well as impairment charges. The following table presents the details of our Equity in earnings of equity method investments in real estate and the Managed REITs (in thousands):
 
Years Ended December 31,
 
2014
 
2013
 
2012
Equity in earnings of equity method investments in the Managed REITs:
 
 
 
 
 
CPA ® :15 (a)
$
—

 
$
—

 
$
4,541

CPA ® :16 – Global (b) (c)
465

 
2,732

 
610

CPA ® :17 – Global
1,353

 
354

 
327

CPA ® :18 – Global and CWI
(124
)
 
(200
)
 
31

Other-than-temporary impairment charges on the Special Member Interest in
   CPA ® :16 – Global’s operating partnership (c)
(735
)
 
(15,383
)
 
(9,910
)
Distributions of Available Cash:  (d)


 
 
 
 
CPA ® :16 – Global
4,751

 
15,182

 
15,389

CPA ® :17 – Global
20,427

 
16,899

 
14,620

CPA ® :18 – Global
1,778

 
92

 
—

CWI
4,096

 
1,948

 
—

Deferred revenue earned (c)
707

 
8,492

 
8,492

Equity in earnings of equity method investments from the Managed REITs
32,718

 
30,116

 
34,100

Equity in earnings of other equity method investments in real estate:
 
 
 
 
 
Equity investments acquired in the CPA ® :16 Merger and CPA ® :15 Merger (a) (c) (e)
9,576

 
5,096

 
7,985

Recently acquired equity investment (f)
1,048

 
33

 
(26
)
Equity investments sold (g)
82

 
17,486

 
16,480

Equity investments consolidated after the CPA ® :16 Merger and CPA ® :15 Merger (h)
692

 
—

 
3,853

Total equity in earnings of other equity method investments in real estate
11,398

 
22,615

 
28,292

Total equity in earnings of equity method investments in real estate and
 the Managed REITs
$
44,116

 
$
52,731

 
$
62,392

___________
(a)
CPA ® :15 merged with and into us on September 28, 2012 ( Note 3 ) in the CPA ® :15 Merger. See Gain on Change in Control of Interests below for discussion on the gain recognized.
(b)
Amount for 2012 includes a loss of $4.4 million representing our share of the $23.9 million of impairment charges recognized by CPA ® :16 – Global.
(c)
In May 2011, we acquired a special member interest, or the Special Member Interest, in CPA ® :16 – Global’s operating partnership, which we recorded as an equity investment at fair value with an equal amount recorded as deferred revenue ( Note 4 ). On January 31, 2014, we acquired all the remaining interests in CPA ® :16 – Global through the CPA ® :16 Merger, and as a result, we now consolidate the operating partnership. See Gain on Change in Control of Interests below for discussion on the gain recognized.
(d)
We are entitled to receive distributions of our share of earnings up to 10% of the Available Cash from the operating partnerships of each of the Managed REITs, as defined in their respective operating partnership agreements. Distributions of Available Cash received and earned from the Managed REITs increased primarily as a result of new investments that they entered into during 2014 and 2013.
(e)
We acquired our interests or additional interests in these investments in the CPA ® :16 Merger in January 2014 ( Note 7 ). Amount for 2013 includes our $8.4 million share of the German real estate transfer tax incurred by Hellweg Die Profi-Baumärkte GmbH & Co. KG, or Hellweg 2 ( Note 7 ).
(f)
During the year ended  December 31, 2014 , we received a preferred equity position in Beach House JV, LLC, as part of a sale of a property. The preferred equity, redeemable on March 13, 2019, provides us with a preferred rate of return of 8.5%.

W. P. Carey 2014 10-K – 51


The rights under these preferred units allow us to have significant influence over the entity. Accordingly, we account for this investment using the equity method of accounting.
(g)
We sold one equity investment in the second quarter of 2013 and recognized a gain on the sale of $19.5 million. We also sold another equity investment in the fourth quarter of 2013. The amount for 2012 includes $15.1 million representing our portion of the net gain recognized by a jointly-owned entity upon selling its equity shares in an investment in the second quarter of 2012.
(h)
We acquired additional interests in these investments from CPA ® :16 – Global and CPA ® :15 in the CPA ® :16 Merger and CPA ® :15 Merger, respectively. Subsequent to the mergers, we consolidate these majority-owned or wholly-owned investments.

Interest Expense
 
2014 vs. 2013 — For the year ended December 31, 2014 as compared to 2013 , interest expense increased by  $74.4 million , primarily due to an increase of $ 71.0 million as a result of mortgage loans assumed in connection with our acquisition of properties from CPA ® :16 – Global in the CPA ® :16 Merger. In addition, interest expense increased by $18.5 million as a result of the issuance of the 4.6% senior unsecured notes in March 2014 ( Note 11 ). These increases were partially offset by decreases in interest expense of $12.2 million as a result of repayments of several non-recourse mortgage loans, as part of our plan to become a primarily unsecured borrower, during the years ended  December 31, 2014  and 2013 ( Note 11 ), and $2.4 million as a result of refinancing several mortgage loans at lower interest rates during 2013.

2013 vs. 2012 — For the year ended December 31, 2013 as compared to 2012 , interest expense increased by $57.3 million , primarily due to an increase of $53.1 million as a result of mortgage loans assumed in connection with our acquisition of properties from CPA ® :15 in the CPA ® :15 Merger and $2.5 million of interest expense incurred in 2013 on mortgage loans acquired and assumed in connection with our acquisition of several properties during the year. In addition, interest expense on our Prior Senior Credit Facility ( Note 11 ) and Unsecured Term Loan increased by $2.6 million in the aggregate as a result of a higher average outstanding balances in 2013 compared to the prior year.

Gain on Change in Control of Interests
 
2014 — In connection with the CPA ® :16 Merger, we recognized a gain on change in control of interests of $75.7 million related to the difference between the carrying value and the preliminary estimated fair value of our previously-held equity interest in shares of CPA ® :16 – Global’s common stock ( Note 3 ) during 2014.

The CPA ® :16 Merger also resulted in our acquisition of the remaining interests in nine investments in which we already had a joint interest and accounted for under the equity method. Due to the change in control of the nine jointly-owned investments that occurred, we recorded a gain on change in control of interests of $30.2 million related to the difference between our carrying values and the preliminary estimated fair values of our previously-held equity interests on January 31, 2014. Subsequent to the CPA ® :16 Merger, we consolidate these wholly-owned investments ( Note 3 ). During the year ended December 31, 2014 , one of these investments was sold.
 
2012 — In connection with the CPA ® :15 Merger in September 2012, we acquired additional interests in five investments from CPA ® :15, which we had previously accounted for under the equity method, and we adjusted the carrying value of our previously held interest in shares of CPA ® :15 common stock to its estimated fair market value. In connection with our acquisition of these investments, we recognized a net gain of $20.7 million during the year ended December 31, 2012 in order to adjust the carrying value of previously-held equity interests in these investments to their estimated fair values ( Note 3 ).

Other Income and (Expenses)
 
Other income and (expenses) primarily consists of gains and losses on extinguishment of debt, and gains and losses on foreign currency transactions and derivative instruments. We and certain of our foreign consolidated subsidiaries have intercompany debt and/or advances that are not denominated in the functional currency of those subsidiaries. When the intercompany debt or accrued interest thereon is remeasured against the functional currency of the respective subsidiaries, an unrealized gain or loss on foreign currency translation may result. We also recognize gains or losses on foreign currency transactions when we repatriate cash from our foreign investments.
 
2014 — For the year ended December 31, 2014 , other expenses, net were  $12.3 million , primarily due to net realized and unrealized losses of $9.0 million related to changes in foreign currency rates applied to remeasure certain advances to foreign subsidiaries. In addition, we recognized a net loss on extinguishment of debt of $6.9 million in connection with the prepayment of several non-recourse mortgage loans ( Note 11 ). These losses were partially offset by unrealized gains of $3.7 million on the

W. P. Carey 2014 10-K – 52


interest rate swaps we acquired from CPA ® :15 in the CPA ® :15 Merger that did not qualify for hedge accounting and interest income of $1.4 million from the two notes receivable we acquired in the CPA ® :16 Merger.

2013 — For the year ended December 31, 2013 , other income was $8.4 million , primarily due to unrealized gains of $5.1 million recognized on the interest rate swaps acquired from CPA ® :15 in the CPA ® :15 Merger that did not qualify for hedge accounting, as well as net realized gains of $1.5 million on foreign currency transactions as a result of changes in foreign currency exchange rates on notes receivable from international subsidiaries. We also recognized a $1.2 million net gain on extinguishment of debt in connection with the settlement of several mortgage loans on properties disposed of during the year.
 
2012 — For the year ended December 31, 2012 , other income was $3.2 million, comprised of a net gain of $2.5 million recorded on the disposals of three parcels of land, a net realized and unrealized gain of $0.5 million on foreign currency transactions and a $0.4 million gain on derivatives acquired in the CPA ® :15 Merger.

Benefit from (Provision for) Income Taxes

2014 vs. 2013 — For the year ended December 31, 2014 , we recognized benefit from income taxes of $0.9 million , compared to a provision for income taxes of $4.7 million recognized during 2013 , primarily due to benefits associated with basis differences on certain foreign properties that we acquired as well as statute of limitation expirations on unrecognized tax benefits.

2013 vs. 2012 — For the year ended December 31, 2013 as compared to 2012 , provision for income taxes increased by $ 0.7 million , primarily due to increases in foreign income taxes of $3.1 million related to the foreign properties that we acquired in the CPA ® :15 Merger, partially offset by a deferred income tax benefit of $2.7 million recognized in connection with an out-of-period adjustment ( Note 2 ).

Income (Loss) from Discontinued Operations, Net of Tax
 
The results of operations for properties that have been classified as held-for-sale or that have been sold prior to January 1, 2014 and the properties that were acquired as held-for-sale in the CPA ® :16 Merger, and with which we have no continuing involvement, are reflected in the consolidated financial statements as discontinued operations. During 2014 , we sold nine properties that were classified as held-for-sale prior to January 1, 2014. In connection with the CPA ® :16 Merger, we acquired ten properties that were classified as held-for-sale from CPA ® :16 – Global, all of which were sold during the year ended  December 31, 2014 . During 2013 , we sold 27 properties and reclassified nine properties to Assets held for sale. During 2012 , we sold 14 properties. Results of operations for these properties are included within discontinued operations in the consolidated financial statements for all periods presented.
 
2014 — For the year ended December 31, 2014 , income from discontinued operations, net of tax was  $33.3 million , primarily due to a net gain on the sale of 19 properties of $ 27.7 million and income generated from the operations of these properties of $ 6.9 million in the aggregate. The income was partially offset by a net loss on extinguishment of debt of $ 1.2 million recognized in connection with the repayment of several mortgage loans on six of the disposed properties.

2013 — For the year ended December 31, 2013 , income from discontinued operations, net of tax was $38.2 million, primarily due to a net gain on the sale of properties of $40.0 million, including a net gain of $39.6 million on the sale of 19 self-storage properties ( Note 16 ), and income generated from the operations of discontinued properties of $9.0 million in the aggregate. The income was partially offset by impairment charges of $8.4 million recorded on several properties to reduce their carrying values to their expected selling prices ( Note 9 ) and a net loss on extinguishment of debt of $2.4 million in connection with the repayment of several mortgage loans on the aforementioned disposed properties.

2012 — For the year ended December 31, 2012 , loss from discontinued operations, net of tax was $24.7 million, primarily due to impairment charges totaling $23.0 million recorded on several properties to reduce their carrying values to their expected selling prices and a net loss on the sale of properties totaling $5.0 million. These losses were partially offset by income generated from the operations of discontinued properties of $3.2 million in the aggregate.


W. P. Carey 2014 10-K – 53


Gain (Loss) on Sale of Real Estate, Net of Tax

Gain (loss) on sale of real estate, net of tax includes the gain or loss on the sale of those properties that did not qualify for classification as discontinued operations ( Note 16 ), as discussed under Property Level Contributions, Properties Sold or Held-for-Sale above. In addition, properties sold in 2013 and 2012 that were subject to direct financing leases did not qualify for classification as discontinued operations under current accounting guidance.

2014 — For the year ended December 31, 2014 , gain on sale of real estate, net of tax was $1.6 million , primarily due to a $6.7 million gain recognized on a property in France that was foreclosed upon and sold, partially offset by a total of $ 5.1 million of net losses recognized on 13 properties that were sold. During the year ended December 31, 2014 , we sold 16 properties, three of which were foreclosed upon, that did not qualify for classification as discontinued operations.

2013 — For the year ended December 31, 2013 , loss on sale of real estate, net of tax was $0.3 million reflecting the sale of one property that did not qualify for classification as discontinued operations.

2012 — For the year ended December 31, 2012 , gain on sale of real estate, net of tax was $2.3 million reflecting the sale of one property that did not qualify for classification as discontinued operations.

Net Income Attributable to Noncontrolling Interests

2014 vs. 2013 — For the year ended December 31, 2014 as compared to 2013 , net income attributable to noncontrolling interests decreased by $27.5 million , primarily due to $23.2 million of net income attributable to noncontrolling interests as a result of a net gain recognized in connection with selling 19 self-storage properties during 2013 ( Note 16 ). Net income attributable to noncontrolling interests also decreased by $3.4 million as a result of acquiring from CPA ® :16 – Global in the CPA ® :16 Merger the remaining interests in 12 less-than-wholly-owned investments that we had already consolidated.
 
2013 vs. 2012 — For the year ended December 31, 2013 as compared to 2012 , net income attributable to noncontrolling interests increased by $29.8 million. Net income attributable to noncontrolling interests increased by $23.2 million as result of the net gain recognized in connection with selling 19 self-storage properties during 2013 ( Note 16 ). In addition, net income attributable to noncontrolling interests increased by $7.2 million as a result of noncontrolling interests in income generated from the properties we acquired from CPA ® :15 in the CPA ® :15 Merger.

Net Income from Real Estate Ownership Attributable to W. P. Carey
 
2014 vs. 2013 — For the year ended December 31, 2014 as compared to 2013 , the resulting net income from Real Estate Ownership attributable to W. P. Carey increased by $133.9 million .
 
2013 vs. 2012 — For the year ended December 31, 2013 as compared to 2012 , the resulting net income from Real Estate Ownership attributable to W. P. Carey increased by $ 49.6 million .

Investment Management

We earn revenue as the advisor to the Managed REITs. For the periods presented (except as noted), we acted as advisor to the following affiliated, publicly-owned, non-listed Managed REITs: CPA ® :15 (through September 28, 2012, the date of the CPA ® :15 Merger), CPA ® :16 – Global (through January 31, 2014, the date of the CPA ® :16 Merger), CPA ® :17 – Global, CPA ® :18 – Global (since May 2013), and CWI. Similar to the offerings of shares of CWI 2 and the BDCs, we are currently considering alternatives for expanding our investment management operations by raising funds for entities in addition to CPA ® :18 – Global, although there can be no assurance that we will pursue any of these initiatives. These new funds could invest primarily in assets other than net-lease real estate and include funds raised through publicly-traded vehicles, either in the United States or internationally.


W. P. Carey 2014 10-K – 54


The following tables present other operating data that management finds useful in evaluating result of operations (dollars in millions):
 
As of December 31,
 
2014
 
2013
 
2012
Total properties — Managed REITs (a)
519

 
789

 
774

Assets under management — Managed REITs (b)
$
9,231.8

 
$
9,728.4

 
$
7,870.8

Cumulative funds raised — CPA ® :17 – Global offerings (c) (d)
2,884.5

 
2,884.5

 
2,883.1

Cumulative funds raised — CPA ® :18 – Global offering (d) (e)
1,143.1

 
237.3

 
—

Cumulative funds raised — CWI offerings (d) (f)
1,153.2

 
575.8

 
159.6

 
 
For the Years Ended December 31,
 
2014
 
2013
 
2012
Financings structured — Managed REITs
$
968.0

 
$
1,012.0

 
$
669.5

Investments structured — Managed REITs
1,880.1

 
1,337.9

 
1,240.3

Equity investments structured — Managed REITs
165.5

 
165.3

 
32.6

Funds raised — CPA ® :17 – Global offerings (c) (d)
—

 
1.3

 
927.3

Funds raised — CPA ® :18 – Global offering (d) (e)
905.8

 
237.3

 
—

Funds raised — CWI offerings (d) (f)
577.4

 
418.3

 
112.1

___________
(a)
Includes properties owned by CPA ® :16 – Global and CPA ® :17 – Global at December 31, 2012. Includes properties owned by CPA ® :16 – Global, CPA ® :17 – Global, and CPA ® :18 – Global at December 31, 2013 . Includes properties owned by CPA ® :17 – Global and CPA ® :18 – Global at December 31, 2014. Includes hotels owned by CWI for all periods.
(b)
Represents the estimated fair value of the real estate assets owned by the Managed REITs, which was calculated by us as the advisor to the Managed REITs based in part upon third-party appraisals, plus cash and cash equivalents, less distributions payable.
(c)
The follow-on offering of CPA ® :17 – Global was closed in January 2013.
(d)
Excludes reinvested distributions through each entity’s distribution reinvestment plan.
(e)
Reflects funds raised since the commencement of CPA ® :18 – Global’s initial public offering in May 2013. CPA ® :18 – Global discontinued the sales of its Class A shares on June 30, 2014 and currently intends to close its initial public offering, which as of the date of this Report consists solely of its Class C shares, on or about March 27, 2015.
(f)
Reflects funds raised in CWI’s initial public offering, which was closed on September 15, 2013, and CWI’s follow-on offering, which commenced on December 20, 2013 and closed on December 31, 2014.


W. P. Carey 2014 10-K – 55


Below is a summary of comparative results of our Investment Management segment (in thousands):
 
Years Ended December 31,
 
2014
 
2013
 
Change
 
2013
 
2012
 
Change
Revenues
 
 
 
 
 
 
 
 
 
 
 
Reimbursable costs
$
130,212

 
$
73,572

 
$
56,640

 
$
73,572

 
$
98,245

 
$
(24,673
)
Structuring revenue
71,256

 
46,589

 
24,667

 
46,589

 
48,355

 
(1,766
)
Asset management revenue
38,063

 
42,670

 
(4,607
)
 
42,670

 
56,666

 
(13,996
)
Dealer manager fees
23,532

 
10,856

 
12,676

 
10,856

 
19,914

 
(9,058
)
Incentive, termination and subordinated disposition revenue
—

 
199

 
(199
)
 
199

 
—

 
199

 
263,063

 
173,886

 
89,177

 
173,886

 
223,180

 
(49,294
)
Operating Expenses
 
 
 
 
 
 
 
 
 
 
 
Reimbursable costs from affiliates
130,212

 
73,572

 
56,640

 
73,572

 
98,245

 
(24,673
)
General and administrative
52,791

 
48,070

 
4,721

 
48,070

 
60,969

 
(12,899
)
Stock-based compensation expense
18,416

 
30,042

 
(11,626
)
 
30,042

 
25,841

 
4,201

Dealer manager fees and expenses
21,760

 
13,028

 
8,732

 
13,028

 
17,787

 
(4,759
)
Subadvisor fees
5,501

 
4,106

 
1,395

 
4,106

 
464

 
3,642

Depreciation and amortization
4,024

 
4,373

 
(349
)
 
4,373

 
3,744

 
629

Impairment charge
—

 
553

 
(553
)
 
553

 
—

 
553

 
232,704

 
173,744

 
58,960

 
173,744

 
207,050

 
(33,306
)
Other Income and Expenses
 
 
 
 
 
 
 
 
 
 
 
Other income and (expenses)
275

 
1,001

 
(726
)
 
1,001

 
1,280

 
(279
)
 
275

 
1,001

 
(726
)
 
1,001

 
1,280

 
(279
)
Income from continuing operations before income taxes
30,634

 
1,143

 
29,491

 
1,143

 
17,410

 
(16,267
)
(Provision for) benefit from income taxes
(18,525
)
 
3,451

 
(21,976
)
 
3,451

 
(2,771
)
 
6,222

Net Income from Investment Management
12,109

 
4,594

 
7,515

 
4,594

 
14,639

 
(10,045
)
Net (income) loss attributable to noncontrolling interests
(812
)
 
120

 
(932
)
 
120

 
2,638

 
(2,518
)
Net loss (income) attributable to redeemable noncontrolling interest
142

 
(353
)
 
495

 
(353
)
 
(40
)
 
(313
)
Net Income from Investment Management attributable to W. P. Carey
$
11,439

 
$
4,361

 
$
7,078

 
$
4,361

 
$
17,237

 
$
(12,876
)
 
Reimbursable Costs

Reimbursable costs represent costs incurred by us on behalf of the Managed REITs, consisting primarily of broker-dealer commissions and marketing and personnel costs, which are reimbursed by the Managed REITs and are reflected as a component of both revenues and expenses.
 
2014 vs. 2013 — For the year ended December 31, 2014 as compared to 2013 , reimbursable costs increased by $56.6 million , primarily due to an increase of $48.6 million in commissions paid to broker-dealers related to the CPA ® :18 – Global initial public offering, which commenced in May 2013, and an increase of $13.1 million in commissions paid to broker-dealers related to the CWI public offerings due to the corresponding increase in funds raised in 2014 compared to 2013 . These increases were partially offset by a decrease of $4.3 million in personnel costs reimbursed to us by the Managed REITs as a result of the cessation of reimbursements from CPA ® :16 - Global after the CPA ® :16 Merger.

2013 vs. 2012 — For the year ended December 31, 2013 as compared to 2012 , reimbursable costs decreased by $24.7 million , primarily due to a decrease of $ 72.5 million in commissions paid to broker-dealers as a result of the termination of the CPA ® :17 – Global follow-on offering on January 31, 2013. This decrease was partially offset by (i) an increase of $ 24.4 million in commissions paid to broker-dealers related to the CWI initial public offering due to the corresponding increase in funds raised year-over-year; (ii) the $ 18.2 million paid to broker-dealers related to the CPA ® :18 – Global initial public offering; and (iii) an

W. P. Carey 2014 10-K – 56


increase of $ 3.1 million in personnel costs reimbursed to us by the Managed REITs under the terms of their respective advisory agreements.
 
Structuring Revenue
 
We earn structuring revenue when we structure investments and debt placement transactions for the Managed REITs. Structuring revenue is dependent on investment activity, which is subject to significant period-to-period variation.
 
2014 vs. 2013 — For the year ended December 31, 2014 as compared to 2013 , structuring revenue increased by $24.7 million , primarily due to an increase of $37.0 million in structuring revenue earned from CPA ® :18 – Global as a result of higher investment volume in 2014 as compared to 2013 . This increase was partially offset by decreases of $9.9 million and $2.2 million in structuring revenue earned from CPA ® :17 – Global and CWI, respectively, as a result of lower investment volumes for each in 2014 as compared to 2013 .

2013 vs. 2012 — For the year ended December 31, 2013 as compared to 2012 , structuring revenue decreased by $1.8 million . Structuring revenue from CPA ® :17 – Global decreased by $ 24.8 million during 2013 as a result of lower investment volume after the termination of its offering in January of that year. Structuring revenue from CWI increased by $ 16.4 million during 2013 as compared to 2012 due to higher investment volume. In addition, we received structuring revenue of $ 6.9 million from CPA ® :18 – Global during 2013 as a result of investments we structured on its behalf after the commencement of its public offering in May of that year.

Asset Management Revenue
 
We earn asset management revenue from the Managed REITs based on the value of their real estate-related and lodging-related assets under management. This asset management revenue may increase or decrease depending upon (i) increases in the Managed REITs’ asset bases as a result of new investments; (ii) decreases in the Managed REITs’ asset bases as a result of sales of investments; and (iii) increases or decreases in the appraised value of the real estate-related and lodging-related assets in the Managed REIT investment portfolios.
 
2014 vs. 2013 — For the year ended December 31, 2014 as compared to 2013 , asset management revenue decreased by $4.6 million . Asset management revenue decreased by  $16.3 million , as a result of the cessation of asset management revenue earned from CPA ® :16 – Global after the CPA ® :16 Merger on January 31, 2014. This decrease was partially offset by increases of $4.7 million and $4.5 million in  2014  as compared to 2013  from CPA ® :17 – Global and CWI, respectively, as a result of new investments that these entities entered into during  2013 and  2014 . Asset management revenue from CPA ® :18 – Global also increased by $2.5 million as a result of new investments that it entered into since the commencement of its offering in May 2013.
 
2013 vs. 2012 — For the year ended December 31, 2013 as compared to 2012 , asset management revenue decreased by $14.0 million . We received asset management revenue from CPA ® :15 of $ 18.5 million during 2012 through the date of the CPA ® :15 Merger in September 2012. As a result of the cessation of asset management revenue earned from CPA ® :15 after the CPA ® :15 Merger, we did not receive any asset management revenue from CPA ® :15 during 2013 . This decrease was partially offset by an aggregate increase of $ 5.2 million during 2013 as compared to 2012 from CPA ® :17 – Global and CWI as a result of new investments that they entered into during 2012 and 2013 . We also received asset management revenue of $ 0.1 million from CPA ® :18 – Global during 2013 since the commencement of its initial public offering in May of that year.

Dealer Manager Fees
 
As discussed in Note 4 , we earned a dealer manager fee of $0.35 per share sold in connection with CPA ® :17 – Global’s follow-on offering, which closed on January 31, 2013. We also earned a $0.30 dealer manager fee per share sold in connection with CWI’s initial public offering, which closed in September 2013, and its follow-on offering, which commenced in December 2013 and closed on December 31, 2014. In addition, we receive dealer manager fees depending on the class of common stock sold, of $0.30 or $0.21 per share sold, for class A common stock and class C common stock, respectively, in connection with CPA ® :18 – Global’s initial public offering, which commenced in May 2013. We also receive an annual distribution and shareholder servicing fee, or Shareholder Servicing Fee, paid in connection with investor purchases of shares of class C common stock. The amount of the Shareholder Servicing Fee is 1% of the purchase price per share (or, once reported, the amount of the estimated net asset value per share) for the shares of class C common stock of CPA ® :18 – Global sold in the offering. CPA ® :18 – Global terminated sales of its class A common stock as of June 30, 2014 and currently intends to close its offering, which as of the date of this Report consists solely of its Class C common stock, on or about March 27, 2015. We re-allow a portion of the dealer manager fees to selected dealers in the offerings. Dealer manager fees that are not re-allowed and

W. P. Carey 2014 10-K – 57


Shareholder Servicing Fees are classified as Dealer manager fees from affiliates in the consolidated financial statements. Dealer manager fees earned are generally offset by costs incurred in connection with the offerings, which are included in Dealer manager fees and expenses in the consolidated financial statements.

2014 vs. 2013 — For the year ended December 31, 2014 as compared to 2013 , dealer manager fees increased by $12.7 million , primarily due to an increase of $10.3 million  in fees earned from CPA ® :18 – Global in connection with the sale of its shares in its initial public offering, which commenced in May 2013. Dealer manager fees also increased by $2.4 million as a result of an increase in the fees earned from CWI in connection with its follow-on offering, which commenced on December 20, 2013, due to the higher level of shares sold in 2014 as compared to the shares sold in its initial public offering through its termination on September 15, 2013 .

2013 vs. 2012 — For the year ended December 31, 2013 as compared to 2012 , dealer manager fees decreased by $9.1 million , primarily due to a decrease of $18.2 million in fees earned from CPA ® :17 – Global as a result of the termination of its follow-on offering on January 31, 2013. This decrease was partially offset by an increase of $5.2 million in fees earned from CWI as a result of the higher level of CWI shares sold during 2013 through the termination of its offering on September 15, 2013 compared to 2012 and by an increase of $3.9 million in fees earned from CPA ® :18 – Global in connection with the sale of shares in its initial public offering, which commenced in May 2013.

General and Administrative
 
As discussed in  Note 4 , during the periods presented certain personnel and overhead costs were charged to the CPA ®  REITs and our owned real estate portfolio based on the trailing 12-month reported revenues of the active CPA ®  REITs, CWI, and us. We also began to allocate personnel and overhead costs to CWI on January 1, 2014 based on the time incurred by our personnel.

2014 vs. 2013 — For the year ended December 31, 2014 as compared to 2013 , general and administrative expenses increased by $4.7 million , primarily due to (i) an increase of $5.6 million in commissions paid to investment officers as a result of higher investment volume on behalf of the CPA ®  REITs in 2014 as compared to 2013 ; (ii) an increase of $4.9 million in professional fees primarily related to consulting fees incurred in connection with the implementation of the new software system that will be used in our accounting, tax, and financial reporting functions; (iii) an increase of $3.3 million in bonus expense as a result of increased headcount in 2014 as compared to 2013 ; and (iv) an increase of $1.4 million in office expense as a result of additional office space obtained during 2013 . These increases were partially offset by an increase of $10.1 million in personnel and overhead costs allocated to the Real Estate Ownership segment due to its increased revenues after the CPA ® :16 Merger on January 31, 2014.


W. P. Carey 2014 10-K – 58


2013 vs. 2012 — For the year ended December 31, 2013 as compared to 2012 , general and administrative expenses decreased by $12.9 million . Effective October 1, 2012, personnel costs and other shared expenses such as office rent expenses were charged to CPA ® :16 – Global and CPA ® :17 – Global based on the trailing 12-month reported revenues of the CPA ® REITs, CWI, and us rather than the method utilized before that date, which involved an allocation of personnel costs based on the time incurred by our personnel for CPA ® :15, CPA ® :16 – Global, and CPA ® :17 – Global ( Note 4) . This new methodology reflected changes in our advisory agreements with the CPA ® REITs. The impact of this change was an increase in the total amount of general and administrative expenses charged to CPA ® :16 – Global and CPA ® :17 – Global during the year ended December 31, 2013 as compared to 2012 of $5.6 million, which reduced amounts that would otherwise have been borne by the Investment Management segment. Prior to this change, CPA ® :15 was also charged general and administrative expenses based on the former methodology. After the CPA ® :15 Merger on September 28, 2012, the portfolio that was formerly held by CPA ® :15 was included in our Real Estate Ownership Segment and, as such, the Real Estate Ownership’s entire portfolio was subject to the new allocation methodology based on revenues. As a result, $ 7.4 million of additional general and administrative expenses were allocated to the Real Estate Ownership segment from the Investment Management Segment during 2013 as compared to 2012 . We did not allocate any personnel costs to CPA ® :18 – Global or CWI in 2013 or 2012.
 
Stock-Based Compensation Expense

For a description of our equity plans and awards, please see Note 14 .

2014 vs. 2013 — For the year ended December 31, 2014 as compared to 2013 , stock-based compensation expense decreased by $11.6 million , due in part to lower expense on stock awards granted in 2014, as compared to the expense on stock awards granted in 2011, which were substantially vested as of December 31, 2013. In addition, stock-based compensation expense allocated to the Investment Management segment decreased by $ 4.7 million in 2014 due to the CPA ® :16 Merger, which reduced our managed real estate portfolio and increased our owned real estate portfolio.

2013 vs. 2012 — For the year ended December 31, 2013 as compared to 2012 , stock-based compensation expense increased by $4.2 million , primarily due to (i) an increase of $5.8 million as a result of an upward adjustment during 2013 in the estimated payout of PSUs that were granted during 2012 and 2011, (ii) an increase of $2.5 million as a result of changes in our forfeiture rate assumptions in the third quarter of 2012 , and (iii) an increase of $2.1 million related to actual forfeitures in 2013 compared to those previously estimated. These increases were partially offset by a decrease of $6.8 million of stock-based compensation allocated to the Investment Management segment due to the CPA ® :15 Merger, which reduced our managed real estate portfolio and increased our owned real estate portfolio.

Dealer Manager Fees and Expenses

Dealer manager fees earned are generally offset by costs incurred in connection with the related offerings, which are included in Dealer manager fees and expenses in the consolidated financial statements.

2014 vs. 2013 — For the year ended December 31, 2014 as compared to 2013 , dealer manager fees and expenses increased by $8.7 million , primarily due to an increase of $7.3 million in expenses paid in connection with the sale of CPA ® :18 – Global shares in its initial public offering, which commenced in May 2013. Dealer manager fees and expenses also increased by $1.5 million as a result of an increase in expenses paid in connection with the sale of CWI shares in its follow-on offering, which commenced in December 2013, and its initial public offering, which closed in September 2013, as a result of a corresponding increase in funds raised.

2013 vs. 2012 — For the year ended December 31, 2013 as compared to 2012 , dealer manager fees and expenses decreased by $4.8 million , primarily due to a decrease of $14.8 million in expenses paid as a result of the termination of the CPA ® :17 – Global follow-on offering on January 31, 2013. This decrease was partially offset by $7.2 million in expenses paid in connection with the sale of CPA ® :18 – Global shares in its initial public offering, which commenced in May 2013, and by an increase of $2.9 million in expenses paid in connection with the sale of CWI shares in its initial public offering, which terminated in September 2013, as a result of a corresponding increase in funds raised.

Subadvisor Fees

As discussed in Note 4 , we earn investment management revenue from CWI. Pursuant to the terms of the subadvisory agreement we have with the third party subadvisor in connection with CWI, we pay a subadvisory fee equal to 20% of the amount of fees paid to us by CWI, including but not limited to: acquisition fees, asset management fees, loan refinancing fees, property management fees, and subordinated disposition fees, each as defined in the advisory agreement we have with CWI. We also pay to the subadvisor 20% of the net proceeds resulting from any sale, financing, or recapitalization or sale of

W. P. Carey 2014 10-K – 59


securities of CWI by us, the advisor. In addition, in connection with the acquisitions of multi-family and multi-tenant properties on behalf of CPA ® :18 – Global that we structured during 2014 , we entered into agreements with third-party advisors for the day-to-day management of the properties for a fee.

2014 vs. 2013 — For the year ended December 31, 2014 as compared to 2013 , subadvisor fees increased by $1.4 million . Subadvisor fees increased by $0.8 million as a result of an increase in fees earned from CWI as a result of investments CWI entered into during 2014 and 2013 , which increased the asset management fees we earned from CWI and the resulting asset management-related fees we paid to the subadvisor. Additionally, subadvisor fees increased by $0.6 million as a result of fees paid to the third-party advisors in connection with the acquisitions of multi-family and multi-tenant properties that we structured on behalf of CPA ® :18 – Global during 2014.

2013 vs. 2012 — For the year ended December 31, 2013 as compared to 2012 , subadvisor fees increased by $3.6 million , primarily due to increased fees earned from CWI as a result of higher acquisition volume in 2013 as compared to 2012 .

Impairment Charge

During the year ended December 31, 2013 , we recognized an other-than-temporary impairment charge of $0.6 million on an investment in an equity fund. During the fourth quarter of 2013 , we received information indicating that the fair value of the equity fund was less than its carrying value. Since the fund is being wound down and the remaining investments have fair values less than their cost, this impairment was deemed other-than-temporary and the carrying value was written down to the estimated fair value ( Note 9 ).

(Provision for) Benefit from Income Taxes

2014 vs. 2013 — For the year ended December 31, 2014 , we recorded a provision for income taxes of $18.5 million , compared to a benefit from income taxes of $3.5 million recognized during 2013 , primarily due to $21.1 million in pre-tax income recognized by our TRSs in the Investment Management segment. In addition, provision for income taxes increased by $ 4.8 million due to a permanent difference from the recognition of taxable income associated with accelerated vesting of shares previously issued by CPA ® :16 – Global for asset management and performance fees in connection with the CPA ® :16 Merger. The benefit from income taxes for the year ended December 31, 2013 was primarily due to losses recognized by our TRSs in the Investment Management segment in 2013 .
 
2013 vs. 2012 — For the year ended December 31, 2013 , we recognized a benefit from income taxes of $3.5 million , compared to a provision for income taxes of $2.8 million recognized during 2012 , primarily due to the losses recognized by our TRSs in the Investment Management segment in 2013 compared to income recognized by our TRSs in the prior year.
 
Net Income from Investment Management Attributable to W. P. Carey
 
2014 vs. 2013 — For the year ended December 31, 2014 as compared to 2013 , the resulting net income from Investment Management attributable to W. P. Carey increased by $7.1 million .
 
2013 vs. 2012 — For the year ended December 31, 2013 as compared to 2012 , the resulting net income from Investment Management attributable to W. P. Carey decreased by $12.9 million .

Financial Condition

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 distributions to stockholders. Our cash flows fluctuate from period to period 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 receipt of proceeds from, and the repayment of, mortgage loans and receipt of lease revenues, the receipt of the annual installment of deferred acquisition revenue and interest thereon from the CPA ® REITs, the election to receive asset management fees in either shares of the Managed REITs’ common stock or cash, the timing and characterization of distributions from equity investments in real estate and the Managed REITs, the receipt of distributions of Available Cash from the Managed REITs, and changes in foreign currency exchange rates. Despite these fluctuations, we believe that we will generate sufficient cash from operations and from equity distributions in excess of equity income in real estate to meet our normal recurring short-term and long-term liquidity needs. We may also use existing cash resources, the proceeds of mortgage loans, unused capacity on our Revolver, net contributions from noncontrolling interests, and the issuance of additional debt or

W. P. Carey 2014 10-K – 60


equity securities to meet these needs. We assess our ability to access capital on an ongoing basis. Our sources and uses of cash during the year are described below.

2014

Operating Activities — Net cash provided by operating activities increased by $191.2 million during 2014 as compared to 2013 , primarily due to operating cash flow generated from the properties we acquired in the CPA ® :16 Merger.
 
Investing Activities — Our investing activities are generally comprised of real estate-related transactions (purchases and sales) and capitalized property-related costs. In connection with the CPA ® :16 Merger, we paid $1.3 million , representing the cash portion of the merger consideration paid to CPA ® :16 – Global stockholders, and acquired $ 65.4 million of cash.

During 2014 , we sold 32 properties for net proceeds of $285.7 million . We used $898.2 million to acquire 109 properties. Net funds that were invested in escrow accounts totaled $23.7 million . Total capital expenditures on our owned real estate for 2014 were $26.4 million , including $20.6 million used primarily to fund a build-to-suit transaction and $5.8 million to make capital improvements to various properties. We also used $18.3 million to purchase corporate fixed assets, including $14.6 million related to the planned implementation of the new software system that will be used in our accounting, tax, and financial reporting functions. We used $7.7 million to purchase marketable securities for defeasance of a mortgage loan. We also used $25.0 million to purchase our interest in CCIF. In order to facilitate an acquisition by CWI, we made an $11.0 million loan to CWI in June 2014, which was repaid in full, with interest, prior to the loan’s maturity, on July 22, 2014. We also received $13.1 million in distributions from equity investments in real estate and the Managed REITs in excess of cumulative equity income.

Financing Activities — During 2014 , gross borrowings under our senior credit facility were $1.8 billion and repayments were $1.4 billion , inclusive of the repayment of a $170.0 million line of credit facility assumed in the CPA ® :16 Merger. We received $498.2 million in net proceeds from the issuance of the 4.6% senior unsecured notes, which we used to pay off the outstanding balance on the Revolver at that time ( Note 11 ). In connection with the Second Amended and Restated Credit Agreement and the issuance of the 4.6% senior unsecured notes, we paid financing costs totaling $12.3 million . During the year ended December 31, 2014 , in connection with our long-term plan to become a primarily unsecured borrower, we used $220.8 million to prepay 20 non-recourse mortgage loans. We also made scheduled mortgage loan principal payments of $205.0 million and drew down $20.4 million on a construction loan in relation to a build-to-suit transaction. We received $282.2 million in net proceeds from the issuance of shares in the Equity Offering, which we used in part to pay down a portion of the outstanding balance on the Revolver at that time. We paid distributions to stockholders of $347.9 million related to the fourth quarter of 2013 and the first, second, and third quarters of 2014, and in 2014 we also paid distributions of $20.6 million to affiliates who hold noncontrolling interests in various entities with us. We recognized windfall tax benefits of $5.6 million in 2014 in connection with the exercise of employee stock options and the vesting of PSUs and restricted share units, or RSUs, which reduced our tax liability to various taxing authorities.

2013

Operating Activities — Cash flow from operating activities increased by $127.3 million during 2013 as compared to 2012 , primarily due to operating cash flow generated from the properties we acquired in the CPA ® :15 Merger, partially offset by a decrease in cash received for providing asset management services to the Managed REITs due to the cessation of such fees earned from CPA ® :15 after the CPA ® :15 Merger in September 2012.

Investing Activities — During 2013 , we purchased seven investments for $265.4 million, which we partially funded with $51.7 million from the escrowed proceeds of the sales of properties in exchange transactions under Section 1031 of the Internal Revenue Code. Net funds that were released from escrow accounts totaled $43.1 million . We also used $6.9 million primarily to make capital improvements to various properties and $7.1 million to purchase corporate fixed assets. We used $15.0 million to make a loan to CPA ® :18 – Global in order to facilitate its property acquisition, which it repaid in full during 2013 . We received $58.0 million in distributions from equity investments in real estate and the Managed REITs in excess of cumulative equity income. We also received cash proceeds totaling $171.3 million from the sale of 28 properties and an equity investment, including $111.1 million from the sale of 19 self-storage properties.

Financing Activities — During 2013 , we paid distributions to stockholders of $220.4 million and paid distributions of $72.1 million to affiliates who hold noncontrolling interests in various entities with us, including $40.8 million in connection with the sale of 19 self-storage properties ( Note 16 ). We made scheduled mortgage loan principal payments of $391.8 million and received mortgage financing proceeds of $115.6 million. We received $300.0 million from the draw-down of the Unsecured Term Loan ( Note 11 ), which we used primarily to pay off the outstanding balance on the Revolver at that time. Net borrowings under our Revolver increased overall by $22.0 million in 2013 and were comprised of gross borrowings of $435.0 million and

W. P. Carey 2014 10-K – 61


repayments of $413.0 million. Net borrowings under our Revolver were primarily used for new investments. We also used $40.0 million to purchase shares of our common stock from the Estate of Mr. Wm. Polk Carey, our founder who passed away in January 2012 ( Note 4 ). In connection with obtaining the Unsecured Term Loan and various mortgage financings, we paid financing costs totaling $2.4 million. We received contributions of $65.1 million from affiliates who hold noncontrolling interests in various entities with us, including $62.3 million received to repay a maturing mortgage loan. We recognized windfall tax benefits of $12.8 million in connection with the exercise of employee stock options and the vesting of PSUs and RSUs which reduced our tax liability to various taxing authorities.

Summary of Financing
 
The table below summarizes our non-recourse debt, our Senior Unsecured Credit Facility, and our 4.6% senior unsecured notes (dollars in thousands): 
 
December 31,
 
2014
 
2013
Carrying Value
 

 
 

Fixed rate:
 
 
 
Non-recourse mortgages
$
2,174,604

 
$
1,139,122

Senior unsecured notes
498,345

 
—

 
2,672,949

 
1,139,122

Variable rate: (a)
 
 
 
Revolver
807,518

 
100,000

Term Loan Facility
250,000

 
175,000

Unsecured Term Loan
—

 
300,000

 
1,057,518

 
575,000

Non-recourse debt:
 
 
 
Amount subject to interest rate swap and cap
320,220

 
321,409

Amount subject to floating rate
24,299

 
27,600

Amount of fixed-rate debt subject to interest rate reset features
13,560

 
4,279

 
358,079

 
353,288

 
$
4,088,546

 
$
2,067,410

 
 
 
 
Percent of Total Debt
 

 
 

Fixed rate
65
%
 
55
%
Variable rate
35
%
 
45
%
 
100
%
 
100
%
Weighted-Average Interest Rate at End of Year
 

 
 

Fixed rate
5.4
%
 
5.3
%
Variable rate
2.0
%
 
2.7
%
 
____________
(a)
As described in Note 13 , in October 2014 we utilized $225.8 million of net proceeds from the Equity Offering to pay down a portion of the amount outstanding under the Revolver. As described in Note 11 , in January 2014, the Prior Senior Credit Facility and Unsecured Term Loan were repaid and terminated with borrowings under the Senior Unsecured Credit Facility.


W. P. Carey 2014 10-K – 62


Credit Facilities and Unsecured Term Loan
 
Our credit facilities and Unsecured Term Loan are more fully described in Note 11 . A summary of our credit facilities and our Unsecured Term Loan, which was repaid in full and terminated in January 2014, is provided below (in thousands):
 
December 31, 2014
 
December 31, 2013
 
Outstanding Balance
 
Maximum Available
 
Outstanding Balance
 
Maximum Available
Senior Unsecured Credit Facility and Prior Senior Credit Facility:
 
 
 
 
 
 
 
Revolver
$
807,518

 
$
1,000,000

 
$
100,000

 
$
450,000

Term Loan Facility
250,000

 
250,000

 
175,000

 
175,000

Unsecured Term Loan
—

 
—

 
300,000

 
300,000


Cash Resources
 
At December 31, 2014 , our cash resources consisted of the following:
 
•
Cash and cash equivalents totaling $ 198.7 million . Of this amount, $ 117.2 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 Revolver, with unused capacity of $ 192.5 million , excluding amounts reserved for outstanding letters of credit. Our lender has issued letters of credit totaling $ 1.1 million on our behalf in connection with certain contractual obligations, which reduce amounts that may be drawn under the facility; and
•
We also had unleveraged properties that had an aggregate carrying value of $ 2.3 billion at December 31, 2014 , although there can be no assurance that we would be able to obtain financing for these properties.
 
We also have the ability to access the capital markets, in the form of additional bond or equity offerings, if necessary. In January 2015 ( Note 19 ), we exercised the Accordion Feature ( Note 11 ) under our unsecured line of credit to increase the maximum borrowing capacity under the Revolver to $1.5 billion and obtained a new accordion feature totaling $500.0 million. We also issued €500.0 million of 2.0% senior unsecured notes and $450.0 million of 4.0% senior unsecured notes in separate public offerings during January 2015, the net proceeds of which were used to partially pay down amounts outstanding under our Revolver, to fund new investments, and for general corporate purposes. Our cash resources can be used for working capital needs and other commitments and may be used for future investments.

Cash Requirements
 
During the next 12 months, we expect that our cash requirements will include payments to acquire new properties, paying distributions to our stockholders and distributions to our affiliates that hold noncontrolling interests in entities we control, making scheduled interest payments on our senior unsecured notes ( Note 11 ) and scheduled mortgage loan principal payments, including mortgage balloon payments totaling $ 133.0 million and $ 12.4 million on our consolidated and unconsolidated mortgage loan obligations, respectively, as well as other normal recurring operating expenses.
 
We expect to fund future investments, build-to-suit commitments, any capital expenditures on existing properties, scheduled debt maturities on non-recourse mortgage loans and any loans to the Managed REITs ( Note 4 ) through cash generated from operations, the use of our cash reserves or unused amounts on our Revolver, and/or additional equity or debt offerings.


W. P. Carey 2014 10-K – 63


Off-Balance Sheet Arrangements and Contractual Obligations
 
The table below summarizes our debt, off-balance sheet arrangements and other contractual obligations at December 31, 2014 and the effect that these arrangements and obligations are expected to have on our liquidity and cash flow in the specified future periods (in thousands):
 
Total
 
Less than
1 year
 
1-3 years
 
3-5 years
 
More than
5 years
Non-recourse debt — principal (a)
$
2,525,796

 
$
210,081

 
$
1,111,104

 
$
380,633

 
$
823,978

Interest on borrowings (b)
682,367

 
126,411

 
215,855

 
141,730

 
198,371

Senior unsecured notes — principal (c)
500,000

 
—

 
—

 
—

 
500,000

Senior Unsecured Credit Facility — principal (d)
1,057,518

 
—

 
250,000

 
807,518

 
—

Operating and other lease commitments (e)
88,114

 
6,171

 
12,652

 
12,849

 
56,442

Build-to-suit and expansion commitments (f) (g)
37,886

 
25,751

 
10,605

 
1,530

 
—

Property improvement commitments
3,542

 
3,542

 
—

 
—

 
—

 
$
4,895,223

 
$
371,956

 
$
1,600,216

 
$
1,344,260

 
$
1,578,791

 
___________
(a)
  Excludes the unamortized fair market value adjustment of $ 6.9 million resulting from the assumption of property-level debt in connection with the CPA ® :15 Merger and the CPA ® :16 Merger, and the unamortized discount on the 4.6% senior unsecured notes of $ 1.7 million ( Note 11 ).
(b)
Interest on unhedged variable-rate debt obligations was calculated using the applicable annual variable interest rates and balances outstanding at December 31, 2014 .
(c)
Our 4.6% senior unsecured notes are scheduled to mature on April 1, 2024. Amounts exclude our €500.0 million 2.0% senior unsecured notes due in 2023 and our $450.0 million 4.0% senior unsecured notes due in 2025, which were issued in separate public offerings during January 2015 ( Note 19 ).
(d)
Our Revolver is scheduled to mature on January 31, 2018 and our Term Loan Facility is scheduled to mature on January 31, 2016.
(e)
Operating and other lease commitments consist primarily of rental obligations under ground leases and the future minimum rents payable on the lease for our principal offices. Pursuant to their respective advisory agreements with us, we are reimbursed by the Managed REITs for their share of overhead costs, which includes a portion of those future minimum rent amounts. Our operating lease commitments are presented net of $8.7 million, which the Managed REITS are obligated to reimburse us.
(f)
Represents a build-to-suit transaction we entered into in December 2013 for the construction of an office building located in Germany. Amount is based on the exchange rate of the euro at December 31, 2014 .
(g)
In connection with an investment in Australia, we committed to fund a tenant expansion allowance of $12.1 million . Amount is based on the exchange rate of the Australia dollar at December 31, 2014 .
 
Amounts in the table above that relate to our foreign operations are based on the exchange rate of the local currencies at December 31, 2014 , which consisted primarily of the euro. At December 31, 2014 , we had no material capital lease obligations for which we were the lessee, either individually or in the aggregate.


W. P. Carey 2014 10-K – 64


Equity Method Investments
 
We have investments in unconsolidated investments that own single-tenant properties net leased to companies. Generally, the underlying investments are jointly-owned with our affiliates. Summarized financial information for these investments and our ownership interest in the investments at December 31, 2014 is presented below. Cash requirements with respect to our share of these debt obligations are discussed above under Cash Requirements. Summarized financial information provided represents the total amounts attributable to the investments and does not represent our proportionate share (dollars in thousands):
 
 
Ownership Interest at
 
 
 
Total Third-
 
 
Lessee
 
December 31, 2014
 
Total Assets
 
Party Debt
 
Maturity Date
Actebis Peacock GmbH (a) (b)
 
30%
 
$
31,611

 
$
24,345

 
7/2015
Waldaschaff Automotive GmbH and Wagon Automotive Nagold GmbH (a)
 
33%
 
33,383

 
16,141

 
8/2015
Frontier Spinning Mills, Inc. (b)
 
40%
 
37,250

 
21,444

 
8/2016
Wanbishi Archives Co. Ltd (c)
 
3%
 
29,805

 
21,679

 
12/2017
The New York Times Company (d)
 
45%
 
245,815

 
111,703

 
4/2018
C1000 Logistiek Vastgoed B. V. (a)
 
15%
 
108,994

 
82,700

 
3/2020
 
 
 
 
$
486,858

 
$
278,012

 
 
 
___________
(a)
Dollar amounts shown are based on the exchange rate of the euro at December 31, 2014 .
(b)
We acquired our interest in this investment from CPA ® :16 – Global in the CPA ® :16 Merger.
(c)
Dollar amounts shown are based on the exchange rate of the Japanese yen at December 31, 2014 .
(d)
In connection with the CPA ® :16 Merger in January 2014, we acquired an additional 27% interest in this investment ( Note 7 ).

Environmental Obligations
 
In connection with the purchase of many of our properties, we required the sellers to perform environmental reviews. We believe, based on the results of these reviews, that our properties were in substantial compliance with federal, state, and foreign environmental statutes at the time the properties were acquired. However, portions of certain properties have been subject to some degree of contamination, principally in connection with leakage from underground storage tanks, surface spills, or other on-site activities. In most instances where contamination has been identified, tenants are actively engaged in the remediation process and addressing identified conditions. Sellers are generally subject to environmental statutes and regulations regarding the discharge of hazardous materials and any related remediation obligations, and we frequently require sellers to address them before closing or obtain contractual protection (e.g. indemnities, cash, reserves, letters of credit, or other instruments) from sellers when we acquire a property. In addition, our leases generally require tenants to indemnify us from all liabilities and losses related to the leased properties and the provisions of such indemnifications specifically address environmental matters. The leases generally include provisions that allow for periodic environmental assessments, paid for by the tenant, and allow us to extend leases until such time as a tenant has satisfied its environmental obligations. Certain of our leases allow us to require financial assurances from tenants, such as performance bonds or letters of credit, if the costs of remediating environmental conditions are, in our estimation, in excess of specified amounts. With respect to our operating properties, which are not subject to net lease arrangements, there is no tenant to provide for indemnification, so we maybe liable for costs associated with environmental contamination in the event any such circumstances arise. However, we believe that the ultimate resolution of environmental matters should not have a material adverse effect on our financial condition, liquidity, or results of operations.

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 listed below.
 
Accounting for Acquisitions
 
In connection with our acquisition of properties, we allocate the purchase price to the tangible and intangible assets and liabilities acquired based on their respective estimated fair values.
 

W. P. Carey 2014 10-K – 65


Tangible Assets
 
The tangible assets consist of land, building and site improvements. The intangible assets include the above- and below- market value of the leases and the in-place lease which includes a value for tenant relationships. Land is typically valued utilizing the sales comparison (or market) approach. Buildings are valued, as if vacant, using the cost and/or income approach. Site improvements are valued using the cost approach. The fair value of real estate is determined by reference to portfolio appraisals which determines their values, on a property level, by applying a discounted cash flow analysis to the estimated cash net operating income, for each property in the portfolio during the remaining anticipated lease term, and the estimated residual value. The estimated residual value of each property is based on a hypothetical sale of the property upon expiration of a lease factoring in the re-tenanting of such property at estimated current market rental rates, applying a selected capitalization rate.

Assumptions used in the model are property-specific where this information is available; however, when certain necessary information is not available, we use available regional and property-type information. Assumptions and estimates include the following:
 
•
a discount rate or internal rate of return;
•
the marketing period necessary to put a lease in place;
•
carrying costs during the marketing period;
•
leasing commissions and tenant improvement allowances;
•
market rents and growth factors of these rents; and
•
a market lease term and a capitalization rate to be applied to an estimate of market rent at the end of the market lease term.
 
The discount rates and residual capitalization rates used to value the properties are selected based on several factors, including:
 
•
the creditworthiness of the lessees;
•
industry surveys;
•
property type;
•
property location and age;
•
current lease rates relative to market lease rates; and
•
anticipated lease duration.
 
In the case where a tenant has a purchase option deemed to be favorable to the tenant, or the tenant has long-term renewal options at rental rates below estimated market rental rates, we include the value of the exercise of such purchase option or long-term renewal options in the determination of residual value.
 
Where a property is deemed to have excess land, the discounted cash flow analysis includes the estimated excess land value at the assumed expiration of the lease, based upon an analysis of comparable land sales or listings in the general market area of the property grown at estimated market growth rates through the year of lease expiration.
 
The remaining economic life of leased assets is estimated by relying in part upon third-party appraisals of the leased assets, industry standards, and based on our experience. Different estimates of remaining economic life will affect the depreciation expense that is recorded.
 
Intangible Assets
 
We record above- and below-market lease intangible values for acquired properties based on the present value (using a discount rate reflecting the risks associated with the leases acquired including consideration of the credit of the lessee) of the difference between (i) the contractual rents to be paid pursuant to the leases negotiated and in place at the time of acquisition of the properties and (ii) our estimate of fair market lease rates for the property or equivalent property, both of which are measured over a period equal to the estimated lease term, which includes any renewal options that have rental rates below estimated market rental rates. Estimates of market rent are generally determined by us relying in part upon a third-party appraisal obtained in connection with the property acquisition and can include estimates of market rent increase factors, which are generally provided in the appraisal or by local real estate brokers. We measure the fair value of below-market purchase option liabilities we acquire as the excess of the present value of the fair value of the real estate over the present value of the tenant’s exercise price at the option date.
 

W. P. Carey 2014 10-K – 66


We evaluate the specific characteristics of each tenant’s lease and any pre-existing relationship with each tenant in determining the value of in-place lease intangibles. To determine the value of in-place lease intangibles, we consider the following:
 
•
estimated market rent;
•
estimated lease term including renewal options at rental rates below estimated market rental rates;
•
estimated carrying costs of the property during a hypothetical expected lease-up period; and
•
current market conditions and costs to execute similar leases, including tenant improvement allowances and rent concessions.
 
Estimated carrying costs of the property include real estate taxes, insurance, other property operating costs, and estimates of lost rentals at market rates during the market participants’ expected lease-up periods, based on assessments of specific market conditions.
 
We determine these values using our estimates or by relying in part upon third-party appraisals conducted by independent appraisal firms.

Debt

When we acquire leveraged properties, the fair value of the related debt instruments is determined using a discounted cash flow model with rates that take into account the credit of the tenants, where applicable, and interest rate risk. Such resulting premium or discount is amortized over the remaining term of the obligation. We also consider the value of the underlying collateral taking into account the quality of the collateral, the credit quality of the tenant, the time until maturity, and the current interest rate.

Goodwill
 
In the case of a business combination, after identifying all tangible and intangible assets and liabilities, the excess consideration paid over the fair value of the assets and liabilities acquired and assumed, respectively, represents goodwill. We allocate goodwill to the respective reporting units in which such goodwill arose.
 
Impairments
 
We periodically assess whether there are any indicators that the value of our long-lived real estate and related intangibles may be impaired or that their carrying value may not be recoverable. These impairment indicators include, but are not limited to, the vacancy of a property that is not subject to a lease; an upcoming lease expiration, a tenant with credit difficulty, or a likely disposition of the property. We may incur impairment charges on long-lived assets, including real estate, direct financing leases, assets held for sale, and equity investments in real estate. We may also incur impairment charges on marketable securities and goodwill. Estimates and judgments used when evaluating whether these assets are impaired are presented below.
 
Real Estate
 
For real estate assets held for investment, which include finite-lived intangibles in which an impairment indicator is identified, we follow a two-step process to determine whether an asset is impaired and to determine the amount of the charge. First, we compare the carrying value of the property’s asset group to the estimated future net undiscounted cash flow that we expect the property’s asset group will generate, including any estimated proceeds from the eventual sale of the property’s asset group. The undiscounted cash flow analysis requires us to make our best estimate of market rents, residual values, and holding periods. We estimate market rents and residual values using market information from outside sources such as broker quotes or recent comparable sales. Depending on the assumptions made and estimates used, the future cash flow projected in the evaluation of long-lived assets and associated intangible assets can vary within a range of outcomes. We consider the likelihood of possible outcomes in determining our estimate of future cash flows and, if warranted, we apply a probability-weighted method to the different possible scenarios. If the future net undiscounted cash flow of the property’s asset group is less than the carrying value, the carrying value of the property’s asset group is considered not recoverable. We then measure the impairment loss as the excess of the carrying value of the property’s asset group over its estimated fair value. The property’s asset group’s estimated fair value is primarily determined using market information from outside sources such as broker quotes or recent comparable sales. In cases where the available market information is not deemed appropriate, we perform a future net cash flow analysis discounted for inherent risk associated with each asset to determine an estimated fair value.


W. P. Carey 2014 10-K – 67


Assets Held for Sale
 
We classify real estate assets that are accounted for as operating leases as held for sale when we have entered into a contract to sell the property, all material due diligence requirements have been satisfied, and we believe it is probable that the disposition will occur within one year. When we classify an asset as held for sale, we carry the investment at the lower of its current carrying value or the fair value, less estimated cost to sell. We base the fair value on the contract and the estimated cost to sell on information provided by brokers and legal counsel. We then compare the asset’s fair value, less estimated cost to sell to its carrying value, and if the fair value, less estimated cost to sell is less than the property’s carrying value, we reduce the carrying value to the fair value, less estimated cost to sell. We will continue to review the initial impairment for subsequent changes in the fair value, and may recognize an additional impairment charge if warranted.
 
Direct Financing Leases
 
We review our direct financing leases at least annually to determine whether there has been an other-than-temporary decline in the current estimate of residual value of the property. The residual value is our estimate of what we could realize upon the sale of the property at the end of the lease term, based on market information. If this review indicates that a decline in residual value has occurred that is other-than-temporary, we recognize an impairment charge equal to the difference between the fair value and the carrying amount of the residual value.
 
When we enter into a contract to sell the real estate assets that are recorded as direct financing leases, we evaluate whether we believe it is probable that the disposition will occur. If we determine that the disposition is probable, we assess the carrying amount for recoverability and if as a result of the decreased expected cash flows, we determine that our carrying value is not fully recoverable, we record an allowance for credit losses to reflect the change in the estimate of the undiscounted future rents. Accordingly, the net investment balance is written down to fair value.
 
Equity Investments in Real Estate and the Managed REITs
 
We evaluate our equity investments in real estate and in the Managed REITs on a periodic basis to determine if there are any indicators that the value of our equity investments may be impaired and whether or not that impairment is other-than-temporary. For our equity investments in real estate, we calculate the estimated fair value of the underlying investment’s real estate or net investment in direct financing lease as described in Real Estate and Direct Financing Leases above. The fair value of the underlying investment’s debt, if any, is calculated based on market interest rates and other market information. The fair value of the underlying investment’s other financial assets and liabilities (excluding net investment in direct financing leases) have fair values that generally approximate their carrying values. For our investments in certain Managed REITs, we calculate the estimated fair value of our investment using the most recently published net asset value per share of each Managed REIT, which for CPA ® :18 – Global is deemed to be the most recent offering price through December 31, 2014 , multiplied by the number of shares owned.
 
Goodwill
 
We evaluate goodwill for possible impairment at least annually or upon the occurrence of a triggering event using a two-step process. To identify any impairment, we first compare the estimated fair value of each of our reporting units with their respective carrying amount, including goodwill. We calculate the estimated fair value of the Investment Management reporting unit by applying a price-to-EBITDA multiple to earnings. For the Real Estate Ownership reporting unit, we calculate its estimated fair value by applying an AFFO multiple. For both reporting units, the multiples are based on comparable companies. The selection of the comparable companies and transactions to be used in our evaluation process could have a significant impact on the fair value of our reporting units and possible impairments. If the fair value of the reporting unit exceeds its carrying amount, we do not consider goodwill to be impaired and no further analysis is required. If the carrying amount of the reporting unit exceeds its estimated fair value, we then perform the second step to determine and measure the amount of the potential impairment charge.
 
For the second step, if it were required, we compare the implied fair value of the goodwill for each reporting unit with its respective carrying amount and record an impairment charge equal to the excess of the carrying amount over the implied fair value. We would determine the implied fair value of the goodwill by allocating the estimated fair value of the reporting unit to its assets and liabilities. The excess of the estimated fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of the goodwill.

Our annual impairment test for the goodwill recorded in both our reporting units is evaluated in the fourth quarter of every year.
 

W. P. Carey 2014 10-K – 68


Proposed Accounting Change
 
The following proposed accounting change may potentially impact our Real Estate Ownership and Investment Management segments if the outcome has a significant influence on sale-leaseback demand in the marketplace:
 
The International Accounting Standards Board and the Financial Accounting Standards Board have issued an Exposure Draft on a joint proposal that would dramatically transform lease accounting from the existing model. These changes would impact most companies but are particularly applicable to those that are significant users of real estate. The proposal outlines a new model for accounting by lessees, whereby their rights and obligations under substantially all leases, existing and new, would be capitalized and recorded on the balance sheet. For some companies, the new accounting guidance may influence whether or not, or the extent to which, they may enter into the type of sale-leaseback transactions in which we specialize. In May 2013, the International Accounting Standards Board and the Financial Accounting Standards Board issued a revised exposure draft for public comment and the comment period ended in September 2013. As of the date of this Report, the International Accounting Standards Board and the Financial Accounting Standards Board continue their redeliberations of the proposals included in the May 2013 Exposure Draft based on the comments received, and the proposed guidance has not yet been finalized, and as such we are unable to determine whether this proposal will have a material impact on our business.

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, or FFO, and AFFO, supplemental non-GAAP measures, which are uniquely 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 FFO and AFFO to the most directly comparable GAAP measures are provided below.
 
Adjusted Funds from Operations
 
FFO is a non-GAAP measure defined by the National Association of Real Estate Investment Trusts, or NAREIT. NAREIT defines FFO as net income or loss (as computed in accordance with GAAP) excluding: depreciation and amortization expense from real estate assets, impairment charges on real estate, gains or losses from sales of depreciated real estate assets and extraordinary items; however, FFO related to assets held for sale, sold or otherwise transferred and included in the results of discontinued operations are included. These adjustments also incorporate the pro rata share of unconsolidated subsidiaries. FFO is used by management, investors and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers. Although NAREIT has published this definition of FFO, companies often modify this definition as they seek to provide financial measures that meaningfully reflect their distinctive operations.

We modify the NAREIT computation of FFO to include other adjustments to GAAP net income to adjust for certain non-cash charges such as amortization of real estate-related intangibles, deferred income tax benefits and expenses, straight-line rents, stock compensation, gains or losses from extinguishment of debt and deconsolidation of subsidiaries and unrealized foreign currency exchange gains and losses. 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 acquisition expenses and non-core expenses such as merger and restructuring expenses. Merger expenses are related to the CPA ® :15 Merger and the CPA ® :16 Merger, and restructuring expenses are related to the restructuring of Hellweg 2. We also exclude realized gains/losses on foreign exchange and 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 as they are not the primary drivers in our decision making process and excluding those items provides investors a view of our portfolio performance over time and make it more comparable to other REITs which are currently not engaged in acquisitions, mergers and restructuring which are not part of our normal business operations. 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

W. P. Carey 2014 10-K – 69


earnings computed under GAAP or as alternatives to cash from operating activities computed under GAAP or as indicators of our ability to fund our cash needs.

FFO and AFFO were as follows (in thousands):
 
Years Ended December 31,
 
2014
 
2013
 
2012
Net income attributable to W. P. Carey
$
239,826

 
$
98,876

 
$
62,132

Adjustments:
 
 
 
 
 
Depreciation and amortization of real property
232,692

 
121,730

 
45,982

(Gain) loss on sale of real estate, net
(34,079
)
 
(39,711
)
 
2,676

Impairment charges
23,067

 
13,156

 
22,962

Proportionate share of adjustments for noncontrolling interests to arrive at FFO
(11,808
)
 
5,783

 
(5,504
)
Proportionate share of adjustments to equity in net income of partially-owned entities to arrive at FFO:
 
 
 
 
 
Depreciation and amortization of real property
5,381

 
10,588

 
5,545

Gain on sale of real estate, net
—

 
(16,456
)
 
(15,233
)
Total adjustments
215,253

 
95,090

 
56,428

FFO (as defined by NAREIT)
455,079

 
193,966

 
118,560

Adjustments:
 
 
 
 
 
Gain on change in control of interests (a) (b)
(105,947
)
 
—

 
(20,734
)
Above- and below-market rent intangible lease amortization, net
59,050

 
29,197

 
7,696

Merger expenses (c)
44,339

 
5,030

 
41,338

Stock-based compensation
31,075

 
37,195

 
26,052

Tax benefit — deferred and other non-cash charges
(22,582
)
 
(19,370
)
 
(26,800
)
Straight-line and other rent adjustments
(17,116
)
 
(8,019
)
 
(4,446
)
Other amortization and non-cash charges (d)
10,343

 
779

 
(585
)
Loss on extinguishment of debt
9,835

 
1,189

 
—

Other, net (e)
5,369

 
(462
)
 
(118
)
Amortization of deferred financing costs
4,077

 
4,069

 
3,040

Property acquisition expenses (f)
3,994

 
4,074

 
—

Realized (gains) losses on foreign currency, derivatives and other
(95
)
 
717

 
767

Proportionate share of adjustments to equity in net income of partially-owned entities to arrive at AFFO:
 
 
 
 
 
AFFO adjustments to equity earnings from equity investments
6,190

 
41,587

 
37,234

Straight-line rent and other rent adjustments
(359
)
 
(516
)
 
(1,468
)
Other amortization and non-cash charges (d)
196

 
691

 
624

Above- and below-market rent intangible lease amortization, net
24

 
1,086

 
163

Hellweg 2 restructuring (g)
—

 
8,357

 
—

Impairment charge
—

 
553

 
—

Proportionate share of adjustments for noncontrolling interests to arrive at AFFO
(3,006
)
 
(5,972
)
 
(692
)
Total adjustments
25,387

 
100,185

 
62,071

AFFO
$
480,466

 
$
294,151

 
$
180,631

 
 
 
 
 
 
Summary
 
 
 
 
 
FFO — as defined by NAREIT
$
455,079

 
$
193,966

 
$
118,560

AFFO
$
480,466

 
$
294,151

 
$
180,631

__________

(a)
Gain on change in control of interests for the year ended December 31, 2014 represents a gain of $75.7 million  recognized on our previously-held interest in shares of CPA ® :16 – Global common stock and a gain of $30.2 million  recognized on the

W. P. Carey 2014 10-K – 70


purchase of the remaining interests in nine investments from CPA ® :16 – Global, which we had previously accounted for under the equity method.
(b)
Gain on change in control of interests for the year ended December 31, 2012 represents a gain of $14.6 million recognized on our previously-held interest in shares of CPA ® :15 common stock, and a gain of $6.1 million recognized on the purchase of the remaining interests in five investments from CPA ® :15, which we had previously accounted for under the equity method.
(c)
Amount for the years ended December 31, 2014 and 2012 includes reported merger costs as well as income tax expense incurred in connection with the CPA ® :16 Merger and the CPA ® :15 Merger, respectively. Income tax expense incurred in connection with the CPA ® :16 Merger and the CPA ® :15 Merger represents the current portion of income tax expense including the permanent difference incurred upon recognition of deferred revenue associated with the accelerated vesting of shares previously issued to us by CPA ® :16 – Global and CPA ® :15 for asset management and performance fees.
(d)
Represents primarily unrealized gains and losses from foreign currency exchange and derivatives, as well as amounts for the amortization of contracts.
(e)
Other, net for the year ended December 31, 2014 primarily consists of proceeds from the bankruptcy settlement claim with U.S. Aluminum of Canada, a former CPA ® :16 – Global tenant that was acquired as part of the CPA ® :16 Merger on January 31, 2014, and under GAAP was accounted for in purchase accounting.
(f)
Prior to the second quarter of 2013, this amount was insignificant and therefore not included in the AFFO calculation.
(g)
In connection with the Hellweg 2 restructuring in October 2013, our share of the German real estate transfer tax incurred by Hellweg 2 was $8.4 million ( Note 7 ).
 
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 2014 10-K – 71


Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
 
Market Risk
 
Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, and equity prices. The primary risks to which we are exposed are interest rate risk and foreign currency exchange risk, and we are also exposed to further market risk as a result of concentrations of tenants in certain industries and/or geographic regions. Adverse market factors can affect the ability of tenants in a particular industry/region to meet their respective lease obligations. In order to manage this risk, we view our collective tenant roster as a portfolio, and in our investment decisions we attempt to diversify our portfolio so that we are not overexposed to a particular industry or geographic region.

Generally, we do not use derivative instruments to hedge credit/market risks or for speculative purposes. However, from time to time, we may enter into foreign currency forward contracts to hedge our foreign currency cash flow exposures.
 
Interest Rate Risk
 
The values of our real estate, related fixed-rate debt obligations, and our note receivable investments are subject to fluctuations based on changes in interest rates. The value of our real estate is also subject to fluctuations based on local and regional economic conditions and changes in the creditworthiness of lessees, all of which may affect our ability to refinance property-level mortgage debt when balloon payments are scheduled, if we do not choose to repay the debt when due. Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political conditions, and other factors beyond our control. An increase in interest rates would likely cause the fair value of our owned and managed assets to decrease, which would create lower revenues from managed assets and lower investment performance for the Managed REITs. Increases in interest rates may also have an impact on the credit profile of certain tenants.

We are exposed to the impact of interest rate changes primarily through our borrowing activities. To limit this exposure, we historically attempted to obtain non-recourse mortgage financing on a long-term, fixed-rate basis. However, from time to time, we or our joint investment partners obtained, and may in the future obtain, variable-rate, non-recourse mortgage loans, and as a result, we have entered into, and may continue to enter into, interest rate swap agreements or interest rate cap agreements with lenders. Interest rate swap agreements effectively convert the variable-rate debt service obligations of the loan to a fixed rate, while interest rate cap agreements limit the underlying interest rate from exceeding a specified strike rate. Interest rate swaps are agreements in which one party exchanges a stream of interest payments for a counterparty’s stream of cash flows over a specific period, and interest rate caps limit the effective borrowing rate of variable-rate debt obligations while allowing participants to share in downward shifts in interest rates. These interest rate swaps and caps are derivative instruments designated as cash flow hedges on the forecasted interest payments on the debt obligation. The face amount on which the swaps or caps are based is not exchanged. Our objective in using these derivatives is to limit our exposure to interest rate movements. At December 31, 2014 , we estimated that the total fair value of our interest rate swaps and caps, which are included in Other assets, net and Accounts payable, accrued expenses and other liabilities in the consolidated financial statements, was in a net liability position of $ 12.9 million ( Note 10 ).
 
At December 31, 2014 , a significant portion (approximately 74% ) of our long-term debt either bore interest at fixed rates, was swapped or capped to a fixed rate, or bore interest at fixed rates that were scheduled to convert to then-prevailing market fixed rates at certain future points during their term. The annual interest rates on our fixed-rate debt at December 31, 2014 ranged from 2.6% to 11.5% . The contractual annual interest rates on our variable-rate debt at December 31, 2014 ranged from 1.0% to 7.6% . Our debt obligations are more fully described under Financial Condition in Item 7 above. The following table presents principal cash flows based upon expected maturity dates of our debt obligations outstanding at December 31, 2014 (in thousands):
 
2015
 
2016
 
2017
 
2018
 
2019
 
Thereafter
 
Total
 
Fair value
Fixed-rate debt (a)
$
175,099

 
$
345,005

 
$
686,463

 
$
134,352

 
$
86,499

 
$
1,240,710

 
$
2,668,128

 
$
2,745,730

Variable-rate debt (a)
$
34,982

 
$
264,145

 
$
65,491

 
$
954,022

 
$
13,278

 
$
83,268

 
$
1,415,186

 
$
1,413,255

 ___________
(a)
Amounts are based on the exchange rate at December 31, 2014 , as applicable.

The estimated fair value of our fixed-rate debt and our variable-rate debt that currently bears interest at fixed rates or has effectively been converted to a fixed rate through the use of interest rate swaps or that has been subject to interest rate caps is affected by changes in interest rates. A decrease or increase in interest rates of 1% would change the estimated fair value of this debt at December 31, 2014 by an aggregate increase of $ 113.1 million or an aggregate decrease of $ 115.3 million , respectively.

W. P. Carey 2014 10-K – 72


Annual interest expense on our unhedged variable-rate debt that does not bear interest at fixed rates at December 31, 2014 would increase or decrease by $ 10.8 million for each respective 1% change in annual interest rates. As more fully described under Financial Condition — Summary of Financing in Item 7 above, a portion of the debt classified as variable-rate debt in the tables above bore interest at fixed rates at December 31, 2014 but has interest rate reset features that will change the fixed interest rates to then-prevailing market fixed rates at certain points during their term. This debt is generally not subject to short-term fluctuations in interest rates.

Foreign Currency Exchange Rate Risk
 
We own foreign investments, primarily in the European Union, Asia, and Australia, and as a result are subject to risk from the effects of exchange rate movements in various foreign currencies, primarily the euro, the British pound sterling, and the Australian dollar, which may affect future costs and cash flows. We manage foreign currency exchange rate movements by generally placing our debt service obligation to the lender and the tenant’s rental obligation to us in the same currency. This reduces our overall exposure to the net cash flow from that investment. In addition, we may use currency hedging to further reduce the exposure to our equity cash flow. We are generally a net receiver of these currencies (we receive more cash than we pay out), and therefore our foreign operations benefit from a weaker U.S. dollar, and are adversely affected by a stronger U.S. dollar, relative to the foreign currency. For the year ended December 31, 2014 , we recognized net realized and unrealized foreign currency transaction losses of $ 0.4 million and $ 8.7 million , respectively. These losses are included in Other income and (expenses) in the consolidated financial statements and were primarily due to changes in the value of the euro on accrued interest receivable on notes receivable from consolidated subsidiaries.

We enter into foreign currency forward contracts to hedge certain of our foreign currency cash flow exposures. A foreign currency forward contract is a commitment to deliver a certain amount of foreign currency at a certain price on a specific date in the future. The total estimated fair value of our foreign currency forward contracts, which are included in Other assets, net and Accounts payable, accrued expenses and other liabilities in the consolidated financial statements, was in a net asset position of $ 16.3 million at December 31, 2014 . We have obtained, and may in the future obtain, non-recourse mortgage financing in the local currency. To the extent that currency fluctuations increase or decrease rental revenues as translated to U.S. dollars, the change in debt service, as translated to U.S. dollars, will partially offset the effect of fluctuations in revenue and, to some extent, mitigate the risk from changes in foreign currency exchange rates.

Scheduled future minimum rents, exclusive of renewals, under non-cancelable operating leases, for our foreign operations as of December 31, 2014 , during each of the next five calendar years and thereafter, are as follows (in thousands):
Lease Revenues  (a)
 
2015
 
2016
 
2017
 
2018
 
2019
 
Thereafter
 
Total
Euro (c)
 
$
175,685

 
$
170,719

 
$
161,253

 
$
147,665

 
$
128,852

 
$
912,392

 
$
1,696,566

British pound sterling (d)
 
12,619

 
12,521

 
12,581

 
12,696

 
12,906

 
145,936

 
209,259

Australian dollar (e)
 
10,906

 
10,906

 
10,906

 
10,906

 
10,906

 
161,654

 
216,184

Other foreign currencies (f)  
 
14,125

 
14,282

 
14,453

 
14,620

 
15,073

 
118,015

 
190,568

 
 
$
213,335

 
$
208,428

 
$
199,193

 
$
185,887

 
$
167,737

 
$
1,337,997

 
$
2,312,577

 
Scheduled debt service payments (principal and interest) for mortgage notes payable for our foreign operations as of December 31, 2014 , during each of the next five calendar years and thereafter, are as follows (in thousands):
Debt service  (a) (b)
 
2015
 
2016
 
2017
 
2018
 
2019
 
Thereafter
 
Total
Euro (c)
 
$
157,998

 
$
192,769

 
$
400,552

 
$
144,487

 
$
9,083

 
$
62,676

 
$
967,565

British pound sterling (d)
 
17,705

 
975

 
975

 
975

 
975

 
15,402

 
37,007

Other foreign currencies (e)  
 
3,149

 
3,128

 
8,051

 
10,182

 
809

 
4,158

 
29,477

Revolver - euro (c) (g)
 
—

 
—

 
—

 
419,382

 
—

 
—

 
419,382

Revolver - British pound sterling (d) (g)
 
—

 
—

 
—

 
62,136

 
—

 
—

 
62,136

 
 
$
178,852

 
$
196,872

 
$
409,578

 
$
637,162

 
$
10,867

 
$
82,236

 
$
1,515,567

 
__________
(a)
  Amounts are based on the applicable exchange rates at December 31, 2014 . Contractual rents and debt obligations are denominated in the functional currency of the country of each property.
(b)
Interest on unhedged variable-rate debt obligations was calculated using the applicable annual interest rates and balances outstanding at December 31, 2014 .

W. P. Carey 2014 10-K – 73


(c)
We estimate that, for a 1% increase or decrease in the exchange rate between the euro and the U.S. dollar, there would be a corresponding change in the projected estimated property level cash flow at December 31, 2014 of $ 3.1 million .
(d)
We estimate that, for a 1% increase or decrease in the exchange rate between the British pound sterling and the U.S. dollar, there would be a corresponding change in the projected estimated property level cash flow at December 31, 2014 of $ 1.1 million .
(e)
We estimate that, for a 1% increase or decrease in the exchange rate between the Australian dollar and the U.S. dollar, there would be a corresponding change in the projected estimated property level cash flow at December 31, 2014 of $1.9 million . There is no related mortgage loan on this investment.
(f)
Other foreign currencies consist of the Canadian dollar, the Malaysian ringgit, the Swedish krona, and the Thai baht.
(g)
Our Revolver is scheduled to mature on January 31, 2018 unless extended pursuant to its terms ( Note 11) . Borrowings under our Revolver in foreign currencies are designated and effective as economic hedges of our net investments in foreign entities (Note 10) .
 
As a result of scheduled balloon payments on our international non-recourse mortgage loans, projected debt service obligations exceed projected lease revenues in 2017. In 2017, balloon payments totaling $ 383.4 million are due on ten non-recourse mortgage loans that are collateralized by properties that we own with affiliates. We currently anticipate that, by their respective due dates, we will have repaid or refinanced certain of these loans, but there can be no assurance that we will be able to refinance these loans on favorable terms, if at all. If refinancing has not occurred, we would expect to use our cash resources, including unused capacity on our Revolver, to make these payments, if necessary.

Concentration of Credit Risk

Concentrations of credit risk arise when a number of tenants are engaged in similar business activities or have similar economic risks or conditions that could cause them to default on their lease obligations to us. We regularly monitor our portfolio to assess potential concentrations of credit risk. As a result of the CPA ® :16 Merger, our portfolio concentrations at December 31, 2014 changed significantly as compared to December 31, 2013 . While we believe our portfolio is reasonably well diversified, it does contain concentrations in excess of 10%, based on the percentage of our ABR as of December 31, 2014 , in certain areas.

The majority of our directly owned real estate properties and related loans are located in the United States ( 65% ), and no individual foreign country represented a significant geographic concentrations greater than 10% of our ABR at December 31, 2014 . No individual tenant accounted for more than 10% of our ABR at December 31, 2014 . At December 31, 2014 , our directly owned real estate properties contain significant concentrations in the following asset types: office ( 32% ), industrial ( 26% ), warehouse/distribution ( 18% ) and retail ( 12% ); and in the following tenant industry: retail stores ( 20% ).

There were no significant concentrations, individually or in the aggregate, related to our unconsolidated jointly-owned investments.


W. P. Carey 2014 10-K – 74


Item 8. Financial Statements and Supplementary Data.


TABLE OF CONTENTS
Page No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial statement schedules other than those listed above are omitted because the required information is given in the financial statements, including the notes thereto, or because the conditions requiring their filing do not exist.

W. P. Carey 2014 10-K – 75


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Stockholders of W.P. Carey Inc.:

In our opinion, the accompanying consolidated financial statements listed in the index appearing under Item 8 present fairly, in all material respects, the financial position of W.P. Carey Inc. and its subsidiaries (the “Company”) at December 31, 2014 and December 31, 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in the index appearing under Item 8 present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedules, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedules, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in Note 2 to the consolidated financial statements, the Company adopted accounting standards update (“ASU”) No. 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity”, which changed the criteria for reporting discontinued operations in 2014.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


/s/ PricewaterhouseCoopers LLP
New York, New York
March 2, 2015



W. P. Carey 2014 10-K – 76


W. P. CAREY INC.  
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
 
December 31,
 
2014
 
2013
Assets
 

 
 

Investments in real estate:
 

 
 

Real estate, at cost (inclusive of $184,417 and $78,782, respectively, attributable to variable interest entities, or VIEs)
$
5,006,682

 
$
2,516,325

Operating real estate, at cost (inclusive of $38,714 and $0, respectively, attributable to VIEs)
84,885

 
6,024

Accumulated depreciation (inclusive of $19,982 and $18,238, respectively, attributable to VIEs)
(258,493
)
 
(168,958
)
Net investments in properties
4,833,074

 
2,353,391

Net investments in direct financing leases (inclusive of $61,609 and $18,089, respectively, attributable to VIEs)
816,226

 
363,420

Assets held for sale
7,255

 
86,823

Net investments in real estate
5,656,555

 
2,803,634

Cash and cash equivalents (inclusive of $2,652 and $37, respectively, attributable to VIEs)
198,683

 
117,519

Equity investments in real estate, the Managed REITs and BDC
249,403

 
530,020

Due from affiliates
34,477

 
32,034

Goodwill
692,415

 
350,208

In-place lease and tenant relationship intangible assets, net (inclusive of $21,267 and $3,385, respectively, attributable to VIEs)
993,819

 
471,719

Above-market rent intangible assets, net (inclusive of $13,767 and $2,544, respectively, attributable to VIEs)
522,797

 
241,975

Other assets, net (inclusive of $18,603 and $4,246, respectively, attributable to VIEs)
289,179

 
131,841

Total assets
$
8,637,328

 
$
4,678,950

Liabilities and Equity
 

 
 

Liabilities:
 

 
 

Non-recourse debt, net (inclusive of $125,226 and $29,042, respectively, attributable to VIEs)
$
2,532,683

 
$
1,492,410

Senior credit facilities – revolver
807,518

 
100,000

Senior credit facilities – term loan
250,000

 
475,000

Senior unsecured notes, net
498,345

 
—

Below-market rent and other intangible liabilities, net (inclusive of $9,305 and $3,481, respectively, attributable to VIEs)
175,070

 
128,202

Accounts payable, accrued expenses and other liabilities (inclusive of $5,573 and $2,988, respectively, attributable to VIEs)
293,846

 
166,385

Deferred income taxes (inclusive of $587 and $0, respectively, attributable to VIEs)
82,982

 
39,040

Distributions payable
100,078

 
67,746

Total liabilities
4,740,522

 
2,468,783

Redeemable noncontrolling interest
6,071

 
7,436

Commitments and contingencies ( Note 12 )


 


Equity:
 

 
 

W. P. Carey stockholders’ equity:
 

 
 

Preferred stock, $0.001 par value, 50,000,000 shares authorized; none issued
—

 
—

Common stock, $0.001 par value, 450,000,000 shares authorized; 105,085,069 and 69,299,949 shares issued,
respectively; and 104,040,653 and 68,266,570 shares outstanding, respectively
105

 
69

Additional paid-in capital
4,322,273

 
2,256,503

Distributions in excess of accumulated earnings
(465,606
)
 
(318,577
)
Deferred compensation obligation
30,624

 
11,354

Accumulated other comprehensive (loss) income
(75,559
)
 
15,336

Less: treasury stock at cost, 1,044,416 and 1,033,379 shares, respectively
(60,948
)
 
(60,270
)
Total W. P. Carey stockholders’ equity
3,750,889

 
1,904,415

Noncontrolling interests
139,846

 
298,316

Total equity
3,890,735

 
2,202,731

Total liabilities and equity
$
8,637,328

 
$
4,678,950

 
 
See Notes to Consolidated Financial Statements.

W. P. Carey 2014 10-K – 77


W. P. CAREY INC.  
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share amounts)
 
Years Ended December 31,
 
2014
 
2013
 
2012
Revenues
 

 
 

 
 

Real estate revenues:
 

 
 

 
 

Lease revenues
$
573,829

 
$
299,624

 
$
119,296

Operating property revenues
28,913

 
956

 
925

Reimbursable tenant costs
24,862

 
13,314

 
7,468

Lease termination income and other
15,526

 
2,071

 
1,492

 
643,130

 
315,965

 
129,181

Revenues from the Managed REITS:
 
 
 
 
 
Reimbursable costs
130,212

 
73,572

 
98,245

Structuring revenue
71,256

 
46,589

 
48,355

Asset management revenue
38,063

 
42,670

 
56,666

Dealer manager fees
23,532

 
10,856

 
19,914

Incentive, termination and subordinated disposition revenue
—

 
199

 
—

 
263,063

 
173,886

 
223,180

 
906,193

 
489,851

 
352,361

Operating Expenses
 

 
 

 
 

Depreciation and amortization
237,123

 
121,822

 
44,427

Reimbursable tenant and affiliate costs
155,074

 
86,886

 
105,713

General and administrative
91,588

 
67,063

 
68,854

Property expenses, excluding reimbursable tenant costs
37,725

 
8,082

 
4,555

Merger and property acquisition expenses
34,465

 
9,230

 
31,639

Stock-based compensation expense
31,075

 
37,195

 
26,052

Impairment charges
23,067

 
5,294

 
—

Dealer manager fees and expenses
21,760

 
13,028

 
17,787

Subadvisor fees
5,501

 
4,106

 
464

 
637,378

 
352,706

 
299,491

Other Income and Expenses
 

 
 

 
 

Interest expense
(178,122
)
 
(103,728
)
 
(46,448
)
Gain on change in control of interests
105,947

 
—

 
20,744

Equity in earnings of equity method investments in real estate and the Managed REITs
44,116

 
52,731

 
62,392

Other income and (expenses)
(11,977
)
 
9,421

 
2,389

 
(40,036
)
 
(41,576
)
 
39,077

Income from continuing operations before income taxes and gain (loss) on sale of real estate
228,779

 
95,569

 
91,947

Provision for income taxes
(17,609
)
 
(1,252
)
 
(6,772
)
Income from continuing operations before gain (loss) on sale of real estate
211,170

 
94,317

 
85,175

Income (loss) from discontinued operations, net of tax
33,318

 
38,180

 
(24,735
)
Gain (loss) on sale of real estate, net of tax
1,581

 
(332
)
 
2,339

Net Income
246,069

 
132,165

 
62,779

Net income attributable to noncontrolling interests
(6,385
)
 
(32,936
)
 
(607
)
Net loss (income) attributable to redeemable noncontrolling interest
142

 
(353
)
 
(40
)
Net Income Attributable to W. P. Carey
$
239,826

 
$
98,876

 
$
62,132

Basic Earnings Per Share
 

 
 

 
 

Income from continuing operations attributable to W. P. Carey
$
2.08

 
$
1.22

 
$
1.83

Income (loss) from discontinued operations attributable to W. P. Carey
0.34

 
0.21

 
(0.53
)
Net Income Attributable to W. P. Carey
$
2.42

 
$
1.43

 
$
1.30

Diluted Earnings Per Share
 

 
 

 
 

Income from continuing operations attributable to W. P. Carey
$
2.06

 
$
1.21

 
$
1.80

Income (loss) from discontinued operations attributable to W. P. Carey
0.33

 
0.20

 
(0.52
)
Net Income Attributable to W. P. Carey
$
2.39

 
$
1.41

 
$
1.28

Weighted-Average Shares Outstanding
 

 
 

 
 

Basic
98,764,164

 
68,691,046

 
47,389,460

Diluted
99,827,356

 
69,708,008

 
48,078,474

Amounts Attributable to W. P. Carey
 

 
 

 
 

Income from continuing operations, net of tax
$
206,329

 
$
84,637

 
$
87,571

Income (loss) from discontinued operations, net of tax
33,497

 
14,239

 
(25,439
)
Net Income
$
239,826

 
$
98,876

 
$
62,132

 
See Notes to Consolidated Financial Statements.

W. P. Carey 2014 10-K – 78


W. P. CAREY INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)  
 
Years Ended December 31,
 
2014
 
2013
 
2012
Net Income
$
246,069

 
$
132,165

 
$
62,779

Other Comprehensive (Loss) Income
 
 
 

 
 

Foreign currency translation adjustments
(117,938
)
 
21,835

 
7,809

Realized and unrealized gain (loss) on derivative instruments
21,085

 
20

 
(2,262
)
Change in unrealized loss on marketable securities
(10
)
 
—

 
(7
)
 
(96,863
)
 
21,855

 
5,540

Comprehensive Income
149,206

 
154,020

 
68,319

 
 
 
 
 
 
Amounts Attributable to Noncontrolling Interests
 

 
 

 
 

Net income
(6,385
)
 
(32,936
)
 
(607
)
Foreign currency translation adjustments
5,977

 
(1,883
)
 
(1,676
)
Comprehensive income attributable to noncontrolling interests
(408
)
 
(34,819
)
 
(2,283
)
Amounts Attributable to Redeemable Noncontrolling Interest
 

 
 

 
 

Net loss (income)
142

 
(353
)
 
(40
)
Foreign currency translation adjustments
(9
)
 
13

 
(6
)
Comprehensive loss (income) attributable to redeemable noncontrolling interest
133

 
(340
)
 
(46
)
Comprehensive Income Attributable to W. P. Carey
$
148,931

 
$
118,861

 
$
65,990

 
See Notes to Consolidated Financial Statements.

W. P. Carey 2014 10-K – 79


W. P. CAREY INC.  
CONSOLIDATED STATEMENTS OF EQUITY
Years Ended December 31, 2014 , 2013 , and 2012  
(in thousands, except share and per share amounts)  
 
W. P. Carey Stockholders
 
 
 
 
 
 
 
 
 
 
 
 
 
Distributions
 
 
 
Accumulated
 
 
 
 
 
 
 
 
 
Common Stock
 
Additional
 
in Excess of
 
Deferred
 
Other
 
 
 
Total
 
 
 
 
 
No Par Value
 
$0.001 Par Value
 
Paid-in
 
Accumulated
 
Compensation
 
Comprehensive
 
Treasury
 
W. P. Carey
 
Noncontrolling
 
 
 
Shares
 
Shares
 
Amount
 
Capital
 
Earnings
 
Obligation
 
(Loss) Income
 
Stock
 
Stockholders
 
Interests
 
Total
Balance at January 1, 2012
39,729,018

 
—

 
—

 
$
779,071

 
$
(95,046
)
 
$
7,063

 
$
(8,507
)
 
$
—

 
$
682,581

 
$
33,821

 
$
716,402

Exchange of shares of W. P. Carey & Co. LLC for shares of W. P. Carey Inc. in connection with the CPA ® :15 Merger
(39,834,827
)
 
39,834,827

 
40

 
(40
)
 
 
 
 
 
 
 
 
 
—

 
 
 
—

Shares issued to stockholders of CPA ® :15 in connection with the CPA ® :15 Merger
 
 
28,170,643

 
28

 
1,380,333

 
 
 
 
 
 
 
 
 
1,380,361

 
 
 
1,380,361

Purchase of noncontrolling interests in connection with the Merger
 
 
 
 
 
 
(154
)
 
 
 
 
 
 
 
 
 
(154
)
 
237,513

 
237,359

Reclassification of Estate Shareholders shares
 
 
 
 
 
 
(40,000
)
 
 
 
 
 
 
 
 
 
(40,000
)
 
 
 
(40,000
)
Exercise of stock options and employee purchase under the employee share purchase plan
30,993

 
13,768

 
 
 
1,553

 
 
 
 
 
 
 
 
 
1,553

 
 
 
1,553

Cash proceeds on issuance of shares to third party
 
 
937,500

 
1

 
44,999

 
 
 
 
 
 
 
 
 
45,000

 
 
 
45,000

Grants issued in connection with services rendered
427,425

 
3,822

 
 
 
 
 
 
 
 
 
 
 
 
 
—

 
 
 
—

Shares issued under share incentive plans
238,728

 
27,044

 
 
 
646

 
 
 
 
 
 
 
 
 
646

 
 
 
646

Contributions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
—

 
3,291

 
3,291

Forfeitures of shares
(29,919
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
—

 
 
 
—

Windfall tax benefits - share incentive plans
 
 
 
 
 
 
10,185

 
 
 
 
 
 
 
 
 
10,185

 
 
 
10,185

Amortization of stock-based compensation expense
 
 
 
 
 
 
25,067

 
 
 
971

 
 
 
 
 
26,038

 
 
 
26,038

Redemption value adjustment
 
 
 
 
 
 
(840
)
 
 
 
 
 
 
 
 
 
(840
)
 
 
 
(840
)
Distributions to noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
—

 
(6,649
)
 
(6,649
)
Distributions declared ($2.44 per share)
 
 
 
 
 
 
 
 
(139,268
)
 
324

 
 
 
 
 
(138,944
)
 
 
 
(138,944
)
Purchase of treasury stock from related parties
(561,418
)
 
(416,408
)
 
 
 
 
 
 
 
 
 
 
 
(45,270
)
 
(45,270
)
 
 
 
(45,270
)
Cancellation of shares
 
 
(85,671
)
 
 
 
(25,000
)
 
 
 
 
 
 
 
25,000

 
—

 
 
 
—

Net income
 
 
 
 
 
 
 
 
62,132

 
 
 
 
 
 
 
62,132

 
607

 
62,739

Other comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


 
 
 
 
Foreign currency translation adjustments
 
 
 
 
 
 
 
 
 
 
 
 
6,127

 
 
 
6,127

 
1,594

 
7,721

Realized and unrealized loss on derivative instruments
 
 
 
 
 
 
 
 
 
 
 
 
(2,262
)
 
 
 
(2,262
)
 
 
 
(2,262
)
Change in unrealized gain on marketable securities
 
 
 
 
 
 
 
 
 
 
 
 
(7
)
 
 
 
(7
)
 
 
 
(7
)
Balance at December 31, 2012
—

 
68,485,525

 
69

 
2,175,820

 
(172,182
)
 
8,358

 
(4,649
)
 
(20,270
)
 
1,987,146

 
270,177

 
2,257,323

Reclassification of Estate Shareholders’ shares from temporary equity to permanent equity
 
 
 
 
 
 
40,000

 
 
 
 
 
 
 
 
 
40,000

 
 
 
40,000

Exercise of stock options and employee purchase under the employee share purchase plan
 
 
55,423

 
 
 
2,312

 
 
 
 
 
 
 
 
 
2,312

 
 
 
2,312

Grants issued in connection with services rendered
 
 
295,304

 
 
 
 
 
 
 
 
 
 
 
 
 
—

 
 
 
—

Shares issued under share incentive plans
 
 
47,289

 
 
 
(9,183
)
 
 
 
 
 
 
 
 
 
(9,183
)
 
 
 
(9,183
)
Contributions from noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
—

 
65,145

 
65,145

Windfall tax benefits - share incentive plans
 
 
 
 
 
 
12,817

 
 
 
 
 
 
 
 
 
12,817

 
 
 
12,817

Amortization of stock-based compensation expense
 
 
 
 
 
 
34,737

 
 
 
2,459

 
 
 
 
 
37,196

 
 
 
37,196

Distributions to noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
—

 
(71,820
)
 
(71,820
)
Distributions declared ($3.39 per share)
 
 
 
 
 
 
 
 
(245,271
)
 
537

 
 
 
 
 
(244,734
)
 
 
 
(244,734
)
Purchase of treasury stock from related party
 
 
(616,971
)
 
 
 
 
 
 
 
 
 
 
 
(40,000
)
 
(40,000
)
 
 
 
(40,000
)
Foreign currency translation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
—

 
(5
)
 
(5
)
Net income
 
 
 
 
 
 
 
 
98,876

 
 
 
 
 
 
 
98,876

 
32,936

 
131,812

Other comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
 
 
 
 
 
 
 
 
 
 
 
19,965

 
 
 
19,965

 
1,883

 
21,848

Realized and unrealized loss on derivative instruments
 
 
 
 
 
 
 
 
 
 
 
 
20

 
 
 
20

 
 
 
20

Balance at December 31, 2013
—


68,266,570

 
69

 
2,256,503

 
(318,577
)
 
11,354

 
15,336

 
(60,270
)
 
1,904,415

 
298,316

 
2,202,731

(Continued)

W. P. Carey 2014 10-K – 80


W. P. CAREY INC.
CONSOLIDATED STATEMENTS OF EQUITY
(Continued)
Years Ended December 31, 2014 , 2013 , and 2012
(in thousands, except share and per share amounts)
 
W. P. Carey Stockholders
 
 
 
 
 
 
 
 
 
 
 
 
 
Distributions
 
 
 
Accumulated
 
 
 
 
 
 
 
 
 
Common Stock
 
Additional
 
in Excess of
 
Deferred
 
Other
 
 
 
Total
 
 
 
 
 
No Par Value
 
$0.001 Par Value
 
Paid-in
 
Accumulated
 
Compensation
 
Comprehensive
 
Treasury
 
W. P. Carey
 
Noncontrolling
 
 
 
Shares
 
Shares
 
Amount
 
Capital
 
Earnings
 
Obligation
 
(Loss) Income
 
Stock
 
Stockholders
 
Interests
 
Total
Balance at January 1, 2014
—

 
68,266,570

 
$
69

 
$
2,256,503

 
$
(318,577
)
 
$
11,354

 
$
15,336

 
$
(60,270
)
 
$
1,904,415

 
$
298,316

 
$
2,202,731

Shares issued to stockholders of CPA ® :16  – Global in connection with the CPA ® :16 Merger
 
 
30,729,878

 
31

 
1,815,490

 
 
 
 
 
 
 
 
 
1,815,521

 
 
 
1,815,521

Shares issued in public offering
 
 
4,600,000

 
5

 
282,157

 
 
 
 
 
 
 
 
 
282,162

 
 
 
282,162

Purchase of the remaining interests in less-than-wholly-owned investments that we already consolidate in connection with the CPA ® :16 Merger
 
 


 
 
 
(41,374
)
 
 
 
 
 
 
 
 
 
(41,374
)
 
(239,562
)
 
(280,936
)
Purchase of noncontrolling interests in connection with the CPA ® :16 Merger
 
 


 
 
 


 
 
 
 
 
 
 
 
 
—

 
99,757

 
99,757

Contributions from noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
—

 
570

 
570

Exercise of stock options and employee purchase under the employee share purchase plan
 
 
39,655

 
 
 
1,890

 
 
 
 
 
 
 
 
 
1,890

 
 
 
1,890

Grants issued in connection with services rendered
 
 
368,347

 
 
 
(15,737
)
 
 
 


 
 
 
 
 
(15,737
)
 
 
 
(15,737
)
Shares issued under the share incentive plans
 
 
47,240

 
 
 
(1,428
)
 
 
 
 
 
 
 
 
 
(1,428
)
 


 
(1,428
)
Deferral of vested shares
 
 
 
 
 
 
(15,428
)
 


 
15,428

 
 
 
 
 
—

 
 
 
—

Windfall tax benefits - share incentive plans
 
 


 
 
 
5,641

 
 
 
 
 
 
 


 
5,641

 
 
 
5,641

Amortization of stock-based compensation expense
 
 
 
 
 
 
31,075

 
 
 
 
 
 
 
 
 
31,075

 


 
31,075

Redemption value adjustment
 
 
 
 
 
 
306

 
 
 
 
 
 
 
 
 
306

 
 
 
306

Distributions to noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
—

 
(19,719
)
 
(19,719
)
Distributions declared ($3.685 per share)
 
 
 
 
 
 
3,178

 
(386,855
)
 
3,842

 
 
 
 
 
(379,835
)
 
 
 
(379,835
)
Purchase of treasury stock from related party
 
 
(11,037
)
 
 
 
 
 
 
 
 
 
 
 
(678
)
 
(678
)
 
 
 
(678
)
Foreign currency translation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
—

 
76

 
76

Net income
 
 
 
 
 
 
 
 
239,826

 
 
 
 
 
 
 
239,826

 
6,385

 
246,211

Other comprehensive loss:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
 
 
 
 
 
 
 
 
 
 
 
(111,970
)
 
 
 
(111,970
)
 
(5,977
)
 
(117,947
)
Realized and unrealized loss on derivative instruments
 
 
 
 
 
 
 
 
 
 
 
 
21,085

 
 
 
21,085

 
 
 
21,085

Change in unrealized gain on marketable securities
 
 
 
 
 
 
 
 
 
 
 
 
(10
)
 
 
 
(10
)
 
 
 
(10
)
Balance at December 31, 2014
—

 
104,040,653

 
$
105

 
$
4,322,273

 
$
(465,606
)
 
$
30,624

 
$
(75,559
)
 
$
(60,948
)
 
$
3,750,889

 
$
139,846

 
$
3,890,735

 
See Notes to Consolidated Financial Statements.


W. P. Carey 2014 10-K – 81


W. P. CAREY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
Years Ended December 31,
 
2014

2013

2012
Cash Flows — Operating Activities
 
 
 
 
 
Net income
$
246,069

 
$
132,165

 
$
62,779

Adjustments to net income:
 
 
 
 
 
Depreciation and amortization, including intangible assets and deferred financing costs
248,549

 
140,316

 
55,114

Gain on change in control of interests
(105,947
)
 
—

 
(20,794
)
Straight-line rent and amortization of rent-related intangibles
44,843

 
21,333

 
2,831

Management and disposition income received in shares of Managed REITs and other
(39,866
)
 
(33,572
)
 
(28,477
)
Stock-based compensation expense
31,075

 
37,195

 
26,038

(Gain) loss on sale of real estate
(29,250
)
 
(39,711
)
 
2,773

Impairment charges
23,067

 
13,709

 
22,962

Unrealized loss (gain) on derivatives and other
3,246

 
(7,529
)
 
(1,861
)
Equity in earnings of equity method investments in real estate and the Managed REITs in excess of distributions received
(1,307
)
 
(10,177
)
 
(17,271
)
Amortization of deferred revenue
(786
)
 
(9,436
)
 
(9,436
)
Realized (gain) loss on extinguishment of debt and other
(234
)
 
1,375

 
595

Changes in assets and liabilities:


 
 
 
 
Increase in structuring revenue receivable
(23,713
)
 
(13,788
)
 
(20,304
)
Increase in current and deferred income taxes payable
(19,087
)
 
(21,978
)
 
(6,936
)
Payments for withholding taxes upon delivery of equity-based awards and exercises of stock options
(17,165
)
 
(11,476
)
 
(6,135
)
Deferred acquisition fees received
15,724

 
18,633

 
21,059

Decrease (increase) in prepaid taxes
6,394

 
(5,967
)
 
(11,341
)
Net changes in other operating assets and liabilities
17,480

 
(3,184
)
 
9,047

Net Cash Provided by Operating Activities
399,092

 
207,908

 
80,643

Cash Flows — Investing Activities
 

 
 

 
 

Purchases of real estate and equity investments in real estate
(898,162
)
 
(265,383
)
 
(3,944
)
Proceeds from sale of real estate and equity investments
285,742

 
171,300

 
73,204

Cash acquired in connection with the CPA ® :16 Merger
65,429

 
—

 
—

Capital expenditures on owned real estate
(26,404
)
 
(6,906
)
 
(4,059
)
Capital contributions to equity investments
(25,468
)
 
(1,945
)
 
(726
)
Change in investing restricted cash
(23,731
)
 
43,067

 
(9,119
)
Capital expenditures on corporate assets
(18,262
)
 
(7,133
)
 
(2,145
)
Distributions received from equity investments in real estate and the Managed REITs in excess of equity income
13,101

 
58,018

 
46,294

Proceeds from repayment of short-term loan to affiliates
11,000

 
15,000

 
—

Funding of short-term loan to affiliates
(11,000
)
 
(15,000
)
 
—

Purchase of securities
(7,664
)
 
—

 
—

Other investing activities, net
(3,469
)
 
2,608

 
372

Cash paid to stockholders of CPA ® :16 – Global in the CPA ® :16 Merger
(1,338
)
 
—

 
—

Cash paid to stockholders of CPA ® :15 in the CPA ® :15 Merger
—

 
—

 
(152,356
)
Cash acquired in connection with the CPA ® :15 Merger
—

 
—

 
178,945

Net Cash (Used in) Provided by Investing Activities
(640,226
)
 
(6,374
)
 
126,466

Cash Flows — Financing Activities
 

 
 

 
 

Proceeds from senior credit facilities
1,757,151

 
735,000

 
300,000

Repayments of senior credit facilities
(1,415,000
)
 
(413,000
)
 
(280,160
)
Proceeds from issuance of senior unsecured notes
498,195

 
—

 
—

Distributions paid
(347,902
)
 
(220,395
)
 
(113,867
)
Proceeds from issuance of shares in public offering
282,162

 
—

 
—

Prepayments of mortgage principal
(220,786
)
 
—

 
—

Scheduled payments of mortgage principal
(205,024
)
 
(391,764
)
 
(54,964
)
Distributions paid to noncontrolling interests
(20,646
)
 
(72,059
)
 
(7,314
)
Proceeds from mortgage financing
20,354

 
115,567

 
23,750

Payment of financing costs and mortgage deposits, net of deposits refunded
(12,321
)
 
(2,368
)
 
(2,557
)
Windfall tax benefit associated with stock-based compensation awards
5,641

 
12,817

 
10,185

Proceeds from exercise of stock options and employee purchases under the employee share purchase plan
1,890

 
2,312

 
51,644

Contributions from noncontrolling interests
693

 
65,145

 
3,291

Purchase of treasury stock from related parties
(679
)
 
(40,000
)
 
(45,270
)
Change in financing restricted cash
(588
)
 
(1,843
)
 
1,970

Net Cash Provided by (Used in) Financing Activities
343,140

 
(210,588
)
 
(113,292
)
Change in Cash and Cash Equivalents During the Year
 

 
 

 
 

Effect of exchange rate changes on cash
(20,842
)
 
2,669

 
790

Net increase (decrease) in cash and cash equivalents
81,164

 
(6,385
)
 
94,607

Cash and cash equivalents, beginning of year
117,519

 
123,904

 
29,297

Cash and cash equivalents, end of year
$
198,683

 
$
117,519

 
$
123,904

 

See Notes to Consolidated Financial Statements.

W. P. Carey 2014 10-K – 82


W. P. CAREY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)

Supplemental Non-Cash Investing and Financing Activities:

2014 — On January 31, 2014, CPA ® :16 – Global merged with and into us in the CPA ® :16 Merger ( Note 3 ). The following table summarizes estimated fair values of the assets acquired and liabilities assumed in the CPA ® :16 Merger (in thousands):
Total Consideration
 

Fair value of W. P. Carey shares of common shares issued
$
1,815,521

Cash consideration for fractional shares
1,338

Fair value of our equity interest in CPA ® :16 – Global prior to the CPA ® :16 Merger
349,749

Fair value of our equity interest in jointly-owned investments with CPA ® :16 – Global prior to the CPA ® :16 Merger
172,720

Fair value of noncontrolling interests acquired
(278,187
)
 
2,061,141

Assets Acquired at Fair Value
 
Net investments in real estate
1,970,175

Net investments in direct financing leases
538,225

Equity investments in real estate
74,367

Assets held for sale
133,415

Goodwill
346,642

In-place lease intangible assets
553,723

Above-market rent intangible assets
395,824

Other assets
85,567

Liabilities Assumed at Fair Value
 
Non-recourse debt and line of credit
(1,768,288
)
Accounts payable, accrued expenses and other liabilities
(118,389
)
Below-market rent and other intangible liabilities
(57,569
)
Deferred tax liability
(58,347
)
Amounts attributable to noncontrolling interests
(99,633
)
Net assets acquired excluding cash
1,995,712

Cash acquired on acquisition of subsidiaries
$
65,429


2013 — On November 27, 2013, we purchased a domestic office building for $33.6 million ( Note 5 ). This transaction consisted of the acquisition and assumption of certain assets and liabilities, respectively, as detailed in the table below (in thousands).
Cash Consideration
$
13,748

Assets Acquired at Fair Value
 
Net investments in real estate
$
33,625

In-place lease intangible assets, net
872

Above-market rent intangible assets, net
722

Other assets
1,170

Liabilities Assumed at Fair Value
 
Non-recourse debt
(21,023
)
Below-market rent and other intangible liabilities
(1,618
)
Net assets acquired
$
13,748

See Notes to Consolidated Financial Statements.

W. P. Carey 2014 10-K – 83


W. P. CAREY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)

2012 — On September 28, 2012, CPA ® :15 merged with and into us in the CPA ® :15 Merger ( Note 3 ). The following table summarizes estimated fair values of the assets acquired and liabilities assumed in the acquisition (in thousands):
Total Consideration
 

Fair value of W. P. Carey shares of common stock issued
$
1,380,362

Cash consideration
152,356

Fair value of W. P. Carey & Co. LLC equity interest in CPA ® :15 prior to the CPA ® :15 Merger
107,147

Fair value of W. P. Carey & Co. LLC equity interest in jointly-owned investments with CPA ® :15 prior to the CPA ® :15 Merger
54,822

 
1,694,687

Assets Acquired at Fair Value
 
Net investments in real estate
1,762,872

Net investments in direct financing leases
315,789

Equity investments in real estate
166,247

Goodwill
268,683

Intangible assets
695,310

Other assets
81,750

Liabilities Assumed at Fair Value
 
Non-recourse debt
(1,350,755
)
Below-market rent and other intangible liabilities
(102,155
)
Accounts payable, accrued expenses and other liabilities
(84,640
)
Amounts attributable to noncontrolling interests
(237,359
)
Net assets acquired excluding cash
1,515,742

Cash acquired on acquisition of subsidiaries
$
178,945


Supplemental Cash Flow Information
(In thousands)
 
Years Ended December 31,
 
2014
 
2013
 
2012
Interest paid
$
156,335

 
$
98,599

 
$
38,092

Income taxes paid
$
25,247

 
$
14,405

 
$
12,501


See Notes to Consolidated Financial Statements.


W. P. Carey 2014 10-K – 84


W. P. CAREY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Business and Organization
 
W. P. Carey Inc. is a REIT that provides long-term financing via sale-leaseback and build-to-suit transactions for companies worldwide and manages a global investment portfolio. We invest primarily in commercial properties domestically and internationally. We earn revenue principally by leasing the properties we own to single corporate tenants, primarily on a triple-net lease basis, which requires each tenant to pay substantially all of the costs associated with operating and maintaining the property. Through our TRSs, we also earn revenue as the advisor to publicly-owned, non-listed REITs, which are sponsored by us under the CPA ® brand name, that invest in similar properties. At December 31, 2014 , we were the advisor to the following CPA ®  REITs: CPA ® :17 – Global and CPA ® :18 – Global. At that date, we were also the advisor to CWI, a publicly-owned, non-listed REIT that invests in lodging and lodging-related properties. Currently, we also serve as advisor to CWI 2, a new non-listed lodging REIT. We also have invested in CCIF, a newly formed BDC, and plan to serve as advisor to CCIF and to invest the funds that we raise on behalf of its two feeder funds, which will also be BDCs, in shares of CCIF. While we have filed registration statements for the BDCs with the SEC, none of these registration statements has been declared effective by the SEC and there can be no assurance as to whether or when such offerings will be commenced ( Note 2 ).
 
We were formed as a corporation under the laws of Maryland on February 15, 2012. On September 28, 2012, CPA ® :15 merged with and into us, with CPA ® :15 surviving as an indirect, wholly-owned subsidiary of ours. In connection with the CPA ® :15 Merger, W. P. Carey & Co. LLC, our predecessor, which was formed under the laws of Delaware on July 15, 1996, completed an internal reorganization whereby W. P. Carey & Co. LLC and its subsidiaries merged with and into us, with W. P. Carey as the surviving corporation, succeeding to and continuing to operate the existing business of our predecessor. Upon completion of the CPA ® :15 Merger and the REIT reorganization, the shares of our predecessor were delisted from the New York Stock Exchange and canceled, and our common stock became listed on the New York Stock Exchange under the same ticker symbol, “WPC.”

On January 31, 2014, CPA ® :16 – Global merged with and into us based on a merger agreement, dated as of July 25, 2013 ( Note 3 ). In September 2014, we issued 4,600,000 shares of our common stock, $ 0.001 par value per share through the Equity Offering, at a price of $ 64.00 per share ( Note 13 ).
 
We have elected to be taxed as a REIT under Section 856 through 860 of the Internal Revenue Code. As a REIT, we are not generally subject to U.S. federal income taxation other than from our TRSs as long as we satisfy certain requirements, principally relating to the nature of our income and the level of our distributions, as well as other factors. We hold all of our real estate assets attributable to our Real Estate Ownership segment under the REIT structure, while the activities conducted by our Investment Management segment subsidiaries have been organized under TRSs.
 
Reportable Segments
 
Real Estate Ownership — We own and invest in commercial properties principally in the United States, Europe, and Asia that are then leased to companies, primarily on a triple-net lease basis. We have also invested in several operating properties, such as lodging and self-storage properties. We earn lease revenues from our wholly-owned and co-owned real estate investments that we control. In addition, we generate equity income through co-owned real estate investments that we do not control and through our ownership of shares of the Managed REITs ( Note 7 ). Through our special member interests in the operating partnerships of the Managed REITs, we also participate in their cash flows ( Note 4 ). Our owned portfolio was comprised of our full or partial ownership interests in 783 properties, substantially all of which were net leased to 219 tenants, with an occupancy rate of 98.6% , and totaled approximately 87.3 million square feet (unaudited).

Investment Management — Through our TRSs, we structure and negotiate investments and debt placement transactions for the Managed REITs, for which we earn structuring revenue, and manage their portfolios of real estate investments, for which we earn asset-based management and performance revenue. We earn disposition revenue when we negotiate and structure the sale of properties on behalf of the Managed REITs, and we may also earn incentive revenue and receive other compensation in connection with providing liquidity events for the Managed REITs’ stockholders. Collectively, at December 31, 2014 , CPA ® :17 – Global and CPA ® :18 – Global owned all or a portion of 404 properties, including certain properties in which we have an ownership interest. Substantially all of these properties, totaling approximately 43.0 million square feet (unaudited), were net leased to 180 tenants, with an average occupancy rate of approximately 99.8% . The existing Managed REITs also had interests in 115 operating properties for an aggregate of approximately 12.8 million square feet (unaudited) at December 31, 2014 . We have begun to explore alternatives for expanding our investment management operations beyond advising the existing Managed REITs. Any such expansion could involve the purchase of properties or other investments as principal, either for our

W. P. Carey 2014 10-K – 85
 
Notes to Consolidated Financial Statements

owned portfolio or with the intention of transferring such investments to a newly-created fund, as well as the sponsorship of one or more funds to make investments other than primarily net-lease investments, like CWI, CWI 2 and the BDCs.

Note 2. Summary of Significant Accounting Policies
 
Basis of Consolidation
 
Our consolidated financial statements reflect all of our accounts, including those of our controlled subsidiaries and our tenancy-in-common interests as described below. The portion of equity in a consolidated subsidiary that is not attributable, directly or indirectly, to us is presented as noncontrolling interests. All significant intercompany accounts and transactions have been eliminated. The consolidated financial statements include the historical results of our predecessor prior to the REIT reorganization, the CPA ® :15 Merger and the CPA ® :16 Merger.
 
When we obtain an economic interest in an entity, we evaluate the entity to determine if it is deemed a VIE and, if so, whether we are deemed to be the primary beneficiary and are therefore required to consolidate the entity. We apply accounting guidance for consolidation of VIEs to certain entities in which the equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. Fixed price purchase and renewal options within a lease as well as certain decision-making rights within a loan can cause us to consider an entity a VIE. Significant judgment is required to determine whether a VIE should be consolidated. We review the contractual arrangements provided for in the partnership agreement or other related contracts to determine whether the entity is considered a VIE, and to establish whether we have any variable interests in the VIE. We then compare our variable interests, if any, to those of the other variable interest holders to determine which party is the primary beneficiary of a VIE based on whether the entity (i) has the power to direct the activities that most significantly impact the economic performance of the VIE, and (ii) has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE.

In connection with the CPA ® :16 Merger, we acquired 12 VIEs. We consider these entities VIEs because the leases have certain features such as fixed price purchase or renewal options.

For an entity that is not considered to be a VIE but rather a voting interest entity, the general partners in a limited partnership (or similar entity) are presumed to control the entity regardless of the level of their ownership and, accordingly, may be required to consolidate the entity. We evaluate the partnership agreements or other relevant contracts to determine whether there are provisions in the agreements that would overcome this presumption. If the agreements provide the limited partners with either (i) the substantive ability to dissolve or liquidate the limited partnership or otherwise remove the general partners without cause or (ii) substantive participating rights, the limited partners’ rights overcome the presumption of control by a general partner of the limited partnership, and, therefore, the general partner must account for its investment in the limited partnership using the equity method of accounting.
 
We have an investment in a tenancy-in-common interest in various underlying international properties. Consolidation of this investment is not required as such interest does not qualify as a VIE and does not meet the control requirement for consolidation. Accordingly, we account for this investment using the equity method of accounting. We use the equity method of accounting because the shared decision-making involved in a tenancy-in-common interest investment provides us with significant influence on the operating and financial decisions of this investment. We also have certain investments in wholly-owned tenancy-in-common interests, which we now consolidate after we obtained the remaining interests in the CPA ® :16 Merger.

Additionally, we own interests in single-tenant, net-leased properties leased to companies through noncontrolling interests in partnerships and limited liability companies that we do not control but over which we exercise significant influence. We account for these investments under the equity method of accounting. At times, the carrying value of our equity investments may fall below zero for certain investments. We intend to fund our share of the jointly-owned investments’ future operating deficits should the need arise. However, we have no legal obligation to pay for any of the liabilities of such investments nor do we have any legal obligation to fund operating deficits. At December 31, 2014 , none of our equity investments had carrying values below zero.

In June 2014, CWI 2 filed a registration statement on Form S-11 with the SEC to sell up to $1.0 billion of its common stock in an initial public offering, plus up to an additional $400.0 million of its common stock under a dividend reinvestment plan. In January 2015, CWI 2 amended the registration statement so that the offering is for up to $1.4 billion of its common stock plus up to an additional $600.0 million of its common stock through its dividend reinvestment plan. The registration statement was declared effective by the SEC on February 9, 2015. Through December 31, 2014 , the financial activity of CWI 2, which had no

W. P. Carey 2014 10-K – 86
 
Notes to Consolidated Financial Statements

significant assets, liabilities or operations, was included in our consolidated financial statements. We will continue to consolidate the financial activity of CWI 2 until it admits sufficient shareholders.

In September 2014, two feeder funds of CCIF, which are BDCs, each filed registration statements on Form N-2 with the SEC to sell up to 50,000,000 shares and 21,000,000 shares, respectively, of their beneficial interests in initial public offerings, with the proceeds to be invested in shares of CCIF. As of the date of this Report, the registration statements have not been declared effective by the SEC and there can be no assurance as to whether or when such offerings would be commenced. In December 2014, we invested $25.0 million in CCIF, and now account for our interest in CCIF under the equity method of accounting ( Note 7 ).

Reclassifications
 
Certain prior period amounts have been reclassified to conform to the current period presentation.
 
Accounting for Acquisitions

In accordance with the guidance for business combinations, we determine whether a transaction or other event is a business combination, which requires that the assets acquired and liabilities assumed constitute a business. Each business combination is then accounted for by applying the acquisition method. If the assets acquired are not a business, we account for the transaction or other event as an asset acquisition. Under both methods, we recognize the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired entity. In addition, for transactions that are business combinations, we evaluate the existence of goodwill or a gain from a bargain purchase. We immediately expense acquisition-related costs and fees associated with business combinations.
 
Purchase Price Allocation

When we acquire properties with leases classified as operating leases, we allocate the purchase price to the tangible and intangible assets and liabilities acquired based on their estimated fair values. The tangible assets consist of land, buildings and site improvements. The intangible assets, include the above- and below-market value of leases and the in-place leases, which includes a value for tenant relationships. Land is typically valued utilizing the sales comparison (or market) approach. Buildings are valued, as if vacant, using the cost and/or income approach. Site improvements are valued using the cost approach. The fair value of real estate is determined primarily by reference to portfolio appraisals which determines their values, on a property level, by applying a discounted cash flow analysis to the estimated net operating income for each property in the portfolio during the remaining anticipated lease term, and the estimated residual value. The estimated residual value of each property is based on a hypothetical sale of the property upon expiration of a lease factoring in the re-tenanting of such property at estimated current market rental rates, applying a selected capitalization rate and deducting estimated costs of sale. The discount rates and residual capitalization rates used to value the properties are selected based on several factors, including the creditworthiness of the lessees, industry surveys, property type, location, and age, current lease rates relative to market lease rates, and anticipated lease duration. In the case where a tenant has a purchase option deemed to be materially favorable to the tenant, or the tenant has long-term renewal options at rental rates below estimated market rental rates, we include the value of the exercise of such purchase option or long-term renewal options in the determination of residual value. Where a property is deemed to have excess land, the discounted cash flow analysis includes the estimated excess land value at the assumed expiration of the lease, based upon an analysis of comparable land sales or listings in the general market area of the property grown at estimated market growth rates through the year of lease expiration. See Real Estate Leased to Others and Depreciation below for a discussion of our significant accounting policies related to tangible assets.

We record above- and below-market lease intangible values for acquired properties based on the present value (using a discount rate reflecting the risks associated with the leases acquired including consideration of the credit of the lessee) of the difference between (i) the contractual rents to be paid pursuant to the leases negotiated and in place at the time of acquisition of the properties and (ii) our estimate of fair market lease rates for the property or equivalent property, both of which are measured over a period equal to the estimated lease term, which includes renewal options that have rental rates below estimated market rental rates. We amortize the above-market lease intangible as a reduction of lease revenue over the remaining contractual lease term. We amortize the below-market lease intangible as an increase to lease revenue over the initial term and any renewal periods in the respective leases. We include the value of below-market leases in Below-market rent and other intangible liabilities in the consolidated financial statements.
 
We measure the fair value of the below-market purchase option liabilities we acquired in connection with the CPA ® :15 Merger and CPA ® :16 Merger as the excess of the present value of the fair value of the real estate over the present value of the tenant’s exercise price at the option date.

W. P. Carey 2014 10-K – 87
 
Notes to Consolidated Financial Statements

 
The value of any in-place lease is estimated to be equal to the acquirer’s avoidance of costs as a result of having tenants in place, that would be necessary to lease the property for a lease term equal to the remaining primary in-place lease term and the value of investment grade tenancy. The cost avoidance is derived first by determining the in-place lease term on the subject lease. Then, based on our review of the market, the cost to be borne by a property owner to replicate a market lease to the remaining in-place term is estimated. These costs consist of: (i) rent lost during downtime (i.e., assumed periods of vacancy), (ii) estimated expenses that would be incurred by the property owner during periods of vacancy, (iii) rent concessions (i.e. free rent), (iv) leasing commissions, and (v) tenant improvements allowances given to tenants. We determine these values using our estimates or by relying in part upon third-party appraisals. We amortize the capitalized value of in-place lease intangibles to expense over the remaining initial term of each lease. The amortization period for intangibles does not exceed the remaining depreciable life of the building.
 
If a lease is terminated, we charge the unamortized portion of above- and below-market lease values to lease revenues and in-place lease values to amortization expense.
 
When we acquire leveraged properties, the fair value of the related debt instruments is determined using a discounted cash flow model with rates that take into account the credit of the tenants, where applicable, and interest rate risk. Such resulting premium or discount is amortized over the remaining term of the obligation. We also consider the value of the underlying collateral, taking into account the quality of the collateral, the credit quality of the tenant, the time until maturity and the current interest rate.
 
Goodwill
 
In the case of a business combination, after identifying all tangible and intangible assets and liabilities, the excess consideration paid over the fair value of the assets and liabilities acquired and assumed, respectively, represents goodwill. We allocated goodwill to the respective reporting units in which such goodwill arose. Goodwill acquired in the CPA ® :15 Merger and the CPA ® :16 Merger was attributed to the Real Estate Ownership segment which comprises one reporting unit. In the event we dispose of a property that constitutes a business under GAAP from a reporting unit with goodwill, we allocate a portion of the reporting unit’s goodwill to that business in determining the gain or loss on the disposal of the business. The amount of goodwill allocated to the business is based on the relative fair value of the business to the fair value of the reporting unit.
 
Real Estate and Operating Real Estate
 
We carry land, buildings, and personal property at cost less accumulated depreciation. We capitalize improvements and significant renovations that increase the useful life of the properties, while we expense replacements, maintenance, and repairs that do not improve or extend the lives of the respective assets as incurred.
 
Assets Held for Sale
 
We classify those assets that are associated with operating leases as held for sale when we have entered into a contract to sell the property, all material due diligence requirements have been satisfied, and we believe it is probable that the disposition will occur within one year. Assets held for sale are recorded at the lower of carrying value or estimated fair value, less estimated costs to sell. As described below, under Recent Accounting Requirements, on January 1, 2014, we adopted Accounting Standards Update 2014-08 and other than the properties classified as held for sale prior to adoption or acquired as held for sale upon acquisition no other sales qualify as discontinued operations. The results of operations and the related gain or loss on sale of properties that have been sold or that are classified as held for sale and in which we will have no significant continuing involvement are included in discontinued operations ( Note 16 ).
 
If circumstances arise that we previously considered unlikely and, as a result, we decide not to sell a property previously classified as held for sale, we reclassify the property as held and used. We measure and record a property that is reclassified as held and used at the lower of (i) its carrying amount before the property was classified as held for sale, adjusted for any depreciation expense that would have been recognized had the property been continuously classified as held and used or (ii) the estimated fair value at the date of the subsequent decision not to sell.
 
We recognize gains and losses on the sale of properties when, among other criteria, we no longer have continuing involvement, the parties are bound by the terms of the contract, all consideration has been exchanged, and all conditions precedent to closing have been performed. At the time the sale is consummated, a gain or loss is recognized as the difference between the sale price, less any selling costs, and the carrying value of the property.
 

W. P. Carey 2014 10-K – 88
 
Notes to Consolidated Financial Statements

Notes Receivable

For investments in mortgage notes and loan participations, the loans are initially reflected at acquisition cost, which consists of the outstanding balance, net of the acquisition discount or premium. We amortize any discount or premium as an adjustment to increase or decrease, respectively, the yield realized on these loans over the life of the loan. As such, differences between carrying value and principal balances outstanding do not represent embedded losses or gains as we generally plan to hold such loans to maturity. Our notes receivable are included in Other assets, net in the consolidated financial statements.

Cash and Cash Equivalents
 
We consider all short-term, highly-liquid investments that are both readily convertible to cash and have a maturity of three months or less at the time of purchase to be cash equivalents. Items classified as cash equivalents include commercial paper and money market funds. Our cash and cash equivalents are held in the custody of several financial institutions, and these balances, at times, exceed federally-insurable limits. We seek to mitigate this risk by depositing funds only with major financial institutions.
 
Internal-Use Software Development Costs

We expense costs associated with the assessment stage of software development projects. Upon completion of the preliminary project assessment stage, we capitalize internal and external costs associated with the application development stage, including the costs associated with software that allows for the conversion of our old data to our new system. We expense the personnel-related costs of training and data conversion. We also expense costs associated with the post-implementation and operation stage, including maintenance and specified upgrades; however, we capitalize internal and external costs associated with significant upgrades to existing systems that result in additional functionality. Capitalized costs are amortized on a straight-line basis over the software’s estimated useful life, which is three to five years . Periodically, we reassess the useful life considering technology, obsolescence, and other factors.

Other Assets and Liabilities
 
We include prepaid expenses, deferred rental income, tenant receivables, deferred charges, escrow balances held by lenders, restricted cash balances, marketable securities, derivative assets, other intangible assets, corporate fixed assets and notes receivable in Other assets. We include derivative liabilities, amounts held on behalf of tenants, and deferred revenue in Other liabilities. Deferred charges are costs incurred in connection with mortgage financings, refinancings, issuance of corporate bonds, and the amendment of our credit facility that are amortized over the terms of the debt and included in Interest expense in the consolidated financial statements. Deferred rental income is the aggregate cumulative difference for operating leases between scheduled rents that vary during the lease term, and rent recognized on a straight-line basis. Marketable securities are classified as available-for-sale securities and reported at fair value with unrealized gains and losses on these securities reported as a component of Other comprehensive (loss) income until realized.
 
Allowance for Doubtful Accounts
 
We consider rents due under leases and payments under notes receivable to be past-due or delinquent when a contractually required rent, principal or interest payment is not remitted in accordance with the provisions of the underlying agreement. We evaluate each account individually and set up an allowance when, based upon current information and events, it is probable that we will be unable to collect all amounts due according to the existing contractual terms, and the amount can be reasonably estimated.
 
Revenue Recognition
 
Real Estate Leased to Others
 
We lease real estate to others primarily on a triple-net leased basis, whereby the tenant is generally responsible for operating expenses relating to the property, including property taxes, insurance, maintenance, repairs, and improvements. We charge expenditures for maintenance and repairs, including routine betterments, to operations as incurred. For the years ended December 31, 2014 , 2013 , and 2012 , our tenants, pursuant to their lease obligations, have made direct payment to the taxing authorities of real estate taxes of approximately $ 59.8 million , $ 37.3 million , and $ 18.7 million , respectively.
 
Substantially all of our leases provide for either scheduled rent increases, periodic rent adjustments based on formulas indexed to changes in the CPI or similar indices, or percentage rents. CPI-based adjustments are contingent on future events and are

W. P. Carey 2014 10-K – 89
 
Notes to Consolidated Financial Statements

therefore not included as minimum rent in straight-line rent calculations. We recognize rents from percentage rents as reported by the lessees, which is after the level of sales requiring a rental payment to us is reached. Percentage rents were insignificant for the periods presented.
 
We account for leases as operating or direct financing leases, as described below:
 
Operating leases — We record real estate at cost less accumulated depreciation; we recognize future minimum rental revenue on a straight-line basis over the non-cancelable lease term of the related leases and charge expenses to operations as incurred ( Note 5 ).
 
Direct financing method — We record leases accounted for under the direct financing method as a net investment ( Note 5 ). The net investment is equal to the cost of the leased assets. The difference between the cost and the gross investment, which includes the residual value of the leased asset and the future minimum rents, is unearned income. We defer and amortize unearned income to income over the lease term so as to produce a constant periodic rate of return on our net investment in the lease.
 
Investment Management Operations

We earn structuring revenue and asset management revenue in connection with providing services to the Managed REITs. We earn structuring revenue for services we provide in connection with the analysis, negotiation, and structuring of transactions, including acquisitions and dispositions and the placement of mortgage financing obtained by the Managed REITs. Asset management revenue consists of property management, leasing, and advisory revenue. Receipt of the incentive revenue portion of the asset management revenue or performance revenue, however, which we received from CPA ® :15 prior to the date of the CPA ® :15 Merger on September 28, 2012, was subordinated to the achievement of specified cumulative return requirements by the stockholders of those CPA ® REITs. At our option, the performance revenue could be collected in cash or shares of the CPA ®  REIT ( Note 4 ). In addition, we earn subordinated incentive and disposition revenue related to the disposition of properties. We may also earn termination revenue in connection with the termination of the advisory agreements for the Managed REITs.
 
We recognize all revenue as earned. We earn structuring revenue upon the consummation of a transaction and asset management revenue when services are performed. We recognize revenue subject to subordination only when the performance criteria of the Managed REIT is achieved and contractual limitations are not exceeded.
 
We earned subordinated disposition and incentive revenue from CPA ® :15 until the completion of the CPA ® :15 Merger on September 28, 2012 ( Note 4 ), through which its stockholders received their initial investment plus a specified preferred return. We may earn termination revenue if a liquidity event is consummated by any of the other Managed REITs. As a condition of the CPA ® :15 Merger and CPA ® :16 Merger, we waived the subordinated disposition and termination fees that we would have been entitled to receive from CPA ® :15 and CPA ® :16 – Global upon their liquidation pursuant to the terms of our advisory agreements with CPA ® :15 and CPA ® :16 – Global, respectively ( Note 4 ).
 
We are also reimbursed for certain costs incurred in providing services, including broker-dealer commissions paid on behalf of the Managed REITs, marketing costs, and the cost of personnel provided for the administration of the Managed REITs. We record reimbursement income as the expenses are incurred, subject to limitations on a Managed REIT’s ability to incur offering costs.
 
Depreciation
 
We compute depreciation of building and related improvements using the straight-line method over the estimated remaining useful lives of the properties (not to exceed 40 years ) and furniture, fixtures, and equipment (generally up to seven years ). We compute depreciation of tenant improvements using the straight-line method over the lesser of the remaining term of the lease or the estimated useful life.
 
Impairments
 
We periodically assess whether there are any indicators that the value of our long-lived real estate and related intangible assets, may be impaired or that their carrying value may not be recoverable. These impairment indicators include, but are not limited to, the vacancy of a property that is not subject to a lease; an upcoming lease expiration, a tenant with credit difficulty, or a likely disposition of the property. We may incur impairment charges on long-lived assets, including real estate, direct financing

W. P. Carey 2014 10-K – 90
 
Notes to Consolidated Financial Statements

leases, assets held for sale, and equity investments in real estate. We may also incur impairment charges on marketable securities and goodwill. Our policies for evaluating whether these assets are impaired are presented below.
 
Real Estate
 
For real estate assets held for investment, which include finite-lived intangibles, in which an impairment indicator is identified, we follow a two-step process to determine whether an asset is impaired and to determine the amount of the charge. First, we compare the carrying value of the property’s asset group to the estimated future net undiscounted cash flow that we expect the property’s asset group will generate, including any estimated proceeds from the eventual sale of the property’s asset group. The undiscounted cash flow analysis requires us to make our best estimate of market rents, residual values, and holding periods. We estimate market rents and residual values using market information from outside sources such as broker quotes or recent comparable sales. As our investment objective is to hold properties on a long-term basis, holding periods used in the undiscounted cash flow analysis are generally approximately ten years, but may be less if our intent is to hold a property for less than ten years. Depending on the assumptions made and estimates used, the future cash flow projected in the evaluation of long-lived assets and associated intangible assets can vary within a range of outcomes. We consider the likelihood of possible outcomes in determining our estimate of future cash flows and, if warranted, we apply a probability-weighted method to the different possible scenarios. If the future net undiscounted cash flow of the property’s asset group is less than the carrying value, the carrying value of property’s asset group is considered not recoverable. We then measure the impairment loss as the excess of the carrying value of the property’s asset group over its estimated fair value. The estimated fair value of the property’s asset group is primarily determined using market information from outside sources such as broker quotes or recent comparable sales. In cases where the available market information is not deemed appropriate, we perform a future net cash flow analysis discounted for inherent risk associated with each asset to determine an estimated fair value.
 
Direct Financing Leases
 
We review our direct financing leases at least annually to determine whether there has been an other-than-temporary decline in the current estimate of residual value of the property. The residual value is our estimate of what we could realize upon the sale of the property at the end of the lease term, based on market information. If this review indicates that a decline in residual value has occurred that is other-than-temporary, we recognize an impairment charge equal to the difference between the fair value and carrying amount of the residual value.

When we enter into a contract to sell the real estate assets that are recorded as direct financing leases, we evaluate whether we believe it is probable that the disposition will occur. If we determine that the disposition is probable we assess the carrying amount for recoverability and if as a result of the decreased expected cash flows we determine that our carrying value is not fully recoverable, we record an allowance for credit losses to reflect the change in the estimate of the future cash flows that includes rent. Accordingly, the net investment balance is written down to fair value. 

Assets Held for Sale
 
We classify real estate assets that are accounted for as operating leases as held for sale when we have entered into a contract to sell the property, all material due diligence requirements have been satisfied, and we believe it is probable that the disposition will occur within one year. When we classify an asset as held for sale, we compare the asset’s fair value less estimated cost to sell to its carrying value, and if the fair value less estimated cost to sell is less than the property’s carrying value, we reduce the carrying value to the fair value less estimated cost to sell. We will continue to review the property for subsequent changes in the fair value, and may recognize an additional impairment charge, if warranted.
 
Equity Investments in Real Estate and the Managed REITs
 
We evaluate our equity investments in real estate and in the Managed REITs on a periodic basis to determine if there are any indicators that the value of our equity investment may be impaired and whether or not that impairment is other-than-temporary. To the extent an impairment has occurred and is determined to be other-than-temporary, we measure the charge as the excess of the carrying value of our investment over its estimated fair value, which is determined by calculating our share of the estimated fair market value of the underlying net assets based on the terms of the applicable partnership or joint venture agreement. For our equity investments in real estate, we calculate the estimated fair value of the underlying investment’s real estate or net investment in direct financing lease as described in Real Estate and Direct Financing Leases above. The fair value of the underlying investment’s debt, if any, is calculated based on market interest rates and other market information. The fair value of the underlying investment’s other financial assets and liabilities (excluding net investment in direct financing leases) have fair values that generally approximate their carrying values. For certain investments in the Managed REITs, we calculate the estimated fair value of our investment using the most recently published net asset value per share of each Managed REIT,

W. P. Carey 2014 10-K – 91
 
Notes to Consolidated Financial Statements

which for CPA ® :18 – Global is deemed to be the most recent public offering price through December 31, 2014, multiplied by the number of shares owned.
 
Goodwill
 
We evaluate goodwill for possible impairment at least annually or upon the occurrence of a triggering event using a two-step process. A triggering event is an event or circumstance that would more likely than not reduce the fair value of a reporting unit below its carrying amount, including sales of properties defined as businesses for which the relative size of the sold property is significant to the reporting unit, that could impact our goodwill impairment calculations. To identify any impairment, we first compare the estimated fair value of each of our reporting units with their respective carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, we do not consider goodwill to be impaired and no further analysis is required. If the carrying amount of the reporting unit exceeds its estimated fair value, we then perform the second step to determine and measure the amount of the potential impairment charge.

We calculate the estimated fair value of the Investment Management reporting unit by applying a price-to-EBITDA multiple to earnings. For the Real Estate Ownership reporting unit, we calculate its estimated fair value by applying an AFFO multiple. For both reporting units, the multiples are based on comparable companies. The selection of the comparable companies to be used in our evaluation process could have a significant impact on the fair value of our reporting units and possible impairments. The testing did not indicate any goodwill impairment as each of the reporting units with goodwill had fair value that was substantially in excess of the carrying value.
 
For the second step, if it were required, we compare the implied fair value of the goodwill for each reporting unit with its respective carrying amount and record an impairment charge equal to the excess of the carrying amount over the implied fair value. We would determine the implied fair value of the goodwill by allocating the estimated fair value of the reporting unit to its assets and liabilities. The excess of the estimated fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of the goodwill.
 
The goodwill recorded in our Investment Management reporting unit is evaluated in the fourth quarter of every year. In connection with the CPA ® 16: Merger and the CPA ® :15 Merger, we recorded goodwill in our Real Estate Ownership reporting unit. Prior to the CPA ® :15 Merger, there was no goodwill recorded in our Real Estate Ownership reporting unit. We perform our annual impairment test for goodwill in our Real Estate Ownership reporting unit during the fourth quarter of each year.

Stock-Based Compensation
 
We have granted restricted shares, or RSAs, stock options, RSUs, and PSUs to certain employees and independent directors. Grants were awarded in the name of the recipient subject to certain restrictions of transferability and a risk of forfeiture. Stock-based compensation expense for all equity-classified stock-based compensation awards is based on the grant date fair value estimated in accordance with current accounting guidance for share-based payments. We recognize these compensation costs for only those shares expected to vest on a straight-line or graded-vesting basis, as appropriate, over the requisite service period of the award. We include stock-based compensation within the listed shares caption of equity.

Foreign Currency
 
Translation
 
We have interests in real estate investments primarily in the European Union and United Kingdom for which the functional currency is the euro and the British pound sterling, respectively. We perform the translation from the euro or the British pound sterling to the U.S. dollar for assets and liabilities using current exchange rates in effect at the balance sheet date and for revenue and expense accounts using a weighted-average exchange rate during the year. We report the gains and losses resulting from such translation as a component of other comprehensive income in equity. These translation gains and losses are released to net income when we have substantially exited from all investments in the related currency.
 

W. P. Carey 2014 10-K – 92
 
Notes to Consolidated Financial Statements

Transaction Gains or Losses
 
A transaction gain or loss (measured from the transaction date or the most recent intervening balance sheet date, whichever is later), realized upon settlement of a foreign currency transaction generally will be included in net income for the period in which the transaction is settled. Also, foreign currency intercompany transactions that are scheduled for settlement, consisting primarily of accrued interest and the translation to the reporting currency of subordinated intercompany debt with scheduled principal payments, are included in the determination of net income.
 
Intercompany foreign currency transactions of a long term nature (that is, settlement is not planned or anticipated in the foreseeable future), in which the entities to the transactions are consolidated or accounted for by the equity method in our consolidated financial statements, are not included in net income but are reported as a component of other comprehensive income in equity.
 
Net realized gains or (losses) are recognized on foreign currency transactions in connection with the transfer of cash from foreign operations of subsidiaries to the parent company. For the years ended December 31, 2014 , 2013 , and 2012 , we recognized net realized losses on such transactions of $ 0.4 million , $ 0.2 million , and $ 0.6 million , respectively.
 
Derivative Instruments
 
We measure derivative instruments at fair value and record them as assets or liabilities, depending on our rights or obligations under the applicable derivative contract. Derivatives that are not designated as hedges must be adjusted to fair value through earnings. For a derivative designated and qualified as a cash flow hedge, the effective portion of the change in fair value of the derivative is recognized in Other comprehensive (loss) income until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value is immediately recognized in earnings. For a derivative designated and that qualified as a net investment hedge, the effective portion of the change in the fair value and/or the net settlement of the derivative are reported in Other comprehensive (loss) income as part of the cumulative foreign currency translation adjustment. The ineffective portion of the change in fair value of the derivative is recognized directly in earnings. Amounts are reclassified out of Other comprehensive (loss) income into earnings when the hedged investment is either sold or substantially liquidated.
 
We use the portfolio exception in Accounting Standards Codification, 820-10-35-18D, Application to Financial Assets and Financial Liabilities with Offsetting Positions in Market Risk or Counterparty Credit Risk , the “portfolio exception,” with respect to measuring counterparty credit risk for all of our derivative transactions subject to master netting arrangements.
 
Income Taxes

We have elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code. In order to maintain our qualification as a REIT, we are required, among other things, to distribute at least 90% of our REIT net taxable income to our stockholders and meet certain tests regarding the nature of our income and assets. As a REIT, we are not subject to federal income taxes on our income and gains that we distribute to our stockholders as long as we satisfy certain requirements, principally relating to the nature of our income and the level of our distributions, as well as other factors. We believe that we have operated, and we intend to continue to operate, in a manner that allows us to continue to qualify as a REIT.

We conduct business in various states and municipalities within the United States, Europe, and Asia and, as a result, we or one or more of our subsidiaries file income tax returns in the United States federal jurisdiction and various state and certain foreign jurisdictions. As a result, we are subject to certain foreign, state, and local taxes and a provision for such taxes is included in the consolidated financial statements.

We elect to treat certain of our corporate subsidiaries as TRSs. In general, a TRS may perform additional services for our tenants and generally may engage in any real estate or non-real estate-related business (except for the operation or management of health care facilities or lodging facilities or providing to any person, under a franchise, license or otherwise, rights to any brand name under which any lodging facility or health care facility is operated). A TRS is subject to corporate federal income tax. One of our TRS subsidiaries owns a hotel that is managed on our behalf by a third-party hotel management company.


W. P. Carey 2014 10-K – 93
 
Notes to Consolidated Financial Statements

Deferred income taxes are recorded for the corporate subsidiaries TRS and for the foreign taxes in those respective jurisdictions based on earnings reported. The current provision for income taxes differs from the amounts currently payable because of temporary differences in the recognition of certain income and expense items for financial reporting and tax reporting purposes. Deferred income taxes are computed under the asset and liability method. The asset and liability method requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between tax bases and financial bases of assets and liabilities ( Note 15 ).

Significant judgment is required in determining our tax provision and in evaluating our tax positions. We establish tax reserves based on a benefit recognition model, which we believe could result in a greater amount of benefit (and a lower amount of reserve) being initially recognized in certain circumstances. Provided that the tax position is deemed more likely than not of being sustained, we recognize the largest amount of tax benefit that is greater than 50 percent likely of being ultimately realized upon settlement. We derecognize the tax position when it is no longer more likely than not of being sustained.

Our earnings and profits, which determine the taxability of distributions to stockholders, differ from net income reported for financial reporting purposes due primarily to differences in depreciation, including hotel properties, and timing differences of rent recognition and certain expense deductions, for federal income tax purposes. Deferred income taxes relate primarily to our TRSs and foreign properties and are accounted for using the asset and liability method. Under this method, deferred income taxes are recognized for temporary differences between the financial reporting bases of assets and liabilities of our TRSs and their respective tax bases and for their operating loss and tax credit carry forwards based on enacted tax rates expected to be in effect when such amounts are realized or settled. However, deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based on consideration of available evidence, including tax planning strategies and other factors.

Deferred Income Taxes
 
We recognize deferred income taxes in certain of our subsidiaries taxable in the United States or in foreign jurisdictions. Deferred income taxes are generally the result of temporary differences (items that are treated differently for tax purposes than for U.S. GAAP purposes as described in Note 15 ). In addition, deferred tax assets arise from unutilized tax net operating losses, generated in prior years. We provide a valuation allowance against our deferred income tax assets when we believe that it is more likely than not that all or some portion of the deferred income tax asset may not be realized. Whenever a change in circumstances causes a change in the estimated realizability of the related deferred income tax asset, the resulting increase or decrease in the valuation allowance is included in deferred income tax expense (benefit).

Real Estate Ownership Operations
 
We derive most of our REIT income from our real estate operations under our Real Estate Ownership segment. As such, our real estate operations are generally not subject to federal tax, and accordingly, no provision has been made for U.S. federal income taxes in the consolidated financial statements for these operations. These operations may be subject to certain state, local, and foreign taxes, as applicable.
 
Investment Management Operations
 
We conduct our Investment Management operations primarily through TRSs. These operations are subject to federal, state, local, and foreign taxes, as applicable. Our financial statements are prepared on a consolidated basis including these TRSs and include a provision for current and deferred taxes on these operations.

Earnings Per Share
 
Basic earnings per share is calculated by dividing net income available to common stockholders, as adjusted for unallocated earnings attributable to the unvested RSUs and RSAs by the weighted-average number of shares of common stock outstanding during the year. Diluted earnings per share reflects potentially dilutive securities (options and PSUs) using the treasury stock method, except when the effect would be anti-dilutive.
 

W. P. Carey 2014 10-K – 94
 
Notes to Consolidated Financial Statements

Recent Accounting Requirements
 
The following Accounting Standards Updates, or ASUs, promulgated by the Financial Accounting Standard Board are applicable to us:
 
ASU 2015-02, Consolidation (Topic 810) . ASU 2015-02 changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. Specifically, ASU 2015-02 modifies the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities, eliminates the presumption that a general partner should consolidate a limited partnership, and affects the evaluation of fee arrangements in the primary beneficiary determination. ASU 2015-02 is effective for periods beginning after December 15, 2015 and early adoption is permitted. We are currently evaluating the impact of ASU 2015-02 on our consolidated financial statements.

ASU 2014-12, Compensation — Stock Compensation (Topic 718). ASU 2014-12 provides guidance on share-based payment awards, in which a performance target that affects vesting and that could be achieved after the requisite vesting period be treated as a performance condition. ASU 2014-12 is effective for periods beginning after December 15, 2015 and early adoption is permitted. We are currently evaluating the impact of ASU 2014-12 on our consolidated financial statements.

ASU 2014-09 , Revenue from Contracts with Customers (Topic 606) . ASU 2014-09 is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. ASU 2014-09 does not apply to our lease revenues, but will apply to sales of real estate, reimbursed tenant costs and revenues generated from our operating properties and our Investment Management business. Additionally, this guidance modifies disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. ASU 2014-09 is effective beginning in 2017, and early adoption is not permitted. In adopting ASU 2014-09, companies may use either a full retrospective or a modified retrospective approach. We are currently evaluating the impact of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which we will adopt the standard in 2017.

ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360) . ASU 2014-08 changes the requirements for reporting discontinued operations. A discontinued operation may include a component of an entity or a group of components of an entity, or a business. Under this new guidance, a disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a “strategic shift that has or will have a major effect on an entity’s operations and financial results.” The new guidance also requires disclosures including pre-tax profit or loss and significant gains or losses arising from dispositions that represent an “individually significant component of an entity,” but do not meet the criteria to be reported as discontinued operations under ASU 2014-08. In the ordinary course of business we sell properties, which, under prior accounting guidance, we generally reported as discontinued operations; however, under ASU 2014-08 such property dispositions typically would not meet the criteria to be reported as discontinued operations. We elected to early adopt ASU 2014-08 prospectively for all dispositions after December 31, 2013. Consequently, individually significant properties that were sold or classified as held-for-sale during 2014 were not reclassified to discontinued operations in the consolidated financial statements, but have been disclosed in Note 16 to the consolidated financial statements. By contrast, and as required by the new guidance, the results for the current and prior year periods reflect as discontinued operations in the consolidated financial statements all dispositions and assets classified as held-for-sale through December 31, 2013 that were deemed under the prior accounting guidance to be discontinued operations, as well as those assets classified as held-for-sale as part of the CPA ® :16 Merger. This ASU did not have a significant impact on our financial position or results of operations for any of the periods presented.

ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit when a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. ASU 2013-11 requires an entity to present an unrecognized tax benefit relating to a net operating loss carryforward, a similar tax loss or a tax credit carryforward as a reduction to a deferred tax asset except in certain situations. To the extent the net operating loss carryforward, similar tax loss or tax credit carryforward is not available as of the reporting date under the governing tax law to settle any additional income taxes that would result from the disallowance of the tax position, or the governing tax law does not require the entity to use and the entity does not intend to use the deferred tax asset for such purpose, the unrecognized tax benefit should be presented as a liability and should not net with a deferred tax asset. ASU 2013-11 became effective for us at the beginning of 2014. The adoption of ASU 2013-11 did not have a material impact on our financial condition or results of operations ( Note 15 ).

Out-of-Period Adjustments

In 2013, we identified an error in the consolidated financial statements related to accounting for deferred foreign income taxes in connection with the initial acquisition accounting for 95 properties acquired in the CPA ® :15 Merger and seven other

W. P. Carey 2014 10-K – 95
 
Notes to Consolidated Financial Statements

properties acquired during 2000-2013 ( Note 15 ). We concluded that this adjustment was not material to our financial position or results of operations for 2013 or any of the prior periods. As such, in 2013 we recorded out-of-period adjustments of $ 2.3 million and $ 37.5 million to reflect the cumulative deferred tax assets and liabilities, respectively, associated with the initial basis differential that resulted from the tax-basis carry-over of these properties as well as an aggregate corresponding increase to total assets of $ 32.4 million , primarily comprised of $ 31.4 million to Goodwill and $ 1.0 million to Net investments in properties. Additionally, this adjustment resulted in a net decrease of $ 2.3 million to Net income, including primarily a deferred income tax expense of $ 2.0 million .

During 2012, we identified errors in the consolidated financial statements related to prior years. The errors were primarily attributable to the misapplication of guidance in accounting for and clerical errors related to the expropriation of land related to two investments and our reimbursement of certain affiliated costs. We concluded that these adjustments were not material, individually or in the aggregate, to our results for 2012 or any of the prior periods, and as such, in 2012 we recorded an out-of-period adjustment to increase our income from operations by $ 2.5 million within continuing operations primarily attributable to an increase in Gain on sale of real estate of $ 2.0 million in the consolidated statement of income.
 
Use of Estimates
 
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in our consolidated financial statements and the accompanying notes. Actual results could differ from those estimates.

Note 3. Mergers with CPA ® :16 – Global and CPA ® :15

Merger with CPA ® :16 – Global

On July 25, 2013, we and CPA ® :16 – Global entered into a definitive agreement pursuant to which CPA ® :16 – Global would merge with and into one of our wholly-owned subsidiaries, subject to the approval of our stockholders and the stockholders of CPA ® :16 – Global. On January 24, 2014, our stockholders and the stockholders of CPA ® :16 – Global each approved the CPA ® :16 Merger, and the CPA ® :16 Merger closed on January 31, 2014.

In the CPA ® :16 Merger, CPA ® :16 – Global stockholders received 0.1830 shares of our common stock in exchange for each share of CPA ® :16 – Global stock owned, pursuant to an exchange ratio based upon a value of $ 11.25 per share of CPA ® :16 – Global and the volume weighted-average trading price of our common stock for the five consecutive trading days ending on the third trading day preceding the closing of the transaction on January 31, 2014. CPA ® :16 – Global stockholders received cash in lieu of any fractional shares in the CPA ® :16 Merger. We paid total merger consideration of approximately $1.8 billion , including the issuance of 30,729,878 shares of our common stock with a fair value of $ 1.8 billion based on the closing price of our common stock on January 31, 2014, of $ 59.08 per share, to the stockholders of CPA ® :16 – Global in exchange for the 168,041,772 shares of CPA ® :16 – Global common stock that we and our affiliates did not previously own, and cash of $ 1.3 million paid in lieu of issuing any fractional shares. As a condition of the CPA ® :16 Merger, we waived the subordinated disposition and termination fees that we would have been entitled to receive from CPA ® :16 – Global upon its liquidation pursuant to the terms of our advisory agreement with CPA ® :16 – Global ( Note 4 ).

Immediately prior to the CPA ® :16 Merger, CPA ® :16 – Global’s portfolio was comprised of the consolidated full or partial interests in 325 leased properties, substantially all of which were triple-net leased with an average remaining life of 10.4 years and an estimated ABR, totaling $ 300.1 million , and two hotel properties. The related property-level debt was comprised of 92 fixed-rate and 18 variable-rate non-recourse mortgage loans with an aggregate fair value of approximately $ 1.8 billion and a weighted-average annual interest rate of 5.6% at that date. Additionally, CPA ® :16 – Global had a line of credit with an outstanding balance of $ 170.0 million on the date of the closing of the CPA ® :16 Merger ( Note 11 ). In addition, CPA ® :16 – Global had equity interests in 18 unconsolidated investments, 11 of which were consolidated by us prior to the CPA ® :16 Merger, five of which were consolidated by us subsequent to the CPA ® :16 Merger and two of which were jointly-owned with CPA ® :17 – Global. These investments owned 140 properties, substantially all of which were triple-net leased with an average remaining life of 8.6 years and an estimated ABR totaling $ 63.9 million , as of January 31, 2014. The debt related to these equity investments was comprised of 17 fixed-rate and five variable-rate non-recourse mortgage loans with an aggregate fair value of approximately $ 291.2 million and a weighted-average annual interest rate of 4.8% on January 31, 2014. The lease revenues and income from continuing operations from the properties acquired from the date of the CPA ® :16 Merger through December 31, 2014 were $ 251.5 million and $ 91.1 million (inclusive of $ 2.4 million attributable to noncontrolling interests).

During the year ended December 31, 2014 , we sold all ten of the properties that were classified as held-for-sale upon acquisition in connection with the CPA ® :16 Merger ( Note 16 ). The results of operations for these properties have been included
in Income from discontinued operations, net of tax in the consolidated financial statements. In addition, we sold one property subject to a direct financing lease that we acquired in the CPA ® :16 Merger ( Note 6 ). The results of operations for this property have been included in Income from continuing operations before income taxes in the consolidated financial statements.
 
Purchase Price Allocation

We accounted for the CPA ® :16 Merger as a business combination under the acquisition method of accounting. After consideration of all applicable factors pursuant to the business combination accounting rules, we were considered the “accounting acquirer” due to various factors, including the fact that our stockholders held the largest portion of the voting rights in us upon completion of the CPA ® :16 Merger. Costs of $ 30.5 million related to the CPA ® :16 Merger were expensed as incurred and classified within Merger and property acquisition expenses in the consolidated financial statements for the year ended December 31, 2014 . Costs of $ 5.0 million were incurred and classified within Merger and property acquisition expenses in the consolidated financial statements for the year ended December 31, 2013. In addition, CPA ® :16 – Global incurred a total of $ 10.6 million of merger expenses prior to the CPA ® :16 Merger.
 
Initially, the purchase price was allocated to the assets acquired and liabilities assumed, based upon their preliminary fair values at January 31, 2014. The fair values of the lease intangibles acquired were measured in a manner consistent with our purchase price allocation policy described in Note 2 . During 2014, we identified certain measurement period adjustments that impacted the provisional accounting, which increased the total consideration by $3.2 million , and also increased total identifiable net assets by $ 5.8 million and increased amounts attributable to noncontrolling interests by $ 0.3 million , resulting in a $ 2.3 million decrease in goodwill. The following table summarizes the fair values of the assets acquired and liabilities assumed in the acquisition.


W. P. Carey 2014 10-K – 96
 
Notes to Consolidated Financial Statements

(In thousands)
 
 
Initially Reported at March 31, 2014
 
Measurement Period Adjustments
 
As Revised at December 31, 2014
Total Consideration
 
 
 
 
 
 
Fair value of W. P. Carey shares of common stock issued
 
$
1,815,521

 
$
—

 
$
1,815,521

Cash consideration for fractional shares
 
1,338

 
—

 
1,338

Merger Consideration
 
1,816,859

 
—

 
1,816,859

Fair value of our equity interest in CPA ® :16 – Global prior to the CPA ® :16 Merger
 
347,164

 
2,585

 
349,749

Fair value of our equity interest in jointly-owned investments with CPA ® :16 – Global prior to the CPA ® :16 Merger
 
172,720

 
—

 
172,720

Fair value of noncontrolling interests acquired
 
(278,829
)
 
642

 
(278,187
)
 
 
$
2,057,914

 
$
3,227

 
$
2,061,141

Assets Acquired at Fair Value
 
 
 
 
 
 

Net investments in real properties
 
$
1,969,274

 
$
901

 
$
1,970,175

Net investments in direct financing leases
 
538,607

 
(382
)
 
538,225

Equity investments in real estate
 
74,367

 
—

 
74,367

Assets held for sale
 
132,951

 
464

 
133,415

In-place lease intangible assets
 
553,479

 
244

 
553,723

Above-market rent intangible assets
 
395,663

 
161

 
395,824

Cash and cash equivalents
 
65,429

 
—

 
65,429

Other assets, net
 
82,032

 
3,535

 
85,567

 
 
3,811,802

 
4,923

 
3,816,725

Liabilities Assumed at Fair Value
 
 
 
 
 
 

Non-recourse debt and line of credit
 
(1,768,288
)
 
—

 
(1,768,288
)
Accounts payable, accrued expenses and other liabilities
 
(118,389
)
 
—

 
(118,389
)
Below-market rent and other intangible liabilities
 
(57,209
)
 
(360
)
 
(57,569
)
Deferred tax liability
 
(59,629
)
 
1,282

 
(58,347
)
 
 
(2,003,515
)
 
922

 
(2,002,593
)
 
 
 
 
 
 


Total identifiable net assets
 
1,808,287

 
5,845

 
1,814,132

Amounts attributable to noncontrolling interests
 
(99,345
)
 
(288
)
 
(99,633
)
Goodwill
 
348,972

 
(2,330
)
 
346,642

 
 
$
2,057,914

 
$
3,227

 
$
2,061,141

 
Goodwill
 
The $ 346.6 million of goodwill recorded in connection with the CPA ® :16 Merger was primarily attributable to the premium we agreed to pay for CPA ® :16 – Global’s common stock at the time we entered into the merger agreement in July 2013. Management believes the premium is supported by several factors of the combined entity, including the fact that (i) it is among the largest publicly-traded commercial net-lease REITs with greater operating and financial flexibility and better access to capital markets and with a lower cost of capital than CPA ® :16 – Global had on a stand-alone basis; (ii) the CPA ® :16 Merger eliminated costs associated with the advisory structure that CPA ® :16 – Global had previously; and (iii) the combined portfolio has greater tenant and geographic diversification and an improved overall weighted-average debt maturity and interest rate. The aforementioned amount of goodwill attributable to the premium was partially offset by an increase in the fair value of the net assets through the date of the CPA ® :16 Merger.
 
The fair value of the 30,729,878 shares of our common stock issued in the CPA ® :16 Merger as part of the consideration paid for CPA ® :16 – Global of $ 1.8 billion was derived from the closing market price of our common stock on January 31, 2014. As required by GAAP, the fair value related to the assets acquired and liabilities assumed, as well as the shares exchanged, has

W. P. Carey 2014 10-K – 97
 
Notes to Consolidated Financial Statements

been computed as of the date we gained control of CPA ® :16 – Global, which was the closing date of the CPA ® :16 Merger, in a manner consistent with the methodology described above.
 
Goodwill acquired in the CPA ® :16 Merger is not deductible for income tax purposes.

Equity Investments and Noncontrolling Interests
 
During the first quarter of 2014, we recognized a gain on change in control of interests of approximately $ 73.1 million , which was the difference between the carrying value of approximately $ 274.1 million and the fair value of approximately $347.2 million of our previously-held equity interest in 38,229,294 shares of CPA ® :16 – Global’s common stock. During 2014, we identified certain measurement period adjustments that impacted the provisional accounting, which increased the estimated fair value of our previously-held equity interest in shares of CPA ® :16 – Global’s common stock by $ 2.6 million , resulting in an increase of $ 2.6 million in Gain on change in control of interests. In accordance with Accounting Standards Codification 805-10-25, we did not record the measurement period adjustments during the three months ended June 30, 2014. Rather, such amounts will be reflected in all future financial statements that include the three months ended March 31, 2014.
 
The CPA ® :16 Merger also resulted in our acquisition of the remaining interests in nine investments in which we already had a joint interest and accounted for under the equity method. Upon acquiring the remaining interests in these investments, we owned 100% of these investments and thus accounted for the acquisitions of these interests utilizing the purchase method of accounting. Due to the change in control of the nine jointly-owned investments that occurred, we recorded a gain on change in control of interests of approximately $ 30.2 million during, which was the difference between our carrying values and the fair values of our previously-held equity interests on January 31, 2014, of approximately $ 142.5 million and approximately $172.7 million , respectively. Subsequent to the CPA ® :16 Merger, we consolidate these wholly-owned investments. During the year ended December 31, 2014 , one of these investments was sold and is included in Income from discontinued operations, net of tax in the consolidated financial statements.
 
In connection with the CPA ® :16 Merger, we also acquired the remaining interests in 12 less-than-wholly-owned investments that we already consolidate and recorded an adjustment to additional paid-in-capital of approximately $ 42.0 million related to the difference between our carrying values and the fair values of our previously-held noncontrolling interests on January 31, 2014, of approximately $ 236.8 million and approximately $ 278.2 , respectively. During 2014, we identified certain measurement period adjustments that impacted the provisional accounting, which increased the fair value of our previously-held noncontrolling interests on January 31, 2014 by $0.6 million , resulting in a reduction of $ 0.6 million to additional paid-in-capital.

The fair values of our previously-held equity interests and our noncontrolling interests are based on the estimated fair market values of the underlying real estate and related mortgage debt, both of which were determined by management relying in part on a third party. Real estate valuation requires significant judgment. We determined the significant inputs to be Level 3 with ranges for the entire portfolio as follows:
 
•
Discount rates applied to the estimated net operating income of each property ranged from approximately 4.75% to 15.25% ;
•
Discount rates applied to the estimated residual value of each property ranged from approximately 4.75% to 14.00% ;
•
Residual capitalization rates applied to the properties ranged from approximately 5.00% to 12.50% ;
•
The fair market value of the property level debt was determined based upon available market data for comparable liabilities and by applying selected discount rates to the stream of future debt payments; and
•
Discount rates applied to the property level debt cash flows ranged from approximately 1.80% to 8.75% .
 
Other than for two investments, no illiquidity adjustments to the equity interests or noncontrolling interests were deemed necessary as the investments were generally held with affiliates and did not allow for unilateral sale or financing by any of the affiliated parties. With respect to the two investments, a discount of 5% was applied in deriving the value of such interest, reflecting the terms of the third-party jointly-owned investments in which the real estate interest is held. The discount and/or capitalization rates utilized in the appraisals also reflect the illiquidity of real estate assets. Lastly, there were no control premiums contemplated as the investments were in individual, or a portfolio of, underlying real estate and debt, as opposed to a business operation.


W. P. Carey 2014 10-K – 98
 
Notes to Consolidated Financial Statements

Pro Forma Financial Information (Unaudited)

The following unaudited consolidated pro forma financial information has been presented as if the CPA ® :16 Merger had occurred on January 1, 2013 for the years ended December 31, 2014 and 2013 . The pro forma financial information is not necessarily indicative of what the actual results would have been had the CPA ® :16 Merger occurred on that date, nor does it purport to represent the results of operations for future periods.

(In thousands, except share and per share amounts):
 
Years Ended December 31,
 
2014
 
2013
Pro forma total revenues
$
931,309

 
$
780,578

 
 
 
 
Pro forma net income from continuing operations, net of tax
$
139,698

 
$
146,525

Pro forma net (income) loss attributable to noncontrolling interests
(5,380
)
 
10,963

Pro forma net loss (income) attributable to redeemable noncontrolling interest
142

 
(1,909
)
Pro forma net income from continuing operations, net of tax attributable to W. P. Carey
$
134,460

 
$
155,579

 
 
 
 
Pro forma earnings per share: (a)
 
 
 
Basic
$
1.32

 
$
1.56

Diluted
$
1.31

 
$
1.54

 
 
 
 
Pro forma weighted-average shares outstanding: (b)
 
 
 
Basic
101,296,847

 
99,420,924

Diluted
102,360,038

 
100,437,886

___________
(a)
The pro forma income attributable to W. P. Carey for the year ended December 31, 2013 reflects the following income and expenses recognized related to the CPA ® :16 Merger as if the CPA ® :16 Merger had taken place on January 1, 2013: (i) combined merger expenses through December 31, 2014 ; (ii) an aggregate gain on change in control of interests of $105.9 million ; and (iii) an income tax expense of $ 4.8 million from a permanent difference upon recognition of taxable income associated with accelerated vesting of shares previously issued by CPA ® :16 – Global to us for asset management and performance fees in connection with the CPA ® :16 Merger.
(b)
The pro forma weighted-average shares outstanding for the years ended December 31, 2014 and 2013 were determined as if the 30,729,878 shares of our common stock issued to CPA ® :16 – Global stockholders in the CPA ® :16 Merger were issued on January 1, 2013.

Merger with CPA ® :15
 
On February 17, 2012, our predecessor, W. P. Carey & Co. LLC, and CPA ® :15 entered into a definitive agreement, or the CPA ® :15 Merger Agreement, pursuant to which CPA ® :15 would merge with and into W. P. Carey Inc. On September 28, 2012, CPA ® :15 merged with and into W. P. Carey Inc., with CPA ® :15 surviving as an indirect, wholly-owned subsidiary of W. P. Carey Inc. In the CPA ® :15 Merger, CPA ® :15’s stockholders received for each share of CPA ® :15’s common stock owned 0.2326 shares of W. P. Carey Inc. common stock, which equated to $11.40 per share of CPA ® :15 common stock based on the $49.00 per share closing price of W. P. Carey & Co. LLC’s shares on the New York Stock Exchange on that date, and $ 1.25 in cash for total consideration of $ 12.65 per share of CPA ® :15. We paid total merger consideration of $1.5 billion , including cash of $152.4 million and the issuance of 28,170,643 shares of our common stock with a fair value of $1.4 billion on September 28, 2012, or the 2012 Merger Consideration, to the stockholders of CPA ® :15 in exchange for 121,194,272 shares of CPA ® :15 common stock that we did not previously own. In order to fund the cash portion of the 2012 Merger Consideration, we drew down the full amount of our then existing $175.0 million Term Loan Facility ( Note 11 ). As a condition of the CPA ® :15 Merger, we waived the subordinated disposition and termination fees that we would have been entitled to receive from CPA ® :15 upon its liquidation pursuant to the terms of our advisory agreement with CPA ® :15 ( Note 4 ).
 
Immediately prior to the CPA ® :15 Merger, CPA ® :15’s portfolio was comprised of full or partial ownership interests in 305 properties, substantially all of which were triple-net leased to 76 tenants, and totaled approximately 27.0 million square feet, with an occupancy rate of approximately 99% . In the CPA ® :15 Merger, we acquired these properties and their related leases

W. P. Carey 2014 10-K – 99
 
Notes to Consolidated Financial Statements

with a weighted-average remaining life of 9.7 years. We also assumed the related property debt comprised of 58 fixed-rate and nine variable-rate non-recourse mortgage loans with a preliminary aggregate fair value of $ 1.2 billion and a weighted-average annual interest rate of 5.6% . During the period from January 1, 2012 through September 28, 2012, we earned $ 19.0 million in fees from CPA ® :15 and recognized $ 4.5 million in equity earnings based on our ownership of shares in CPA ® :15 prior to the CPA ® :15 Merger. The lease revenues and income from operations contributed from the properties acquired from the date of the CPA ® :15 Merger through December 31, 2012 were $ 57.3 million and $ 9.5 million (inclusive of $ 2.5 million attributable to noncontrolling interests), respectively.
 
We accounted for the CPA ® :15 Merger as a business combination under the acquisition method of accounting. After consideration of all applicable factors pursuant to the business combination accounting rules, we were considered the “accounting acquirer” due to various factors, including the fact that the shareholders of W. P. Carey & Co. LLC, our predecessor, held the largest portion of the voting rights in W. P. Carey Inc., upon completion of the CPA ® :15 Merger. Acquisition costs of $ 31.7 million related to the CPA ® :15 Merger have been expensed as incurred and classified within Merger and property acquisition expenses in the consolidated statements of income for the year ended December 31, 2012.
 
On September 19, 2012, we acquired a 52.63% ownership interest in Marcourt from an unrelated third party. At that time, CPA ® :15 held a 47.37% ownership interest in Marcourt. Marcourt owns 12 Marriott Courtyard hotels located throughout the United States that are leased to and operated by Marriott International, Inc. We obtained this investment in contemplation of the CPA ® :15 Merger and accounted for this step acquisition as part of the CPA ® :15 Merger. Accordingly, the assets acquired and liabilities assumed from Marcourt in this transaction are included in the table below.
 
Initially, the purchase price in the CPA ® :15 Merger was allocated to the assets acquired and liabilities assumed, based upon their preliminary fair values. The fair values of the lease intangibles acquired were measured in a manner consistent with our purchase price allocation policy described in Note 2 . During the fourth quarter of 2012, we identified certain measurement period adjustments that impacted the provisional accounting, which increased the fair value of the identifiable real estate acquired and the noncontrolling interests acquired by $5.6 million and $0.7 million , respectively, resulting in a $6.3 million reduction in goodwill. The following table summarizes the fair values of the assets acquired and liabilities assumed in the acquisition.
 

W. P. Carey 2014 10-K – 100
 
Notes to Consolidated Financial Statements

(In thousands):
Total Consideration
 
 

Fair value of W. P. Carey shares of common stock issued
 
$
1,380,362

Cash consideration paid
 
152,356

Merger Consideration
 
1,532,718

Fair value of our equity interest in CPA ® :15 prior to the CPA ® :15 Merger
 
107,147

Fair value of our equity interest in jointly-owned investments with CPA ® :15 prior to the CPA ® :15 Merger
 
54,822

 
 
$
1,694,687

Assets Acquired at Fair Value
 
 

Net investment in properties
 
$
1,762,872

Net investment in direct financing leases
 
315,789

Equity investments in real estate
 
166,247

Intangible assets ( Note 8 )
 
695,310

Cash and cash equivalents
 
178,945

Other assets
 
81,750

 
 
3,200,913

Liabilities Assumed at Fair Value
 
 

Non-recourse debt
 
(1,350,755
)
Below-market rent and other intangible liabilities
 
(102,155
)
Accounts payable, accrued expenses and other liabilities
 
(84,640
)
 
 
(1,537,550
)
 
 
 
Total identifiable net assets
 
1,663,363

Amounts attributable to noncontrolling interests
 
(237,359
)
Goodwill
 
268,683

 
 
$
1,694,687

 
Goodwill
 
Two items comprise a majority of the $268.7 million of goodwill recorded in the CPA ® :15 Merger. First, at the time we entered into the CPA ® :15 Merger Agreement, the market value of our stock was $ 45.07 per share. The increase in the market value of our stock of $ 3.93 per share from the date of the CPA ® :15 Merger Agreement to $49.00 per share on the transaction date gave rise to approximately $ 110.8 million of the goodwill recorded, based on the fixed amount of 28,170,643 shares issued. Second, at the time we entered into the CPA ® :15 Merger Agreement, the consideration represented a premium we agreed to pay for CPA ® :15’s common stock. Management believes that the premium was supported by several factors of the combined entity, including the fact that (i) as a result of the CPA ® :15 Merger, we became one of the largest publicly-traded REITs, with greater operating and financial flexibility and better access to capital markets and with a lower cost of capital than CPA ® :15 had on a stand-alone basis; (ii) the CPA ® :15 Merger eliminated costs associated with the advisory structure that CPA ® :15 had previously; and (iii) the combined portfolio has greater tenant and geographic diversification and an improved overall weighted-average debt maturity and interest rate than either company had on a stand-alone basis. Based on the number of CPA ® :15 shares ultimately exchanged of 121,194,272 , this premium comprised approximately $121.2 million of the goodwill. In addition to these factors, since the September 30, 2011 valuation date there was a reduction in the fair value of CPA ® :15’s net assets primarily attributable to the impact of foreign currency exchange rates during the period from September 30, 2011 to September 28, 2012.
 
The fair value of our 28,170,643 common shares issued in the CPA ® :15 Merger as part of the consideration paid for CPA ® :15 of $1.5 billion was derived from the closing market price of our common stock on September 28, 2012. As required by GAAP, the fair value related to the assets acquired and liabilities assumed, as well as the shares exchanged, has been computed as of the date we gained control, which was the closing date of the CPA ® :15 Merger, in a manner consistent with the methodology described above.
 
Goodwill is not deductible for income tax purposes.

W. P. Carey 2014 10-K – 101
 
Notes to Consolidated Financial Statements

 
Equity Investments and Noncontrolling Interests
 
Additionally, we recognized a gain on change in control of interests of $14.7 million for the year ended December 31, 2012 related to the difference between the carrying value of $92.4 million and the fair value of $107.1 million of our previously-held equity interest in 10,389,079 shares of CPA ® :15’s common stock.
 
The CPA ® :15 Merger also resulted in our acquisition of the remaining interests in four investments in which we already had a joint interest and accounted for under the equity method ( Note 7 ). Upon acquiring the remaining interests in these investments, we owned 100% of these investments and thus accounted for these acquisitions as step acquisitions utilizing the purchase method of accounting. Due to the change in control of the four jointly-owned investments that occurred, we recorded an aggregate gain of approximately $ 6.1 million related to the difference between our carrying values and the fair values of our previously-held equity interests on September 28, 2012, of $ 48.7 million and $54.8 million , respectively. Subsequent to the CPA ® :15 Merger, we consolidate these wholly-owned investments.
 
The fair values of our previously-held equity interests and our noncontrolling interests were based on the estimated fair market values of the underlying real estate and mortgage debt, both of which were determined by management relying in part on a third party. Real estate valuation requires significant judgment. We determined the significant inputs to be Level 3 with ranges for the entire portfolio as follows:
 
•
Discount rates applied to the estimated net operating income of each property ranged from approximately 3.50% to 14.75% ;
•
Discount rates applied to the estimated residual value of each property ranged from approximately 5.75% to 12.50% ;
•
Residual capitalization rates applied to the properties ranged from approximately 7.00% to 11.50% .
•
The fair market value of such property level debt was determined based upon available market data for comparable liabilities and by applying selected discount rates to the stream of future debt payments; and
•
Discount rates applied to cash flows ranged from approximately 2.70% to 10.00% .
 
No illiquidity adjustments to the equity interests or noncontrolling interests were deemed necessary as the investments are held with affiliates and do not allow for unilateral sale or financing by any of the affiliated parties. Furthermore, the discount and/or capitalization rates utilized in the appraisals also reflect the illiquidity of real estate assets. Lastly, there were no control premiums contemplated as the investments were in individual, or a portfolio of, underlying real estate and debt, as opposed to a business operation.

Pro Forma Financial Information (Unaudited)
 
The following consolidated pro forma financial information has been presented as if the CPA ® :15 Merger, including the acquisition of Marcourt, had occurred on January 1, 2011 for the year ended December 31, 2012 . The pro forma financial information is not necessarily indicative of what the actual results would have been had the CPA ® :15 Merger occurred on that date, nor does it purport to represent the results of operations for future periods.


W. P. Carey 2014 10-K – 102
 
Notes to Consolidated Financial Statements

(In thousands, except share and per share amounts):
 
Year Ended
 
December 31, 2012
Pro forma total revenues
$
512,822

Pro forma net income from continuing operations, net of tax attributable to W. P. Carey
$
138,157

 
 
Pro forma earnings per share:
 
Basic
$
2.00

Diluted
$
1.98

 
 
Pro forma weighted-average shares outstanding: (a)
 
Basic
68,382,378

Diluted
69,071,391

___________
(a)
The pro forma weighted average shares outstanding for the year ended December 31, 2012 were determined as if the 28,170,643 shares of our common stock issued to CPA ® :15 stockholders in the CPA ® :15 Merger were issued on January 1, 2011.

Note 4. Agreements and Transactions with Related Parties
 
Advisory Agreements with the Managed REITs
 
We have advisory agreements with each of the Managed REITs, pursuant to which we earn fees and are entitled to receive cash distributions. The following tables present a summary of revenue earned and/or cash received from the Managed REITs, as well as from CPA ® :15 for the periods indicated, included in the consolidated financial statements (in thousands):
 
Years Ended December 31,
 
2014
 
2013
 
2012
Reimbursable costs from affiliates
$
130,212

 
$
73,592

 
$
97,638

Structuring revenue
71,256

 
46,589

 
48,355

Asset management revenue (a)
37,970

 
42,579

 
56,576

Distributions of Available Cash
31,052

 
34,121

 
30,009

Dealer manager fees
23,532

 
10,856

 
19,914

Deferred revenue earned
786

 
8,492

 
8,492

Interest income on deferred acquisition fees and loans to affiliates
684

 
949

 
1,064

Incentive, termination and subordinated disposition revenue
—

 
199

 
—

 
$
295,492

 
$
217,377

 
$
262,048

 
Years Ended December 31,
 
2014
 
2013
 
2012
CPA ® :15 (b)
$
—

 
$
—

 
$
21,593

CPA ® :16 – Global (c)
7,999

 
53,166

 
50,929

CPA ® :17 – Global (d)
68,710

 
69,275

 
174,192

CPA ® :18 – Global (d)
129,642

 
29,293

 
—

CWI (d)
89,141

 
65,643

 
15,334

 
$
295,492

 
$
217,377

 
$
262,048

  ___________
(a)
Excludes amounts received from third parties.
(b)
CPA ® :15 merged with and into us on September 28, 2012.

W. P. Carey 2014 10-K – 103
 
Notes to Consolidated Financial Statements

(c)
Upon completion of the CPA ® :16 Merger on January 31, 2014, the advisory agreement with CPA ® :16 – Global terminated. Pursuant to the terms of the merger agreement, the incentive or termination fee that we would have been entitled to receive from CPA ® :16 – Global pursuant to the terms of its advisory agreement was waived upon the completion of the CPA ® :16 Merger. The amount shown for the year ended December 31, 2014 reflects transactions through January 31, 2014.
(d)
The advisory agreements with each of the CPA ® REITs are scheduled to expire on December 31, 2015 and the advisory agreement with CWI is scheduled to expire on September 30, 2015 unless otherwise renewed.

The following table presents a summary of amounts Due from affiliates (in thousands):
 
December 31,
 
2014
 
2013
Deferred acquisition fees receivable
$
26,913

 
$
19,684

Organization and offering costs
2,120

 
2,700

Accounts receivable
2,680

 
3,716

Current acquisition fees receivable
2,463

 
4,149

Reimbursable costs
301

 
334

Asset management fee receivable
—

 
1,451

 
$
34,477

 
$
32,034


Asset Management Revenue
 
We earn asset management revenue from each Managed REIT, which is based on average invested assets and is calculated according to the respective advisory agreement. For CPA ® :15, prior to the CPA ® :15 Merger, this revenue generally totaled 1.0% per annum, with a portion of this revenue, or 0.5% , contingent upon the achievement of specific performance criteria. For CPA ® :16 – Global subsequent to the CPA ® :16 Merger, we earned asset management revenue of 0.5% of average invested assets. For CPA ® :17 – Global and CPA ® :18 – Global, we earn asset management revenue ranging from 0.5% to 1.75% and 0.5% to 1.5% , respectively, depending on the type of investment and based on the average market value or average equity value, as applicable. For CWI, we earn asset management revenue of 0.5% of the average market value of lodging-related investments.
 
For the periods presented, under the terms of the advisory agreements we may elect to receive cash or shares of stock for asset management revenue due from each Managed REIT. Starting in 2015, the independent directors of the CPA ® REITs have the right to approve, upon our recommendation, paying the annual asset management fees due to us in cash, shares of stock, or a combination of both. In 2014 and 2013, we elected to receive all asset management revenue from CPA ® :17 – Global, CPA ® :18 – Global, and CWI in their respective shares. For 2013, we initially elected to receive asset management revenue from CPA ® :16 – Global in its shares until we agreed to receive those fees in cash commencing August 1, 2013 at the request of a Special Committee of the Board of Directors of CPA ® :16 – Global. In 2012, we elected to receive all asset management revenue from CPA ® :15 prior to the CPA ® :15 Merger in cash, while for CPA ® :16 – Global, we elected to receive 50% of asset management revenue in its shares with the remaining 50% payable in cash. For CPA ® :17 – Global and CWI, we elected to receive asset management revenue in 2012 in their shares.
 
Structuring Revenue
 
Under the terms of the advisory agreements, we earn revenue in connection with structuring and negotiating investments and related financing for the Managed REITs, which we call acquisition revenue. We may receive acquisition revenue of 4.5% of the total aggregate cost of long-term, net-lease investments made by each CPA ® REIT. A portion of this revenue (generally 2.5% ) is paid when the transaction is completed, while the remainder (generally 2.0% ) is paid in annual installments over three years , provided the relevant CPA ® REIT meets its performance criterion. For certain types of non-long term, net-lease investments acquired on behalf of CPA ® :17 – Global, initial acquisition revenue may range from 0% to 1.75% of the equity invested plus the related acquisition revenue, with no deferred acquisition revenue being earned. For CWI, we earn initial acquisition revenue of 2.5% of the total investment cost of the properties acquired and loans originated by CWI, with no deferred acquisition revenue being earned. Total acquisition revenue from the Managed REITs cannot exceed 6% of the aggregate contract purchase price of all investments and loans. For CWI, we may also be entitled to fees for structuring loan refinancing transactions of up to 1.0% of the principal amount. This loan refinancing revenue, together with the acquisition revenue, is referred to as structuring revenue.


W. P. Carey 2014 10-K – 104
 
Notes to Consolidated Financial Statements

Unpaid deferred acquisition fees, including accrued interest, are included in Due from affiliates in the consolidated financial statements. Unpaid deferred acquisition fees bear interest at annual rates ranging from 2% to 5% .

Reimbursable Costs from Affiliates and Dealer Manager Fees
 
The Managed REITs reimburse us for certain costs we incur on their behalf, primarily broker-dealer commissions, marketing costs, a Shareholder Servicing Fee, and certain personnel and overhead costs. Since October 1, 2012, personnel and overhead costs have been charged to the CPA ®  REITs based on the average of the trailing 12-month reported revenues of the CPA ® REITs, CWI, and us. We began to allocate personnel and overhead costs to CWI on January 1, 2014 based on the time incurred by our personnel. For 2014, we agreed to receive personnel cost reimbursements from CWI in shares of its common stock.

During CWI’s initial public offering, which was closed in September 2013, we earned a selling commission of $ 0.70 per share sold and a dealer manager fee of $ 0.30 per share sold. We also earned a selling commission of $0.70 per share sold and a dealer manager fee of $0.30 per share sold for CWI’s follow-on offering, which began in December 2013 and was closed in December 2014. We also earned a selling commission of $0.65 per share sold and a dealer manager fee of $0.35 per share sold during CPA ® :17 – Global’s follow-on offering, which was closed in January 2013.

For CPA ® :18 – Global’s initial public offering, we receive selling commissions, depending on the class of common stock sold, of $ 0.70 or $ 0.14 per share sold, and a dealer manager fee of $ 0.30 or $ 0.21 per share sold, for its class A common stock and class C common stock, respectively. CPA ® :18 – Global completed sales of its class A common stock during June 2014. We also receive a Shareholder Servicing Fee paid in connection with investor purchases of shares of class C common stock. The amount of the Shareholder Servicing Fee is 1.0% of the purchase price per share (or, once reported, the amount of the estimated net asset value per share) for the shares of class C common stock sold in the offering. The Shareholder Servicing Fee is accrued daily and is payable quarterly in arrears. CPA ® :18 – Global will cease paying the Shareholder Servicing Fee on the date at which, in the aggregate, underwriting compensation from all sources, including the Shareholder Servicing Fee, any organizational and offering fee paid for underwriting, and underwriting compensation paid by us, equals 10% of the gross proceeds from the initial public offering.

We re-allow all of the selling commissions and may re-allow a portion of the dealer manager fees to selected dealers in the offerings for CWI and CPA ® :18 – Global. Dealer manager fees that are not re-allowed and Shareholder Servicing Fees are classified as Dealer manager fees in the consolidated financial statements.

Prior to the CPA ® :16 Merger, we also received a commission of 5% of the distribution amount from CPA ® :16 – Global pursuant to its distribution reinvestment and stock purchase plan. In March 2012, CPA ® :16 – Global amended its dividend reinvestment and stock purchase plan to remove the commission and issue shares through the plan at 95% of its most recently published net asset value per share. We no longer received commissions on the shares issued pursuant to its distribution reinvestment and stock purchase plan from CPA ® :16 – Global after the amendment.

Pursuant to its advisory agreement, CWI is obligated to reimburse us for all organization costs and a portion of offering costs incurred in connection with its initial and follow-on public offerings up to a maximum amount (excluding selling commissions and the dealer manager fee) of 2% and 4% , respectively, of the gross proceeds of its offering and distribution reinvestment plan. Through December 31, 2014 , we incurred organization and offering costs on behalf of CWI of approximately $ 12.8 million , which CWI is obligated to reimburse us, of which $ 12.5 million had been reimbursed as of December 31, 2014 .

Pursuant to its advisory agreement, CPA ® :18 – Global is obligated to reimburse us for all organization costs and a portion of offering costs incurred in connection with its initial public offering. CPA ® :18 – Global is obligated to reimburse us up to 1.5% of the gross proceeds within 60 days after the end of the quarter in which the offering terminates. Through December 31, 2014 , we incurred organization and offering costs on behalf of CPA ® :18 – Global of approximately $ 8.1 million , and based on current fundraising projections, the entire amount is expected to be reimbursed by CPA ® :18 – Global. As of December 31, 2014 , $7.9 million had been reimbursed.
 
Distributions of Available Cash and Deferred Revenue Earned
 
We are entitled to receive distributions of up to 10% of Available Cash from the operating partnerships of each of the Managed REITs, as defined in their respective operating partnership agreements. In May 2011, we acquired the Special Member Interest in CPA ® :16 – Global’s operating partnership. We initially recorded this Special Member Interest at its fair value, and amortized it into earnings through the date of the CPA ® :16 Merger. Cash distributions of our proportionate share of earnings from the Managed REITs’ operating partnerships as well as deferred revenue earned from our Special Member Interest in CPA ® :16 –

W. P. Carey 2014 10-K – 105
 
Notes to Consolidated Financial Statements

Global’s operating partnership are recorded as Equity in earnings of equity method investments in real estate and the Managed REITs within the Real Estate Ownership segment.
 
Incentive, Termination and Subordinated Disposition Revenue

We earn revenue related to the disposition of properties by the Managed REITs, subject to subordination provisions, which will only be recognized as the relevant conditions are met. Such revenue may include subordinated disposition revenue of no more than 3% of the value of any assets sold, payable only after stockholders have received back their initial investment plus a specified preferred return, and subordinated incentive revenue of 15% of the net cash proceeds distributable to stockholders from the disposition of properties, after recoupment by stockholders of their initial investment plus a specified preferred return. We may also, in connection with the termination of the advisory agreements for the Managed REITs, be entitled to a termination payment based on the amount by which the fair value of a Managed REITs’ properties, less indebtedness, exceeds investors’ capital plus a specified preferred return.

In connection with the CPA ® :15 Merger and the CPA ® :16 Merger, we waived the subordinated disposition and termination fees we would have been entitled to receive from CPA ® :15 and CPA ® :16 – Global upon their liquidations pursuant to the terms of our advisory agreement with each of CPA ® :15 and CPA ® :16 – Global. There was no gain or loss recognized in connection with waiving these subordinated disposition and termination fees.

Other Transactions with Affiliates
 
Transactions with Estate of Wm. Polk Carey
 
Voting Agreement — In July 2012, we entered into a Voting Agreement with the Estate of Wm. Polk Carey, our Chairman and founder who passed away on January 2, 2012, pursuant to which the Estate and W. P. Carey & Co., Inc., a wholly-owned corporation of the Estate, had agreed, among other things, to vote their share of our predecessor’s common stock, or the Listed Shares, at the special meeting of W. P. Carey & Co. LLC’s shareholders regarding the REIT conversion and CPA ® :15 Merger in favor of those transactions. The REIT conversion and CPA ® :15 Merger were approved by those shareholders on September 13, 2012 and the transactions closed on September 28, 2012.
 
Share Purchase Agreement — Concurrently with the execution of the Voting Agreement, we entered into a Share Purchase Agreement with the Estate pursuant to which we agreed to purchase, at the option of the Estate, up to an aggregate amount of $ 85.0 million of our common stock — or, prior to the Merger, the Listed Shares of our predecessor — beneficially owned by the Estate. The Estate had three sale options.

On August 2, 2012, we repurchased 561,418 Listed shares for $ 25.0 million from the Estate at a price of $ 44.53 per share pursuant to the first sale option. On October 9, 2012, we repurchased an additional 410,964 shares of our common stock for $ 20.0 million from the Estate at a price of $ 48.67 per share pursuant to the second sale option. On March 28, 2013, we received an irrevocable notice from the Estate of Wm. Polk Carey, our chairman and founder who passed away on January 2, 2012, to exercise its final sale option under a Share Purchase Agreement that we entered into in July 2012. On April 4, 2013, we repurchased 616,971 shares of our common stock for $ 40.0 million from the Estate at a price of $ 64.83 per share at which time it was recorded as Treasury stock on our consolidated balance sheet.
 
Because the Share Purchase Agreement contained put options that, if exercised, would obligate us to settle the transactions in cash, we accounted for the shares of our common stock owned by the Estate as redeemable securities in accordance with Accounting Standards Codification 480 “ Distinguishing Liabilities from Equity ” and Accounting Series Release No. 268, “ Presentation in Financial Statements of Redeemable Preferred Stocks .” Accounting Series Release No. 268 requires us to reclassify a portion of our permanent equity to redeemable equity in order to reflect the future cash obligations that could arise if the Estate were to exercise the put options requiring us to purchase its shares. When the Estate exercised its sale options, we reclassified the amount from temporary equity to permanent equity, and reclassified the amount from Additional paid-in capital stock to Treasury stock. Accordingly, on the date of the execution of the Share Repurchase Agreement, we reclassified $ 85.0 million from Additional paid-in capital to Redeemable securities – related party, which represented the maximum amount that we would be required to pay should the Estate exercise all its sale options. Additionally, during 2013 and 2012, when we purchased our common stock in connection with the Estate’s exercise of the three sale options, we reclassified $ 40.0 million and $45.0 million , respectively, from Redeemable securities – related party to Additional paid-in capital and reclassified the shares from Additional paid-in capital to Treasury stock.


W. P. Carey 2014 10-K – 106
 
Notes to Consolidated Financial Statements

The following table presents a reconciliation of our Redeemable securities – related party (in thousands):
 
Years Ended December 31.
 
2014
 
2013
 
2012
Beginning balance
$
—

 
$
40,000

 
$
—

Reclassification from permanent equity to temporary equity
—

 
—

 
85,000

Redemptions of securities
—

 
(40,000
)
 
(45,000
)
Ending balance
$
—

 
$
—

 
$
40,000

 
Registration Rights Agreement — Concurrently with the execution of the Voting Agreement and the Share Purchase Agreement, we and the Estate Shareholders entered into a Registration Rights Agreement.

The Registration Rights Agreement provides the Estate with, on or before September 28, 2015, subject to certain exceptions and limitations, three demand rights for the registration via an underwritten public offering of, in each instance, a minimum of (i) $50.0 million , with respect to one Demand Registration Right, and $75.0 million , with respect to two Demand Registration Rights, of shares of our common stock received in the REIT conversion in exchange for the Listed Shares of our predecessor that were owned by the Estate as of the date of the Registration Rights Agreement, as well as certain “piggyback” registration rights. During 2014, the Estate ceased to own a minimum of $50.0 million of our common stock. As a result, the Estate is effectively no longer able to utilize the Registration Rights Agreement.
 
Loans to Managed REITs

During 2013 and 2014, our board of directors approved unsecured loans from us to CWI and CPA ® :18 – Global of up to $ 75.0 million and up to $ 100.0 million , respectively, each at a rate equal to the rate at which we are able to borrow funds under our senior credit facility ( Note 11 ), for the purpose of facilitating acquisitions approved by their respective investment committees, that they would not otherwise have sufficient available funds to complete, with any loans to be made solely at our Management’s discretion. On June 25, 2014, in order to facilitate an acquisition by CWI, we made an $11.0 million loan to CWI, with an annual interest rate of LIBOR plus 1.1% and a scheduled maturity date of June 30, 2015 . The loan, including accrued interest, was repaid in full, prior to maturity, on July 22, 2014. On August 20, 2013, in order to facilitate an acquisition by CPA ® :18 – Global, we made a $ 15.0 million loan to CPA ® :18 – Global, which was repaid in full, with accrued interest, prior to maturity, on October 4, 2013.

Treasury Stock

In February 2014, we repurchased 11,037 shares of our common stock for $0.7 million in cash from the former independent directors of CPA ® :16 – Global at a price per share equal to the volume weighted-average trading price of our stock utilized in the CPA ® :16 Merger. These shares were issued to them as the merger consideration in exchange for their shares of CPA ® :16 – Global common stock in the CPA ® :16 Merger ( Note 3 ) and were repurchased by agreement in order to satisfy the independence requirements set forth in the organizational documents of the remaining CPA ® REITs, for which these individuals also serve as independent directors.

Other
 
As discussed in Note 16 , in November 2013, an entity in which we, two of our employees, and a third party owned 38.3% , 1.7% , and 60.0% , respectively, and which we consolidated, sold 19 of its 20 self-storage properties. In connection with the sale, we made distributions aggregating $ 3.8 million to the two employees, representing their share of the net proceeds from the sale.

We own interests in entities ranging from 3% to 90% , as well as jointly-controlled tenancy-in-common interests in properties, with the remaining interests generally held by affiliates, and own common stock in each of the Managed REITs. We consolidate certain of these investments and account for the remainder under the equity method of accounting.


W. P. Carey 2014 10-K – 107
 
Notes to Consolidated Financial Statements

Note 5. Net Investments in Properties
 
Real Estate

Real estate, which consists of land and buildings leased to others, at cost, and which are subject to operating leases, and real estate under construction, is summarized as follows (in thousands):
 
December 31,
 
2014
 
2013
Land
$
1,146,704

 
$
534,697

Buildings
3,829,981

 
1,972,107

Real estate under construction
29,997

 
9,521

Less: Accumulated depreciation
(253,627
)
 
(168,076
)
 
$
4,753,055

 
$
2,348,249

 
During 2014 , the U.S. dollar strengthened against the euro, as the end-of-period rate for the U.S. dollar in relation to the euro at December 31, 2014 decreased by 11.7% to $ 1.2156 from $1.3768 at December 31, 2013 . The impact of this strengthening was a $ 154.5 million decrease in the carrying value of Real estate from December 31, 2013 to December 31, 2014 .

As discussed in  Note 3 , we acquired  225  properties subject to existing operating leases in the CPA ® :16 Merger, which increased the carrying value of our real estate by $2.0 billion  during the year ended  December 31, 2014 . In connection with restructuring  three  leases, we reclassified properties with an aggregate carrying value of $13.7 million  from Net investments in direct financing leases to Real estate during the year ended  December 31, 2014  ( Note 6 ).

Acquisitions of Real Estate During 2014 – We entered into the following investments, which were deemed to be business combinations because we assumed the existing leases on the properties, for which the sellers were not the lessees, at a total cost of $ 366.9 million , including land of $ 33.1 million , buildings of $ 278.1 million , and net lease intangibles of $ 55.7 million ( Note 8 ):

•
$ 41.9 million for an office building in Chandler, Arizona on March 26, 2014;
•
$ 47.2 million for a warehouse/distribution facility in University Park, Illinois on May 15, 2014;
•
$ 117.7 million for an office building in Stavanger, Norway on August 6, 2014. Because we acquired stock in a subsidiary of the seller to complete the acquisition, we assumed the tax basis of the entity that we purchased and recorded an estimated deferred tax liability of $ 14.7 million . In connection with this business combination, we recorded goodwill of $ 11.1 million ( Note 8 );
•
$46.0 million for an office building in Westborough, Massachusetts on August 22, 2014;
•
$56.0 million for an office building in Andover, Massachusetts on October 7, 2014;
•
$ 29.1 million for an office building in Newport, United Kingdom on October 13, 2014; and
•
$ 29.0 million for a light-industrial/distribution center in Opole, Poland on December 12, 2014.

In connection with these transactions, we expensed acquisition-related costs totaling $ 3.3 million , which are included in Merger and property acquisition expenses in the consolidated financial statements. Dollar amounts are based on the exchange rates of the foreign currencies on the dates of acquisitions, as applicable.

We also entered into the following investments, which were deemed to be real estate asset acquisitions because we acquired the sellers’ properties and then entered into new leases with the sellers, at a total cost of $ 536.7 million , including land of $83.9 million , buildings of $366.6 million , net lease intangibles of $ 82.9 million ( Note 8 ), a property classified as a net investment in direct financing lease of $3.3 million ( Note 6 ), and acquisition-related costs of $17.8 million , which were capitalized:

•
$ 138.3 million for 10 industrial and 21 agricultural properties in various locations in Australia on October 28, 2014. We also committed to fund a tenant expansion allowance of $14.8 million ;
•
$ 19.8 million for a manufacturing facility in Lewisburg, Ohio on November 4, 2014; and
•
$ 378.5 million for 70 office buildings in various locations in Spain on December 19, 2014.

Dollar amounts are based on the exchange rates of the foreign currencies on the dates of acquisitions, as applicable. The purchase price for our investment in Spain was allocated to the assets acquired based upon their preliminary estimated fair

W. P. Carey 2014 10-K – 108
 
Notes to Consolidated Financial Statements

values, which are based on the best estimates of management to date. We are in the process of finalizing our assessment of the fair value of the assets acquired. For investments entered into subsequent to December 31, 2014 , please see Note 19 .

Acquisitions of Real Estate During 2013 – We entered into the following investments, which were deemed to be real estate asset acquisitions because we acquired the sellers’ properties and then entered into new leases with the sellers, at a total cost of $ 124.4 million , including land of $20.7 million , buildings of $77.2 million , net lease intangibles of $ 26.5 million ( Note 8 ), and acquisition-related costs of $ 1.5 million , which were capitalized:

•
$ 72.4 million for an office building in Northfield, Illinois on January 11, 2013; and
•
$ 52.1 million for an office facility and research and development facility in Tampere, Finland on June 4, 2013.

We also entered into the following investments, which were deemed to be business combinations because we assumed the existing leases on the properties, for which the sellers were not the lessees, at a total cost of $ 157.7 million , including land of $ 17.2 million , buildings of $ 99.0 million , and net lease intangibles of $ 41.5 million ( Note 8 ):

•
$ 63.3 million for an office building in Salford, United Kingdom on September 9, 2013;
•
$ 35.3 million for a logistics facility in Venlo, Netherlands on April 15, 2013;
•
$ 33.6 million for an office building in Lone Tree, Colorado on November 27, 2013. We also committed to funding a tenant improvement allowance of $ 5.2 million ; and
•
$ 25.5 million for an office building in Quincy, Massachusetts on June 7, 2013.

In connection with these business combinations, we expensed aggregate acquisition-related costs of $ 4.2 million , which are included in Merger and property acquisition expenses in the consolidated financial statements.

We also entered into a build-to-suit transaction for the construction of an office building located in Mönchengladbach, Germany on December 4, 2013 for a total projected cost of up to $ 65.0 million , including acquisition expenses, of which we funded $ 26.4 million and incurred unpaid costs of $3.4 million through December 31, 2014 . Amounts are based on the exchange rate of the euro on December 31, 2014 .
 
Dollar amounts above are based on the exchange rate of the euro and the British pound sterling on the dates of acquisition, as applicable.
 
Acquisitions of Real Estate During 2012 – As discussed in Note 3 , we acquired properties in the CPA ® :15 Merger, which increased the carrying value of our real estate by $1.8 billion during the year ended December 31, 2012 .
 
On September 13, 2012, we acquired a domestic investment at a total cost of $ 24.8 million , including net lease intangible assets totaling $ 6.6 million ( Note 8 ) and acquisition-related costs. We updated our purchase price allocation during the fourth quarter of 2012, and recorded a measurement period adjustment of $ 5.3 million to reduce land and buildings and to increase net lease intangibles. We deemed this investment to be a real estate asset acquisition, and as such, we capitalized acquisition-related costs of $ 0.2 million .

Scheduled Future Minimum Rents
 
Scheduled future minimum rents, exclusive of renewals and expenses paid by tenants and future CPI-based adjustments under non-cancelable operating leases, at December 31, 2014 are as follows (in thousands): 
Years Ending December 31, 
 
Total
2015
 
$
569,427

2016
 
554,767

2017
 
533,942

2018
 
502,584

2019
 
454,038

Thereafter
 
2,388,659

Total
 
$
5,003,417



W. P. Carey 2014 10-K – 109
 
Notes to Consolidated Financial Statements

Operating Real Estate
 
At December 31, 2014 , Operating real estate consisted of our investments in two hotels acquired in the CPA ® :16 Merger in January 2014 and two self-storage properties. At December 31, 2013 , Operating real estate consisted of two self-storage properties. Below is a summary of our Operating real estate (in thousands): 
 
December 31,
 
2014

2013
Land
$
7,074

 
$
1,097

Buildings
77,811

 
4,927

Less: Accumulated depreciation
(4,866
)
 
(882
)
 
$
80,019

 
$
5,142

 
Depreciation expense, including the effect of foreign currency translation, on our real estate and operating real estate for the years ended December 31, 2014 , 2013 , and 2012 was $119.9 million , $61.8 million , and $25.7 million , respectively.

Assets Held for Sale

Below is a summary of our properties held for sale (in thousands):
 
December 31,
 
2014
 
2013
Real estate, net
$
5,969

 
$
62,466

Above-market rent intangible assets, net
838

 
13,872

In-place lease intangible assets, net
448

 
12,293

Below-market rent and other intangible liabilities, net
—

 
(1,808
)
Assets held for sale
$
7,255

 
$
86,823


At December 31, 2013 , we had nine properties classified as Assets held for sale, all of which were sold during the year ended December 31, 2014 . In connection with the CPA ® :16 Merger in January 2014, we acquired ten properties that were classified as Assets held for sale with a total fair value of $133.4 million , all of which were sold during the year ended December 31, 2014 . In accordance with our adoption of ASU 2014-08, the results of operations for these properties are reflected in the consolidated financial statements as discontinued operations ( Note 16 ).

During the year ended December 31, 2014 , we reclassified five properties with an aggregate carrying value of $ 8.6 million to Assets held for sale, one of which was sold as of December 31, 2014 . There can be no assurance that the remaining properties will be sold at the contracted price or at all. In accordance with our adoption of ASU 2014-08, the results of operations for these properties are included within continuing operations in the consolidated financial statements.

Note 6. Finance Receivables
 
Assets representing rights to receive money on demand or at fixed or determinable dates are referred to as finance receivables. Our finance receivables portfolio consists of our Net investments in direct financing leases, notes receivable, and deferred acquisition fees. Operating leases are not included in finance receivables as such amounts are not recognized as an asset in the consolidated financial statements.
 

W. P. Carey 2014 10-K – 110
 
Notes to Consolidated Financial Statements

Net Investments in Direct Financing Leases
 
Net investments in direct financing leases is summarized as follows (in thousands):
 
December 31,
 
2014
 
2013
Minimum lease payments receivable
$
904,788

 
$
466,182

Unguaranteed residual value
818,334

 
363,903

 
1,723,122

 
830,085

Less: unearned income
(906,896
)
 
(466,665
)
 
$
816,226

 
$
363,420


2014 — Interest income from direct financing leases, which was included in Lease revenues in the consolidated financial statements, was $ 78.8 million for the year ended December 31, 2014 . In connection with the CPA ® :16 Merger in January 2014, we acquired 98 properties subject to direct financing leases with a total fair value of $ 538.2 million ( Note 3 ), of which one was sold during the year ended December 31, 2014 ( Note 16 ). In connection with our acquisition of an investment in Australia, we acquired one property subject to a direct financing lease for $3.3 million . During 2014 , the U.S. dollar strengthened against the euro, as the end-of-period rate for the U.S. dollar in relation to the euro at December 31, 2014 decreased by 11.7% to $1.2156 from $1.3768 at December 31, 2013 . The impact of this strengthening was a $52.8 million decrease in the carrying value of Net investments in direct financing leases from December 31, 2013 to December 31, 2014 . During the year ended December 31, 2014 , we reclassified properties with a carrying value of $ 13.7 million from Net investments in direct financing leases to Real estate ( Note 5 ), in connection with the restructuring of the underlying leases. We also recognized impairment charges totaling $ 1.3 million on eight properties accounted for as Net investments in direct financing leases in connection with an other-than-temporary decline in the estimated fair values of the properties’ residual values ( Note 9 ). At December 31, 2014 , Other assets, net included $ 1.4 million of accounts receivable related to amounts billed under these direct financing leases.

2013 — Interest income from direct financing leases, which was included in Lease revenues in the consolidated financial statements, was $ 37.3 million for the year ended December 31, 2013 . We reclassified $14.0 million of properties from Net investments in direct financing leases to Real estate ( Note 5 ) in connection with the restructuring of six leases. Additionally, during 2013 , we sold a net investment in a direct financing lease, which we acquired in the CPA ® :15 Merger, for $ 5.5 million , net of selling costs, and recognized a loss on the sale of $ 0.3 million . We also recognized an impairment charge of $0.1 million on a property accounted for as Net investments in direct financing leases in connection with an other-than-temporary decline in the estimated fair value of the property’s residual value. At December 31, 2013 , Other assets, net included $ 0.1 million of accounts receivable related to amounts billed under these direct financing leases.

2012 — Interest income from direct financing leases, which was included in Lease revenues in the consolidated financial statements, was $ 15.2 million for the year ended December 31, 2012 . We sold a net investment in a direct financing lease for $ 2.0 million , net of selling costs, and recognized a net loss on sale of $0.2 million . In connection with the CPA ® :15 Merger in September 2012, we acquired 15 direct financing leases with a total fair value of $315.8 million ( Note 3 ).

Scheduled Future Minimum Rents

Scheduled future minimum rents, exclusive of renewals and expenses paid by tenants, percentage of sales rents, and future CPI-based adjustments, under non-cancelable direct financing leases at December 31, 2014 are as follows (in thousands):
Years Ending December 31, 
 
Total
2015
 
$
78,488

2016
 
77,943

2017
 
77,914

2018
 
77,933

2019
 
75,418

Thereafter
 
517,092

Total
 
$
904,788

 

W. P. Carey 2014 10-K – 111
 
Notes to Consolidated Financial Statements

Notes Receivable

At December 31, 2014 , our notes receivable, which were included in Other assets, net in the consolidated financial statements, consisted of the following:

•
A note we acquired in the CPA ® :16 Merger with a carrying value of $ 11.1 million on the date of acquisition, representing the expected future payments under a sales type lease; and
•
A B-note we acquired in the CPA ® :16 Merger with a carrying value of $ 9.9 million on the date of acquisition. This note has a fixed annual interest rate of 6.3% and a maturity date of February 11, 2015 .

Deferred Acquisition Fees Receivable
 
As described in Note 4 , we earn revenue in connection with structuring and negotiating investments and related mortgage financing for the CPA ® REITs. A portion of this revenue is due in equal annual installments over three years , provided the CPA ® REITs meet their respective performance criteria. Unpaid deferred installments, including accrued interest, from the CPA ® REITs were included in Due from affiliates in the consolidated financial statements.
 
Credit Quality of Finance Receivables
 
We generally seek investments in facilities that we believe are critical to a tenant’s business and that we believe have a low risk of tenant default. At both December 31, 2014 and 2013, none of the balances of our finance receivables were past due and we had not established any allowances for credit losses. Other than the lease restructurings discussed above, there were no modifications of finance receivables during the years ended December 31, 2014 and 2013 . We evaluate the credit quality of our finance receivables utilizing an internal five -point credit rating scale, with one representing the highest credit quality and five representing the lowest. The credit quality evaluation of our finance receivables was last updated in the fourth quarter of 2014. We believe the credit quality of our deferred acquisition fees receivable, which is not included in the table below, falls under category one , as the CPA ®  REITs are expected to have the available cash to make such payments.
 
A summary of our finance receivables by internal credit quality rating is as follows (dollars in thousands):
 
 
Number of Tenants / Obligors at December 31,
 
Carrying Value at December 31,
Internal Credit Quality Indicator
 
2014
 
2013
 
2014
 
2013
1
 
3
 
3
 
$
79,343

 
$
42,812

2
 
4
 
3
 
37,318

 
27,869

3
 
23
 
8
 
592,631

 
284,968

4
 
7
 
1
 
127,782

 
7,771

5
 
—
 
—
 
—

 
—

 
 
 
 
 
 
$
837,074

 
$
363,420


Note 7. Equity Investments in Real Estate and the Managed Programs
 
We own interests in certain unconsolidated real estate investments with the Managed Programs and also own interests in the Managed Programs. We account for our interests in these investments under the equity method of accounting (i.e., at cost, increased or decreased by our share of earnings or losses, less distributions, plus contributions and other adjustments required by equity method accounting, such as basis differences).
 

W. P. Carey 2014 10-K – 112
 
Notes to Consolidated Financial Statements

The following table presents Equity in earnings of equity method investments in real estate and the Managed REITs, which represents our proportionate share of the income or losses of these investments as well as certain adjustments related to other-than-temporary impairment charges and amortization of basis differences related to purchase accounting adjustments (in thousands):
 
Years Ended December 31,
 
2014
 
2013
 
2012
Proportionate share of equity in earnings of equity investments in the Managed REITs
$
2,425

 
$
7,057

 
$
8,867

Amortization of basis differences on equity investments in the Managed REITs
(810
)
 
(5,115
)
 
(4,302
)
Other-than-temporary impairment charges on the Special Member Interest in
   CPA ® :16 – Global’s operating partnership
(735
)
 
(15,383
)
 
(9,910
)
Distributions of Available Cash ( Note 4 )
31,052

 
34,121

 
30,009

Deferred revenue earned ( Note 4 )
786

 
9,436

 
9,436

Total equity in earnings of equity investments in the Managed REITs
32,718

 
30,116

 
34,100

Equity in earnings from other equity investments in real estate
14,828

 
26,928

 
29,864

Amortization of basis differences on other equity investments
(3,430
)
 
(4,313
)
 
(1,572
)
Equity in earnings of equity method investments in real estate and the Managed REITs
$
44,116

 
$
52,731

 
$
62,392

 
Managed Programs
 
We own interests in the Managed Programs and account for these interests under the equity method because, as their advisor and through our ownership of their common stock, we do not exert control over, but we do have the ability to exercise significant influence on, the Managed Programs.
 
The following table sets forth certain information about our investments in the Managed Programs (dollars in thousands):
 
 
% of Outstanding Shares Owned at
 
Carrying Amount of Investment at
 
 
December 31,
 
December 31,
Fund
 
2014
 
2013
 
2014 (a) (b)
 
2013  (a)
CPA ® :16 – Global (c)
 
100.000
%
 
18.533
%
 
$
—

 
$
282,520

CPA ® :16 – Global operating partnership (d)
 
100.000
%
 
0.015
%
 
—

 
813

CPA ® :17 – Global (e)
 
2.676
%
 
1.910
%
 
79,429

 
57,753

CPA ® :17 – Global operating partnership (f)
 
0.009
%
 
0.009
%
 
—

 
—

CPA ® :18 – Global
 
0.221
%
 
0.127
%
 
2,784

 
320

CPA ® :18 – Global operating partnership (g)
 
0.034
%
 
0.034
%
 
209

 
209

CWI
 
1.088
%
 
0.538
%
 
13,940

 
3,369

CWI operating partnership (h)
 
0.015
%
 
0.015
%
 
—

 
—

Carey Credit Income Fund (i)
 
50.00
%
 
—

 
25,000

 
—

 
 
 

 
 

 
$
121,362

 
$
344,984

___________
(a)
Includes asset management fees receivable, for which 240,318 shares, 37,870 class A shares, and 93,739 shares of common stock of CPA ® :17 – Global, CPA ® :18 – Global, and CWI, respectively, were issued during the first quarter of 2015.
(b)
At December 31, 2014 and 2013 , the aggregate unamortized basis differences on our equity investments in the Managed REITs were $20.2 million and $80.5 million , respectively.
(c)
On January 31, 2014, we acquired all the remaining interests in CPA ® :16 – Global, which merged into one of our wholly-owned subsidiaries with our subsidiary as the surviving entity, in the CPA ® :16 Merger ( Note 3 ). We received distributions of $ 6.4 million , $25.3 million , and $24.3 million from this affiliate during January 2014 , the year ended December 31, 2013 and the year ended December 31, 2012 , respectively. During the year ended December 31, 2013 , equity income from CPA ® :16 – Global and CPA ® :16 – Global’s operating partnership exceeded 20% of our net income from continuing operations before income taxes. Therefore, the audited consolidated financial statements of CPA ® :16 – Global are incorporated by reference in this Report.

W. P. Carey 2014 10-K – 113
 
Notes to Consolidated Financial Statements

(d)
During January 2014 and the years ended December 31, 2013 and 2012 , we recognized other-than-temporary impairment charges of $0.7 million , $15.4 million , and $9.9 million , respectively, on this investment to reduce the carrying value of our interest in the investment to its estimated fair value ( Note 9 ). In addition, we received distributions of $ 4.8 million , $15.2 million , and $15.4 million from this investment during January 2014 , the year ended December 31, 2013 , and the year ended December 31, 2012 , respectively. On January 31, 2014, we acquired the remaining interests in CPA ® :16 – Global’s operating partnership and now consolidate this entity.
(e)
We received distributions of $ 4.6 million , $3.0 million , and $1.6 million from this affiliate during 2014 , 2013 , and 2012 , respectively.
(f)
We received distributions of $ 20.4 million , $16.9 million , and $14.6 million from this affiliate during 2014 , 2013 , and 2012 , respectively.
(g)
We received distributions of $1.8 million and $0.1 million , from this affiliate, which commenced operations in May 2013, during the years ended December 31, 2014 and 2013 , respectively.
(h)
We received distributions of $4.1 million and $1.9 million from this affiliate during the years ended December 31, 2014 and 2013 , respectively. There were no such distributions received during the year ended December 31, 2012 .
(i)
In December 2014, we purchased 2,777,778 shares of CCIF at $9.00 per share for a total purchase price of $25.0 million . We account for our interest in this investment using the equity method of accounting because we share the decision-making with the third-party investment partner. As of December 31, 2014 , CCIF has not yet admitted any additional shareholders.

The following tables present estimated combined summarized financial information for the Managed Programs. Certain prior year amounts have been retrospectively adjusted to reflect the impact of discontinued operations. Amounts provided are expected total amounts attributable to the Managed Programs and do not represent our proportionate share (in thousands):
 
December 31,
 
2014
 
2013
Real estate, net
$
5,969,011

 
$
7,218,177

Other assets
2,293,065

 
2,128,862

Total assets
8,262,076

 
9,347,039

Debt
(3,387,795
)
 
(4,237,044
)
Accounts payable, accrued expenses and other liabilities
(496,857
)
 
(571,097
)
Total liabilities
(3,884,652
)
 
(4,808,141
)
Noncontrolling interests
(170,249
)
 
(192,492
)
Stockholders’ equity
$
4,207,175

 
$
4,346,406

 
 
Years Ended December 31,
 
2014
 
2013
 
2012
Revenues
$
825,405

 
$
796,637

 
$
860,983

Expenses (a) 
(838,100
)
 
(701,830
)
 
(759,435
)
(Loss) income from continuing operations
$
(12,695
)
 
$
94,807

 
$
101,548

Net (loss) income attributable to the Managed Programs (b) (c)
$
(12,695
)
 
$
104,342

 
$
128,455

___________
(a)
Total net expenses recognized by the Managed Programs during the year ended December 31, 2012 included $3.1 million of CPA ® :15 Merger-related expenses incurred by CPA ® :15, of which our share was approximately $ 0.2 million .
(b)
Inclusive of impairment charges recognized by the Managed Programs totaling $ 1.3 million , $25.6 million , and $25.0 million during the years ended December 31, 2014 , 2013 , and 2012 , respectively. These impairment charges reduced our income earned from these investments by approximately less than $ 0.1 million , $4.7 million , and $4.2 million during the years ended December 31, 2014 , 2013 , and 2012 , respectively.
(c)
Amounts included net gains on sale of real estate recorded by the Managed Programs totaling $13.3 million , $7.7 million , and $35.4 million during the years ended December 31, 2014 , 2013 , and 2012 , respectively.
 
Interests in Other Unconsolidated Real Estate Investments

We own equity interests in single-tenant net-leased properties that are generally leased to companies through noncontrolling interests (i) in partnerships and limited liability companies that we do not control but over which we exercise significant

W. P. Carey 2014 10-K – 114
 
Notes to Consolidated Financial Statements

influence or (ii) as tenants-in-common subject to common control. Generally, the underlying investments are jointly-owned with affiliates. We account for these investments under the equity method of accounting. Earnings for each investment are recognized in accordance with each respective investment agreement. Investments in unconsolidated investments are required to be evaluated periodically. We periodically compare an investment’s carrying value to its estimated fair value and recognize an impairment charge to the extent that the carrying value exceeds fair value and such decline is determined to be other than temporary.

The following table sets forth our ownership interests in our equity investments in real estate, excluding the Managed Programs, and their respective carrying values (dollars in thousands):
 
 
 
 
Ownership Interest
 
Carrying Value at December 31,
Lessee
 
Co-owner(s)
 
at December 31, 2014
 
2014
 
2013
Same Store Equity Investments (a) (b)
 
 
 
 
 
 
 
 
C1000 Logistiek Vastgoed B.V. (c)  
 
CPA ® :17 – Global
 
15%
 
$
11,192

 
$
13,673

Waldaschaff Automotive GmbH and Wagon Automotive Nagold GmbH
 
CPA ® :17 – Global
 
33%
 
6,949

 
7,267

Wanbishi Archives Co. Ltd.
 
CPA ® :17 – Global
 
3%
 
341

 
395

 
 
 
 
 
 
18,482

 
21,335

Equity Investments Consolidated After the CPA ® :16 Merger (d)
 
 
 
 
Schuler A.G. (a) 
 
CPA ® :16 – Global
 
100%
 
—

 
65,798

Hellweg 2 (a) (e)
 
CPA ® :16 – Global/ CPA ® :17 – Global
 
63%
 
—

 
27,923

Advanced Micro Devices
 
CPA ® :16 – Global
 
100%
 
—

 
22,392

The Upper Deck Company
 
CPA ® :16 – Global
 
100%
 
—

 
7,518

Del Monte Corporation
 
CPA ® :16 – Global
 
100%
 
—

 
7,145

Builders FirstSource, Inc.
 
CPA ® :16 – Global
 
100%
 
—

 
4,968

PetSmart, Inc.
 
CPA ® :16 – Global
 
100%
 
—

 
3,877

Consolidated Systems, Inc.
 
CPA ® :16 – Global
 
100%
 
—

 
3,176

SaarOTEC (a) 
 
CPA ® :16 – Global
 
100%
 
—

 
(639
)
 
 
 
 
 
 
—

 
142,158

Equity Investments Acquired in the CPA ® :16 Merger
 
 
 
 
 
The New York Times Company (f)
 
CPA ® :16 – Global/
CPA ® :17 – Global
 
45%
 
72,476

 
21,543

Frontier Spinning Mills, Inc.
 
CPA ® :17 – Global
 
40%
 
15,609

 
—

Actebis Peacock GmbH (a)
 
CPA ® :17 – Global
 
30%
 
6,369

 
—

 
 
 
 
 
 
94,454

 
21,543

Recently Acquired Equity Investment
 
 
 
 
 
 
 
 
Beach House JV, LLC (g)
 
Third Party
 
N/A
 
15,105

 
—

 
 
 
 
 
 
$
128,041

 
$
185,036

___________
(a)
The carrying value of this investment is affected by the impact of fluctuations in the exchange rate of the foreign currency.
(b)
Represents equity investments we acquired prior to January 1, 2013.
(c)
This investment represents a tenancy-in-common interest, whereby the property is encumbered by the debt for which we are jointly and severally liable. For this investment, the co-obligor is CPA ® :17 – Global and the total amount due under the arrangement was approximately $82.7 million at December 31, 2014 . Of this amount, $12.4 million represents the amount we agreed to pay and is included within the carrying value of the investment at December 31, 2014 .
(d)
We acquired the remaining interests in these investments from CPA ® :16 – Global in the CPA ® :16 Merger. Subsequent to the CPA ® :16 Merger, we consolidate these wholly-owned or majority-owned investments ( Note 3 ).
(e)
We acquired an additional 25% interest in this investment in the CPA ® :16 Merger. The remaining interest in this investment is owned by CPA ® :17 – Global.
(f)
We acquired an additional 27% interest in this investment in the CPA ® :16 Merger. The remaining interest in this investment is owned by CPA ® :17 – Global.

W. P. Carey 2014 10-K – 115
 
Notes to Consolidated Financial Statements

(g)
During the year ended December 31, 2014 , we received a preferred equity position in Beach House JV, LLC as part of the sale of our Soho House investment. The preferred equity interest, which is redeemable on March 13, 2019, provides us with a preferred rate of return of 8.5% . The rights under these preferred units allow us to have significant influence over the entity. Accordingly, we account for this investment using the equity method of accounting. We own 100 redeemable preferred units of Beach House JV LLC. During the year ended December 31, 2014 , we recognized $1.0 million of income related to this investment, which is included in Equity in earnings of equity method investments in real estate and the Managed REITs in the consolidated financial statements.

The following tables present combined summarized financial information of our equity investments, excluding the Managed Programs. Amounts provided are the total amounts attributable to the investments and do not represent our proportionate share (in thousands):
 
December 31,
 
2014
 
2013
Real estate, net
$
486,858

 
$
1,038,422

Other assets
81,232

 
146,635

Total assets
568,090

 
1,185,057

Debt
(278,012
)
 
(695,429
)
Accounts payable, accrued expenses and other liabilities
(10,057
)
 
(77,819
)
Total liabilities
(288,069
)
 
(773,248
)
Noncontrolling interests
(355
)
 
176

Stockholders’ equity
$
279,666

 
$
411,985

 
Years Ended December 31,
 
2014
 
2013
 
2012
Revenues
$
64,294

 
$
117,278

 
$
108,242

Expenses
(27,801
)
 
(50,907
)
 
(64,453
)
Income from continuing operations
$
36,493

 
$
66,371

 
$
43,789

Net income attributable to the jointly-owned investments (a) 
$
36,493

 
$
15,762

 
$
79,591

___________
(a)
Amount during the year ended December 31, 2012 included a net gain of approximately $34.0 million recognized by a jointly-owned investment as a result of selling its interests in the Médica investment. Our share of the gain was approximately $15.1 million .

We received aggregate distributions of $12.5 million , $25.9 million , and $20.0 million from our other unconsolidated real estate investments for the years ended December 31, 2014 , 2013 , and 2012 , respectively. At December 31, 2014 and 2013 , the aggregate unamortized basis differences on our unconsolidated real estate investments were $5.8 million and $16.6 million , respectively.

Hellweg 2 Restructuring

In 2007, CPA ® :14, CPA ® :15, and CPA ® :16 – Global, acquired a 33% , 40% , and 27% interest, respectively, in an entity, or Purchaser, for purposes of acquiring a 25% interest in a property holding company, or PropCo, that owns 37 do-it-yourself stores located in Germany. This is referred to as the Hellweg 2 transaction. The remaining 75% interest in PropCo was owned by a third party, or the Partner. In November 2010, CPA ® :14, CPA ® :15, and CPA ® :16 – Global obtained a 70% additional interest in PropCo from the Partner, resulting in Purchaser owning approximately 95% of PropCo. In 2011, CPA ® :17 – Global acquired CPA ® :14’s interests, and in 2012, through the CPA ® :15 Merger, we acquired CPA ® :15’s interests. We had previously accounted for our investment under the equity method of accounting. In January 2014 in connection with the CPA ® :16 Merger, we acquired CPA ® :16 – Global’s interests in the investment. Subsequent to the acquisition, we consolidate this investment.

In October 2013, the Partner’s remaining 5% equity interest in PropCo was acquired by CPA ® :17 – Global, which resulted in PropCo incurring a German real estate transfer tax of $22.1 million , of which our share was approximately $8.4 million and was recorded within Equity in earnings of equity method investments in real estate and the Managed REITs in our consolidated statement of income for the year ended December 31, 2013 . PropCo intends to appeal the real estate transfer tax upon assessment, but there is no certainty it will be successful in appealing its obligation.

W. P. Carey 2014 10-K – 116
 
Notes to Consolidated Financial Statements


Acquisition of Unconsolidated Real Estate Investment During 2012

In December 2012, an entity in which we and CPA ® :17 – Global hold 3% and 97% interests, respectively, purchased a warehouse/distribution facility in Japan for $52.1 million . Our share of the purchase price was approximately $1.5 million . We account for this investment under the equity method of accounting, as we do not have a controlling interest in the entity but exercise significant influence over it. In connection with this investment, the entity obtained mortgage financing on the property of $31.6 million at an annual interest rate of 2% and term of five years . Our share of the financing was approximately $0.9 million . Amounts are based on the exchange rate of the Japanese yen on the date of acquisition.

Disposition of Unconsolidated Real Estate Investment During 2013

In June 2013, we contributed $2.9 million to partially repay the existing $17.1 million mortgage loan on our U.S. Airways investment. We refinanced the remaining mortgage loan with new financing of $13.9 million . Immediately after the refinancing, we sold our interest in the investment to a third party for $ 28.4 million , net of closing costs and our contribution to partially repay the loan, and recognized a gain on sale of $ 19.5 million . The gain was included in Equity in earnings of equity method investments in real estate and the Managed REITs in the consolidated financial statements.

In October 2013, an entity in which we and CPA ® :16 – Global held 30% and 70% interests, respectively, sold the five properties it owned for $41.4 million and recognized a net gain on sale of $0.5 million . The entity used a portion of the proceeds to repay the related mortgage loan, which had a carrying value of $25.7 million on the date of sale. Amounts presented are total amounts attributable to the whole entity and do not represent our proportionate share. In connection with the sale, the entity made a distribution of $4.2 million to us, representing our share of the net proceeds from the sale.

Note 8. Goodwill and Other Intangibles

In connection with our acquisitions of properties, we have recorded net lease intangibles that are being amortized over periods ranging from one year to 40 years. In addition, we have several ground lease intangibles that are being amortized over periods of up to 250 years. In-place lease and above-market rent are included in In-place lease intangible assets, net and Above-market rent intangible assets, net, respectively, in the consolidated financial statements. Tenant relationship, below-market ground lease (as lessee), trade name, management contracts, and software license intangibles are included in Other assets, net in the consolidated financial statements. Below-market rent, above-market ground lease (as lessee), and below-market purchase option intangibles are included in Below-market rent and other intangible liabilities, net in the consolidated financial statements.

In connection with our investment activity during 2014 , which primarily reflects the properties we acquired through the CPA ® :16 Merger, we recorded net lease intangibles comprised as follows (life in years, dollars in thousands):
 
Weighted-Average
Life
 
Amount
Amortizable Intangible Assets
 
 
 
In-place lease
13.3
 
$
700,850

Above-market rent
12.3
 
395,824

Below-market ground lease
67.5
 
14,772

 
 
 
$
1,111,446

 
 
 
 
Amortizable Intangible Liabilities
 
 
 
Below-market rent
18.1
 
$
(59,740
)
Above-market ground lease
31.5
 
(6,712
)
 
 
 
$
(66,452
)
 

W. P. Carey 2014 10-K – 117
 
Notes to Consolidated Financial Statements

In connection with the CPA ® :16 Merger and the CPA ® :15 Merger, we recorded goodwill as a result of the merger considerations exceeding the fair values of the assets acquired and liabilities assumed ( Note 3 ). The goodwill was attributed to our Real Estate Ownership reporting unit as it relates to the real estate assets we acquired in the CPA ® :16 Merger and CPA ® :15 Merger. The following table presents a reconciliation of our goodwill (in thousands):
 
Real Estate Ownership
 
Investment Management
 
Total
Balance at January 1, 2012
$
—

 
$
63,607

 
$
63,607

Acquisition of CPA ® :15
268,683

 
—

 
268,683

Allocation of goodwill to the cost basis of properties sold or classified as held-for-sale
(3,158
)
 
—

 
(3,158
)
Balance at December 31, 2012
265,525

 
63,607

 
329,132

Allocation of goodwill to the cost basis of properties sold or classified as held-for-sale
(13,118
)
 
—

 
(13,118
)
Adjustments related to deferred foreign income taxes (a)
32,715

 
—

 
32,715

Adjustment to purchase price allocation for the CPA ® :15 Merger (b)
1,479

 
—

 
1,479

Balance at December 31, 2013
286,601

 
63,607

 
350,208

Acquisition of CPA ® :16 – Global
346,642

 
—

 
346,642

Other business combinations (c)
13,585

 
—

 
13,585

Allocation of goodwill to the cost basis of properties sold or classified as held-for-sale
(3,762
)
 
—

 
(3,762
)
Foreign currency translation adjustments and other
(14,258
)
 
—

 
(14,258
)
Balance at December 31, 2014
$
628,808

 
$
63,607

 
$
692,415

___________
(a)
In the fourth quarter of 2013, we recorded an out-of-period adjustment related to accounting for deferred foreign income taxes ( Note 2 ).
(b)
In the fourth quarter of 2013, we recorded an immaterial out-of-period adjustment to correct the purchase price allocation for the CPA ® :15 Merger.
(c)
Primarily relates to acquisition of an investment in Norway ( Note 5 ).

Current accounting guidance requires that we test for the recoverability of goodwill at the reporting unit level. The test for recoverability must be conducted at least annually, or more frequently if events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable. We performed our annual test for impairment during the fourth quarter of 2014 for goodwill recorded in both segments, and no impairment was indicated.


W. P. Carey 2014 10-K – 118
 
Notes to Consolidated Financial Statements

Intangible assets, intangible liabilities, and goodwill are summarized as follows (in thousands):
 
December 31,
 
2014
 
2013
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
Amortizable Intangible Assets
 
 
 
 
 
 
 
 
 
 
 
Management contracts
$
32,765

 
$
(32,765
)
 
$
—

 
$
32,765

 
$
(32,395
)
 
$
370

Internal-use software development costs
17,584

 
(26
)
 
17,558

 
3,255

 
—

 
3,255

 
50,349

 
(32,791
)
 
17,558

 
36,020

 
(32,395
)
 
3,625

Lease Intangibles:
 
 
 
 
 
 
 
 
 
 
 
In-place lease and tenant relationship
1,185,692

 
(191,873
)
 
993,819

 
557,984

 
(86,265
)
 
471,719

Above-market rent
639,370

 
(116,573
)
 
522,797

 
292,132

 
(50,157
)
 
241,975

Below-market ground lease
17,771

 
(435
)
 
17,336

 
4,386

 
(22
)
 
4,364

 
1,842,833

 
(308,881
)
 
1,533,952

 
854,502

 
(136,444
)
 
718,058

Unamortizable Goodwill and  
    Indefinite-Lived Intangible Assets
 
 
 
 
 
 
 
 
 
 
 
Goodwill
692,415

 
—

 
692,415

 
350,208

 
—

 
350,208

Trade name
3,975

 
—

 
3,975

 
3,975

 
—

 
3,975

 
696,390

 
—

 
696,390

 
354,183

 
—

 
354,183

Total intangible assets
$
2,589,572

 
$
(341,672
)
 
$
2,247,900

 
$
1,244,705

 
$
(168,839
)
 
$
1,075,866

 
 
 
 
 
 
 
 
 
 
 
 
Amortizable Intangible Liabilities
 
 
 
 
 
 
 
 
 
 
 
Below-market rent
$
(169,231
)
 
$
23,039

 
$
(146,192
)
 
$
(116,939
)
 
$
11,832

 
$
(105,107
)
Above-market ground lease
(13,311
)
 
1,144

 
(12,167
)
 
(6,896
)
 
512

 
(6,384
)
 
(182,542
)
 
24,183

 
(158,359
)
 
(123,835
)
 
12,344

 
(111,491
)
Unamortizable Intangible Liabilities
 
 
 
 
 
 
 
 
 
 
 
Below-market purchase option
(16,711
)
 
—

 
(16,711
)
 
(16,711
)
 
—

 
(16,711
)
Total intangible liabilities
$
(199,253
)
 
$
24,183

 
$
(175,070
)
 
$
(140,546
)
 
$
12,344

 
$
(128,202
)

Net amortization of intangibles, including the effect of foreign currency translation, was $174.0 million , $86.1 million , and $24.9 million for the years ended December 31, 2014 , 2013 , and 2012 , respectively. Amortization of below-market rent and above-market rent intangibles is recorded as an adjustment to Lease revenues; amortization of management contracts, in-place lease, and tenant relationship intangibles is included in Depreciation and amortization; and amortization of above-market ground lease and below-market ground lease intangibles is included in Property expenses.
 
Based on the intangible assets and liabilities recorded at December 31, 2014 , scheduled annual net amortization of intangibles for each of the next five calendar years and thereafter is as follows (in thousands):
Years Ending December 31,
 
Net Decrease in Lease Revenues
 
Increase to Amortization/Property Expenses
 
Net
2015
 
$
54,208

 
$
114,768

 
$
168,976

2016
 
52,471

 
110,828

 
163,299

2017
 
49,368

 
107,080

 
156,448

2018
 
46,043

 
104,269

 
150,312

2019
 
22,436

 
73,391

 
95,827

Thereafter
 
152,079

 
506,210

 
658,289

Total
 
$
376,605

 
$
1,016,546

 
$
1,393,151



W. P. Carey 2014 10-K – 119
 
Notes to Consolidated Financial Statements

Note 9. Fair Value Measurements
 
The fair value of an asset is defined as the exit price, which is the amount that would either be received when an asset is sold or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance establishes a three-tier fair value hierarchy based on the inputs used in measuring fair value. These tiers are: Level 1, for which quoted market prices for identical instruments are available in active markets, such as money market funds, equity securities, and U.S. Treasury securities; Level 2, for which there are inputs other than quoted prices included within Level 1 that are observable for the instrument, such as certain derivative instruments including interest rate caps, interest rate swaps, and foreign currency forward contracts; and Level 3, for securities that do not fall into Level 1 or Level 2 and for which little or no market data exists, therefore requiring us to develop our own assumptions.

Items Measured at Fair Value on a Recurring Basis

The methods and assumptions described below were used to estimate the fair value of each class of financial instrument. For significant Level 3 items we have also provided the unobservable inputs along with their weighted-average ranges.

Money Market Funds — Our money market funds, which are included in Cash and cash equivalents in the consolidated financial statements, are comprised of government securities and U.S. Treasury bills. These funds were classified as Level 1 as we used quoted prices from active markets to determine their fair values.

Derivative Assets — Our derivative assets, which are included in Other assets, net in the consolidated financial statements, are comprised of interest rate caps, interest rate swaps, stock warrants, and foreign currency forward contracts ( Note 10 ). The interest rate caps, interest rate swaps, and foreign currency forward contracts were measured at fair value using readily observable market inputs, such as quotations on interest rates, and were classified as Level 2 as these instruments are custom, over-the-counter contracts with various bank counterparties that are not traded in an active market. The stock warrants were measured at fair value using internal valuation models that incorporate market inputs and our own assumptions about future cash flows. We classified these assets as Level 3 because these assets are not traded in an active market.

Derivative Liabilities — Our derivative liabilities, which are included in Accounts payable, accrued expenses and other liabilities in the consolidated financial statements, are comprised of interest rate swaps and foreign currency forward contracts ( Note 10 ). These derivative instruments were measured at fair value using readily observable market inputs, such as quotations on interest rates. These derivative instruments were classified as Level 2 because they are custom, over-the-counter contracts with various bank counterparties that are not traded in an active market.

Redeemable Noncontrolling Interest — We account for the noncontrolling interest in W. P. Carey International, LLC, or WPCI, held by a third party as a redeemable noncontrolling interest ( Note 13 ). We determined the valuation of the redeemable noncontrolling interest using widely accepted valuation techniques, including expected discounted cash flows of the investment as well as the income capitalization approach, which considers prevailing market capitalization rates. We classified this liability as Level 3. Unobservable inputs for WPCI include a discount for lack of marketability, a discount rate, and EBITDA multiples with weighted-average ranges of 20% - 30% , 22% - 26% , and 3 x - 5 x, respectively. Significant increases or decreases in any one of these inputs in isolation would result in significant changes in the fair value measurement.

We did not have any transfers into or out of Level 1, Level 2, and Level 3 measurements during either the years ended December 31, 2014 , 2013 , and 2012 . In connection with the CPA ® :16 Merger, we acquired additional stock warrants, which had previously been granted by Hellweg 2 to CPA ® :16 – Global, and which were classified as Level 3, at December 31, 2014 ( Note 10 ).


W. P. Carey 2014 10-K – 120
 
Notes to Consolidated Financial Statements

Our other financial instruments had the following carrying values and fair values as of the dates shown (dollars in thousands):
 
 
 
 
December 31, 2014
 
December 31, 2013
 
 
Level
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Non-recourse debt (a)
 
3
 
$
2,532,683

 
$
2,574,437

 
$
1,492,410

 
$
1,477,497

Senior Credit Facilities (a) (b)
 
2
 
1,057,518

 
1,057,519

 
275,000

 
275,000

Senior unsecured notes (c)
 
2
 
498,345

 
527,029

 
—

 
—

Deferred acquisition fees receivable (d)
 
3
 
26,913

 
28,027

 
19,684

 
20,733

Notes receivable (a) (e)
 
3
 
20,848

 
19,604

 
—

 
—

Unsecured Term Loan (b)
 
2
 
—

 
—

 
300,000

 
300,000

__________
(a)
We determined the estimated fair value of these financial instruments using a discounted cash flow model with rates that take into account the credit of the tenant/obligor, where applicable, and interest rate risk. We also considered the value of the underlying collateral taking into account the quality of the collateral, the credit quality of the tenant/obligor, the time until maturity and the current market interest rate.
(b)
As described in Note 11 , the Prior Senior Credit Facility and Unsecured Term Loan were repaid and terminated in January 2014. We determined the estimated fair value of these financial instruments using a discounted cash flow model with rates that take into account the market-based credit spread and our credit rating.
(c)
We determined the estimated fair value of the 4.6% senior unsecured notes using quoted market prices in an open market with limited trading volume ( Note 10 ).
(d)
We determined the estimated fair value of our deferred acquisition fees receivable based on an estimate of discounted cash flows using two significant unobservable inputs, which are the leverage adjusted unsecured spread and an illiquidity adjustment with a weighted-average range of 108 - 355 basis points and 50 - 100 basis points , respectively, at December 31, 2014 . Significant increases or decreases to these inputs in isolation would result in a significant change in the fair value measurement.
(e)
We acquired these notes in the CPA ® :16 Merger ( Note 6 ).
 
We estimated that our other financial assets and liabilities (excluding net investments in direct financing leases) had fair values that approximated their carrying values at both December 31, 2014 and 2013 .

Items Measured at Fair Value on a Non-Recurring Basis (Including Impairment Charges)

We periodically assess whether there are any indicators that the value of our real estate investments may be impaired or that their carrying value may not be recoverable. For investments in real estate held for use for which an impairment indicator is identified, we follow a two-step process to determine whether the investment is impaired and to determine the amount of the charge. First, we compare the carrying value of the property’s asset group to the future undiscounted net cash flows that we expect the property’s asset group will generate, including any estimated proceeds from the eventual sale of the property’s asset group. If this amount is less than the carrying value, the property’s asset group is considered to be impaired. We then measure the impairment charge as the excess of the carrying value of the property’s asset group over the estimated fair value of the property’s asset group, which is primarily determined using market information such as recent comparable sales, broker quotes or third-party appraisals. If relevant market information is not available or is not deemed appropriate, we perform a future net cash flow analysis, discounted for inherent risk associated with each investment. We determined that the significant inputs used to value these investments fall within Level 3 for fair value reporting. As a result of our assessments, we calculated impairment charges based on market conditions and assumptions that existed at the time. The valuation of real estate is subject to significant judgment and actual results may differ materially if market conditions or the underlying assumptions change.
 

W. P. Carey 2014 10-K – 121
 
Notes to Consolidated Financial Statements

The following tables present information about our assets that were measured at fair value on a non-recurring basis (in thousands):
 
Year Ended December 31, 2014
 
Year Ended December 31, 2013
 
Year Ended December 31, 2012
 
Fair Value
Measurements
 
Total Impairment
Charges
 
Fair Value
Measurements
 
Total Impairment
Charges
 
Fair Value
Measurements
 
Total Impairment
Charges
Impairment Charges in   Continuing Operations
 
 
 
 
 
 
 
 
 
 
 
Real estate
$
26,503

 
$
21,738

 
$
15,495

 
$
4,673

 
$
—

 
$
—

Net investments in direct financing leases
39,158

 
1,329

 
891

 
68

 
—

 
—

Equity investments in real estate
—

 
735

 
5,111

 
19,256

 
17,140

 
9,910

Marketable security
—

 
—

 
483

 
553

 
—

 
—

 


 
23,802

 
 
 
24,550

 
 
 
9,910

Impairment Charges in   Discontinued Operations
 
 
 
 
 
 
 
 
 
 
 
Real estate
—

 
—

 
19,413

 
6,192

 
39,642

 
12,495

Operating real estate
—

 
—

 
3,709

 
1,071

 
5,002

 
10,467

 
 
 
—

 
 
 
7,263

 
 
 
22,962

 


 
$
23,802

 


 
$
31,813

 


 
$
32,872


Impairment charges, and their related triggering events and fair value measurements, recognized during 2014 , 2013 , and 2012 were as follows:

Real Estate
 
During the year ended December 31, 2014 , we recognized impairment charges totaling $7.8 million on six properties in order to reduce the carrying values of the properties to their estimated fair values, which approximated their estimated selling prices. Additionally, we recognized an impairment charge of $14.0 million on a property during the year ended December 31, 2014 as result of the tenant vacating the property. The fair value measurements relating to the $14.0 million impairment charge were determined by a direct cap approach and market approach and utilizing the average of these two approaches, as the property has potential utility as both a commercial net lease building (direct cap approach) and a redeveloped residential structure (market approach). The fair value under the market approach was determined by comparing the property to similar properties that have been sold or offered for sale, with adjustments made for differences in date of sale, age, condition, size, location, land/building ratio, local tax policies, and other physical characteristics and circumstances influencing the sale. The fair value under the direct cap approach was determined by estimating future net operating income of the leased up asset utilizing comparable market rents that have been leased or offered for lease, capitalizing the resulting net operating income utilizing a residual capitalization rate of 8.0% , offset by the leasing capital required to secure a tenant and the market vacancy assumptions. Significant increases or decreases to the inputs utilized for the market approach and income approach in isolation would result in a significant change in the fair value measurement.

During the year ended December 31, 2013 , we recognized an impairment charge of $4.7 million on a property in France. This impairment was the result of writing down the property’s carrying value to its estimated fair value in connection with the tenant vacating the property. The fair value measurements related to the impairment charge were determined by estimating discounted cash flows using three significant unobservable inputs, which are the cash flow discount rate, the residual discount rate, and the residual capitalization rate equal to 12.75% , 11.75% , and 10.0% , respectively. Significant increases or decreases to these inputs in isolation would result in a significant change in the fair value measurement.
 
Net Investments in Direct Financing Leases
 
During the year ended December 31, 2014 , we recognized impairment charges totaling $1.3 million on eight properties accounted for as Net investments in direct financing leases in connection with an other-than-temporary decline in the estimated fair values of the buildings’ residual values. During the year ended December 31, 2013 , we recognized an impairment charge of $0.1 million on a property accounted for as Net investments in direct financing leases in order to reduce the carrying value of the property to its estimated fair value, which approximated its estimated selling price.


W. P. Carey 2014 10-K – 122
 
Notes to Consolidated Financial Statements

Equity Investments in Real Estate
 
During the years ended December 31, 2014 , 2013 , and 2012 , we recognized other-than-temporary impairment charges totaling $ 0.7 million , $15.4 million , and $9.9 million , respectively, on the Special Member Interest in CPA ® :16 – Global’s operating partnership to reduce its carrying value to its estimated fair value, which had declined. The estimated fair value was computed by estimating discounted cash flows using two significant unobservable inputs, which are the discount rate and the estimated general and administrative costs as a percentage of assets under management with a weighted-average range of 12.75% - 15.75% and 35 - 45 basis points , r espectively. Significant increases or decreases to these inputs in isolation would result in a significant change in the fair value measurement. The valuation was also dependent upon the estimated date of a liquidity event for CPA ® :16 – Global because cash flows attributable to this investment would cease upon such event.

During the year ended December 31, 2013 , we recognized an other-than-temporary impairment charge of $3.9 million on a jointly-owned investment to reduce the carrying value of our investment to its estimated fair value, which was based on the contracted selling price of the properties held by the jointly-owned investment. The properties were sold in October 2013.

Marketable Security

During the year ended December 31, 2013 , we recognized an other-than-temporary impairment charge of $0.6 million on an investment in an equity fund. During the fourth quarter of 2013, we received information that indicated the fair value of the equity fund was less than its carrying value. Since the fund was being wound down and the remaining investments had fair values less than their cost, this impairment was deemed other-than-temporary and the carrying value was written down to the estimated fair value.

Properties Sold
 
During the years ended December 31, 2013 and 2012 , we recognized impairment charges on properties sold, including a hotel, totaling $7.3 million and $23.0 million , respectively, to reduce the carrying values of the properties to their selling prices. These impairment charges, which are included in discontinued operations, were the result of reducing these properties’ carrying values to their estimated fair values ( Note 16 ), which approximated their estimated selling prices, in connection with anticipated sales. The fair value measurement related to these impairment charges, other than the fair value of the hotel, was determined in part by third-party sources, subject to our corroboration for reasonableness. The fair value of the hotel property was obtained using an estimate of discounted cash flows using three significant inputs, which are capitalization rate, cash flow discount rate, and residual discount rate of 9.5% , 7.5% , and 10.0% , respe ctively.

Note 10. Risk Management and Use of Derivative Financial Instruments
 
Risk Management

In the normal course of our ongoing business operations, we encounter economic risk. There are four main components of economic risk that impact us: interest rate risk, credit risk, market risk, and foreign currency risk. We are primarily subject to interest rate risk on our interest-bearing liabilities, including the Senior Unsecured Credit Facility ( Note 11 ), at December 31, 2014 . Credit risk is the risk of default on our operations and our tenants’ inability or unwillingness to make contractually required payments. Market risk includes changes in the value of our properties and related loans, as well as changes in the value of our other securities and the shares we hold in the Managed REITs due to changes in interest rates or other market factors. We own investments in the European Union, Asia, and Australia and are subject to the risks associated with changing foreign currency exchange rates.


W. P. Carey 2014 10-K – 123
 
Notes to Consolidated Financial Statements

Derivative Financial Instruments
 
When we use derivative instruments, it is generally to reduce our exposure to fluctuations in interest rates and foreign currency exchange rate movements. We have not entered into, and do not plan to enter into, financial instruments for trading or speculative purposes. The primary risks related to our use of derivative instruments include default by a counterparty to a hedging arrangement on its obligation and a downgrade in the credit quality of a counterparty to such an extent that our ability to sell or assign our side of the hedging transaction is impaired. While we seek to mitigate these risks by entering into hedging arrangements with counterparties that are large financial institutions that we deem to be creditworthy, it is possible that our hedging transactions, which are intended to limit losses, could adversely affect our earnings. Furthermore, if we terminate a hedging arrangement, we may be obligated to pay certain costs, such as transaction or breakage fees. We have established policies and procedures for risk assessment and the approval, reporting, and monitoring of derivative financial instrument activities.

We measure derivative instruments at fair value and record them as assets or liabilities, depending on our rights or obligations under the applicable derivative contract. Derivatives that are not designated as hedges must be adjusted to fair value through earnings. For a derivative designated, and that qualified, as a cash flow hedge, the effective portion of the change in fair value of the derivative is recognized in Other comprehensive (loss) income until the hedged item is recognized in earnings. For a derivative designated, and that qualified, as a net investment hedge, the effective portion of the change in the fair value and/or the net settlement of the derivative are reported in Other comprehensive (loss) income as part of the cumulative foreign currency translation adjustment. Amounts are reclassified out of Other comprehensive (loss) income into earnings when the hedged investment is either sold or substantially liquidated. The ineffective portion of a derivative’s change in fair value is immediately recognized in earnings.
 
The following table sets forth certain information regarding our derivative instruments (in thousands):
Derivatives Designated
as Hedging Instruments
 
 
 
Asset Derivatives Fair Value at
 
Liability Derivatives Fair Value at
 
Balance Sheet Location
 
December 31, 2014
 
December 31, 2013
 
December 31, 2014
 
December 31, 2013
Interest rate caps
 
Other assets, net
 
$
3

 
$
2

 
$
—

 
$
—

Interest rate swaps
 
Other assets, net
 
285

 
1,618

 
—

 
—

Foreign currency forward contracts (a)
 
Other assets, net
 
16,307

 
—

 
—

 
—

Foreign currency forward contracts (a)
 
Accounts payable, accrued expenses and other liabilities
 
—

 
—

 
—

 
(7,083
)
Interest rate swaps (a)
 
Accounts payable, accrued expenses and other liabilities
 
—

 
—

 
(5,660
)
 
(2,734
)
Derivatives Not Designated 
  as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
Stock warrants (b)
 
Other assets, net
 
3,753

 
2,160

 
—

 
—

Interest rate swaps (c)
 
Accounts payable, accrued expenses and other liabilities
 
—

 
—

 
(7,496
)
 
(11,995
)
Total derivatives
 
 
 
$
20,348

 
$
3,780

 
$
(13,156
)
 
$
(21,812
)
__________
(a)
In connection with the CPA ® :16 Merger, we acquired interest rate swaps and a cap, which were in a net liability position, and foreign currency forward contracts, which were in a net asset position, that had fair values of $2.4 million and $5.0 million , respectively, at December 31, 2014 .
(b)
In connection with the CPA ® :16 Merger, we acquired warrants from CPA ® :16 – Global, which had previously been granted by Hellweg 2 to CPA ® :16 – Global, that had a fair value of $1.3 million at December 31, 2014 . These warrants give us participation rights to any distributions made by Hellweg 2 and entitle us to a cash distribution that equals a certain percentage of the liquidity event price of Hellweg 2, should a liquidity event occur.
(c)
These interest rate swaps do not qualify for hedge accounting; however, they do protect against fluctuations in interest rates related to the underlying variable-rate debt.

All derivative transactions with an individual counterparty are governed by a master International Swap and Derivatives Association agreement, which can be considered as a master netting arrangement; however, we report all our derivative

W. P. Carey 2014 10-K – 124
 
Notes to Consolidated Financial Statements

instruments on a gross basis on our consolidated financial statements. At both December 31, 2014 and 2013 , no cash collateral had been posted nor received for any of our derivative positions.

The following tables present the impact of our derivative instruments in the consolidated financial statements (in thousands):
 
 
Amount of Gain (Loss) Recognized in
Other Comprehensive (Loss) Income
on Derivatives (Effective Portion) (a)
 
 
Years Ended December 31,
Derivatives in Cash Flow Hedging Relationships 
 
2014
 
2013
 
2012
Interest rate swaps
 
$
(2,628
)
 
$
4,720

 
$
(1,059
)
Interest rate caps
 
290

 
(15
)
 
277

Foreign currency forward contracts
 
23,167

 
(5,211
)
 
(1,480
)
Derivatives in Net Investment Hedging Relationship (b)
 
 
 
 
 
 
Foreign currency forward contracts
 
2,566

 
—

 
—

Total
 
$
23,395

 
$
(506
)
 
$
(2,262
)

 
 
 
 
Amount of Gain (Loss) Reclassified from 
Other Comprehensive (Loss) Income
into Income (Effective Portion) (c)
Derivative in Cash Flow Hedging Relationships
 
Location of Gain (Loss) Recognized in Income
 
Years Ended December 31,
 
 
2014
 
2013 (d)
 
2012 (d)
Interest rate swaps
 
Interest expense
 
$
(2,691
)
 
$
(1,745
)
 
$
(1,539
)
Foreign currency forward contracts
 
Other income and (expenses)
 
(103
)
 
(537
)
 
(239
)
Total
 
 
 
$
(2,794
)
 
$
(2,282
)
 
$
(1,778
)
 __________
(a)
Excludes net gains (losses) of $0.3 million , $0.5 million , and less than $ (0.1) million recognized on unconsolidated jointly-owned investments for the years ended December 31, 2014 , 2013 , and 2012 , respectively.
(b)
The effective portion of the change in fair value and the settlement of these contracts are reported in the foreign currency translation adjustment section of Other comprehensive (loss) income until the underlying investment is sold, at which time we reclassify the gain or loss to earnings.
(c)
Excludes net gains of $0.4 million , $0.5 million , and $0.4 million recognized on unconsolidated jointly-owned investments for the years ended December 31, 2014 , 2013 , and 2012 , respectively.
(d)
The amounts included in this column for the periods presented have been revised to reverse the signs that were incorrectly presented when originally reported.

Amounts reported in Other comprehensive (loss) income related to interest rate swaps will be reclassified to Interest expense as interest payments are made on our variable-rate debt. Amounts reported in Other comprehensive (loss) income related to foreign currency derivative contracts will be reclassified to Other income and (expenses) when the hedged foreign currency contracts are settled. At December 31, 2014 , we estimate that an additional $2.7 million and $4.2 million will be reclassified as interest expense and other income, respectively, during the next 12 months.
 
 
 
 
Amount of Gain (Loss) Recognized in
Income on Derivatives
 
 
Location of Gain (Loss)
 
Years Ended December 31,
Derivatives Not in Cash Flow Hedging Relationships
 
Recognized in Income
 
2014
 
2013
 
2012
Interest rate swaps
 
Interest expense
 
$
3,186

 
$
5,249

 
$
429

Stock warrants
 
Other income and (expenses)
 
134

 
440

 
108

Derivatives in Cash Flow Hedging Relationships
 
 
 
 
 
 
 
 
Interest rate swaps (a)
 
Interest expense
 
761

 
(20
)
 
101

Total
 
 
 
$
4,081

 
$
5,669

 
$
638

___________
(a)
Relates to the ineffective portion of the hedging relationship.


W. P. Carey 2014 10-K – 125
 
Notes to Consolidated Financial Statements

See below for information on our purposes for entering into derivative instruments and for information on derivative instruments owned by unconsolidated investments, which are excluded from the tables above.

Interest Rate Swaps and Caps

We are exposed to the impact of interest rate changes primarily through our borrowing activities. To limit this exposure, we historically attempted to obtain mortgage financing on a long-term, fixed-rate basis. However, from time to time, we or our investment partners obtained, and may in the future obtain, variable-rate, non-recourse mortgage loans, and as a result, we have entered into, and may continue to enter into, interest rate swap agreements or interest rate cap agreements with counterparties. Interest rate swaps, which effectively convert the variable-rate debt service obligations of the loan to a fixed rate, are agreements in which one party exchanges a stream of interest payments for a counterparty’s stream of cash flow over a specific period. The face amount on which the swaps are based is not exchanged. Interest rate caps limit the effective borrowing rate of variable-rate debt obligations while allowing participants to share in downward shifts in interest rates. Our objective in using these derivatives is to limit our exposure to interest rate movements.

The interest rate swaps and caps that we had outstanding on our consolidated subsidiaries at December 31, 2014 are summarized as follows (currency in thousands):
 
 
 Number of Instruments

Notional
Amount

Fair Value at December 31, 2014  (a)
Interest Rate Derivatives
 


Designated as Cash Flow Hedging Instruments
 
 
 
 
 
 
 
Interest rate swaps
 
14
 
129,313

USD
 
$
(4,324
)
Interest rate swaps
 
2
 
8,174

EUR
 
(1,051
)
Interest rate caps (b)
 
1
 
45,847

EUR
 
3

Not Designated as Cash Flow Hedging Instruments
 
 
 
 
 
 
 
Interest rate swaps (c)
 
3
 
107,400

EUR
 
(7,496
)
 
 
 
 
 
 
 
$
(12,868
)
__________  
(a)
Fair value amounts are based on the exchange rate of the euro at December 31, 2014 , as applicable.
(b)
The applicable interest rate of the related debt was 1.0% , which was below the strike price of the cap of 3.0% at December 31, 2014 .
(c)
These interest rate swaps do not qualify for hedge accounting; however, they do protect against fluctuations in interest rates related to the underlying variable-rate debt.
 
Foreign Currency Contracts
 
We are exposed to foreign currency exchange rate movements, primarily in the euro and, to a lesser extent, the British pound sterling and certain other currencies. We manage foreign currency exchange rate movements by generally placing our debt service obligation on an investment in the same currency as the tenant’s rental obligation to us. This reduces our overall exposure to the net cash flow from that investment. However, we are subject to foreign currency exchange rate movements to the extent of the difference in the timing and amount of the rental obligation and the debt service. Realized and unrealized gains and losses recognized in earnings related to foreign currency transactions are included in Other income and (expenses) in the consolidated financial statements.

In order to hedge certain of our foreign currency cash flow exposures, we enter into foreign currency forward contracts. A foreign currency forward contract is a commitment to deliver a certain amount of currency at a certain price on a specific date in the future. By entering into forward contracts and holding them to maturity, we are locked into a future currency exchange rate for the term of the contract.
 

W. P. Carey 2014 10-K – 126
 
Notes to Consolidated Financial Statements

The following table presents the foreign currency derivative contracts we had outstanding at December 31, 2014 , which were designated as cash flow hedges (currency in thousands):
 
 
 Number of Instruments
 
Notional
 Amount
 
Fair Value at December 31, 2014  (a)
Foreign Currency Derivatives
 
 
 
Designated as Cash Flow Hedging Instruments
 
 
 
 
 
 
 
Foreign currency forward contracts
 
68
 
155,978

EUR
 
$
12,573

Foreign currency forward contracts
 
16
 
8,560

GBP
 
51

Foreign currency forward contracts
 
20
 
25,082

AUD
 
1,117

Designated as Net Investment Hedging Instruments
 
 
 
 
 
 
 
Foreign currency forward contracts
 
5
 
84,522

AUD
 
2,566

 
 
 
 
 
 
 
$
16,307

 __________ 
(a)
Fair value amounts are based on the applicable exchange rate of the foreign currency at December 31, 2014 .

Credit Risk-Related Contingent Features

We measure our credit exposure on a counterparty basis as the net positive aggregate estimated fair value of our derivatives, net of collateral received, if any. No collateral was received as of December 31, 2014 . At December 31, 2014 , our total credit exposure and the maximum exposure to any single counterparty was $16.2 million and $9.9 million , respectively.

Some of the agreements we have with our derivative counterparties contain certain credit contingent provisions that could result in a declaration of default against us regarding our derivative obligations if we either default or are capable of being declared in default on certain of our indebtedness. At December 31, 2014 , we had not been declared in default on any of our derivative obligations. The estimated fair value of our derivatives that were in a net liability position was $14.2 million and $22.9 million at December 31, 2014 and 2013 , respectively, which included accrued interest and any adjustment for nonperformance risk. If we had breached any of these provisions at either December 31, 2014 or 2013 , we could have been required to settle our obligations under these agreements at their aggregate termination value of $ 14.5 million or $24.4 million , respectively.

Net Investment Hedge

At December 31, 2014 , amounts outstanding under the Revolver include $419.4 million borrowed in euros, and $62.1 million borrowed in British pounds ( Note 11 ). These borrowings are designated as, and are effective as, economic hedges of our net investments in foreign entities. Variability in the exchange rates of the foreign currencies with respect to the U.S. dollar impacts our financial results as the financial results of our foreign subsidiaries are translated to U.S. dollars each period, with the effect of changes in the foreign currencies to U.S. dollar exchange rates being recorded in Other comprehensive (loss) income as part of the cumulative foreign currency translation adjustment. As a result, the borrowings in euro and British pounds sterling under the Revolver are recorded at cost in the consolidated financial statements and all changes in the value related to changes in the spot rates will be reported in the same manner as a translation adjustment, which is recorded in Other comprehensive (loss) income as part of the cumulative foreign currency translation adjustment.

Note 11. Debt
 
Senior Unsecured Credit Facility

At December 31, 2013, we had a senior credit facility that provided for a $450.0 million unsecured revolving credit facility and a $175.0 million term loan facility, which we refer to collectively as the Prior Senior Credit Facility. On January 31, 2014, we entered into the Second Amended and Restated Credit Agreement in order to increase the maximum aggregate principal amount from $625.0 million to $ 1.25 billion , which we refer to as the Senior Unsecured Credit Facility, and on that date drew down $ 765.0 million to repay the Prior Senior Credit Facility, the Unsecured Term Loan discussed below and CPA ® :16 – Global’s line of credit, which had an outstanding balance of $170.0 million on the same date, which was the date of the closing of the CPA ® :16 Merger. Because we had obtained investment grade ratings in January 2014, all of the guarantors were released from their guarantees under the Senior Unsecured Credit Facility in February 2014. In addition, as a result of the investment grade ratings, certain provisions that restricted the amount we could draw under the Senior Unsecured Credit Facility were no longer applicable. In connection with entering into the Senior Unsecured Credit Facility and the simultaneous repayment of the outstanding balances of the facilities described above and the Unsecured Term Loan, we incurred financing costs totaling $7.9

W. P. Carey 2014 10-K – 127
 
Notes to Consolidated Financial Statements

million included in Other assets, net in the consolidated financial statements, which are being amortized to Interest expense over the remaining terms of the facilities, and recognized a loss on extinguishment of debt of $2.1 million included in Other income and (expenses) in the consolidated financial statements.

At December 31, 2014 , the Senior Unsecured Credit Facility was comprised of a $1.0 billion unsecured revolving credit facility, or the Revolver, and a $250.0 million term loan facility, or the Term Loan Facility. The Revolver matures in 2018 but may be extended by one year at our option, subject to the conditions provided in the Second Amended and Restated Credit Agreement. The Term Loan Facility matures in 2016 but we have two options to extend the maturity by another year. At our election, the principal amount available under the Senior Unsecured Credit Facility may be increased by up to an additional $500.0 million , and may be allocated as an increase to the Revolver and/or the Term Loan Facility, or if the Term Loan Facility has been terminated, an add-on term loan, in each case subject to the conditions to increase provided in the Second Amended and Restated Credit Agreement, which we refer to as the Accordion Feature ( Note 19 ). The Senior Unsecured Credit Facility also permits (i) up to $500.0 million under the Revolver to be borrowed in certain currencies other than the U.S. dollar ( Note 19 ), (ii) swing line loans of up to $50.0 million under the Revolver, and (iii) the issuance of letters of credit under the Revolver in an aggregate amount not to exceed $ 50.0 million . The Senior Unsecured Credit Facility is being used for working capital needs, to refinance our existing indebtedness, for new investments and for other general corporate purposes.
 
Borrowings under the Senior Unsecured Credit Facility bear interest, at our election, at a rate equal to either: (i) the Eurocurrency Rate (as defined in the Second Amended and Restated Credit Agreement), or (ii) the Base Rate (as defined in the Second Amended and Restated Credit Agreement), in each case, plus the Applicable Rate (as defined in the Second Amended and Restated Credit Agreement). Since we obtained investment grade ratings as of January 31, 2014, for borrowings under the Revolver, the Applicable Rate on Eurocurrency Rate loans and letters of credit ranges from 0.925% to 1.70% and the Applicable Rate on Base Rate loans ranges from 0.00% to 0.70% . For borrowings under the Term Loan Facility, the Applicable Rate on Eurocurrency Rate loans and letters of credit ranges from 1.00% to 1.95% and the Applicable Rate on Base Rate loans ranges from 0.00% to 0.95% . Swing line loans under the Senior Unsecured Credit Facility will bear interest at the Base Rate plus the Applicable Rate then in effect. In addition, we pay a quarterly facility fee ranging from 0.125% to 0.30% on the Revolver . At December 31, 2014 , the outstanding balance under the Senior Unsecured Credit Facility was $ 1.1 billion , including the $250.0 million drawn under the Term Loan Facility, $326.0 million borrowed under the Revolver in U.S. dollars, the equivalent of $419.4 million borrowed under the Revolver in euros, and the equivalent of $62.1 million borrowed under the Revolver in British pounds. In addition, as of December 31, 2014 , our lenders had issued letters of credit totaling $1.1 million on our behalf in connection with certain contractual obligations, which reduce amounts that may be drawn under the Revolver. At December 31, 2014 , our Revolver had unused capacity of $192.5 million , excluding amounts reserved for outstanding letters of credit. Based on our credit rating of BBB/Baa2 during the year ended December 31, 2014 , we incurred interest at LIBOR plus 1.10% on the Revolver and LIBOR plus 1.25% on the Term Loan Facility. We also incurred a facility fee of 0.20% on the Revolver during the year ended December 31, 2014 .

The Senior Unsecured Credit Facility includes customary financial maintenance covenants, including a maximum leverage ratio, maximum secured debt ratio, minimum equity value ratio, minimum fixed charge coverage ratio and minimum unsecured interest coverage ratio. The Senior Unsecured Credit Facility also contains various customary affirmative and negative covenants applicable to us and our subsidiaries, subject to materiality and other qualifications, baskets and exceptions as outlined in the Second Amended and Restated Credit Agreement.

We are required to ensure that the total Restricted Payments (as defined in the Second Amended and Restated Credit Agreement) in an aggregate amount in any fiscal year does not exceed the greater of (i)  95% of Adjusted Funds from Operations (as defined in the Second Amended and Restated Credit Agreement) and (ii) the amount of Restricted Payments required in order for us to maintain our REIT status. Restricted Payments include quarterly dividends and the total amount of shares repurchased by us, if any, in excess of $100.0 million per year.

Obligations under the Senior Unsecured Credit Facility may be declared immediately due and payable upon the occurrence of certain events of default as defined in the Second Amended and Restated Credit Agreement, including failure to pay any principal when due and payable, failure to pay interest within five business days after becoming due, failure to comply with any covenant, representation or condition of any loan document, any change of control, cross-defaults, and certain other events as set forth in the Second Amended and Restated Credit Agreement, with grace periods in some cases.

The Second Amended and Restated Credit Agreement stipulates several financial covenants that require us to maintain certain ratios and benchmarks at the end of each quarter as defined in the Second Amended and Restated Credit Agreement. We were in compliance with all of these covenants at December 31, 2014 .


W. P. Carey 2014 10-K – 128
 
Notes to Consolidated Financial Statements

Senior Unsecured Notes

In March 2014, we issued $500.0 million in corporate bonds at a price of 99.639% of par value or a $1.8 million discount with a yield to maturity of 4.645% in a registered public offering. These notes have a ten-year term and mature on April 1, 2024 with an annual interest rate of 4.60% . The interest is paid semi-annually on April 1 and October 1, and commenced on October 1, 2014. The senior unsecured notes can be redeemed at par within three months of maturity, or we can call the notes at any time for the principal, accrued interest and a make-whole amount based upon a rate of the ten-year U.S. Treasury yield plus 30 basis points . In connection with this transaction, we incurred financing costs totaling $4.2 million included in Other assets, net in the consolidated financial statements, that are being amortized to Interest expense over the term of the senior unsecured notes. The proceeds from the issuance were used to pay down in part the then-outstanding balance under our Revolver.

The senior unsecured notes require us to maintain certain ratios and benchmarks at the end of each quarter as defined in the terms in the prospectus supplement filed with the SEC on March 13, 2014. We were in compliance with all of these covenants at December 31, 2014 .
 
See Note 19 for a discussion of additional senior notes issued, the exercise of the Accordion Feature, and certain amendments to the Senior Unsecured Credit Facility subsequent to December 31, 2014 .

Unsecured Term Loan

In July 2013, we entered into a credit agreement with the lenders of our Prior Senior Credit Facility for an Unsecured Term Loan of up to $300.0 million , which we drew down in full on that date. On January 31, 2014, the Unsecured Term Loan was repaid in full using a portion of the amounts drawn down under the Senior Unsecured Credit Facility on that date.

Non-Recourse Debt
 
Non-recourse debt consists of mortgage notes payable, which are collateralized by the assignment of real estate properties with an aggregate carrying value of $3.3 billion and $1.9 billion at December 31, 2014 and 2013 , respectively. At December 31, 2014 , our mortgage notes payable bore interest at fixed annual rates ranging from 2.6% to 11.5% and variable contractual annual rates ranging from 1.0% to 7.6% , with maturity dates ranging from 2015 to 2038 at December 31, 2014 .

Financing Activity During 2014 — In connection with the CPA ® :16 Merger ( Note 3 ), we assumed property level debt comprised of  18  variable-rate and  97  fixed-rate non-recourse mortgage loans with fair values totaling $161.9 million  and $1.4 billion , respectively, on the acquisition date and recorded an aggregate net fair market value adjustment of $9.8 million  at that date. The fair market value adjustment will be amortized to interest expense over the remaining lives of the related loans. These fixed-rate and variable-rate mortgages had weighted-average annual interest rates of  5.79%  and  3.63% , respectively, on the acquisition date ( Note 10 ).

During the year ended  December 31, 2014 , in connection with our long-term plan to become a primarily unsecured borrower, we prepaid  20  non-recourse mortgage loans with an aggregate outstanding principal balance of $220.8 million , with a weighted-average remaining term of  1.4 years  on the dates of the prepayments and weighted-average interest rate of  5.3% . In connection with these prepayments, we incurred a net loss on extinguishment of debt of $8.1 million , of which  $6.9 million  is included in Other income and (expenses) and  $1.2 million  is included in Income from discontinued operations, net of tax in the consolidated financial statements. During the year ended  December 31, 2014 , we also paid $7.2 million  for the defeasance of a mortgage loan.

During the year ended  December 31, 2014 , we drew down $20.4 million  on a construction loan in relation to a build-to-suit transaction.

Financing Activity During 2013 — During the year ended December 31, 2013 , in connection with our acquisitions ( Note 5 ) during that period, we obtained non-recourse mortgage loans totaling $39.1 million with a weighted-average interest rate of 3.9% and term of 9.5 years .

During the year ended December 31, 2013 , we also refinanced four maturing non-recourse mortgage loans totaling $48.7 million with new financing totaling $76.5 million . These new mortgage loans had a weighted-average annual interest rate and term of 5.0% and 9.3 years , respectively.

Financing Activity During 2012 — In connection with the CPA ® :15 Merger ( Note 3 ), we assumed property level debt comprised of nine variable-rate and 58 fixed-rate non-recourse mortgage loans with fair values totaling $295.2 million and $1.1

W. P. Carey 2014 10-K – 129
 
Notes to Consolidated Financial Statements

billion , respectively, on September 28, 2012 and recorded an aggregate net fair market value adjustment of $ 14.8 million at that date. The fair market value adjustment will be amortized to interest expense over the remaining lives of the related loans. These fixed-rate and variable-rate mortgages had weighted-average annual interest rates of 5.08% and 5.03% , respectively. The weighted-average annual interest rate for the variable-rate mortgages was calculated using the applicable interest rates on the date of the CPA ® :15 Merger.
 
During the year ended December 31, 2012 , we also refinanced four maturing non-recourse mortgages totaling $ 21.2 million with new financing totaling $ 23.8 million. These mortgage loans had a weighted-average annual interest rate and term of 4.2% and 11.5 years , respectively.

Foreign Currency Exchange Rate Impact

During the year ended  December 31, 2014 , the U.S. dollar strengthened against the euro, as the end-of-period rate for the U.S. dollar in relation to the euro at December 31, 2014 decreased by 11.7% to $1.2156 from $1.3768 at December 31, 2013 . The impact of this strengthening was an aggregate decrease of $121.0 million in the carrying values of our Non-recourse debt and Senior Unsecured Credit Facility from December 31, 2013 to December 31, 2014 .
 
Scheduled Debt Principal Payments
 
Scheduled debt principal payments during each of the next five calendar years following December 31, 2014 and thereafter are as follows (in thousands):
Years Ending December 31, 
 
Total   (a)
2015
 
$
210,081

2016 (b)
 
609,150

2017
 
751,954

2018 (c)
 
1,088,374

2019
 
99,777

Thereafter through 2038 (d)
 
1,323,978

 
 
4,083,314

Unamortized premium, net (e)
 
5,232

Total
 
$
4,088,546

__________
(a)
Certain amounts are based on the applicable foreign currency exchange rate at December 31, 2014 .
(b)
Includes $250.0 million outstanding under our Term Loan Facility at December 31, 2014 , which is scheduled to mature on January 31, 2016 unless extended pursuant to its terms.
(c)
Includes $807.5 million outstanding under our Revolver at December 31, 2014 , which is scheduled to mature on January 31, 2018 unless extended pursuant to its terms.
(d)
Includes $500.0 million of outstanding 4.6% senior unsecured notes, which are scheduled to mature on April 1, 2024 .
(e)
Represents the unamortized premium of $6.9 million in the aggregate resulting from the assumption of property-level debt in connection with the CPA ® :15 Merger and the CPA ® :16 Merger, partially offset by a $1.7 million unamortized discount on the 4.6% senior unsecured notes.

Note 12. Commitments and Contingencies

On December 31, 2013 , Mr. Ira Gaines and entities affiliated with him commenced a purported class action (Ira Gaines, et al. v. Corporate Property Associates 16 – Global Incorporated, Index. No. 650001/2014, N.Y. Sup. Ct., N.Y. County) against us, WPC REIT Merger Sub Inc., CPA ® :16 – Global, and the directors of CPA ® :16 – Global. On April 11, 2014, we and the other defendants filed a motion to dismiss the complaint, as amended, and on October 15, 2014, the judge granted the defendants’ motion to dismiss the amended complaint in its entirety. The plaintiffs filed a Notice of Appeal on November 24, 2014 and have until August 24, 2015 to file that appeal. We believe that the plaintiffs' claims are without merit, and if the plaintiffs file a timely appeal, we intend to continue to defend the case vigorously.

Various other claims and lawsuits arising in the normal course of business are pending against us. The results of these proceedings are not expected to have a material adverse effect on our consolidated financial position or results of operations.


W. P. Carey 2014 10-K – 130
 
Notes to Consolidated Financial Statements

Note 13. Equity

Common Stock

Distributions
 
Distributions paid to stockholders consist of ordinary income, capital gains, return of capital or a combination thereof for income tax purposes. The following table presents distributions per share, declared and paid during the years ended December 31, 2014 and 2013 , reported for federal tax purposes and serves as a designation of capital gain distributions, if applicable, pursuant to Internal Revenue Code Section 857(b)(3)(C) and Treasury Regulation § 1.857-6(e):
 
Distributions Paid
 
During the Years Ended December 31,
 
On October 16,
 
2014
 
2013
 
2012
Ordinary income
$
3.6566

 
$
3.1701

 
$
0.6228

Return of capital
0.0584

 
0.0099

 
0.0272

Total distributions paid
$
3.7150

 
$
3.1800

 
$
0.6500

 
During the fourth quarter of 2014 , we declared a quarterly distribution of $ 0.95 per share, which was paid on January 15, 2015 to stockholders of record on December 31, 2014 .

Earnings Per Share
 
Under current authoritative guidance for determining earnings per share, all unvested share-based payment awards that contain non-forfeitable rights to distributions are considered to be participating securities and therefore are included in the computation of earnings per share under the two-class method. The two-class method is an earnings allocation formula that determines earnings per share for each class of common shares and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. Our unvested RSUs and RSAs contain rights to receive non-forfeitable distribution equivalents, and therefore we apply the two-class method of computing earnings per share. The calculation of earnings per share below excludes the income attributable to the unvested RSUs and RSAs from the numerator and such unvested shares in the denominator. The following table summarizes basic and diluted earnings (in thousands, except share amounts):
 
Years Ended December 31,
 
2014
 
2013
 
2012
Net income attributable to W. P. Carey
$
239,826

 
$
98,876

 
$
62,132

Allocation of distribution equivalents paid on unvested RSUs and RSAs in excess of income
(1,007
)
 
(743
)
 
(535
)
Net income – basic
238,819

 
98,133

 
61,597

Income effect of dilutive securities, net of taxes
(77
)
 
187

 
23

Net income – diluted
$
238,742

 
$
98,320

 
$
61,620

 
 
 
 
 
 
Weighted-average shares outstanding – basic
98,764,164

 
68,691,046

 
47,389,460

Effect of dilutive securities
1,063,192

 
1,016,962

 
689,014

Weighted-average shares outstanding – diluted
99,827,356

 
69,708,008

 
48,078,474

 
Securities to taling 114,919 shares associated with the Redeemable noncontrolling interest were excluded from the earnings per share computations above as their effect would have been anti-dilutive for the year en ded December 31, 2013 . There were no such anti-dilutive securities for the years ended December 31, 2014 and 2012 . For information on long-term incentive plan awards issued to key employees subsequent to December 31, 2014 that could have a dilutive impact on our earnings per share calculation, please see Note 19 .


W. P. Carey 2014 10-K – 131
 
Notes to Consolidated Financial Statements

Equity Offering

In September 2014, we completed a public offering of 4,600,000 shares of our common stock, $0.001 par value per share, at a
price of $64.00 per share, or the Equity Offering, which includes the full exercise of the underwriters’ option to purchase an additional 600,000 shares of our common stock. The net proceeds of $282.2 million from the Equity Offering were intended to repay certain indebtedness, including amounts outstanding under our Senior Unsecured Credit Facility, to fund potential future acquisitions and for general corporate purposes. We utilized $225.8 million of the net proceeds from the Equity Offering to pay down a portion of the amount then outstanding under our Revolver.

Sale of Common Shares
 
On October 19, 2012, we entered into an agreement to sell 937,500 shares of our common stock to an institutional investor, which were issued pursuant to our then existing shelf registration statement. The shares were issued in a privately negotiated transaction at a purchase price of $ 48.00 per share. The proceeds to us from the sale of these shares were $ 45.0 million . We delivered the shares to the institutional investor on October 19, 2012.

Noncontrolling Interests

Transfers to Noncontrolling Interests

The following table presents a reconciliation of the effect of transfers in noncontrolling interest (in thousands):
 
Years Ended December 31,
 
2014
 
2013
 
2012
Net income attributable to W. P. Carey
$
239,826

 
$
98,876

 
$
62,132

Transfers to noncontrolling interest
 
 
 
 
 
Decrease in W. P. Carey’s additional paid-in capital for purchase of the remaining interest in a jointly-owned investment
—

 
—

 
(154
)
Decrease in W. P. Carey’s additional paid-in capital for purchases of less-than-wholly-owned investments in connection with the CPA ® :16 Merger
(41,374
)
 
—

 
—

Net transfers to noncontrolling interest
(41,374
)
 
—

 
(154
)
Change from net income attributable to W. P. Carey and transfers to noncontrolling interest
$
198,452

 
$
98,876

 
$
61,978


Redeemable Noncontrolling Interest
 
We account for the noncontrolling interest in WPCI held by a third party as a redeemable noncontrolling interest, as we have an obligation to repurchase the interest at fair value, subject to certain conditions, pursuant to a put option held by the third party. This obligation is required to be settled in shares of our common stock. The third-party interest is reflected at estimated redemption value for all periods presented. On October 1, 2013, we received a notice from the holder of the noncontrolling interest in WPCI regarding the holder’s intention to exercise of the put option, pursuant to which we are required to purchase the third party’s 7.7% interest in WPCI. Pursuant to the terms of the related put agreement, the purchase price is to be determined based on a third-party valuation as of October 31, 2013, which is the end of the month that the put option was exercised. We cannot currently estimate when the redemption will occur and the amount of $6.1 million recorded represents our best estimate of the redemption value of that interest.


W. P. Carey 2014 10-K – 132
 
Notes to Consolidated Financial Statements

The following table presents a reconciliation of redeemable noncontrolling interest (in thousands):
 
Years Ended December 31,
 
2014
 
2013
 
2012
Beginning balance
$
7,436

 
$
7,531

 
$
7,700

Redemption value adjustment
(306
)
 
—

 
840

Net (loss) income
(142
)
 
353

 
40

Distributions
(926
)
 
(435
)
 
(1,055
)
Change in other comprehensive income (loss)
9

 
(13
)
 
6

Ending balance
$
6,071

 
$
7,436

 
$
7,531


Other Comprehensive Income

Accumulated Other Comprehensive (Loss) Income
 
The following table presents the components of Accumulated other comprehensive (loss) income reflected in equity, net of tax. Amounts include our proportionate share of other comprehensive income or loss from our unconsolidated investments (in thousands):
 
December 31,
 
2014
 
2013
Unrealized gain on marketable securities
$
21

 
$
31

Realized and unrealized gain (loss) on derivative instruments
13,597

 
(7,488
)
Foreign currency translation adjustments
(89,177
)
 
22,793

Accumulated other comprehensive (loss) income
$
(75,559
)
 
$
15,336


Reclassifications Out of Accumulated Other Comprehensive (Loss) Income

The following tables present a reconciliation of changes in Accumulated other comprehensive (loss) income by component for the periods presented (in thousands):
 
Year Ended December 31, 2014
 
Gains and Losses on Derivative Instruments
 
Foreign Currency Translation Adjustments
 
Gains and Losses on Marketable Securities
 
Total
Beginning balance
$
(7,488
)
 
$
22,793

 
$
31

 
$
15,336

Other comprehensive income (loss) before reclassifications
17,911

 
(117,938
)
 
(10
)
 
(100,037
)
Amounts reclassified from accumulated other comprehensive income (loss) to:
 
 
 
 
 
 
 
Interest expense
2,691

 
—

 
—

 
2,691

Other income and (expenses)
103

 
—

 
—

 
103

Equity in earnings of equity method investments in real estate and the Managed REITs
380

 
—

 
—

 
380

Total
3,174

 
—

 
—

 
3,174

Net current period other comprehensive income (loss)
21,085

 
(117,938
)
 
(10
)
 
(96,863
)
Net current period other comprehensive income attributable to noncontrolling interests and redeemable noncontrolling interests
—

 
5,968

 
—

 
5,968

Ending balance
$
13,597

 
$
(89,177
)
 
$
21

 
$
(75,559
)


W. P. Carey 2014 10-K – 133
 
Notes to Consolidated Financial Statements

 
Year Ended December 31, 2013
 
Gains and Losses on Derivative Instruments
 
Foreign Currency Translation Adjustments
 
Gains and Losses on Marketable Securities
 
Total
Beginning balance
$
(7,508
)
 
$
2,828

 
$
31

 
$
(4,649
)
Other comprehensive (loss) income before reclassifications
(2,793
)
 
21,835

 
—

 
19,042

Amounts reclassified from accumulated other comprehensive income to:
 
 
 
 
 
 
 
Interest expense
1,745

 
—

 
—

 
1,745

Other income and (expenses)
537

 
—

 
—

 
537

Equity in earnings of equity method investments in real estate and the Managed REITs
531

 
—

 
—

 
531

Total
2,813

 
—

 
—

 
2,813

Net current period other comprehensive income
20

 
21,835

 
—

 
21,855

Net current period other comprehensive loss attributable to noncontrolling interests and redeemable noncontrolling interests
—

 
(1,870
)
 
—

 
(1,870
)
Ending balance
$
(7,488
)
 
$
22,793

 
$
31

 
$
15,336

 
Year Ended December 31, 2012
 
Gains and Losses on Derivative Instruments
 
Foreign Currency Translation Adjustments
 
Gains and Losses on Marketable Securities
 
Total
Beginning balance
$
(5,246
)
 
$
(3,299
)
 
$
38

 
$
(8,507
)
Other comprehensive (loss) income before reclassifications
(4,394
)
 
7,809

 
(7
)
 
3,408

Amounts reclassified from accumulated other comprehensive (loss) income to:
 
 
 
 
 
 
 
Interest expense
1,539

 
—

 
—

 
1,539

Other income and (expenses)
239

 
—

 
—

 
239

Equity in earnings of equity method investments in real estate and the Managed REITs
354

 
—

 
—

 
354

Total
2,132

 
—

 
—

 
2,132

Net current period other comprehensive (loss) income
(2,262
)
 
7,809

 
(7
)
 
5,540

Net current period other comprehensive loss attributable to noncontrolling interests and redeemable noncontrolling interests
—

 
(1,682
)
 
—

 
(1,682
)
Ending balance
$
(7,508
)
 
$
2,828

 
$
31

 
$
(4,649
)

Note 14. Stock-Based and Other Compensation
 
Stock-Based Compensation
 
At December 31, 2014 , we maintained several stock-based compensation plans as described below. The total compensation expense (net of forfeitures) for awards issued under these plans was $31.1 million , $37.3 million , and $26.2 million for the years ended December 31, 2014 , 2013 , and 2012 , respectively, all of which are included in Stock-based compensation expense in the consolidated financial statements. The tax benefit recognized by us related to these awards totaled $17.3 million , $18.4 million , and $16.2 million for the years ended December 31, 2014 , 2013 , and 2012 , respectively.
 
2009 Incentive Plan
 
We maintain the W. P. Carey, Inc. 2009 Share Incentive Plan, or the 2009 Incentive Plan, which as amended currently authorizes the issuance of up to 5,900,000 shares of our common stock. At December 31, 2014 , there were 3,095,316 shares remain available for issuance under the 2009 Share Incentive Plan. The 2009 Incentive Plan provides for the grant of (i) stock options, (ii) RSUs, (iii) PSUs, and (iv) dividend equivalent rights. The vesting of grants under both plans is accelerated upon a change in our control and under certain other conditions.
 

W. P. Carey 2014 10-K – 134
 
Notes to Consolidated Financial Statements

In December 2007, the Compensation Committee approved the long-term incentive plan, or LTIP, and terminated further contributions to the Partnership Equity Unit Plan described below. The following table presents LTIP awards granted in the past three years (PSUs are reflected at 100% of target but may settle at up to three times the target amount shown or less):
 
 
2009 Incentive Plan
Fiscal Year
 
RSUs Awarded
 
PSUs Awarded
2014 (a)
 
172,460

 
89,653

2013 (b)
 
171,804

 
85,900

2012  (c)
 
259,400

 
314,400

__________
(a)
Includes 10,500 RSUs issued in connection with entering into employment agreements with certain employees. Also includes 10,000 PSUs awarded related to 2012 awards for which the previously undetermined terms and conditions of the grant were finalized in 2014.
(b)
Includes 20,250 RSUs issued in connection with entering into employment agreements with certain employees. Also includes 10,000 PSUs awarded related to 2011 awards for which the previously undetermined terms and conditions of the grant were finalized in 2013.
(c)
Includes 78,000 RSUs and 142,000 PSUs issued in connection with entering into employment agreements with certain employees, and excludes 20,000 PSUs for which the terms and conditions were not determined at the time of grant. Also includes 10,000 PSUs awarded related to 2011 awards f or which the previously undetermined terms and conditions of the grant were finalized in 2012.

2009 Non-Employee Directors Incentive Plan
 
We maintain the W. P. Carey, Inc. 2009 Non-Employee Directors’ Incentive Plan, or the 2009 Directors’ Plan, which authorizes the issuance of 325,000 shares of our common stock in the aggregate. In the discretion of our board of directors, the awards may be in the form of RSUs, share options or RSAs, or any combination of the permitted awards. In July 2013, we issued 13,211 RSAs, with a total value of $ 0.9 million , to our directors under the 2009 Directors’ Plan in lieu of the RSUs that had been granted in previous years, as permitted under the terms of that plan. In July 2014, we issued 16,159 RSAs with a total value of $1.0 million to our directors. These RSAs are scheduled to vest one year from the date of grant. At December 31, 2014 , there were 215,705 shares that remained available for issuance under this plan.
 
Employee Share Purchase Plan
 
We sponsor an employee share purchase plan, pursuant to which eligible employees may contribute up to 10% of compensation, subject to certain limits, to purchase our common stock. During the periods presented, employees were entitled to purchase stock semi-annually at a price equal to 85% of the fair market value at certain plan defined dates. Compensation expense under this plan for the years ended December 31, 2014 , 2013 , and 2012 was $0.3 million , $1.2 million , and $0.6 million , respectively.

Partnership Equity Unit Plan
 
During 2003, we adopted a non-qualified deferred compensation plan, called the Partnership Equity Plan, or PEP, under which a portion of any participating officer’s cash compensation in excess of designated amounts was deferred and the officer was awarded Partnership Equity Plan Units, or PEP Units. Each of the PEPs is a deferred compensation plan and is therefore considered to be outside the scope of current accounting guidance for stock-based compensation and subject to liability award accounting. The value of each PEP Unit is adjusted to reflect the underlying appraised value of the designated CPA ® REIT. Additionally, each PEP Unit is entitled to distributions equal to the distribution rate of the CPA ® REIT. All issuances of PEP Units, changes in the fair value of PEP Units and distributions paid are included in our compensation expense. On December 16, 2013, we paid $ 0.2 million in cash to the remaining holders of the PEP Units issued under the initial PEP, which was equal to the per-share 2012 Merger Consideration received by CPA ® :15 stockholders or the net asset value per share of CPA ® :16 – Global, as applicable.
 
The plans are carried at fair value each quarter and are subject to changes in the fair value of the PEP units. Further contributions to the second PEP were terminated at December 31, 2007; however, this termination did not affect any awardees’ rights pursuant to awards granted under this plan. In December 2008, participants in the PEPs were required to make an election to either (i) remain in the PEPs, (ii) receive cash for their PEP Units (available to former employees only) or (iii) convert their PEP Units to fully vested RSUs (available to current employees only) to be issued under the 1997 Share

W. P. Carey 2014 10-K – 135
 
Notes to Consolidated Financial Statements

Incentive Plan, or as amended, the 1997 Incentive Plan on June 15, 2009. Substantially all of the PEP participants elected to receive cash or convert their existing PEP Units to RSUs. The PEP participants electing to receive RSUs were required to defer receipt of the underlying shares of our common stock for a minimum of two years . While employed by us, these participants are entitled to receive dividend equivalents equal to the amount of dividends paid on the underlying common stock during the deferral period. At December 31, 2014 and 2013 , we were obligated to issue 41,074 and 47,126 shares, respectively, of our common stock underlying these RSUs, which were recorded within W. P. Carey members’ equity as a Deferred compensation obligation of $1.1 million and $1.2 million , respectively. The remaining PEP liability pertaining to participants who elected to remain in the plans was $0.7 million at both December 31, 2014 and 2013 . Those PEP Units are scheduled to be paid between 2017 and 2019.
 
Restricted and Conditional Awards
 
Nonvested RSAs, RSUs, and PSUs at December 31, 2014 and changes during the years ended December 31, 2014 , 2013 , and 2012 were as follows:
 
RSA and RSU Awards
 
PSU Awards
 
Shares
 
Weighted-Average
Grant Date
Fair Value
 
Shares
 
Weighted-Average
Grant Date
Fair Value
Nonvested at January 1, 2012
624,793

 
$
33.26

 
673,428

 
$
36.30

Granted
274,420

 
41.41

 
314,400

 
42.28

Vested (a)
(268,683
)
 
32.56

 
(235,189
)
 
23.66

Forfeited
(36,336
)
 
36.33

 
(49,494
)
 
33.96

Adjustment (b)
—

 
—

 
296,368

 
26.01

Nonvested at December 31, 2012
594,194

 
37.15

 
999,513

 
34.55

Granted
185,015

 
57.69

 
86,189

 
84.33

Vested (a)
(233,098
)
 
36.76

 
(324,161
)
 
39.48

Forfeited
(26,503
)
 
43.05

 
(30,108
)
 
50.52

Adjustment (b)
—

 
—

 
489,287

 
67.22

Nonvested at December 31, 2013
519,608

 
45.19

 
1,220,720

 
28.28

Granted (c)
188,619

 
61.08

 
89,653

 
76.05

Vested (a)
(264,724
)
 
43.35

 
(881,388
)
 
51.00

Forfeited
(1,001
)
 
59.45

 
(78
)
 
54.31

Adjustment (b)
—

 
—

 
448,734

 
55.91

Nonvested at December 31, 2014 (d)
442,502

 
$
53.03

 
877,641

 
$
32.06

__________
(a)
The total fair value of shares vested during the years ended December 31, 2014 , 2013 , and 2012 was $56.4 million , $ 21.4 million , and $ 14.3 million , respectively. Upon vesting of the shares, employees have the option to take immediate delivery of the underlying shares or defer receipt to a future date. At December 31, 2014 and 2013 , we were obligated to issue 848,788 and 363,052 shares, respectively, of our common stock underlying these shares, which is recorded within W. P. Carey members’ equity as a Deferred compensation obligation of $29.6 million and $10.1 million , respectively.
(b)
Vesting and payment of the PSUs is conditional on certain company and market performance goals being met during the relevant three-year performance period. The ultimate number of PSUs to be vested will depend on the extent to which the performance goals are met and can range from zero to three times the original awards. Pursuant to a review of our current and expected performance versus the performance goals, we revised our estimate of the ultimate number of certain of the PSUs to be vested. As a result, we recorded adjustments in 2014 , 2013 , and 2012 to reflect the number of shares expected to be issued when the PSUs vest.
(c)
The grant date fair value of RSAs and RSUs are based on our stock price on the date of grant. The grant date fair value of the market-condition based PSUs were determined utilizing a Monte Carlo sim ulation model to generate a range of possible future stock prices for both us and the plan defined peer index over the three -year performance period. To estimate the fair value of PSUs granted during 2014 , we used a risk-free interest rate of 0.65% and an expected volatility rate of 25.89% (the plan defined peer index assumes 21.77% ) and assumed a dividend yield of zero .
(d)
At December 31, 2014 , total unrecognized compensation expense related to these awards was approximately $24.0 million , with aggregate weighted-average remaining term of 1.7 years .
 

W. P. Carey 2014 10-K – 136
 
Notes to Consolidated Financial Statements

At the end of each reporting period, we evaluate the ultimate number of PSUs we expect to vest based upon the extent to which we have met and expect to meet the performance goals and where appropriate, revise our estimate and associated expense. We do not adjust the associated expense for revision on PSUs expected to vest based on market performance. Upon vesting, the RSUs and PSUs may be converted into shares of our common stock. Both the RSUs and PSUs carry dividend equivalent rights. Dividend equivalent rights on RSUs are paid in cash on a quarterly basis whereas dividend equivalent rights on PSUs accrue during the performance period and may be converted into additional shares of common stock at the conclusion of the performance period to the extent the PSUs vest. Dividend equivalent rights are accounted for as a reduction to retained earnings to the extent that the awards are expected to vest. For awards that are not expected to vest or do not ultimately vest, dividend equivalent rights are accounted for as additional compensation expense.

Stock Options
 
Option activity and changes for all periods presented were as follows:
 
Year Ended December 31, 2014
 
Shares
 
Weighted-Average
Exercise Price
 
Weighted-Average
Remaining
Contractual
Term (in Years)
 
Aggregate
Intrinsic Value
Outstanding – beginning of year
619,601

 
$
30.30

 
 
 
 
Exercised
(140,718
)
 
31.41

 
 
 
 
Canceled / Expired
(3,118
)
 
32.99

 
 
 
 
Outstanding – end of year
475,765

 
$
29.95

 
1.75
 
$
19,102,514

Vested and expected to vest – end of year
475,765

 
$
29.95

 
1.75
 
$
19,102,514

Exercisable – end of year
421,656

 
$
29.75

 
1.64
 
$
17,012,685

 
 
Years Ended December 31,
 
2013
 
2012
 
Shares
 
Weighted-Average
Exercise Price
 
Weighted-Average
Remaining
Contractual
Term (in Years)
 
Shares
 
Weighted-Average
Exercise Price
 
Weighted-Average
Remaining
Contractual
Term (in Years)
Outstanding – beginning of year
794,210

 
$
30.32

 
 
 
1,208,041

 
$
28.73

 
 
Exercised
(169,412
)
 
30.43

 
 
 
(410,331
)
 
25.94

 
 
Canceled / Expired
(5,197
)
 
29.84

 
 
 
(3,500
)
 
24.93

 
 
Outstanding – end of year
619,601

 
$
30.30

 
2.59
 
794,210

 
$
30.32

 
3.19
Exercisable – end of year
511,811

 
$
30.18

 
 
 
623,218

 
$
30.22

 
 
 
Options granted under the 1997 Incentive Plan generally have a ten -year term and generally vest in four equal annual installments. Options granted under the 1997 Directors’ Plan have a ten -year term and vest generally over three years from the date of grant. We have not issued option awards since 2008. The total intrinsic value of options exercised during the years ended December 31, 2014 , 2013 , and 2012 was $4.9 million , $5.7 million , and $9.3 million , respectively.
 
At December 31, 2014 , all of our options were fully vested and all related compensation expense has been previously recognized; however certain options had exercise limitations.
 
We have the ability and intent to issue shares upon stock option exercises. Historically, we have issued authorized but unissued common stock to satisfy such exercises. Cash received from stock option exercises and purchases under our employee share purchase plan during the years ended December 31, 2014 , 2013 , and 2012 was $1.9 million , $2.3 million , and $6.8 million , respectively.
 

W. P. Carey 2014 10-K – 137
 
Notes to Consolidated Financial Statements

Other Compensation
 
Profit-Sharing Plan
 
We sponsor a qualified profit-sharing plan and trust that generally permits all employees, as defined by the plan, to make pre-tax contributions into the plan. We are under no obligation to contribute to the plan and the amount of any contribution is determined by and at the discretion of our board of directors. Our board of directors can authorize contributions to a maximum of 15% of an eligible participant’s compensation, limited to less than $ 0.1 million annually per participant. In December 2014, our board of directors determined that the contribution to the plan for 2014 would be 10% of an eligible participant’s compensation, up to a maximum of $26,000 . For the years ended December 31, 2014 , 2013 , and 2012 , amounts expensed for contributions to the trust were $3.5 million , $4.5 million , and $4.4 million , respectively, which were included in General and administrative expenses in the accompanying consolidated financial statements. The profit-sharing plan is a deferred compensation plan and is therefore considered to be outside the scope of current accounting guidance for stock-based compensation.
 
Other
 
We have employment contracts with certain senior executives. These contracts provide for severance payments in the event of termination under certain conditions including a change of control. During 2014 , 2013 , and 2012 , we recognized severance costs totaling approximately $1.0 million , $0.7 million , and $1.1 million , respectively, related to several former employees who did not have employment contracts. Such costs are included in General and administrative expenses in the accompanying consolidated financial statements.

Note 15. Income Taxes
 
Income Tax Provision

The components of our provision for income taxes attributable to continuing operations for the periods presented are as follows (in thousands):
 
Years Ended December 31,
 
2014
 
2013
 
2012
Federal
 
 
 
 
 
Current
$
19,545

 
$
8,274

 
$
18,142

Deferred
(7,609
)
 
(13,029
)
 
(21,167
)
 
11,936

 
(4,755
)
 
(3,025
)
State and Local
 
 
 
 
 
Current
13,422

 
4,970

 
12,303

Deferred
(4,693
)
 
(3,665
)
 
(5,644
)
 
8,729

 
1,305

 
6,659

Foreign
 
 
 
 
 
Current
6,869

 
7,144

 
3,138

Deferred
(9,925
)
 
(2,442
)
 
—

 
(3,056
)
 
4,702

 
3,138

Total Provision
$
17,609

 
$
1,252

 
$
6,772

 

W. P. Carey 2014 10-K – 138
 
Notes to Consolidated Financial Statements

A reconciliation of the provision for income taxes with the amount computed by applying the statutory federal income tax rate to income before provision for income taxes for the periods presented is as follows (in thousands, except percentages):
 
Years Ended December 31,
 
2014
 
2013
 
2012
Income from continuing operations before
income taxes, net of amounts attributable to noncontrolling interests
$
223,938

 
 
 
$
85,889

 
 
 
$
94,343

 
 
Pre-tax income attributable to pass-through subsidiaries
(202,807
)
 
 
 
(96,314
)
 
 
 
(94,755
)
 
 
Pre-tax income (loss) attributable to taxable subsidiaries
21,131

 
 

 
(10,425
)
 
 

 
(412
)
 
 

Federal provision at statutory tax rate (35%)
7,396

 
35.0
%
 
(3,649
)
 
(35.0
)%
 
(144
)
 
(35.0
)%
State and local taxes, net of federal benefit
2,296

 
10.9
%
 
(166
)
 
(1.6
)%
 
616

 
149.5
 %
Recognition of taxable income as a result of the
CPA ® :16 Merger  (a)
4,833

 
22.9
%
 
—

 
—
 %
 
—

 
—
 %
Amortization of intangible assets
—

 
—
%
 
492

 
4.7
 %
 
465

 
112.9
 %
Interest
2,111

 
10.0
%
 
—

 
—
 %
 
—

 
—
 %
Dividend income from Managed REITs
939

 
4.4
%
 
—

 
—
 %
 
—

 
—
 %
Other
893

 
4.2
%
 
(302
)
 
(2.9
)%
 
1,069

 
259.5
 %
Tax provision — taxable subsidiaries
18,468

 
87.4
%
 
(3,625
)
 
(34.8
)%
 
2,006

 
486.9
 %
Current foreign taxes
6,869

 
 
 
7,144

 
 
 
3,138

 
 
Deferred foreign tax benefit (b)
(9,925
)
 
 
 
(2,442
)
 
 
 
—

 
 
Other state and local taxes
2,197

 
 

 
175

 
 

 
1,628

 
 

Total provision
$
17,609

 
 

 
$
1,252

 
 

 
$
6,772

 
 

__________
(a)
Represents income tax expense due to a permanent difference from the recognition of deferred revenue as a result of the accelerated vesting of shares previously issued by CPA ® :16 – Global for asset management and performance fees and the payment of deferred acquisition fees in connection with the CPA ® :16 Merger.
(b)
Represents deferred tax benefit associated with basis differences on certain foreign properties acquired.

Deferred Income Taxes

Deferred income taxes at December 31, 2014 and 2013 consist of the following (in thousands):
 
At December 31,
 
2014
 
2013
Deferred Tax Assets
 

 
 

Unearned and deferred compensation
$
36,955

 
$
29,104

Net operating loss carryforwards
16,627

 
17,034

Basis differences — foreign investments
6,576

 
4,482

Other
3,272

 
10,565

Total deferred income taxes
63,430

 
61,185

Valuation allowance
(20,672
)
 
(18,214
)
Net deferred income taxes
42,758

 
42,971

Deferred Tax Liabilities
 

 
 

Basis differences — foreign investments
(95,619
)
 
(38,405
)
Basis differences — equity investees
(19,044
)
 
(9,870
)
Deferred revenue
(8,546
)
 
(30,248
)
Other
—

 
(187
)
Total deferred tax liabilities
(123,209
)
 
(78,710
)
Net Deferred Tax Liability
$
(80,451
)

$
(35,739
)


W. P. Carey 2014 10-K – 139
 
Notes to Consolidated Financial Statements

Our deferred tax assets and liabilities are primarily the result of temporary differences related to the following:

•
Basis differences between tax and U.S. GAAP for certain international real estate investments. For income tax purposes, in certain acquisitions, we assume the seller’s basis, or the carry-over basis, in the acquired assets. The carry-over basis is typically lower than the purchase price, or the U.S. GAAP basis, resulting in a deferred tax liability with an offsetting increase to goodwill or the acquired tangible or intangible assets;
•
Timing differences generated by differences in the U.S. GAAP basis and the tax basis of assets such as those related to capitalized acquisition costs, straight-line rent, prepaid rents, and intangible assets, as well as unearned and deferred compensation;
•
Basis differences in equity investments represents fees earned in shares recognized under U.S. GAAP into income and deferred for U.S. taxes based upon a share versing schedule; and
•
Tax net operating losses in certain subsidiaries, including those domiciled in foreign jurisdictions, that may be realized in future periods if the respective subsidiary generates sufficient taxable income.

During the fourth quarter of 2013, we recorded an out-of-period adjustment to reflect deferred tax assets net of valuation allowances and deferred tax liabilities of $2.3 million and $37.5 million , respectively, associated with basis differences on certain foreign properties acquired in prior periods. In addition, this out-of-period adjustment included the recognition of a deferred tax provision of $2.0 million ( Note 2 ).

As of December 31, 2014 and 2013 , we had net operating losses in foreign jurisdictions of approximately $70.3 million and $61.7 million , respectively, translating to a deferred tax asset before valuation allowance of $16.6 million and $17.0 million , respectively. Our net operating losses began expiring in 2012 in certain foreign jurisdictions. The utilization of net operating losses may be subject to certain limitations under the tax laws of the relevant jurisdiction. Management determined that, as of December 31, 2014 and 2013 , $20.7 million and $18.2 million , respectively, of deferred tax assets related to basis differences and losses in foreign jurisdictions did not satisfy the recognition criteria set forth in accounting guidance for income taxes and established a valuation allowance for this amount.

Included in Other assets, net in the consolidated balance sheet at December 31, 2014 is deferred tax assets of $2.5 million related to foreign investments.

Real Estate Ownership Operations
 
Effective February 15, 2012, we elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code. As a REIT, we are not subject to federal income taxes on our income and gains that we distribute to our stockholders as long as we satisfy certain requirements, principally relating to the nature of our income and the level of our distributions, as well as other factors. We believe that we have operated, and we intend to continue to operate, in a manner that allows us to continue to qualify as a REIT. As a REIT, we expect to derive most of our REIT income from our real estate operations under our Real Estate Ownership segment.
 
Investment Management Operations
 
We conduct our investment management services in our Investment Management segment through TRSs. A TRS is a subsidiary of a REIT that is subject to corporate federal, state, local, and foreign taxes, as applicable. Our use of TRSs enables us to engage in certain businesses while complying with the REIT qualification requirements and also allows us to retain income generated by these businesses for reinvestment without the requirement to distribute those earnings. We conduct business in the United States, Asia, and the European Union, and as a result, we or one or more of our subsidiaries file income tax returns in the United States federal jurisdiction and various state and certain foreign jurisdictions. Certain of our inter-company transactions that have been eliminated in consolidation for financial accounting purposes are also subject to taxation. Periodically, shares in the Managed REITs that are payable to our TRSs in consideration of services rendered are distributed from TRSs to us.
 
Tax authorities in the relevant jurisdictions may select our tax returns for audit and propose adjustments before the expiration of the statute of limitations. Our tax returns filed for tax years 2008 through 2014 remain open to adjustment in the major tax jurisdictions. On October 22, 2014, the IRS issued a Notice of Proposed Adjustment for the return filed by our subsidiary, Carey Asset Management, for the 2011 tax year. We are reviewing the proposed adjustment and currently expect to file a protest, which may take the matter to an IRS appeals conference.


W. P. Carey 2014 10-K – 140
 
Notes to Consolidated Financial Statements

Note 16. Property Dispositions and Discontinued Operations
 
From time to time, we may decide to sell a property. We have an active capital recycling program, with a goal of extending the average lease term through reinvestment, improving portfolio credit quality through dispositions and acquisitions of assets, increasing the asset criticality factor in our portfolio, and/or executing strategic dispositions of assets. We may make a decision to dispose of a property when it is vacant as a result of tenants vacating space, tenants electing not to renew their leases, tenant insolvency, or lease rejection in the bankruptcy process. In such cases, we assess whether we can obtain the highest value from the property by selling it, as opposed to re-leasing it. We may also sell a property when we receive an unsolicited offer or negotiate a price for an investment that is consistent with our strategy for that investment. When it is appropriate to do so, we classify the property as an asset held for sale on our consolidated balance sheet and, for those properties sold or classified as held-for-sale prior to January 1, 2014, the current and prior period results of operations of the property have been reclassified as discontinued operations under current accounting guidance ( Note 2 ). All property dispositions are recorded within our Real Estate Ownership segment.

Property Dispositions Included in Continuing Operations

The results of operations for properties that have been classified as held-for-sale or have been sold after December 31, 2013 and properties that were classified as direct financing leases, and with which we have no continuing involvement, excluding the properties that were classified as held-for-sale in the CPA ® :16 Merger, are included within continuing operations in the consolidated financial statements. Total revenues from these properties were $ 10.3 million , $ 7.5 million and $ 4.2 million for the years ended December 31, 2014 , 2013, and 2012, respectively. Net income (loss) from the operations of these properties was $2.1 million , $(0.7) million and $1.6 million for the years ended December 31, 2014 , 2013, and 2012, respectively, inclusive of Gain (loss) on sale of real estate, net of tax of $1.6 million , $(0.3) million and $(0.2) million , respectively.

2014 — During the year ended December 31, 2014 , we sold 13 properties for a total proceeds of $45.6 million , net of selling costs, and we recognized a net loss on these sales of $5.1 million , excluding impairment charges totaling $1.8 million , of which $1.7 million and $0.1 million were recognized in 2014 and 2013, respectively. These sales included a manufacturing facility for which the contractual minimum sale price of $5.8 million was not met. The third-party purchaser paid $1.4 million , with the difference of $4.4 million being paid by the vacating tenant. We also recorded a receivable of $5.5 million from the tenant representing the present value of the termination fee from the tenant, which will be paid over 5.7 years. The total amount paid and to be paid was recorded as lease termination income, which was partially offset by the $8.4 million loss on the sale of the property.

During the year ended December 31, 2014 , two domestic properties were foreclosed upon and sold for a total of $8.3 million . The proceeds from the sales were used to repay mortgage loans encumbering these properties. At the time of the sales, the properties had a total carrying value of $8.3 million and the related mortgage loans on the properties had total outstanding balance of $8.5 million . In connection with the sales, we recognized a net loss on the sales of $0.1 million , excluding an impairment charge of $3.5 million recognized in 2014.

In December 2014, we transferred ownership of a property in France and the related non-recourse mortgage loan to a third-party property manager for net proceeds of €1 . As of the date of transfer, the property had a carrying value of $ 14.5 million , reflecting the impact of an impairment charge of $4.7 million recognized during 2013, and the related non-recourse mortgage loan had an outstanding balance of $ 19.4 million . In connection with the transfer, we recognized a net gain on sale of $6.7 million .

During the year ended December 31, 2014 , we entered into contracts to sell four properties for a total of $ 10.0 million . In connection with these potential sales, we recognized an impairment charge of $1.3 million during the year ended December 31, 2014 to reduce the carrying values of the properties to their selling prices. At December 31, 2014 , these properties were classified as Assets held for sale in the consolidated financial statements ( Note 5 ). We completed the sale of two of these properties in January 2015. There can be no assurance that the remaining properties will be sold at the contracted prices, or at all.

In connection with those sales that constituted businesses during the year ended December 31, 2014 , we allocated goodwill totaling $2.7 million to the cost basis of the properties, for our Real Estate Ownership segment, based on the relative fair value at the time of the sale ( Note 8 ).

2013 — During the year ended December 31, 2013 , we sold an investment in a direct financing lease for $ 5.5 million , net of selling costs, and recognized a loss on the sale of $ 0.3 million . The results of operations for this investment is included within continuing operations in the consolidated financial statements for the year ended December 31, 2013 .

W. P. Carey 2014 10-K – 141
 
Notes to Consolidated Financial Statements


2012 — During the year ended December 31, 2012 , we sold an investment in a direct financing lease for $ 2.0 million , net of selling costs, and recognized a net loss on sale of $0.2 million . The results of operations for this investment is included within continuing operations in the consolidated financial statements for the year ended December 31, 2012 .

Property Dispositions Included in Discontinued Operations

The results of operations for properties that have been classified as held-for-sale or have been sold prior to January 1, 2014 and the properties that were acquired as held-for-sale in the CPA ® :16 Merger, are reflected in the consolidated financial statements as discontinued operations, net of tax and are summarized as follows (in thousands):
 
Years Ended December 31,
 
2014
 
2013
 
2012
Revenues
$
8,931

 
$
28,951

 
$
27,137

Expenses
(2,039
)
 
(19,984
)
 
(23,895
)
Loss on extinguishment of debt
(1,244
)
 
(2,415
)
 
—

Gain (loss) on sale of real estate
27,670

 
40,043

 
(5,015
)
Impairment charges
—

 
(8,415
)
 
(22,962
)
Income (loss) from discontinued operations
$
33,318

 
$
38,180

 
$
(24,735
)
 
2014 — At December 31, 2013, we had  nine  properties classified as held-for-sale, all of which were sold during the year ended  December 31, 2014 . The properties were sold for a total of $116.4 million , net of selling costs, and we recognized a net gain on these sales of $28.0 million , excluding impairment charges totaling $3.1 million  previously recognized during 2013. We used a portion of the proceeds to repay a related mortgage loan obligation of $11.4 million  and recognized a loss on extinguishment of debt of $0.1 million .

In connection with those sales of properties accounted for as businesses for the year ended  December 31, 2014 , we allocated goodwill totaling $7.0 million  to the cost basis of the properties, for our Real Estate Ownership segment based on the relative fair value at the time of the sale.

In connection with the CPA ® :16 Merger in January 2014, we acquired  ten  properties, including five properties held by one jointly-owned investment, that were classified as Assets held for sale with a total fair value of $133.4 million . We sold all of these properties during the six months ended June 30, 2014 for a total of $123.4 million , net of selling costs, including seller financing of  $15.0 million and recognized a net loss on these sales of $0.3 million . We used a portion of the proceeds to repay the related mortgage loan obligations totaling $18.9 million  and recognized a loss on extinguishment of debt of $1.2 million . We did not allocate any goodwill to these properties since they qualified as held-for-sale at the time of acquisition and were not considered to have been integrated into the relevant reporting unit.

2013 —  At December 31, 2013 , we had seven properties classified as held-for-sale, all of which were sold during the year ended December 31, 2013 . The properties were sold for a total of $22.7 million , net of selling costs, and we recognized a net gain on these sales of $0.6 million , excluding impairment charges totaling $3.9 million and $0.2 million previously recognized during 2013 and 2012, respectively. We used a portion of the proceeds to repay the related mortgage loan obligation of $5.7 million and recognized a gain on extinguishment of debt of $0.1 million .

Additionally, during the year ended December 31, 2013 , an entity in which we, two of our employees ( Note 4 ), and a third party owned 38.3% , 1.7% and 60% respectively, and which we consolidated, sold 19 of its 20 self-storage properties for a total of $112.3 million , net of selling costs, and recognized a net gain on the sale of $39.6 million , inclusive of amounts attributable to noncontrolling interests of $24.4 million . In connection with the sale, we used a portion of the proceeds to repay the aggregate related mortgage loan obligations of $45.1 million and recognized a net loss on extinguishment of debt of $2.5 million , inclusive of amounts attributable to noncontrolling interests of $1.5 million . In connection with the sale, we made a distribution to noncontrolling interest holders of $40.8 million , representing their share of the net proceeds from the sale.

During the year ended December 31, 2013 , we also sold a hotel for $3.7 million , net of selling costs, and recognized a net loss on the sale of $0.2 million , excluding impairment charges of $1.1 million and $10.5 million previously recognized during 2013 and 2012 , respectively.

During the year ended December 31, 2013 , we entered into contracts to sell nine properties for a total of $117.5 million . In

W. P. Carey 2014 10-K – 142
 
Notes to Consolidated Financial Statements

connection with these potential sales, we recognized impairment charges totaling $3.4 million during the year ended December 31, 2013 to reduce the carrying values of the properties to their selling prices. At December 31, 2013 , these properties were classified as Assets held for sale in the consolidated financial statements ( Note 5 ). We completed the sale of these properties in 2014.

In connection with those sales of properties accounted for as businesses for the year ended  December 31, 2013 , we allocated goodwill totaling $13.1 million to the cost basis of the properties, for our Real Estate Ownership segment based on the relative fair value at the time of sale or when contracted for sale ( Note 8 ).

2012 — During the year end ed December 31, 2012 , we sold 13 domestic properties for $44.8 million , net of selling costs, and recognized an aggregate net loss on these sales o f $1.4 million , excluding impairment charges of $12.5 million recognized in 2012 .
 
We also sold a property in December 2012 that we acquired in the CPA ® :15 Merger ( Note 3 ). We sold the property for $25.3 million , net of selling costs, and recognized a net loss on this sale of $0.5 million .
 
In December 2012, we entered into a contract to sell a domestic property that we acquired in the CPA ® :15 Merger for $1.4 million . We completed the sale of this property in January 2013. At December 31, 2012 , this prope rty was classified within Assets held for sale in the consolidated balance sheet.
 
In connection with those sales of properties accounted for as businesses for the year ended December 31, 2012 , we allocated goodwill totaling $3.2 million to the cost basis of the properties, for our Real Estate Ownership segment based on the relative fair value at the time of sale ( Note 8 ) .


W. P. Carey 2014 10-K – 143
 
Notes to Consolidated Financial Statements

Note 17. Segment Reporting
 
We evaluate our results from operations by our two major business segments — Real Estate Ownership and Investment Management ( Note 1 ). The following tables present a summary of comparative results and assets for these business segments (in thousands):
 
Years Ended December 31,
 
2014
 
2013
 
2012
Real Estate Ownership
 
 
 
 
 
Revenues
$
643,130

 
$
315,965

 
$
129,181

Operating expenses (a)
(404,674
)
 
(178,962
)
 
(92,441
)
Interest expense
(178,122
)
 
(103,728
)
 
(46,448
)
Other income and expenses, excluding interest expense
137,811

 
61,151

 
84,245

Benefit from (provision) for income taxes
916

 
(4,703
)
 
(4,001
)
Gain (loss) on sale of real estate, net of tax
1,581

 
(332
)
 
2,339

Net income attributable to noncontrolling interests
(5,573
)
 
(33,056
)
 
(3,245
)
Net (loss) income attributable to noncontrolling interests of discontinued operations
(179
)
 
23,941

 
704

Income from continuing operations attributable to W. P. Carey
$
194,890

 
$
80,276

 
$
70,334

Investment Management
 
 
 
 
 
Revenues (b)
$
263,063

 
$
173,886

 
$
223,180

Operating expenses (b) (c)
(232,704
)
 
(173,744
)
 
(207,050
)
Other income and expenses, excluding interest expense
275

 
1,001

 
1,280

(Provision for) benefit from income taxes
(18,525
)
 
3,451

 
(2,771
)
Net (income) loss attributable to noncontrolling interests
(812
)
 
120

 
2,638

Net loss (income) attributable to redeemable noncontrolling interest
142

 
(353
)
 
(40
)
Income from continuing operations attributable to W. P. Carey
$
11,439

 
$
4,361

 
$
17,237

Total Company


 


 


Revenues (b)
$
906,193

 
$
489,851

 
$
352,361

Operating expenses (a) (b) (c)
(637,378
)
 
(352,706
)
 
(299,491
)
Interest expense
(178,122
)
 
(103,728
)
 
(46,448
)
Other income and expenses, excluding interest expense
138,086

 
62,152

 
85,525

Provision for income taxes
(17,609
)
 
(1,252
)
 
(6,772
)
Gain (loss) on sale of real estate, net of tax
1,581

 
(332
)
 
2,339

Net income attributable to noncontrolling interests
(6,385
)
 
(32,936
)
 
(607
)
Net (loss) income attributable to noncontrolling interests of discontinued operations
(179
)
 
23,941

 
704

Net loss (income) attributable to redeemable noncontrolling interest
142

 
(353
)
 
(40
)
Income from continuing operations attributable to W. P. Carey
$
206,329

 
$
84,637

 
$
87,571

 
Total Long-Lived Assets (d)  
at December 31,
 
Total Assets at December 31,
 
2014
 
2013
 
2014
 
2013
Real Estate Ownership
$
5,880,958

 
$
3,333,654

 
$
8,459,406

 
$
4,537,853

Investment Management
25,000

 
—

 
177,922

 
141,097

Total Company
$
5,905,958

 
$
3,333,654

 
$
8,637,328

 
$
4,678,950

__________
(a)
Includes expenses incurred of $30.5 million and $5.0 million related to the CPA ® :16 Merger for the years ended December 31, 2014 and 2013 , respectively. Also includes expenses incurred of $31.7 million related to the CPA ® :15 Merger for the year ended December 31, 2012 .
(b)
Included in revenues and operating expenses are reimbursable costs from affiliates totaling $130.2 million , $73.6 million , and $98.2 million for the years ended December 31, 2014 , 2013 , and 2012 , respectively.

W. P. Carey 2014 10-K – 144
 
Notes to Consolidated Financial Statements

(c)
Includes Stock-based compensation expense of $31.1 million , $37.3 million , and $26.2 million for the years ended December 31, 2014 , 2013 , and 2012 , respectively, of which $18.4 million , $30.0 million , and $25.8 million , respectively, were included in the Investment Management segment.
(d)
Consists of Net investments in real estate and Equity investments in real estate, the Managed REITs and BDC . Total long-lived assets for our Investment Management segment consists of our equity investment in CCIF ( Note 7 ).
 

W. P. Carey 2014 10-K – 145
 
Notes to Consolidated Financial Statements

Our portfolio is comprised of domestic and international investments. At December 31, 2014 , our international investments within our Real Estate Ownership segment were comprised of investments in Australia, France, Japan, Poland, Germany, Spain, Belgium, Finland, the Netherlands, Thailand, Canada, Malaysia, Hungary, Mexico, Sweden, Norway, and the United Kingdom. There are no investments in foreign jurisdictions within our Investment Management segment. Other than Germany, no country or tenant individually comprised more than 10% of our total lease revenues or total long-lived assets at December 31, 2014 . The following tables present the geographic information (in thousands):
 
Years Ended December 31,
 
2014
 
2013
 
2012
Domestic
 
 
 
 
 
Revenues
$
424,325

 
$
218,758

 
$
100,620

Operating expenses
(284,508
)
 
(131,207
)
 
(79,640
)
Interest expense
(117,603
)
 
(65,978
)
 
(35,238
)
Other income and expenses, excluding interest expense
138,957

 
57,852

 
63,252

(Provision for) benefit from income taxes
(3,582
)
 
19

 
(2,614
)
(Loss) gain on sale of real estate, net of tax
(5,119
)
 
(332
)
 
2,242

Net income attributable to noncontrolling interests
(3,670
)
 
(34,342
)
 
(2,631
)
Net (loss) income attributable to noncontrolling interests in discontinued operations
(177
)
 
24,069

 
706

Income from continuing operations attributable to W. P. Carey
$
148,623

 
$
68,839

 
$
46,697

Germany
 
 
 
 
 
Revenues
$
72,978

 
$
20,221

 
$
4,750

Operating expenses
(40,707
)
 
(2,933
)
 
(796
)
Interest expense
(18,880
)
 
(5,020
)
 
(1,258
)
Other income and expenses, excluding interest expense
(6,255
)
 
(2,950
)
 
3,279

Benefit from (provision for) income taxes
3,338

 
(1,663
)
 
(177
)
Net income attributable to noncontrolling interests
(1,581
)
 
(3,172
)
 
(870
)
Income from continuing operations attributable to W. P. Carey
$
8,893

 
$
4,483

 
$
4,928

Other International
 
 
 
 
 
Revenues
$
145,827

 
$
76,986

 
$
23,811

Operating expenses
(79,459
)
 
(44,822
)
 
(12,005
)
Interest expense
(41,639
)
 
(32,730
)
 
(9,952
)
Other income and expenses, excluding interest expense
5,109

 
6,249

 
17,714

Benefit from (provision for) income taxes
1,160

 
(3,059
)
 
(1,210
)
Gain on sale of real estate, net of tax
6,700

 
—

 
97

Net (income) loss attributable to noncontrolling interests
(322
)
 
4,458

 
256

Net loss attributable to noncontrolling interests in discontinued operations
(2
)
 
(128
)
 
(2
)
Income from continuing operations attributable to W. P. Carey
$
37,374

 
$
6,954

 
$
18,709

Total
 
 
 
 
 
Revenues
$
643,130

 
$
315,965

 
$
129,181

Operating expenses
(404,674
)
 
(178,962
)
 
(92,441
)
Interest expense
(178,122
)
 
(103,728
)
 
(46,448
)
Other income and expenses, excluding interest expense
137,811

 
61,151

 
84,245

Provision for income taxes
916

 
(4,703
)
 
(4,001
)
Gain (loss) on sale of real estate, net of tax
1,581

 
(332
)
 
2,339

Net income attributable to noncontrolling interests
(5,573
)
 
(33,056
)
 
(3,245
)
Net (loss) income attributable to noncontrolling interests in discontinued operations
(179
)
 
23,941

 
704

Income from continuing operations attributable to W. P. Carey
$
194,890

 
$
80,276

 
$
70,334



W. P. Carey 2014 10-K – 146
 
Notes to Consolidated Financial Statements

 
 
December 31,
 
 
2014
 
2013
Domestic
 
 
 
 
Long-lived assets (a)
 
$
3,804,424

 
$
2,408,869

Total assets
 
5,602,069

 
3,271,851

Germany
 
 
 
 
Long-lived assets (a)
 
$
603,369

 
$
314,423

Total assets
 
832,951

 
349,355

Other International
 
 
 
 
Long-lived assets (a)
 
$
1,473,165

 
$
610,362

Total assets
 
2,024,386

 
916,647

Total
 
 
 
 
Long-lived assets (a)
 
$
5,880,958

 
$
3,333,654

Total assets
 
8,459,406

 
4,537,853

__________
(a)
Consists of Net investments in real estate and Equity investments in real estate, the Managed REITs and BDC , excluding our equity investment in CCIF ( Note 7 ).

Note 18. Selected Quarterly Financial Data (Unaudited)
 
(Dollars in thousands, except per share amounts)
 
Three Months Ended
 
March 31, 2014
 
June 30, 2014
 
September 30, 2014
 
December 31, 2014
Revenues (a) 
$
209,008

 
$
252,907

 
$
195,945

 
$
248,333

Expenses  (a)
171,605

 
161,359

 
128,178

 
176,236

Net income (a) (b) (c)
117,318

 
66,972

 
28,316

 
33,463

Net income attributable to noncontrolling interests
(1,578
)
 
(2,344
)
 
(993
)
 
(1,470
)
Net (income) loss attributable to redeemable noncontrolling interests
(262
)
 
111

 
14

 
279

Net income attributable to W. P. Carey
$
115,478

 
$
64,739

 
$
27,337

 
$
32,272

Earnings per share attributable to W. P. Carey (d) :
 
 
 
 
 
 
 
Basic
$
1.29

 
$
0.64

 
$
0.27

 
$
0.31

Diluted
$
1.27

 
$
0.64

 
$
0.27

 
$
0.30

Distributions declared per share
$
0.895

 
$
0.900

 
$
0.940

 
$
0.950

 
Three Months Ended
 
March 31, 2013
 
June 30, 2013
 
September 30, 2013
 
December 31, 2013
Revenues
$
106,030

 
$
112,221

 
$
132,592

 
$
139,008

Expenses
75,194

 
80,811

 
91,625

 
105,076

Net income (e)
15,839

 
45,816

 
21,650

 
48,860

Net income attributable to noncontrolling interests (f)
(1,708
)
 
(2,692
)
 
(2,912
)
 
(25,624
)
Net loss (income) attributable to redeemable noncontrolling interests
50

 
43

 
(232
)
 
(214
)
Net income attributable to W. P. Carey
$
14,181

 
$
43,167

 
$
18,506

 
$
23,022

Earnings per share attributable to W. P. Carey:
 
 
 
 
 
 
 
Basic
$
0.20

 
$
0.63

 
$
0.27

 
$
0.33

Diluted
$
0.20

 
$
0.62

 
$
0.27

 
$
0.33

Distributions declared per share
$
0.820

 
$
0.840

 
$
0.860

 
$
0.980


W. P. Carey 2014 10-K – 147
 
Notes to Consolidated Financial Statements

__________
(a)
Amounts for 2014 include the impact of the CPA ® :16 Merger ( Note 3 ).
(b)
Amount for the three months ended March 31, 2014 includes a net Gain on change in control of interests of $105.9 million recognized in connection with the CPA ® :16 Merger. During the second quarter of 2014, we identified certain measurement period adjustments that impacted the provisional accounting, which increased the fair value of our previously-held equity interest in shares of CPA ® :16 – Global’s common stock by $ 1.3 million , resulting in an increase of $ 1.3 million in Gain on change in control of interests. During the fourth quarter of 2014, we identified a second measurement period adjustment that impacted the provisional accounting, which increased the fair value of our previously-held equity interest in shares of CPA ® :16 – Global’s common stock by $ 1.3 million , resulting in a corresponding increase in Gain on change in control of interests. In accordance with Accounting Standards Codification 805-10-25, we did not record the measurement period adjustments in the quarters they were identified. Rather, such amounts are reflected in the three months ended March 31, 2014.
(c)
During the fourth quarter of 2014, we identified errors related to the accounting for a direct financing lease and the purchase accounting for the CPA ® :16 Merger, resulting in decreases in Equity in earnings of equity method investments in real estate and the Managed REITs of $ 2.2 million and in Other income and (expenses) of $1.6 million . We concluded that these adjustments were not material to our financial position or results of operations for the fourth quarter of 2014 or any prior quarters. As such, we recorded total out-of-period adjustments of $ 3.8 million in the fourth quarter of 2014 to reflect the decreases in Equity in earnings of equity method investments in real estate and the Managed REITs and in Other income and (expenses) and corresponding decreases to Equity investments in real estate, the Managed REITs and BDC and Goodwill.
(d)
For the year ended December 31, 2014 , total quarterly basic and diluted earnings per share were $0.09 higher than the corresponding earnings per share as computed on an annual basis, as a result of the change in the shares outstanding for each of the periods, primarily due to the issuance of shares in the CPA ® :16 Merger ( Note 3 ) and the Equity Offering ( Note 13 ).
(e)
Amount for the three months ended June 30, 2013 includes a net gain of $ 19.5 million on the sale of our U.S. Airways investment ( Note 7 ).
(f)
Amount for the three months ended December 31, 2013 includes a net gain of $39.6 million on the sale of 19 of our 20 self-storage properties, inclusive of amounts attributable to noncontrolling interests of $24.4 million ( Note 16 ) .

Note 19. Subsequent Events
 
Senior Unsecured Credit Facility

On January 15, 2015, we exercised the Accordion Feature ( Note 11 ) under our Senior Unsecured Credit Facility increasing the maximum borrowing capacity of the Revolver from $1.0 billion to $1.5 billion . We also amended the Senior Unsecured Credit Facility as follows: (i) established a new $500.0 million accordion feature that, if exercised, would increase our maximum borrowing capacity under the Senior Unsecured Credit Facility to $2.25 billion , and (ii) increased the amount under the Revolver that may be borrowed in certain currencies other than the U.S. dollar to the equivalent of $750.0 million from $500.0 million . All other existing terms of the Senior Unsecured Credit Facility remain unchanged.

Senior Unsecured Notes

On January 21, 2015, we issued €500.0 million of senior unsecured notes at a price of 99.220% of par value in a registered public offering. These senior unsecured notes have an eight -year term and are scheduled to mature on January 20, 2023 with an annual interest rate of 2.0% . The proceeds from the issuance were used to partially pay down the amount then outstanding under our Revolver, to fund an acquisition, and for general corporate purposes.

On January 26, 2015, we issued $450.0 million of senior unsecured notes at a price of 99.372% of par value in a registered public offering. These senior unsecured notes have a 10 -year term and are scheduled to mature on February 1, 2025 with an annual interest rate of 4.0% . The proceeds from the issuance were used to partially pay down the amount then outstanding under our Revolver, to fund acquisitions and for general corporate purposes.

Acquisition

In January and February 2015, we entered into two foreign investments for a total price of approximately $390.4 million , including a portfolio of 73 auto dealership properties in the United Kingdom for a total purchase price of approximately $347.3  million. The unencumbered portfolio contains 73 properties consisting of approximately 1.5 million square feet to be

W. P. Carey 2014 10-K – 148
 
Notes to Consolidated Financial Statements

leased for an average 15 -year term. It is not practicable to disclose the preliminary purchase price allocation for these transactions given the short period of time between the acquisition dates and the filing of this Report.

2015 LTIP Awards

In February 2015, the compensation committee of our board of directors approved long-term incentive plan awards to key employees consisting of 160,491 RSUs and 65,277 PSUs, which will have a dilutive impact on our future earnings per share calculations.

Advisory and Dealer Manager Agreements

On February 9, 2015, we entered into an advisory agreement with CWI 2 whereby we perform various services, including but not limited to the day-to-day management of CWI 2 and transaction-related services. We also entered into a dealer manager agreement with CWI 2 to manage its public offering of common stocks.



W. P. Carey 2014 10-K – 149


W. P. CAREY INC.
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2014 , 2013 , and 2012
(in thousands)  
Description
 
Balance at
Beginning
of Year
 
Other
Additions   (a) (b)
 
Deductions
 
Balance at
End of Year
Year Ended December 31, 2014
 
 
 
 
 
 
 
 
Valuation reserve for deferred tax assets
 
$
18,214

 
$
2,458

 
$
—

 
$
20,672

 
 


 


 


 


Year Ended December 31, 2013
 
 
 
 
 


 
 
Valuation reserve for deferred tax assets
 
$
15,133

 
$
3,081

 
$
—

 
$
18,214

 
 


 


 


 


Year Ended December 31, 2012
 
 
 
 
 
 
 
 
Valuation reserve for deferred tax assets
 
$
—

 
$
15,133

 
$
—

 
$
15,133

__________
(a)
The amount for the year ended December 31, 2013 includes the amount recorded in connection with the out-of-period adjustment related to deferred foreign income taxes ( Note 2 ).
(b)
Amount for the year ended December 31, 2012 represents the amount acquired in the CPA ® :15 Merger related to net operating loss carryforwards. During 2013, we corrected an error in this schedule that increased the valuation reserve for deferred tax assets for the year ended December 31, 2012 from $ 11.9 million to $15.1 million .



W. P. Carey 2014 10-K – 150


W. P. CAREY INC.
SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2014
(in thousands)




Initial Cost to Company

Cost Capitalized
Subsequent to
Acquisition (a)

Increase 
(Decrease)
in Net
Investments (b)

Gross Amount at which 
Carried at Close of Period (c)

Accumulated Depreciation (c)
 
Date of Construction

Date Acquired

Life on which
Depreciation in Latest
Statement of 
Income
is Computed









 











 











 


Description

Encumbrances

Land

Buildings



Land

Buildings

Total

 


Real Estate Under Operating Leases
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Office facilities in Broomfield, CO
 
$
—

 
$
248

 
$
2,538

 
$
4,844

 
$
(4,791
)
 
$
1,983

 
$
856

 
$
2,839

 
$
854

 
1974
 
Jan. 1998
 
40 yrs.
Industrial facilities in Erlanger, KY
 
11,433

 
1,526

 
21,427

 
2,966

 
141

 
1,526

 
24,534

 
26,060

 
10,744

 
1979; 1987
 
Jan. 1998
 
40 yrs.
Industrial facilities in Thurmont, MD and Farmington, NY
 
—

 
729

 
5,903

 
—

 
—

 
729

 
5,903

 
6,632

 
269

 
1964; 1983
 
Jan. 1998
 
15 yrs.
Retail facility in Montgomery, AL
 
—

 
855

 
6,762

 
277

 
(6,978
)
 
142

 
774

 
916

 
453

 
1987
 
Jan. 1998
 
40 yrs.
Warehouse/distribution facilities in Anchorage, AK and Commerce, CA
 
—

 
4,905

 
11,898

 
—

 
12

 
4,905

 
11,910

 
16,815

 
2,827

 
1948; 1975
 
Jan. 1998
 
40 yrs.
Industrial facility in Toledo, OH
 
—

 
224

 
2,408

 
—

 
—

 
224

 
2,408

 
2,632

 
1,204

 
1966
 
Jan. 1998
 
40 yrs.
Industrial facility in Goshen, IN
 
—

 
239

 
940

 
—

 
—

 
239

 
940

 
1,179

 
227

 
1973
 
Jan. 1998
 
40 yrs.
Office facility in Raleigh, NC
 
—

 
1,638

 
2,844

 
187

 
(2,554
)
 
828

 
1,287

 
2,115

 
596

 
1983
 
Jan. 1998
 
20 yrs.
Office facility in King of Prussia, PA
 
—

 
1,219

 
6,283

 
1,295

 
—

 
1,219

 
7,578

 
8,797

 
3,051

 
1968
 
Jan. 1998
 
40 yrs.
Industrial facility in Pinconning, MI
 
—

 
32

 
1,692

 
—

 
—

 
32

 
1,692

 
1,724

 
719

 
1948
 
Jan. 1998
 
40 yrs.
Industrial facilities in San Fernando, CA
 
6,774

 
2,052

 
5,322

 
—

 
(1,889
)
 
1,494

 
3,991

 
5,485

 
1,716

 
1962; 1979
 
Jan. 1998
 
40 yrs.
Retail facilities in several cities in the following states: Alabama, Florida, Georgia, Illinois, Louisiana, Missouri, New Mexico, North Carolina, South Carolina, Tennessee, and Texas
 
—

 
9,382

 
—

 
238

 
3,371

 
9,210

 
3,781

 
12,991

 
373

 
Various
 
Jan. 1998
 
15 yrs.
Land in Glendora, CA
 
—

 
1,135

 
—

 
—

 
17

 
1,152

 
—

 
1,152

 
—

 
N/A
 
Jan. 1998
 
N/A
Industrial facility in Doraville, GA
 
4,637

 
3,288

 
9,864

 
1,546

 
274

 
3,288

 
11,684

 
14,972

 
4,509

 
1964
 
Jan. 1998
 
40 yrs.
Office facilities in Collierville, TN and warehouse/distribution facility in Corpus Christi, TX
 
49,666

 
3,490

 
72,497

 
—

 
(15,609
)
 
288

 
60,090

 
60,378

 
7,835

 
1989; 1999
 
Jan. 1998
 
40 yrs.
Land in Irving and Houston, TX
 
7,747

 
9,795

 
—

 
—

 
—

 
9,795

 
—

 
9,795

 
—

 
N/A
 
Jan. 1998
 
N/A
Industrial facility in Chandler, AZ
 
10,672

 
5,035

 
18,957

 
7,435

 
541

 
5,035

 
26,933

 
31,968

 
10,527

 
1989
 
Jan. 1998
 
40 yrs.
Office facility in Bridgeton, MO
 
—

 
842

 
4,762

 
2,523

 
71

 
842

 
7,356

 
8,198

 
2,212

 
1972
 
Jan. 1998
 
40 yrs.
Retail facilities in Drayton Plains, MI and Citrus Heights, CA
 
—

 
1,039

 
4,788

 
202

 
193

 
1,039

 
5,183

 
6,222

 
1,308

 
1972
 
Jan. 1998
 
35 yrs.
Warehouse/distribution facility in Memphis, TN
 
—

 
1,882

 
3,973

 
255

 
(3,893
)
 
328

 
1,889

 
2,217

 
730

 
1969
 
Jan. 1998
 
15 yrs.
Retail facility in Bellevue, WA
 
—

 
4,125

 
11,812

 
393

 
(123
)
 
4,371

 
11,836

 
16,207

 
4,943

 
1994
 
Apr. 1998
 
40 yrs.
Office facility in Houston, TX
 
—

 
3,260

 
22,574

 
1,628

 
(23,311
)
 
211

 
3,940

 
4,151

 
3,023

 
1982
 
Jun. 1998
 
40 yrs.
Office facility in Rio Rancho, NM
 
7,610

 
1,190

 
9,353

 
1,742

 
—

 
1,467

 
10,818

 
12,285

 
4,214

 
1999
 
Jul. 1998
 
40 yrs.
Office facility in Moorestown, NJ
 
—

 
351

 
5,981

 
1,122

 
43

 
351

 
7,146

 
7,497

 
3,236

 
1964
 
Feb. 1999
 
40 yrs.

W. P. Carey 2014 10-K – 151


SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
December 31, 2014
(in thousands)




Initial Cost to Company

Cost Capitalized
Subsequent to
Acquisition (a)

Increase 
(Decrease)
in Net
Investments (b)

Gross Amount at which 
Carried at Close of Period (c)

Accumulated Depreciation (c)
 
Date of Construction

Date Acquired

Life on which
Depreciation in Latest
Statement of 
Income
is Computed









 











 











 


Description

Encumbrances

Land

Buildings



Land

Buildings

Total

 


Office facility in Norcross, GA
 
27,446

 
5,200

 
25,585

 
11,822

 
(28,152
)
 
2,646

 
11,809

 
14,455

 
—

 
1975
 
Jun. 1999
 
40 yrs.
Office facility in Illkirch, France
 
9,590

 
—

 
18,520

 
6

 
7,661

 
—

 
26,187

 
26,187

 
9,650

 
2001
 
Dec. 2001
 
40 yrs.
Industrial facilities in Lenexa, KS and Winston-Salem, NC
 
—

 
1,860

 
12,539

 
2,875

 
(1,067
)
 
1,725

 
14,482

 
16,207

 
3,816

 
1968; 1980; 1983
 
Sep. 2002
 
40 yrs.
Office facilities in Playa Vista and Venice, CA
 
47,943

 
2,032

 
10,152

 
52,816

 
1

 
5,889

 
59,112

 
65,001

 
6,405

 
1991; 1999
 
Sep. 2004; Sep. 2012
 
40 yrs.
Warehouse/distribution facility in Greenfield, IN
 
—

 
2,807

 
10,335

 
223

 
(8,383
)
 
967

 
4,015

 
4,982

 
1,139

 
1995
 
Sep. 2004
 
40 yrs.
Warehouse/distribution facilities in Birmingham, AL
 
—

 
1,256

 
7,704

 
—

 
—

 
1,256

 
7,704

 
8,960

 
1,982

 
1995
 
Sep. 2004
 
40 yrs.
Industrial facility in Scottsdale, AZ
 
1,146

 
586

 
46

 
—

 
—

 
586

 
46

 
632

 
12

 
1988
 
Sep. 2004
 
40 yrs.
Retail facility in Hot Springs, AR
 
—

 
850

 
2,939

 
2

 
(2,614
)
 
—

 
1,177

 
1,177

 
303

 
1985
 
Sep. 2004
 
40 yrs.
Warehouse/distribution facilities in Apopka, FL
 
—

 
362

 
10,855

 
670

 
(155
)
 
337

 
11,395

 
11,732

 
2,860

 
1969
 
Sep. 2004
 
40 yrs.
Land in San Leandro, CA
 
—

 
1,532

 
—

 
—

 
—

 
1,532

 
—

 
1,532

 
—

 
N/A
 
Dec. 2006
 
N/A
Sports facility in Austin, TX
 
2,841

 
1,725

 
5,168

 
—

 
—

 
1,725

 
5,168

 
6,893

 
1,466

 
1995
 
Dec. 2006
 
29 yrs.
Retail facility in Wroclaw, Poland
 
7,426

 
3,600

 
10,306

 
—

 
(2,912
)
 
3,040

 
7,954

 
10,994

 
1,402

 
2007
 
Dec. 2007
 
40 yrs.
Office facility in Fort Worth, TX
 
32,457

 
4,600

 
37,580

 
—

 
—

 
4,600

 
37,580

 
42,180

 
4,619

 
2003
 
Feb. 2010
 
40 yrs.
Warehouse/distribution facility in Mallorca, Spain
 
—

 
11,109

 
12,636

 
—

 
417

 
11,284

 
12,878

 
24,162

 
1,475

 
2008
 
Jun. 2010
 
40 yrs.
Office facilities in San Diego, CA
 
32,980

 
7,247

 
29,098

 
967

 
(5,514
)
 
4,762

 
27,036

 
31,798

 
4,375

 
1989
 
May 2011
 
40 yrs.
Retail facilities in Florence, AL; Snellville, GA; Concord, NC; Rockport, TX; and Virginia Beach, VA
 
22,000

 
5,646

 
12,367

 
—

 
—

 
5,646

 
12,367

 
18,013

 
760

 
2005; 2007
 
Sep. 2012
 
40 yrs.
Hotels in Irvine, Sacramento, and San Diego, CA; Orlando, FL; Des Plaines, IL; Indianapolis, IN; Louisville, KY; Linthicum Heights, MD; Newark, NJ; Albuquerque, NM; and Spokane, WA
 
139,685

 
32,680

 
198,999

 
—

 
—

 
32,680

 
198,999

 
231,679

 
12,317

 
1989; 1990
 
Sep. 2012
 
34 - 37 yrs.
Industrial facilities in Auburn, IN; Clinton Township, MI; and Bluffton, OH
 
7,870

 
4,403

 
20,298

 
—

 
(3,870
)
 
2,589

 
18,242

 
20,831

 
803

 
1968; 1979; 1995
 
Sep. 2012; Jan. 2014
 
30 yrs.
Land in Irvine, CA
 
1,636

 
4,173

 
—

 
—

 
—

 
4,173

 
—

 
4,173

 
—

 
N/A
 
Sep. 2012
 
N/A
Industrial facility in Alpharetta, GA
 
7,373

 
2,198

 
6,349

 
—

 
—

 
2,198

 
6,349

 
8,547

 
476

 
1997
 
Sep. 2012
 
30 yrs.
Office facility in Clinton, NJ
 
23,905

 
2,866

 
34,834

 
—

 
—

 
2,866

 
34,834

 
37,700

 
2,613

 
1987
 
Sep. 2012
 
30 yrs.
Office facilities in St. Petersburg, FL
 
—

 
3,280

 
24,627

 
—

 
—

 
3,280

 
24,627

 
27,907

 
1,847

 
1980; 1996; 1999
 
Sep. 2012
 
30 yrs.
Movie theater in Baton Rouge, LA
 
9,703

 
4,168

 
5,724

 
—

 
—

 
4,168

 
5,724

 
9,892

 
429

 
2003
 
Sep. 2012
 
30 yrs.
Office facilities in San Diego, CA
 
—

 
7,804

 
16,729

 
457

 
—

 
7,804

 
17,186

 
24,990

 
1,259

 
2002
 
Sep. 2012
 
30 yrs.
Industrial facilities in Richmond, CA
 
—

 
895

 
1,953

 
—

 
—

 
895

 
1,953

 
2,848

 
146

 
1987; 1999
 
Sep. 2012
 
30 yrs.

W. P. Carey 2014 10-K – 152


SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
December 31, 2014
(in thousands)








Cost Capitalized
Subsequent to
Acquisition (a)

Increase 
(Decrease)
in Net
Investments (b)

Gross Amount at which 
Carried at Close of Period (c)

Accumulated Depreciation (c)
 
Date of Construction

Date Acquired

Life on which
Depreciation in Latest
Statement of 
Income
is Computed












 














 







Initial Cost to Company




 


Description

Encumbrances

Land

Buildings



Land

Buildings

Total

 


Industrial and warehouse/distribution facilities in Kingman, AZ; Woodland, CA; Jonesboro, GA; Kansas City, MO; Springfield, OR; Fogelsville, PA; and Corsicana, TX
 
59,794

 
16,386

 
84,668

 
—

 
—

 
16,386

 
84,668

 
101,054

 
6,298

 
Various
 
Sep. 2012
 
30 yrs.
Warehouse/distribution facilities in Lens, Nimes, Colomiers, Thuit Hebert, Ploufragen, and Cholet, France
 
—

 
15,779

 
89,421

 
—

 
(5,759
)
 
14,915

 
84,526

 
99,441

 
6,327

 
Various
 
Sep. 2012
 
30 yrs.
Industrial facilities in Orlando, FL; Rocky Mount, NC, and Lewisville, TX
 
—

 
2,163

 
17,715

 
—

 
—

 
2,163

 
17,715

 
19,878

 
1,329

 
Various
 
Sep. 2012
 
30 yrs.
Industrial facilities in Chattanooga, TN
 
—

 
558

 
5,923

 
—

 
—

 
558

 
5,923

 
6,481

 
439

 
1974; 1989
 
Sep. 2012
 
30 yrs.
Industrial facility in Mooresville, NC
 
5,585

 
756

 
9,775

 
—

 
—

 
756

 
9,775

 
10,531

 
723

 
1997
 
Sep. 2012
 
30 yrs.
Industrial facility in McCalla, AL
 
—

 
960

 
14,472

 
6,350

 
—

 
960

 
20,822

 
21,782

 
1,565

 
2004
 
Sep. 2012
 
31 yrs.
Office facility in Lower Makefield Township, PA
 
10,019

 
1,726

 
12,781

 
—

 
—

 
1,726

 
12,781

 
14,507

 
943

 
2002
 
Sep. 2012
 
30 yrs.
Industrial facility in Fort Smith, AZ
 
—

 
1,063

 
6,159

 
—

 
—

 
1,063

 
6,159

 
7,222

 
451

 
1982
 
Sep. 2012
 
30 yrs.
Retail facilities in Greenwood, IN and Buffalo, NY
 
9,239

 
—

 
19,990

 
—

 
—

 
—

 
19,990

 
19,990

 
1,447

 
2003; 2004
 
Sep. 2012
 
30 - 31 yrs.
Industrial facilities in Bowling Green, KY and Jackson, TN
 
6,758

 
1,492

 
8,182

 
—

 
—

 
1,492

 
8,182

 
9,674

 
597

 
1989; 1995
 
Sep. 2012
 
31 yrs.
Learning centers in Avondale, AZ; Rancho Cucamonga, CA; Glendale Heights, IL; and Exton, PA
 
34,473

 
14,006

 
33,683

 
—

 
(1,961
)
 
12,045

 
33,683

 
45,728

 
2,368

 
1988; 2004
 
Sep. 2012
 
31 - 32 yrs.
Industrial facilities in St. Petersburg, FL; Buffalo Grove, IL; West Lafayette, IN; Excelsior Springs, MO; and North Versailles, PA
 
11,104

 
6,559

 
19,078

 
—

 
—

 
6,559

 
19,078

 
25,637

 
1,381

 
Various
 
Sep. 2012
 
31 yrs.
Industrial facilities in Tolleson, AZ; Alsip, IL; and Solvay, NY
 
13,335

 
6,080

 
23,424

 
—

 
—

 
6,080

 
23,424

 
29,504

 
1,682

 
1990; 1994; 2000
 
Sep. 2012
 
31 yrs.
Land in Kahl, Germany
 
—

 
6,694

 
—

 
—

 
(367
)
 
6,327

 
—

 
6,327

 
—

 
N/A
 
Sep. 2012
 
N/A
Sports facilities in Englewood, CO; Memphis TN; and Bedford, TX
 
8,660

 
4,877

 
4,258

 
—

 
4,823

 
4,877

 
9,081

 
13,958

 
628

 
1990; 1995; 2001
 
Sep. 2012
 
31 yrs.
Office facilities in Mons, Belgium
 
9,253

 
1,505

 
6,026

 
653

 
(481
)
 
1,423

 
6,280

 
7,703

 
410

 
1982; 1983
 
Sep. 2012
 
32 yrs.
Warehouse/distribution facilities in Oceanside, CA and Concordville, PA
 
3,963

 
3,333

 
8,270

 
—

 
—

 
3,333

 
8,270

 
11,603

 
595

 
1989; 1996
 
Sep. 2012
 
31 yrs.
Self-storage facilities located throughout the United States
 
—

 
74,551

 
319,186

 
—

 
(50
)
 
74,501

 
319,186

 
393,687

 
22,739

 
Various
 
Sep. 2012
 
31 yrs.
Warehouse/distribution facility in La Vista, NE
 
21,568

 
4,196

 
23,148

 
—

 
—

 
4,196

 
23,148

 
27,344

 
1,555

 
2005
 
Sep. 2012
 
33 yrs.
Office facility in Pleasanton, CA
 
11,321

 
3,675

 
7,468

 
—

 
—

 
3,675

 
7,468

 
11,143

 
531

 
2000
 
Sep. 2012
 
31 yrs.
Office facility in San Marcos, TX
 
—

 
440

 
688

 
—

 
—

 
440

 
688

 
1,128

 
49

 
2000
 
Sep. 2012
 
31 yrs.

W. P. Carey 2014 10-K – 153


SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
December 31, 2014
(in thousands)








Cost Capitalized
Subsequent to
Acquisition (a)

Increase 
(Decrease)
in Net
Investments (b)

Gross Amount at which 
Carried at Close of Period (c)

Accumulated Depreciation (c)
 
Date of Construction

Date Acquired

Life on which
Depreciation in Latest
Statement of 
Income
is Computed
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Initial Cost to Company
 
 
 
 
 
 
 
Description
 
Encumbrances
 
Land
 
Buildings
 
 
 
Land
 
Buildings
 
Total
 
 
 
 
Office facilities in Espoo, Finland
 
48,016

 
40,555

 
15,662

 
—

 
(3,077
)
 
38,335

 
14,805

 
53,140

 
1,049

 
1972
 
Sep. 2012
 
31 yrs.
Office facility in Chicago, IL
 
14,663

 
2,169

 
19,010

 
—

 
—

 
2,169

 
19,010

 
21,179

 
1,340

 
1910
 
Sep. 2012
 
31 yrs.
Industrial facility in Louisville, CO
 
8,743

 
5,342

 
8,786

 
1,587

 
—

 
5,481

 
10,234

 
15,715

 
701

 
1993
 
Sep. 2012
 
31 yrs.
Industrial facilities in Hollywood and Orlando, FL
 
—

 
3,639

 
1,269

 
—

 
—

 
3,639

 
1,269

 
4,908

 
89

 
1996
 
Sep. 2012
 
31 yrs.
Warehouse/distribution facility in Golden, CO
 
—

 
808

 
4,304

 
77

 
—

 
808

 
4,381

 
5,189

 
337

 
1998
 
Sep. 2012
 
30 yrs.
Industrial facilities in Texarkana, TX and Orem, UT
 
—

 
1,755

 
4,493

 
—

 
—

 
1,755

 
4,493

 
6,248

 
317

 
1991; 1997
 
Sep. 2012
 
31 yrs.
Industrial facility in Eugene, OR
 
4,554

 
2,286

 
3,783

 
—

 
—

 
2,286

 
3,783

 
6,069

 
267

 
1980
 
Sep. 2012
 
31 yrs.
Industrial facility in Neenah, WI
 
—

 
438

 
4,954

 
—

 
—

 
438

 
4,954

 
5,392

 
349

 
1993
 
Sep. 2012
 
31 yrs.
Industrial facility in South Jordan, UT
 
12,538

 
2,183

 
11,340

 
—

 
—

 
2,183

 
11,340

 
13,523

 
799

 
1995
 
Sep. 2012
 
31 yrs.
Warehouse/distribution facility in Ennis, TX
 
2,430

 
478

 
4,087

 
145

 
—

 
478

 
4,232

 
4,710

 
332

 
1989
 
Sep. 2012
 
31 yrs.
Land in Tucson, AZ; Garden Grove, CA; and Canton, MI
 
—

 
6,343

 
379

 
—

 
(5,138
)
 
1,584

 
—

 
1,584

 
—

 
N/A
 
Sep. 2012
 
N/A
Retail facility in Braintree, MA
 
3,256

 
2,409

 
—

 
6,184

 
(1,403
)
 
1,006

 
6,184

 
7,190

 
173

 
1994
 
Sep. 2012
 
30 yrs.
Office facility in Helsinki, Finland
 
65,604

 
26,560

 
20,735

 
—

 
(2,589
)
 
25,106

 
19,600

 
44,706

 
1,367

 
1969
 
Sep. 2012
 
32 yrs.
Office facility in Paris, France
 
66,699

 
23,387

 
43,450

 
—

 
(3,659
)
 
22,107

 
41,071

 
63,178

 
2,822

 
1975
 
Sep. 2012
 
32 yrs.
Retail facilities in Bydgoszcz, Czestochowa, Jablonna, Katowice, Kielce, Lodz, Lubin, Olsztyn, Opole, Plock, Rybnik, Walbrzych, and Warsaw, Poland
 
130,556

 
26,564

 
72,866

 
—

 
(5,444
)
 
25,109

 
68,877

 
93,986

 
6,496

 
Various
 
Sep. 2012
 
23 - 34 yrs.
Office facility in Laupheim, Germany
 
—

 
2,072

 
8,339

 
—

 
(570
)
 
1,959

 
7,882

 
9,841

 
887

 
1960
 
Sep. 2012
 
20 yrs.
Industrial facilities in Danbury, CT and Bedford, MA
 
11,145

 
3,519

 
16,329

 
—

 
—

 
3,519

 
16,329

 
19,848

 
1,228

 
1965; 1980
 
Sep. 2012
 
29 yrs.
Office facility in Northfield, IL
 
36,500

 
18,979

 
40,063

 
—

 
—

 
18,979

 
40,063

 
59,042

 
2,574

 
1990
 
Jan. 2013
 
35 yrs.
Warehouse/distribution facilities in Venlo, Netherlands
 
—

 
10,154

 
18,590

 
—

 
(1,873
)
 
9,492

 
17,379

 
26,871

 
853

 
Various
 
Apr. 2013
 
35 yrs.
Industrial and office facilities in Tampere, Finland
 
—

 
2,309

 
37,153

 
—

 
(2,665
)
 
2,126

 
34,671

 
36,797

 
1,753

 
2012
 
Jun. 2013
 
40 yrs.
Office facility in Quincy, MA
 
—

 
2,316

 
21,537

 
—

 
—

 
2,316

 
21,537

 
23,853

 
915

 
1989
 
Jun. 2013
 
40 yrs.
Office facility in Salford, United Kingdom
 
—

 
—

 
30,012

 
—

 
(209
)
 
—

 
29,803

 
29,803

 
1,020

 
1997
 
Sep. 2013
 
40 yrs.
Office facility in Lone Tree, CO
 
—

 
4,761

 
28,864

 
662

 
—

 
4,761

 
29,526

 
34,287

 
890

 
2001
 
Nov. 2013
 
40 yrs.
Sports facility in Houston, TX
 
3,499

 
2,430

 
2,270

 
—

 
—

 
2,430

 
2,270

 
4,700

 
92

 
1995
 
Jan. 2014
 
23 yrs.

W. P. Carey 2014 10-K – 154


SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
December 31, 2014
(in thousands)
 
 
 
 
Initial Cost to Company
 
Cost Capitalized
Subsequent to
Acquisition (a)
 
Increase 
(Decrease)
in Net
Investments (b)
 
Gross Amount at which 
Carried at Close of Period (c)
 
Accumulated Depreciation (c)
 
Date of Construction
 
Date Acquired
 
Life on which
Depreciation in Latest
Statement of 
Income
is Computed
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Description
 
Encumbrances
 
Land
 
Buildings
 
 
 
Land
 
Buildings
 
Total
 
 
 
 
Sports facility in St. Charles, MO
 
—

 
1,966

 
1,368

 
80

 
—

 
1,966

 
1,448

 
3,414

 
47

 
1987
 
Jan. 2014
 
27 yrs.
Sports facility in Salt Lake City, UT
 
3,015

 
856

 
2,804

 
—

 
—

 
856

 
2,804

 
3,660

 
99

 
1999
 
Jan. 2014
 
26 yrs.
Land in Scottsdale, AZ
 
10,869

 
22,300

 
—

 
—

 
—

 
22,300

 
—

 
22,300

 
—

 
N/A
 
Jan. 2014
 
N/A
Industrial facility in Aurora, CO
 
3,156

 
737

 
2,609

 
—

 
—

 
737

 
2,609

 
3,346

 
76

 
1985
 
Jan. 2014
 
32 yrs.
Office facilities in Sunnyvale, CA
 
55,241

 
43,489

 
73,035

 
—

 
—

 
43,489

 
73,035

 
116,524

 
2,687

 
1993; 1995
 
Jan. 2014
 
25 yrs.
Warehouse/distribution facility in Burlington, NJ
 
—

 
3,989

 
6,213

 
—

 
—

 
3,989

 
6,213

 
10,202

 
223

 
1999
 
Jan. 2014
 
26 yrs.
Industrial facility in Albuquerque, NM
 
—

 
2,467

 
3,476

 
—

 
—

 
2,467

 
3,476

 
5,943

 
120

 
1993
 
Jan. 2014
 
27 yrs.
Warehouse/distribution facility in Champlin, MN and industrial facilities in Robbinsville, NJ; North Salt Lake, UT; and Radford, VA
 
5,823

 
10,601

 
17,626

 
—

 
—

 
10,601

 
17,626

 
28,227

 
616

 
1981; 1995; 1998
 
Jan. 2014
 
26 yrs.
Industrial facilities in Murrysville, PA and Wylie, TX
 
—

 
2,185

 
12,058

 
—

 
1

 
2,185

 
12,059

 
14,244

 
410

 
1940; 2001
 
Jan. 2014
 
27 - 28 yrs.
Industrial facility in Welcome, NC
 
—

 
980

 
11,230

 
—

 
—

 
980

 
11,230

 
12,210

 
370

 
1995
 
Jan. 2014
 
28 yrs.
Industrial facilities in Evansville, IN; Lawrence, KS; and Baltimore, MD
 
27,569

 
4,005

 
44,192

 
—

 
—

 
4,005

 
44,192

 
48,197

 
1,694

 
1911; 1967; 1982
 
Jan. 2014
 
24 yrs.
Industrial facilities in Colton, CA; Bonner Springs, KS; and Dallas, TX and land in Eagan, MN
 
21,050

 
8,451

 
25,457

 
—

 
298

 
8,451

 
25,755

 
34,206

 
820

 
1978; 1979; 1986
 
Jan. 2014
 
17 - 34 yrs.
Retail facility in Torrance, CA
 
23,899

 
8,412

 
12,241

 
—

 
—

 
8,412

 
12,241

 
20,653

 
458

 
1973
 
Jan. 2014
 
25 yrs.
Office facility in Houston, TX
 
3,605

 
6,578

 
424

 
—

 
—

 
6,578

 
424

 
7,002

 
14

 
1978
 
Jan. 2014
 
27 yrs.
Land in Doncaster, United Kingdom
 
—

 
4,257

 
4,248

 
—

 
(7,144
)
 
1,361

 
—

 
1,361

 
—

 
N/A
 
Jan. 2014
 
N/A
Warehouse/distribution facility in Norwich, CT
 
12,160

 
3,885

 
21,342

 
—

 
2

 
3,885

 
21,344

 
25,229

 
691

 
1960
 
Jan. 2014
 
28 yrs.
Warehouse/distribution facility in Norwich, CT
 
—

 
1,437

 
9,669

 
—

 
—

 
1,437

 
9,669

 
11,106

 
313

 
2007
 
Jan. 2014
 
28 yrs.
Retail facility in Johnstown, PA and warehouse/distribution facility in Whitehall, PA
 
—

 
7,435

 
9,093

 
—

 
17

 
7,435

 
9,110

 
16,545

 
360

 
1986; 1992
 
Jan. 2014
 
23 yrs.
Retail facilities in York, PA
 
9,096

 
3,776

 
10,092

 
—

 
—

 
3,776

 
10,092

 
13,868

 
297

 
1992
 
Jan. 2014
 
26 - 34 yrs.
Industrial facility in Pittsburgh, PA
 
—

 
1,151

 
10,938

 
—

 
—

 
1,151

 
10,938

 
12,089

 
404

 
1991
 
Jan. 2014
 
25 yrs.
Warehouse/distribution facilities in Atlanta, GA; Cincinnati, OH; and Elkwood, VA
 
—

 
5,356

 
4,121

 
—

 
(711
)
 
4,998

 
3,768

 
8,766

 
102

 
1958; 1975
 
Jan. 2014
 
28 yrs.
Warehouse/distribution facility in Harrisburg, NC
 
—

 
1,753

 
5,840

 
—

 
(111
)
 
1,642

 
5,840

 
7,482

 
205

 
2000
 
Jan. 2014
 
26 yrs.
Learning center in Nashville, TN
 
5,555

 
1,098

 
7,043

 
—

 
—

 
1,098

 
7,043

 
8,141

 
206

 
1988
 
Jan. 2014
 
31 yrs.

W. P. Carey 2014 10-K – 155


SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
December 31, 2014
(in thousands)
 
 
 
 
Initial Cost to Company
 
Cost Capitalized
Subsequent to
Acquisition (a)
 
Increase 
(Decrease)
in Net
Investments (b)
 
Gross Amount at which 
Carried at Close of Period (c)
 
Accumulated Depreciation (c)
 
Date of Construction
 
Date Acquired
 
Life on which
Depreciation in Latest
Statement of 
Income
is Computed
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Description
 
Encumbrances
 
Land
 
Buildings
 
 
 
Land
 
Buildings
 
Total
 
 
 
 
Warehouse/distribution facilities in Boé, Carpiquet, Lagnieu, Le Mans, Lieusaint, Lunéville, and Saint-Germain-du-Puy, France and land in Le Mans and Vendin-le-Vieil, France
 
53,492

 
62,183

 
26,928

 
—

 
(9,532
)
 
55,534

 
24,045

 
79,579

 
773

 
Various
 
Jan. 2014
 
28 yrs.
Industrial facility in Chandler, AZ; industrial, office, and warehouse/distribution facilities in Englewood, CO; and land in Englewood, CO
 
5,898

 
4,306

 
7,235

 
—

 
3

 
4,306

 
7,238

 
11,544

 
219

 
Various
 
Jan. 2014
 
30 yrs.
Warehouse/distribution facility in Ringwood, NJ
 
1,411

 
2,499

 
3,532

 
—

 
(4,600
)
 
867

 
564

 
1,431

 
16

 
1962
 
Jan. 2014
 
32 yrs.
Industrial facility in Cynthiana, KY
 
2,741

 
1,274

 
3,505

 
—

 
2

 
1,274

 
3,507

 
4,781

 
104

 
1967
 
Jan. 2014
 
31 yrs.
Industrial facility in Columbia, SC
 
10,651

 
2,843

 
11,886

 
—

 
—

 
2,843

 
11,886

 
14,729

 
481

 
1962
 
Jan. 2014
 
23 yrs.
Land in Midlothian, VA
 
1,465

 
2,824

 
—

 
—

 
—

 
2,824

 
—

 
2,824

 
—

 
N/A
 
Jan. 2014
 
N/A
Residential facility in Laramie, WY
 
16,610

 
1,966

 
18,896

 
—

 
—

 
1,966

 
18,896

 
20,862

 
1,057

 
2007
 
Jan. 2014
 
33 yrs.
Office facility in Greenville, SC
 
9,121

 
562

 
7,916

 
—

 
43

 
562

 
7,959

 
8,521

 
290

 
1972
 
Jan. 2014
 
25 yrs.
Warehouse/distribution facilities in Mendota, IL; Toppenish and Yakima, WA; and Plover, WI
 
10,079

 
1,444

 
21,208

 
—

 
—

 
1,444

 
21,208

 
22,652

 
864

 
1996
 
Jan. 2014
 
23 yrs.
Industrial facility in Allen, TX and office facility in Sunnyvale, CA
 
12,228

 
9,297

 
24,086

 
—

 
—

 
9,297

 
24,086

 
33,383

 
712

 
1981; 1997
 
Jan. 2014
 
31 yrs.
Industrial facilities in Hampton, NH
 
10,384

 
8,990

 
7,362

 
—

 
—

 
8,990

 
7,362

 
16,352

 
222

 
1976
 
Jan. 2014
 
30 yrs.
Industrial facilities located throughout France
 
23,649

 
36,306

 
5,212

 
—

 
(4,441
)
 
32,423

 
4,654

 
37,077

 
186

 
Various
 
Jan. 2014
 
23 yrs.
Retail facility in Fairfax, VA
 
5,275

 
3,402

 
16,353

 
—

 
—

 
3,402

 
16,353

 
19,755

 
567

 
1998
 
Jan. 2014
 
26 yrs.
Retail facility in Lombard, IL
 
5,275

 
5,087

 
8,578

 
—

 
—

 
5,087

 
8,578

 
13,665

 
298

 
1999
 
Jan. 2014
 
26 yrs.
Warehouse/distribution facility in Plainfield, IN
 
21,073

 
1,578

 
29,415

 
—

 
—

 
1,578

 
29,415

 
30,993

 
886

 
1997
 
Jan. 2014
 
30 yrs.
Retail facility in Kennesaw, GA
 
4,480

 
2,849

 
6,180

 
—

 
—

 
2,849

 
6,180

 
9,029

 
214

 
1999
 
Jan. 2014
 
26 yrs.
Retail facility in Leawood, KS
 
9,394

 
1,487

 
13,417

 
—

 
—

 
1,487

 
13,417

 
14,904

 
466

 
1997
 
Jan. 2014
 
26 yrs.
Office facility in Tolland, CT
 
8,336

 
1,817

 
5,709

 
—

 
11

 
1,817

 
5,720

 
7,537

 
191

 
1968
 
Jan. 2014
 
28 yrs.
Office and industrial facilities in Sankt Ingbert, Germany
 
7,192

 
1,140

 
7,442

 
—

 
(918
)
 
1,018

 
6,646

 
7,664

 
186

 
1992
 
Jan. 2014
 
33 yrs.
Warehouse/distribution facilities in Lincolnton, NC and Mauldin, SC
 
10,166

 
1,962

 
9,247

 
—

 
—

 
1,962

 
9,247

 
11,209

 
301

 
1988; 1996
 
Jan. 2014
 
28 yrs.
Retail facilities located throughout Germany
 
310,842

 
81,109

 
153,927

 
—

 
(25,143
)
 
72,432

 
137,461

 
209,893

 
4,429

 
Various
 
Jan. 2014
 
Various
Office facility in Southfield, MI
 
—

 
1,726

 
4,856

 
—

 
—

 
1,726

 
4,856

 
6,582

 
144

 
1985
 
Jan. 2014
 
31 yrs.
Office facility in The Woodlands, TX
 
21,481

 
3,204

 
24,997

 
—

 
—

 
3,204

 
24,997

 
28,201

 
726

 
1997
 
Jan. 2014
 
32 yrs.

W. P. Carey 2014 10-K – 156


SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
December 31, 2014
(in thousands)
 
 
 
 
Initial Cost to Company
 
Cost Capitalized
Subsequent to
Acquisition (a)
 
Increase 
(Decrease)
in Net
Investments (b)
 
Gross Amount at which 
Carried at Close of Period (c)
 
Accumulated Depreciation (c)
 
Date of Construction
 
Date Acquired
 
Life on which
Depreciation in Latest
Statement of 
Income
is Computed
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
Description
 
Encumbrances
 
Land
 
Buildings
 
 
 
Land
 
Buildings
 
Total
 
 
 
 
Industrial facility in Guelph, Canada
 
5,635

 
2,151

 
1,750

 
—

 
(150
)
 
2,068

 
1,683

 
3,751

 
49

 
2002
 
Jan. 2014
 
34 yrs.
Industrial facilities in Shah Alam, Malaysia
 
6,605

 
—

 
10,429

 
—

 
(454
)
 
—

 
9,975

 
9,975

 
306

 
1989; 1992
 
Jan. 2014
 
30 yrs.
Warehouse/distribution facilities in Lam Luk Ka and Bang Pa-in, Thailand
 
13,002

 
13,054

 
19,497

 
—

 
159

 
13,118

 
19,592

 
32,710

 
575

 
Various
 
Jan. 2014
 
31 yrs.
Warehouse/distribution facilities in Valdosta, GA and Johnson City, TN
 
8,849

 
1,080

 
14,998

 
—

 
—

 
1,080

 
14,998

 
16,078

 
516

 
1978; 1998
 
Jan. 2014
 
27 yrs.
Industrial facility in Amherst, NY
 
8,478

 
674

 
7,971

 
—

 
—

 
674

 
7,971

 
8,645

 
325

 
1984
 
Jan. 2014
 
23 yrs.
Industrial and warehouse/distribution facilities in Westfield, MA
 
—

 
1,922

 
9,755

 
—

 
9

 
1,922

 
9,764

 
11,686

 
325

 
1954; 1997
 
Jan. 2014
 
28 yrs.
Warehouse/distribution facilities in Kottka, Finland
 
5,389

 
—

 
8,546

 
—

 
(914
)
 
—

 
7,632

 
7,632

 
319

 
1999; 2001
 
Jan. 2014
 
21 - 23 yrs.
Office facility in Bloomington, MN
 
—

 
2,942

 
7,155

 
—

 
—

 
2,942

 
7,155

 
10,097

 
231

 
1988
 
Jan. 2014
 
28 yrs.
Warehouse/distribution facility in Gorinchem, Netherlands
 
4,479

 
1,143

 
5,648

 
—

 
(726
)
 
1,021

 
5,044

 
6,065

 
163

 
1995
 
Jan. 2014
 
28 yrs.
Retail facility in Cresskill, NJ
 
6,368

 
2,366

 
5,482

 
—

 
19

 
2,366

 
5,501

 
7,867

 
161

 
1975
 
Jan. 2014
 
31 yrs.
Retail facility in Livingston, NJ
 
5,425

 
2,932

 
2,001

 
—

 
14

 
2,932

 
2,015

 
4,947

 
68

 
1966
 
Jan. 2014
 
27 yrs.
Retail facility in Maplewood, NJ
 
1,717

 
845

 
647

 
—

 
4

 
845

 
651

 
1,496

 
22

 
1954
 
Jan. 2014
 
27 yrs.
Retail facility in Montclair, NJ
 
4,574

 
1,905

 
1,403

 
—

 
6

 
1,905

 
1,409

 
3,314

 
47

 
1950
 
Jan. 2014
 
27 yrs.
Retail facility in Morristown, NJ
 
11,111

 
3,258

 
8,352

 
—

 
26

 
3,258

 
8,378

 
11,636

 
282

 
1973
 
Jan. 2014
 
27 yrs.
Retail facility in Summit, NJ
 
2,771

 
1,228

 
1,465

 
—

 
8

 
1,228

 
1,473

 
2,701

 
50

 
1950
 
Jan. 2014
 
27 yrs.
Industrial and office facilities in Bunde, Dransfeld, and Wolfach, Germany
 
—

 
2,789

 
8,750

 
—

 
(1,189
)
 
2,491

 
7,859

 
10,350

 
295

 
1898; 1956; 1978
 
Jan. 2014
 
24 yrs.
Industrial facilities in Georgetown, TX and Woodland, WA
 
3,252

 
965

 
4,113

 
—

 
—

 
965

 
4,113

 
5,078

 
112

 
1998; 2001; 2005
 
Jan. 2014
 
33 - 35 yrs.
Learning centers in Union, NJ; Allentown and Philadelphia, PA; and Grand Prairie, TX
 
—

 
5,365

 
7,845

 
—

 
5

 
5,365

 
7,850

 
13,215

 
258

 
Various
 
Jan. 2014
 
28 yrs.
Industrial facility in Ylämylly, Finland
 
8,195

 
1,669

 
6,034

 
—

 
(825
)
 
1,490

 
5,388

 
6,878

 
145

 
1999
 
Jan. 2014
 
34 yrs.
Industrial facility in Salisbury, NC
 
6,653

 
1,499

 
8,185

 
—

 
—

 
1,499

 
8,185

 
9,684

 
270

 
2000
 
Jan. 2014
 
28 yrs.
Industrial and office facilities in Plymouth, MI and Solon and Twinsburg, OH
 
3,851

 
2,831

 
10,565

 
—

 
—

 
2,831

 
10,565

 
13,396

 
355

 
1970; 1991; 1995
 
Jan. 2014
 
26 - 27 yrs.
Industrial facility in Cambridge, Canada
 
—

 
1,849

 
7,371

 
—

 
(354
)
 
1,778

 
7,088

 
8,866

 
207

 
2001
 
Jan. 2014
 
31 yrs.
Industrial facilities in Peru, IL; Huber Heights, Lima, and Sheffield, OH; and Lebanon, TN
 
13,147

 
2,962

 
17,832

 
—

 
—

 
2,962

 
17,832

 
20,794

 
522

 
Various
 
Jan. 2014
 
31 yrs.
Industrial facility in Ramos Arizpe, Mexico
 
—

 
1,059

 
2,886

 
—

 
—

 
1,059

 
2,886

 
3,945

 
84

 
2000
 
Jan. 2014
 
31 yrs.

W. P. Carey 2014 10-K – 157


SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
December 31, 2014
(in thousands)
 
 
 
 
Initial Cost to Company
 
Cost Capitalized
Subsequent to
Acquisition (a)
 
Increase 
(Decrease)
in Net
Investments (b)
 
Gross Amount at which 
Carried at Close of Period (c)
 
Accumulated Depreciation (c)
 
Date of Construction
 
Date Acquired
 
Life on which
Depreciation in Latest
Statement of 
Income
is Computed
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
Description
 
Encumbrances
 
Land
 
Buildings
 
 
 
Land
 
Buildings
 
Total
 
 
 
 
Industrial facilities in Salt Lake City, UT
 
5,078

 
2,783

 
3,773

 
—

 
—

 
2,783

 
3,773

 
6,556

 
110

 
Various
 
Jan. 2014
 
31 - 33 yrs.
Residential facility in Blairsville, PA
 
12,858

 
1,631

 
23,163

 
—

 
—

 
1,631

 
23,163

 
24,794

 
1,163

 
2005
 
Jan. 2014
 
33 yrs.
Industrial facility in Nashville, TN
 
—

 
1,078

 
5,619

 
—

 
—

 
1,078

 
5,619

 
6,697

 
240

 
1962
 
Jan. 2014
 
21 yrs.
Office facility in Lafayette, LA
 
1,816

 
1,048

 
1,507

 
—

 
—

 
1,048

 
1,507

 
2,555

 
51

 
1995
 
Jan. 2014
 
27 yrs.
Warehouse/distribution facilities in Atlanta, Doraville, and Rockmart, GA
 
55,849

 
6,488

 
77,192

 
—

 
—

 
6,488

 
77,192

 
83,680

 
2,473

 
1959; 1962; 1991
 
Jan. 2014
 
23 - 33 yrs.
Warehouse/distribution facilities in Flora, MS and Muskogee, OK
 
3,475

 
554

 
4,353

 
—

 
—

 
554

 
4,353

 
4,907

 
122

 
1992; 2002
 
Jan. 2014
 
33 yrs.
Industrial facility in Richmond, MO
 
5,156

 
2,211

 
8,505

 
—

 
—

 
2,211

 
8,505

 
10,716

 
282

 
1996
 
Jan. 2014
 
28 yrs.
Warehouse/distribution facility in Dallas, TX
 
6,261

 
468

 
8,042

 
—

 
—

 
468

 
8,042

 
8,510

 
311

 
1997
 
Jan. 2014
 
24 yrs.
Industrial facility in Tuusula, Finland
 
—

 
6,173

 
10,321

 
—

 
(1,764
)
 
5,513

 
9,217

 
14,730

 
330

 
1975
 
Jan. 2014
 
26 yrs.
Office facility in Turku, Finland
 
27,922

 
5,343

 
34,106

 
—

 
(4,221
)
 
4,771

 
30,457

 
35,228

 
1,000

 
1981
 
Jan. 2014
 
28 yrs.
Industrial facility in Turku, Finland
 
5,165

 
1,105

 
10,243

 
—

 
(1,197
)
 
987

 
9,164

 
10,151

 
302

 
1981
 
Jan. 2014
 
28 yrs.
Industrial facility in Baraboo, WI
 
—

 
917

 
10,663

 
—

 
—

 
917

 
10,663

 
11,580

 
742

 
1988
 
Jan. 2014
 
13 yrs.
Warehouse/distribution facility in Phoenix, AZ
 
19,408

 
6,747

 
21,352

 
—

 
—

 
6,747

 
21,352

 
28,099

 
703

 
1996
 
Jan. 2014
 
28 yrs.
Land in Calgary, Canada
 
—

 
3,721

 
—

 
—

 
(143
)
 
3,578

 
—

 
3,578

 
—

 
N/A
 
Jan. 2014
 
N/A
Industrial facilities in Sandersville, GA; Erwin, TN; and Gainsville, TX
 
2,580

 
955

 
4,779

 
—

 
—

 
955

 
4,779

 
5,734

 
141

 
1950; 1986; 1996
 
Jan. 2014
 
31 yrs.
Industrial facility in Buffalo Grove, IL
 
7,847

 
1,492

 
12,233

 
—

 
—

 
1,492

 
12,233

 
13,725

 
362

 
1996
 
Jan. 2014
 
31 yrs.
Industrial facility in Glasgow, United Kingdom
 
5,507

 
1,460

 
4,069

 
—

 
(331
)
 
1,372

 
3,826

 
5,198

 
111

 
2000
 
Jan. 2014
 
32 yrs.
Warehouse/distribution facility in Spanish Fork, UT
 
7,254

 
991

 
7,901

 
—

 
—

 
991

 
7,901

 
8,892

 
221

 
2001
 
Jan. 2014
 
33 yrs.
Industrial, office, and warehouse/distribution facilities in Perris, CA; Eugene, OR; West Jordan, UT; and Tacoma, WA
 
—

 
8,989

 
5,435

 
—

 
8

 
8,989

 
5,443

 
14,432

 
177

 
Various
 
Jan. 2014
 
28 yrs.
Office facility in Carlsbad, CA
 
—

 
3,230

 
5,492

 
—

 
—

 
3,230

 
5,492

 
8,722

 
213

 
1999
 
Jan. 2014
 
24 yrs.
Land in Pensacola, FL
 
1,025

 
1,746

 
—

 
—

 
—

 
1,746

 
—

 
1,746

 
—

 
N/A
 
Jan. 2014
 
N/A
Movie theater in Port St. Lucie, FL
 
5,559

 
4,654

 
2,576

 
—

 
—

 
4,654

 
2,576

 
7,230

 
86

 
2000
 
Jan. 2014
 
27 yrs.
Movie theater in Hickory Creek, TX
 
—

 
1,693

 
3,342

 
—

 
—

 
1,693

 
3,342

 
5,035

 
114

 
2000
 
Jan. 2014
 
27 yrs.
Industrial facility in Nurieux-Volognat, France
 
—

 
121

 
5,328

 
—

 
(474
)
 
108

 
4,867

 
4,975

 
138

 
2000
 
Jan. 2014
 
32 yrs.
Warehouse/distribution facility in Suwanee, GA
 
15,559

 
2,330

 
8,406

 
—

 
—

 
2,330

 
8,406

 
10,736

 
227

 
1995
 
Jan. 2014
 
34 yrs.

W. P. Carey 2014 10-K – 158


SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
December 31, 2014
(in thousands)
 
 
 
 
Initial Cost to Company
 
Cost Capitalized
Subsequent to
Acquisition (a)
 
Increase 
(Decrease)
in Net
Investments (b)
 
Gross Amount at which 
Carried at Close of Period (c)
 
Accumulated Depreciation (c)
 
Date of Construction
 
Date Acquired
 
Life on which
Depreciation in Latest
Statement of 
Income
is Computed
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
Description
 
Encumbrances
 
Land
 
Buildings
 
 
 
Land
 
Buildings
 
Total
 
 
 
 
Retail facilities in Wichita, KS and Oklahoma City, OK and warehouse/distribution facility in Wichita, KS
 
7,607

 
1,878

 
8,579

 
—

 
—

 
1,878

 
8,579

 
10,457

 
335

 
Various
 
Jan. 2014
 
24 yrs.
Industrial facilities in Fort Dodge, IN and Menomonie and Oconomowoc, WI
 
8,931

 
1,403

 
11,098

 
—

 
—

 
1,403

 
11,098

 
12,501

 
623

 
1996
 
Jan. 2014
 
16 yrs.
Industrial facility in Mesa, AZ
 
4,990

 
2,888

 
4,282

 
—

 
—

 
2,888

 
4,282

 
7,170

 
144

 
1991
 
Jan. 2014
 
27 yrs.
Industrial facility in North Amityville, NY
 
8,025

 
3,486

 
11,413

 
—

 
—

 
3,486

 
11,413

 
14,899

 
401

 
1981
 
Jan. 2014
 
26 yrs.
Warehouse/distribution facilities in Greenville, SC
 
—

 
567

 
10,217

 
—

 
15

 
567

 
10,232

 
10,799

 
454

 
1960
 
Jan. 2014
 
21 yrs.
Industrial facility in Fort Collins, CO
 
7,894

 
821

 
7,236

 
—

 
—

 
821

 
7,236

 
8,057

 
202

 
1993
 
Jan. 2014
 
33 yrs.
Office facility in Piscataway, NJ
 
—

 
4,984

 
34,165

 
13,195

 
—

 
4,984

 
47,360

 
52,344

 
1,098

 
1968
 
Jan. 2014
 
31 yrs.
Land in Elk Grove Village, IL
 
1,767

 
4,037

 
—

 
—

 
—

 
4,037

 
—

 
4,037

 
—

 
N/A
 
Jan. 2014
 
N/A
Office facilities in Washington, MI
 
26,751

 
4,085

 
7,496

 
—

 
—

 
4,085

 
7,496

 
11,581

 
209

 
1987; 1990
 
Jan. 2014
 
33 yrs.
Office facility in Houston, TX
 
—

 
522

 
7,448

 
—

 
—

 
522

 
7,448

 
7,970

 
256

 
1999
 
Jan. 2014
 
27 yrs.
Industrial facilities in Conroe, Houston, Odessa, and Weimar, TX and office facility in Houston, TX
 
7,057

 
4,049

 
13,021

 
—

 
133

 
4,049

 
13,154

 
17,203

 
643

 
Various
 
Jan. 2014
 
12 - 22 yrs.
Learning center in Sacramento, CA
 
27,639

 
—

 
13,715

 
—

 
—

 
—

 
13,715

 
13,715

 
375

 
2005
 
Jan. 2014
 
34 yrs.
Industrial facilities in City of Industry, CA; Chelmsford, MA; and Lancaster, TX
 
—

 
5,138

 
8,387

 
—

 
43

 
5,138

 
8,430

 
13,568

 
278

 
1969; 1974; 1984
 
Jan. 2014
 
27 yrs.
Office facility in Tinton Falls, NJ
 
7,220

 
1,958

 
7,993

 
—

 
—

 
1,958

 
7,993

 
9,951

 
239

 
2001
 
Jan. 2014
 
31 yrs.
Industrial facility in Woodland, WA
 
—

 
707

 
1,562

 
—

 
—

 
707

 
1,562

 
2,269

 
41

 
2009
 
Jan. 2014
 
35 yrs.
Warehouse/distribution facilities in Gyál and Herceghalom, Hungary
 
39,054

 
14,601

 
21,915

 
—

 
(3,906
)
 
13,039

 
19,571

 
32,610

 
875

 
2002; 2004
 
Jan. 2014
 
21 yrs.
Industrial facility in Windsor, CT
 
—

 
453

 
637

 
—

 
—

 
453

 
637

 
1,090

 
17

 
1999
 
Jan. 2014
 
33 yrs.
Industrial facility in Aurora, CO
 
2,900

 
574

 
3,999

 
—

 
—

 
574

 
3,999

 
4,573

 
93

 
2012
 
Jan. 2014
 
40 yrs.
Office facility in Chandler, AZ
 
—

 
5,318

 
27,551

 
—

 
—

 
5,318

 
27,551

 
32,869

 
599

 
2008
 
Mar. 2014
 
40 yrs.
Warehouse/distribution facility in University Park, IL
 
—

 
7,962

 
32,756

 
—

 
—

 
7,962

 
32,756

 
40,718

 
617

 
2008
 
May 2014
 
40 yrs.
Office facility in Stavanger, Norway
 
—

 
10,296

 
91,744

 
—

 
(15,978
)
 
8,684

 
77,378

 
86,062

 
824

 
1975
 
Aug. 2014
 
40 yrs.
Office facility in Westborough, MA
 
—

 
3,409

 
37,914

 
—

 
—

 
3,409

 
37,914

 
41,323

 
339

 
1992
 
Aug. 2014
 
40 yrs.
Office facility in Andover, MA
 
—

 
3,980

 
45,120

 
—

 
—

 
3,980

 
45,120

 
49,100

 
281

 
1999
 
Oct. 2014
 
40 yrs.
Office facility in Newport, United Kingdom
 
—

 
—

 
22,587

 
—

 
(767
)
 
—

 
21,820

 
21,820

 
137

 
2014
 
Oct. 2014
 
40 yrs.

W. P. Carey 2014 10-K – 159


SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
December 31, 2014
(in thousands)
 
 
 
 
Initial Cost to Company
 
Cost Capitalized
Subsequent to
Acquisition (a)
 
Increase 
(Decrease)
in Net
Investments (b)
 
Gross Amount at which 
Carried at Close of Period (c)
 
Accumulated Depreciation (c)
 
Date of Construction
 
Date Acquired
 
Life on which
Depreciation in Latest
Statement of 
Income
is Computed
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Description
 
Encumbrances
 
Land
 
Buildings
 
 
 
Land
 
Buildings
 
Total
 
 
 
 
Industrial facilities located throughout Australia
 
—

 
30,455

 
94,724

 
—

 
(8,671
)
 
28,211

 
88,297

 
116,508

 
952

 
Various
 
Oct. 2014
 
Various
Industrial facility in Lewisburg, OH
 
—

 
1,627

 
13,721

 
—

 
—

 
1,627

 
13,721

 
15,348

 
64

 
2014
 
Nov. 2014
 
40 yrs.
Industrial facility in Opole, Poland
 
—

 
2,151

 
21,438

 
—

 
(527
)
 
2,103

 
20,959

 
23,062

 
33

 
2014
 
Dec. 2014
 
38 yrs.
Office facilities located throughout Spain
 
—

 
51,778

 
257,624

 
—

 
(3,995
)
 
51,110

 
254,297

 
305,407

 
217

 
Various
 
Dec. 2014
 
Various
 
 
$
2,285,751

 
$
1,210,177

 
$
3,868,939

 
$
125,424

 
$
(227,855
)
 
$
1,146,704

 
$
3,829,981

 
$
4,976,685

 
$
253,627

 
 
 
 
 
 


W. P. Carey 2014 10-K – 160


SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
December 31, 2014
(in thousands)
 
 
 
 
Initial Cost to Company
 
Cost Capitalized
Subsequent to
Acquisition  (a)
 
Increase 
(Decrease)
in Net
Investments (b)
 
Gross Amount at
which Carried at
Close of Period
Total
 
Date of Construction
 
Date Acquired
Description
 
Encumbrances
 
Land
 
Buildings
 
 
 
 
 
Direct Financing Method
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Retail facilities in several cities in the following states: Alabama, Florida, Georgia, Illinois, Louisiana, Missouri, North Carolina, and Texas
 
$
—

 
$
—

 
$
16,416

 
$
—

 
$
(4,164
)
 
$
12,252

 
Various
 
Jan. 1998
Industrial facilities in Glendora, CA and Romulus, MI
 
—

 
454

 
13,251

 
9

 
(3,092
)
 
10,622

 
1950; 1970
 
Jan. 1998
Industrial facilities in Irving and Houston, TX
 
18,720

 
—

 
27,599

 
—

 
(3,932
)
 
23,667

 
1978
 
Jan. 1998
Learning centers in Tucson, AZ; Garden Grove, CA; and Canton, MI
 
—

 
—

 
7,840

 
—

 
(6,030
)
 
1,810

 
Various
 
Sep. 2012
Retail facility in Freehold, NJ
 
8,153

 
—

 
17,067

 
—

 
(72
)
 
16,995

 
2004
 
Sep. 2012
Office facilities in Corpus Christi, Odessa, San Marcos, and Waco, TX
 
4,625

 
2,089

 
14,211

 
—

 
(214
)
 
16,086

 
1969; 1996; 2000
 
Sep. 2012
Retail facilities in Osnabruck, Borken, Bunde, Arnstadt, Dorsten, Duisburg, Freiberg, Leimbach-Kaiserro, Monheim, Oberhausen, Rodewisch, Sankt Augustin, Schmalkalden, Stendal, Wuppertal, and Monheim, Germany
 
—

 
28,734

 
145,854

 
—

 
(9,767
)
 
164,821

 
Various
 
Sep. 2012
Warehouse/distribution facility in Brierley Hill, United Kingdom
 
10,047

 
2,147

 
12,357

 
—

 
(85
)
 
14,419

 
1996
 
Sep. 2012
Warehouse/distribution and industrial facilities in Mesquite, TX
 
6,527

 
2,851

 
15,899

 
—

 
(556
)
 
18,194

 
1961; 1972; 1975
 
Sep. 2012
Industrial facility in Rochester, MN
 
4,477

 
881

 
17,039

 
—

 
(113
)
 
17,807

 
1997
 
Sep. 2012
Office facility in Irvine, CA
 
6,560

 
—

 
17,027

 
—

 
(291
)
 
16,736

 
1981
 
Sep. 2012
Industrial facility in Brownwood, TX
 
—

 
722

 
6,268

 
—

 
—

 
6,990

 
1964
 
Sep. 2012
Office facility in Scottsdale, AZ
 
21,165

 
—

 
43,570

 
—

 
(146
)
 
43,424

 
1977
 
Jan. 2014
Retail facilities in El Paso, Fabens, and Socorro, TX
 
12,858

 
4,777

 
17,823

 
—

 
3

 
22,603

 
Various
 
Jan. 2014
Industrial facility in Dallas, TX
 
—

 
3,190

 
10,010

 
—

 
—

 
13,200

 
1968
 
Jan. 2014
Industrial facility in Eagan, MN
 
7,269

 
—

 
11,548

 
—

 
(19
)
 
11,529

 
1975
 
Jan. 2014
Industrial facilities in Albemarle and Old Fort, NC; Holmesville, OH; and Springfield, TN
 
9,287

 
6,542

 
20,668

 
—

 
(38
)
 
27,172

 
Various
 
Jan. 2014
Movie theater in Midlothian, VA
 
8,649

 
—

 
16,546

 
—

 
127

 
16,673

 
2000
 
Jan. 2014
Industrial facilities located throughout France
 
16,197

 
—

 
27,270

 
—

 
(2,004
)
 
25,266

 
Various
 
Jan. 2014
Retail facility in Gronau, Germany
 
6,326

 
281

 
4,401

 
—

 
(500
)
 
4,182

 
1989
 
Jan. 2014
Industrial and office facilities in Marktheidenfeld, Germany
 
—

 
1,629

 
22,396

 
—

 
(2,827
)
 
21,198

 
2002
 
Jan. 2014
Industrial and warehouse/distribution facilities in Newbridge, United Kingdom
 
12,723

 
6,851

 
22,868

 
—

 
(1,981
)
 
27,738

 
1998
 
Jan. 2014
Learning center in Mooresville, NC
 
4,136

 
1,795

 
15,955

 
—

 
2

 
17,752

 
2002
 
Jan. 2014
Industrial facility in Mount Carmel, IL
 
—

 
135

 
3,265

 
—

 
28

 
3,428

 
1896
 
Jan. 2014
Industrial, office, and warehouse/distribution facilities in Bad Hersfeld, Germany
 
21,945

 
15,287

 
29,292

 
—

 
(4,764
)
 
39,815

 
Various
 
Jan. 2014
Retail facility in Vantaa, Finland
 
—

 
5,291

 
15,522

 
—

 
(2,225
)
 
18,588

 
2004
 
Jan. 2014
Retail facility in Linkoping, Sweden
 
—

 
1,484

 
9,402

 
—

 
(1,813
)
 
9,073

 
2004
 
Jan. 2014
Industrial facility in Calgary, Canada
 
—

 
—

 
7,076

 
—

 
(268
)
 
6,808

 
1965
 
Jan. 2014
Industrial facilities in Kearney, MO; Fair Bluff, NC; York, NE; Walbridge, OH; Middlesex Township, PA; Rocky Mount, VA; and Martinsburg, WV
 
11,650

 
5,780

 
40,860

 
—

 
(42
)
 
46,598

 
Various
 
Jan. 2014
Industrial and office facilities in Leeds, United Kingdom
 
—

 
2,712

 
16,501

 
—

 
(953
)
 
18,260

 
1950; 1960; 1980
 
Jan. 2014
Movie theater in Pensacola, FL
 
7,647

 
—

 
13,034

 
—

 
(4
)
 
13,030

 
2001
 
Jan. 2014
Industrial facility in Monheim, Germany
 
—

 
2,939

 
7,379

 
—

 
(1,112
)
 
9,206

 
1981
 
Jan. 2014

W. P. Carey 2014 10-K – 161


SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
December 31, 2014
(in thousands)
 
 
 
 
Initial Cost to Company
 
Cost Capitalized
Subsequent to
Acquisition  (a)
 
Increase 
(Decrease)
in Net
Investments (b)
 
Gross Amount at
which Carried at
Close of Period
Total
 
Date of Construction
 
Date Acquired
Description
 
Encumbrances
 
Land
 
Buildings
 
 
 
 
 
Industrial facility in Göppingen, Germany
 
—

 
10,717

 
60,120

 
—

 
(7,826
)
 
63,011

 
1930
 
Jan. 2014
Warehouse/distribution facility in Elk Grove Village, IL
 
3,443

 
—

 
7,863

 
—

 
2

 
7,865

 
1980
 
Jan. 2014
Industrial facility in Sankt Ingbert, Germany
 
—

 
2,786

 
26,902

 
—

 
(3,301
)
 
26,387

 
1960
 
Jan. 2014
Industrial facility in New South Wales, Australia
 
—

 
283

 
2,978

 
—

 
(240
)
 
3,021

 
1970
 
Oct. 2014
 
 
$
202,404

 
$
110,357

 
$
764,077

 
$
9

 
$
(58,217
)
 
$
816,226

 
 
 
 
 
 
 
 
Initial Cost to Company
 
Costs 
Capitalized
Subsequent to
Acquisition  (a)
 
Increase 
(Decrease)
in Net
Investments  (b)
 
Gross Amount at which Carried 
  at Close of Period (c)
 
 
 
 
 
 
 
Life on which
Depreciation
in Latest
Statement of
Income is
Computed
Description
 
Encumbrances
 
Land

Buildings

Personal Property
 
 
 
Land

Buildings

Personal Property

Total
 
Accumulated Depreciation   (c)
 
Date of Construction
 
Date Acquired
 
Operating Real Estate – Hotels
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Bloomington, MN
 
$
19,287

 
$
3,810

 
$
29,126

 
$
3,622

 
$
80

 
$
—

 
$
3,857

 
$
29,159

 
$
3,622

 
$
36,638

 
$
1,523

 
2008
 
Jan. 2014
 
34 yrs.
Memphis, TN
 
27,806

 
2,120

 
36,594

 
3,647

 
35

 
—

 
2,120

 
36,629

 
3,647

 
42,396

 
2,264

 
1985
 
Jan. 2014
 
22 yrs.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Real Estate – Self-Storage Facilities
 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
 
 
Taunton, MA
 
$
—

 
$
4,300

 
$
12,274

 
$
—

 
$
303

 
$
(13,689
)
 
$
537

 
$
2,651

 
$
—

 
$
3,188

 
$
781

 
2001
 
Dec. 2006
 
25 yrs.
Pensacola, FL
 
1,720

 
560

 
2,082

 
—

 
21

 
—

 
560

 
2,103

 
—

 
2,663

 
298

 
2004
 
Sep. 2010
 
30 yrs.
 
 
$
48,813

 
$
10,790

 
$
80,076

 
$
7,269

 
$
439

 
$
(13,689
)
 
$
7,074

 
$
70,542

 
$
7,269

 
$
84,885

 
$
4,866

 
 
 
 
 
 
__________
(a)
Consists of the cost of improvements and acquisition costs subsequent to acquisition, including legal fees, appraisal fees, title costs, and other related professional fees. For business combinations, transaction costs are excluded.
(b)
The increase (decrease) in net investment was primarily due to (i) the amortization of unearned income from net investment in direct financing leases, which produces a periodic rate of return that at times may be greater or less than lease payments received, (ii) sales of properties, (iii) impairment charges, and (iv) changes in foreign currency exchange rates.
(c)
A reconciliation of real estate and accumulated depreciation follows:

W. P. Carey 2014 10-K – 162


W. P. CAREY INC.
NOTES TO SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION
(in thousands)
 
Reconciliation of Real Estate Subject to
Operating Leases
 
Years Ended December 31,
 
2014
 
2013
 
2012
Beginning balance
$
2,506,804

 
$
2,331,613

 
$
646,482

Additions
2,785,863

 
216,422

 
1,776,628

Improvements
18,474

 
7,422

 
815

Dispositions
(137,018
)
 
(8,347
)
 
(75,548
)
Foreign currency translation adjustment
(157,262
)
 
26,729

 
13,263

Reclassification to assets held for sale
(33,162
)
 
(72,827
)
 
(17,681
)
Reclassification from direct financing lease
13,663

 
13,952

 
—

Reclassification from real estate under construction
—

 
2,875

 
—

Impairment charges
(20,677
)
 
(11,035
)
 
(12,346
)
Ending balance
$
4,976,685

 
$
2,506,804

 
$
2,331,613

 
Reconciliation of Accumulated Depreciation for
Real Estate Subject to Operating Leases
 
Years Ended December 31,
 
2014
 
2013
 
2012
Beginning balance
$
168,076

 
$
116,075

 
$
118,054

Depreciation expense
112,758

 
60,470

 
24,302

Dispositions
(20,740
)
 
(533
)
 
(22,947
)
Foreign currency translation adjustment
(5,318
)
 
1,194

 
358

Reclassification to assets held for sale
(1,149
)
 
(9,130
)
 
(3,692
)
Ending balance
$
253,627

 
$
168,076

 
$
116,075

 
Reconciliation of Operating Real Estate
 
Years Ended December 31,
 
2014
 
2013
 
2012
Beginning balance
$
6,024

 
$
99,703

 
$
109,875

Additions
78,423

 
—

 
—

Improvements
438

 
706

 
295

Dispositions
—

 
(93,314
)
 
—

Impairment charges
—

 
(1,071
)
 
(10,467
)
Ending balance
$
84,885

 
$
6,024

 
$
99,703

 
Reconciliation of Accumulated Depreciation for
Operating Real Estate
 
Years Ended December 31,
 
2014
 
2013
 
2012
Beginning balance
$
882

 
$
19,993

 
$
17,121

Depreciation expense
3,984

 
2,242

 
2,872

Dispositions
—

 
(21,353
)
 
—

Ending balance
$
4,866

 
$
882

 
$
19,993


At December 31, 2014 , the aggregate cost of real estate that we and our consolidated subsidiaries own for federal income tax purposes was approximately $ 3.8 billion .

W. P. Carey 2014 10-K – 163


W. P. CAREY INC.
SCHEDULE IV — MORTGAGE LOANS ON REAL ESTATE
December 31, 2014
(dollars in thousands)
 
 
Interest Rate
 
Final Maturity Date
 
Fair Value
 
Carrying Amount
Description
 
 
 
 
Note receivable — Production Resource Group - Las Vegas
 
7.9%
 
Mar. 2029
 
$
9,555

 
$
10,888

Note receivable — Reyes
 
10.8%
 
Feb. 2015
 
10,049

 
9,960

 
 
 
 
 
 
$
19,604

 
$
20,848


NOTES TO SCHEDULE IV — MORTGAGE LOANS ON REAL ESTATE
(in thousands)
 
Reconciliation of Mortgage Loans on Real Estate
 
Years Ended December 31,
 
2014
 
2013
 
2012
Balance at beginning of year
$
—

 
$
—

 
$
—

Additions (a)
21,060

 
—

 
—

Amortization and accretion
(212
)
 
—

 
—

Ending balance
$
20,848

 
$
—

 
$
—

 
__________
(a)
We acquired these notes at a discount of $ 0.3 million in the CPA ® :16 Merger ( Note 6 ).


W. P. Carey 2014 10-K – 164


Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
 
None.

Item 9A. Controls and Procedures.
 
Disclosure Controls and Procedures
 
Our disclosure controls and procedures include our controls and other procedures designed to provide reasonable assurance that information required to be disclosed in this and other reports filed under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized, and reported within the required time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosures. It should be noted that no system of controls can provide complete assurance of achieving a company’s objectives and that future events may impact the effectiveness of a system of controls.
 
Our chief executive officer and chief financial officer, after conducting an evaluation, together with members of our management, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2014 , have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were effective as of December 31, 2014 at a reasonable level of assurance.
 
Management’s Report on Internal Control Over Financial Reporting
 
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
 
Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.
 
We assessed the effectiveness of our internal control over financial reporting at December 31, 2014 . In making this assessment, we used the framework set forth in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our assessment, we concluded that, at December 31, 2014 , our internal control over financial reporting is effective based on those criteria.
 
The effectiveness of our internal control over financial reporting as of December 31, 2014 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report in Item 8 .
 
Changes in Internal Control Over Financial Reporting
 
There have been no changes in our internal control over financial reporting during our most recently completed fiscal quarter covered by this Annual Report on Form 10-K that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information.
 
None.

W. P. Carey 2014 10-K – 165


PART III

Item 10. Directors, Executive Officers and Corporate Governance.
 
This information will be contained in our definitive proxy statement for the 2015 Annual Meeting of Stockholders, to be filed within 120 days following the end of our fiscal year, and is incorporated by reference.

Item 11. Executive Compensation.
 
This information will be contained in our definitive proxy statement for the 2015 Annual Meeting of Stockholders, to be filed within 120 days following the end of our fiscal year, and is incorporated by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
 
This information will be contained in our definitive proxy statement for the 2015 Annual Meeting of Stockholders, to be filed within 120 days following the end of our fiscal year, and is incorporated by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence.
 
This information will be contained in our definitive proxy statement for the 2015 Annual Meeting of Stockholders, to be filed within 120 days following the end of our fiscal year, and is incorporated by reference.

Item 14. Principal Accounting Fees and Services.
 
This information will be contained in our definitive proxy statement for the 2015 Annual Meeting of Stockholders, to be filed within 120 days following the end of our fiscal year, and is incorporated by reference.

W. P. Carey 2014 10-K – 166


PART IV
Item 15. Exhibits and Financial Statement Schedules.
 
(1) and (2) — Financial statements and schedules — see index to financial statements and schedules included in Item 8 .

Other Financial Statements:
Corporate Property Associates 16 – Global Incorporated (Incorporated by reference to Exhibit 99.2 of the Annual Report on Form 10-K filed March 3, 2014 by W. P. Carey Inc. )
 
(3)   Exhibits:
 
The following exhibits are filed with this Report. Documents other than those designated as being filed herewith are incorporated herein by reference.
Exhibit
No.

 
Description
 
Method of Filing
3.1

 
Articles of Amendment and Restatement
 
Incorporated by reference to Exhibit 3.1 to Annual Report on Form 10-K for the year ended December 31, 2012 filed February 26, 2013
3.2

 
Articles Supplementary
 
Incorporated by reference to Current Report on Form 8-K (File No. 000-13779) filed January 28, 2015
3.3

 
Amended and Restated Bylaws
 
Incorporated by reference to Exhibit 3.2 to Annual Report on Form 10-K for the year ended December 31, 2012 filed February 26, 2013
4.1

 
Form of Common Stock Certificate
 
Incorporated by reference to Exhibit 4.1 to Annual Report on Form 10-K for the year ended December 31, 2012 filed February 26, 2013
4.2

 
Indenture dated as of March 14, 2014, by and between W. P. Carey Inc., as issuer and U.S. Bank National Association, as trustee
 
Incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed March 14, 2014
4.3

 
First Supplemental Indenture dated as of March 14, 2014, by and between W. P. Carey Inc., as issuer, and U.S. Bank National Association, as trustee
 
Incorporated by reference to Exhibit 4.2 to Current Report on Form 8-K filed March 14, 2014
4.4

 
Form of Global Note Representing $500,000,000 Aggregate Principal Amount of 4.60% Senior Notes due 2024
 
Incorporated by reference to Exhibit 4.3 to Current Report on Form 8-K filed March 14, 2014
4.5

 
Second Supplemental Indenture, dated as of January 21, 2015, by and between W. P. Carey Inc., as issuer, and U.S. Bank National Association, as trustee
 
Incorporated by reference to Exhibit 4.2 to Current Report on Form 8-K filed January 21, 2015
4.6

 
Form of Note representing €500 Million Aggregate Principal Amount of 2.000% Senior Notes due 2023
 
Incorporated by reference to Exhibit 4.3 to Current Report on Form 8-K filed January 21, 2015
4.7

 
Third Supplemental Indenture, dated January 26, 2015, by and between W. P. Carey Inc., as issuer, and U.S. Bank National Association, as trustee
 
Incorporated by reference to Exhibit 4.2 to Current Report on Form 8-K filed January 26, 2015
4.8

 
Form of Note representing $450 Million Aggregate Principal Amount of 4.000% Senior Notes due 2025
 
Incorporated by reference to Exhibit 4.3 to Current Report on Form 8-K filed January 26, 2015
10.1

 
W. P. Carey Inc. 1997 Non-Employee Directors’ Incentive Plan, as amended *
 
Filed herewith
10.2

 
W. P. Carey Inc. 1997 Share Incentive Plan, as amended *
 
Filed herewith

W. P. Carey 2014 10-K – 167


Exhibit
No.

 
Description
 
Method of Filing
10.3

 
W. P. Carey Inc. (formerly W. P. Carey & Co. LLC) Long-Term Incentive Program as amended and restated effective as of September 28, 2012 *
 
Incorporated by reference to Exhibit 10.3 to Annual Report on Form 10-K for the year ended December 31, 2012 filed February 26, 2013
10.4

 
W. P. Carey Inc. Amended and Restated Deferred Compensation Plan for Employees *
 
Incorporated by reference to Exhibit 10.4 to Annual Report on Form 10-K for the year ended December 31, 2012 filed February 26, 2013
10.5

 
Amended and Restated W. P. Carey Inc. 2009 Share Incentive Plan *
 
Incorporated by reference to Appendix A of Schedule 14A filed April 30, 2013
10.6

 
Form of Share Option Agreement under the 2009 Share Incentive Plan *
 
Incorporated by reference to Exhibit 10.2 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 filed August 6, 2009 (File No. 001-13779)
10.7

 
Form of Restricted Share Agreement under the 2009 Share Incentive Plan *
 
Incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 filed August 6, 2009 (File No. 001-13779)
10.8

 
Form of Restricted Share Unit Agreement under the 2009 Share Incentive Plan *
 
Incorporated by reference to Exhibit 10.8 to Annual Report on Form 10-K for the year ended December 31, 2012 filed February 26, 2013
10.9

 
Form of Long-Term Performance Share Unit Award Agreement under the 2009 Share Incentive Plan *
 
Incorporated by reference to Exhibit 10.9 to Annual Report on Form 10-K for the year ended December 31, 2012 filed February 26, 2013
10.10

 
W. P. Carey Inc. 2009 Non-Employee Directors’ Incentive Plan (the “2009 Directors Plan”) *
 
Incorporated by reference to Exhibit 10.2 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 filed August 6, 2013
10.11

 
Form of Restricted Share Agreement under the 2009 Directors Plan *
 
Incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 filed August 6, 2013
10.12

 
Amended and Restated Advisory Agreement dated as of January 1, 2015 among Corporate Property Associates 17 – Global Incorporated, CPA:17 Limited Partnership and Carey Asset Management Corp.
 
Filed herewith
10.13

 
Asset Management Agreement dated as of July 1, 2008 between Corporate Property Associates 17 – Global Incorporated, CPA:17 Limited Partnership and W. P. Carey & Co. B. V.
 
Incorporated by reference to Exhibit 10.5 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2008 filed August 8, 2008 (File No. 001-13779)
10.14

 
Advisory Agreement dated September 15, 2010 between Carey Watermark Investors Incorporated, CWI OP, LP, and Carey Lodging Advisors, LLC
 
Incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q for the quarter ended September 30, 2010 filed November 5, 2010
10.15

 
Amended and Restated Advisory Agreement, dated as of January 1, 2015 by and among Corporate Property Associates 18 – Global Incorporated, CPA:18 Limited Partnership and Carey Asset Management Corp.
 
Filed herewith
10.16

 
Dealer Manager Agreement, dated as of May 7, 2013, by and between Corporate Property Associates 18 – Global Incorporated and Carey Financial, LLC
 
Incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q (File No. 000-54970) filed by Corporate Property Associates 18 – Global Incorporated on June 20, 2013
10.17


Dealer Manager Agreement, dated as of December 20, 2013, by and between Carey Watermark Investors Incorporated and Carey Financial, LLC
 
Incorporated by reference to Exhibit 10.17 to Annual Report on Form 10-K for the year ended December 31, 2013 filed March 3, 2014
10.18

 
Agreement and Plan of Merger dated as of July 25, 2013, by and between Corporate Property Associates 16 – Global Incorporated, W. P. Carey Inc., WPC REIT Merger Sub Inc., and, for the limited purposes set forth therein, Carey Asset Management Corp., W. P. Carey & Co. B.V. and CPA 16 LLC.
 
Incorporated by reference to Exhibit 2.1 to Current Report on Form 8-K filed July 25, 2013

W. P. Carey 2014 10-K – 168


Exhibit
No.

 
Description
 
Method of Filing
10.19

 
Term Loan Credit Agreement, dated as of July 31, 2013, among W. P. Carey Inc. and Certain of its Subsidiaries identified therein as Borrowers, Bank of America, N.A., as Administrative Agent, JPMorgan Chase Bank, N.A., as Syndication Agent and the Lenders party thereto
 
Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed August 5, 2013
10.20

 
Second Amended and Restated Credit Agreement, dated as January 31, 2014 (the “Senior Unsecured Credit Facility”), by and among W. P. Carey, as Borrower, certain Subsidiaries of W. P. Carey identified therein, from time to time as Guarantors, the Lenders from time to time party thereto, and Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer.
 
Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on February, 2014
10.21

 
Third amendment to the Senior Unsecured Credit Facility dated as of January 15, 2015
 
Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on January 20, 2015
10.22

 
Employment Agreement dated as of January 15, 2015, by and among W. P. Carey Inc. and Trevor P. Bond*
 
Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on January 16, 2015
10.23

 
Employment Agreement dated as of November 13, 2012, by and among W. P. Carey Inc. and Catherine D. Rice*
 
Incorporated by reference to Exhibit 10.21 to Annual Report on Form 10-K for the year ended December 31, 2012, filed on February 26, 2013
10.24

 
Asset Management Agreement dated as of July 24, 2013 between Corporate Property Associates 18 - Global Incorporated, CPA:18 Limited Partnership and W.P. Carey & Co. B.V.
 
Filed herewith
10.25

 
Advisory Agreement, dated as of February 9, 2015 among Cary Watermark Investors 2 Incorporated, CWI2 OP, LP and Carey Lodging Advisors, LLC
 
Filed herewith
10.26

 
Dealer Manager Agreement dated as of February 9, 2015 by and between Carey Watermark Investors 2 Incorporated and Carey Financial, LLC
 
Filed herewith
12

 
Computations of Ratios of Earnings to Fixed Charges for the Years End December 31, 2014, 2013, 2012, 2011, and 2010
 
Filed herewith
18.1

 
Preferability letter of Independent Registered Public Accounting Firm
 
Incorporated by reference to Exhibit 18.1 to Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 filed November 5, 2013
21.1

 
List of Registrant Subsidiaries
 
Filed herewith
23.1

 
Consent of PricewaterhouseCoopers LLP
 
Filed herewith
31.1

 
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
Filed herewith
31.2

 
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
Filed herewith
32

 
Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
Filed herewith
99.1

 
Director and Officer Indemnification Policy
 
Incorporated by reference to Exhibit 99.1 to Annual Report on Form 10-K for the year ended December 31, 2012 filed February 26, 2013
99.2

 
Financial Statements of Corporate Property Associates 16 – Global Incorporated
 
Incorporated by reference to Exhibit 99.2 to Annual Report on Form 10-K for the year ended December 31, 2013 filed March 3, 2014

W. P. Carey 2014 10-K – 169


Exhibit
No.

 
Description
 
Method of Filing
101


The following materials from W. P. Carey Inc.’s Annual Report on Form 10-K for the year ended December 31, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at December 31, 2014 and 2013, (ii) Consolidated Statements of Income for the years ended December 31, 2014, 2013 and 2012, (iii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2014, 2013 and 2012, (iv) Consolidated Statements of Equity for the years ended December 31, 2014, 2013 and 2012, (v) Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012, (vi) Notes to Consolidated Financial Statements, (vii) Schedule II — Valuation and Qualifying Accounts,(viii) Schedule III — Real Estate and Accumulated Depreciation, (ix) Notes to Schedule III, (x) Schedule IV — Mortgage Loans on Real Estate, and (xi) Notes to Schedule IV.

Filed herewith
______________________
*The referenced exhibit is a management contract or compensation plan or arrangement required to be filed as an exhibit pursuant to Item 15 (a)(3) of Form 10-K.

W. P. Carey 2014 10-K – 170


SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
W. P. Carey Inc.
Date:
March 2, 2015
 
 
 
 
By: 
/s/ Catherine D. Rice
 
 
 
Catherine D. Rice
 
 
 
Chief Financial Officer

W. P. Carey 2014 10-K – 171


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
 
Title
 
Date
 
 
 
 
 
/s/ Trevor P. Bond
 
Director and Chief Executive Officer
 
March 2, 2015
Trevor P. Bond
 
(Principal Executive Officer)
 
 
 
 
 
 
 
/s/ Catherine D. Rice
 
Chief Financial Officer
 
March 2, 2015
Catherine D. Rice
 
(Principal Financial Officer)
 
 
 
 
 
 
 
/s/ Hisham A. Kader
 
Chief Accounting Officer
 
March 2, 2015
Hisham A. Kader
 
(Principal Accounting Officer)
 
 
 
 
 
 
 
/s/ Benjamin H. Griswold, IV
 
Chairman of the Board and Director
 
March 2, 2015
Benjamin H. Griswold, IV
 
 
 
 
 
 
 
 
 
/s/ Nathaniel S. Coolidge
 
Director
 
March 2, 2015
Nathaniel S. Coolidge
 
 
 
 
 
 
 
 
 
/s/ Mark J. DeCesaris
 
Director
 
March 2, 2015
Mark J. DeCesaris
 
 
 
 
 
 
 
 
 
/s/ Eberhard Faber IV
 
Director
 
March 2, 2015
Eberhard Faber IV
 
 
 
 
 
 
 
 
 
/s/ Axel K.A. Hansing
 
Director
 
March 2, 2015
Axel K.A. Hansing
 
 
 
 
 
 
 
 
 
/s/ Jean Hoysradt
 
Director
 
March 2, 2015
Jean Hoysradt
 
 
 
 
 
 
 
 
 
/s/ Dr. Karsten von Köller
 
Director
 
March 2, 2015
Dr. Karsten von Köller
 
 
 
 
 
 
 
 
 
/s/ Richard C. Marston
 
Director
 
March 2, 2015
Richard C. Marston
 
 
 
 
 
 
 
 
 
/s/ Robert E. Mittelstaedt, Jr.
 
Director
 
March 2, 2015
Robert E. Mittelstaedt, Jr.
 
 
 
 
 
 
 
 
 
/s/ Nicolaas J.M. van Ommen
 
Director
 
March 2, 2015
Nicolaas J.M. van Ommen
 
 
 
 
 
 
 
 
 
/s/ Charles E. Parente
 
Director
 
March 2, 2015
Charles E. Parente
 
 
 
 
 
 
 
 
 
/s/ Mary M. VanDeWeghe
 
Director
 
March 2, 2015
Mary M. VanDeWeghe
 
 
 
 
 
 
 
 
 
/s/ Reginald Winssinger
 
Director
 
March 2, 2015
Reginald Winssinger
 
 
 
 

W. P. Carey 2014 10-K – 172


EXHIBIT INDEX
 
The following exhibits are filed with this Report. Documents other than those designated as being filed herewith are incorporated herein by reference.

Exhibit
No.

 
Description
 
Method of Filing
3.1

 
Articles of Amendment and Restatement
 
Incorporated by reference to Exhibit 3.1 to Annual Report on Form 10-K for the year ended December 31, 2012 filed February 26, 2013
3.2

 
Articles Supplementary
 
Incorporated by reference to Current Report on Form 8-K (File No. 000-13779) filed January 28, 2015
3.3

 
Amended and Restated Bylaws
 
Incorporated by reference to Exhibit 3.2 to Annual Report on Form 10-K for the year ended December 31, 2012 filed February 26, 2013
4.1

 
Form of Common Stock Certificate
 
Incorporated by reference to Exhibit 4.1 to Annual Report on Form 10-K for the year ended December 31, 2012 filed February 26, 2013
4.2

 
Indenture dated as of March 14, 2014, by and between W. P. Carey Inc., as issuer and U.S. Bank National Association, as trustee
 
Incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed March 14, 2014
4.3

 
First Supplemental Indenture dated as of March 14, 2014, by and between W. P. Carey Inc., as issuer, and U.S. Bank National Association, as trustee
 
Incorporated by reference to Exhibit 4.2 to Current Report on Form 8-K filed March 14, 2014
4.4

 
Form of Global Note Representing $500,000,000 Aggregate Principal Amount of 4.60% Senior Notes due 2024
 
Incorporated by reference to Exhibit 4.3 to Current Report on Form 8-K filed March 14, 2014
4.5

 
Second Supplemental Indenture, dated as of January 21, 2015, by and between W. P. Carey Inc., as issuer, and U.S. Bank National Association, as trustee
 
Incorporated by reference to Exhibit 4.2 to Current Report on Form 8-K filed January 21, 2015
4.6

 
Form of Note representing €500 Million Aggregate Principal Amount of 2.000% Senior Notes due 2023
 
Incorporated by reference to Exhibit 4.3 to Current Report on Form 8-K filed January 21, 2015
4.7

 
Third Supplemental Indenture, dated January 26, 2015, by and between W. P. Carey Inc., as issuer, and U.S. Bank National Association, as trustee
 
Incorporated by reference to Exhibit 4.2 to Current Report on Form 8-K filed January 26, 2015
4.8

 
Form of Note representing $450 Million Aggregate Principal Amount of 4.000% Senior Notes due 2025
 
Incorporated by reference to Exhibit 4.3 to Current Report on Form 8-K filed January 26, 2015
10.1

 
W. P. Carey Inc. 1997 Non-Employee Directors’ Incentive Plan, as amended *
 
Filed herewith
10.2

 
W. P. Carey Inc. 1997 Share Incentive Plan, as amended *
 
Filed herewith
10.3

 
W. P. Carey Inc. (formerly W. P. Carey & Co. LLC) Long-Term Incentive Program as amended and restated effective as of September 28, 2012 *
 
Incorporated by reference to Exhibit 10.3 to Annual Report on Form 10-K for the year ended December 31, 2012 filed February 26, 2013
10.4

 
W. P. Carey Inc. Amended and Restated Deferred Compensation Plan for Employees *
 
Incorporated by reference to Exhibit 10.4 to Annual Report on Form 10-K for the year ended December 31, 2012 filed February 26, 2013
10.5

 
Amended and Restated W. P. Carey Inc. 2009 Share Incentive Plan *
 
Incorporated by reference to Appendix A of Schedule 14A filed April 30, 2013



Exhibit
No.

 
Description
 
Method of Filing
10.6

 
Form of Share Option Agreement under the 2009 Share Incentive Plan *
 
Incorporated by reference to Exhibit 10.2 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 filed August 6, 2009 (File No. 001-13779)
10.7

 
Form of Restricted Share Agreement under the 2009 Share Incentive Plan *
 
Incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 filed August 6, 2009 (File No. 001-13779)
10.8

 
Form of Restricted Share Unit Agreement under the 2009 Share Incentive Plan *
 
Incorporated by reference to Exhibit 10.8 to Annual Report on Form 10-K for the year ended December 31, 2012 filed February 26, 2013
10.9

 
Form of Long-Term Performance Share Unit Award Agreement under the 2009 Share Incentive Plan *
 
Incorporated by reference to Exhibit 10.9 to Annual Report on Form 10-K for the year ended December 31, 2012 filed February 26, 2013
10.10

 
W. P. Carey Inc. 2009 Non-Employee Directors’ Incentive Plan (the “2009 Directors Plan”) *
 
Incorporated by reference to Exhibit 10.2 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 filed August 6, 2013
10.11

 
Form of Restricted Share Agreement under the 2009 Directors Plan *
 
Incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 filed August 6, 2013
10.12

 
Amended and Restated Advisory Agreement dated as of January 1, 2015 among Corporate Property Associates 17 – Global Incorporated, CPA:17 Limited Partnership and Carey Asset Management Corp.
 
Filed herewith
10.13

 
Asset Management Agreement dated as of July 1, 2008 between Corporate Property Associates 17 – Global Incorporated, CPA:17 Limited Partnership and W. P. Carey & Co. B. V.
 
Incorporated by reference to Exhibit 10.5 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2008 filed August 8, 2008 (File No. 001-13779)
10.14

 
Advisory Agreement dated September 15, 2010 between Carey Watermark Investors Incorporated, CWI OP, LP, and Carey Lodging Advisors, LLC
 
Incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q for the quarter ended September 30, 2010 filed November 5, 2010
10.15

 
Amended and Restated Advisory Agreement, dated as of January 1, 2015 by and among Corporate Property Associates 18 – Global Incorporated, CPA:18 Limited Partnership and Carey Asset Management Corp.
 
Filed herewith
10.16

 
Dealer Manager Agreement, dated as of May 7, 2013, by and between Corporate Property Associates 18 – Global Incorporated and Carey Financial, LLC
 
Incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q (File No. 000-54970) filed by Corporate Property Associates 18 – Global Incorporated on June 20, 2013
10.17


Dealer Manager Agreement, dated as of December 20, 2013, by and between Carey Watermark Investors Incorporated and Carey Financial, LLC
 
Incorporated by reference to Exhibit 10.17 to Annual Report on Form 10-K for the year ended December 31, 2013 filed March 3, 2014
10.18

 
Agreement and Plan of Merger dated as of July 25, 2013, by and between Corporate Property Associates 16 – Global Incorporated, W. P. Carey Inc., WPC REIT Merger Sub Inc., and, for the limited purposes set forth therein, Carey Asset Management Corp., W. P. Carey & Co. B.V. and CPA 16 LLC.
 
Incorporated by reference to Exhibit 2.1 to Current Report on Form 8-K filed July 25, 2013
10.19

 
Term Loan Credit Agreement, dated as of July 31, 2013, among W. P. Carey Inc. and Certain of its Subsidiaries identified therein as Borrowers, Bank of America, N.A., as Administrative Agent, JPMorgan Chase Bank, N.A., as Syndication Agent and the Lenders party thereto
 
Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed August 5, 2013



Exhibit
No.

 
Description
 
Method of Filing
10.20

 
Second Amended and Restated Credit Agreement, dated as January 31, 2014 (the “Senior Unsecured Credit Facility”), by and among W. P. Carey, as Borrower, certain Subsidiaries of W. P. Carey identified therein, from time to time as Guarantors, the Lenders from time to time party thereto, and Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer.
 
Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on February, 2014
10.21

 
Third amendment to the Senior Unsecured Credit Facility dated as of January 15, 2015
 
Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on January 20, 2015
10.22

 
Employment Agreement dated as of January 15, 2015, by and among W. P. Carey Inc. and Trevor P. Bond*
 
Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on January 16, 2015
10.23

 
Employment Agreement dated as of November 13, 2012, by and among W. P. Carey Inc. and Catherine D. Rice*
 
Incorporated by reference to Exhibit 10.21 to Annual Report on Form 10-K for the year ended December 31, 2012, filed on February 26, 2013
10.24

 
Asset Management Agreement dated as of July 24, 2013 between Corporate Property Associates 18 - Global Incorporated, CPA:18 Limited Partnership and W.P. Carey & Co. B.V.
 
Filed herewith
10.25

 
Advisory Agreement, dated as of February 9, 2015 among Cary Watermark Investors 2 Incorporated, CWI2 OP, LP and Carey Lodging Advisors, LLC
 
Filed herewith
10.26

 
Dealer Manager Agreement dated as of February 9, 2015 by and between Carey Watermark Investors 2 Incorporated and Carey Financial, LLC
 
Filed herewith
12

 
Computations of Ratios of Earnings to Fixed Charges for the Years End December 31, 2014, 2013, 2012, 2011, and 2010
 
Filed herewith
18.1

 
Preferability letter of Independent Registered Public Accounting Firm
 
Incorporated by reference to Exhibit 18.1 to Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 filed November 5, 2013
21.1

 
List of Registrant Subsidiaries
 
Filed herewith
23.1

 
Consent of PricewaterhouseCoopers LLP
 
Filed herewith
31.1

 
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
Filed herewith
31.2

 
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
Filed herewith
32

 
Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
Filed herewith
99.1

 
Director and Officer Indemnification Policy
 
Incorporated by reference to Exhibit 99.1 to Annual Report on Form 10-K for the year ended December 31, 2012 filed February 26, 2013
99.2

 
Financial Statements of Corporate Property Associates 16 – Global Incorporated
 
Incorporated by reference to Exhibit 99.2 to Annual Report on Form 10-K for the year ended December 31, 2013 filed March 3, 2014



Exhibit
No.

 
Description
 
Method of Filing
101

 
The following materials from W. P. Carey Inc.’s Annual Report on Form 10-K for the year ended December 31, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at December 31, 2014 and 2013, (ii) Consolidated Statements of Income for the years ended December 31, 2014, 2013 and 2012, (iii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2014, 2013 and 2012, (iv) Consolidated Statements of Equity for the years ended December 31, 2014, 2013 and 2012, (v) Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012, (vi) Notes to Consolidated Financial Statements, (vii) Schedule II — Valuation and Qualifying Accounts,(viii) Schedule III — Real Estate and Accumulated Depreciation, (ix) Notes to Schedule III, (x) Schedule IV — Mortgage Loans on Real Estate, and (xi) Notes to Schedule IV.
 
Filed herewith
______________________
*The referenced exhibit is a management contract or compensation plan or arrangement required to be filed as an exhibit pursuant to Item 15 (a)(3) of Form 10-K.



Exhibit 10.1
W. P. CAREY INC.
1997 NON-EMPLOYEE DIRECTORS’ INCENTIVE PLAN
(Amended through September 19, 2014)
The purposes of the 1997 Non-Employee Directors’ Incentive Plan (the “Plan”) are to promote the long-term success of W. P. Carey Inc., a Maryland corporation, as the successor to W. P. Carey & Co. LLC (the “Company”) by creating a long-term mutuality of interests between the Non-Employee Directors and shareholders of the Company, to provide an additional inducement for such Directors to remain associated with the Company and to provide a means through which the Company may attract able persons to serve as Directors of the Company.
SECTION 1
ADMINISTRATION

The Plan shall be administered by the Compensation Committee (the “Committee”) appointed by the Board of Directors of the Company (the “Board”) and consisting of not less than three members of the Board.
The Committee shall keep records of actions taken at its meetings. A majority of the Committee shall constitute a quorum at any meeting, and the acts of a majority of the members present at any meeting at which a quorum is present shall be the acts of the Committee, The Committee may also take action by approval in writing of all members of the Committee.
The Committee shall interpret the Plan and prescribe such rules, regulations and procedures in connection with the operation of the Plan as it shall deem to be necessary and advisable for the administration of the Plan consistent with the purposes of the Plan. All questions of interpretation and application of the Plan, as to options (“Listed Share Options”) to purchase interests in the Company known as listed shares (“Listed Shares”) and as to Listed Shares subject to restrictions as to transferability or other rights of ownership (“Restricted Listed Shares”) granted under the Plan, shall be subject to the determination of the Committee, which shall be final and binding.
Notwithstanding the above, the selection of the Directors to whom Listed Share Options or Restricted Shares are to be granted, the timing of such grants, the number of Listed Shares subject to any Listed Share Option, the exercise price of any Listed Share Option, the periods during which any Listed Share Option may be exercised and the term of any Listed Share Option or Restricted Listed Share grant shall be as hereinafter provided, and the Committee shall have no discretion as to such matters.

        

SECTION 2     
LISTED SHARES AVAILABLE UNDER THE PLAN
The aggregate net number of Listed Shares which may either be issued pursuant to or be subject to outstanding Listed Share Options or granted as Restricted Listed Shares under the Plan is limited to 300,000 Listed Shares of the Company, subject to adjustment and substitution as set forth in Section 6. If any Listed Share Option is exercised by delivering previously owned Listed Shares in payment of the option price, the number of Listed Shares so delivered to the Company shall again be available for purposes of the Plan. If any Listed Share Option granted under the Plan is canceled by mutual consent or terminates or expires for any reason without having been exercised in full, the number of Listed Shares subject thereto shall again be available for purposes of the Plan.
SECTION 3     
GRANT OF LISTED SHARE OPTIONS OR RESTRICTED SHARES
On each January 1, April 1, July 1 and October 1 during the period in which grants may be made in accordance with Section 10, each person who is then a member of the Board and who is not then an employee of the Company or any of its subsidiaries (a “Non-Employee Director”) shall be granted Restricted Listed Shares and Listed Share Options with a total value of $7,500. The composition of the award shall be at the option of the Non-Employee Director. If the number of Listed Shares then remaining available for the grant of Listed Share Options or Restricted Listed Shares under the Plan is not sufficient for each Non-Employee Director to be granted a Listed Share Option or Restricted Shares with a total value of $7,500, then each Non‑Employee Director shall be granted an award for a number of whole Listed Shares or Restricted Listed Shares equal to the number of Listed Shares then remaining available divided by the number of Non-Employee Directors, disregarding any fractions of a share.
SECTION 4     
TERMS AND CONDITIONS OF LISTED SHARE OPTIONS
Listed Share Options granted under the Plan shall be subject to the following terms and conditions:
(A)      The purchase price at which each Listed Share Option may be exercised (the “option price”) shall be one hundred percent (100%) of the fair market value per share of the Listed Shares covered by the Listed Share Option on the date of grant, determined as provided in Section 4(H).
(B)      Method of Exercise. Listed Share Options may be exercised in whole or in part, by giving written notice of exercise to the Company, specifying the number of Listed Shares to be purchased. Payment of the purchase price may be made by one or more of the following methods:

2


(i)      In cash (by certified, bank check, money order or other instrument acceptable to the Committee);
(ii)      In the form of Listed Shares that are not then subject to restrictions under any Company plan, if permitted by the Committee in its discretion. Such surrendered shares shall be valued at Fair Market Value on the exercise date; or
(iii)      Any combination of cash and such shares, in the amount of the full purchase price for the number of Listed Shares as to which the Option is exercised; provided, however, that any portion of the option price representing a fraction of a share shall be paid by the Optionee in cash.
(iv)      By the optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company to pay the purchase price; provided that in the event the optionee chooses to pay the purchase price as so provided, the optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Committee shall prescribe as a condition of such payment procedure. Payment instruments will be received subject to collection.
The delivery of certificates representing Listed Shares to be purchased pursuant to the exercise of the Listed Share Option will be contingent upon receipt from the Optionee (or a purchaser acting in his stead in accordance with the provisions of the Listed Share Option) by the Company of the full purchase price for such shares and the fulfillment of any other requirements contained in the Listed Share Option or applicable provisions of laws.
(C)      Cashless Exercise. Unless otherwise expressly provided at the time of grant, participants who hold Listed Share Options shall have the right, in lieu of exercising the Option, to elect to surrender all or part of such Option to the Company and to receive cash in an amount equal to the excess of (i) the higher of (x) the Fair Market Value of a Listed Share on the date such right is exercised and (y) the highest price paid for Listed Shares or, in the case of securities convertible into Listed Shares or carrying a right to acquire Listed Shares, the highest effective price (based on the prices paid for such securities) at which such securities are convertible into Listed Shares or at which Listed Shares may be acquired, by any person or group whose acquisition of voting securities has resulted in a Change of Control of the Company over (ii) the exercise price per share under the Option, multiplied by the number of shares of Listed Shares with respect to which such right is exercised.
(D)      Except as otherwise provided in Section 7(B), no Listed Share Option granted under Section 3 shall be exercisable while the grantee is a Director prior to the first anniversary of the date of grant, and no Listed Share Option shall be exercisable in any event during the first six months of its term except in case of death or disability of the grantee as provided in Section 4(F). Listed Share Options granted hereunder shall be exercisable as follows: options with respect to one-third of the Listed Shares shall be exercisable on each of the first, second and third anniversary of the date of grant. No Listed Share Option shall be exercisable after the expiration

3


of ten years from the date of grant. A Listed Share Option, to the extent exercisable, may be exercised in whole or in part.
(E)      If and to the extent required for Listed Share Options granted under the Plan to qualify for the exemption provided by Rule 16b-3 under the Securities Exchange Act of 1934 (the “1934 Act”), (i) no Listed Share Option shall be transferable by the grantee otherwise than by will, or if the grantee dies intestate, by the laws of descent and distribution of the state of domicile of the grantee at the time of death and (ii) all Listed Share Options shall be exercisable during the lifetime of the grantee only by the grantee or the grantee’s guardian or legal representative.
(F)      If a grantee ceases to be a Director of the Company for any reason, any outstanding Listed Share Options of the grantee (whether or not then held by the grantee) shall be exercisable and shall terminate according to the following provisions:
(i)      If a grantee ceases to be a Director of the Company for any reason other than resignation, removal for cause or death, any then outstanding Listed Share Option of such grantee (whether or not exercisable immediately prior to the grantee ceasing to be a Director) shall be exercisable at any time prior to the expiration date of such Listed Share Option or within one year after the date the grantee ceases to be a Director, whichever is the shorter period; provided that, except in the case of a grantee who is disabled within the meaning of Section 422(c)(6) of the Code (a “Disabled Grantee”), in no event shall the option be exercisable during the first six months of its term;
(ii)      If during his term of office as a Director, a grantee resigns from the Board or is removed from office for cause, any outstanding Listed Share Option of the grantee which is not exercisable immediately prior to resignation or removal shall terminate as of the date of resignation or removal, and any outstanding Listed Share Option of the grantee which is exercisable immediately prior to resignation or removal shall be exercisable at any time prior to the expiration date of such Listed Share Option or within 90 days after the date of resignation or removal, whichever is the shorter period;
(iii)      Following the death of a grantee during service as a Director of the Company, any Listed Share Option of the grantee outstanding at the time of death (whether or not exercisable immediately prior to death of the grantee) shall be exercisable by the person entitled to do so under the Will of the grantee, or, if the grantee shall fail to make testamentary disposition of the Listed Share Option or shall die intestate, by the legal representative of the grantee (or, if then permitted under the Plan and the applicable Listed Share Option agreement, by the grantee’s inter vivos transferee) at any time prior to the expiration date of such Listed Share Option or within one year after the date of death of the grantee, whichever is the shorter period;
(iv)      Following the death of a grantee after ceasing to be a Director and during a period when a Listed Share Option remains outstanding, any Listed Share Option of the grantee outstanding and exercisable at the time of death shall be exercisable by such person entitled to do so under the Will of the grantee or by such legal representative (or,

4


if then permitted under the Plan, by such inter vivos transferee) at any time prior to the expiration date of such Listed Share Option or within one year after the date of death of the grantee, whichever is the shorter period.
Whether a grantee is a Disabled Grantee shall be determined, in its discretion, by the Committee, and any such determination by the Committee shall be final and binding.
(G)      All Listed Share Options shall be confirmed by an agreement, or an amendment thereto, which shall be executed on behalf of the Company by the Chief Executive Officer (if other than the President), the President or any Vice President and by the grantee.
(H)      Fair Market Value of the Listed Shares means the last reported sale price at which a Listed Share is traded on such date or, if no Listed Shares are traded on such date, the most recent date on which Listed Shares were traded, as reflected on the New York Stock Exchange or, if applicable, any other national stock exchange which is the principal trading market for the Listed Shares.
(I)      The obligation of the Company to issue Listed Shares under the Plan shall be subject to (i) the effectiveness of a registration statement under the Securities Act of 1933, as amended, with respect to such Listed Shares, if deemed necessary or appropriate by counsel for the Company, (ii) the condition that the Listed Shares shall have been listed (or authorized for listing upon official notice of issuance) upon each stock exchange, if any, on which the Listed Shares Listed Shares may then be listed and (iii) all other applicable laws, regulations, rules and orders which may then be in effect.
Subject to the foregoing provisions of this Section 4 and the other provisions of the Plan, any Listed Share Option granted under the Plan may be subject to such restrictions and other terms and conditions, if any, as shall be determined, in its discretion, by the Committee and set forth in the agreement referred to in Section 4(F), or an amendment thereto.
SECTION 5     
RESTRICTED LISTED SHARES AWARDS
(A)      Nature of Restricted Listed Share Award. A Restricted Listed Share Award is an Award entitling the recipient to acquire, at no cost or for a purchase price determined by the Committee, Listed Shares subject to such restrictions and conditions as the Committee may determine at the time of grant. Conditions may be based on continuing service and/or achievement of pre-established performance goals and objectives.
(B)      Acceptance of Award. A participant who is granted a Restricted Listed Share Award which requires the making of a payment to the Company shall have no rights with respect to such Award unless the participant shall have accepted the Award within 60 days (or such shorter date as the Committee may specify) following the award date by making payment to the Company, if required, by certified or bank check or other instrument or form of payment acceptable to the Committee in an amount equal to the specified purchase price, if any, of the

5


Listed Shares, covered by the Award and by executing and delivering to the Company a written instrument that sets forth the terms and conditions of the Restricted Listed Shares in such form as the Committee shall determine.
(C)      Rights as a Shareholder. Upon complying with Section 5(B), a participant shall have all the rights of a shareholder with respect to the Restricted Listed Shares including voting and dividend rights, subject to transferability restrictions and Company repurchase or forfeiture rights described in this Section 5 and subject to such other conditions contained in the written instrument evidencing the Restricted Listed Share Award. Unless the Committee shall otherwise determine, certificates evidencing shares of Restricted Listed Shares shall remain in the possession of the Company until such shares are vested as provided in Section 5(E) below.
(D)      Restrictions. Restricted Listed Shares may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of until the restrictions thereon lapse pursuant to the provisions of Section 5(E).
(E)      Vesting of Restricted Listed Shares. The Restricted Listed Shares issued under this Plan shall vest ratably over the three-year period with the restrictions relating to such shares lapsing with respect to one-third of the Restricted Listed Shares in each grant on each of the first, second and third anniversary of the date of grant. Subsequent to such date or dates, the Listed Shares on which all restrictions have lapsed shall no longer be Restricted Listed Shares and shall be deemed “vested”.
(F)      Waiver, Deferral and Reinvestment of Dividends. The written instrument evidencing the Restricted Listed Share Award may require or permit the immediate payment, waiver, deferral or investment of dividends paid on the Restricted Listed Shares.
SECTION 6     
ADJUSTMENT AND SUBSTITUTION OF LISTED SHARES
If a dividend or other distribution shall be declared upon the Listed Shares payable in Listed Shares, the number of Listed Shares then subject to any outstanding Listed Share Options, the number of Listed Shares to be subject to any Listed Share Option thereafter granted and the number of Listed Shares which may be issued under the Plan but are not then subject to outstanding Listed Share Options shall be adjusted by adding thereto the number of Listed Shares which would have been distributable thereon if such Listed Shares had been outstanding on the date fixed for determining the shareholders entitled to receive such dividend or distribution.
If the outstanding Listed Shares shall be changed into or exchangeable for a different number or kind of Listed Shares or other securities of the Company or another Company, whether through reorganization, reclassification, recapitalization, stock split-up, combination of Listed Shares, merger or consolidation, then there shall be substituted for each share of the Listed Shares subject to any then outstanding Listed Share Option, for each Listed Share which would otherwise be subject to any Listed Share Option thereafter granted for each share of the Listed

6


Shares which may be issued under the Plan but which is not then subject to any outstanding Listed Share Option and for each Restricted Share, the number and kind of Listed Shares or other securities into which each outstanding share Listed Share shall be so changed or for which each such share shall be exchangeable.
In case of any adjustment or substitution as provided for in this Section 6, the aggregate option price for all Listed Shares subject to each then outstanding Listed Share Option prior to such adjustment or substitution shall be the aggregate option price for all Listed Shares of stock or other securities (including any fraction) to which such Listed Shares shall have been adjusted or which shall have been substituted for such Listed Shares. Any new option price per share shall be carried to at least three decimal places with the last decimal place rounded upwards to the nearest whole number.
No adjustment or substitution provided for in this Section 6 shall require the Company to issue or sell a fraction of a share or other security. Accordingly, all fractional Listed Shares or other securities which result from any such adjustment or substitution shall be eliminated and not carried forward to any subsequent adjustment or substitution.
SECTION 7     
ADDITIONAL RIGHTS IN CERTAIN EVENTS
(A)      Definitions.
For purposes of this Section 7, the term “Change of Control” shall mean the occurrence of any one of the following events:
(i)      any “person”, as such term is used in Sections 13(d) and 14(d) of the 1934 Act (other than the Company, any of its Subsidiaries and any trustee, fiduciary or other person or entity holding securities under any employee benefit plan of the Company or any of its Subsidiaries), together with all “affiliates” and “associates” (as such terms are defined in Rule 12b-2 under the 1934 Act) of such person, shall become the “beneficial owner” (as such term is defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities of the Company representing 25% or more of either (A) the combined voting power of the Company’s then outstanding securities having the right to vote in an election of the Company’s Board of Eligible Directors (“Voting Securities”) or (B) the then outstanding shares of Listed Shares of the Company (in either such case other than as a result of acquisition of securities directly from the Company); provided, however, that a “Change of Control” shall not be deemed to have occurred for purposes of this Section 7(A)(i) if, prior to reaching or exceeding such beneficial ownership limit, the Board approves the purchase, issuance, transfer, gift, assignment, or other similar transaction pursuant to which such person reaches or exceeds such beneficial ownership limit; provided, further, that if any such person shall thereafter become the beneficial owner of any additional Voting Securities or Listed Shares (other than pursuant to a Listed Share split, Listed Share dividend, or similar transaction), then, absent additional Board approval, a “Change of Control” shall be deemed to have occurred for purposes of this

7


Section 7(A)(i). For the avoidance of doubt, in no way shall the approval by the Board of an acquisition of Voting Securities or Listed Shares subject to this Section 7(A)(i) be deemed to limit, in any way, the provisions contained in Section 7(A)(iii); or
(ii)      persons (as defined in the previous subsection) who, as of September 19, 2014, constitute the Company’s Board of Eligible Directors (the “Incumbent Eligible Directors”) cease for any reason, including without limitation, as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Board, provided that any person becoming a Eligible Director of the Company subsequent to such date whose election or nomination for election was approved by a vote of at least a majority of the Incumbent Eligible Directors shall, for purposes of this Plan, be considered an Incumbent Eligible Director; or
(iii)      the consummation of (A) any consolidation or merger of the Company or any Subsidiary (other than a consolidation or merger of the Company or any Subsidiary, on the one hand, and an affiliate of, or entity managed or advised by, the Company or any Subsidiary, on the other hand) where the Listed Shareholders of the Company, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, shares representing more than 50% of the combined voting power of the outstanding voting securities entitled to vote generally in the election of the board of directors of the surviving entity in such consolidation or merger (or of its ultimate parent entity, if any), (B) any sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Company other than to an entity with respect to which, following such sale or disposition, the Listed Shareholders of the Company immediately prior to the sale own more than fifty percent (50%) of, respectively, the outstanding shares of stock and the combined voting power of the outstanding voting securities entitled to vote generally in the election of the board of directors of such entity, or (C) any plan or proposal for the liquidation or dissolution of the Company;
Notwithstanding the foregoing, a “Change of Control” shall not be deemed to have occurred for purposes of the foregoing clause (i) solely as the result of an acquisition of securities by the Company which, by reducing the number of shares of Listed Shares outstanding, increases (x) the proportionate number of Listed Shares beneficially owned by any person to 25% or more of the Listed Shares then outstanding or (y) the proportionate voting power represented by the Listed Shares beneficially owned by any person to 25% or more of the combined voting power of all then outstanding voting Securities; provided, however, that if any person referred to in clause (x) or (y) of this sentence shall thereafter become the beneficial owner of any additional Listed Shares or other Voting Securities (other than pursuant to a Listed Shares split, Listed Shares dividend, or similar transaction), then a “Change of Control” shall be deemed to have occurred for purposes of the foregoing clause (i).

8


For purposes of the foregoing definition, “ Subsidiary ” means any entity (other than the Company) in an unbroken chain of entities, beginning with the Company if each of the entities (other than the last entity in the unbroken chain) owns equity possessing 50% or more of the total combined voting power of all classes of equity in one of the other entities in the chain; “ Eligible Director ” means members of the Board who are employees of the Company, its Subsidiaries or their Affiliates and who are not Non‑Employee Directors; and “ Affiliate ” means any entity other than the Company and its Subsidiaries that is designated by the Board or the Committee as a participating employer under the Plan.
(B)      Acceleration of the Exercise Date of Listed Share Options
Notwithstanding any other provision contained in the Plan, in case Change of Control occurs, all outstanding Listed Share Options shall become immediately and fully exercisable, whether or not otherwise exercisable by their terms and any restrictions on Restricted Listed Shares shall lapse immediately.
SECTION 8     
EFFECT OF THE PLAN ON THE RIGHTS OF COMPANY AND SHAREHOLDERS
Nothing in the Plan, in any Listed Share Option or Restricted Listed Share granted under the Plan, or in any Listed Share Option agreement shall confer any right to any person to continue as a Director of the Company or interfere in any way with the rights of the shareholders of the Company or the Board to elect and remove Directors.
SECTION 9     
AMENDMENT AND TERMINATION
The right to amend the Plan at any time and from time to time and the right to terminate the Plan at any time are hereby specifically reserved to the Board; provided always that no such termination shall terminate any outstanding Listed Share Options or Restricted Listed Shares granted under the Plan; and provided further that no amendment of the Plan shall (a) be made without shareholder approval if shareholder approval of the amendment is at the time required for Listed Share Options or Restricted Listed Shares under the Plan to qualify for the exemption from Section 16(b) of the 1934 Act provided by Rule 16b-3 or by the rules of the New York Stock Exchange or any stock exchange on which the Listed Shares may then be listed, or otherwise amend the Plan in any manner that would cause Listed Share Options or Restricted Listed Shares under the Plan not to qualify for the exemption provided by Rule 16b-3. No amendment or termination of the Plan shall, without the written consent of the holder of a Listed Share Option or Restricted Listed Shares theretofore awarded under the Plan, adversely affect the rights of such holder with respect thereto.
Notwithstanding anything contained in the preceding paragraph or any other provision of the Plan or any Listed Share Option agreement, the Board shall have the power to amend the Plan in any manner deemed necessary or advisable for Listed Share Options or Restricted Listed

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Shares granted under the Plan to qualify for the exemption provided by Rule 16b-3 (or any successor rule relating to exemption from Section 16(b) of the 1934 Act), and any such amendment shall, to the extent deemed necessary or advisable by the Board, be applicable to any outstanding Listed Share Options theretofore or Restricted Listed Shares granted under the Plan notwithstanding any contrary provisions contained in any Listed Share Option agreement. In the event of any such amendment to the Plan, the holder of any Listed Share Option outstanding under the Plan shall, upon request of the Committee and as a condition to the exercisability of such option, execute a conforming amendment in the form prescribed by the Committee to the Listed Share Option agreement referred to in Section 4(G) within such reasonable time as the Committee shall specify in such request.
SECTION 10     
EFFECTIVE DATE AND DURATION OF PLAN
The effective date of this Amended and Restated Plan shall be October 4, 2007, provided that the Amended and Restated Plan is approved prior to that date by the affirmative vote of the holders of at least a majority of the Listed Shares represented in person or by proxy and entitled to vote at a duly-called and convened meeting of such holders. No Listed Share Option or Restricted Listed Share may be granted under Section 3 of the Plan subsequent to October 3, 2017.
SECTION 11     
GOVERNING LAW
This Plan shall be governed by, and construed and enforced in accordance with, the laws of the State of New York to the extent applicable.

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Exhibit 10.2
W. P. CAREY INC.
1997 SHARE INCENTIVE PLAN
(Amended through September 19, 2014)
The name of the plan is the W. P. Carey Inc. 1997 Share Incentive Plan (the “Plan”) as amended and restated through September 19, 2014. The purpose of the Plan is to encourage and enable the officers, employees and Eligible Directors of W. P. Carey Inc., as the successor to W. P. Carey & Co. LLC (the “Company”) and its Subsidiaries and Affiliates upon whose judgment, initiative and efforts the Company largely depends for the successful conduct of its business to acquire a proprietary interest in the Company. It is anticipated that providing such persons with a direct stake in the Company’s welfare will assure a closer identification of their interests with those of the Company, thereby stimulating their efforts on the Company’s behalf and strengthening their desire to remain with the Company.


SECTION 1
Definitions

The following terms shall be defined as set forth below:

“Act” means the Securities Exchange Act of 1934, as amended.

“Affiliate” means any entity other than the Company and its Subsidiaries that is designated by the Board or the Committee as a participating employer under the Plan.

“Award” or “Awards”, except where referring to a particular category of grant under the Plan, shall include Incentive Listed Share Options, Non-Qualified Listed Share Options, Restricted Listed Shares Awards, Restricted Share Units, Performance Share Awards, Performance Share Units and Dividend Equivalent Rights.

“Board” means the Board of Directors of the Company.

“Cause” means and shall be limited to a vote of the Board to the effect that the participant should be dismissed as a result of (i) any material breach by the participant of any agreement to which the participant and the Company or an Affiliate are parties, (ii) any act (other than retirement) or omission to act by the participant, including without limitation, the commission of any crime (other than ordinary traffic violations) that may have a material and adverse effect on the business of the Company or any Affiliate or on the participant’s ability to perform services for the Company or any Affiliate, or (iii) any material misconduct or neglect of duties by the participant in connection with the business or affairs of the Company or any Affiliate.




“Change of Control” is defined in Section 13.
“Code” means the Internal Revenue Code of 1986, as amended, and any successor Code, and related rules, regulations and interpretations.
“Committee” means any Committee of the Board referred to in Section 2.

“Disability” means disability as set forth in Section 22(e)(3) of the Code.

“Dividend Equivalent Right” means a right, granted under Section 8, to receive cash, Listed Shares or other property equal in value to dividends paid with respect to a specified number of Listed Shares or the excess of dividends paid over a specified rate of return. Dividend Equivalent Rights may be awarded on a free-standing basis or in connection with another Award, and may be paid currently or on a deferred basis.

“Effective Date” means the date on which the Plan is approved by the Board as set forth in Section 15.

“Eligible Director” means members of the Board who are employees of the Company, its Subsidiaries or their Affiliates and who are not Non‑Employee Directors.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the related rules, regulations and interpretations.

“Fair Market Value” on any given date means the last reported sale price at which Listed Share is traded on such date or, if no Listed Share is traded on such date, the most recent date on which Listed Shares were traded, as reflected on the New York Stock Exchange or, if applicable, any other national stock exchange which is the principal trading market for the Listed Shares.

“Incentive Listed Share Option” means any Listed Share option designated and qualified as an “Incentive Stock Option” as defined in Section 422 of the Code.

“Listed Shares” means the Listed Shares of the Company, subject to adjustment pursuant to Section 3.

“Non-Employee Director” means a member of the Board who: (i) is not currently an officer of the Company or any Affiliate; (ii) does not receive compensation for services rendered to the Company or any Affiliate in any capacity other than as a Director; (iii) does not possess an interest in any transaction with the Company for which disclosure would be required under the securities laws; or (iv) is not engaged in a business relationship with the Company for which disclosure would be required under the securities laws.


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“Non-Qualified Listed Share Option” means any Listed Share Option that is not an Incentive Listed Share Option.

“Option” or “Listed Share Option” means any option to purchase Listed Shares granted pursuant to Section 5.
“Parent” means a “parent corporation” as defined in Section 424(e) of the Code.

“Performance Share Award” means Awards granted pursuant to Section 7.
“Performance Share Unit” means Awards granted pursuant to Section 7.
“Restricted Listed Share Award” means Awards granted pursuant to Section 6.

“Restricted Share Unit” means Awards granted pursuant to Section 6.

“Subsidiary” means any entity (other than the Company) in an unbroken chain of entities, beginning with the Company if each of the entities (other than the last entity in the unbroken chain) owns equity possessing 50% or more of the total combined voting power of all classes of equity in one of the other entities in the chain.

SECTION 2
Administration of Plan; Committee Authority to Select Participants
and Determine Awards

(a)     Committee . The Plan shall be administered by a committee of not less than two directors, as appointed by the Board from time to time (the “Committee”) who are “non-employee directors” as then defined under Rule 16b-3 of the Act.

(b)     Powers of Committee . The Committee shall have the power and authority to grant Awards consistent with the terms of the Plan, including the power and authority:

(i)    to select the officers, employees and Eligible Directors of the Company and Affiliates to whom Awards may from time to time be granted;

(ii)    to determine the time or times of grant, and the extent, if any, of Incentive Listed Share Options, Non-Qualified Listed Share Options, Restricted Listed Shares, Restricted Share Units, Performance Shares, Performance Share Units and Dividend Equivalent Rights, or any combination of the foregoing, granted to any officer, employee or Eligible Director;

(iii)    to determine the number of Listed Shares to be covered by any Award granted to an officer, employee, Eligible Director or Affiliate;

(iv)    to determine and modify the terms and conditions, including restrictions, not inconsistent with the terms of the Plan, of any Award granted to an officer, employee or

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Director, which terms and conditions may differ among individual Awards and participants, and to approve the form of written instruments evidencing the Awards;

(v)    to accelerate the exercisability or vesting of all or any portion of any Award granted to a participant;

(vi)    subject to the provisions of Section 5(ii), to extend the period in which Listed Share Options granted may be exercised;

(vii)    to determine whether, to what extent and under what circumstances Listed Shares and other amounts payable with respect to an Award granted to a participant shall be deferred either automatically or at the election of the participant and whether and to what extent the Company will pay or credit amounts equal to interest (at rates determined by the Committee) or dividends or deemed dividends on such deferrals; and

(viii)    to adopt, alter and repeal such rules, guidelines administration of the Plan and for its own acts and shall deem advisable; to interpret the terms, the Plan and any Award (including related written instruments) granted to a participant; and to decide all disputes arising in connection with and make all determinations it deems advisable for the administration of the Plan.

All decisions and interpretations of the Committee shall be binding on all persons, including the Company and Plan participants.

SECTION 3
Shares Issuable under the Plan; Mergers; Substitution

(a)     Shares Issuable . The maximum number of Listed Shares reserved and available for issuance under the Plan shall be 6,200,000. For purposes of this limitation, the Listed Shares underlying any Awards, including Dividend Equivalent Rights, which are forfeited, canceled, reacquired by the Company, satisfied without the issuance of Listed Shares or otherwise terminated (other than by exercise) shall be added back to the Listed Shares available for issuance under the Plan so long as the participants to whom such Awards had been previously granted received no benefits of ownership of the underlying Listed Shares to which the Award related. Notwithstanding the foregoing, the following Listed Shares shall not become available for purposes of the Plan: (1) Listed Shares previously owned or acquired by an awardee that are delivered to the Company, or withheld from an Award, to pay the exercise price, or (2) Listed Shares that are delivered or withheld for purposes of satisfying a tax withholding obligation. Listed Shares issued under the Plan may be unissued Listed Shares or Listed Shares reacquired by the Company.

(b)     Listed Shares, Dividends, Mergers, etc. In the event of any recapitalization, reclassification, split-up or consolidation of Listed Shares, separation (including a spin-off), dividend on Listed Shares payable in securities of the Company (including Listed Shares), or other similar change in capitalization of the Company or a merger or consolidation of

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the Company or sale by the Company of all or a portion of its assets or other similar event, the Committee shall make such appropriate adjustments in the exercise prices of Awards, including Awards then outstanding, in the number and kind of securities, cash or other property which may be issued pursuant to Awards under the Plan, including Awards then outstanding, and in the number of Listed Shares with respect to which Awards may be granted (in the aggregate and to individual participants) as the Committee deems equitable with a view toward maintaining the proportionate interest of the participant and preserving the value of the Awards.

(c)     Substitute Awards . The Committee may grant Awards under the Plan in substitution for share and share-based awards held by employees of another corporation who concurrently become employees of the Company or an Affiliate as the result of a merger or consolidation of the employing corporation with the Company or an Affiliate or the acquisition by the Company or an Affiliate of property or Listed Shares of the employing corporation. The Committee may direct that the substitute awards be granted on such terms and conditions as the Committee considers appropriate in the circumstances.

SECTION 4
Eligibility
Participants in the Plan will be Eligible Directors and such full or part-time officers and other employees of the Company and its Affiliates who are responsible for or contribute to the management, growth or profitability of the Company and its Affiliates and who are selected from time to time by the Committee, in its sole discretion.

SECTION 5
Listed Share Options

Any Listed Share Option granted under the Plan shall be in such form as the Committee may from time to time approve. Listed Share Options granted under the Plan may be either Incentive Listed Share Options, subject to any required approval of the holders of Listed Shares, or Non-Qualified Listed Share Options. To the extent that any option does not qualify as an Incentive Listed Share Option, it shall constitute a Non-Qualified Listed Share Option. No Incentive Listed Share Option may be granted under the Plan after the tenth anniversary of the Effective Date.

The Committee in its discretion may grant Listed Share Options to employees of the Company, Subsidiaries or any Affiliate. Listed Share Options granted to Eligible Directors and employees pursuant to this Section 5 shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem desirable:

(i)     Exercise Price . The per share exercise price of a Listed Share Option granted pursuant to this Section 5 shall be determined by the Committee at the time of grant. The per share exercise price of a Listed Share Option shall not be less than 100% of Fair Market Value on the date of grant. If an employee owns or is deemed to own (by reason of the

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attribution rules applicable under Section 424(d) of the Code) more than 10% of the combined voting power of all classes of equity of the Company or any Subsidiary or Parent corporation and an Incentive Listed Share Option is granted to such employee, the option price shall be not less than 110% of Fair Market Value on the grant date.

(ii)     Option Term . The term of each Listed Share Option shall be fixed by the Committee, but no Listed Share Option shall be exercisable more than ten years after the date the option is granted. If an employee owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than 10% of the combined voting power of all classes of equity of the Company or any Subsidiary or Parent and an Incentive Listed Share Option is granted to such employee, the term of such option shall be no more than five years from the date of grant.

(iii)     Exercisability; Rights of a Shareholder . Listed Share Options shall become exercisable at such time or times, whether or not in installments, as shall be determined by the Committee at or after the grant date. The Committee may at any time accelerate the exercisability of all or any portion of any Listed Share Option. An optionee shall have the rights of a shareholder only as to Listed Shares acquired upon the exercise of a Listed Share Option and not as to unexercised Listed Share Options.

(iv)     Method of Exercise . Listed Share Options may be exercised in whole or in part, by giving written notice of exercise to the Company, specifying the number of Listed Shares to be purchased. Payment of the purchase price may be made by one or more of the following methods:

(A)    In cash (by certified, bank check, money order or other instrument acceptable to the Committee);

(B)    In the form of delivered Listed Shares that are not then subject to restrictions, or Listed Shares withheld from the exercise of the Award, in either case if permitted by the Committee in its discretion. Such surrendered or withheld shares shall be valued at Fair Market Value on the exercise date;

(C)    Any combination of cash and such Listed Shares, if the use of Listed Shares is permitted by the Committee in its discretion, in the amount of the full purchase price for the number of Listed Shares as to which the Option is exercised; provided, however, that any portion of the option price representing a fraction of a share shall be paid by the Optionee in cash; or

(D)    By the optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company to pay the purchase price; provided that in the event the optionee chooses to pay the purchase price as so provided, the optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other

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agreements as the Committee shall prescribe as a condition of such payment procedure. Payment instruments will be received subject to collection.

The delivery of certificates representing Listed Shares to be purchased pursuant to the exercise of the Listed Share Option will be contingent upon receipt from the Optionee (or a purchaser acting in his stead in accordance with the provisions of the Listed Share Option) by the Company of the full purchase price for such shares and the fulfillment of any other requirements contained in the Listed Share Option or applicable provisions of laws.

(v)     Non-transferability of Options . No Listed Share Option shall be transferable by the optionee otherwise than by will or by the laws of descent and distribution, except that (A) Non-Qualified Listed Share Options may be transferred by gifting for the benefit of a participant’s descendants for estate planning purposes or pursuant to a certified domestic relations order and (B) Vested Listed Share Options may be transferred by an optionee.

(vi)     Termination by Death . If any optionee’s service with the Company and its Affiliates terminates by reason of death, the Listed Share Option may thereafter be exercised, to the extent exercisable at the date of death, or to the full extent of the option, at the Committee’s discretion, by the legal representative or legatee of the optionee, for a period of six months (or such longer period as the Committee shall specify at any time) from the date of death, or until the expiration of the stated term of the Option, if earlier.

(vii)     Termination by Reason of Disability .

(A)    Any Listed Share Option held by an optionee whose service with the Company and its Affiliates has terminated by reason of Disability may thereafter be exercised, to the extent it was exercisable at the time of such termination or to the full extent of the option, at the Committee’s discretion, for a period of twelve months (or such longer period as the Committee shall specify at any time) from the date of such termination of service, or until the expiration of the stated term of the Option, if earlier.

(B)    The Committee shall have sole authority and discretion to determine whether a participant’s service has been terminated by reason of Disability.

(C)    Except as otherwise provided by the Committee at the time of grant or otherwise, the death of an optionee during a period provided in this Section 5(vii) for the exercise of a Non-Qualified Listed Share Option shall extend such period for six months from the date of death, subject to termination on the expiration of the stated term of the Option, if earlier.

(viii)     Termination for Cause . If any optionee’s service with the Company or its Affiliates has been terminated for Cause, any Listed Share Option held by such optionee shall immediately terminate and be of no further force and effect; provided, however, that the Committee may, in its sole discretion, provide that such Listed Share Option can be exercised for

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a period of up to 30 days from the date of termination of service or until the expiration of the stated term of the Option, if earlier.

(ix)     Other Termination . Unless otherwise determined by the Committee, if an optionee’s service with the Company and its Affiliates terminates for any reason other than death, Disability, or for Cause, any Listed Share Option held by such optionee may thereafter be exercised for such period, as the Committee shall specify at any time but in no event later than the expiration of the stated term of the option.

(x)     Annual Limit on Incentive Listed Share Options . To the extent required for “Incentive Stock Option” treatment under Section 422 of the Code, the aggregate Fair Market Value (determined as of the time of grant) of the Listed Shares with respect to which Incentive Listed Share Options granted under this Plan and any other plan of the Company or its Subsidiaries become exercisable for the first time by an optionee during any calendar year shall not exceed $100,000.

(xi)     Restrictions on Listed Shares . Listed Shares issued upon exercise of a Listed Share Option shall be free of all restrictions under the Plan, except as otherwise provided herein.

SECTION 6
Restricted Listed Share Awards and Restricted Share Units

(a)     Nature of Restricted Listed Share Award and Restricted Share Units . The Committee may grant Restricted Listed Share Awards and Restricted Share Units to Eligible Directors and employees of the Company, a Subsidiary or any Affiliate. A Restricted Listed Share Award is an Award entitling the recipient to acquire, at no cost or for a purchase price determined by the Committee, Listed Shares subject to such restrictions and conditions as the Committee may determine at the time of grant (“Restricted Listed Shares”). A Restricted Share Unit represents a right to receive Listed Shares or cash based upon conditions as the Committee may determine at the time of grant (“Restricted Share Units”). Conditions may be based on continuing service and/or achievement of pre-established performance goals and objectives. In addition, a Restricted Listed Share Award or Restricted Share Unit may be granted to an Eligible Director or employee by the Committee in lieu of, or in addition to, any compensation due to such Eligible Director or employee.

(b)     Acceptance of Award . A participant who is granted a Restricted Listed Share Award or Restricted Share Unit which requires the making of a payment to the Company shall have no rights with respect to such Award unless the participant shall have accepted the Award within 60 days (or such shorter date as the Committee may specify) following the award date by making payment to the Company by certified or bank check or other instrument or form of payment acceptable to the Committee in an amount equal to the specified purchase price, if any, of the Listed Shares, covered by the Award and by executing and delivering to the Company a written instrument that sets forth the terms and conditions of the Restricted Listed Shares or Restricted Share Unit in such form as the Committee shall determine.

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(c)     Rights as a Shareholder . Upon complying with Section 6(b) above, a participant shall have all the rights of a shareholder with respect to the Restricted Listed Shares including voting and dividend rights, subject to transferability restrictions and Company repurchase or forfeiture rights described in this Section 6 and subject to such other conditions contained in the written instrument evidencing the Restricted Listed Share Award. Unless the Committee shall otherwise determine, certificates evidencing shares of Restricted Listed Shares shall remain in the possession of the Company until such shares are vested as provided in Section 6(e) below. Holders of Restricted Share Units shall not have the rights of shareholders until Listed Shares are issued in satisfaction thereof, but may have Dividend Equivalent Rights, as determined by the Committee.

(d)     Restrictions . Restricted Listed Shares and Restricted Share Units may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of except as specifically provided herein.

(e)     Vesting of Restricted Listed Shares and Restricted Share Units . The Committee at the time of grant shall specify the date or dates and/or the attainment of pre‑established performance goals, objectives and other conditions on which the non‑transferability of the Restricted Listed Shares and Restricted Share Units and the Company’s right of repurchase or forfeiture shall lapse. Subsequent to such date or dates and/or the attainment of such pre‑established performance goals, objectives and other conditions, the Listed Shares on which all restrictions have lapsed shall no longer be Restricted Listed Shares or Restricted Share Units and shall be deemed “vested.”

(f)     Waiver, Deferral and Reinvestment of Dividends . The written instrument evidencing the Restricted Listed Share Award and/or Restricted Share Unit may require or permit the immediate payment, waiver, deferral or investment of dividends or Dividend Equivalent Rights paid on the Restricted Listed Shares or Restricted Share Units.

SECTION 7
Performance Share Awards and Performance Share Units

(a)     Nature of Performance Shares and Performance Share Units . A Performance Share Award is an award entitling the recipient to acquire Listed Shares upon the attainment of specified performance goals. A Performance Share Unit represents a right to receive Listed Shares or cash based upon the achievement, or level of achievement, of one or more performance goals established by the Committee at the time of grant. The Committee may make Performance Share Awards and Performance Share Unit Awards independent of or in connection with the granting of any other Award under the Plan. Performance Share Awards and Performance Share Units may be granted under the Plan to Eligible Directors and employees of the Company, a Subsidiary or any Affiliate, including those who qualify for awards under other performance plans of the Company. The Committee in its sole discretion shall determine whether and to whom Performance Share Awards and Performance Share Units shall be made, the performance goals applicable under each such Award, the periods during which performance

9


is to be measured, and all other limitations and conditions applicable to the awarded Performance Shares and Performance Share Units; provided, however, that the Committee may rely on the performance goals and other standards applicable to other performance based plans of the Company in setting the standards for Performance Share Awards and Performance Share Units under the Plan.

(b)     Restrictions on Transfer . Performance Share Awards and Performance Share Units and all rights with respect to such Awards may not be sold, assigned, transferred, pledged or otherwise encumbered.

(c)     Rights as a Shareholder . A participant receiving a Performance Share Award shall have the rights of a shareholder only as to Listed Shares actually received by the participant under the Plan and not with respect to Listed Shares subject to the Award but not actually received by the participant. A participant shall be entitled to receive a Listed Share certificate evidencing the acquisition of Listed Shares under a Performance Share Award only upon satisfaction of all conditions specified in the written instrument evidencing the Performance Share Award (or in a performance plan adopted by the Committee). Holders of Performance Share Units shall not have the rights of shareholders until Listed Shares are issued in satisfaction thereof, but may have Dividend Equivalent Rights, as determined by the Committee. The written instrument evidencing the Performance Share Award and/or Performance Share Unit may require or permit the immediate payment, waiver, deferral or investment of dividends or Dividend Equivalent Rights paid on the Performance Award and/or Performance Share Units.
(d)     Termination . Except as may otherwise be provided by the Committee at any time prior to termination of service, a participant’s rights in all Performance Share Awards and Performance Share Unit Awards shall automatically terminate upon the participant’s termination of service with the Company, its Subsidiaries and its Affiliates for any reason (including, without limitation, death, Disability and for Cause).

(e)     Acceleration, Waiver, Etc. At any time prior to the participant’s termination of service with the Company and its Affiliates, the Committee may in its sole discretion accelerate, waive or, subject to Section 12, amend any or all of the goals, restrictions or conditions imposed under any Performance Share Award or Performance Share Unit; provided, however, that in no event shall any provision of the Plan be construed as granting to the Committee any discretion to increase the amount of compensation payable under any Performance Share Award or Performance Share Unit to the extent such an increase would cause the amounts payable pursuant to the Performance Share Award to be nondeductible in whole or in part pursuant to Section 162(m) of the Code and the regulations thereunder, and the Committee shall have no such discretion notwithstanding any provision of the Plan to the contrary.


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SECTION 8
Dividend Equivalent Rights
A Dividend Equivalent Right is an Award entitling the recipient to receive credits based on cash distributions that would be paid on the Listed Shares specified in the Dividend Equivalent Right (or other award to which it relates) if such shares were held by the recipient. A Dividend Equivalent Right may be granted hereunder to any participant as a component of another Award or as a freestanding Award. The terms and conditions of Dividend Equivalent Rights shall be specified in the grant. Dividend Equivalent Rights credited to a participant may be paid currently or may be deemed to be reinvested in additional Listed Shares. Any such reinvestment shall be at Fair Market Value on the date of reinvestment or such other price as may then apply under a dividend reinvestment plan sponsored by the Company, if any. Dividend Equivalent Rights may be settled in cash or Listed Shares or a combination thereof, in a single installment or installments. A Dividend Equivalent Right granted as a component of another Award may provide that such Dividend Equivalent Right shall be settled upon exercise, settlement, or payment of, or lapse of restrictions on, such other award, and that such Dividend Equivalent Right shall expire or be forfeited or annulled under the same conditions as such other award. A Dividend Equivalent Right granted as a component or another Award may also contain terms and conditions different from such other award.

SECTION 9
Tax Withholding

(a)     Payment by Participant . Each participant shall, no later than the date as of which the value of an Award or of any Listed Shares or other amounts received thereunder first becomes includible in the gross income of the participant for Federal income tax purposes, pay to the Company, or make arrangements satisfactory to the Committee regarding payment of, any Federal, state, or local taxes of any kind required by law to be withheld with respect to such income. The Company and its Affiliates shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the participant.

(b)     Payment in Shares . A participant may elect to have such tax withholding obligation satisfied, in whole or in part, by (i) authorizing the Company to withhold from Listed Shares to be issued pursuant to any Award a number of shares with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the withholding amount due, or (ii) transferring to the Company Listed Shares owned by the participant with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the withholding amount due.

SECTION 10
Transfer, Leave of Absence, Etc.

For purposes of the Plan, the following events shall not be deemed a termination of service:


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(a)    a transfer to the employment of the Company from an Affiliate
or from the Company to an Affiliate, or from one Affiliate to another; and

(b)    an approved leave of absence for military service or sickness, or for any other purpose approved by the Company, if the employee’s right to re-employment is guaranteed either by a statute or by contract or under the policy pursuant to which the leave of absence was granted or if the Committee otherwise so provides in writing.

SECTION 11
Amendments and Termination
The Board may at any time amend or discontinue the Plan and the Committee may at any time amend or cancel any outstanding Award (or provide substitute Awards at the same or reduced exercise or purchase price or with no exercise or purchase price, but such price, if any, must satisfy the requirements which would apply to the substitute or amended Award if it were then initially granted under this Plan) for the purpose of satisfying changes in law or for any other lawful purpose, but no such action shall adversely affect rights under any outstanding Award without the holder’s consent.

SECTION 12
Status of Plan

With respect to the portion of any Award which has not been exercised and any payments in cash, Listed Shares or other consideration not received by a participant, a participant shall have no rights greater than those of a general unsecured creditor of the Company unless the Committee shall otherwise expressly determine in connection with any Award or Awards. In its sole discretion, the Committee may authorize the creation of trusts or other arrangements to meet the Company’s obligations to deliver Listed Shares or make payments with respect to Awards hereunder, provided that the existence of such trusts or other arrangements is consistent with the provision of the foregoing sentence.

SECTION 13
Change of Control Provisions
Upon the occurrence of a Change of Control as defined in this Section 13:

(a)    Each Listed Share Option shall automatically become fully exercisable unless the Committee shall otherwise expressly provide at the time of grant.

(b)    Restrictions and conditions on Awards of Restricted Listed Shares, Restricted Share Units, Performance Shares, Performance Share Units and Dividend Equivalent Rights shall automatically be deemed waived, and the recipients of such Awards shall become entitled to receipt of the maximum amount of Listed Shares subject to such Awards unless the Committee shall otherwise expressly provide at the time of grant.


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(c)    Unless otherwise expressly provided at the time of grant, participants who hold Listed Share Options shall have the right, in lieu of exercising the Option, to elect to surrender all or part of such Option to the Company and to receive cash in an amount equal to the excess of (i) the higher of (x) the Fair Market Value of a Listed Share on the date such right is exercised and (y) the highest price paid for Listed Shares or, in the case of securities convertible into Listed Shares or carrying a right to acquire Listed Shares, the highest effective price (based on the prices paid for such securities) at which such securities are convertible into Listed Shares or at which Listed Shares may be acquired, by any person or group whose acquisition of voting securities has resulted in a Change of Control of the Company over (ii) the exercise price per share under the Option, multiplied by the number of shares of Listed Shares with respect to which such right is exercised.

(d)    “Change of Control” shall mean the occurrence of any one of the following events:

(i)    any “person”, as such term is used in Sections 13(d) and 14(d) of the Act (other than the Company, any of its Subsidiaries, and any trustee, fiduciary or other person or entity holding securities under any employee benefit plan of the Company or any of its Subsidiaries), together with all “affiliates” and “associates” (as such terms are defined in Rule 12b-2 under the Act) of such person, shall become the “beneficial owner” (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 25% or more of either (A) the combined voting power of the Company’s then outstanding securities having the right to vote in an election of the Company’s Board of Eligible Directors (“Voting Securities”) or (B) the then outstanding shares of Listed Shares of the Company (in either such case other than as a result of acquisition of securities directly from the Company); provided, however, that a “Change of Control” shall not be deemed to have occurred for purposes of this Section 13(d)(i) if, prior to reaching or exceeding such beneficial ownership limit, the Board approves the purchase, issuance, transfer, gift, assignment, or other similar transaction pursuant to which such person reaches or exceeds such beneficial ownership limit; provided, further, that if any such person shall thereafter become the beneficial owner of any additional Voting Securities or Listed Shares (other than pursuant to a Listed Share split, Listed Share dividend, or similar transaction), then, absent additional Board approval, a “Change of Control” shall be deemed to have occurred for purposes of this Section 13(d)(i). For the avoidance of doubt, in no way shall the approval by the Board of an acquisition of Voting Securities or Listed Shares subject to this Section 13(d)(i) be deemed to limit, in any way, the provisions contained in Section 13(d)(iii); or

(ii)    persons (as defined in the previous subsection) who, as of September 19, 2014, constitute the Company’s Board of Eligible Directors (the “Incumbent Eligible Directors”) cease for any reason, including without limitation, as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Board, provided that any person becoming a Eligible Director of the Company subsequent to such date whose election or nomination for election was approved by a vote of at least a majority of the Incumbent Eligible Directors shall, for purposes of this Plan, be considered an Incumbent Eligible Director; or


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(iii)    the consummation of (A) any consolidation or merger of the Company or any Subsidiary (other than a consolidation or merger of the Company or any Subsidiary, on the one hand, and an affiliate of, or entity managed or advised by, the Company or any Subsidiary, on the other hand) where the Listed Shareholders of the Company, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, shares representing more than 50% of the combined voting power of the outstanding voting securities entitled to vote generally in the election of the board of directors of the surviving entity in such consolidation or merger (or of its ultimate parent entity, if any), (B) any sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Company other than to an entity with respect to which, following such sale or disposition, the Listed Shareholders of the Company immediately prior to the sale own more than fifty percent (50%) of, respectively, the outstanding shares of stock and the combined voting power of the outstanding voting securities entitled to vote generally in the election of the board of directors of such entity, or (C) any plan or proposal for the liquidation or dissolution of the Company;

Notwithstanding the foregoing, a “Change of Control” shall not be deemed to have occurred for purposes of the foregoing clause (i) solely as the result of an acquisition of securities by the Company which, by reducing the number of shares of Listed Shares outstanding, increases (x) the proportionate number of Listed Shares beneficially owned by any person to 25% or more of the Listed Shares then outstanding or (y) the proportionate voting power represented by the Listed Shares beneficially owned by any person to 25% or more of the combined voting power of all then outstanding voting Securities; provided, however , that if any person referred to in clause (x) or (y) of this sentence shall thereafter become the beneficial owner of any additional Listed Shares or other Voting Securities (other than pursuant to a Listed Shares split, Listed Shares dividend, or similar transaction), then a “Change of Control” shall be deemed to have occurred for purposes of the foregoing clause (i).

SECTION 14
General Provisions

(a)     No Distribution; Compliance with Legal Requirements . The Committee may require each person acquiring shares pursuant to an Award to represent to and agree with the Company in writing that such person is acquiring the shares without a view to distribution thereof.

No shares of Listed Shares shall be issued pursuant to an Award until all applicable securities laws and other legal and Listed Shares exchange requirements have been satisfied. The Committee may require the placing of such stop-orders and restrictive legends on certificates for Listed Shares and Awards as it deems appropriate.

(b)     Delivery of Listed Shares Certificates . Delivery of Listed Shares certificates to participants under this Plan shall be deemed effected for all purposes when the Company or a Listed Shares transfer agent of the Company shall have delivered such certificates

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in the United States mail, addressed to the participant, at the participant’s last known address on file with the Company.

(c)     Other Compensation Arrangements; No Employment Rights . Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, including trusts, subject to Listed Shareholder approval if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases. The adoption of the Plan and the grant of Awards do not confer upon any employee any right to continued employment with the Company or any Subsidiary.

SECTION 15
Effective Date of Plan

The Plan shall become effective upon approval by the Board, or any committee thereof with such authority. The ability to grant Incentive Listed Share Option Awards requires approval by the Listed Shareholders, and no such Awards may be issued hereunder prior to such approval.

SECTION 16
Governing Law

This plan shall be governed by, and construed and enforced in accordance with, the laws of the State of New York, to the extent applicable.

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Exhibit 10.12
AMENDED AND RESTATED ADVISORY AGREEMENT
THIS AMENDED AND RESTATED ADVISORY AGREEMENT, dated as of January 1, 2015, is among CORPORATE PROPERTY ASSOCIATES 17 - GLOBAL INCORPORATED, a Maryland corporation (“ CPA: 17 ”), CPA: 17 LIMITED PARTNERSHIP, a Delaware limited partnership of which CPA: 17 is a general partner (the “ Operating Partnership ”), and CAREY ASSET MANAGEMENT CORP., a Delaware corporation and wholly-owned subsidiary of W. P. Carey Inc. (the “ Advisor ”).
W I T N E S S E T H :
WHEREAS, CPA: 17 intends to continue to qualify as a REIT (as defined below), and the Operating Partnership intends to qualify as a partnership, in each case for U.S. federal income tax purposes;
WHEREAS, CPA:17, the Operating Partnership and the Advisor are parties to an existing advisory agreement, dated as of September 28, 2012;
WHEREAS, CPA: 17, the Operating Partnership and the Advisor desire to amend and restate the existing advisory agreement in order that CPA: 17 and its subsidiaries, including the Operating Partnership, may continue to avail themselves of the experience, sources of information, advice and assistance of, and certain facilities available to, the Advisor and the Advisor may continue to undertake the duties and responsibilities hereinafter set forth, on behalf of, and subject to the supervision of the Board of Directors of CPA: 17, all as provided herein; and
WHEREAS, the Advisor is willing to continue to render such services, subject to the supervision of the Board of Directors, on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements contained herein, the parties hereto agree as follows:
1. Definitions . As used in this Agreement, the following terms have the definitions hereinafter indicated:
“ 2%/25% Guidelines .” The requirement, as provided for in Section 13 hereof, that, in the 12‑month period ending on the last day of any fiscal quarter, Operating Expenses not exceed the greater of two percent of Average Invested Assets during such 12‑month period or 25% of CPA: 17’s Adjusted Net Income over the same 12‑month period.
“ Acquisition Expenses .” To the extent not paid or to be paid by the seller, lessee, borrower or any other party involved in the transaction, those expenses, including but not limited to travel and communications expenses, the cost of appraisals, title insurance, nonrefundable option payments on Investments not acquired, legal fees and expenses, accounting fees and expenses and miscellaneous expenses, related to selection, acquisition and origination of Investments, whether or not a particular Investment ultimately is made. Acquisition Expenses shall not include Acquisition Fees.
“ Acquisition Fees .” The Initial Acquisition Fee and the Subordinated Acquisition Fee.
“ Adjusted Investor Capital .” As of any date, the Initial Investor Capital reduced by any Redemptions, other than Redemptions intended to qualify as a liquidity event for purposes of this Agreement, and by any


 
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other Distributions on or prior to such date determined by the Board to be from Cash from Sales and Financings.
“ Adjusted Net Income .” For any period, the total consolidated revenues recognized in such period by CPA: 17, less the total consolidated expenses of CPA: 17 recognized in such period, excluding additions to reserves for depreciation and amortization, bad debts or other similar non-cash reserves; provided, however, that Adjusted Net Income for purposes of calculating total allowable Operating Expenses shall exclude any gain, losses or writedowns from the sale of CPA: 17’s assets.
“ Advisor .” Carey Asset Management Corp, a corporation organized under the laws of the State of Delaware and wholly-owned by W. P. Carey Inc.
“ Affiliate .” An Affiliate of another Person shall include any of the following: (i) any Person directly or indirectly owning, controlling, or holding, with power to vote ten percent or more of the outstanding voting securities of such other Person; (ii) any Person ten percent or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held, with power to vote, by such other Person; (iii) any Person directly or indirectly controlling, controlled by, or under common control with such other Person; (iv) any executive officer, director, trustee or general partner of such other Person; or (v) any legal entity for which such Person acts as an executive officer, director, trustee or general partner.
“ Agreement .” This Advisory Agreement.
“ Appraised Value .” Value according to an appraisal made by an Independent Appraiser, which may take into consideration any factor deemed appropriate by such Independent Appraiser, including, but not limited to, the terms and conditions of any lease of a relevant property, the quality of any lessee’s, borrower’s or other counter-party’s credit and the conditions of the credit markets. The Appraised Value of a Property may be greater than the construction cost or the replacement cost of the Property.
“ Articles of Incorporation .” Articles of Incorporation of CPA: 17 under the General Corporation Law of Maryland, as amended from time to time, pursuant to which CPA: 17 is organized.
“ Asset Management Fee .” The Asset Management Fee as defined in Section 9(a) hereof.
“ Average Equity Value .” The equity portion of the aggregate purchase price paid by CPA: 17 for an Investment, provided that, if (1) a later Appraised Value is obtained for the Investment, that later Appraised Value, adjusted for other net assets and liabilities that have economic value and are associated with that Investment, shall become the basis for calculating the Average Equity Market Value of the Investment, and (2) for Investments in securities that CPA: 17 treats as available for sale under GAAP, the fair value of such securities as determined on a monthly basis as of the last day of each month or, if applicable, on the date the securities are disposed of, shall be the basis for calculating the Average Equity Market Value of such securities.
“ Average Invested Assets .” The average during any period of the aggregate book value of CPA: 17’s Investments, before deducting reserves for depreciation, bad debts, impairments, amortization and all other non-cash reserves, computed by taking the average of such values at the end of each month during such period.
“ Average Market Value .” The aggregate purchase price paid by CPA: 17 for an Investment, provided that, if a later Appraised Value is obtained for the Investment, that later Appraised Value, adjusted for other net assets and liabilities that have economic value and are associated with that Investment, shall become the Average Market Value for the Investment .


 
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“ B Note .” A note representing a subordinated interest in a Loan secured by a first mortgage on a Property.
“ Board or Board of Directors .” The Board of Directors of CPA: 17.
“ Bylaws .” The bylaws of CPA: 17.
“ Cash from Financings .” Net cash proceeds realized by CPA: 17 from the financing of Investments or the refinancing of any indebtedness of CPA: 17.
“ Cash from Sales .” Net cash proceeds realized by CPA: 17 from the sale, exchange or other disposition of any of its Investments after deduction of all expenses incurred in connection therewith. Cash from Sales shall not include Cash from Financings.
“ Cash from Sales and Financings .” The total sum of Cash from Sales and Cash from Financings.
“ Cause .” With respect to the termination of this Agreement, fraud, criminal conduct, willful misconduct or willful or negligent breach of fiduciary duty by the Advisor that, in each case, is determined by a majority of the Independent Directors to be materially adverse to CPA: 17, or a breach of a material term or condition of this Agreement or the Guidelines by the Advisor and the Advisor has not cured such breach within 30 days of written notice thereof or, in the case of any breach that cannot be cured within 30 days by reasonable effort, has not taken all necessary action within a reasonable time period to cure such breach.
“ Change of Control .” A change of control of CPA: 17 of a nature that would be required to be reported in response to the disclosure requirements of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), as enacted and in force on the date hereof, whether or not CPA: 17 is then subject to such reporting requirements; provided , however , that, without limitation, a Change of Control shall be deemed to have occurred if: (i) any “person” (within the meaning of Section 13(d) of the Exchange Act, as enacted and in force on the date hereof) is or becomes the “beneficial owner” (as that term is defined in Rule 13d-3, as enacted and in force on the date hereof, under the Exchange Act) of securities of CPA: 17 representing 8.5% or more of the combined voting power of CPA: 17’s securities then outstanding; (ii) there occurs a merger, consolidation or other reorganization of CPA: 17 which is not approved by the Board; (iii) there occurs a sale, exchange, transfer or other disposition of substantially all of the assets of CPA: 17 to another entity, which disposition is not approved by the Board; or (iv) there occurs a contested proxy solicitation of the Shareholders of CPA: 17 that results in the contesting party electing candidates to a majority of the Board’s positions next up for election.
“ Charter .” The charter of CPA: 17, as amended from time to time, pursuant to which CPA: 17 is organized.
“ Closing Date .” The first date on which Shares were issued pursuant to an Offering.
“ Code .” Internal Revenue Code of 1986, as amended.
“ Competitive Real Estate Commission .” The real estate or brokerage commission paid for the purchase or sale of a Property that is reasonable, customary and competitive in light of the size, type and location of the Property.


 
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“ Construction Fee .” A fee or other remuneration for acting as general contractor and/or construction manager to construct improvements, supervise and coordinate projects or to provide major repairs or rehabilitation on a Property.
“ Contract Purchase Price .” The amount actually paid for, or allocated to, the purchase, development, construction or improvement of an Investment or, in the case of an originated Loan, the principal amount of such Loan, exclusive, in each case, of Acquisition Fees and Acquisition Expenses.
“ Contract Sales Price .” The total consideration received by CPA: 17 for the sale of a Property.
“ CPA: 17 .” Corporate Property Associates 17 - Global Incorporated together with its consolidated subsidiaries, including the Operating Partnership, unless in the context of a particular reference, it is clear that such reference refers to Corporate Property Associates 17 – Global Incorporated excluding its consolidated subsidiaries. Unless the context otherwise requires, any reference to financial measures of CPA: 17 shall be calculated by reference to the consolidated financial statements of CPA: 17 and its subsidiaries, including, without limitation, the Operating Partnership, prepared in accordance with GAAP.
“ Cumulative Return .” For the period for which the calculation is being made, the percentage resulting from dividing (A) the total Distributions for such period (not including Distributions out of Cash from Sales and Financings), by (B) the product of (i) either (x) until such time as CPA: 17 has invested 90% of the net proceeds of CPA: 17’s initial Offering (excluding net proceeds from the sale of Shares pursuant to CPA: 17’s distribution reinvestment program), the average Adjusted Investor Capital for such period (calculated on a daily basis) or (y) from and after such time as CPA: 17 has invested 90% of the net proceeds of CPA: 17’s initial Offering (excluding net proceeds from the sale of Shares pursuant to CPA: 17’s distribution reinvestment program), the net proceeds from the sale of Shares (excluding net proceeds from the sale of Shares pursuant to CPA: 17’s distribution reinvestment program), as adjusted for Redemptions other than Redemptions intended to qualify as a liquidity event for purposes of this Agreement, and by any other Distributions on or prior to such date determined by the Board to be from Cash from Sales and Financings, and (ii) the number of years (including fractions thereof) elapsed during such period. Notwithstanding the foregoing, neither the Shares received by the Advisor or its Affiliates for any consideration other than cash, nor the Distributions in respect of such Shares, shall be included in the foregoing calculation.
“ Development Fee .” A fee for the packaging of a Property including negotiating and approving plans, and undertaking to assist in obtaining zoning and necessary variances and necessary financing for the specific Property, either initially or at a later date.
“ Directors .” The persons holding such office, as of any particular time, under the Articles of Incorporation, whether they be the directors named therein or additional or successor directors.
“ Distributions .” Distributions declared by the Board.
“ GAAP .” Generally accepted accounting principles in the United States.
“ Good Reason .” With respect to the termination of this Agreement, (i) any failure to obtain a satisfactory agreement from any successor to CPA: 17 or the Operating Partnership to assume and agree to perform CPA: 17’s or the Operating Partnership’s, as applicable, obligations under this Agreement; or (ii) any material breach of this Agreement of any nature whatsoever by CPA: 17 or the Operating Partnership; provided that (a) such breach is of a material term or condition of this Agreement and (b) CPA: 17 or the Operating Partnership, as applicable, has not cured such breach within 30 days of written notice thereof or, in the case


 
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of any breach that cannot be cured within 30 days by reasonable effort, has not taken all necessary action within a reasonable time period to cure such breach.
“ Gross Offering Proceeds .” The aggregate purchase price of Shares sold in any Offering.
“ Guidelines .” The Investment Allocation Guidelines set forth as Annex A.
“ Independent Appraiser .” A qualified appraiser of real estate as determined by the Board, who is not affiliated, directly or indirectly, with CPA: 17, the Advisor or their respective Affiliates. Membership in a nationally recognized appraisal society such as the American Institute of Real Estate Appraisers or the Society of Real Estate Appraisers shall be conclusive evidence of such qualification.
“ Independent Director .” A Director of CPA: 17 who meets the criteria for an Independent Director specified in the Bylaws.
“ Individual .” Any natural person and those organizations treated as natural persons in Section 542(a) of the Code.
“ Initial Acquisition Fee .” Any fee or commission (including any interest thereon) paid by the Operating Partnership to the Advisor or, with respect to Section 9(d) or 9(f), by the Operating Partnership to any party, in connection with the making of an Investment or the development or construction of Properties by CPA: 17. A Development Fee or a Construction Fee paid to a Person not affiliated with the Sponsor in connection with the actual development or construction of a project after acquisition of the Property by CPA: 17 shall not be deemed an Initial Acquisition Fee. Initial Acquisition Fees include, but are not limited to, any real estate commission, selection fee, development fee or construction fee (other than as described above), non‑recurring management fees, loan fees, points or any fee of a similar nature, however designated. Initial Acquisition Fees include Subordinated Acquisition Fees unless the context otherwise requires. Initial Acquisition Fees shall not include Acquisition Expenses.
“ Initial Investor Capital .” The total amount of capital invested from time to time by Shareholders (computed at the Original Issue Price per Share), excluding any Shares received by the Advisor or its Affiliates for any consideration other than cash.
“ Investment .” means an investment made by CPA: 17, directly or indirectly, in a Property, Loan or Other Permitted Investment Asset.
“ Investment Entities .” Has the meaning given to such term in Section 14.
“ Loans .” The notes and other evidences of indebtedness or obligations acquired, originated or entered into, directly or indirectly, by CPA: 17 as lender, noteholder, participant, note purchaser or other capacity, including but not limited to first or subordinate mortgage loans, construction loans, development loans, loan participations, B notes, loans secured by capital stock or any other assets or form of equity interest and any other type of loan or financial arrangement, such as providing or arranging for letters of credit, providing guarantees of obligations to third parties, or providing commitments for loans. The term “Loans” shall not include leases which are not recognized as leases for Federal income tax reporting purposes.
“ Loan Refinancing Fee .” A fee payable to the Advisor in respect of the refinancing of a loan secured by an Investment.


 
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“ Long-Term Net Leased Property .” A Property subject to a Net Lease which has a remaining lease term of at least seven years (or is otherwise subject to terms the effect of which is that there is a reasonable likelihood that the lease will have a remaining term of at least seven years as a result of the exercise of options or otherwise) at the date such Property is acquired or developed by CPA: 17, including Net Leased Properties accounted for under the equity method of accounting.
“ Manager .” W. P. Carey & Co., B.V., a Netherlands company.
“ Management Agreement .” The Asset Management Agreement between CPA: 17 and the Manager, as the same may be amended from time to time.
“ Market Value .” The value calculated by multiplying the total number of outstanding Shares by the average closing price of the Shares over the 30 trading days beginning 180 calendar days after the Shares are first listed on a national security exchange or included for quotation on Nasdaq, as the case may be.
“ Nasdaq .” The national automated quotation system operated by the National Association of Securities Dealers, Inc.
“ Net Lease .” A lease pursuant to which the tenant is required to pay substantially all of the costs associated with operating and maintaining the Property.
“ Offering .” The offering of Shares pursuant to a Prospectus.
“ Operating Expenses .” All consolidated operating, general and administrative expenses paid or incurred by CPA: 17, as determined under GAAP, except the following (insofar as they would otherwise be considered operating, general and administrative expenses under GAAP): (i) interest and discounts and other cost of borrowed money; (ii) taxes (including state, Federal and foreign income tax, property taxes and assessments, franchise taxes and taxes of any other nature); (iii) expenses of raising capital, including Organization and Offering Expenses, printing, engraving, and other expenses, and taxes incurred in connection with the issuance and distribution of CPA: 17’s Shares and Securities; (iv) Acquisition Expenses, real estate commissions on resale of property and other expenses connected with the acquisition, disposition, origination, ownership and operation of Investments, including the costs of foreclosure, insurance premiums, legal services, brokerage and sales commissions, and the maintenance, repair and improvement of property; (v) Acquisition Fees or Subordinated Disposition Fees payable to the Advisor or any other party; (vi) distributions paid by the Operating Partnership to the Special General Partner under the agreement of limited partnership of the Operating Partnership in respect of gains realized on dispositions of Investments; (vii)  amounts paid to effect a redemption or repurchase of the special general partner interest held by the Special General Partner pursuant to the agreement of limited partnership of the Operating Partnership; and (viii) non-cash items, such as depreciation, amortization, depletion, and additions to reserves for depreciation, amortization, depletion, losses and bad debts. Notwithstanding anything herein to the contrary, Operating Expenses shall include the Asset Management Fee and any Loan Refinancing Fee and, solely for the purposes of determining compliance with the 2%/25% Guidelines, distributions of profits and cash flow made by the Operating Partnership to the Special General Partner pursuant to the agreement of limited partnership of the Operating Partnership, other than distributions described in clauses (vi) and (vii) of this definition.
“ Operating Partnership .” CPA: 17 Limited Partnership, a Delaware limited partnership.
“ Organization and Offering Expenses .” Those expenses payable by CPA: 17 and the Operating Partnership in connection with the formation, qualification and registration of CPA: 17 and in marketing and distributing Shares, including, but not limited to: (i) the preparation, printing, filing and delivery of any


 
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registration statement or Prospectus and the preparing and printing of contractual agreements among CPA: 17, the Operating Partnership and the Sales Agent and the Selected Dealers (including copies thereof); (ii) the preparing and printing of the Articles of Incorporation and Bylaws, solicitation material and related documents and the filing and/or recording of such documents necessary to comply with the laws of the State of Maryland for the formation of a corporation and thereafter for the continued good standing of a corporation; (iii) the qualification or registration of the Shares under state securities or “Blue Sky” laws; (iv) any escrow arrangements, including any compensation to an escrow agent; (v) the filing fees payable to the SEC and to the National Association of Securities Dealers, Inc.; (vi) reimbursement for the reasonable and identifiable out-of-pocket expenses of the Sales Agent and the Selected Dealers, including the cost of their counsel; (vii) the fees of CPA: 17’s counsel; (viii) all advertising expenses incurred in connection with an Offering, including the cost of all sales literature and the costs related to investor and broker-dealer sales and information meetings and marketing incentive programs; and (ix) selling commissions, selected dealer fees, marketing fees, incentive fees, due diligence fees and wholesaling fees incurred in connection with the sale of the Shares.
“ Original Issue Price .” For any Share issued in an Offering, the price at which such Share was initially offered to the public by CPA: 17, regardless of whether selling commissions were paid in connection with the purchase of such Share from CPA: 17.
“ Other Permitted Investment Asset .” An asset, other than cash, cash equivalents, short term bonds, auction rate securities and similar short term investments, acquired by CPA: 17 for investment purposes that is not a Loan or a Property and is consistent with the investment objectives and policies of CPA: 17.
“ Person .” An Individual, corporation, partnership, joint venture, association, company, trust, bank, or other entity, or government or any agency or political subdivision of a government.
“ Preferred Return .” A Cumulative Return of five percent computed from the Closing Date through the date as of which such amount is being calculated.
“ Property or Properties .” CPA: 17’s partial or entire interest in real property (including leasehold interests) and personal or mixed property connected therewith. An Investment which obligates CPA: 17 to acquire a Property will be treated as a Property for purposes of this Agreement.
“ Property Management Fee .” A fee for property management services rendered by the Advisor or its Affiliates in connection with Properties acquired directly or through foreclosure.
“ Prospectus .” Any prospectus pursuant to which CPA: 17 offers Shares in a public offering, as the same may at any time and from time to time be amended or supplemented after the effective date of the registration statement in which it is included.
“ Redemptions .” An amount determined by multiplying the number of Shares redeemed by the Original Issue Price.
“ REIT .” A real estate investment trust, as defined in Sections 856-860 of the Code.
“ Sales Agent .” Carey Financial Corporation.
“ Securities .” Any stock, shares (other than currently outstanding Shares and subsequently issued Shares), voting trust certificates, bonds, debentures, notes or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise or in general any instruments commonly known as


 
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“securities” or any certificate of interest, shares or participation in temporary or interim certificates for receipts (or, guarantees of, or warrants, options or rights to subscribe to, purchase or acquire any of the foregoing), which subsequently may be issued by CPA: 17.
“ Selected Dealers .” Broker-dealers who are members of the National Association of Securities Dealers, Inc. and who have executed an agreement with the Sales Agent in which the Selected Dealers agree to participate with the Sales Agent in the Offering.
“ Shareholders .” Those Persons who, at the time any calculation hereunder is to be made, are shown as holders of record of Shares on the books and records of CPA: 17.
“ Share Market Value .” The value calculated by multiplying the total number of outstanding Shares by the average closing price of the Shares over the 30 trading days beginning 180 calendar days after the Shares are first listed on a national security exchange or included for quotation on Nasdaq, as the case may be.
“ Shares .” All of the shares of common stock of CPA: 17, $.001 par value, and any other shares of common stock of CPA: 17.
“ Special General Partner .” W. P. Carey Holdings, LLC and any permitted transferee of the special general partnership interest under the agreement of limited partnership of the Operating Partnership.
“ Sponsor .” W.P. Carey & Co. LLC and any other Person directly or indirectly instrumental in organizing, wholly or in part, CPA: 17 or any person who will control, manage or participate in the management of CPA: 17, and any Affiliate of any such person. Sponsor does not include a person whose only relationship to CPA: 17 is that of an independent property manager and whose only compensation is as such. Sponsor also does not include wholly independent third parties such as attorneys, accountants and underwriters whose only compensation is for professional services.
“ Subordinated Acquisition Fee .” The Subordinated Acquisition Fee as defined in Section 9(c) hereof.
“ Subordinated Disposition Fee .” The Subordinated Disposition Fee as defined in Section 9(f) hereof.
“ Termination Date .” The effective date of any termination of this Agreement.
“ Total Investment Cost .” With regard to any Investment, an amount equal to the sum of the Contract Purchase Price of such Investment plus the Acquisition Fees and Acquisition Expenses paid in connection with such Investment.
“ Triggering Event .” With regard to any Investment, the occurrence of any of the following during the six months after the closing date of the Investment: (a) the failure by an obligor on an Investment to pay rent, interest or principal, or other material payment, to the Company when due (after giving effect to all applicable grace periods) or (b) the obligor on an Investment (including a guarantor) (1) commences a voluntary case or proceeding under applicable bankruptcy or reorganization law, (2) consents to the entry of a decree or order for relief in an involuntary proceeding under applicable bankruptcy law, (3) consents to the filing of a petition or the appointment of a custodian, receiver or liquidator, (4) makes an assignment for the benefit of creditors, (5) admits in writing its inability to pay its debts as they come due; (6) is the subject of a decree or order for relief entered by a court of competent jurisdiction in respect of such obligor in an


 
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involuntary bankruptcy case or proceeding, or a decree or order adjudging such obligor bankrupt or insolvent or appointing a custodian, receiver or liquidator for the obligor.
2.      Appointment . CPA: 17 hereby appoints the Advisor to serve as its advisor on the terms and conditions set forth in this Agreement, and the Advisor hereby accepts such appointment.
3.      Duties of the Advisor . The Advisor undertakes to use its best efforts to present to CPA: 17 potential investment opportunities and to provide a continuing and suitable investment program consistent with the investment objectives and policies of CPA: 17 as determined and adopted from time to time by the Board. The Advisor will follow the Guidelines when allocating Investment opportunities among CPA: 17, other entities managed by the Advisor and its Affiliates, and the Advisor and its Affiliates for their own account. The Guidelines shall not be amended without the prior approval of at least a majority of the Independent Directors.
In performance of the foregoing undertakings, subject to the supervision of the Board and consistent with the provisions of the Charter and Bylaws of CPA: 17 and any Prospectus pursuant to which Shares are offered, the Advisor shall, either directly or by engaging an Affiliate:
(a)      serve as CPA: 17’s investment and financial advisor and provide research and economic and statistical data in connection with CPA: 17’s assets and investment policies;
(b)      provide the daily management of CPA: 17 and perform and supervise the various administrative functions reasonably necessary for the management of CPA: 17;
(c)      investigate, select, and, on behalf of CPA: 17, engage and conduct business with such Persons as the Advisor deems necessary to the proper performance of its obligations hereunder, including but not limited to consultants, accountants, correspondents, lenders, technical advisors, attorneys, brokers, underwriters, corporate fiduciaries, escrow agents, depositaries, custodians, agents for collection, insurers, insurance agents, banks, builders, developers, property owners, mortgagors, and any and all agents for any of the foregoing, including Affiliates of the Advisor, and Persons acting in any other capacity deemed by the Advisor necessary or desirable for the performance of any of the foregoing services, including but not limited to entering into contracts in the name of CPA: 17 with any of the foregoing;
(d)      consult with Directors of CPA: 17 and assist the Board in the formulation and implementation of CPA: 17’s policies, and furnish the Board with such information, advice and recommendations as they may request or as otherwise may be necessary to enable them to discharge their fiduciary duties with respect to matters coming before the Board;
(e)      subject to the provisions of this Agreement and the Guidelines: (1) locate, analyze and select potential Investments; (2) structure and negotiate the terms and conditions of transactions pursuant to which Investments will be made, purchased or acquired by CPA: 17; (3) make Investments on behalf of CPA: 17; (4) arrange for financing and refinancing of, make other changes in the asset or capital structure of, dispose of, reinvest the proceeds from the sale of, or otherwise deal with the Investments; and (5) enter into leases and service contracts for Properties and, to the extent necessary, perform all other operational functions for the maintenance and administration of such Properties;
(f)      provide the Board with periodic reports regarding prospective Investments and with periodic reports, no less than quarterly, of (1) new Investments made during the prior fiscal quarter,


 
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which reports shall include information regarding the type of each Investment made (in the categories provided in Section 9); (2) the occurrence of any Triggering Event during the prior fiscal quarter; and (3) the amounts of “dead deal” costs incurred by the Company during the prior fiscal quarter;
(g)      assist the Board in its evaluation of potential liquidity transactions for CPA: 17 and take such actions as may be requested by the Board or as may otherwise be necessary or desirable to execute any liquidity transaction approved by the Board;
(h)      obtain the prior approval of the Board (including a majority of the Independent Directors) for any and all investments in Property which do not meet all of the requirements set forth in Section 4(b) hereof;
(i)      negotiate on behalf of CPA: 17 with banks or lenders for loans to be made to CPA: 17, and negotiate on behalf of CPA: 17 with investment banking firms and broker-dealers or negotiate private sales of Shares and Securities or obtain loans for CPA: 17, but in no event in such a way so that the Advisor shall be acting as broker-dealer or underwriter; and provided , further , that any fees and costs payable to third parties incurred by the Advisor in connection with the foregoing shall be the responsibility of CPA: 17;
(j)      obtain reports (which may be prepared by the Advisor or its Affiliates), where appropriate, concerning the value of Investments or contemplated Investments;
(k)      obtain for, or provide to, CPA: 17 such services as may be required in acquiring, managing and disposing of Investments, including, but not limited to: (i) the negotiation, making and servicing of Investments; (ii) the disbursement and collection of Company monies; (iii) the payment of debts of and fulfillment of the obligations of CPA: 17; and (iv) the handling, prosecuting and settling of any claims of or against CPA: 17, including, but not limited to, foreclosing and otherwise enforcing mortgages and other liens securing Loans;
(l)      from time to time, or at any time reasonably requested by the Board, make reports to the Board of its performance of services to CPA: 17 under this Agreement;
(m)      communicate on behalf of CPA: 17 with Shareholders as required to satisfy the reporting and other requirements of any governmental bodies or agencies to Shareholders and third parties and otherwise as requested by CPA: 17;
(n)      provide or arrange for administrative services and items, legal and other services, office space, office furnishings, personnel and other overhead items necessary and incidental to CPA: 17’s business and operations;
(o)      provide CPA: 17 with such accounting data and any other information requested by CPA: 17 concerning the investment activities of CPA: 17 as shall be required to prepare and to file all periodic financial reports and returns required to be filed with the Securities and Exchange Commission and any other regulatory agency, including annual financial statements;
(p)      maintain the books and records of CPA: 17;
(q)      supervise the performance of such ministerial and administrative functions as may be necessary in connection with the daily operations of the Investments;


 
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(r)      provide CPA: 17 with all necessary cash management services;
(s)      do all things necessary to assure its ability to render the services described in this Agreement;
(t)      perform such other services as may be required from time to time for management and other activities relating to the assets of CPA: 17 as the Advisor shall deem advisable under the particular circumstances;
(u)      arrange to obtain on behalf of CPA: 17 as requested by the Board, and deliver to or maintain on behalf of CPA: 17 copies of, all appraisals obtained in connection with investments in Properties and Loans;
(v)      if a transaction, proposed transaction or other matter requires approval by the Board or by the Independent Directors, deliver to the Board or the Independent Directors, as the case may be, all documentation reasonably requested by them to properly evaluate such transaction, proposed transaction or other matter; and
(w)      on an annual basis, no later than 90 days prior to the end of each term of this Agreement, provide the Independent Directors with a report on (1) the Advisor’s performance during the past year, (2) the compensation paid to the Advisor during such year and (3) any proposed changes to the compensation to be paid to the Advisor during the upcoming year if the Agreement is renewed. The Advisor’s report shall address, among other things, (a) those matters identified in the Company’s organizational documents as matters which the Independent Directors must review each year with respect to the Advisor’s performance and compensation; (b) whether any Triggering Event occurred with respect to an Investment made during the past year; and (c) the “dead deal” costs incurred by the Company during the past year. If a Triggering Event has occurred, the Independent Directors may consider whether, after taking account of the overall performance of the Advisor during the past year, they wish to request that the Advisor refund all or a portion of the Initial Acquisition Fee paid by the Company in respect of such Investment, and if the Independent Directors make that request, the Advisor shall refund such amount to the Company within 60 days after receipt of such request. In addition, the Independent Directors may request that the Advisor refund certain of the dead deal costs incurred by the Company if, in light of the circumstances under which such costs were incurred, the Independent Directors determine that the Company should not bear such costs.
4.      Authority of Advisor .
(a)      Pursuant to the terms of this Agreement (and subject to the restrictions included in Paragraphs (b), (c) and (d) of this Section 4 and in Section 7 hereof and the Guidelines), and subject to the continuing and exclusive authority of the Board over the management of CPA: 17, the Board hereby delegates to the Advisor the authority to: (1) locate, analyze and select Investment opportunities; (2) structure the terms and conditions of transactions pursuant to which Investments will be made or acquired for CPA: 17; (3) make or acquire Investments in compliance with the investment objectives and policies of CPA: 17; (4) arrange for financing or refinancing, or make changes in the asset or capital structure of, and dispose of or otherwise deal with, Investments; (5) enter into leases and service contracts for Properties, and perform other property level operations; (6) oversee non-affiliated property managers and other non-affiliated Persons who perform services for CPA: 17; and (7) undertake accounting and other record-keeping functions at the Investment level.


 
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(b)      The consideration paid for an Investment acquired by CPA: 17 shall ordinarily be based on the fair market value thereof. Consistent with the foregoing provision, the Advisor may, without further approval by the Board (except with respect to transactions subject to paragraphs (c) and (d)) invest on behalf of CPA: 17 in an Investment so long as, in the Advisor’s good faith judgment, (i) the Total Investment Cost (excluding Acquisition Expenses) of such Investment does not exceed the fair market value thereof, and in the case of an Investment that is a Property, shall in no event exceed the Appraised Value of such Property and (ii) the Investment, in conjunction with CPA: 17’s other investments and proposed investments, at the time CPA: 17 is committed to purchase or originate the Investment, is reasonably expected to fulfill CPA: 17’s investment objectives and policies as established by the Board and then in effect. For purposes of the foregoing, Total Investment Cost shall be measured at the date the Investment is made and shall exclude future commitments to fund improvements. Investments not meeting the foregoing criteria must be approved in advance by the Board.
(c)      Notwithstanding anything to the contrary contained in this Agreement, the Advisor shall not cause CPA: 17 to make Investments that do not comply with Article VIII (Restrictions on Investments and Activities) and related sections of the Bylaws.
(d)      The prior approval of the Board, including a majority of the Independent Directors and a majority of the Directors not interested in the transaction, will be required for: (i) Investments made through co-investment or joint venture arrangements with the Sponsor, the Advisor or any of their Affiliates; (ii) Investments which are not contemplated by the terms of a Prospectus; (iii) transactions that present issues which involve potential conflicts of interest for the Advisor or an Affiliate (other than potential conflicts involving the payment of fees or the reimbursement of expenses and other than allocations of Investments made in accordance with the Guidelines); (iv) the lease of assets to the Sponsor, any Director, the Advisor or any Affiliate of the Advisor; (v) any purchase or sale of an Investment from or to the Advisor or an Affiliate; and (vi) the retention of any Affiliate of the Advisor to provide services to CPA: 17 not expressly contemplated by this Agreement and the terms of such services by such Affiliate. In addition, the Advisor shall comply with any further approval requirements set forth in the Bylaws.
(e)      The Board may, at any time upon the giving of notice to the Advisor, modify or revoke the authority set forth in this Section 4. If and to the extent the Board so modifies or revokes the authority contained herein, the Advisor shall henceforth comply with such modification or revocation, provided however , that such modification or revocation shall be effective upon receipt by the Advisor and shall not be applicable to investment transactions to which the Advisor has committed CPA: 17 prior to the date of receipt by the Advisor of such notification.
5.      Bank Accounts . The Advisor may establish and maintain one or more bank accounts in its own name for the account of CPA: 17 or in the name of CPA: 17 and may collect and deposit into any such account or accounts, and disburse from any such account or accounts, any money on behalf of CPA: 17, provided that no funds shall be commingled with the funds of the Advisor; and the Advisor shall from time to time render appropriate accountings of such collections and payments to the Board and to the auditors of CPA: 17.
6.      Records; Access . The Advisor shall maintain appropriate records of all its activities hereunder and make such records available for inspection by the Board and by counsel, auditors and authorized agents of CPA: 17, at any time or from time to time during normal business hours. The Advisor shall at all reasonable times have access to the books and records of CPA: 17.


 
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7.      Limitations on Activities . Anything else in this Agreement to the contrary notwithstanding, the Advisor shall refrain from taking any action which, in its sole judgment made in good faith, would adversely affect the status of CPA: 17 as a REIT or of the Operating Partnership as a partnership for Federal income tax purposes, subject CPA: 17 or the Operating Partnership to regulation under the Investment Company Act of 1940, would violate any law, rule, regulation or statement of policy of any governmental body or agency having jurisdiction over CPA: 17, its Shares or its Securities, or otherwise not be permitted by the Charter or Bylaws or agreement of limited partnership of the Operating Partnership, except if such action shall be ordered by the Board, in which case the Advisor shall notify promptly the Board of the Advisor’s judgment of the potential impact of such action and shall refrain from taking such action until it receives further clarification or instructions from the Board. In such event the Advisor shall have no liability for acting in accordance with the specific instructions of the Board so given.
(a)      Notwithstanding the foregoing, the Advisor, its shareholders, directors, officers and employees, and partners, shareholders, directors and officers of the Advisor’s shareholders and Affiliates of any of them, shall not be liable to CPA: 17, the Operating Partnership or to the Directors or Shareholders for any act or omission by the Advisor, its shareholders, directors, officers and employees, or partners, shareholders, directors or officers of the Advisor’s shareholders and Affiliates of any of them if the following conditions are met:

(i)      The Advisor, its shareholders, directors, officers and employees, and partners, shareholders, directors and officers of the Advisor’s shareholders and Affiliates of any of them have determined, in good faith, that the course of conduct which caused the loss or liability was in the best interests of CPA: 17;
(ii)      The Advisor, its shareholders, directors, officers and employees, and partners, shareholders, directors and officers of the Advisor’s shareholders and Affiliates of any of them were acting on behalf of or performing services for CPA: 17; and
(iii)      Such liability or loss was not the result of negligence or misconduct by the Advisor, its shareholders, directors, officers and employees, and partners, shareholders, directors and officers of the Advisor’s shareholders or Affiliates of any of them.
(b)      Notwithstanding the foregoing, the Advisor and its Affiliates shall not be indemnified by CPA: 17 or the Operating Partnership for any losses, liabilities or expenses arising from or out of the alleged violation of federal or state securities laws unless one or more of the following conditions are met:
(i)      There has been a successful adjudication on the merits of each count involving alleged securities law violations as to the particular indemnitee;
(ii)      Such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to the particular indemnitee; or
(iii)      A court of competent jurisdiction approves a settlement of the claims against a particular indemnitee and finds that indemnification of the settlement and the related costs should be made, and the court considering the request for indemnification has been advised of the position of the Securities and Exchange Commission and of the published position of any state securities regulatory authority in which securities of CPA: 17 were offered or sold as to indemnification for violation of securities laws.


 
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(c)      CPA: 17 and the Operating Partnership shall advance funds to the Advisor or its Affiliates for legal expenses and other costs incurred as a result of any legal action for which indemnification is being sought only if all of the following conditions are satisfied:
(i)      The legal action relates to acts or omissions with respect to the performance of duties or services on behalf of CPA: 17;
(ii)      The legal action is initiated by a third party who is not a Shareholder or the legal action is initiated by a Shareholder acting in his or her capacity as such and a court of competent jurisdiction specifically approves such advancement; and
(iii)      The Advisor or the Affiliate undertakes to repay the advanced funds to CPA: 17, together with the applicable legal rate of interest thereon, in cases in which such Advisor or Affiliate is found not to be entitled to indemnification.
(d)      Notwithstanding the foregoing, the Advisor shall not be entitled to indemnification or be held harmless pursuant to this Section 7 for any activity which the Advisor shall be required to indemnify or hold harmless CPA: 17 pursuant to Section 22.
(e)      Any amounts paid pursuant to this Section 7 shall be recoverable or paid only out the net assets of CPA: 17 and not from Shareholders.

8.      Relationship with Directors . There shall be no limitation on any shareholder, director, officer, employee or Affiliate of the Advisor serving as a Director or an officer of CPA: 17, except that no employee of the Advisor or its Affiliates who also is a Director or officer of CPA: 17 shall receive any compensation from CPA: 17 for serving as a Director or officer other than for reasonable reimbursement for travel and related expenses incurred in attending meetings of the Board; for the avoidance of doubt, the limitations of this Section 8 shall not apply to any compensation paid by the Advisor or any Affiliate for which CPA: 17 reimbursed the Advisor or Affiliate in accordance with Section 10 hereof.
9.      Fees .
(a)      Asset Management Fee . (1)  The Operating Partnership shall pay to the Advisor as compensation for the advisory services rendered hereunder an asset management fee (the “ Asset Management Fee ”) in an amount equal to the percentage of the Average Equity Market Value of an Investment as specified in the following table:



 
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Type of Investment
Asset Management Fee
Long-Term Net Leased Properties
0.50% of the Average Market Value
B Notes, mortgage backed securities and Loans
1.75% of the Average Equity Value
Investments in readily marketable real estate securities (other than B Notes, mortgage backed securities and Loans) purchased on the secondary market
1.50% of the Average Equity Value
All other Investments not described in the foregoing categories, such as interests in entities that own real estate or are engaged in real estate related businesses, short-term net leases and equity investments in real property
0.50% of the Average Market Value

(iv)      The Asset Management Fee with respect to an Investment will be calculated monthly, beginning with the month in which CPA: 17 first makes the Investment, and shall be pro rated for the number of days during a month that CPA: 17 owns the Investment. The aggregate Asset Management Fees calculated with respect to each month shall be payable on the first business day following such month.
(b)      Initial Acquisition Fee . (1)  The Advisor may receive as partial compensation for services rendered in connection with the investigation, selection, acquisition or origination (by purchase, investment or exchange) of any Investment, an initial acquisition fee (an “ Initial Acquisition Fee ”) payable by the Operating Partnership. The Initial Acquisition Fee payable to the Advisor in respect of an Investment shall be payable at the time such Investment is acquired in an amount determined as specified in the following table:
Type of Investment
Initial Acquisition Fee
Long term Net Leased Properties
2.5% of the aggregate Total Investment Cost
B Notes, mortgage backed securities and Loans
1.0% of the sum of (x) the Average Equity Value, plus (y) the Acquisition Fees paid by CPA: 17 in respect of the Investment.
Investments in readily marketable real estate securities (other than B notes, mortgage backed securities and Loans) purchased on the secondary market
None
All other Investments not described in the foregoing categories, such as interests in entities that own real estate or are engaged in real estate related businesses, short term net leases and equity investments in real property
1.75% of the sum of (x) the equity capital invested by CPA: 17 in the Investment plus (y) the Acquisition Fees paid by CPA: 17 in respect of the Investment.
(i)      At the time an Investment is made, the Advisor shall determine the type of Investment, which shall be used for the purpose of calculating all fees due hereunder; it


 
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being understood that the Advisor shall use its reasonable judgment, based primarily upon the economic substance of an Investment, in determining the classification of an Investment, provided , that in the event of any dispute, the Independent Directors shall finally determine for all purposes the type of Investment.
(c)      Subordinated Acquisition Fee . (i) In addition to the Initial Acquisition Fee described in Section 9(b) above, the Advisor may receive additional compensation in connection with the investigation, selection, acquisition or origination (by purchase, investment or exchange) of Investments a Subordinated Acquisition Fee payable by the Operating Partnership to the Advisor or its Affiliates (the “ Subordinated Acquisition Fee ”). The total Subordinated Acquisition Fees payable shall be an amount determined as specified in the following table:
Type of Investment
Subordinated Acquisition Fee
Long term Net Leased Properties
2.0% of the aggregate Total Investment Cost.
All other Investments not described in the foregoing category
None

(ii)     Except as may otherwise be approved by the Independent Directors, the Subordinated Acquisition Fee shall be payable in three equal annual installments on the first business day of the fiscal quarter immediately following the fiscal quarter in which the Investment is made and the first business day of the corresponding fiscal quarter in each of the subsequent two fiscal years. It is understood that the Independent Directors may determine that under certain limited circumstances, it will be in CPA: 17’s best interests to pay the Subordinated Acquisition Fee at the time the Investment is made rather than on an installment basis, even if the Preferred Return has not yet been satisfied, and any agreement or instrument entered into to give effect to such payment shall be subject in its entirety to this Agreement. Any unpaid portion of the Subordinated Acquisition Fee with respect to an Investment will bear interest at the rate of 5% per annum from the date of acquisition of the Investment until the portion of the Subordinated Acquisition Fee is paid. The accrued interest is payable on the date of each annual installment of the fees. The Subordinated Acquisition Fee payable in any year, and accrued interest thereon, will be subordinated to the Preferred Return of 5% and only paid if the Preferred Return of 5% has been achieved through the end of the prior fiscal quarter. Any portion of the Subordinated Acquisition Fee, and accrued interest thereon, not paid due to CPA: 17’s failure to meet the Preferred Return of 5% through any fiscal quarter end shall be paid by CPA: 17 on the first business day of the fiscal quarter next following the fiscal quarter end through which the Preferred Return of 5% has been met.
(d)      Six Percent Limitation . The total amount of all Initial Acquisition Fees plus Subordinated Acquisition Fees, including interest thereon, whether payable to the Advisor or a third party, and Acquisition Expenses payable by the Operating Partnership may not exceed 6% of the aggregate Contract Purchase Price of all Investments, measured for the period beginning with the initial acquisition of an Investment and ending (i) on December 31 of the year in which CPA: 17 has invested 90% of the net proceeds of its initial Offering (excluding the net proceeds from the sale of Shares pursuant to CPA: 17’s dividend reinvestment program), and (ii) on each December 31 thereafter, unless a majority of the Directors (including a majority of the Independent Directors) not


 
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otherwise interested in any transaction approves the excess as being commercially competitive, fair and reasonable to CPA: 17.
(e)      Property Management Fee; Loan Refinancing Fee . No Property Management Fee or Loan Refinancing Fee shall be paid unless approved by a majority of the Independent Directors.
(f)      Subordinated Disposition Fee . (i) If the Advisor or an Affiliate provides a substantial amount of services in the sale of an Investment, the Advisor or such Affiliate shall be entitled to receive a subordinated disposition fee (the “ Subordinated Disposition Fee ”) at the time of such disposition, in an amount equal to the lesser of (1) 50% of the Competitive Real Estate Commission (if applicable) and (2) 3.0% of the Contract Sales Price of the Investment; provided, however, that (A) the Subordinated Disposition Fee in respect of Investments that are B Notes, mortgage backed securities and Loans shall equal 1.0% of the equity capital invested by CPA: 17 in the Investment, and (B) no Subordinated Disposition Fee shall be paid in respect of Investments that are readily marketable securities.
(ii)    The total real estate commissions and Subordinated Disposition Fees CPA: 17 pays to all Persons shall not exceed an amount equal to the lesser of: (1) 6% of the Contract Sales Price of the Investment or (2) the Competitive Real Estate Commission. Payment of Subordinated Disposition Fees and accrued interest thereon, will be subordinated to the Preferred Return and only paid if the Preferred Return of 5% has been achieved through the end of the prior fiscal quarter. To the extent that Subordinated Disposition Fees are not paid on a current basis due to the foregoing limitation, the unpaid fees will be due and paid at such time as the limitation has been satisfied, together with interest from the time of disposition of the Investment to which they relate, at the rate of 5%. The Advisor shall present to the Independent Directors such information as they may reasonably request to review the level of services provided by the Advisor in connection with a disposition and the basis for the calculation of the amount of the Subordinated Disposition Fees on a quarterly basis. No payment of Subordinated Disposition Fees shall be made prior to review and approval of such information by the Independent Directors.
(g)      Loans From Affiliates . CPA: 17 shall not borrow funds from the Advisor or its Affiliates unless (A) the transaction is approved by a majority of the Independent Directors and a majority of the Directors who are not interested in the transaction as being fair, competitive and commercially reasonable, (B) the interest and other financing charges or fees received by the Advisor or its Affiliates do not exceed the amount which would be charged by non-affiliated lending institutions and (C) the terms are not less favorable than those prevailing for comparable arm’s-length loans for the same purpose. CPA: 17 will not borrow on a long-term basis from the Advisor or its Affiliates unless it is to provide the debt portion of a particular investment and CPA: 17 is unable to obtain a permanent loan at that time or in the judgment of the Board, it is not in CPA: 17’s best interest to obtain a permanent loan at the interest rates then prevailing and the Board has reason to believe that CPA: 17 will be able to obtain a permanent loan on or prior to the end of the loan term provided by the Advisor or its Affiliates.
(h)      Changes To Fee Structure . In the event the Shares are listed on a national securities exchange or are included for quotation on Nasdaq, CPA: 17 and the Advisor shall negotiate in good faith to establish a fee structure appropriate for an entity with a perpetual life. A majority of the Independent Directors must approve the new fee structure negotiated with the Advisor. In negotiating a new fee structure, the Independent Directors may consider any of the factors they deem relevant,


 
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including but not limited to: (a) the size of the Advisory Fee in relation to the size, composition and profitability of CPA: 17’s portfolio; (b) the success of the Advisor in generating opportunities that meet the investment objectives of CPA: 17; (c) the rates charged to other REITs and to investors other than REITs by Advisors performing similar services; (d) additional revenues realized by the Advisor and its Affiliates through their relationship with CPA: 17, including loan administration, underwriting or broker commissions, servicing, engineering, inspection and other fees, whether paid by CPA: 17 or by others with whom CPA: 17 does business; (e) the quality and extent of service and advice furnished by the Advisor; (f) the performance of the investment portfolio of CPA: 17, including income, conservation or appreciation of capital, frequency of problem investments and competence in dealing with distress situations; and (g) the quality of the portfolio of CPA: 17 in relationship to the investments generated by the Advisor for the account of other clients. The Independent Directors shall not approve any new fee structure that is in their judgment more favorable (taken as a whole) to the Advisor than the current fee structure.
(i)      Payment . Compensation payable to the Advisor pursuant to this Section 9 shall be paid in cash; provided , however , that any fee payable pursuant to Section 9 may be paid, at the option of CPA:17, after consultation with the Advisor, in the form of: (i) cash, (ii) restricted stock of CPA: 17, or (iii) a combination of cash and restricted stock. After consultation with the Advisor, CPA:17 shall notify the Advisor in writing annually of the form in which the fee shall be paid. Such notice shall be provided no later than January 15 of each year. If no such notice is provided, the fee shall be paid in cash. For purposes of the payment of compensation to the Advisor in the form of stock, the value of each share of restricted stock shall be: (i) the Net Asset Value per Share as determined based on the most recent appraisal of CPA: 17’s assets performed by an Independent Appraiser, or (ii) if an appraisal has not yet been performed, $10 per share. If shares are being offered to the public at the time a fee is paid with stock, the value shall be the price of the stock without commissions. The Net Asset Value determined on the basis of such appraisal may be adjusted on a quarterly or other basis by the Board to account for significant capital transactions. Stock issued by CPA: 17 to the Advisor in payment of fees hereunder shall be governed by the terms set forth in Schedule A hereto, or such other terms as the Advisor and CPA: 17 may from time to time agree.
(j)      During the term of the Management Agreement, no Asset Management Fees shall be paid to the Advisor under Section 9(a) of this Agreement with respect to Properties located outside the United States and Loans secured by collateral outside the United States.
(k)      During the term of the Management Agreement, no Subordinated Disposition Fees shall be paid to the Advisor under Section 9(f) of this Agreement with respect to Properties located outside the United States and Loans secured by collateral outside the United States.
10.      Expenses .
(a)      Subject to the limitations set forth in Section 9(d), to the extent applicable, in addition to the compensation paid to the Advisor pursuant to Section 9 hereof, the Operating Partnership shall pay directly or reimburse the Advisor for the following expenses:
(ii)      Organization and Offering Expenses; provided however , that within 60 days after the end of the quarter in which any Offering terminates, the Advisor shall reimburse the Operating Partnership for any Organization and Offering Expense reimbursements received by the Advisor pursuant to this Section 10 to the extent that such reimbursements, when added to the balance of the Organization and Offering Expenses (excluding selling


 
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commissions, the selected dealer fee and the wholesaling fee) paid directly by the Operating Partnership, exceed four percent of the Gross Offering Proceeds; provided further , that the Advisor shall be responsible for the payment of all Organization and Offering Expenses (excluding such commissions and such fees and expense reimbursements) in excess of four percent of the Gross Offering Proceeds;
(iii)      all Acquisition Expenses;
(iv)      to the extent not included in Acquisition Expenses, all expenses of whatever nature reasonably incurred and directly connected with the proposed acquisition of any Investment that does not result in the actual acquisition of the Investment, including, without limitation, personnel costs;
(v)      expenses other than Acquisition Expenses incurred in connection with the investment of the funds of CPA: 17, including, without limitation, costs of retaining industry or economic consultants and finder’s fees and similar payments, to the extent not paid by the seller of the Investment or another third party, regardless of whether such expenses were incurred in transactions where a fee is not payable to the Advisor;
(vi)      interest and other costs for borrowed money, including discounts, points and other similar fees;
(vii)      taxes and assessments on income of CPA: 17, to the extent paid or advanced by the Advisor, or on Investments and taxes as an expense of doing business;
(viii)      costs associated with insurance required in connection with the business of CPA: 17 or by the Directors;
(ix)      expenses of managing and operating Investments owned by CPA: 17, whether payable to an Affiliate of the Advisor or a non-affiliated Person;
(x)      fees and expenses of legal counsel for CPA: 17;
(xi)      fees and expense of auditors and accountants for CPA: 17;
(xii)      all expenses in connection with payments to the Directors and meetings of the Directors and Shareholders;
(xiii)      expenses associated with listing the Shares and Securities on a securities exchange or Nasdaq if requested by the Board;
(xiv)      expenses connected with payments of Distributions in cash or otherwise made or caused to be made by the Board to the Shareholders;
(xv)      expenses of organizing, revising, amending, converting, modifying, or terminating CPA: 17, the Operating Partnership or their respective governing instruments;
(xvi)      expenses of maintaining communications with Shareholders, including the cost of preparation, printing and mailing annual reports and other Shareholder reports, proxy statements and other reports required by governmental entities; and


 
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(xvii)      all other expenses the Advisor incurs in connection with providing services to CPA: 17, including reimbursement to the Advisor or its Affiliates for the cost of rent, goods, materials and personnel incurred by them based upon the compensation of the Persons involved and an appropriate share of overhead allocable to those Persons.
(b)      Expenses described in clause (xvi) of Section 10(a) and any other expenses described in Section 10(a) that are shared expenses of CPA: 17, other entities managed by the Advisor and its Affiliates and W. P. Carey Inc. and its Affiliates (for their own account) shall be allocated among such entities based upon the percentage that CPA: 17’s total revenues for the most recently completed four fiscal quarters represent of the combined total revenues for such period of CPA: 17, W. P. Carey Inc. and each REIT or other entity managed by the Advisor and its Affiliates (provided that if any such entity has not been in operation for the full four quarter period, the period for which such entity has been in operation shall be annualized), or such other methodology as may be approved by the Board (including a majority of the Independent Directors). No reimbursement shall be made for the cost of personnel to the extent that such personnel are used in transactions for which the Advisor receives a separate fee.
(c)      Expenses incurred by the Advisor on behalf of CPA: 17 and payable pursuant to this Section 10 shall be reimbursed quarterly to the Advisor within 60 days after the end of each quarter, subject to the provisions of Section 13 hereof. The Advisor shall prepare a statement documenting the Operating Expenses of CPA: 17 within 45 days after the end of each quarter.
(d)      During the term of the Management Agreement, CPA: 17 shall have no obligation to reimburse the Advisor under Section 10 of this Agreement for any expenses related to the management and disposition of Properties located outside the United States and Loans secured by collateral outside the United States.
11.      Other Services . Should the Board request that the Advisor or any Affiliate, shareholder or employee thereof render services for CPA: 17 other than as set forth in Section 3 hereof, such services shall be separately compensated and shall not be deemed to be services pursuant to the terms of this Agreement.
12.      Fidelity Bond . The Advisor shall maintain a fidelity bond for the benefit of CPA: 17 which bond shall insure CPA: 17 from losses of up to $5,000,000 and shall be of the type customarily purchased by entities performing services similar to those provided to CPA: 17 by the Advisor.
13.      Limitations on Expenses .
(a)      (i)    If Operating Expenses under this Agreement and the Management Agreement during the 12-month period ending on the last day of any fiscal quarter of CPA: 17 exceed the greater of (i) two percent of the Average Invested Assets during the same 12-month period or (ii) 25% of the Adjusted Net Income of CPA: 17 during the same 12-month period, then subject to paragraph (b) of this Section 13, such excess amount shall be the sole responsibility of the Advisor and neither the Operating Partnership nor CPA: 17 shall be liable for payment therefor. CPA: 17 may defer the payment or distribution to the Advisor and the Special General Partner of fees, expenses and distributions that would, if paid or distributed, cause Operating Expenses during such 12-month period to exceed the foregoing limitations; provided, however, that in determining which items shall be paid and which may be deferred, priority will be given to the payment of distributions to the Special General Partner over the payment to the Advisor of amounts due under this Agreement.


 
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(ii)      Notwithstanding the foregoing, to the extent that the Advisor becomes responsible for any excess amount as provided in paragraph (a), if a majority of the Independent Directors finds such excess amount or a portion thereof justified based on such unusual and non-recurring factors as they deem sufficient, the Operating Partnership shall reimburse the Advisor in future quarters for the full amount of such excess, or any portion thereof, but only to the extent such reimbursement would not cause the Operating Expenses to exceed the 2%/25% Guidelines in the 12-month period ending on the last day of such quarter. In no event shall the Operating Expenses payable by the Operating Partnership in any 12-month period ending at the end of a fiscal quarter exceed the 2%/25% Guidelines.
(iii)      Within 60 days after the end of any twelve‑month period referred to in subparagraph (i), the Advisor shall reimburse CPA: 17 for any amounts expended by CPA: 17 in such twelve‑month period that exceeds the limitations provided in subparagraph (i) unless the Independent Directors determine that such excess expenses are justified, as provided in subparagraph (ii), and provided the Operating Expenses for such later quarter would not thereby exceed the 2%/25% Guidelines.
(b)      In addition to the limitation on Operating Expenses set forth in paragraph (a), beginning with the fiscal year ending December 31, 2015, CPA:17 and the Operating Partnership shall not be required to reimburse the Advisor for personnel expenses pursuant to Section 10 that exceed: (i) with respect to transactional legal expenses for the Advisor’s in-house transaction legal group, the amounts set forth in Schedule C ; and (ii) with respect to other personnel expenses in any fiscal year (or portion thereof, if this Agreement is terminated during a fiscal year), 2.4% of CPA:17’s total revenues for the fiscal year ending December 31, 2015; 2.2% of CPA:17’s total revenues (or portion thereof) for the fiscal year ending December 31, 2016; and 2.0% of CPA:17’s total revenues (or portion thereof) for each fiscal year (or portion thereof) thereafter, with total revenues in each case being determined by CPA:17’s proportionate share of total revenues of the relevant entities, as determined in accordance with Section 10(a). Furthermore, CPA:17 and the Operating Partnership shall have no obligation to reimburse the Advisor for expenses associated with the Advisor’s financial systems transformation project known as “Project Phoenix”.
(c)      All computations made under paragraphs (a) and (b) of this Section 13 shall be determined in accordance with generally accepted accounting principles applied on a consistent basis.
(d)      If the Special General Partner receives distributions pursuant to the agreement of limited partnership of the Operating Partnership in respect of realized gains on the disposition of an Investment, Adjusted Net Income, for purposes of calculating the Operating Expenses, shall exclude the gain from the disposition of such Investment.
14.      Investment Allocation and Other Activities of the Advisor . Except as provided in the Guidelines, nothing herein contained shall prevent the Advisor from engaging in other activities, including without limitation direct investment by the Advisor and its Affiliates in assets that would be suitable for CPA: 17, the rendering of advice to other investors (including other REITs) and the management of other programs advised, sponsored or organized by the Advisor or its Affiliates; nor shall this Agreement limit or restrict the right of the Advisor or any of its Affiliates or of any director, officer, employee or shareholder of the Advisor or its Affiliates to engage in any other business or to render services of any kind to any other partnership, corporation, firm, individual, trust or association. The Advisor may, with respect to any investment in which CPA: 17 is a participant, also render advice and service to each other participant therein.


 
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Without limiting the generality of the foregoing, CPA 17 acknowledges that the Advisor provides or will provide services to other CPA REIT funds and other entities, whether now in existence or formed hereafter, and that the Advisor and its Affiliates may invest for their own account. If the Sponsor, Advisor, Director or Affiliates thereof has or have sponsored, or will sponsor in the future, other investment programs with similar investment objectives which have investment funds available at the same time as CPA: 17, or if the Advisor and its Affiliates intend to make investments for their own account that fit CPA: 17’s investment objectives, it shall be the duty of the Advisor to allocate Investments among the competing investment entities and the Advisor and its Affiliates in a fair and equitable manner and in accordance with the Guidelines.
The Advisor shall be required to use its best efforts to present a continuing and suitable investment program to CPA: 17 that is consistent with the investment policies and objectives of CPA: 17, but subject to the last sentence of the preceding paragraph, neither the Advisor nor any Affiliate of the Advisor shall be obligated generally to present any particular investment opportunity to CPA: 17 even if the opportunity is of character which, if presented to CPA: 17, could be taken by CPA: 17.
Once each quarter, senior representatives of the Advisor will meet with at least a majority of the Independent Directors for the purpose of reviewing the Advisor’s compliance with the Guidelines with respect to all Investments allocated among W. P. Carey Inc., CPA: 17 and each other CPA REIT and investment program managed by an Affiliate of W.P. Carey Inc. (each, together with its Affiliates, an “ Investment Entity ,” and collectively, the “ Investment Entities ”) during the most recently completed fiscal quarter. The quarterly review will take place at the regularly scheduled quarterly meeting of the Board of Directors, or at another time and place that are mutually determined by the Advisor and the Independent Directors, and may include representatives of other Investment Entities. The Advisor will use its best efforts to distribute a report reasonably in advance of each quarterly review meeting containing a list of all Investments allocated to the Investment Entities the particular Investment Entity to which each Investment was allocated, a brief description of the Investment, the purchase price of each Investment and acquisition fees (if any) paid to the Advisor and its Affiliates in connection with each Investment. Representatives of the Advisor shall be prepared to discuss each Investment and the reasons for its allocation to particular Investment Entities at the quarterly review meeting.
15.      Relationship of Advisor and CPA: 17 . CPA: 17 and the Advisor agree that they have not created and do not intend to create by this Agreement a joint venture or partnership relationship between them and nothing in this Agreement shall be construed to make them partners or joint venturers or impose any liability as partners or joint venturers on either of them.
16.      Term; Termination of Agreement . This Agreement, as amended and restated, shall continue in force until September 30, 2015 or until 60 days after the date on which the Independent Directors shall have notified the Advisor of their determination either to renew this Agreement for an additional one-year period or terminate this Agreement, as required by CPA:17’s Charter.
17.      Termination by CPA: 17 . At the sole option the Board (including a majority of the Independent Directors), this Agreement may be terminated immediately by written notice of termination from CPA: 17 to the Advisor upon the occurrence of events which would constitute Cause or if any of the following events occur:
(a)      If the Advisor shall breach this Agreement; provided that such breach (i) is of a material term or condition of this Agreement and (ii) the Advisor has not cured such breach within 30 days of written notice thereof or, in the case of any breach that cannot be cured within 30 days by reasonable effort, has not taken all necessary action within a reasonable time period to cure such breach;


 
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(b)      If the Advisor shall be adjudged bankrupt or insolvent by a court of competent jurisdiction, or an order shall be made by a court of competent jurisdiction for the appointment of a receiver, liquidator, or trustee of the Advisor, for all or substantially all of its property by reason of the foregoing, or if a court of competent jurisdiction approves any petition filed against the Advisor for reorganization, and such adjudication or order shall remain in force or unstayed for a period of 30 days; or
(c)      If the Advisor shall institute proceedings for voluntary bankruptcy or shall file a petition seeking reorganization under the federal bankruptcy laws, or for relief under any law for relief of debtors, or shall consent to the appointment of a receiver for itself or for all or substantially all of its property, or shall make a general assignment for the benefit of its creditors, or shall admit in writing its inability to pay its debts, generally, as they become due.
Any notice of termination under Section 16 or 17 shall be effective on the date specified in such notice, which may be the day on which such notice is given or any date thereafter. The Advisor agrees that if any of the events specified in Section 17(b) or (c) shall occur, it shall give written notice thereof to the Board within 15 days after the occurrence of such event.
18.      Termination by Either Party . This Agreement may be terminated immediately without penalty (but subject to the requirements of Section 20 hereof) by the Advisor by written notice of termination to CPA: 17 upon the occurrence of events which would constitute Good Reason or by CPA: 17 without cause or penalty (but subject to the requirements of Section 20 hereof) by action of the Directors, a majority of the Independent Directors or by action of a majority of the Shareholders, in each case upon 60 days’ written notice.
19.      Assignment Prohibition . This Agreement may not be assigned by the Advisor without the approval of the Board (including a majority of the Independent Directors); provided , however , that such approval shall not be required in the case of an assignment to a corporation, partnership, association, trust or organization which may take over the assets and carry on the affairs of the Advisor, provided : (i) that at the time of such assignment, such successor organization shall be owned substantially by an entity directly or indirectly controlled by the Sponsor and only if such entity has a net worth of at least $5,000,000, and (ii) that the board of directors of the Advisor shall deliver to the Board a statement in writing indicating the ownership structure and net worth of the successor organization and a certification from the new Advisor as to its net worth. Such an assignment shall bind the assignees hereunder in the same manner as the Advisor is bound by this Agreement. The Advisor may assign any rights to receive fees or other payments under this Agreement without obtaining the approval of the Board. This Agreement shall not be assigned by CPA: 17 or the Operating Partnership without the consent of the Advisor, except in the case of an assignment by CPA: 17 or the Operating Partnership to a corporation or other organization which is a successor to CPA: 17 or the Operating Partnership, in which case such successor organization shall be bound hereunder and by the terms of said assignment in the same manner as CPA: 17 or the Operating Partnership is bound by this Agreement.
20.      Payments to and Duties of Advisor Upon Termination .
(a)      After the Termination Date, the Advisor shall not be entitled to compensation for further services hereunder but shall be entitled to receive from CPA: 17 the following:
(i)      all unpaid reimbursements of Organization and Offering Expenses and of Operating Expenses payable to the Advisor;


 
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(ii)      all earned but unpaid Asset Management Fees payable to the Advisor prior to the Termination Date;
(iii)      all earned but unpaid Acquisition Fees and interest thereon, in each case payable to the Advisor relating to the acquisition of any Property prior to the Termination Date;
(iv)      all earned but unpaid Subordinated Disposition Fees and interest thereon, payable to the Advisor relating to the sale of any Investment prior to the Termination Date; and
(v)      all earned but unpaid Property Management Fees and Loan Refinancing Fees, if any, payable to the Advisor or its Affiliates relating to the management of any property prior to the termination of this Agreement.
(b)      Notwithstanding the foregoing, if this Agreement is terminated by the Company for Cause, or by the Advisor for other than Good Reason, the Advisor will not be entitled to receive the sums in Section 20(a) (ii) through (v).
(c)      Any and all amounts payable to the Advisor pursuant to Section 20(a) that, irrespective of the termination, were payable on a current basis prior to the Termination Date either because they were not subordinated or all conditions to their payment had been satisfied, shall be paid within 90 days after the Termination Date. All other amounts shall be paid in a manner determined by the Board, but in no event on terms less favorable to the Advisor than those represented by a note (i) maturing upon the liquidation of CPA: 17 or the Operating Partnership or three years from the Termination Date, whichever is earlier, (ii) with no less than twelve equal quarterly installments and (iii) bearing a fair, competitive and commercially reasonable interest rate (the “ Note ”). The Note, if any, may be prepaid by the Operating Partnership at any time prior to maturity with accrued interest to the date of payment but without premium or penalty. Notwithstanding the foregoing, any amounts that relate to Investments (i) shall be an amount which provides compensation to the Advisor only for that portion of the holding period for the respective Investments during which the Advisor provided services to CPA: 17, (ii) shall not be due and payable until the Investment Asset to which such amount relates is sold or refinanced, and (iii) shall not bear interest until the Investment to which such amount relates is sold or refinanced. A portion of the amount shall be paid as each Investment owned by CPA: 17 on the Termination Date is sold. The portion of such amount payable upon each such sale shall be equal to (i) such amount multiplied by (ii) the percentage calculated by dividing the fair value (at the Termination Date) of the Investment sold by CPA: 17 divided by the total fair value (at the Termination Date) of all Investments owned by CPA: 17 on the Termination Date.
(d)      The Advisor shall promptly upon termination.
(i)      pay over to the Operating Partnership all money collected and held for the account of CPA: 17 pursuant to this Agreement, after deducting any accrued compensation and reimbursement for its expenses to which it is then entitled;
(ii)      deliver to the Board a full accounting, including a statement showing all payments collected by it and a statement of all money held by it, covering the period following the date of the last accounting furnished to the Board;


 
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(iii)      deliver to the Board all assets, including Properties and Loans, and documents of CPA: 17 then in the custody of the Advisor; and
(iv)      cooperate with CPA: 17 to provide an orderly management transition.
21.      Indemnification by CPA: 17 and the Operating Partnership . Neither CPA: 17 nor the Operating Partnership shall indemnify the Advisor or any of its Affiliates for any loss or liability suffered by the Advisor or the Affiliate, or hold the Advisor or the Affiliate harmless for any loss or liability suffered by CPA: 17, except as permitted under Section 7.
22.      Indemnification by Advisor . The Advisor shall indemnify and hold harmless CPA: 17 and the Operating Partnership from liability, claims, damages, taxes or losses and related expenses including attorneys’ fees, to the extent that such liability, claims, damages, taxes or losses and related expenses are not fully reimbursed by insurance and are incurred by reason of the Advisor’s bad faith, fraud, willful misfeasance, misconduct, negligence or reckless disregard of its duties.
23.      Joint and Several Obligations . Any obligations of CPA: 17 shall be construed as the joint and several obligations of CPA: 17 and the Operating Partnership, unless otherwise specifically provided in this Agreement.
24.      Notices . Any notice, report or other communication required or permitted to be given hereunder shall be in writing unless some other method of giving such notice, report or other communication is accepted by the party to whom it is given, and shall be given by being delivered by hand or by overnight mail or other overnight delivery service to the addresses set forth herein:
To the Board
and to CPA: 17:
Corporate Property Associates 17 – Global Incorporated
50 Rockefeller Plaza
New York, NY 10020
Attention: Chair of the Audit Committee
of the Board of Directors
 
 
To the Operating Partnership:
c/o Corporate Property Associates 17 - Global Incorporated
50 Rockefeller Plaza
New York, NY 10020
Attention: Chair of the Audit Committee
of the Board of Directors
 
 
To the Advisor:
Carey Asset Management Corp.
50 Rockefeller Plaza
New York, NY 10020
 
 
Either party may at any time give notice in writing to the other party of a change in its address for the purposes of this Section 23.
25.      Modification . This Agreement shall not be changed, modified, terminated, or discharged, in whole or in part, except by an instrument in writing signed by both parties hereto, or their respective successors or assignees.


 
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26.      Severability . The provisions of this Agreement are independent of and severable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part.
27.      Construction . This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of New York.
28.      Entire Agreement . This Agreement contains the entire agreement and understanding among the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements, understandings, inducements and conditions, express or implied, oral or written, of any nature whatsoever with respect to the subject matter hereof. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing.
29.      Indulgences, Not Waivers . Neither the failure nor any delay on the part of a party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver.
30.      Gender . Words used herein regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context requires.
31.      Titles Not to Affect Interpretation . The titles of Sections and subsections contained in this Agreement are for convenience only, and they neither form a part of this Agreement nor are they to be used in the construction or interpretation hereof.
32.      Execution in Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories.
33.      Name . W.P. Carey & Co. LLC has a proprietary interest in the name “Corporate Property Associates” and “CPA®.” Accordingly, and in recognition of this right, if at any time CPA: 17 ceases to retain Carey Asset Management Corp., or an Affiliate thereof to perform the services of Advisor, CPA: 17 will, promptly after receipt of written request from Carey Asset Management Corp., cease to conduct business under or use the name “Corporate Property Associates” or “CPA®” or any diminutive thereof and CPA: 17 shall use its best efforts to change the name of CPA: 17 to a name that does not contain the name “Corporate Property Associates” or “CPA®” or any other word or words that might, in the sole discretion of the Advisor, be susceptible of indication of some form of relationship between CPA: 17 and the Advisor or any Affiliate thereof. Consistent with the foregoing, it is specifically recognized that the Advisor or one or more of its Affiliates has in the past and may in the future organize, sponsor or otherwise permit to exist other investment vehicles (including vehicles for investment in real estate) and financial and service organizations having “Corporate Property Associates” or “CPA®” as a part of their name, all without the need for any consent (and without the right to object thereto) by CPA: 17 or its Directors.


 
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34.      Initial Investment . The Advisor has contributed to CPA: 17 $200,000 in exchange for 22,222 Shares (the “ Initial Investment ”). The Advisor or its Affiliates may not sell any of the Shares purchased with the Initial Investment during the term of this Agreement. The restrictions included above shall not continue to apply to any Shares other than the Share acquired through the Initial Investment acquired by the Advisor or its Affiliates. The Advisor shall not vote any Shares it now owns or hereafter acquires in any vote for the election of Directors or any vote regarding the approval or termination of any contract with the Advisor or any of its Affiliates.



 
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IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Advisory Agreement as of the day and year first above written.
CORPORATE PROPERTY ASSOCIATES 17 - GLOBAL INCORPORATED
By:
/s/ Thomas E. Zacharias
Name: Thomas E. Zacharias
Title: Chief Operating Officer

CAREY ASSET MANAGEMENT CORP.
By:
/s/ Susan C. Hyde
Name: Susan C. Hyde
Title: Managing Director and Corporate Secretary

CPA:17 LIMITED PARTNERSHIP
By: CORPORATE PROPERTY ASSOCIATES 17 - GLOBAL INCORPORATED, its general partner
By:
/s/ Thomas E. Zacharias
Name: Thomas E. Zacharias
Title: Chief Operating Officer



 
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SCHEDULE A
Investment Allocation Guidelines
CPA: 17 invests primarily in income-producing commercial real estate assets, primarily consisting of properties that are leased to single tenants on a triple net basis. CPA: 17’s investment objectives and investment strategy are set forth in its public filings with the Securities and Exchange Commission and are subject to change from time to time with the approval of the Board.
The Advisor is a fiduciary to CPA: 17 and has agreed to allocate Investments among CPA: 17 and other Investment Entities in a fair manner and in accordance with these Guidelines. In order to provide for a fair allocation of Investment opportunities among Investment Entities, the Advisor agrees that if the Advisor or any of its Affiliates is presented with a potential Investment which falls within the investment objectives of one or more of the Investment Entities (including CPA: 17), the Advisor shall consider the following factors, together with such other factors as it deems relevant in the exercise of its reasonable judgment, when deciding how to allocate such Investment among one or more Investment Entities in a fair and equitable manner
•
whether an Investment Entity is still in its fundraising and acquisition stage, or has substantially invested the proceeds from its fundraising stage;
•
the amount of funds available for investment by an Investment Entity and the length of time that such funds have been available for investment;
•
the effect of the Investment on the diversification of an Investment Entity’s portfolio;
•
the effect of the Investment on the profile of an Investment Entity’s mortgage maturity profile;
•
the ability of an Investment Entity to service any debt associated with the Investment;
•
the effect of the Investment on the ability of the Investment Entity to comply with any restrictions on investments and indebtedness contained in the Investment Entity’s governing documents and public SEC filings, in any contract or in any law or regulation applicable to the Investment Entity;
•
whether an Investment Entity was formed for the purpose of making a particular type of investment;
•
the financial attributes of the Investment;
•
the effect of the Investment on the Investment Entity’s intention to qualify as a REIT, partnership or other type of entity for tax purposes; and
•
the effect of the Investment on an Investment Entity’s intention not to be subject to regulation under the Investment Company Act of 1940, as amended.
The Advisor agrees to make investment allocation decisions without regard to the relative fees or other compensation that would be paid to the Advisor and its Affiliates in connection with the applicable Investments.


 
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SCHEDULE B
This Schedule sets forth the terms governing any Shares issued by CPA: 17 to the Advisor in payment of advisory fees set forth in the Agreement.
1.      Restrictions . The Shares are subject to vesting over a five-year period. The Shares shall vest ratably over a five-year period with 20% of the Shares paid in each payment vesting on each of the first through fifth anniversary of the date hereof. Prior to the vesting of the ownership of the Shares in the Advisor, the Shares may not be transferred by the Advisor.
2.      Immediate Vesting . Upon the expiration of the Agreement for any reason other than a termination for Cause under paragraph 17 or upon a “Change of Control” of CPA®:17 (as defined below), all Shares granted to the Advisor hereunder shall vest immediately and all restrictions shall lapse. For purposes of this Schedule A, a “Change of Control” of CPA: 17 shall be deemed to have occurred if there has been a change in the ownership of CPA: 17 of a nature that would be required to be reported in response to the disclosure requirements of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), as enacted and in force on the date hereof, whether or not CPA: 17 is then subject to such reporting requirements; provided , however , that, without limitation, a Change of Control shall be deemed to have occurred if:
(i)      any “person,” as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than CPA: 17, any of its subsidiaries, any trustee, fiduciary or other person or entity holding securities under any employee benefit plan of CPA: 17 or any of its subsidiaries), together with all “affiliates” and “associates” (as such terms are defined in Rule 14b-2 under the Exchange Act) of such person, shall become the “beneficial owner” (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of CPA: 17 representing 25% or more of either (A) the combined voting power of CPA: 17’s then outstanding securities having the right to vote in an election of the Board (“ Voting Securities ”) or (B) the then outstanding common stock of CPA: 17 (in either such case other than as a result of acquisition of securities directly from CPA: 17);
(ii)      persons who, as of the date hereof, constitute the Board (the “ Incumbent Directors ”) cease for any reason, including without limitation, as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Board, provided that any person becoming a director of CPA: 17 subsequent to the date hereof whose election or nomination for election was approved by a vote of at least a majority of the Incumbent Directors shall be considered an Incumbent Director; or
(iii)      the stockholders of CPA: 17 shall approve (A) any consolidation or merger of CPA: 17 or any subsidiary where the stockholders of CPA: 17, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, shares representing in the aggregate 50% or more of the voting equity of the entity issuing cash or securities in the consolidation or merger (or of its ultimate parent entity, if any), (B) any sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of CPA: 17 or (C) any plan or proposal for the liquidation or dissolution of CPA: 17.


 
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Notwithstanding the foregoing, a “ Change of Control ” shall not be deemed to have occurred for purposes of the foregoing clause (i) solely as the result of an acquisition of securities by CPA: 17 which, by reducing the number of Shares of Common Stock outstanding, increases (A) the proportionate number of Shares beneficially owned by any person to 25% or more of the Shares then outstanding, or (B) the proportionate voting power represented by the Shares beneficially owned by any person to 25% or more of the combined voting power of all then outstanding voting Securities; provided , however , that if any person referred to in clause (A) or (B) of this sentence shall thereafter become the beneficial owner of any additional Shares or other Voting Securities (other than pursuant to a Share split, Share dividend, or similar transaction), then a “Change of Control” shall be deemed to have occurred for purposes of the foregoing clause (i).
3. Exception. Notwithstanding anything else in this Agreement to the contrary, the Shares shall continue to vest according to the vesting schedule in Section 1 regardless of: (a) the expiration of the Advisory Agreement for any reason other than a termination by CPA: 17 for Cause or a resignation by the Advisor for other than Good Reason, (b) the merger of CPA: 17 and an Affiliate of CPA: 17 or (c) any “Change of Control” of CPA: 17 in connection with a merger with an Affiliate of CPA: 17.


 
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SCHEDULE C
Expense Reimbursements For Legal Transactions Group

Transaction Type
Flat Rate
(per Transaction)
Acquisitions
0.25% of
Total Investment Cost
 
 
Asset Management Transactions:
 
Financings
$20,000
Lease Amendments – Simple
$7,000
Lease Amendments – Complex
$50,000
Dispositions
$25,000
Lines of Credit
$100,000
Other Corporate Matters
$2,000

__________________________________
Note:
The fees shown above are for the entirety of a transaction. Fees shall be allocated among affiliated members of a joint venture based on percentage ownership.



 
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Exhibit 10.15


AMENDED AND RESTATED
ADVISORY AGREEMENT

THIS AMENDED AND RESTATED ADVISORY AGREEMENT, dated as of January 1, 2015, is among CORPORATE PROPERTY ASSOCIATES 18 — GLOBAL INCORPORATED, a Maryland corporation (“ CPA: 18 ”), CPA: 18 Limited Partnership, a Delaware limited partnership of which CPA: 18 is a general partner (the “ Operating Partnership ”), and CAREY ASSET MANAGEMENT CORP., a Delaware corporation and wholly-owned subsidiary of W. P. Carey Inc. (the “ Advisor ”).
W I T N E S S E T H :
WHEREAS, CPA: 18 through its interest in the Operating Partnership intends to invest primarily in income producing commercial properties and other real estate related assets;
WHEREAS, CPA: 18 intends to qualify as a REIT (as defined below), and the Operating Partnership intends to qualify as a partnership, in each case for U.S. federal income tax purposes;
WHEREAS, the Parties hereto are parties to an existing advisory agreement, dated as of May 7, 2013;
WHEREAS, CPA: 18, the Operating Partnership and the Advisor desire to amend and restate the existing advisory agreement in order that CPA: 18 and its subsidiaries, including the Operating Partnership, may continue to avail themselves of the experience, sources of information, advice and assistance of, and certain facilities available to, the Advisor and to have the Advisor undertake the duties and responsibilities hereinafter set forth, on behalf of, and subject to the supervision of the Board of Directors (as defined below), all as provided herein; and
WHEREAS, the Advisor is willing to render such services, subject to the supervision of the Board of Directors, on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements contained herein, the parties hereto agree as follows:
1. Definitions . As used in this Agreement, the following terms have the definitions hereinafter indicated:
“ 2%/25% Guidelines .” The requirement, as provided for in Section 13 hereof, that, in the 12‑month period ending on the last day of any fiscal quarter, Operating Expenses under this Agreement and the Management Agreement not exceed the greater of two percent of Average Invested Assets during such 12‑month period or 25% of CPA: 18’s Adjusted Net Income over the same 12‑month period.
“ Acquisition Expenses .” To the extent not paid or to be paid by the seller, lessee, borrower or any other party involved in the transaction, those expenses, including but not limited to travel and communications expenses, the cost of appraisals, title insurance, nonrefundable option payments on Investments not acquired, legal fees and expenses, accounting fees and expenses and miscellaneous expenses, related to selection, acquisition and origination of Investments, whether or not a particular Investment ultimately is made. Acquisition Expenses shall not include Acquisition Fees.
“ Acquisition Fees .” The Initial Acquisition Fee and the Subordinated Acquisition Fee.


 
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“ Adjusted Investor Capital .” As of any date, the Initial Investor Capital reduced by any Redemptions, other than Redemptions intended to qualify as a liquidity event for purposes of this Agreement, and by any other Distributions on or prior to such date determined by the Board to be from Cash from Sales and Financings.
“ Adjusted Net Income .” For any period, the total consolidated revenues recognized in such period by CPA: 18, less the total consolidated expenses of CPA: 18 recognized in such period, excluding additions to reserves for depreciation and amortization, bad debts or other similar non-cash reserves; provided, however, that Adjusted Net Income for purposes of calculating total allowable Operating Expenses under the 2%/25% Guidelines shall exclude any gains, losses or writedowns from the sale of CPA: 18’s assets.
“ Advisor .” Carey Asset Management Corp, a corporation organized under the laws of the State of Delaware and wholly-owned by W. P. Carey Inc.
“ Affiliate .” An Affiliate of another Person shall include any of the following: (i) any Person directly or indirectly owning, controlling, or holding, with power to vote ten percent or more of the outstanding voting securities of such other Person; (ii) any Person ten percent or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held, with power to vote, by such other Person; (iii) any Person directly or indirectly controlling, controlled by, or under common control with such other Person; (iv) any executive officer, director, trustee or general partner of such other Person; or (v) any legal entity for which such Person acts as an executive officer, director, trustee or general partner.
“ Agreement .” This Advisory Agreement.
“ Appraised Value .” Value according to an appraisal made by an Independent Appraiser, which may take into consideration any factor deemed appropriate by such Independent Appraiser, including, but not limited to, current market and property conditions, any unique attributes of the Investment operations, current and anticipated income and expense trends, the terms and conditions of any lease of a relevant property, the quality of any lessee’s, borrower’s or other counter-party’s credit and the conditions of the credit markets. The Appraised Value of a Property may be greater than the construction cost or the replacement cost of the Property.
“ Asset Management Fee .” The Asset Management Fee as defined in Section 9(a) hereof.
“ Average Equity Value .” The equity portion of the aggregate purchase price paid by CPA: 18 for an Investment, provided that, if (1) a later Appraised Value is obtained for the Investment, that later Appraised Value, adjusted for other net assets and liabilities that have economic value and are associated with that Investment, shall become the basis for calculating the Average Equity Value of the Investment, and (2) for Investments in securities that CPA: 18 treats as available for sale under GAAP, the fair value of such securities as determined on a monthly basis as of the last day of each month or, if applicable, on the date such securities are disposed of, shall be the basis for calculating the Average Equity Value of such securities.
“ Average Invested Assets .” The average during any period of the aggregate book value of CPA: 18’s Investments, before deducting reserves for depreciation, bad debts, impairments, amortization and all other non-cash reserves, computed by taking the average of such values at the end of each month during such period.
“ Average Market Value .” The aggregate purchase price paid by CPA: 18 for an Investment, provided that, if a later Appraised Value is obtained for the Investment, that later Appraised Value, adjusted for other


 
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net assets and liabilities that have economic value and are associated with that Investment, shall become the Average Market Value for the Investment.
“ Board or Board of Directors .” The Board of Directors of CPA: 18.
“ Bylaws .” The bylaws of CPA: 18, as amended from time to time.
“ Cash from Financings .” Net cash proceeds realized by CPA: 18 from the financing of Investments or the refinancing of indebtedness from time to time.
“ Cash from Sales .” Net cash proceeds realized by CPA: 18 from the sale, exchange or other disposition of any of its Investments after deduction of all expenses incurred in connection therewith. Cash from Sales shall not include Cash from Financings.
“ Cash from Sales and Financings . ” The total sum of Cash from Sales and Cash from Financings.
“ Cause .” With respect to the termination of this Agreement, fraud, criminal conduct, willful misconduct or willful or negligent breach of fiduciary duty by the Advisor that, in each case, is determined by a majority of the Independent Directors to be materially adverse to CPA: 18, or a breach of a material term or condition of this Agreement or the Guidelines by the Advisor and the Advisor has not cured such breach within 30 days of written notice thereof or, in the case of any breach that cannot be cured within 30 days by reasonable effort, has not taken all necessary action within a reasonable time period to cure such breach.
“ Charter .” The charter of CPA: 18, as amended from time to time, pursuant to which CPA: 18 is organized.
“ Closing Date .” The first date on which Shares were issued pursuant to an Offering.
“ Code .” Internal Revenue Code of 1986, as amended.
“ Competitive Real Estate Commission .” The real estate or brokerage commission paid for the purchase or sale of a Property that is reasonable, customary and competitive in light of the size, type and location of the Property.
“ Construction Fee .” A fee or other remuneration for acting as general contractor and/or construction manager to construct improvements, supervise and coordinate projects or to provide major repairs or rehabilitation on a Property.
“ Contract Purchase Price .” The amount actually paid for, or allocated to, the purchase, development, construction or improvement of an Investment or, in the case of an originated Loan, the principal amount of such Loan, exclusive, in each case, of Acquisition Fees and Acquisition Expenses.
“ Contract Sales Price .” The total consideration received by CPA: 18 for the sale of Investments.
“ CPA: 18 .” Corporate Property Associates 18 — Global Incorporated together with its consolidated subsidiaries, including the Operating Partnership, unless in the context of a particular reference, it is clear that such reference refers to Corporate Property Associates 18 — Global Incorporated excluding its consolidated subsidiaries. Unless the context otherwise requires, any reference to financial measures of


 
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CPA: 18 shall be calculated by reference to the consolidated financial statements of CPA: 18 and its subsidiaries, including, without limitation, the Operating Partnership, prepared in accordance with GAAP.
“ Cumulative Return .” For the period for which the calculation is being made, the percentage resulting from dividing (A) the total Distributions for such period (not including Distributions out of Cash from Sales and Financings), by (B) the product of (i) either (x) until such time as CPA: 18 has invested 90% of the net proceeds of CPA: 18’s initial Offering (excluding net proceeds from the sale of Shares pursuant to CPA: 18’s distribution reinvestment program), the average Adjusted Investor Capital for such period (calculated on a daily basis) or (y) from and after such time as CPA: 18 has invested 90% of the net proceeds of CPA: 18’s initial Offering (excluding net proceeds from the sale of Shares pursuant to CPA: 18’s distribution reinvestment program), the net proceeds from the sale of Shares (excluding net proceeds from the sale of Shares pursuant to CPA: 18’s distribution reinvestment program), as adjusted for Redemptions other than Redemptions intended to qualify as a liquidity event for purposes of this Agreement, and by any other Distributions on or prior to such date determined by the Board to be from Cash from Sales and Financings, and (ii) the number of years (including fractions thereof) elapsed during such period. Notwithstanding the foregoing, neither the Shares received by the Advisor or its Affiliates for any consideration other than cash, nor the Distributions in respect of such Shares, shall be included in the foregoing calculation.
“ Dealer Manager .” Carey Financial, LLC, a Delaware limited liability company.
“ Development Fee .” A fee for the packaging of a Property including negotiating and approving plans, and undertaking to assist in obtaining zoning and necessary variances and necessary financing for the specific Property, either initially or at a later date.
“ Directors .” The persons holding such office, as of any particular time, under the Charter, whether they be the directors named therein or additional or successor directors.
“ Disposition Fee .” The Disposition Fee as defined in Section 9(f) hereof.
“ Distribution and Shareholder Servicing Fees .” The distribution and shareholder servicing fees payable to the Dealer Manager as described in the Prospectus.
“ Distributions .” Distributions declared by the Board.
“ GAAP .” Generally accepted accounting principles in the United States.
“ Good Reason .” With respect to the termination of this Agreement, (i) any failure to obtain a satisfactory agreement from any successor to CPA: 18 or the Operating Partnership to assume and agree to perform CPA: 18’s or the Operating Partnership’s, as applicable, obligations under this Agreement; or (ii) any material breach of this Agreement of any nature whatsoever by CPA: 18 or the Operating Partnership; provided that (a) such breach is of a material term or condition of this Agreement and (b) CPA: 18 or the Operating Partnership, as applicable, has not cured such breach within 30 days of written notice thereof or, in the case of any breach that cannot be cured within 30 days by reasonable effort, has not taken all necessary action within a reasonable time period to cure such breach.
“ Gross Offering Proceeds .” The aggregate purchase price of Shares sold in any Offering, without deduction for selling commissions, volume discounts, any marketing support and due diligence expense reimbursement or Organization and Offering Expenses in any Offering.
“ Guidelines .” The Investment Allocation Guidelines set forth as Schedule A.


 
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“ Independent Appraiser .” A qualified appraiser of real estate as determined by the Board, who has no material current or prior business or personal relationship with, the Advisor or the Directors and who is engaged to a substantial extent in the business of rendering opinions regarding the value of real estate related investments. Membership in a nationally recognized appraisal society such as the American Institute of Real Estate Appraisers or the Society of Real Estate Appraisers shall be conclusive evidence of such qualification (but not of independence).
“ Independent Director .” A Director of CPA: 18 who meets the criteria for an Independent Director specified in the Charter and/or Bylaws.
“ Individual .” Any natural person and those organizations treated as individuals in Section 542(a) of the Code.
“ Initial Acquisition Fee .” Any fee or commission (including any interest thereon) paid by the Operating Partnership to the Advisor or, with respect to Section 9(a) or 9(c), by the Operating Partnership to any party, in connection with the making of an Investment or the development or construction of Properties by CPA: 18. A Development Fee or a Construction Fee paid to a Person not affiliated with the Sponsor in connection with the actual development or construction of a project after acquisition of the Property by CPA: 18 shall not be deemed an Initial Acquisition Fee. Initial Acquisition Fees include, but are not limited to, any real estate commission, selection fee, development fee or construction fee (other than as described above), non‑recurring management fees, loan fees, points or any fee of a similar nature, however designated. Initial Acquisition Fees include Subordinated Acquisition Fees unless the context otherwise requires. Initial Acquisition Fees shall not include Acquisition Expenses.
“ Initial Investor Capital .” The total amount of capital invested (excluding investments in money market securities) from time to time by Shareholders (computed at the Original Issue Price per Share), excluding any Shares received by the Advisor or its Affiliates for any consideration other than cash.
“ Investment .” An investment made by CPA: 18, directly or indirectly, in a Property, Loan or Other Permitted Investment Asset.
“ Investment Entities .” Has the meaning given to such term in Section 14.
“ Loans .” The notes and other evidences of indebtedness or obligations acquired, originated or entered into, directly or indirectly, by CPA: 18 as lender, noteholder, participant, note purchaser or other capacity, including but not limited to first or subordinate mortgage loans, construction loans, development loans, loan participations, B notes, loans secured by capital stock or any other assets or form of equity interest and any other type of loan or financial arrangement, such as providing or arranging for letters of credit, providing guarantees of obligations to third parties, or providing commitments for loans. The term “Loans” shall not include leases which are not recognized as leases for Federal income tax reporting purposes.
“ Loan Refinancing Fee .” A fee payable to the Advisor in respect of the refinancing of a loan secured by an Investment.
“ Manager .” W. P. Carey & Co., B.V., a Netherlands company.
“ Management Agreement .” The Asset Management Agreement between CPA: 18 and the Manager, as the same may be amended from time to time.


 
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“ Market Value .” The value calculated by multiplying the daily weighted average number of outstanding Shares by the average closing price of the Shares, in each case over the 30 trading days beginning 180 calendar days after the Shares are first listed on a national securities exchange or included for quotation in an electronic trading system.
“ Offering .” The offering of Shares pursuant to a Prospectus.
“ Operating Expenses .” All consolidated operating, general and administrative expenses paid or incurred by CPA: 18, as determined under GAAP, except the following (insofar as they would otherwise be considered operating, general and administrative expenses under GAAP): (i) interest and discounts and other cost of borrowed money; (ii) taxes (including state, Federal and foreign income tax, property taxes and assessments, franchise taxes and taxes of any other nature); (iii) expenses of raising capital, including Organization and Offering Expenses, printing, engraving, and other expenses, and taxes incurred in connection with the issuance and distribution of CPA: 18’s Shares and Securities; (iv) Acquisition Expenses, real estate commissions on resale of property and other expenses connected with the acquisition, disposition, origination, ownership and operation of Investments, including the costs of foreclosure, insurance premiums, legal services, brokerage and sales commissions, and the maintenance, repair and improvement of property; (v) Acquisition Fees or Disposition Fees payable to the Advisor under this Agreement and the corresponding fees payable to the Manager under the Management Agreement, or any other party; (vi) Distribution and Shareholder Servicing Fees payable to the Dealer Manager; (vii) distributions paid by the Operating Partnership to the Special General Partner under the agreement of limited partnership of the Operating Partnership in respect of gains realized on dispositions of Investments and other capital transactions; (viii) amounts paid to effect a redemption or repurchase of the special general partner interest held by the Special General Partner pursuant to the agreement of limited partnership of the Operating Partnership; and (ix) non-cash items, such as depreciation, amortization, depletion, and additions to reserves for depreciation, amortization, depletion, losses and bad debts. Notwithstanding anything herein to the contrary, Operating Expenses shall include the Asset Management Fee and any Loan Refinancing Fee and, solely for the purposes of determining compliance with the 2%/25% Guidelines, distributions of profits and cash flow made by the Operating Partnership to the Special General Partner pursuant to the agreement of limited partnership of the Operating Partnership, other than distributions described in clauses (vii) and (viii) of this definition.
“ Operating Partnership .” CPA: 18 Limited Partnership, a Delaware limited partnership, through which CPA: 18 owns Investments.
“ Organization and Offering Expenses .” Those expenses payable by CPA: 18 and the Operating Partnership in connection with the formation, qualification and registration of CPA: 18 and in marketing and distributing Shares, including, but not limited to: (i) the preparation, printing, filing and delivery of any registration statement or Prospectus (including any amendments thereof or supplements thereto) and the preparing and printing of contractual agreements among CPA: 18, the Operating Partnership, the Dealer Manager and the Selected Dealers (including copies thereof); (ii) the preparing and printing of the Charter and Bylaws, solicitation material and related documents and the filing and/or recording of such documents necessary to comply with the laws of the State of Maryland for the formation of a corporation and thereafter for the continued good standing of a corporation; (iii) the qualification or registration of the Shares under state securities or “Blue Sky” laws; (iv) any escrow arrangements, including any compensation to an escrow agent; (v) the filing fees payable to the SEC and to the Financial Industry Regulatory Authority; (vi) reimbursement for the reasonable and identifiable out-of-pocket expenses of the Dealer Manager and the Selected Dealers, including the cost of their counsel; (vii) the fees of CPA: 18’s counsel and accountants; (viii) all advertising expenses incurred in connection with an Offering, including the cost of all sales literature and the costs related to investor and broker-dealer sales and information meetings and marketing incentive


 
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programs; and (ix) selling commissions, dealer manager fees, marketing fees, incentive fees and due diligence fees incurred in connection with the sale of the Shares.
“ Original Issue Price .” For any Share issued in an Offering, the price at which such Share was initially offered to the public by CPA: 18, regardless of whether selling commissions were paid in connection with the purchase of such Share from CPA: 18.
“ Other Permitted Investment Asset .” An asset, other than cash, cash equivalents, short term bonds, auction rate securities and similar short term investments, acquired by CPA: 18 for investment purposes that is not a Loan or a Property and is consistent with the investment objectives and policies of CPA: 18.
“ Person .” An Individual, corporation, partnership, joint venture, association, company, trust, bank, or other entity, or government or any agency or political subdivision of a government.
“ Preferred Return .” A Cumulative Return of five percent computed from the Closing Date through the date as of which such amount is being calculated.
“ Property or Properties .” CPA: 18’s partial or entire interest in real property (including leasehold interests) and personal or mixed property connected therewith. An Investment which obligates CPA: 18 to acquire a Property will be treated as a Property for purposes of this Agreement.
“ Property Management Fee .” A fee for property management services rendered by the Advisor or its Affiliates in connection with Properties acquired directly or through foreclosure.
“ Prospectus .” Any prospectus pursuant to which CPA: 18 offers Shares in a public offering, as the same may at any time and from time to time be amended or supplemented after the effective date of the registration statement in which it is included.
“ Redemptions .” An amount determined by multiplying the number of Shares redeemed by the Original Issue Price.
“ REIT .” A real estate investment trust, as defined in Sections 856-860 of the Code.
“ Securities .” Any stock, shares (other than currently outstanding Shares and subsequently issued Shares), other equity interests, voting trust certificates, bonds, debentures, notes or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise or in general any instruments commonly known as “securities” or any certificate of interest, shares or participation in temporary or interim certificates for receipts (or, guarantees of, or warrants, options or rights to subscribe to, purchase or acquire any of the foregoing, which subsequently may be issued by CPA: 18).
“ SEC .” The Securities and Exchange Commission.
“ Selected Dealers .” Broker-dealers who are members of the Financial Industry Regulatory Authority and who have executed an agreement with the Dealer Manager in which the Selected Dealers agree to participate with the Dealer Manager in the Offering.
“ Shareholders .” Those Persons who, at the time any calculation hereunder is to be made, are shown as holders of record of Shares on the books and records of CPA: 18.


 
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“ Shares .” All of the shares of common stock of CPA: 18, $.001 par value, and any other shares of common stock of CPA: 18.
“ Special General Partner .” WPC-CPA:18 Holdings, LLC and any permitted transferee of the special general partnership interest under the agreement of limited partnership the Operating Partnership.
“ Sponsor .” W. P. Carey Inc. and any other Person directly or indirectly instrumental in organizing, wholly or in part, CPA: 18 or any person who will control, manage or participate in the management of CPA: 18, and any Affiliate of any such person. Sponsor does not include a person whose only relationship to CPA: 18 is that of an independent property manager and whose only compensation is as such. Sponsor also does not include wholly independent third parties such as attorneys, accountants and underwriters whose only compensation is for professional services.
“ Subordinated Acquisition Fee .” The Subordinated Acquisition Fee as defined in Section 9(c) hereof.
“ Termination Date .” The effective date of any termination of this Agreement.
“ Total Investment Cost .” With regard to any Investment, an amount equal to the sum of the Contract Purchase Price of such Investment plus the Acquisition Fees and Acquisition Expenses paid in connection with such Investment.
“ Triggering Event .” With regard to any Investment, the occurrence of any of the following during the six months after the closing date of the Investment: (a) the failure by an obligor on an Investment to pay rent, interest or principal, or other material payment, to CPA: 18 when due (after giving effect to all applicable grace periods) or (b) the obligor on an Investment (including a guarantor) (1) commences a voluntary case or proceeding under applicable bankruptcy or reorganization law, (2) consents to the entry of a decree or order for relief in an involuntary proceeding under applicable bankruptcy law, (3) consents to the filing of a petition or the appointment of a custodian, receiver or liquidator, (4) makes an assignment for the benefit of creditors, (5) admits in writing its inability to pay its debts as they come due; or (6) is the subject of a decree or order for relief entered by a court of competent jurisdiction in respect of such obligor in an involuntary bankruptcy case or proceeding, or a decree or order adjudging such obligor bankrupt or insolvent or appointing a custodian, receiver or liquidator for the obligor.
2.      Appointment . CPA: 18 hereby appoints the Advisor to serve as its advisor on the terms and conditions set forth in this Agreement, and the Advisor hereby accepts such appointment.
3.      Duties of the Advisor . The Advisor undertakes to use its best efforts to present to CPA: 18 potential investment opportunities and to provide a continuing and suitable investment program consistent with the investment objectives and policies of CPA: 18 as determined and adopted from time to time by the Board. The Advisor will follow the Guidelines when allocating Investment opportunities among CPA: 18, other entities managed by the Advisor and its Affiliates, and the Advisor and its Affiliates for their own account. The Guidelines shall not be amended without the prior approval of at least a majority of the Independent Directors.
In performance of the foregoing undertakings, subject to the supervision of the Board and consistent with the provisions of the Charter and Bylaws of CPA: 18 and any Prospectus pursuant to which Shares are offered, the Advisor shall, either directly or by engaging an Affiliate:


 
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(a)      serve as CPA: 18’s investment and financial advisor and provide research and economic and statistical data in connection with CPA: 18’s assets and investment policies;
(b)      provide the daily management of CPA: 18 and perform and supervise the various administrative functions reasonably necessary for the management of CPA: 18;
(c)      investigate, select, and, on behalf of CPA: 18, engage and conduct business with such Persons as the Advisor deems necessary to the proper performance of its obligations hereunder, including but not limited to consultants, accountants, correspondents, lenders, technical advisors, attorneys, brokers, underwriters, corporate fiduciaries, escrow agents, depositaries, custodians, agents for collection, insurers, insurance agents, banks, builders, developers, property owners, mortgagors, and any and all agents for any of the foregoing, including Affiliates of the Advisor, and Persons acting in any other capacity deemed by the Advisor necessary or desirable for the performance of any of the foregoing services, including but not limited to entering into contracts in the name of CPA: 18 with any of the foregoing;
(d)      consult with Directors of CPA: 18 and assist the Board in the formulation and implementation of CPA: 18’s policies, and furnish the Board with such information, advice and recommendations as they may request or as otherwise may be necessary to enable them to discharge their fiduciary duties with respect to matters coming before the Board;
(e)      subject to the provisions of this Agreement and the Guidelines: (1) locate, analyze and select potential Investments; (2) structure and negotiate the terms and conditions of transactions pursuant to which Investments will be made, purchased or acquired by CPA: 18; (3) make Investments on behalf of CPA: 18; (4) arrange for financing and refinancing of, make other changes in the asset or capital structure of, dispose of, reinvest the proceeds from the sale of, or otherwise deal with the Investments; and (5) enter into leases and service contracts for Properties and, to the extent necessary, perform all other operational functions for the maintenance and administration of such Properties;
(f)      provide the Board with periodic reports regarding prospective Investments and with periodic reports, no less than quarterly, of (1) new Investments made during the prior fiscal quarter, which reports shall include information regarding the type of each Investment made (in the categories provided in Section 9); (2) the occurrence of any Triggering Event during the prior fiscal quarter; and (3) the amounts of “dead deal” costs incurred by CPA: 18 during the prior fiscal quarter;
(g)      assist the Board in its evaluation of potential liquidity transactions for CPA: 18 and take such actions as may be requested by the Board or as may otherwise be necessary or desirable to execute any liquidity transaction approved by the Board;
(h)      obtain the prior approval of the Board (including a majority of the Independent Directors) for any and all investments in Property which do not meet all of the requirements set forth in Section 4(b) hereof;
(i)      negotiate on behalf of CPA: 18 with banks or lenders for loans to be made to CPA: 18, and negotiate on behalf of CPA: 18 with investment banking firms and broker-dealers or negotiate private sales of Shares and Securities or obtain loans for CPA: 18, but in no event in such a way so that the Advisor shall be acting as broker-dealer or underwriter; and provided , further , that any fees and costs payable to third parties incurred by the Advisor in connection with the foregoing shall be the responsibility of CPA: 18;


 
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(j)      obtain reports (which may be prepared by the Advisor or its Affiliates), where appropriate, concerning the value of Investments or contemplated Investments;
(k)      obtain for, or provide to, CPA: 18 such services as may be required in acquiring, managing and disposing of Investments, including, but not limited to: (i) the negotiation, making and servicing of Investments; (ii) the disbursement and collection of company monies; (iii) the payment of debts of and fulfillment of the obligations of CPA: 18; and (iv) the handling, prosecuting and settling of any claims of or against CPA: 18, including, but not limited to, foreclosing and otherwise enforcing mortgages and other liens securing Loans;
(l)      from time to time, or at any time reasonably requested by the Board, make reports to the Board of its performance of services to CPA: 18 under this Agreement;
(m)      communicate on behalf of CPA: 18 with Shareholders as required to satisfy the reporting and other requirements of any governmental bodies or agencies to Shareholders and third parties and otherwise as requested by CPA: 18;
(n)      provide or arrange for administrative services and items, legal and other services, office space, office furnishings, personnel and other overhead items necessary and incidental to CPA: 18’s business and operations;
(o)      provide CPA: 18 with such accounting data and any other information requested by CPA: 18 concerning the investment activities of CPA: 18 as shall be required to prepare and to file all periodic financial reports and returns required to be filed with the Securities and Exchange Commission and any other regulatory agency, including annual financial statements;
(p)      maintain the books and records of CPA: 18;
(q)      supervise the performance of such ministerial and administrative functions as may be necessary in connection with the daily operations of the Investments;
(r)      provide CPA: 18 with all necessary cash management services;
(s)      do all things necessary to assure its ability to render the services described in this Agreement;
(t)      perform such other services as may be required from time to time for management and other activities relating to the assets of CPA: 18 as the Advisor shall deem advisable under the particular circumstances;
(u)      arrange to obtain on behalf of CPA: 18 as requested by the Board, and deliver to or maintain on behalf of CPA: 18 copies of, all appraisals obtained in connection with investments in Properties and Loans;
(v)      if a transaction, proposed transaction or other matter requires approval by the Board or by the Independent Directors, deliver to the Board or the Independent Directors, as the case may be, all documentation reasonably requested by them to properly evaluate such transaction, proposed transaction or other matter;


 
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(w)      monitor the performance by the Manager of its duties under the Management Agreement; and
(x)      on an annual basis, no later than 90 days prior to the end of each term of this Agreement, provide the Independent Directors with a report on (1) the Advisor’s performance during the past year, (2) the compensation paid to the Advisor during such year and (3) any proposed changes to the compensation to be paid to the Advisor during the upcoming year if the Agreement is renewed. The Advisor’s report shall address, among other things, (a) those matters identified in CPA: 18’s organizational documents as matters which the Independent Directors must review each year with respect to the Advisor’s performance and compensation; (b) whether any Triggering Event occurred with respect to an Investment made during the past year; and (c) the “dead deal” costs incurred by CPA: 18 during the past year. If a Triggering Event has occurred, the Independent Directors may consider whether, after taking account of the overall performance of the Advisor during the past year, they wish to request that the Advisor refund all or a portion of the Initial Acquisition Fee paid by CPA: 18 in respect of such Investment, and if the Independent Directors make that request, the Advisor shall refund such amount to CPA: 18 within 60 days after receipt of such request. In addition, the Independent Directors may request that the Advisor refund certain of the dead deal costs incurred by CPA: 18 if, in light of the circumstances under which such costs were incurred, the Independent Directors determine that CPA: 18 should not bear such costs.
4.      Authority of Advisor .
(a)      Pursuant to the terms of this Agreement (and subject to the restrictions included in Paragraphs (b), (c) and (d) of this Section 4 and in Section 7 hereof and in the Guidelines), and subject to the continuing and exclusive authority of the Board over the management of CPA: 18, the Board hereby delegates to the Advisor the authority to: (1) locate, analyze and select Investment opportunities; (2) structure the terms and conditions of transactions pursuant to which Investments will be made or acquired for CPA: 18; (3) make or acquire Investments in compliance with the investment objectives and policies of CPA: 18; (4) arrange for financing or refinancing, or make changes in the asset or capital structure of, and dispose of or otherwise deal with, Investments; (5) enter into leases and service contracts for Properties, and perform other property level operations; (6) oversee non-affiliated property managers and other non-affiliated Persons who perform services for CPA: 18; and (7) undertake accounting and other record-keeping functions at the Investment level.
(b)      The consideration paid for an Investment acquired by CPA: 18 shall ordinarily be based on the fair market value thereof. Consistent with the foregoing provision, the Advisor may, without further approval by the Board (except with respect to transactions subject to paragraphs (c) and (d) of this Section 4) invest on behalf of CPA: 18 in an Investment so long as, in the Advisor’s good faith judgment, (i) the Total Investment Cost (excluding Acquisition Expenses) of such Investment does not exceed the fair market value thereof, and in the case of an Investment that is a Property, shall in no event exceed the Appraised Value of such Property and (ii) the Investment, in conjunction with CPA: 18’s other Investments and proposed Investments, at the time CPA: 18 is committed to purchase or originate the Investment, is reasonably expected to fulfill CPA: 18’s investment objectives and policies as established by the Board and then in effect. For purposes of the foregoing, Total Investment Cost shall be measured at the date the Investment is made and shall exclude future commitments to fund improvements. Investments not meeting the foregoing criteria must be approved in advance by the Board.


 
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(c)      Notwithstanding anything to the contrary contained in this Agreement, the Advisor shall not cause CPA: 18 to make Investments that do not comply with Article IX (Investment Objectives and Limitations) of the Charter and related sections of the Bylaws.
(d)      The prior approval of the Board, including a majority of the Independent Directors and a majority of the Directors not interested in the transaction, will be required for: (i) Investments made through co-investment or joint venture arrangements with the Sponsor, the Advisor or any of their Affiliates; (ii) Investments which are not contemplated by the terms of a Prospectus; (iii) transactions that present issues which involve potential conflicts of interest for the Advisor or an Affiliate (other than potential conflicts involving the payment of fees or the reimbursement of expenses and other than allocations of Investments made in accordance with the Guidelines); (iv) the lease of assets to the Sponsor, any Director, the Advisor or any Affiliate of the Advisor; (v) any purchase or sale of an Investment from or to the Advisor or an Affiliate; and (vi) the retention of any Affiliate of the Advisor to provide services to CPA: 18 not expressly contemplated by this Agreement and the terms of such services by such Affiliate. In addition, the Advisor shall comply with any further approval requirements set forth in the Bylaws.
(e)      The Board may, at any time upon the giving of notice to the Advisor, modify or revoke the authority set forth in this Section 4. If and to the extent the Board so modifies or revokes the authority contained herein, the Advisor shall henceforth comply with such modification or revocation, provided however , that such modification or revocation shall be effective upon receipt by the Advisor and shall not be applicable to investment transactions to which the Advisor has committed CPA: 18 prior to the date of receipt by the Advisor of such notification.
5.      Bank Accounts . The Advisor may establish and maintain one or more bank accounts in its own name for the account of CPA: 18 or in the name of CPA: 18 and may collect and deposit into any such account or accounts, and disburse from any such account or accounts, any money on behalf of CPA: 18, provided that no funds shall be commingled with the funds of the Advisor; and the Advisor shall from time to time render appropriate accountings of such collections and payments to the Board and to the auditors of CPA: 18.
6.      Records; Access . The Advisor shall maintain appropriate records of all its activities hereunder and make such records available for inspection by the Board and by counsel, auditors and authorized agents of CPA: 18, at any time or from time to time during normal business hours. The Advisor shall at all reasonable times have access to the books and records of CPA: 18.
7.      Limitations on Activities . Anything else in this Agreement to the contrary notwithstanding, the Advisor shall refrain from taking any action which, in its sole judgment made in good faith, would adversely affect the status of CPA: 18 as a REIT or of the Operating Partnership as a partnership for Federal income tax purposes, subject CPA: 18 or the Operating Partnership to regulation under the Investment Company Act of 1940, as amended, would violate any law, rule, regulation or statement of policy of any governmental body or agency having jurisdiction over CPA: 18, its Shares or its Securities, or otherwise not be permitted by the Charter or Bylaws or agreement of limited partnership of the Operating Partnership, except if such action shall be ordered by the Board, in which case the Advisor shall notify promptly the Board of the Advisor’s judgment of the potential impact of such action and shall refrain from taking such action until it receives further clarification or instructions from the Board. In such event the Advisor shall have no liability for acting in accordance with the specific instructions of the Board so given.


 
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(a)      Notwithstanding the foregoing, CPA: 18 shall indemnify and hold harmless the Advisor, its shareholders, directors, officers and employees, and partners, shareholders, directors and officers of the Advisor’s shareholders and Affiliates of any of them, for any loss or liability suffered by them, and none of the foregoing shall be liable to CPA: 18, the Operating Partnership or to the Directors or Shareholders for any act or omission by the Advisor, its shareholders, directors, officers and employees, or partners, shareholders, directors or officers of the Advisor’s shareholders and Affiliates of any of them, in each case if the following conditions are met:
(i)      The Advisor, its shareholders, directors, officers and employees, and partners, shareholders, directors and officers of the Advisor’s shareholders and Affiliates of any of them have determined, in good faith, that the course of conduct which caused the loss or liability was in the best interests of CPA: 18;
(ii)      The Advisor, its shareholders, directors, officers and employees, and partners, shareholders, directors and officers of the Advisor’s shareholders and Affiliates of any of them were acting on behalf of or performing services for CPA: 18; and
(iii)      Such liability or loss was not the result of negligence or misconduct by the Advisor, its shareholders, directors, officers and employees, and partners, shareholders, directors and officers of the Advisor’s shareholders or Affiliates of any of them.
(b)      Notwithstanding the foregoing, the Advisor and its Affiliates shall not be indemnified by CPA: 18 or the Operating Partnership for any losses, liabilities or expenses arising from or out of the alleged violation of federal or state securities laws unless one or more of the following conditions are met:
(i)      There has been a successful adjudication on the merits of each count involving alleged securities law violations as to the particular indemnitee;
(ii)      Such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to the particular indemnitee; or
(iii)      A court of competent jurisdiction approves a settlement of the claims against a particular indemnitee and finds that indemnification of the settlement and the related costs should be made, and the court considering the request for indemnification has been advised of the position of the Securities and Exchange Commission and of the published position of any state securities regulatory authority in which securities of CPA: 18 were offered or sold as to indemnification for violation of securities laws.
(c)      CPA: 18 and the Operating Partnership shall advance funds to the Advisor or its Affiliates for legal expenses and other costs incurred as a result of any legal action for which indemnification is being sought only if all of the following conditions are satisfied:
(i)      The legal action relates to acts or omissions with respect to the performance of duties or services on behalf of CPA: 18;
(ii)      The Advisor or the Affiliate has provided CPA: 18 or the Operating Partnership with a written affirmation of his, her or its good faith belief that the standard of conduct necessary for indemnification has been met;


 
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(iii)      The legal action is initiated by a third party who is not a Shareholder or the legal action is initiated by a Shareholder acting in his or her capacity as such and a court of competent jurisdiction specifically approves such advancement; and
(iv)      The Advisor or the Affiliate undertakes to repay the advanced funds to CPA: 18, together with the applicable legal rate of interest thereon, in cases in which such Advisor or Affiliate is found not to be entitled to indemnification.
(d)      Notwithstanding the foregoing, the Advisor shall not be entitled to indemnification or be held harmless pursuant to this Section 7 for any activity which the Advisor shall be required to indemnify or hold harmless CPA: 18 pursuant to Section 22.
(e)      Any amounts paid pursuant to this Section 7 shall be recoverable or paid only out the net assets of CPA: 18 and not from Shareholders.
8.      Relationship with Directors . There shall be no limitation on any shareholder, director, officer, employee or Affiliate of the Advisor serving as a Director or an officer of CPA: 18, except that no employee of the Advisor or its Affiliates who also is a Director or officer of CPA: 18 shall receive any compensation from CPA: 18 for serving as a Director or officer other than for reasonable reimbursement for travel and related expenses incurred in attending meetings of the Board; for the avoidance of doubt, the limitations of this Section 8 shall not apply to any compensation paid by the Advisor or any Affiliate for which CPA: 18 reimbursed the Advisor or Affiliate in accordance with Section 10 hereof.
9.      Fees .
(a)      Asset Management Fee . (1)  The Operating Partnership shall pay to the Advisor as compensation for the advisory services rendered hereunder an asset management fee (the “ Asset Management Fee ”) in an amount equal to the percentage of the Average Equity Value or the Average Market Value, as applicable, of an Investment as specified in the following table:
Type of Investment
Asset Management Fee
Investments in readily marketable real estate securities purchased on the secondary market
1.50% of the Average Equity Value
All other Investments not described in the foregoing category
0.50% of the Average Market Value

(v)      The Asset Management Fee with respect to an Investment will be calculated monthly, beginning with the month in which CPA: 18 first makes the Investment, and shall be pro rated for the number of days during a month that CPA: 18 owns the Investment. The aggregate Asset Management Fees calculated with respect to each month shall be payable on the first business day following such month.
(b)      Initial Acquisition Fee . The Advisor may receive as partial compensation for services rendered in connection with the investigation, selection, acquisition or origination (by purchase, investment or exchange) of any Investment, an initial acquisition fee (an “ Initial Acquisition Fee ”) payable by the Operating Partnership in an amount equal to 2.5% of the aggregate Total Investment


 
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Cost of the Investment; provided however, that no Initial Acquisition Fee shall be payable on any Investment in readily marketable real estate securities purchased on the secondary market. The Initial Acquisition Fee payable to the Advisor in respect of an Investment shall be payable at the time such Investment is acquired.
(c)      Subordinated Acquisition Fee . (i) In addition to the Initial Acquisition Fee described in Section 9(b) above, the Advisor may receive additional compensation in connection with the investigation, selection, acquisition or origination (by purchase, investment or exchange) of Investments, payable by the Operating Partnership to the Advisor or its Affiliates, in an amount equal to 2.0% of the aggregate Total Investment Cost of the Investment (the “ Subordinated Acquisition Fee ”). No Subordinated Acquisition Fee shall be paid in respect of Investments in readily marketable real estate securities purchased on the secondary market.
(ii)     Except as may otherwise be approved by the Independent Directors, the Subordinated Acquisition Fee shall be payable in three equal annual installments on the first business day of the fiscal quarter immediately following the fiscal quarter in which the Investment is made and the first business day of the corresponding fiscal quarter in each of the subsequent two fiscal years. It is understood that the Independent Directors may determine that under certain limited circumstances, it will be in CPA: 18’s best interests to pay the Subordinated Acquisition Fee at the time the Investment is made rather than on an installment basis, even if the Preferred Return has not yet been satisfied, and any agreement or instrument entered into to give effect to such payment shall be subject in its entirety to this Agreement. Any unpaid portion of the Subordinated Acquisition Fee with respect to an Investment will bear interest at the rate of 2% per annum from the date of acquisition of the Investment until the portion of the Subordinated Acquisition Fee is paid. The accrued interest is payable on the date of each annual installment of the fees. The Subordinated Acquisition Fee payable in any year, and accrued interest thereon, will be subordinated to the Preferred Return and only paid if the Preferred Return has been achieved through the end of the prior fiscal quarter. Any portion of the Subordinated Acquisition Fee, and accrued interest thereon, not paid due to CPA: 18’s failure to meet the Preferred Return through any fiscal quarter end shall be paid by CPA: 18 on the first business day of the fiscal quarter next following the fiscal quarter end through which the Preferred Return has been met.
(d)      Six Percent Limitation . The total amount of all Initial Acquisition Fees plus Subordinated Acquisition Fees, including interest thereon, whether payable to the Advisor or a third party, and Acquisition Expenses payable by the Operating Partnership may not exceed 6% of the aggregate Contract Purchase Price of all Investments, measured for the period beginning with the initial acquisition of an Investment and ending on each December 31 thereafter, unless a majority of the Directors (including a majority of the Independent Directors) not otherwise interested in any transaction approves the excess as being commercially competitive, fair and reasonable to CPA: 18.
(e)      Property Management Fee; Loan Refinancing Fee . No Property Management Fee or Loan Refinancing Fee shall be paid unless approved by a majority of the Independent Directors.
(f)      Disposition Fee . (i) If the Advisor or an Affiliate provides a substantial amount of services in the sale of an Investment, the Advisor or such Affiliate shall be entitled to receive a disposition fee (the “ Disposition Fee ”) at the time of such disposition, in an amount equal to the lesser of (1) 50% of the Competitive Real Estate Commission (if applicable) and (2) 3.0% of the


 
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Contract Sales Price of the Investment; provided, however, that no Disposition Fee shall be paid in respect of Investments that are readily marketable securities.
(ii)    The real estate commissions and Disposition Fees paid to all Persons by CPA: 18 shall not exceed an amount equal to the lesser of: (i) six percent of the Contract Sales Price of such Property or (ii) the Competitive Real Estate Commission. The Advisor shall present to the Independent Directors such information as they may reasonably request to review the level of services provided by the Advisor in connection with a disposition and the basis for the calculation of the amount of the Disposition Fees on an annual basis, or more frequently if requested by the Independent Directors. The amount of any Disposition Fee shall be deemed conclusively established once it has been approved by the Independent Directors, absent a subsequent finding of error. No payment of Disposition Fees shall be made prior to review and approval of such information by the Independent Directors.
(g)      Loans From Affiliates . CPA: 18 shall not borrow funds from the Advisor or its Affiliates unless (A) the transaction is approved by a majority of the Independent Directors and a majority of the Directors who are not interested in the transaction as being fair, competitive and commercially reasonable, (B) the interest and other financing charges or fees received by the Advisor or its Affiliates do not exceed the amount which would be charged by non-affiliated lending institutions and (C) the terms are not less favorable than those prevailing for comparable arm’s-length loans for the same purpose. CPA: 18 will not borrow on a long-term basis from the Advisor or its Affiliates unless it is to provide the debt portion of a particular investment and CPA: 18 is unable to obtain a permanent loan at that time or in the judgment of the Board, it is not in CPA: 18’s best interest to obtain a permanent loan at the interest rates then prevailing and the Board has reason to believe that CPA: 18 will be able to obtain a permanent loan on or prior to the end of the loan term provided by the Advisor or its Affiliates.
(h)      Changes To Fee Structure . In the event the Shares are listed on a national securities exchange, CPA: 18 and the Advisor shall negotiate in good faith to establish a fee structure appropriate for an entity with a perpetual life. A majority of the Independent Directors must approve the new fee structure negotiated with the Advisor. In negotiating a new fee structure, the Independent Directors may consider any of the factors they deem relevant, including but not limited to: (a) the size of the Advisory Fee in relation to the size, composition and profitability of CPA: 18’s portfolio; (b) the success of the Advisor in generating opportunities that meet the investment objectives of CPA: 18; (c) the rates charged to other REITs and to investors other than REITs by Advisors performing similar services; (d) additional revenues realized by the Advisor and its Affiliates through their relationship with CPA: 18, including loan administration, underwriting or broker commissions, servicing, engineering, inspection and other fees, whether paid by CPA: 18 or by others with whom CPA: 18 does business; (e) the quality and extent of service and advice furnished by the Advisor; (f) the performance of the investment portfolio of CPA: 18, including income, conservation or appreciation of capital, frequency of problem investments and competence in dealing with distress situations; and (g) the quality of the portfolio of CPA: 18 in relationship to the investments generated by the Advisor for the account of other clients. The Independent Directors shall not approve any new fee structure that is in their judgment more favorable (taken as a whole) to the Advisor than the current fee structure.
(i)      Payment . Compensation payable to the Advisor pursuant to this Section 9 shall be paid in cash; provided , however , that any fee payable pursuant to Section 9 may be paid, at the option of CPA: 18, after consultation with the Advisor, in the form of: (i) cash, (ii) restricted Class A common


 
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stock of CPA: 18, or (iii) a combination of cash and restricted Class A common stock. After consultation with the Advisor, CPA: 18 shall notify the Advisor in writing annually of the form in which the fee shall be paid. Such notice shall be provided no later than January 15 of each year. If no such notice is provided, the fee shall be paid in cash. For purposes of the payment of compensation to the Advisor in the form of stock, the value of each share of restricted Class A common stock shall be: (i) the Net Asset Value per share of Class A common stock as determined based on the most recent appraisal of CPA: 18’s assets performed by an Independent Appraiser, or (ii) if an appraisal has not yet been performed, $10 per share. If shares are being offered to the public at the time a fee is paid with stock, the value shall be the price of the stock without commissions. The Net Asset Value determined on the basis of such appraisal may be adjusted on a quarterly or other basis by the Board to account for significant capital transactions. Stock issued by CPA: 18 to the Advisor in payment of fees hereunder shall be governed by the terms set forth in Schedule B hereto, or such other terms as the Advisor and CPA: 18 may from time to time agree.
(j)      During the term of the Management Agreement, no Asset Management Fees shall be paid to the Advisor under Section 9(a) of this Agreement with respect to Properties located outside the United States and Loans secured by collateral outside the United States.
(k)      During the term of the Management Agreement, no Disposition Fees shall be paid to the Advisor under Section 9(f) of this Agreement with respect to Properties located outside the United States and Loans secured by collateral outside the United States.
10.      Expenses .
(a)      Subject to the limitations set forth in Section 9(d), to the extent applicable, in addition to the compensation paid to the Advisor pursuant to Section 9 hereof, the Operating Partnership shall pay directly or reimburse the Advisor for the following expenses:
(i)      Organization and Offering Expenses; provided however , that within 60 days after the end of the quarter in which any Offering terminates, the Advisor shall reimburse the Operating Partnership for any Organization and Offering Expense reimbursements received by the Advisor pursuant to this Section 10 to the extent that such reimbursements, when added to the balance of the Organization and Offering Expenses (excluding selling commissions and the dealer manager fee) paid directly by the Operating Partnership, exceed (A) four percent of the Gross Offering Proceeds if the Gross Offering Proceeds are less than five hundred million dollars ($500,000,000.00), (B) two percent of the Gross Offering Proceeds if the Gross Offering Proceeds are five hundred million dollars ($500,000,000.00) or more, but less than seven hundred and fifty million dollars ($750,000,000.00), or (C) one and a half percent of the Gross Offering Proceeds if the Gross Offering Proceeds are more than seven hundred and fifty million dollars ($750,000,000.00); provided further , that the Advisor shall be responsible for the payment of all Organization and Offering Expenses (excluding such commissions and such fees and expense reimbursements) in excess of (A) four percent of the Gross Offering Proceeds if the Gross Offering Proceeds are less than five hundred million dollars ($500,000,000.00), (B) two percent of the Gross Offering Proceeds if the Gross Offering Proceeds are five hundred million dollars ($500,000,000.00) or more, but less than seven hundred and fifty million dollars ($750,000,000.00), or (C) one and a half percent of the Gross Offering Proceeds if the Gross Offering Proceeds are more than seven hundred and fifty million dollars ($750,000,000.00);


 
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(ii)      all Acquisition Expenses;
(iii)      to the extent not included in Acquisition Expenses, all expenses of whatever nature reasonably incurred and directly connected with the proposed acquisition of any Investment that does not result in the actual acquisition of the Investment, including, without limitation, personnel costs;
(iv)      expenses other than Acquisition Expenses incurred in connection with the investment of the funds of CPA: 18, including, without limitation, costs of retaining industry or economic consultants and finder’s fees and similar payments, to the extent not paid by the seller of the Investment or another third party, regardless of whether such expenses were incurred in transactions where a fee is not payable to the Advisor;
(v)      interest and other costs for borrowed money, including discounts, points and other similar fees;
(vi)      taxes and assessments on income of CPA: 18, to the extent paid or advanced by the Advisor, or on Investments and taxes as an expense of doing business;
(vii)      costs associated with insurance required in connection with the business of CPA: 18 or by the Directors;
(viii)      expenses of managing and operating Investments owned by CPA: 18, whether payable to an Affiliate of the Advisor or a non-affiliated Person;
(ix)      fees and expenses of legal counsel for CPA: 18;
(x)      fees and expense of auditors and accountants for CPA: 18;
(xi)      all expenses in connection with payments to the Directors and meetings of the Directors and Shareholders;
(xii)      expenses associated with listing the Shares and Securities on a securities exchange if requested by the Board;
(xiii)      expenses connected with payments of Distributions in cash or otherwise made or caused to be made by the Board to the Shareholders;
(xiv)      expenses of organizing, revising, amending, converting, modifying, or terminating CPA: 18, the Operating Partnership or their respective governing instruments;
(xv)      expenses of maintaining communications with Shareholders, including the cost of preparation, printing and mailing annual reports and other Shareholder reports, proxy statements and other reports required by governmental entities; and
(xvi)      all other expenses the Advisor incurs in connection with providing services to CPA: 18, including reimbursement to the Advisor or its Affiliates for the cost of rent, goods, materials and personnel incurred by them based upon the compensation of the Persons involved and an appropriate share of overhead allocable to those Persons.


 
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(b)      Expenses described in clause (xvi) of Section 10(a) and any other expenses described in Section 10(a) that are shared expenses of CPA: 18, other entities managed by the Advisor and its Affiliates and W. P. Carey Inc. and its Affiliates (for their own account) shall be allocated among such entities based upon the percentage that CPA: 18’s total revenues for the most recently completed four fiscal quarters represent of the combined total revenues for such period of CPA: 18, W. P. Carey Inc. and each REIT or other entity managed by the Advisor and its Affiliates (provided that if any such entity has not been in operation for the full four quarter period, the period for which such entity has been in operation shall be annualized), or such other methodology as may be approved by the Board (including a majority of the Independent Directors). No reimbursement shall be made for the cost of personnel to the extent that such personnel are used in transactions for which the Advisor receives a separate fee.
(c)      Expenses incurred by the Advisor on behalf of CPA: 18 and payable pursuant to this Section 10 shall be reimbursed quarterly to the Advisor within 60 days after the end of each quarter, subject to the provisions of Section 13 hereof. The Advisor shall prepare a statement documenting the Operating Expenses of CPA: 18 within 45 days after the end of each quarter.
(d)      During the term of the Management Agreement, CPA: 18 shall have no obligation to reimburse the Advisor under Section 10 of this Agreement for any expenses related to the management and disposition of Properties located outside the United States and Loans secured by collateral outside the United States.
11.      Other Services . Should the Board request that the Advisor or any Affiliate, shareholder or employee thereof render services for CPA: 18 other than as set forth in Section 3 hereof, such services shall be separately compensated and shall not be deemed to be services pursuant to the terms of this Agreement.
12.      Fidelity Bond . The Advisor shall maintain a fidelity bond for the benefit of CPA: 18 which bond shall insure CPA: 18 from losses of up to $5,000,000 and shall be of the type customarily purchased by entities performing services similar to those provided to CPA: 18 by the Advisor.
13.      Limitation on Expenses .
(a)      (i) If Operating Expenses under this Agreement and the Management Agreement during the 12-month period ending on the last day of any fiscal quarter of CPA: 18 exceed the greater of (i) two percent of the Average Invested Assets during the same 12-month period or (ii) 25% of the Adjusted Net Income of CPA: 18 during the same 12-month period, then subject to paragraph (b) of this Section 13, such excess amount shall be the sole responsibility of the Advisor and neither the Operating Partnership nor CPA: 18 shall be liable for payment therefor. CPA: 18 may defer the payment or distribution to the Advisor and the Special General Partner of fees, expenses and distributions that would, if paid or distributed, cause Operating Expenses during such 12-month period to exceed the foregoing limitations; provided, however, that in determining which items shall be paid and which may be deferred, priority will be given to the payment of distributions to the Special General Partner over the payment to the Advisor of amounts due under this Agreement.
(ii)      Notwithstanding the foregoing, to the extent that the Advisor becomes responsible for any excess amount as provided in paragraph (a), if a majority of the Independent Directors finds such excess amount or a portion thereof justified based on such unusual and non-recurring factors as they deem sufficient, the Operating Partnership shall reimburse the Advisor in future quarters for the full amount of such excess, or any portion thereof, but only to the extent such reimbursement would not cause the Operating Expenses


 
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to exceed the 2%/25% Guidelines in the 12-month period ending on the last day of such quarter. In no event shall the Operating Expenses payable by the Operating Partnership in any 12-month period ending at the end of a fiscal quarter exceed the 2%/25% Guidelines.
(iii)      Within 60 days after the end of any twelve‑month period referred to in subparagraph (i), the Advisor shall reimburse CPA: 18 for any amounts expended by CPA: 18 in such 12‑month period that exceeds the limitations provided in subparagraph (i) unless the Independent Directors determine that such excess expenses are justified, as provided in subparagraph (ii), and provided the Operating Expenses under this Agreement and the Management Agreement for such later quarter would not thereby exceed the 2%/25% Guidelines.
(b)      In addition to the limitation on Operating Expenses set forth in paragraph (a), beginning with the fiscal year ending December 31, 2015, CPA:18 and the Operating Partnership shall not be required to reimburse the Advisor for personnel expenses pursuant to Section 10 that exceed: (i) with respect to transactional legal expenses for the Advisor’s in-house transaction legal group, the amounts set forth in Schedule C ; and (ii) with respect to other personnel expenses in any fiscal year (or portion thereof, if this Agreement is terminated during a fiscal year), 2.4% of CPA:18’s total revenues for the fiscal year ending December 31, 2015; 2.2% of CPA:18’s total revenues (or portion thereof) for the fiscal year ending December 31, 2016; and 2.0% of CPA:18’s total revenues (or portion thereof) for each fiscal year (or portion thereof) thereafter, with total revenues in each case being determined by CPA:18’s proportionate share of total revenues of the relevant entities, as determined in accordance with Section 10(a). Furthermore, CPA:18 and the Operating Partnership shall have no obligation to reimburse the Advisor for expenses associated with the Advisor’s financial systems transformation project known as “Project Phoenix”.
(c)      All computations made under paragraphs (a) and (b) of this Section 13 shall be determined in accordance with generally accepted accounting principles applied on a consistent basis.
(d)      If the Special General Partner receives distributions pursuant to the agreement of limited partnership of the Operating Partnership in respect of realized gains on the disposition of an Investment, Adjusted Net Income, for purposes of calculating the Operating Expenses, shall exclude the gain from the disposition of such Investment.
14.      Investment Allocation and Other Activities of the Advisor . Except as provided in the Guidelines, nothing herein contained shall prevent the Advisor from engaging in other activities, including without limitation direct investment by the Advisor and its Affiliates in assets that would be suitable for CPA: 18, the rendering of advice to other investors (including other REITs) and the management of other programs advised, sponsored or organized by the Advisor or its Affiliates; nor shall this Agreement limit or restrict the right of the Advisor or any of its Affiliates or of any director, officer, employee or shareholder of the Advisor or its Affiliates to engage in any other business or to render services of any kind to any other partnership, corporation, firm, individual, trust or association. The Advisor may, with respect to any investment in which CPA: 18 is a participant, also render advice and service to each other participant therein. Without limiting the generality of the foregoing, CPA: 18 acknowledges that the Advisor provides or will provide services to other CPA REIT funds and other entities, whether now in existence or formed hereafter, and that the Advisor and its Affiliates will invest for their own account. If the Sponsor, Advisor, Director or Affiliates thereof has or have sponsored, or will sponsor in the future, other investment programs with similar investment objectives which have investment funds available at the same time as CPA: 18, or if the Advisor and its


 
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Affiliates intend to make investments for their own account that fit CPA: 18’s investment objectives, it shall be the duty of the Advisor to allocate Investments among the competing investment entities and the Advisor and its Affiliates in a fair and equitable manner and in accordance with the Guidelines.
The Advisor shall be required to use its best efforts to present a continuing and suitable investment program to CPA: 18 that is consistent with the investment policies and objectives of CPA: 18, but subject to the last sentence of the preceding paragraph, neither the Advisor nor any Affiliate of the Advisor shall be obligated generally to present any particular investment opportunity to CPA: 18 even if the opportunity is of character which, if presented to CPA: 18, could be taken by CPA: 18.
Once each quarter, senior representatives of the Advisor will meet with at least a majority of the Independent Directors for the purpose of reviewing the Advisor’s compliance with the Guidelines with respect to all Investments allocated among W. P. Carey Inc., CPA: 18 and each other REIT and investment program managed by an Affiliate of W. P. Carey Inc. (each, together with its Affiliates, an “ Investment Entity ,” and collectively, the “ Investment Entities ”) during the most recently completed fiscal quarter. The quarterly review will take place at the regularly scheduled quarterly meeting of the Board of Directors, or at another time and place that are mutually determined by the Advisor and the Independent Directors, and may include representatives of other Investment Entities. The Advisor will use its best efforts to distribute a report reasonably in advance of each quarterly review meeting containing a list of all Investments allocated to the Investment Entities, the particular Investment Entity to which each Investment was allocated, a brief description of the Investment, the purchase price of each Investment and acquisition fees (if any) paid to the Advisor and its Affiliates in connection with each Investment. Representatives of the Advisor shall be prepared to discuss each Investment and the reasons for its allocation to particular Investment Entities at the quarterly review meeting.
15.      Relationship of Advisor and CPA: 18 . CPA: 18 and the Advisor agree that they have not created and do not intend to create by this Agreement a joint venture or partnership relationship between them and nothing in this Agreement shall be construed to make them partners or joint venturers or impose any liability as partners or joint venturers on either of them.
16.      Term; Termination of Agreement . This Agreement shall continue in force until September 30, 2015 or until 60 days after the date on which the Independent Directors shall have notified the Advisor of their determination either to renew this Agreement for an additional one-year period or terminate this Agreement, as required by CPA: 18’s Charter.
17.      Termination by CPA: 18 . At the sole option of the Board (including a majority of the Independent Directors), this Agreement may be terminated immediately by written notice of termination from CPA: 18 to the Advisor upon the occurrence of events which would constitute Cause or if any of the following events occur:
(a)      If the Advisor shall breach this Agreement; provided that such breach (i) is of a material term or condition of this Agreement and (ii) the Advisor has not cured such breach within 30 days of written notice thereof or, in the case of any breach that cannot be cured within 30 days by reasonable effort, has not taken all necessary action within a reasonable time period to cure such breach;
(b)      If the Advisor shall be adjudged bankrupt or insolvent by a court of competent jurisdiction, or an order shall be made by a court of competent jurisdiction for the appointment of a receiver, liquidator, or trustee of the Advisor, for all or substantially all of its property by reason of the foregoing, or if a court of competent jurisdiction approves any petition filed against the Advisor


 
21
 



for reorganization, and such adjudication or order shall remain in force or unstayed for a period of 30 days; or
(c)      If the Advisor shall institute proceedings for voluntary bankruptcy or shall file a petition seeking reorganization under the federal bankruptcy laws, or for relief under any law for relief of debtors, or shall consent to the appointment of a receiver for itself or for all or substantially all of its property, or shall make a general assignment for the benefit of its creditors, or shall admit in writing its inability to pay its debts, generally, as they become due.
Any notice of termination under Section 16 or 17 shall be effective on the date specified in such notice, which may be the day on which such notice is given or any date thereafter. The Advisor agrees that if any of the events specified in Section 17(b) or (c) shall occur, it shall give written notice thereof to the Board within 15 days after the occurrence of such event.
18.      Termination by Either Party . This Agreement may be terminated immediately without penalty (but subject to the requirements of Section 20 hereof) by the Advisor by written notice of termination to CPA: 18 upon the occurrence of events which would constitute Good Reason or by CPA: 18 without cause or penalty (but subject to the requirements of Section 20 hereof) by action of the Directors, a majority of the Independent Directors or by action of a majority of the Shareholders, in each case upon 60 days’ written notice.
19.      Assignment Prohibition . This Agreement may not be assigned by the Advisor without the approval of the Board (including a majority of the Independent Directors); provided , however , that such approval shall not be required in the case of an assignment to a corporation, partnership, association, trust or organization which may take over the assets and carry on the affairs of the Advisor, provided : (i) that at the time of such assignment, such successor organization shall be owned substantially by an entity directly or indirectly controlled by the Sponsor and only if such entity has a net worth of at least $5,000,000, and (ii) that the board of directors of the Advisor shall deliver to the Board a statement in writing indicating the ownership structure and net worth of the successor organization and a certification from the new Advisor as to its net worth. Such an assignment shall bind the assignees hereunder in the same manner as the Advisor is bound by this Agreement. The Advisor may assign any rights to receive fees or other payments under this Agreement without obtaining the approval of the Board. This Agreement shall not be assigned by CPA: 18 or the Operating Partnership without the consent of the Advisor, except in the case of an assignment by CPA: 18 or the Operating Partnership to a corporation or other organization which is a successor to CPA: 18 or the Operating Partnership, in which case such successor organization shall be bound hereunder and by the terms of said assignment in the same manner as CPA: 18 or the Operating Partnership is bound by this Agreement.
20.      Payments to and Duties of Advisor Upon Termination .
(a)      After the Termination Date, the Advisor shall not be entitled to compensation for further services hereunder but shall be entitled to receive from CPA: 18 the following:
(i)      all unpaid reimbursements of Organization and Offering Expenses and of Operating Expenses payable to the Advisor;
(ii)      all earned but unpaid Asset Management Fees payable to the Advisor prior to the Termination Date;


 
22
 



(iii)      all earned but unpaid Acquisition Fees and interest thereon, in each case payable to the Advisor relating to the acquisition of any Property prior to the Termination Date;
(iv)      all earned but unpaid Disposition Fees and interest thereon, payable to the Advisor relating to the sale of any Investment prior to the Termination Date; and
(v)      all earned but unpaid Property Management Fees and Loan Refinancing Fees, if any, payable to the Advisor or its Affiliates relating to the management of any property prior to the termination of this Agreement.
(b)      Notwithstanding the foregoing, if this Agreement is terminated by CPA: 18 for Cause, or by the Advisor for other than Good Reason, the Advisor will not be entitled to receive the sums in Section 20(a) (ii) through (v).
(c)      Any and all amounts payable to the Advisor pursuant to Section 20(a) that, irrespective of the termination, were payable on a current basis prior to the Termination Date either because they were not subordinated or all conditions to their payment had been satisfied, shall be paid within 90 days after the Termination Date. All other amounts shall be paid in a manner determined by the Board, but in no event on terms less favorable to the Advisor than those represented by a note (i) maturing upon the liquidation of CPA: 18 or the Operating Partnership or three years from the Termination Date, whichever is earlier, (ii) with no less than twelve equal quarterly installments and (iii) bearing a fair, competitive and commercially reasonable interest rate (the “ Note ”). The Note, if any, may be prepaid by the Operating Partnership at any time prior to maturity with accrued interest to the date of payment but without premium or penalty. Notwithstanding the foregoing, any amounts that relate to Investments (i) shall be an amount which provides compensation to the Advisor only for that portion of the holding period for the respective Investments during which the Advisor provided services to CPA: 18, (ii) shall not be due and payable until the Investment to which such amount relates is sold or refinanced, and (iii) shall not bear interest until the Investment to which such amount relates is sold or refinanced. A portion of the amount shall be paid as each Investment owned by CPA: 18 on the Termination Date is sold. The portion of such amount payable upon each such sale shall be equal to (i) such amount multiplied by (ii) the percentage calculated by dividing the fair value (at the Termination Date) of the Investment sold by CPA: 18 divided by the total fair value (at the Termination Date) of all Investments owned by CPA: 18 on the Termination Date.
(d)      The Advisor shall promptly upon termination.
(i)      pay over to the Operating Partnership all money collected and held for the account of CPA: 18 pursuant to this Agreement, after deducting any accrued compensation and reimbursement for its expenses to which it is then entitled;
(ii)      deliver to the Board a full accounting, including a statement showing all payments collected by it and a statement of all money held by it, covering the period following the date of the last accounting furnished to the Board;
(iii)      deliver to the Board all assets, including Properties and Loans, and documents of CPA: 18 then in the custody of the Advisor; and
(iv)      cooperate with CPA: 18 to provide an orderly management transition.


 
23
 



21.      Indemnification by CPA: 18 and the Operating Partnership . Neither CPA: 18 nor the Operating Partnership shall indemnify the Advisor or any of its Affiliates for any loss or liability suffered by the Advisor or the Affiliate, or hold the Advisor or the Affiliate harmless for any loss or liability suffered by CPA: 18 or the Operating Partnership, except as permitted under Section 7.
22.      Indemnification by Advisor . The Advisor shall indemnify and hold harmless CPA: 18 and the Operating Partnership from liability, claims, damages, taxes or losses and related expenses including attorneys’ fees, to the extent that such liability, claims, damages, taxes or losses and related expenses are not fully reimbursed by insurance and are incurred by reason of the Advisor’s bad faith, fraud, willful misfeasance, misconduct, negligence or reckless disregard of its duties.
23.      Joint and Several Obligations . Any obligations of CPA: 18 shall be construed as the joint and several obligations of CPA: 18 and the Operating Partnership, unless otherwise specifically provided in this Agreement.
24.      Notices . Any notice, report or other communication required or permitted to be given hereunder shall be in writing unless some other method of giving such notice, report or other communication is accepted by the party to whom it is given, and shall be given by being delivered by hand or by overnight mail or other overnight delivery service to the addresses set forth herein:
To the Board
and to CPA: 18:
Corporate Property Associates 18 — Global Incorporated
50 Rockefeller Plaza
New York, NY 10020
Attention: Chairman of the Audit Committee of the Board of Directors
 
 
To the Operating Partnership:
CPA: 18 Limited Partnership
c/o Corporate Property Associates 18 — Global Incorporated
50 Rockefeller Plaza
New York, NY 10020
Attention: Chairman of the Audit Committee of the Board of Directors
 
 
To the Advisor:
Carey Asset Management Corp.
50 Rockefeller Plaza
New York, NY 10020
 
 
Either party may at any time give notice in writing to the other party of a change in its address for the purposes of this Section 24.
25.      Modification . This Agreement shall not be changed, modified, terminated, or discharged, in whole or in part, except by an instrument in writing signed by both parties hereto, or their respective successors or assignees.
26.      Severability . The provisions of this Agreement are independent of and severable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part.


 
24
 



27.      Construction . This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of New York.
28.      Entire Agreement . This Agreement contains the entire agreement and understanding among the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements, understandings, inducements and conditions, express or implied, oral or written, of any nature whatsoever with respect to the subject matter hereof. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing.
29.      Indulgences, Not Waivers . Neither the failure nor any delay on the part of a party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver.
30.      Gender . Words used herein regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context requires.
31.      Titles Not to Affect Interpretation . The titles of Sections and subsections contained in this Agreement are for convenience only, and they neither form a part of this Agreement nor are they to be used in the construction or interpretation hereof.
32.      Execution in Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories.
33.      Name . W. P. Carey Inc. has a proprietary interest in the name “Corporate Property Associates” and “CPA®.” Accordingly, and in recognition of this right, if at any time CPA: 18 ceases to retain Carey Asset Management Corp., or an Affiliate thereof to perform the services of Advisor, CPA: 18 will, promptly after receipt of written request from Carey Asset Management Corp., cease to conduct business under or use the name “Corporate Property Associates” or “CPA®” or any diminutive thereof and CPA: 18 shall use its best efforts to change the name of CPA: 18 to a name that does not contain the name “Corporate Property Associates” or “CPA®” or any other word or words that might, in the sole discretion of the Advisor, be susceptible of indication of some form of relationship between CPA: 18 and the Advisor or any Affiliate thereof. Consistent with the foregoing, it is specifically recognized that the Advisor or one or more of its Affiliates has in the past and may in the future organize, sponsor or otherwise permit to exist other investment vehicles (including vehicles for investment in real estate) and financial and service organizations having “Corporate Property Associates” or “CPA®” as a part of their name, all without the need for any consent (and without the right to object thereto) by CPA: 18 or its Directors.
34.      Initial Investment . The Advisor has contributed to CPA: 18 $209,000 in exchange for 23,222 shares of Class A common stock of CPA: 18 (the “ Initial Investment ”). The Advisor or its Affiliates may not sell any of the shares of Class A common stock purchased with the Initial Investment during the term of this Agreement. The restrictions included above shall not continue to apply to any shares of Class A common


 
25
 



stock other than the shares acquired through the Initial Investment acquired by the Advisor or its Affiliates. The Advisor shall not vote any Shares it now owns or hereafter acquires in any vote for the election of Directors or any vote regarding the approval or termination of any contract with the Advisor or any of its Affiliates.



 
26
 



IN WITNESS WHEREOF, the parties hereto have executed this Advisory Agreement as of the day and year first above written.
CORPORATE PROPERTY ASSOCIATES 18 —GLOBAL INCORPORATED
By:
/s/ Thomas E. Zacharias
Name: Thomas E. Zacharias
Title: Chief Operating Officer

CAREY ASSET MANAGEMENT CORP.
By:
/s/ Susan C. Hyde
Name: Susan C. Hyde
Title: Managing Director and Corporate Secretary

CPA: 18 LIMITED PARTNERSHIP
By: CORPORATE PROPERTY ASSOCIATES 18 —
   GLOBAL INCORPORATED, its general partner
By:
/s/ Thomas E. Zacharias
Name: Thomas E. Zacharias
Title: Chief Operating Officer


Signature Page to Advisory Agreement
AMR-382467-v5
 
80-40509071



SCHEDULE A
Investment Allocation Guidelines
CPA: 18 invests primarily in income-producing commercial properties and other real estate related assets, primarily consisting of properties that are leased to single tenants on a triple net basis. CPA: 18’s investment objectives and investment strategy are set forth in its public filings with the Securities and Exchange Commission and are subject to change from time to time with the approval of the Board.
The Advisor is a fiduciary to CPA: 18 and has agreed to allocate Investments among CPA: 18 and other Investment Entities in a fair manner and in accordance with these Guidelines. In order to provide for a fair allocation of Investment opportunities among Investment Entities, the Advisor agrees that if the Advisor or any of its Affiliates is presented with a potential Investment which falls within the investment objectives of one or more of the Investment Entities (including CPA: 18), the Advisor shall consider the following factors, together with such other factors as it deems relevant in the exercise of its reasonable judgment, when deciding how to allocate such Investment among one or more Investment Entities in a fair and equitable manner
•
whether an Investment Entity is still in its fundraising and acquisition stage, or has substantially invested the proceeds from its fundraising stage;
•
the amount of funds available for investment by an Investment Entity and the length of time that such funds have been available for investment;
•
the effect of the Investment on the diversification of an Investment Entity’s portfolio;
•
the effect of the Investment on the profile of an Investment Entity’s mortgage maturity profile;
•
the ability of an Investment Entity to service any debt associated with the Investment;
•
the effect of the Investment on the ability of the Investment Entity to comply with any restrictions on investments and indebtedness contained in the Investment Entity’s governing documents and public SEC filings, in any contract or in any law or regulation applicable to the Investment Entity;
•
whether an Investment Entity was formed for the purpose of making a particular type of investment;
•
the financial attributes of the Investment;
•
the effect of the Investment on the Investment Entity’s intention to qualify as a REIT, partnership or other type of entity for tax purposes; and
•
the effect of the Investment on an Investment Entity’s intention not to be subject to regulation under the Investment Company Act of 1940, as amended.
The Advisor agrees to make investment allocation decisions without regard to the relative fees or other compensation that would be paid to the Advisor and its Affiliates in connection with the applicable Investments.

A-1



SCHEDULE B
This Schedule sets forth the terms governing any shares of Class A common stock of CPA: 18 (the “ Shares ”) issued by CPA: 18 to the Advisor in payment of advisory fees set forth in the Agreement.
1.      Restrictions . The Shares are subject to vesting over a five-year period. The Shares shall vest ratably over a five-year period with 20% of the Shares paid in each payment vesting on each of the first through fifth anniversary of the date hereof. Prior to the vesting of the ownership of the Shares in the Advisor, the Shares may not be transferred by the Advisor.
2.      Immediate Vesting . Upon the expiration of the Agreement for any reason other than a termination for Cause under paragraph 16 or upon a “Change of Control” of CPA®:18 (as defined below), all Shares granted to the Advisor hereunder shall vest immediately and all restrictions shall lapse. For purposes of this Schedule B, a “Change of Control” of CPA: 18 shall be deemed to have occurred if there has been a change in the ownership of CPA: 18 of a nature that would be required to be reported in response to the disclosure requirements of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), as enacted and in force on the date hereof, whether or not CPA: 18 is then subject to such reporting requirements; provided , however , that, without limitation, a Change of Control shall be deemed to have occurred if:
(i)      any “person,” as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than CPA: 18, any of its subsidiaries, any trustee, fiduciary or other person or entity holding securities under any employee benefit plan of CPA: 18 or any of its subsidiaries), together with all “affiliates” and “associates” (as such terms are defined in Rule 14b-2 under the Exchange Act) of such person, shall become the “beneficial owner” (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of CPA: 18 representing 25% or more of either (A) the combined voting power of CPA: 18’s then outstanding securities having the right to vote in an election of the Board (“ Voting Securities ”) or (B) the then outstanding common stock of CPA: 18 (in either such case other than as a result of acquisition of securities directly from CPA: 18);
(ii)      persons who, as of the date hereof, constitute the Board (the “ Incumbent Directors ”) cease for any reason, including without limitation, as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Board, provided that any person becoming a director of CPA: 18 subsequent to the date hereof whose election or nomination for election was approved by a vote of at least a majority of the Incumbent Directors shall be considered an Incumbent Director; or
(iii)      the stockholders of CPA: 18 shall approve (A) any consolidation or merger of CPA: 18 or any subsidiary where the stockholders of CPA: 18, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, shares representing in the aggregate 50% or more of the voting equity of the entity issuing cash or securities in the consolidation or merger (or of its ultimate parent entity, if any), (B) any sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of CPA: 18 or (C) any plan or proposal for the liquidation or dissolution of CPA: 18.
B-1



Notwithstanding the foregoing, a “ Change of Control ” shall not be deemed to have occurred for purposes of the foregoing clause (i) solely as the result of an acquisition of securities by CPA: 18 which, by reducing the number of Shares of Common Stock outstanding, increases (A) the proportionate number of Shares beneficially owned by any person to 25% or more of the Shares then outstanding, or (B) the proportionate voting power represented by the Shares beneficially owned by any person to 25% or more of the combined voting power of all then outstanding voting Securities; provided , however , that if any person referred to in clause (A) or (B) of this sentence shall thereafter become the beneficial owner of any additional Shares or other Voting Securities (other than pursuant to a Share split, Share dividend, or similar transaction), then a “Change of Control” shall be deemed to have occurred for purposes of the foregoing clause (i).
3.      Exception. Notwithstanding anything else in this Agreement to the contrary, the Shares shall continue to vest according to the vesting schedule in Section 1 regardless of: (a) the expiration of the Advisory Agreement for any reason other than a termination by CPA: 18 for Cause or a resignation by the Advisor for other than Good Reason, (b) the merger of CPA: 18 and an Affiliate of CPA: 18 or (c) any “Change of Control” of CPA: 18 in connection with a merger with an Affiliate of CPA: 18.
















B-2



SCHEDULE C
Expense Reimbursements For Legal Transactions Group

Transaction Type
Flat Rate
(per Transaction)
Acquisitions
0.25% of
Total Investment Cost
 
 
Asset Management Transactions:
 
Financings
$20,000
Lease Amendments – Simple
$7,000
Lease Amendments – Complex
$50,000
Dispositions
$25,000
Lines of Credit
$100,000
Other Corporate Matters
$2,000

__________________________________
Note:    The fees shown above are for the entirety of a transaction. Fees shall be allocated among affiliated members of a joint venture based on percentage ownership.




 
 
 
 
 

Exhibit 10.24

ASSET MANAGEMENT AGREEMENT
THIS ASSET MANAGEMENT AGREEMENT, dated as of July 24, 2013, is between CORPORATE PROPERTY ASSOCIATES 18 — GLOBAL INCORPORATED, a Maryland corporation (“ CPA: 18 ”), CPA:18 LIMITED PARTNERSHIP, a Delaware limited partnership of which CPA: 18 is a general partner (the “ Operating Partnership ”), and W. P. CAREY & Co. B.V., a Netherlands company (the “ Manager ”).
W I T N E S S E T H:
WHEREAS, CPA: 18 intends to qualify as a REIT (as defined below), and to invest its funds in investments permitted by the terms of any prospectus pursuant to which it raised equity capital and Sections 856 through 860 of the Code (as defined below);
WHEREAS, CPA: 18 desires to avail itself of the experience, sources of information, and assistance of, and certain facilities available to, the Manager with respect to disposition opportunities and asset management, for properties located outside of the United States, and to have the Manager undertake the duties and responsibilities hereinafter set forth, on behalf of, and subject to the supervision of the Board of Directors (as defined below), all as provided herein; and
WHEREAS, the Manager is willing to render such services, subject to the supervision of the Board of Directors, on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements contained herein, the parties hereto agree as follows:
1. Definitions . As used in this Agreement, the following terms have the definitions hereinafter indicated:
2%/25% Guidelines . The requirement, as provided for in Section 13 hereof, that, in the 12-month period ending on the last day of any fiscal quarter, Operating Expenses under this Agreement and the Advisory Agreement not exceed the greater of two percent of CPA: 18’s Average Invested Assets during such 12-month period or 25% of CPA: 18’s Adjusted Net Income over the same 12-month period.
Acquisition Expenses . Acquisition Expenses as defined under the Advisory Agreement.
Acquisition Fees . Acquisition Fees as defined under the Advisory Agreement.
Adjusted Investor Capital . As of any date, the Initial Investor Capital reduced by any Redemptions, other than Redemptions intended to qualify as a liquidity event for purposes of this Agreement, and by any other Distributions on or prior to such date determined by the Board to be from Cash from Sales and Financings.
Adjusted Net Income . For any period, the total consolidated revenues recognized in such period by CPA: 18, less the total consolidated expenses of CPA: 18 recognized in such period, excluding additions to reserves for depreciation and amortization, bad debts or other similar non-cash reserves; provided, however, that Adjusted Net Income for purposes of calculating total allowable Operating Expenses under the 2%/25% Guidelines shall exclude any gains, losses or writedowns from the sale of CPA: 18’s assets.

 
 
 


Advisor . CPA: 18’s external advisor. As of the date of this Agreement, the Advisor is Carey Asset Management Corp., a corporation organized under the laws of the State of Delaware and indirectly wholly-owned by W. P. Carey Inc.
Advisory Agreement . The Advisory Agreement, dated as of May 7, 2013, among CPA: 18, the Operating Partnership and the Advisor, as the same may be amended, supplemented, extended and renewed, and any successor advisory agreement.
Affiliate . An Affiliate of another Person shall include any of the following: (i) any Person directly or indirectly owning, controlling, or holding, with power to vote ten percent or more of the outstanding voting securities of such other Person; (ii) any Person ten percent or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held, with power to vote, by such other Person; (iii) any Person directly or indirectly controlling, controlled by, or under common control with such other Person; (iv) any executive officer, director, trustee or general partner of such other Person; or (v) any legal entity for which such Person acts as an executive officer, director, trustee or general partner.
Agreement . This Asset Management Agreement.
Appraised Value . Value according to an appraisal made by an Independent Appraiser, which may take into consideration any factor deemed appropriate by such Independent Appraiser, including, but not limited to, current market and property conditions, any unique attributes of the Investment operations, current and anticipated income and expense trends, the terms and conditions of any lease of a relevant property, the quality of any lessee’s, borrower’s or other counter-party’s credit and the conditions of the credit markets. The Appraised Value of a Property may be greater than the construction cost or the replacement cost of the Property.
Articles of Incorporation . Articles of Incorporation of CPA: 18 under the General Corporation Law of Maryland, as amended from time to time, pursuant to which CPA: 18 is organized.
Asset Management Fee . The Asset Management Fee as defined in Section 9(a) hereof.
Average Invested Assets . The average during any period of the aggregate book value of CPA: 18’s Investments, before deducting reserves for depreciation, bad debts, impairments, amortization and all other non-cash reserves, computed by taking the average of such values at the end of each month during such period.
Average Market Value . The aggregate purchase price paid by CPA: 18 for an Investment, provided that, if a later Appraised Value is obtained for the Investment, that later Appraised Value, adjusted for other net assets and liabilities that have economic value and are associated with that Investment, shall become the Average Market Value for the Investment.
Board or Board of Directors . The Board of Directors of CPA: 18.
Bylaws . The bylaws of CPA: 18, as amended from time to time.
Cash from Financings . Net cash proceeds realized by CPA: 18 from the financing of Investments or the refinancing of any indebtedness of CPA: 18 secured by real estate located outside the United States.

 
- 2  -
 


Cash from Sales . Net cash proceeds realized by CPA: 18 from the sale, exchange or other disposition of any of its assets located outside the United States after deduction of all expenses incurred in connection therewith. Cash from Sales shall not include Cash from Financings.
Cash from Sales and Financings . The total sum of Cash from Sales and Cash from Financings.
Cause . With respect to the termination of this Agreement, fraud, criminal conduct, willful misconduct or willful or negligent breach of fiduciary duty by the Manager that, in each case, is determined by a majority of the Independent Directors to be materially adverse to CPA: 18, or a breach of a material term or condition of this Agreement by the Manager and the Manager has not cured such breach within 30 days of written notice thereof or, in the case of any breach that cannot be cured within 30 days by reasonable effort, has not taken all necessary action within a reasonable time period to cure such breach.
Closing Date . The first date on which Shares were issued pursuant to an Offering.
Code . Internal Revenue Code of 1986, as amended.
Competitive Real Estate Commission . The real estate or brokerage commission paid for the purchase or sale of a Property that is reasonable, customary and competitive in light of the size, type and location of the Property.
Contract Sales Price . The total consideration received by CPA: 18 for the sale of Investments.
CPA: 18 . Corporate Property Associates 18 — Global Incorporated together with its consolidated subsidiaries, including the Operating Partnership, unless in the context of a particular reference, it is clear that such reference refers to Corporate Property Associates 18 — Global Incorporated excluding its consolidated subsidiaries. Unless the context otherwise requires, any reference to financial measures of CPA: 18 shall be calculated by reference to the consolidated financial statements of CPA: 18 and its subsidiaries, including, without limitation, the Operating Partnership, prepared in accordance with GAAP.
Cumulative Return . For the period for which the calculation is being made, the percentage resulting from dividing (A) the total Distributions for such period (not including Distributions out of Cash from Sales and Financings), by (B) the product of (i) either (x) until such time as CPA: 18 has invested 90% of the net proceeds of CPA: 18’s initial Offering (excluding net proceeds from the sale of Shares pursuant to CPA: 18’s distribution reinvestment program), the average Adjusted Investor Capital for such period (calculated on a daily basis) or (y) from and after such time as CPA: 18 has invested 90% of the net proceeds of CPA: 18’s initial Offering (excluding net proceeds from the sale of Shares pursuant to CPA: 18’s distribution reinvestment program), the net proceeds from the sale of Shares (excluding net proceeds from the sale of Shares pursuant to CPA: 18’s distribution reinvestment program), as adjusted for Redemptions other than Redemptions intended to qualify as a liquidity event for purposes of this Agreement, and by any other Distributions on or prior to such date determined by the Board to be from Cash from Sales and Financings, and (ii) the number of years (including fractions thereof) elapsed during such period. Notwithstanding the foregoing, neither the Shares received by the

 
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Advisor or its Affiliates for any consideration other than cash, nor the Distributions in respect of such Shares, shall be included in the foregoing calculation.
Dealer Manager . Carey Financial, LLC, a Delaware limited liability company.
Directors . The persons holding such office, as of any particular time, under the Articles of Incorporation, whether they be the directors named therein or additional or successor directors.
Disposition Fee . The Disposition Fee as defined under the Advisory Agreement.
Distribution and Shareholder Servicing Fees . The distribution and shareholder servicing fees payable to the Dealer Manager as described in the Prospectus.
Distributions . Distributions declared by the Board.
GAAP . Generally accepted accounting principles in the United States.
Good Reason . With respect to the termination of this Agreement, (i) any failure to obtain a satisfactory agreement from any successor to CPA: 18 or the Operating Partnership to assume and agree to perform CPA: 18’s or the Operating Partnership’s, as applicable, obligations under this Agreement; or (ii) any material breach of this Agreement of any nature whatsoever by CPA: 18 or the Operating Partnership; provided that (a) such breach is of a material term or condition of this Agreement and (b) CPA: 18 or the Operating Partnership, as applicable, has not cured such breach within 30 days of written notice thereof or, in the case of any breach that cannot be cured within 30 days by reasonable effort, has not taken all necessary action within a reasonable time period to cure such breach.
Gross Offering Proceeds . The aggregate purchase price of Shares sold in any Offering, without deduction for selling commissions, volume discounts, any marketing support and due diligence expense reimbursement or Organization and Offering Expenses in any Offering.
Independent Appraiser . A qualified appraiser of real estate as determined by the Board, who has no material current or prior business or personal relationship with, the Manager, the Directors, or their respective Affiliates and who is engaged to a substantial extent in the business of rendering opinions regarding the value of real estate related investments. Membership in a nationally recognized appraisal society such as the American Institute of Real Estate Appraisers or the Society of Real Estate Appraisers shall be conclusive evidence of such qualification (but not of independence).
Independent Director . A Director of CPA: 18 who meets the criteria for an Independent Director specified in the Articles of Incorporation and/or the Bylaws.
Individual . Any natural person and those organizations treated as individuals in Section 542(a) of the Code.
Initial Investor Capital . The total amount of capital invested (excluding investments in money market securities) from time to time by Shareholders (computed at the Original Issue Price per Share), excluding any Shares received by the Manager, the Advisor or their respective Affiliates for any consideration other than cash.

 
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Investment . An investment made by CPA: 18, directly or indirectly, in a Property, Loan or Other Permitted Investment Asset.
Loan Refinancing Fee . A fee payable to the Advisor or its Affiliates in respect of the refinancing of a loan secured by an Investment.
Loans . The notes and other evidences of indebtedness or obligations acquired, originated or entered into, directly or indirectly, by CPA: 18 as lender, noteholder, participant, note purchaser or other capacity, which are secured or collateralized by personal property, or fee or leasehold interests in real estate or other assets, in each case located outside the United States, including but not limited to first or subordinate mortgage loans, construction loans, development loans, loan participations, B notes, loans secured by capital stock or any other assets or form of equity interest and any other type of loan or financial arrangement, such as providing or arranging for letters of credit, providing guarantees of obligations to third parties, or providing commitments for loans. The term “Loans” shall not include leases, which are not recognized as leases for Federal income tax reporting purposes.
Manager . W. P. Carey & Co. B.V., a company organized under the laws of The Netherlands.
Offering . The offering of Shares pursuant to a Prospectus.
Operating Expenses . All consolidated operating, general and administrative expenses paid or incurred by CPA: 18, as determined under GAAP, except the following (insofar as they would otherwise be considered operating, general and administrative expenses under GAAP): (i) interest and discounts and other cost of borrowed money; (ii) taxes (including state, Federal and foreign income tax, property taxes and assessments, franchise taxes and taxes of any other nature); (iii) expenses of raising capital, including Organization and Offering Expenses, printing, engraving, and other expenses, and taxes incurred in connection with the issuance and distribution of CPA: 18’s Shares and Securities; (iv) Acquisition Expenses, real estate commissions on resale of property and other expenses connected with the acquisition, disposition, origination, ownership and operation of Investments, including the costs of foreclosure, insurance premiums, legal services, brokerage and sales commissions, maintenance, repair and improvement of property; (v) Acquisition Fees or Disposition Fees payable to the Manager under this Agreement and the corresponding fees payable to the Advisor under the Advisory Agreement or to any other party; (vi) Distribution and Shareholder Servicing Fees payable to the Dealer Manager; (vii) distributions paid by the Operating Partnership to the Special General Partner under the agreement of limited partnership of the Operating Partnership in respect of gains realized on dispositions of Investments and other capital transactions; (viii)  amounts paid to effect a redemption or repurchase of the special general partner interest held by the Special General Partner pursuant to the agreement of limited partnership of the Operating Partnership; and (ix) non-cash items, such as depreciation, amortization, depletion, and additions to reserves for depreciation, amortization, depletion, losses and bad debts. Notwithstanding anything herein to the contrary, Operating Expenses shall include the Asset Management Fee and any Loan Refinancing Fee, in each case payable under this Agreement and the corresponding fees payable under the Advisory Agreement and, solely for the purposes of determining compliance with the 2%/25% Guidelines, distributions of profits and cash flow made by the Operating Partnership to the Special General Partner pursuant to the agreement of limited partnership of the Operating Partnership, other than distributions described in clauses (vii) and (viii) of this definition.

 
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Operating Partnership . CPA: 18 Limited Partnership, a Delaware limited partnership, through which CPA: 18 owns Investments.
Organization and Offering Expenses . Organization and Offering Expenses as defined under the Advisory Agreement.
Original Issue Price . For any Share issued in an Offering, the price at which such Share was initially offered to the public by CPA: 18, regardless of whether selling commissions were paid in connection with the purchase of such Share from CPA: 18.
Other Permitted Investment Asset . An asset, other than cash, cash equivalents, short term bonds, auction rate securities and similar short term investments, acquired by CPA: 18 for investment purposes that is not a Loan or a Property but that is attributable to an investment or activities of CPA: 18 outside the United States and is consistent with the investment objectives and policies of CPA: 18.
Person . An Individual, corporation, partnership, joint venture, association, company, trust, bank, or other entity, or government or any agency or political subdivision of a government.
Preferred Return . A Cumulative Return of five percent computed from the Closing Date through the date as of which such amount is being calculated.
Property or Properties . CPA: 18’s partial or entire interest in real property (including leasehold interests) located outside the United States and personal or mixed property connected therewith. An Investment which obligates CPA: 18 to acquire a Property will be treated as a Property for purposes of this Agreement.
Property Management Fee . A fee for property management services rendered by the Advisor or its Affiliates in connection with Properties acquired directly or through foreclosure.
Prospectus . Any prospectus pursuant to which CPA: 18 offers Shares in a public offering, as the same may at any time and from time to time be amended or supplemented after the effective date of the registration statement in which it is included.
Redemptions . An amount determined by multiplying the number of Shares redeemed by the Original Issue Price.
REIT . A real estate investment trust, as defined in Sections 856-860 of the Code.
Securities . Any stock, shares (other than currently outstanding Shares and subsequently issued Shares), other equity interests, voting trust certificates, bonds, debentures, notes or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise or in general any instruments commonly known as “securities” or any certificate of interest, shares or participation in temporary or interim certificates for receipts (or, guarantees of, or warrants, options or rights to subscribe to, purchase or acquire any of the foregoing, which subsequently may be issued by CPA: 18).
Shareholders . Those Persons who, at the time any calculation hereunder is to be made, are shown as holders of record of Shares on the books and records of CPA: 18.

 
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Shares . All of the shares of common stock of CPA: 18, $.001 par value, and any other shares of common stock of CPA: 18.
Special General Partner . WPC-CPA:18 Holdings, LLC and any permitted transferee of the special general partnership interest under the agreement of limited partnership of the Operating Partnership.
Sponsor . W.P. Carey Inc. and any other Person directly or indirectly instrumental in organizing, wholly or in part, CPA: 18 or any person who will control, manage or participate in the management of CPA: 18, and any Affiliate of any such person. Sponsor does not include a person whose only relationship to CPA: 18 is that of an independent property manager and whose only compensation is as such. Sponsor also does not include wholly independent third parties such as attorneys, accountants and underwriters whose only compensation is for professional services.
Termination Date . The effective date of any termination of this Agreement.
2.      Appointment . CPA: 18 hereby appoints the Manager to serve as its manager on the terms and conditions set forth in this Agreement, and the Manager hereby accepts such appointment.
3.      Duties of the Manager . During the term of this Agreement, the Manager agrees, for and in consideration of the compensation set forth below, to supervise and direct the management and operation of the Investments on behalf of CPA: 18 and for the account of CPA: 18, in an efficient and satisfactory manner consistent with like quality properties and at all times maintain or contract for systems and personnel sufficient to enable it to carry out all of its duties, obligations and functions under this Agreement. In performance of this undertaking, subject to the supervision of the Board and consistent with the provisions of the Articles of Incorporation and Bylaws and any Prospectus pursuant to which Shares are offered, the Manager shall, with respect to the Investments, either directly or by engaging an Affiliate:
(a)      demand, collect and receive (i) all rents, utility charges, common area charges, insurance charges, VAT payments and real estate and personal property tax and assessment charges, (ii) all other pass-through or bill-back charges, sums, costs or expenses of any nature whatsoever payable by tenants under the terms of any or all of the leases and any other agreements relating to all or any portion of the Properties, and (iii) all other revenues, issues and profits accruing from the Properties and any covenant calculations and insurance certificates;
(b)      calculate and administer rent calculations; maintain and review tenant covenant calculations; calculate and submit lender covenant calculations; and maintain letters of credits and security deposit information;
(c)      serve as primary contact to all tenants, field inquiries and requests; process easements and landlord lien waivers; manage third party asset managers and coordinate loan closings with third party asset managers; inspect at-risk properties, oversee inspections by lenders and third-party property inspection firms, and coordinate site visits and reports; ascertain necessary repair and monitor deferred maintenance, and ensure tenant compliance; schedule and coordinate tenant improvement projects and leasing efforts; create expense budgets for vacant properties as needed and pro forma expense budgets for at-risk properties; assist in executing redevelopment strategies; provide or source

 
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technical expertise when necessary relating to building issues; formulate, structure and oversee redevelopment projects; and meet with tenants to discuss potential needs;
(d)      assess residual risk and long term viability on all Properties; perform credit analysis of tenant businesses and economic analysis of holding and selling Properties; maximize returns for CPA: 18 through early renewals or sales of Properties; manage bankruptcy process and monitor credit quality of portfolios; restructure leases as necessary; execute opportunistic mortgage refinancing; coordinate with annual third party appraisers in valuation process; and assess and manage market risks and risks associated with legal, tax, and corporate structure;
(e)      supervise the performance of such ministerial and administrative functions as may be necessary in connection with the daily operations of the Properties, including but not limited to, overseeing and training for international compliance functions and staffing; overseeing and ensuring tax, legal, and regulatory compliance; ensuring timely completion of all obligations by tenants; and ensuring smooth integration of new investments into asset management platform;
(f)      from time to time, or at any time reasonably requested by the Board or management of CPA: 18, make reports of its performance of services to CPA: 18 under this Agreement, including the International State of the Assets and bi weekly status reports to be provided to CPA: 18’s management;
(g)      provide CPA: 18 with such accounting data and any other information requested by CPA: 18 concerning the investment activities of CPA: 18 as shall be required to prepare and to file all periodic financial reports and returns required to be filed with the Securities and Exchange Commission and any other regulatory agency, including annual financial statements;
(h)      perform corporate secretarial work including, but not limited to, tracking of dates of required filings and annual general meetings for subsidiaries of CPA: 18; obtaining and coordinating all relevant materials needed for audit and/or statutory filing, including approvals of financial information, auditor’s representation letters, and minutes and resolutions; preparing financial analyses of recurring payments; maintaining information for compliance reports; organizing, planning, and presenting International State of the Assets meetings; and preparing International Asset Operating Committee Memos;
(i)      do all things necessary to assure its ability to render the services described in this Agreement;
(j)      obtain for, or provide to, CPA: 18 such services as may be required in disposing of Investments;
Notwithstanding anything to the contrary in this Agreement, CPA: 18 acknowledges that the Manager does not have an office in the United States and intends to conduct its business in a manner that will not cause Manager to be deemed to be engaged in a United States trade or business or have a permanent establishment in the United States.
4.      Authority of Manager .
(a)      Pursuant to the terms of this Agreement (and subject to the restrictions included in Paragraphs (b) of this Section 4 and in Section 7 hereof), and subject to the continuing and exclusive authority of the Board over the management of CPA: 18, the Board hereby delegates to the Manager the

 
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authority to: (1) arrange for refinancing, or assess changes in the asset or capital structure of, and dispose of or otherwise deal with, Investments; (2) enter into leases and service contracts for Properties, and perform other property level operations; (3) oversee non-affiliated property managers and other non-affiliated Persons who perform services for CPA: 18; (4) undertake accounting and other record-keeping functions at the Property level; and (5) perform its duties set forth in Section 3.
(b)      The prior approval of the Board, including a majority of the Independent Directors and a majority of the Directors not interested in the transaction will be required for: (i) Investments which are not contemplated by the terms of a Prospectus; (ii) transactions that present issues which involve potential conflicts of interest for the Manager or an Affiliate (other than potential conflicts involving the payment of fees or the reimbursement of expenses); (iii) the lease of assets to the Sponsor, any Director, the Manager or any Affiliate of the Manager; (iv) any purchase or sale of an Investment from or to the Manager or an Affiliate; and (v) the retention of any Affiliate of the Manager to provide services to CPA: 18 not expressly contemplated by this Agreement and the terms of such services by such Affiliate. In addition, the Manager shall comply with any further approval requirements set forth in the Bylaws.
(c)      The Board may, at any time upon the giving of notice to the Manager, modify or revoke the authority set forth in this Section 4. If and to the extent the Board so modifies or revokes the authority contained herein, the Manager shall henceforth comply with such modification or revocation, provided however, that such modification or revocation shall be effective upon receipt by the Manager and shall not be applicable to investment transactions to which the Manager has committed CPA: 18 prior to the date of receipt by the Manager of such notification.
5.      Bank Accounts . The Manager may establish and maintain one or more bank accounts in its own name for the account of CPA: 18 or in the name of CPA: 18 and may collect and deposit into any such account or accounts, and disburse from any such account or accounts, any money on behalf of CPA: 18, provided that no funds shall be commingled with the funds of the Manager; and the Manager shall from time to time render appropriate accountings of such collections and payments to the Board and to the auditors of CPA: 18.
6.      Records; Access . The Manager shall maintain appropriate records of all its activities hereunder and make such records available for inspection by the Board and by counsel, auditors and authorized agents of CPA: 18, at any time or from time to time during normal business hours. The Manager shall at all reasonable times have access to the books and records of CPA: 18.
7.      Limitations on Activities . Anything else in this Agreement to the contrary notwithstanding, the Manager shall refrain from taking any action which, in its sole judgment made in good faith, would adversely affect the status of CPA: 18 as a REIT or of the Operating Partnership as a partnership for Federal income tax purposes, subject CPA: 18 or the Operating Partnership to regulation under the Investment Company Act of 1940, as amended, violate any law, rule, regulation or statement of policy of any governmental body or agency having jurisdiction over CPA: 18, its Shares or its Securities, or otherwise not be permitted by the Articles of Incorporation or Bylaws or agreement of limited partnership of the Operating Partnership, except if such action shall be ordered by the Board, in which case the Manager shall notify promptly the Board of the Manager’s judgment of the potential impact of such action and shall refrain from taking such action until it receives further clarification or instructions from the Board. In such event the Manager shall have no liability for acting in accordance with the specific instructions of the Board so given.

 
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(a)      Notwithstanding the foregoing, CPA: 18 shall indemnify and hold harmless the Manager, its partners, directors, officers and employees, and partners, shareholders, directors and officers of the Manager’s partners and Affiliates of any of them, for any loss or liability suffered by them, and none of the foregoing shall be liable to CPA: 18, the Operating Partnership or to the Directors or Shareholders for any act or omission by the Manager, its partners, directors, officers and employees, or partners, shareholders, directors or officers of the Manager’s partners and Affiliates of any of them, in each case if the following conditions are met:
(i)      The Manager, its partners, directors, officers and employees, and partners, shareholders, directors and officers of the Manager’s partners and Affiliates of any of them have determined, in good faith, that the course of conduct which caused the loss or liability was in the best interests of CPA: 18;
(ii)      The Manager, its partners, directors, officers and employees, and partners, shareholders, directors and officers of the Manager’s partners and Affiliates of any of them were acting on behalf of or performing services for CPA: 18; and
(iii)      Such liability or loss was not the result of negligence or misconduct by the Manager, its partners, directors, officers and employees, and partners, shareholders, directors and officers of the Manager’s partners or Affiliates of any of them.
(b)      Notwithstanding the foregoing, the Manager and its Affiliates shall not be indemnified by CPA: 18 or the Operating Partnership for any losses, liabilities or expenses arising from or out of the alleged violation of federal or state securities laws unless one or more of the following conditions are met:
(i)      There has been a successful adjudication on the merits of each count involving alleged securities law violations as to the particular indemnitee;
(ii)      Such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to the particular indemnitee; or
(iii)      A court of competent jurisdiction approves a settlement of the claims against a particular indemnitee and finds that indemnification of the settlement and the related costs should be made, and the court considering the request for indemnification has been advised of the position of the Securities and Exchange Commission and of the published position of any state securities regulatory authority in which securities of CPA: 18 were offered or sold as to indemnification for violation of securities laws.
(c)      CPA: 18 and the Operating Partnership shall advance funds to the Manager or its Affiliates for legal expenses and other costs incurred as a result of any legal action for which indemnification is being sought only if all of the following conditions are satisfied:
(i)      The legal action relates to acts or omissions with respect to the performance of duties or services on behalf of CPA: 18;
(ii)      The Manager or the Affiliate has provided CPA: 18 or the Operating Partnership with a written affirmation of his, her or its good faith belief that the standard of conduct necessary for indemnification has been met;

 
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(iii)      The legal action is initiated by a third party who is not a Shareholder or the legal action is initiated by a Shareholder acting in his or her capacity as such and a court of competent jurisdiction specifically approves such advancement; and
(iv)      The Manager or the Affiliate undertakes to repay the advanced funds to CPA: 18, together with the applicable legal rate of interest thereon, in cases in which such Manager or Affiliate is found not to be entitled to indemnification.
(d)      Notwithstanding the foregoing, the Manager shall not be entitled to indemnification or be held harmless pursuant to this Section 7 for any activity which the Manager shall be required to indemnify or hold harmless CPA: 18 pursuant to Section 22.
(e)      Any amounts paid pursuant to this Section 7 shall be recoverable or paid only out the net assets of CPA: 18 and not from Shareholders.

8.      Relationship with Directors . There shall be no limitation on any partner, director, officer, employee or Affiliate of the Manager serving as a Director or an officer of CPA: 18, except that no employee of the Manager or its Affiliates who also is a Director or officer of CPA: 18 shall receive any compensation from CPA: 18 for serving as a Director or officer other than for reasonable reimbursement for travel and related expenses incurred in attending meetings of the Board; for the avoidance of doubt, the limitations of this Section 8 shall not apply to any compensation paid by the Manager or any Affiliate for which CPA: 18 reimbursed the Manager or Affiliate in accordance with Section 10 hereof.
9.      Fees .
(a)      Asset Management Fee . The Operating Partnership shall pay to the Manager as compensation for the asset management services rendered to CPA: 18 hereunder an amount equal to 0.50% of the Average Market Value of an Investment other than Investments in readily marketable real estate securities purchased on the secondary market (an “ Asset Management Fee ”). The Asset Management Fee with respect to an Investment will be calculated monthly, beginning with the month in which CPA: 18 first makes the Investment and shall be prorated for the number of days during the month that CPA: 18 owns the Investment. The aggregate Asset Management Fees calculated with respect to each month shall be payable on the first business day following such month.
(b)      Property Management Fee; Loan Refinancing Fee . No Property Management Fee or Loan Refinancing Fee shall be paid unless approved by a majority of the Independent Directors.
(c)      Disposition Fee . If the Manager or an Affiliate provides a substantial amount of services in the sale of an Investment, the Manager or such Affiliate shall be entitled to receive a disposition fee (the “ Disposition Fee ”) at the time of such disposition, in an amount equal to the lesser of (1) 50% of the Competitive Real Estate Commission (if applicable) and (2) 3.0% of the Contract Sales Price of the Investment; provided, however, that  no Disposition Fee shall be paid in respect of Investments that are readily marketable securities. The real estate commissions and Disposition Fees paid to all Persons by CPA: 18 shall not exceed an amount equal to the lesser of: (1) 6% of the Contract Sales Price of such Property or (2) the Competitive Real Estate Commission. The Manager shall present to the Independent Directors such information as they may reasonably request to review the level of services provided by the Manager in connection with a disposition and the basis for the calculation of the amount of the Disposition Fees on an annual basis, or more frequently if requested by the Independent Directors.

 
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The amount of any Disposition Fee shall be deemed conclusively established once it has been approved by the Independent Directors, absent a subsequent finding of error. No payment of Disposition Fees shall be made prior to review and approval of such information by the Independent Directors.
(d)      Loans From Affiliates . CPA: 18 shall not borrow funds from the Manager or its Affiliates unless (A) the transaction is approved by a majority of the Independent Directors and a majority of the Directors who are not interested in the transaction as being fair, competitive and commercially reasonable, (B) the interest and other financing charges or fees received by the Manager or its Affiliates do not exceed the amount which would be charged by non-affiliated lending institutions and (C) the terms are not less favorable than those prevailing for comparable arm’s-length loans for the same purpose. CPA: 18 will not borrow on a long-term basis from the Manager or its Affiliates unless it is to provide the debt portion of a particular investment and CPA: 18 is unable to obtain a permanent loan at that time or in the judgment of the Board, it is not in CPA: 18’s best interest to obtain a permanent loan at the interest rates then prevailing and the Board has reason to believe that CPA: 18 will be able to obtain a permanent loan on or prior to the end of the loan term provided by the Manager or its Affiliates.
(e)      Changes To Fee Structure . In the event the Shares are listed on a national securities exchange, CPA: 18 and the Manager shall negotiate in good faith to establish a fee structure appropriate for an entity with a perpetual life. A majority of the Independent Directors must approve the new fee structure negotiated with the Manager. In negotiating a new fee structure, the Independent Directors may consider any of the factors they deem relevant, including but not limited to: (a) the size of the Asset Management Fee in relation to the size, composition and profitability of CPA: 18’s portfolio; (b) the rates charged to other REITs and to investors other than REITs by managers performing similar services; (c) additional revenues realized by the Manager and its Affiliates through their relationship with CPA: 18, including loan administration, underwriting or broker commissions, servicing, engineering, inspection and other fees, whether paid by CPA: 18 or by others with whom CPA: 18 does business; (d) the quality and extent of service furnished by the Manager; (e) the performance of the investment portfolio of CPA: 18, including income, conservation or appreciation of capital, frequency of problem investments and competence in dealing with distress situations and (f) the quality of the portfolio of CPA: 18 in relationship to the portfolio of real properties owned and managed by the Manager and its Affiliates for the account of other clients. The new fee structure can be no more favorable to the Manager than the current fee structure. The Independent Directors shall not approve any new fee structure that is in their judgment more favorable (taken as a whole) to the Manager than the current fee structure.
(f)      Payment . Compensation payable pursuant to this Section 9 shall be paid directly to the Manager; provided, however, that any fee payable pursuant to this Section 9 may be paid, at the option of the Manager, in the form of: (i) cash, (ii) restricted Class A common stock of CPA: 18, or (iii) a combination of cash and restricted Class A common stock. The Manager shall notify CPA: 18 in writing annually of the form in which the fee shall be paid. Such notice shall be provided no later than December 31 of the year prior to the year to which such election applies. If no such notice is provided, the fee shall be paid in cash. For purposes of the payment of compensation to the Manager in the form of stock, the value of each share of restricted Class A common stock shall be: (i) the Net Asset Value per share of Class A common stock as determined based on the most recent appraisal of CPA: 18’s assets performed by an Independent Appraiser, or (ii) if an appraisal has not yet been performed, $10 per share. If shares are being offered to the public at the time a fee is paid with stock, the value shall be the price of the stock without commissions. The Net Asset Value determined on the basis of such appraisal may be adjusted on a quarterly or other basis by the Board to account for significant capital transactions. Stock issued by CPA: 18 to the Manager in payment of fees hereunder shall be governed by the terms set forth in Schedule A hereto, or such other terms as the Manager and CPA: 18 may from time to time agree.

 
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10.      Expenses . To the extent applicable, in addition to the compensation paid to the Manager pursuant to Section 9 hereof, the Operating Partnership shall pay directly or reimburse the Manager for the following expenses:
(i)      interest and other costs for borrowed money, including discounts, points and other similar fees;
(ii)      taxes and assessments on income of CPA: 18, to the extent paid or advanced by the Manager, or on Investments and taxes as an expense of doing business, in each case attributable to Properties or non-United States activities;
(iii)      expenses of managing and operating Investments owned by CPA: 18, whether payable to an Affiliate of the Manager or a non-affiliated Person;
(iv)      fees and expenses of legal counsel for CPA: 18 attributable to Investments;
(v)      fees and expense of auditors and accountants for CPA: 18 attributable to Investments;
(vi)      expenses related to the Investments and other fees relating to disposing of investments including personnel and other costs incurred in transactions relating to Investments where a fee is not payable to the Manager; and
(vii)      all other expenses the Manager incurs in connection with providing services to CPA: 18 hereunder including reimbursement to the Manager or its Affiliates for the cost of rent, goods, materials and personnel incurred by them based upon the compensation of the Persons involved and an appropriate share of overhead allocable to those Persons as reasonably determined by the Manager on a basis approved annually by the Board (including a majority of the Independent Directors).
No reimbursement shall be made for the cost of personnel to the extent that such personnel are used in transactions for which the Manager receives a separate fee.
Expenses incurred by the Manager on behalf of CPA: 18 and payable pursuant to this Section 10 shall be reimbursed quarterly to the Manager within 60 days after the end of each quarter, subject to the provisions of Section 13 hereof. The Manager shall prepare a statement documenting the Operating Expenses of CPA: 18 within 45 days after the end of each quarter.
11.      Other Services . Should the Board request that the Manager or any partner or employee thereof render services for CPA: 18 other than as set forth in Section 3 hereof, such services shall be separately compensated and shall not be deemed to be services pursuant to the terms of this Agreement.
12.      Fidelity Bond . The Manager shall maintain a fidelity bond for the benefit of CPA: 18 which bond shall insure CPA: 18 from losses of up to $5,000,000 and shall be of the type customarily purchased by entities performing services similar to those provided to CPA: 18 by the Manager.
13.      Limitation on Expenses .

 
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(a)      If the aggregate Operating Expenses under this Agreement and the Advisory Agreement during the 12-month period ending on the last day of any fiscal quarter of CPA: 18 exceed the greater of (i) two percent of the Average Invested Assets during the same 12-month period or (ii) 25% of the Adjusted Net Income of CPA: 18 during the same 12-month period, then subject to paragraph (b) of this Section 13, such excess amount shall be the sole responsibility of the Manager and neither the Operating Partnership nor CPA: 18 shall be liable for payment therefor. CPA: 18 may defer the payment or distribution to the Manager and the Special General Partner of fees, expenses and distributions that would, if paid or distributed, cause Operating Expenses during such 12-month period to exceed the foregoing limitations; provided, however, that in determining which items shall be paid and which may be deferred, priority will be given to the payment of distributions to the Special General Partner over the payment to the Manager of amounts due under this Agreement.
(b)      Notwithstanding the foregoing, to the extent that the Manager becomes responsible for any such excess amount as provided in paragraph (a), if a majority of the Independent Directors finds such excess amount or a portion thereof justified based on such unusual and non-recurring factors as they deem sufficient, CPA: 18 or the Operating Partnership shall reimburse the Manager in future quarters for the full amount of such excess, or any portion thereof, but only to the extent such reimbursement would not cause CPA: 18’s Operating Expenses to exceed the 2%/25% Guidelines in the 12-month period ending on the last day of such quarter. In no event shall the Operating Expenses payable by CPA: 18 and the Operating Partnership in any 12-month period ending at the end of a fiscal quarter exceed the 2%/25% Guidelines.
(c)      Within 60 days after the end of any twelve-month period referred to in paragraph (a), the Manager shall reimburse CPA: 18 for any amounts expended by CPA: 18 in such twelve-month period that exceeds the limitations provided in paragraph (a) unless the Independent Directors determine that such excess expenses are justified, as provided in paragraph (b), and provided the aggregate Operating Expenses under this Agreement and the Advisory Agreement for such later quarter would not thereby exceed the 2%/25% Guidelines. To the extent CPA: 18 is reimbursed for such excess expenses by the Advisor, CPA: 18 shall not also be entitled to reimbursement for such excess from the Manager.
(d)      All computations made under paragraphs (a) and (b) of this Section 13 shall be determined in accordance with GAAP applied on a consistent basis.
(e)      If the Special General Partner receives distributions pursuant to the agreement of limited partnership of the Operating Partnership in respect of realized gains on the disposition of an Investment, Adjusted Net Income, for purposes of calculating the Operating Expenses, shall exclude the gain from the disposition of such Investment.
14.      Other Activities of the Manager . Nothing herein contained shall prevent the Manager from engaging in other activities, including without limitation direct investment by the Manager and its Affiliates in assets that would be suitable for CPA: 18, the rendering of services to other investors (including other REITs) and the management of other programs advised, sponsored or organized by the Manager or its Affiliates; nor shall this Agreement limit or restrict the right of the Manager or any of its Affiliates or of any director, officer, employee, partner or shareholder of the Manager or its Affiliates to engage in any other business or to render services of any kind to any other partnership, corporation, firm, individual, trust or association. The Manager may, with respect to any investment in which CPA: 18 is a participant, also render service to each other participant therein. Without limiting the generality of the foregoing, CPA: 18 acknowledges that the Manager provides or will provide services to other “Corporate Property Associates” or CPA(R) REIT funds, whether now in existence or formed hereafter, and that the

 
- 14  -
 


Manager and its Affiliates may invest for their own account. The Manager shall be responsible for promptly reporting to the Board the existence of any actual or potential conflict of interest that arises that may affect its performance of its duties under this Agreement.
Neither the Manager nor any Affiliate of the Manager shall be obligated generally to present any particular investment opportunity to CPA: 18 even if the opportunity is of a character which, if presented to CPA: 18, could be taken by CPA: 18.
15.      Relationship of Manager and Company . CPA: 18 and the Manager agree that they have not created and do not intend to create by this Agreement a joint venture or partnership relationship between them and nothing in this Agreement shall be construed to make them partners or joint venturers or impose any liability as partners or joint venturers on either of them.
16.      Term; Termination of Agreement . This Agreement shall continue in force for so long as the Advisory Agreement remains in effect and shall automatically terminate upon the expiration or termination of the Advisory Agreement.
17.      Termination by Company . At the sole option of the Board (including a majority of the Independent Directors), this Agreement may be terminated immediately by written notice of termination from CPA: 18 to the Manager upon the occurrence of events which would constitute Cause or if any of the following events occur:
(a)      If the Manager shall be adjudged bankrupt or insolvent by a court of competent jurisdiction, or an order shall be made by a court of competent jurisdiction for the appointment of a receiver, liquidator, or trustee of the Manager, for all or substantially all of its property by reason of the foregoing, or if a court of competent jurisdiction approves any petition filed against the Manager for reorganization, and such adjudication or order shall remain in force or unstayed for a period of 30 days; or
(b)      If the Manager shall institute proceedings for voluntary bankruptcy or shall file a petition seeking reorganization under the federal bankruptcy laws, or for relief under any law for relief of debtors, or shall consent to the appointment of a receiver for itself or for all or substantially all of its property, or shall make a general assignment for the benefit of its creditors, or shall admit in writing its inability to pay its debts, generally, as they become due.
Any notice of termination under Section  16 or 17 shall be effective on the date specified in such notice, which may be the day on which such notice is given or any date thereafter. The Manager agrees that if any of the events specified in Section  17(a) or (b) shall occur, it shall give written notice thereof to the Board within 15 days after the occurrence of such event.
18.      Termination by Either Party . This Agreement may be terminated immediately without penalty (but subject to the requirements of Section  20 hereof) by the Manager by written notice of termination to CPA: 18 upon the occurrence of events which would constitute Good Reason or by CPA: 18 without cause or penalty (but subject to the requirements of Section  20 hereof) by action of the Directors, a majority of the Independent Directors or by action of a majority of the Shareholders, in each case upon 60 days’ written notice.
19.      Assignment Prohibition . This Agreement may not be assigned by the Manager without the approval of the Board (including a majority of the Independent Directors); provided, however, that

 
- 15  -
 


such approval shall not be required in the case of an assignment to a corporation, partnership, association, trust or organization which may take over the assets and carry on the affairs of the Manager, provided: (i) that at the time of such assignment, such successor organization shall be owned substantially by an entity directly or indirectly controlled by the Sponsor and only if such entity has a net worth of at least $5,000,000, and (ii) that the board of directors of the Manager shall deliver to the Board a statement in writing indicating the ownership structure and net worth of the successor organization and a certification from the new Manager as to its net worth. Such an assignment shall bind the assignees hereunder in the same manner as the Manager is bound by this Agreement. The Manager may assign any rights to receive fees or other payments under this Agreement without obtaining the approval of the Board. This Agreement shall not be assigned by CPA: 18 or the Operating Partnership without the consent of the Manager, except in the case of an assignment by CPA: 18 or the Operating Partnership to a corporation or other organization which is a successor to CPA: 18 or the Operating Partnership, in which case such successor organization shall be bound hereunder and by the terms of said assignment in the same manner as CPA: 18 or the Operating Partnership is bound by this Agreement.
20.      Payments to and Duties of Manager Upon Termination .
(a)      After the Termination Date, the Manager shall not be entitled to compensation for further services hereunder but shall be entitled to receive from CPA: 18 the following:
(i)      all unpaid reimbursements of Operating Expenses payable to the Manager;
(ii)      all earned but unpaid Asset Management Fees payable to the Manager prior to the Termination Date;
(iii)      all earned but unpaid Disposition Fees payable to the Manager relating to the sale of any Investment prior to the Termination Date; and
(iv)      all earned but unpaid Property Management Fees and Loan Refinancing Fees, if any, payable to the Manager relating to the management of any property prior to the termination of this Agreement.
Notwithstanding the foregoing, if this Agreement is terminated by CPA: 18 for Cause, or by the Manager for other than Good Reason, the Manager will not be entitled to receive the sums in Section 20(a)(ii) through (iv).
(b)      Any and all amounts payable to the Manager pursuant to Section 20(a) that, irrespective of the termination, were payable on a current basis prior to the Termination Date either because they were not subordinated or all conditions to their payment had been satisfied, shall be paid within 90 days after the Termination Date. All other amounts shall be paid in a manner determined by the Board, but in no event on terms less favorable to the Manager than those represented by a note (i) maturing upon the liquidation of CPA: 18 or the Operating Partnership or three years from the Termination Date, whichever is earlier, (ii) with no less than twelve equal quarterly installments and (iii) bearing a fair, competitive and commercially reasonable interest rate (the “ Note ”). The Note, if any, may be prepaid by the Operating Partnership at any time prior to maturity with accrued interest to the date of payment but without premium or penalty. Notwithstanding the foregoing, any amounts that relate to Investments (i) shall be an amount which provides compensation to the Manager only for that portion of the holding period for the respective Investments during which the Manager provided services to CPA: 18, (ii) shall not be due and payable until the Investment to which such amount relates is sold or

 
- 16  -
 


refinanced, and (iii) shall not bear interest until the Investment to which such amount relates is sold or refinanced. A portion of the amount shall be paid as each Investment owned by CPA: 18 on the Termination Date is sold. The portion of such amount payable upon each such sale shall be equal to (i) such amount multiplied by (ii) the percentage calculated by dividing the fair value (at the Termination Date) of the Investment sold by CPA: 18 divided by the total fair value (at the Termination Date) of all Investments owned by CPA: 18 on the Termination Date.
(c)      The Manager shall promptly upon termination:
(i)      pay over to the Operating Partnership all money collected and held for the account of CPA: 18 pursuant to this Agreement, after deducting any accrued compensation and reimbursement for its expenses to which it is then entitled;
(ii)      deliver to the Board a full accounting, including a statement showing all payments collected by it and a statement of all money held by it, covering the period following the date of the last accounting furnished to the Board;
(iii)      deliver to the Board all Investments and documents of CPA: 18 then in the custody of the Manager; and
(iv)      cooperate with CPA: 18 to provide an orderly management transition.
21.      Indemnification by CPA: 18 and the Operating Partnership .
(a)      Neither CPA: 18 nor the Operating Partnership shall indemnify the Manager or any of its Affiliates for any loss or liability suffered by the Manager or the Affiliate, or hold the Manager or the Affiliate harmless for any loss or liability suffered by CPA: 18 or the Operating Partnership, except as permitted under Section 7.
22.      Indemnification by Manager . The Manager shall indemnify and hold harmless CPA: 18 and the Operating Partnership from liability, claims, damages, taxes or losses and related expenses including attorneys’ fees, to the extent that such liability, claims, damages, taxes or losses and related expenses are not fully reimbursed by insurance and are incurred by reason of the Manager’s bad faith, fraud, willful misfeasance, misconduct, negligence or reckless disregard of its duties.
23.      Joint and Several Obligations . Any obligations of CPA: 18 shall be construed as the joint and several obligations of CPA: 18 and the Operating Partnership, unless otherwise specifically provided in this Agreement
24.      Notices . Any notice, report or other communication required or permitted to be given hereunder shall be in writing unless some other method of giving such notice, report or other communication is accepted by the party to whom it is given, and shall be given by being delivered by hand or by overnight mail or other overnight delivery service to the addresses set forth herein:

 
- 17  -
 


To the Board, CPA: 18 and the Operating Partnership:
Corporate Property Associates 18 - Global Incorporated
 
50 Rockefeller Plaza
 
New York, NY 10020
Attention: Chairman of the Audit Committee of the Board of Directors
 
 
To the Manager:
W.P. Carey & Co. B.V.
 
Strawinskylaan 741, C-7
 
1077XX Amsterdam
 
The Netherlands
 
 
Either party may at any time give notice in writing to the other party of a change in its address for the purposes of this Section 24.
25.      Modification . This Agreement shall not be changed, modified, terminated, or discharged, in whole or in part, except by an instrument in writing signed by both parties hereto, or their respective successors or assignees.
26.      Severability . The provisions of this Agreement are independent of and severable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part.
27.      Construction . This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of New York.
28.      Entire Agreement . This Agreement contains the entire agreement and understanding among the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements, understandings, inducements and conditions, express or implied, oral or written, of any nature whatsoever with respect to the subject matter hereof. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing.
29.      Indulgences, Not Waivers . Neither the failure nor any delay on the part of a party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver.
30.      Gender . Words used herein regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context requires.
31.      Titles Not to Affect Interpretation . The titles of Sections and subsections contained in this Agreement are for convenience only, and they neither form a part of this Agreement nor are they to be used in the construction or interpretation hereof.

 
- 18  -
 


32.      Execution in Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories.
33.      Name . W. P. Carey Inc. has a proprietary interest in the name “Corporate Property Associates” and “CPA®.” Accordingly, and in recognition of this right, if at any time CPA: 18 ceases to retain W. P. Carey & Co. B.V., or an Affiliate thereof to perform the services of Manager, CPA: 18 will, promptly after receipt of written request from W. P. Carey & Co. B.V., cease to conduct business under or use the name “Corporate Property Associates” or “CPA®” or any diminutive thereof and CPA: 18 shall use its best efforts to change the name of CPA: 18 to a name that does not contain the name “Corporate Property Associates” or “CPA®” or any other word or words that might, in the sole discretion of the Manager, be susceptible of indication of some form of relationship between CPA: 18 and the Manager or any Affiliate thereof. Consistent with the foregoing, it is specifically recognized that the Manager or one or more of its Affiliates has in the past and may in the future organize, sponsor or otherwise permit to exist other investment vehicles (including vehicles for investment in real estate) and financial and service organizations having “Corporate Property Associates” or “CPA(R)” as a part of their name, all without the need for any consent (and without the right to object thereto) by CPA: 18 or its Directors.


 
- 19  -
 

        

IN WITNESS WHEREOF, the parties hereto have executed this Asset Management Agreement as of the day and year first above written.
CORPORATE PROPERTY ASSOCIATES 18 — GLOBAL INCORPORATED
By: /s/ Catherine D. Rice    
Name:
Catherine D. Rice
Title:
Chief Financial Officer
CPA: 18 LIMITED PARTNERSHIP

By: CORPORATE PROPERTY ASSOCIATES 18— GLOBAL INCORPORATED, its general partner

By: /s/ Catherine D. Rice    
Name:
Catherine D. Rice
Title:
Chief Financial Officer
W. P. CAREY & CO. B.V.
By: /s/ Greg Butchart    
Name:
Greg Butchart
Title:
Managing Director
By: /s/ Thomas E. Zacharias    
Name:
Thomas E. Zacharias
Title:
Managing Director



 
 
 

        

SCHEDULE A
This Schedule sets forth the terms governing any shares of Class A common stock of CPA: 18 (the “ Shares ”) issued by CPA: 18 to the Manager in payment of asset management fees set forth in the Agreement.
1.      Restrictions . The Shares are subject to vesting over a five-year period. The Shares shall vest ratably over a five-year period with 20% of the Shares paid in each payment vesting on each of the first through fifth anniversary of the date hereof. Prior to the vesting of the ownership of the Shares in the Manager, the Shares may not be transferred by the Manager.
2.      Immediate Vesting . Upon the expiration of the Agreement for any reason other than a termination for Cause under paragraph 16 or upon a “Change of Control” of CPA®:18 (as defined below), all Shares granted to the Manager hereunder shall vest immediately and all restrictions shall lapse. For purposes of this Schedule A, a “Change of Control” of CPA: 18 shall be deemed to have occurred if there has been a change in the ownership of CPA: 18 of a nature that would be required to be reported in response to the disclosure requirements of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), as enacted and in force on the date hereof, whether or not CPA: 18 is then subject to such reporting requirements; provided , however , that, without limitation, a Change of Control shall be deemed to have occurred if:
(i)    any “person,” as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than CPA: 18, any of its subsidiaries, any trustee, fiduciary or other person or entity holding securities under any employee benefit plan of CPA: 18 or any of its subsidiaries), together with all “affiliates” and “associates” (as such terms are defined in Rule 14b-2 under the Exchange Act) of such person, shall become the “beneficial owner” (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of CPA: 18 representing 25% or more of either (A) the combined voting power of CPA: 18’s then outstanding securities having the right to vote in an election of the Board (“ Voting Securities ”) or (B) the then outstanding common stock of CPA: 18 (in either such case other than as a result of acquisition of securities directly from CPA: 18);
(ii)    persons who, as of the date hereof, constitute the Board (the “ Incumbent Directors ”) cease for any reason, including without limitation, as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Board, provided that any person becoming a director of CPA: 18 subsequent to the date hereof whose election or nomination for election was approved by a vote of at least a majority of the Incumbent Directors shall be considered an Incumbent Director; or
(iii)    the stockholders of CPA: 18 shall approve (A) any consolidation or merger of CPA: 18 or any subsidiary where the stockholders of CPA: 18, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, shares representing in the aggregate 50% or more of the voting equity of the entity issuing cash or securities in the consolidation or merger (or of its ultimate parent entity, if any), (B) any sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of CPA: 18 or (C) any plan or proposal for the liquidation or dissolution of CPA: 18.

 
A -  2
 


Notwithstanding the foregoing, a “ Change of Control ” shall not be deemed to have occurred for purposes of the foregoing clause (i) solely as the result of an acquisition of securities by CPA: 18 which, by reducing the number of Shares of Common Stock outstanding, increases (A) the proportionate number of Shares beneficially owned by any person to 25% or more of the Shares then outstanding, or (B) the proportionate voting power represented by the Shares beneficially owned by any person to 25% or more of the combined voting power of all then outstanding voting Securities; provided , however , that if any person referred to in clause (A) or (B) of this sentence shall thereafter become the beneficial owner of any additional Shares or other Voting Securities (other than pursuant to a Share split, Share dividend, or similar transaction), then a “Change of Control” shall be deemed to have occurred for purposes of the foregoing clause (i).
3.     Exception. Notwithstanding anything else in this Agreement to the contrary, the Shares shall continue to vest according to the vesting schedule in Section 1 regardless of: (a) the expiration of the Asset Management Agreement for any reason other than a termination by CPA: 18 for Cause or a resignation by the Manager for other than Good Reason, (b) the merger of CPA: 18 and an Affiliate of CPA: 18 or (c) any “Change of Control” of CPA: 18 in connection with a merger with an Affiliate of CPA: 18.

 
A -  2
 

Exhibit 10.25


 
 
 
 
 
 
 
 
 



 
ADVISORY AGREEMENT
 



 
 
 




CONTENTS
 
Page
1. Definitions     1
2. Appointment     8
3. Duties of the Advisor     8
4. Authority of Advisor     11
5. Bank Accounts     12
6. Records; Access     12
7. Limitations on Activities     12
8. Relationship with Directors     14
9. Fees     15
10. Expenses.     17
11. Other Services     19
12. Fidelity Bond     20
13. Limitation on Expenses     20
14. Other Activities of the Advisor.     21
15. Relationship of Advisor and CWI 2     22
16. Term; Termination of Agreement     22
17. Termination by CWI 2     22
18. Termination by Either Party     23
19. Assignment Prohibition     23
20. Payments to and Duties of Advisor Upon Termination     23
21. Non-Solicitation and Non-Hire Following Termination     24
22. Indemnification by CWI 2 and the Operating Partnership     25
23. Indemnification by Advisor     25
24. Joint and Several Obligations     25
25. Notices     25
26. Modification     26
27. Severability     26
28. Construction     26
29. Entire Agreement     26

 
 
 



30. Indulgences, Not Waivers     26
31. Gender     27
32. Titles Not to Affect Interpretation     27
33. Execution in Counterparts     27
34. Initial Investment     27


 
 
 



ADVISORY AGREEMENT
THIS ADVISORY AGREEMENT, dated as of February 9, 2015, is among CAREY WATERMARK INVESTORS 2 INCORPORATED, a Maryland corporation (" CWI 2 "), CWI 2 OP, LP, a Delaware limited partnership of which CWI 2 is the general partner (the " Operating Partnership "), and CAREY LODGING ADVISORS, LLC, a Delaware limited liability company (the " Advisor ").
W I T N E S S E T H:
WHEREAS, CWI 2 through its interest in the Operating Partnership intends to acquire, own, dispose of, and, through its Advisor, manage a portfolio consisting primarily of lodging and other lodging related investments; and
WHEREAS, CWI 2 intends to qualify as a REIT (as defined below), and the Operating Partnership intends to qualify as a partnership, in each case for U.S. federal income tax purposes; and
WHEREAS, CWI 2 and its subsidiaries, including the Operating Partnership, desire to avail themselves of the experience, sources of information, advice and assistance of, and certain facilities available to, the Advisor and to have the Advisor undertake the duties and responsibilities hereinafter set forth, on behalf of, and subject to the supervision of the Board of Directors of CWI 2, all as provided herein; and
WHEREAS, the Advisor is willing to render such services, subject to the supervision of the Board of Directors of CWI 2, on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements contained herein, the parties hereto agree as follows:

 
- 1  -
 



1. Definitions . As used in this Agreement, the following terms have the definitions hereinafter indicated:
" 2%/25% Guidelines ." The requirement, as provided for in Section 13 hereof, that, in the 12‑month period ending on the last day of any fiscal quarter, Operating Expenses not exceed the greater of two percent of Average Invested Assets during such 12‑month period or 25% of CWI 2's Adjusted Net Income over the same 12‑month period.
" Acquisition Expenses ." To the extent not paid or to be paid by the seller, lessee, borrower or any other party involved in the transaction, those expenses, including, but not limited to, travel and communications expenses, the cost of appraisals, title insurance, nonrefundable option payments on Investments not acquired, legal fees and expenses, accounting fees and expenses, and miscellaneous expenses related to selection, acquisition and origination of Investments, whether or not a particular Investment ultimately is made. Acquisition Expenses shall not include Acquisition Fees.
" Acquisition Fees ." Any fee or commission paid by CWI 2 or its subsidiaries to the Advisor, or, with respect to Section 9(b)(ii), by CWI 2 or its subsidiaries to any party, in connection with the making of Investments, including, without limitation, the purchase, development or construction of Properties. A Development Fee or Construction Fee paid to a Person not affiliated with the Sponsor in connection with the actual development or construction of a project after acquisition of the Property by CWI 2 shall not be deemed an Acquisition Fee. Included in the computation of such fees or commissions shall be any real estate commission, selection fee, Development Fee or Construction Fee (other than as described above), non‑recurring management fees, loan fees, points or any fee of a similar nature, however designated. Acquisition Fees shall not include Acquisition Expenses.
" Adjusted Net Income ." For any period, the total consolidated revenues recognized in such period by CWI 2, less the total consolidated expenses of CWI 2 recognized in such period, excluding additions to reserves for depreciation and amortization, bad debts or other similar non-cash reserves; provided, however , that Adjusted Net Income for purposes of calculating total allowable Operating Expenses under the 2%/25% Guidelines shall exclude any gains, losses or writedowns from the sale of CWI 2's assets.
" Affiliate ." An Affiliate of another Person shall include any of the following: (i) any Person directly or indirectly owning, controlling, or holding, with power to vote ten percent or more of the outstanding voting securities of such other Person; (ii) any Person ten percent or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held, with power to vote, by such other Person; (iii) any Person directly or indirectly controlling, controlled by, or under common control with such other Person; (iv) any executive officer, director, trustee or general partner of such other Person; or (v) any legal entity for which such Person acts as an executive officer, director, trustee or general partner.
" Agreement ." This Advisory Agreement.

 
- 2  -
 



" Appraised Value ." Value according to an appraisal made by an Independent Appraiser, which may take into consideration any factor deemed appropriate by such Independent Appraiser, including, but not limited to, current market and property conditions, any unique attributes of the property or its operations, current and anticipated income and expense trends, forecasts of stabilized operations, repositioning opportunities and conditions in the credit and investment markets. The Appraised Value of a Property may be greater than the construction cost or the replacement cost of the Property.
" Asset Management Fee ." The Asset Management Fee as defined in Section  9(a) hereof.
" Average Invested Assets ." The average during any period of the aggregate book value of CWI 2's Investments, before deducting reserves for depreciation, bad debts, impairments, amortization and all other non-cash reserves, computed by taking the average of such values at the end of each month during such period.
" Average Market Value ." The Total Investment Cost paid by CWI 2 for an Investment, less Acquisition Fees, provided that, if a later Appraised Value is obtained for the Investment, that later Appraised Value, adjusted for other net assets and liabilities that have economic value and are associated with that Investment, shall become the Average Market Value for the Investment.
" Board or Board of Directors ." The Board of Directors of CWI 2.
" Bylaws ." The bylaws of CWI 2, as amended from time to time.
" Cause ." With respect to the termination of this Agreement means the occurrence of any of the following: (a) the transfer of W. P. Carey & Co. LLC's interests in the Advisor to one or more entities other than to one or more controlled subsidiaries of W. P. Carey & Co. LLC, (b) fraud, criminal conduct, willful misconduct or willful or negligent breach of fiduciary duty by the Advisor that, in each case, is determined by a majority of the Independent Directors to be materially adverse to CWI 2, or (c) a breach of a material term or condition of this Agreement by the Advisor and the Advisor has not cured such breach within 30 days of written notice thereof or, in the case of any breach that cannot be cured within 30 days by reasonable effort, has not taken all necessary action within a reasonable time period to cure such breach.
" Charter ." The Charter of CWI 2 under the Maryland General Corporation Law, as amended from time to time, pursuant to which CWI 2 is organized.
" Code ." Internal Revenue Code of 1986, as amended.
" Competitive Real Estate Commission ." The real estate or brokerage commission paid for the purchase or sale of an Investment that is reasonable, customary and competitive in light of the size, type and location or other relevant characteristics of the Investment.
" Construction Fee ." A fee or other remuneration for acting as general contractor and/or construction manager to construct improvements, supervise and coordinate projects or to provide major repairs or rehabilitations on a Property.

 
- 3  -
 



" Contract Purchase Price ." The amount actually paid for, or allocated (as of the date of purchase) to, the purchase, development, construction or improvement of an Investment or, in the case of an originated Loan, the principal amount of such Loan, in each case exclusive of Acquisition Fees and Acquisition Expenses.
" Contract Sales Price ." The total consideration received by CWI 2 for the sale of an Investment.
" Control ." The possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. "Controlling" and "Controlled" have meanings correlative thereto.
" CWI 1 " Carey Watermark Investors Incorporated, a Maryland corporation.
" CWI 2. " Carey Watermark Investors 2 Incorporated together with its consolidated subsidiaries, including the Operating Partnership, unless in the context of a particular reference, it is clear that such reference refers to Carey Watermark Investors 2 Incorporated excluding its consolidated subsidiaries. Unless the context otherwise requires, any reference to financial measures of CWI 2 shall be calculated by reference to the consolidated financial statements of CWI 2 and its subsidiaries, including, without limitation, the Operating Partnership, prepared in accordance with GAAP.
" Dealer Manager ." Carey Financial, LLC.
" Development Fee ." A fee for the packaging of a Property including negotiating and approving plans, and undertaking to assist in obtaining zoning and necessary variances and necessary financing for the specific Property, either initially or at a later date.
" Directors ." The persons holding such office, as of any particular time, under the Articles of Incorporation, whether they be the directors named therein or additional or successor directors.
" Disposition Fee ." The Disposition Fee as defined in Section  9(d) hereof.
" Distributions ." Distributions declared by the Board.
" Distribution and Shareholder Servicing Fees ." The distribution and shareholder servicing fees payable to the Dealer Manager as described in the Prospectus.
" GAAP ." Generally accepted accounting principles, as applied in the United States.
" Good Reason ." With respect to the termination of this Agreement, (i) any failure to obtain a satisfactory agreement from any successor to CWI 2 or the Operating Partnership to assume and agree to perform CWI 2's or the Operating Partnership's, as applicable, obligations under this Agreement; or (ii) any material breach of this Agreement of any nature whatsoever by CWI 2 or the Operating Partnership; provided that (a) such breach is of a material term or condition of this Agreement and (b) CWI 2 or the Operating Partnership, as applicable, has not cured such breach within 30 days of written notice thereof or, in the case of any breach that cannot be cured within

 
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30 days by reasonable effort, has not taken all necessary action within a reasonable time period to cure such breach.
" Gross Offering Proceeds ." The aggregate purchase price of Shares sold in any Offering.
" Guidelines ." The Investment Allocation Guidelines set forth as Schedule A.
" Incentive Plan ." CWI 2's 2014 Equity Incentive Plan.
" Independent Appraiser ." A qualified appraiser of real estate as determined by the Board, who has no material current or prior business or personal relationship with the Advisor or the Directors and who is engaged to a substantial extent in the business of rendering opinions regarding the value of assets of the type held by CWI 2. Membership in a nationally recognized appraisal society such as the American Institute of Real Estate Appraisers or the Society of Real Estate Appraisers shall be conclusive evidence of such qualification (but not of independence).
" Independent Director ." A Director of CWI 2 who meets the criteria for an Independent Director specified in the Articles of Incorporation.
" Individual ." Any natural person and those organizations treated as individuals in Section 542(a) of the Code.
" Investment ." An investment made by CWI 2, directly or indirectly, in a Property, Loan or Other Permitted Investment Asset.
" Investment Committee ." The committee of individuals responsible for reviewing Investments on behalf of CWI 2.
" Investment Opportunity ." With respect to the limitations set forth in Section 14 hereof, the opportunity to lease, sublease, purchase or to offer to purchase any asset or investment originated by, presented to or otherwise identified by the Subadvisor, the Advisor, or any of their respective Affiliates, as applicable, relating to (i) Lodging Facilities or (ii) Lodging Loans. "Investment Opportunity" shall not include any opportunity to purchase or to offer to purchase any asset or investment located outside the Americas.
" Loans ." The notes and other evidences of indebtedness or obligations acquired, originated or entered into, directly or indirectly, by CWI 2 as lender, noteholder, participant, note purchaser or other capacity, including but not limited to first or subordinate mortgage loans, construction loans, development loans, loan participations, B notes, loans secured by capital stock or any other assets or form of equity interest and any other type of loan or financial arrangement, such as providing or arranging for letters of credit, providing guarantees of obligations to third parties, or providing commitments for loans. The term "Loans" shall not include leases which are not recognized as leases for federal income tax reporting purposes.
" Loan Refinancing Fee ." A fee payable to the Advisor in respect of the refinancing of a loan secured by an Investment.

 
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" Lodging Facility or Lodging Facilities ." With respect to an Investment Opportunity (1) a hotel, motel or other mixed-use establishment of which more than one-half (1/2) of its dwelling units are used on a transient basis or (2) equity interests in an entity that derives at least 30% of its earnings before interest, taxes, depreciation and amortization, or "EBITDA", from owning, operating or managing facilities of the type described in clause (1) of this definition.
" Lodging Loans ." With respect to an Investment Opportunity (1) Loans fully or partially secured by Lodging Facilities or equity interests in entities that own, directly or indirectly, Lodging Facilities; (2) unsecured Loans to entities that derive at least 30% of their EBITDA from interests in Lodging Facilities, or (3) participations in any of the Loans described in clauses (1) or (2) of this definition.
" Offering ." The offering of Shares pursuant to a Prospectus.
" Operating Expenses ." All consolidated operating, general and administrative expenses paid or incurred by CWI 2, as determined under GAAP, except the following (insofar as they would otherwise be considered operating, general and administrative expenses under GAAP): (i) interest and discounts and other cost of borrowed money; (ii) taxes (including state, Federal and foreign income tax, property taxes and assessments, franchise taxes and taxes of any other nature); (iii) expenses of raising capital, including Organization and Offering Expenses, printing, engraving, and other expenses, and taxes incurred in connection with the issuance and distribution of CWI 2's Shares and Securities; (iv) Acquisition Expenses, real estate commissions on resale of property and other expenses connected with the acquisition, disposition, origination, ownership and operation of Investments, including the costs of foreclosure, insurance premiums, legal services, brokerage and sales commissions, and the maintenance, repair and improvement of property; (v) Acquisition Fees or Disposition Fees payable to the Advisor or any other party; (vi) Distribution and Shareholder Servicing Fees payable to the Dealer Manager; (vii) distributions paid by the Operating Partnership to the Special General Partner under the agreement of limited partnership of the Operating Partnership in respect of gains realized on dispositions of Investments and other capital transactions; (viii) amounts paid to effect a redemption or repurchase of the special general partner interest held by the Special General Partner pursuant to the agreement of limited partnership of the Operating Partnership; and (ix) non-cash items, such as depreciation, amortization, depletion, and additions to reserves for depreciation, amortization, depletion, losses and bad debts. Notwithstanding anything herein to the contrary, Operating Expenses shall include the Asset Management Fee and any Loan Refinancing Fee and, solely for the purposes of determining compliance with the 2%/25% Guidelines, distributions of available cash generated by operations and investments made by the Operating Partnership to the Special General Partner pursuant to the agreement of limited partnership of the Operating Partnership, which, for the avoidance of doubt, does not include distributions described in clauses (vii) and (viii) of this definition.
" Operating Partnership ." CWI 2 OP, LP, a Delaware limited partnership, through which CWI 2 owns Investments.
" Organization and Offering Expenses ." Those expenses payable by CWI 2 and the Operating Partnership in connection with the formation, qualification and registration of CWI 2 and in marketing and distributing Shares, including, but not limited to: (i) the preparation, printing, filing

 
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and delivery of any registration statement or Prospectus (including any amendments thereof or supplements thereto) and the preparing and printing of contractual agreements among CWI 2, the Operating Partnership, the Dealer Manager and the Selected Dealers (including copies thereof); (ii) the preparing and printing of the Charter and Bylaws, other solicitation material and related documents and the filing and/or recording of such documents necessary to comply with the laws of the State of Maryland for the formation of a corporation and thereafter for the continued good standing of a corporation; (iii) the qualification or registration of the Shares under state securities or "Blue Sky" laws; (iv) any escrow arrangements, including any compensation to an escrow agent; (v) the filing fees payable to the SEC and to the Financial Industry Regulatory Authority; (vi) reimbursement for the reasonable and identifiable out-of-pocket expenses of the Dealer Manager and the Selected Dealers, including the cost of their counsel; (vii) the fees of CWI 2's counsel and accountants; (viii) all advertising expenses incurred in connection with an Offering, including the cost of all sales literature and the costs related to investor and broker-dealer sales and information meetings and marketing incentive programs; and (ix) selling commissions, dealer manager fees, selected dealer fees, marketing fees, incentive fees and due diligence fees incurred in connection with the sale of the Shares.
" Other Permitted Investment Asset ." An asset, other than cash, cash equivalents, short term bonds, auction rate securities and similar short term investments, acquired by CWI 2 for investment purposes that is not a Loan or a Property and is consistent with the investment objectives and policies of CWI 2.
" Person ." An Individual, corporation, partnership, joint venture, association, company, trust, bank, or other entity, or government or any agency or political subdivision of a government.
" Property or Properties ."CWI 2's partial or entire interest in real property (including leasehold interests) and personal or mixed property connected therewith. An Investment which obligates CWI 2 to acquire a Property will be treated as a Property for purposes of this Agreement.
" Property Management Fee ." Subject to CWI 2's intention to qualify as a REIT for U.S. federal income tax purposes, a fee for property management services rendered by the Advisor or its Affiliates in connection with Properties acquired directly or through foreclosure.
" Prospectus ." Any prospectus or offering document pursuant to which CWI 2 offers Shares in a public or private offering, as the same may at any time and from time to time be amended or supplemented, after the effective date of the registration statement in which it is included.
" REIT ." A real estate investment trust, as defined in Sections 856-860 of the Code.
" Securities ." Any stock, shares (other than currently outstanding Shares and subsequently issued Shares), or other evidences of equity or beneficial or other interests, voting trust certificates, bonds, debentures, notes or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise or in general any instruments commonly known as "securities" or any certificate of interest, shares or participation in temporary or interim certificates for, receipts for, guarantees of, or warrants, options or rights to subscribe to, purchase or acquire any of the foregoing.

 
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" Selected Dealers ." Broker-dealers who are members of the Financial Industry Regulatory Authority and who have executed an agreement with the Dealer Manager in which the Selected Dealers agree to participate with the Dealer Manager in the Offering.
" Shareholders ." Those Persons who, at the time any calculation hereunder is to be made, are shown as holders of record of Shares on the books and records of CWI 2 or its transfer agent.
" Shares ." The shares of any class of common stock of CWI 2, $0.001 par value, and any other shares of common stock of CWI 2.
" Special General Partner ." Carey Watermark Holdings 2, LLC and any permitted transferee of the special general partnership interest under the agreement of limited partnership of the Operating Partnership.
" Sponsor ." W. P. Carey Inc. and any other Person directly or indirectly instrumental in organizing, wholly or in part, CWI 2 or any person who will control, manage or participate in the management of CWI 2, and any Affiliate of any such person. Sponsor does not include a person whose only relationship to CWI 2 is that of an independent property manager and whose only compensation is as such. Sponsor also does not include wholly independent third parties such as attorneys, accountants and underwriters whose only compensation is for professional services.
" Subadvisor ." CWA 2, LLC, an Illinois limited liability company.
" Subadvisory Agreement ." The Subadvisory Agreement, dated as of the date hereof (as amended from time to time), between the Advisor and the Subadvisor.
" Termination Date ." The effective date of any termination of this Agreement.
" Total Investment Cost ." With regard to any Investment, an amount equal to the sum of the Contract Purchase Price of such Investment plus the Acquisition Fees and Acquisition Expenses paid in connection with such Investment and other fees and costs approved by the Independent Directors relating to the initial capitalization of the Investment.
2.      Appointment . CWI 2 hereby appoints the Advisor to serve as its advisor on the terms and conditions set forth in this Agreement, and the Advisor hereby accepts such appointment.
3.      Duties of the Advisor . Subject to Section 14, the Advisor undertakes to use its best efforts to present to CWI 2 potential investment opportunities and to provide a continuing and suitable investment program consistent with the investment objectives and policies of CWI 2 as determined and adopted from time to time by the Board. The Advisor will follow the Guidelines when allocating Investment opportunities among CWI 2, other entities managed by the Advisor and its Affiliates, and the Advisor and its Affiliates for their own account. The Guidelines shall not be amended without the prior approval of at least a majority of the Independent Directors. In performance of the foregoing undertakings, subject to the supervision of the Board and consistent with the provisions of the Articles of Incorporation and Bylaws of CWI 2 and any Prospectus pursuant to which Shares are offered, the Advisor shall, either directly or by engaging an Affiliate or the Subadvisor:
(a)      serve as CWI 2's investment and financial advisor and provide research and economic and statistical data in connection with CWI 2's assets and investment policies;
(b)      provide the daily management of CWI 2 and perform and supervise the various administrative functions reasonably necessary for the management of CWI 2, the Operating Partnership and the Investments;
(c)      investigate, select, and, on behalf of CWI 2, engage, oversee and conduct business with such Persons as the Advisor deems necessary to the proper performance of its obligations hereunder, including but not limited to consultants, accountants, correspondents, lenders, technical advisors, attorneys, brokers, underwriters, corporate fiduciaries, escrow agents, depositaries, custodians, agents for collection, insurers, insurance agents, banks, builders, developers, property owners, mortgagors, franchisors, independent property operators and any and all agents for any of the foregoing, including Affiliates of the Advisor, and Persons acting in any other capacity deemed by the Advisor necessary or desirable for the performance of any of the foregoing services, including but not limited to entering into contracts in the name of CWI 2 with any of the foregoing;
(d)      consult with Directors of CWI 2 and assist the Board in the formulation and implementation of CWI 2's policies, and furnish the Board with such information, advice and recommendations as they may request or as otherwise may be necessary to enable them to discharge their fiduciary duties with respect to matters coming before the Board;
(e)      subject to the provisions of Sections  3(h) and 4 hereof: (i) locate, analyze and select potential Investments and deliver to the Investment Committee, as applicable, such information as it may request or as otherwise may be necessary to enable the Investment Committee to evaluate potential Investments; (ii) structure and negotiate the terms and conditions of transactions pursuant to which Investments will be made, purchased or acquired by CWI 2; (iii) make Investments on behalf of CWI 2; (iv) arrange for financing and refinancing of, make other changes in the asset or capital structure of, dispose of, reinvest the proceeds from the sale of, or otherwise deal with the Investments; (v) enter into service contracts for Properties and, to the extent necessary, perform all other operational functions for the maintenance and administration of such; (vi) oversee such non-affiliated property managers and other non-affiliated Persons who perform services for CWI 2; and (vii) undertake accounting and other record-keeping functions at the Investment level;
(f)      provide the Board with periodic reports regarding prospective Investments and with periodic reports, no less than quarterly, of new Investments made during the prior fiscal quarter;
(g)      assist the Board in its evaluation of potential liquidity transactions for CWI 2 and take such actions as may be requested by the Board or as may otherwise be necessary or desirable to execute any liquidity transaction approved by the Board;
(h)      obtain the prior approval of the Board (including a majority of the Independent Directors) for any and all investments in Properties which do not meet all of the requirements set forth in Section  4(b) hereof;
(i)      negotiate on behalf of CWI 2 with banks or lenders for loans to be made to CWI 2, and negotiate on behalf of CWI 2 with investment banking firms and broker-dealers or negotiate private sales of Shares and Securities or obtain loans for CWI 2, but in no event in such a way so that the Advisor shall be acting as broker-dealer or underwriter; and provided , further , that any fees and costs payable to third parties incurred by the Advisor in connection with the foregoing shall be the responsibility of CWI 2;
(j)      obtain reports (which may be prepared by the Advisor or its Affiliates), where appropriate, concerning the value of Investments or contemplated Investments;
(k)      obtain for, or provide to, CWI 2 such services as may be required in acquiring, managing and disposing of Investments, including, but not limited to: (i) the negotiation, making and servicing of Investments; (ii) the disbursement and collection of Company monies; (iii) the payment of debts of and fulfillment of the obligations of CWI 2; and (iv) the handling, prosecuting and settling of any claims of or against CWI 2, including, but not limited to, foreclosing and otherwise enforcing mortgages and other liens securing Loans;
(l)      from time to time, or at any time reasonably requested by the Board, make reports to the Board of its performance of services to CWI 2 under this Agreement;
(m)      communicate on behalf of CWI 2 with Shareholders as required to satisfy the reporting and other requirements of any governmental bodies or agencies to Shareholders and third parties and otherwise as requested by CWI 2;
(n)      provide or arrange for administrative services and items, legal and other services, office space, office furnishings, personnel and other overhead items necessary and incidental to CWI 2's business and operations;
(o)      provide CWI 2 with such accounting data and any other information requested by CWI 2 concerning the investment activities of CWI 2 as shall be required to prepare and to file all periodic financial reports and returns required to be filed with the Securities and Exchange Commission and any other regulatory agency, including annual financial statements;
(p)      maintain the books and records of CWI 2;
(q)      supervise the performance of such ministerial and administrative functions as may be necessary in connection with the daily operations of the Investments;
(r)      provide CWI 2 with all necessary cash management services;
(s)      provide asset management services including, without limitation, oversight and strategic guidance to independent property operators that handle day-to-day operations of CWI 2's Properties;
(t)      do all things necessary to assure its ability to render the services described in this Agreement;
(u)      perform such other services as may be required from time to time for management and other activities relating to the assets of CWI 2 as the Advisor shall deem advisable under the particular circumstances;
(v)      arrange to obtain on behalf of CWI 2 as requested by the Board, and deliver to or maintain on behalf of CWI 2 copies of, all appraisals obtained in connection with Investments;
(w)      if a transaction, proposed transaction or other matter requires approval by the Board or by the Independent Directors, deliver to the Board or the Independent Directors, as the case may be, all documentation reasonably requested by them to properly evaluate such transaction, proposed transaction or other matter; and
(x)      on an annual basis, no later than 90 days prior to the end of each term of this Agreement, provide the Independent Directors with a report on (1) the Advisor's performance during the past year, (2) the compensation paid to the Advisor during such year and (3) any proposed changes to the compensation to be paid to the Advisor during the upcoming year if the Agreement is renewed. The Advisor's report shall address, among other things, (a) those matters identified in CWI 2's organizational documents as matters which the Independent Directors must review each year with respect to the Advisor's performance and compensation; (b) whether any Triggering Event occurred with respect to an Investment made during the past year; and (c) the "dead deal" costs incurred by CWI 2 during the past year. In addition, the Independent Directors may request that the Advisor refund certain of the "dead deal" costs incurred by CWI 2 if, in light of the circumstances under which such costs were incurred, the Independent Directors determine that CWI 2 should not bear such costs.
4.      Authority of Advisor .
(a)      Pursuant to the terms of this Agreement (and subject to the restrictions included in Paragraphs (b), (c) and (d) of this Section 4 and in Section  7 hereof), and subject to the continuing and exclusive authority of the Board over the management of CWI 2, the Board hereby delegates to the Advisor the authority to: (1) locate, analyze and select Investment opportunities; (2) structure and negotiate the terms and conditions of transactions pursuant to which Investments will be made, purchased or acquired for CWI 2; (3) make Investments on behalf of CWI 2 in compliance with the investment objectives and policies of CWI 2; (4) arrange for financing or refinancing, or make changes in the asset or capital structure of, and dispose of, reinvest the proceeds from the sale of, or otherwise deal with, Investments; (5) enter into the Subadvisory Agreement; (6) enter into service contracts, contracts with independent property operators and franchisors and perform other property level operations; (7) oversee such non-affiliated property managers and other non-affiliated Persons who perform services for CWI 2; and (8) undertake accounting and other record-keeping functions at the Investment level.
(b)      The consideration paid for an Investment acquired by CWI 2 shall ordinarily be based on the fair market value thereof. Consistent with the foregoing provision, the Advisor may, without further approval by the Board (except with respect to transactions subject to paragraphs (c) and (d) of this Section 4) invest on behalf of CWI 2 in an Investment so long as, in the Advisor's good faith judgment, (i) the Total Investment Cost of such Investment does not exceed the fair market value thereof, and in the case of an Investment that is a Property, shall in no event exceed the Appraised Value of such Property and (ii) the Investment, in conjunction with CWI 2's other Investments and proposed Investments, at the time CWI 2 is committed to purchase or originate the Investment, is reasonably expected to fulfill CWI 2's investment objectives and policies as established by the Board and then in effect. For purposes of the foregoing, the Total Investment Cost shall be measured at the date the Investment is made and shall exclude future commitments to fund improvements. Investments not meeting the foregoing criteria must be approved in advance by the Board.
(c)      Notwithstanding anything to the contrary contained in this Agreement, the Advisor shall not cause CWI 2 to make Investments that do not comply with Article IX (Investment Objectives and Limitations) of the Charter and related sections of the Bylaws.
(d)      The prior approval of the Board, including a majority of the Independent Directors and a majority of the Directors not interested in the transaction, will be required for: (i) Investments made through co-investment or joint venture arrangements with the Sponsor, the Advisor, one or more Directors or any of their Affiliates; (ii) Investments which are not contemplated by the terms of a Prospectus; (iii) transactions that present issues which involve conflicts of interest for the Advisor, its members or Affiliates (other than conflicts involving the payment of fees or the reimbursement of expenses); (iv) the purchase or lease of assets from or to any Director, any Sponsor, the Advisor, the member of the Advisor or any of their Affiliates; (v) any purchase or sale of an Investment from or to the Advisor, its members, one or more Directors or their Affiliates; and (vi) the retention of any Affiliate of the Advisor to provide services to CWI 2 not expressly contemplated by this Agreement and the terms of such services by such Affiliate. In addition, the Advisor shall comply with any further approval requirements set forth in the Bylaws.
(e)      The Board may, at any time upon the giving of notice to the Advisor, modify or revoke the authority set forth in this Section  4 . If and to the extent the Board so modifies or revokes the authority contained herein, the Advisor shall henceforth comply with such modification or revocation, provided however , that such modification or revocation shall be effective upon receipt by the Advisor and shall not be applicable to investment transactions to which the Advisor has committed CWI 2 prior to the date of receipt by the Advisor of such notification.
5.      Bank Accounts . The Advisor may establish and maintain one or more bank accounts in its own name for the account of CWI 2 or in the name of CWI 2 and may collect and deposit into any such account or accounts, and disburse from any such account or accounts, any money on behalf of CWI 2, provided that no funds shall be commingled with the funds of the Advisor; and the Advisor shall from time to time render appropriate accountings of such collections and payments to the Board and to the auditors of CWI 2.
6.      Records; Access . The Advisor shall maintain appropriate records of all its activities hereunder and make such records available for inspection by the Board and by counsel, auditors and authorized agents of CWI 2, at any time or from time to time during normal business hours. The Advisor shall at all reasonable times have access to the books and records of CWI 2.
7.      Limitations on Activities . Anything else in this Agreement to the contrary notwithstanding, the Advisor shall refrain from taking any action which, in its sole judgment made in good faith, would (i) adversely affect the status of CWI 2 as a REIT or of the Operating Partnership as a partnership for Federal income tax purposes, (ii) subject CWI 2 or the Operating Partnership to regulation under the Investment Company Act of 1940, as amended, or (iii) would violate any law, rule, regulation or statement of policy of any governmental body or agency having jurisdiction over CWI 2, its Shares or its Securities, or otherwise not be permitted by the Articles of Incorporation or Bylaws or agreement of limited partnership of the Operating Partnership, except if such action shall be ordered by the Board, in which case the Advisor shall notify promptly the Board of the Advisor's judgment of the potential impact of such action and shall refrain from taking such action until it receives further clarification or instructions from the Board. In such event the Advisor shall have no liability for acting in accordance with the specific instructions of the Board so given.
(a)      Notwithstanding the foregoing, the Company shall indemnify and hold harmless the the Advisor, its shareholders, members, directors, officers and employees, and partners, shareholders, directors and officers of the Advisor's shareholders and Affiliates of any of them for any loss or liability suffered by them, and the Advisor, its shareholders, members, directors, officers and employees, and partners, shareholders, directors and officers of the Advisor's shareholders and Affiliates of any of them, shall not be liable to CWI 2, the Operating Partnership or to the Directors or Shareholders for any act or omission by the Advisor, its shareholders, members, directors, officers and employees, or partners, shareholders, directors or officers of the Advisor's shareholders and Affiliates of any of them, if in each case the following conditions are met:
(i)      The Advisor, its shareholders, members, directors, officers and employees, and partners, shareholders, directors and officers of the Advisor's shareholders and Affiliates of any of them have determined, in good faith, that the course of conduct which caused the loss or liability was in the best interests of CWI 2;
(ii)      The Advisor, its shareholders, members, directors, officers and employees, and partners, shareholders, directors and officers of the Advisor's shareholders and Affiliates of any of them were acting on behalf of or performing services for CWI 2; and
(iii)      Such liability or loss was not the result of negligence or misconduct by the Advisor, its shareholders, members, directors, officers and employees, and partners, shareholders, directors and officers of the Advisor's shareholders or Affiliates of any of them.
(b)      Notwithstanding the foregoing, the Advisor and its Affiliates shall not be indemnified by CWI 2 or the Operating Partnership for any losses, liabilities or expenses arising from or out of the alleged violation of federal or state securities laws unless one or more of the following conditions are met:
(i)      There has been a successful adjudication on the merits of each count involving alleged securities law violations as to the particular indemnitee;
(ii)      Such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to the particular indemnitee; or
(iii)      A court of competent jurisdiction approves a settlement of the claims against a particular indemnitee and finds that indemnification of the settlement and the related costs should be made, and the court considering the request for indemnification has been advised of the position of the Securities and Exchange Commission and of the published position of any state securities regulatory authority in which securities of CWI 2 were offered or sold as to indemnification for violation of securities laws.
(c)      CWI 2 and the Operating Partnership shall advance funds to the Advisor or its Affiliates for legal expenses and other costs incurred as a result of any legal action for which indemnification is being sought only if all of the following conditions are satisfied:
(i)      The legal action relates to acts or omissions with respect to the performance of duties or services on behalf of CWI 2;
(ii)      The Advisor or the Affiliate has provided CWI 2 or the Operating Partnership with a written affirmation of his, her or its good faith belief that the standard of conduct necessary for indemnification has been met;
(iii)      The legal action is initiated by a third party who is not a Shareholder or the legal action is initiated by a Shareholder acting in his or her capacity as such and a court of competent jurisdiction specifically approves such advancement; and
(iv)      The Advisor or the Affiliate undertakes to repay the advanced funds to CWI 2, together with the applicable legal rate of interest thereon, in cases in which such Advisor or Affiliate is found not to be entitled to indemnification.
(d)      Notwithstanding the foregoing, the Advisor shall not be entitled to indemnification or be held harmless pursuant to this Section  7 for any activity which the Advisor shall be required to indemnify or hold harmless CWI 2 pursuant to Section  23 hereof .
(e)      Any amounts paid pursuant to this Section  7 shall be recoverable or paid only out the net assets of CWI 2 and not from Shareholders.
8.      Relationship with Directors . There shall be no limitation on any shareholder, member, director, officer, or employee of the Advisor or its Affiliates serving as a Director or an officer of CWI 2, except that no employee of the Advisor or its Affiliates who is also a Director or officer of CWI 2 shall receive any compensation from CWI 2 for serving as a Director or officer other than for (a) reasonable reimbursement for travel and related expenses incurred in attending meetings of the Board and (b) awards made pursuant to the Incentive Plans; for the avoidance of doubt, the limitations of this Section  8 shall not apply to any compensation paid by the Advisor or any Affiliate for which CWI 2 reimbursed the Advisor or Affiliate in accordance with Section 10 hereof. However, an employee of the Advisor who is also an officer of CWI 2 is eligible to receive restricted stock units as provided under the Incentive Plans.
9.      Fees .
(a)      Asset Management Fee .
(v)      The Operating Partnership shall pay to the Advisor as compensation for the advisory services rendered hereunder an asset management fee (the " Asset Management Fee ") in an amount equal to 0.55% of the aggregate Average Market Value of Investments. The Asset Management Fee with respect to an Investment will be calculated monthly, beginning with the month in which CWI 2 first makes the Investment, and shall be pro rated for the number of days during a month that CWI 2 owns the Investment. The aggregate Asset Management Fees calculated with respect to each month shall be payable on the first business day following such month.
(b)      Acquisition Fee .
(i)      The Advisor may receive as compensation for services rendered in connection with the investigation, selection, acquisition or origination (by purchase, investment or exchange) of any Investment, an acquisition fee (an " Acquisition Fee ") payable by the Operating Partnership. The Acquisition Fee payable to the Advisor in respect of an Investment shall be payable at the time such Investment is acquired in an amount equal to 2.50% of the Total Investment Cost.
(ii)      The total amount of all Acquisition Fees, whether payable to the Advisor or a third party, and Acquisition Expenses payable by the Operating Partnership may not exceed 6% of the aggregate Contract Purchase Price of all Investments, measured for the period beginning with the initial acquisition of an Investment and ending (A) on December 31 of the year in which CWI 2 has invested 90% of the net proceeds of its initial Offering (excluding the net proceeds from the sale of Shares pursuant to CWI 2's dividend reinvestment program), and (B) on each December 31 thereafter, unless a majority of the Directors (including a majority of the Independent Directors) not otherwise interested in any transaction approves the excess as being commercially competitive, fair and reasonable to CWI 2.
(c)      Property Management Fee; Loan Refinancing Fee .
(i)      No Property Management Fee shall be paid unless approved by a majority of the Independent Directors.
(ii)      The Advisor shall receive as compensation for services rendered in connection with a qualifying refinancing of a Loan secured by a Property (the " Refinanced Loan "), a loan refinancing fee (a " Loan Refinancing Fee ") payable by the Operating Partnership. A refinancing will qualify for a Loan Refinancing Fee only if (A) the maturity date of the Refinanced Loan is less than one year from the date of the refinancing and the new loan has a term of at least five years, (B) in the judgment of the Independent Directors, the terms of the new loan represent an improvement over the Refinanced Loan, or (C) the new loan is approved by the Independent Directors as being in the best interest of CWI 2. The Loan Refinancing Fee payable to the Advisor in respect of a Refinanced Loan shall be payable at upon the funding of the related mortgage loan or as soon thereafter as is reasonably practicable in an amount up to 1.00% of the principal amount of the Refinanced Loan.
(d)      Disposition Fee .
(i)      If the Advisor or an Affiliate provides a substantial amount of services in the sale of an Investment, the Advisor or such Affiliate shall be entitled to receive a disposition fee (the " Disposition Fee ") at the time of such disposition, in an amount equal to the lesser of (1) 50% of the Competitive Real Estate Commission (if applicable) and (2) 1.5% of the Contract Sales Price of the Investment.
(ii)      The total real estate commissions and Disposition Fees CWI 2 pays to all Persons shall not exceed an amount equal to the lesser of: (1) 6% of the Contract Sales Price of the Investment and (2) the Competitive Real Estate Commission. The Advisor shall present to the Independent Directors such information as they may reasonably request to review the level of services provided by the Advisor in connection with a disposition and the basis for the calculation of the amount of the Disposition Fees on a quarterly basis. No payment of Disposition Fees shall be made prior to review and approval of such information by the Independent Directors.
(e)      Loans From Affiliates . CWI 2 shall not borrow funds from the Advisor or its Affiliates unless (A) the transaction is approved by a majority of the Independent Directors and a majority of the Directors who are not interested in the transaction as being fair, competitive and commercially reasonable, (B) the interest and other financing charges or fees received by the Advisor or its Affiliates do not exceed the amount which would be charged by non-affiliated lending institutions and (C) the terms are not less favorable than those prevailing for comparable arm's-length loans for the same purpose. CWI 2 will not borrow on a long-term basis from the Advisor or its Affiliates unless it is to provide the debt portion of a particular investment and CWI 2 is unable to obtain a permanent loan at that time or in the judgment of the Board, it is not in CWI 2's best interest to obtain a permanent loan at the interest rates then prevailing and the Board has reason to believe that CWI 2 will be able to obtain a permanent loan on or prior to the end of the loan term provided by the Advisor or its Affiliates.
(f)      Changes To Fee Structure . In the event the Shares are listed on a national securities exchange, CWI 2 and the Advisor shall negotiate in good faith to establish a fee structure appropriate for an entity with a perpetual life. A majority of the Independent Directors must approve the new fee structure negotiated with the Advisor. In negotiating a new fee structure, the Independent Directors may consider any of the factors they deem relevant, including but not limited to: (a) the size of the advisory fee in relation to the size, composition and profitability of CWI 2's portfolio; (b) the success of the Advisor in generating opportunities that meet the investment objectives of CWI 2; (c) the rates charged to other REITs and to investors other than REITs by advisors performing similar services; (d) additional revenues realized by the Advisor and its Affiliates through their relationship with CWI 2, including loan administration, underwriting or broker commissions, servicing, engineering, inspection and other fees, whether paid by CWI 2 or by others with whom CWI 2 does business; (e) the quality and extent of service and advice furnished by the Advisor; (f) the performance of the investment portfolio of CWI 2, including income, conservation or appreciation of capital, frequency of problem investments and competence in dealing with distress situations; and (g) the quality of the portfolio of CWI 2 in relationship to the investments generated by the Advisor for the account of other clients. The Independent Directors shall not approve any new fee structure that is in their judgment more favorable (taken as a whole) to the Advisor than the current fee structure.
(g)      Payment . Compensation payable to the Advisor pursuant to this Section  9 shall be paid in cash; provided , however , that any fee payable pursuant to this Section  9 may be paid, at the option of the Advisor, in the form of: (i) cash, (ii) restricted Class A common stock of CWI 2, or (iii) a combination of cash and Class A common restricted stock. The Advisor shall notify CWI 2 in writing annually of the form in which the fee shall be paid. Such notice shall be provided no later than January 15 of each year. If no such notice is provided, the fee shall be paid in cash. For purposes of the payment of compensation to the Advisor in the form of stock, the value of each share of restricted stock shall be: (i) the Net Asset Value per Share as determined based on the most recent appraisal of CWI 2's assets performed by an Independent Appraiser, or (ii) if a public offering of CWI 2 common stock is then ongoing, the price to the public per share, including selling commissions and fees. The Net Asset Value determined on the basis of such appraisal may be adjusted on a quarterly or other basis by the Board to account for significant capital transactions. Stock issued by CWI 2 to the Advisor in payment of fees hereunder shall be governed by the terms set forth in Schedule A hereto, or such other terms as the Advisor and CWI 2 may from time to time agree.
10.      Expenses .
(a)      Subject to the limitations set forth in Section  9(b) , to the extent applicable, in addition to the compensation paid to the Advisor pursuant to Section  9 hereof, the Operating Partnership shall pay directly or reimburse the Advisor for the following expenses:
(iii)      Organization and Offering Expenses; provided however , that within 60 days after the end of the quarter in which any Offering terminates, the Advisor shall reimburse the Operating Partnership for any Organization and Offering Expense reimbursements received by the Advisor pursuant to this Section  10 to the extent that such reimbursements, when added to the balance of the Organization and Offering Expenses (excluding selling commissions and dealer manager fees) paid directly by the Operating Partnership, exceed (A) four percent of the Gross Offering Proceeds if the Gross Offering Proceeds are less than five hundred million dollars ($500,000,000.00), (B) two percent of the Gross Offering Proceeds if the Gross Offering Proceeds are five hundred million dollars ($500,000,000.00) or more, but less than seven hundred and fifty million dollars ($750,000,000.00), or (C) one and a half percent of the Gross Offering Proceeds if the Gross Offering Proceeds are more than seven hundred and fifty million dollars ($750,000,000.00); provided further , that the Advisor shall be responsible for the payment of all Organization and Offering Expenses (excluding such commissions and such fees and expense reimbursements) in excess of (A) four percent of the Gross Offering Proceeds if the Gross Offering Proceeds are less than five hundred million dollars ($500,000,000.00), (B) two percent of the Gross Offering Proceeds if the Gross Offering Proceeds are five hundred million dollars ($500,000,000.00) or more, but less than seven hundred and fifty million dollars ($750,000,000.00), or (C) one and a half percent of the Gross Offering Proceeds if the Gross Offering Proceeds are more than seven hundred and fifty million dollars ($750,000,000.00);
(iv)      all Acquisition Expenses;
(v)      to the extent not included in Acquisition Expenses, all expenses of whatever nature reasonably incurred and directly connected with the proposed acquisition of any Investment that does not result in the actual acquisition of the Investment, including, without limitation, personnel costs;
(vi)      expenses other than Acquisition Expenses incurred in connection with the investment of the funds of CWI 2, including, without limitation, business development expenses, costs of retaining industry or economic consultants and finder's fees and similar payments, to the extent not paid by the seller of the Investment or another third party, regardless of whether such expenses were incurred in transactions where a fee is not payable to the Advisor;
(vii)      interest and other costs for borrowed money, including discounts, points and other similar fees;
(viii)      taxes and assessments on income of CWI 2, to the extent paid or advanced by the Advisor, or on Investments and taxes as an expense of doing business;
(ix)      costs associated with insurance required in connection with the business of CWI 2 or by the Directors;
(x)      expenses of managing and operating Investments owned by CWI 2, whether payable to an Affiliate of the Advisor or a non-affiliated Person;
(xi)      fees and expenses of legal counsel for CWI 2;
(xii)      fees and expenses of auditors and accountants for CWI 2;
(xiii)      all expenses in connection with payments to the Directors and meetings of the Directors and Shareholders;
(xiv)      all expenses in connection with payments to the non-director members of the Investment Committee for CWI 2's Investments and meetings of the Investment Committee;
(xv)      expenses associated with listing the Shares and Securities on a securities exchange if requested by the Board;
(xvi)      expenses connected with payments of Distributions in cash or otherwise made or caused to be made by the Board to the Shareholders;
(xvii)      expenses of organizing, revising, amending, converting, modifying, or terminating CWI 2, the Operating Partnership or their respective governing instruments;
(xviii)      expenses of maintaining communications with Shareholders, including the cost of preparation, printing and mailing annual reports and other Shareholder reports, proxy statements and other reports required by governmental entities; and
(xix)      all other Operating Expenses and other expenses the Advisor incurs in connection with providing services to CWI 2, including reimbursement to the Advisor or its Affiliates for the costs of rent, goods, materials and personnel incurred by them based upon the compensation of the Persons involved and an appropriate share of overhead allocable to those Persons as reasonably determined by the Advisor on a basis approved annually by the Board (including a majority of the Independent Directors).
(b)      Expenses described in clause (xviii) of Section 10(a) and any other expenses described in Section 10(a) that are shared expenses of CWI 2 and CWI 1, shall be allocated between them based upon the percentage that CWI 2's or CWI 1's, as applicable, total revenues for the most recently completed four fiscal quarters represent of the combined total revenues for such period of CWI 2 and CWI 1 (provided that if any such entity has not been in operation for the full four quarter period, the period for which such entity has been in operation shall be annualized), or such other methodology as may be approved by the Board (including a majority of the Independent Directors). No reimbursement shall be made for the cost of personnel to the extent that such personnel are used in transactions for which the Advisor receives a separate transaction fee.
(c)      Expenses incurred by the Advisor on behalf of CWI 2 and payable pursuant to this Section  10 shall be reimbursed quarterly to the Advisor within 60 days after the end of each quarter, subject to the provisions of Section 13 hereof. The Advisor shall prepare a statement documenting the Operating Expenses of CWI 2 within 45 days after the end of each quarter.
11.      Other Services . Should the Board request that the Advisor or any Affiliate, shareholder or employee thereof render services for CWI 2 other than as set forth in Section  3 hereof, such services shall be separately compensated and shall not be deemed to be services pursuant to the terms of this Agreement.
12.      Fidelity Bond . The Advisor shall maintain a fidelity bond for the benefit of CWI 2 which bond shall insure CWI 2 from losses of up to $5,000,000 and shall be of the type customarily purchased by entities performing services similar to those provided to CWI 2 by the Advisor.
13.      Limitation on Expenses .
(a)      If Operating Expenses during the 12-month period ending on the last day of any fiscal quarter of CWI 2 exceed the greater of (i) two percent of the Average Invested Assets during the same 12-month period or (ii) 25% of the Adjusted Net Income of CWI 2 over the same 12-month period (the " 2%/25% Guidelines "), then subject to paragraph (b) of this Section 13, such excess amount shall be the sole responsibility of the Advisor and neither the Operating Partnership nor CWI 2 shall be liable for payment therefor. CWI 2 may defer the payment or distribution to the Advisor and the Special General Partner of fees, expenses and distributions that would, if paid or distributed, cause Operating Expenses during such 12-month period to exceed the foregoing limitations; provided, however , that in determining which items shall be paid and which may be deferred, priority will be given to the payment of distributions to the Special General Partner over the payment to the Advisor of amounts due under this Agreement.
(b)      Notwithstanding the foregoing, to the extent that the Advisor becomes responsible for any excess amount as provided in paragraph (a), if a majority of the Independent Directors finds such excess amount or a portion thereof justified based on such unusual and non-recurring factors as they deem sufficient, the Operating Partnership shall reimburse the Advisor in future quarters for the full amount of such excess, or any portion thereof, but only to the extent such reimbursement would not cause the Operating Expenses to exceed the 2%/25% Guidelines in the 12-month period ending on the last day of such quarter. In no event shall the Operating Expenses payable by the Operating Partnership in any 12-month period ending at the end of a fiscal quarter exceed the 2%/25% Guidelines.
(c)      Within 60 days after the end of any 12‑month period referred to in paragraph (a), the Advisor shall reimburse CWI 2 for any amounts expended by CWI 2 in such 12‑month period that exceeds the limitations provided in paragraph (a) unless the Independent Directors determine that such excess expenses are justified, as provided in paragraph (b), and provided the Operating Expenses for such later quarter would not thereby exceed the 2%/25% Guidelines.
(d)      All computations made under paragraphs (a) and (b) of this Section  13 shall be determined in accordance with generally accepted accounting principles applied on a consistent basis.
(e)      If the Special General Partner receives distributions pursuant to the agreement of limited partnership of the Operating Partnership in respect of realized gains on the disposition of an Investment, Adjusted Net Income, for purposes of calculating the Operating Expenses, shall exclude the gain from the disposition of such Investment.
14.      Other Activities of the Advisor .
(a)      Subject to the Guidelines, nothing herein contained shall prevent the Advisor from engaging in other activities, including without limitation, direct investment by the Advisor and its Affiliates in assets that would be suitable for CWI 2 the rendering of advice to other investors (including other REITs) and the management of other programs advised, sponsored or organized by the Advisor or its Affiliates; nor shall this Agreement limit or restrict the right of the Advisor or any of its Affiliates or of any director, member, officer, employee or shareholder of the Advisor or its Affiliates to engage in any other business or to render services of any kind to any other partnership, corporation, firm, individual, trust or association. The Advisor may, with respect to any investment in which CWI 2 is a participant, also render advice and service to each other participant therein. Without limiting the generality of the foregoing, CWI 2 acknowledges that (i) affiliates of the Advisor provide or will provide services to the CPA ® REIT funds, (ii) W. P. Carey Inc. owns investments in lodging properties which are not being contributed to CWI 2 which it will continue to own and manage and (iii) the Advisor and its Affiliates may provide services to other programs sponsored or managed by W. P. Carey Inc. whether now in existence or formed hereafter, and (iv) WP Carey Inc. and its Affiliates may make future investments for their own account. The Advisor shall be responsible for promptly reporting to the Board the existence of any actual or potential conflict of interest that arises that may affect its performance of its duties under this Agreement. If the Sponsor, Advisor, Director or Affiliates thereof has or have sponsored other investment programs with similar investment objectives which have investment funds available at the same time as CWI 2, it shall be the duty of the Advisor to allocate investments in a fair and equitable manner and in accordance with the Guidelines.
(b)      The Advisor shall be required to use its best efforts to present a continuing and suitable investment program to CWI 2 that is consistent with the investment objectives and policies of CWI 2, but subject to the last sentence of the preceding paragraph, neither the Advisor nor any Affiliate of the Advisor shall be obligated generally to present any particular investment opportunity to CWI 2 even if the opportunity is of character which, if presented to CWI 2, could be taken by CWI 2. If an Investment Opportunity is presented to, and rejected by, the investment committee of CWI 2, the Advisor shall be free to allocate such Investment Opportunity to itself or to another entity managed by it or its Affiliates.
(c)      The Advisor shall not consent to any material amendment of Section 4(a) of the Subadvisory Agreement without the prior approval of a majority of the Independent Directors.
Once each quarter, senior representatives of the Advisor will meet with at least a majority of the Independent Directors for the purpose of reviewing the Advisor's compliance with the Guidelines with respect to all Investments allocated among W. P. Carey Inc., CWI 2 and each other REIT and investment program managed by an Affiliate of W. P. Carey Inc. (each, together with its Affiliates, an " Investment Entity ," and collectively, the " Investment Entities ") during the most recently completed fiscal quarter. The quarterly review will take place at the regularly scheduled quarterly meeting of the Board of Directors, or at another time and place that are mutually determined by the Advisor and the Independent Directors, and may include representatives of other Investment Entities. The Advisor will use its best efforts to distribute a report reasonably in advance of each quarterly review meeting containing a list of all Investments allocated to the Investment Entities, the particular Investment Entity to which each Investment was allocated, a brief description of the Investment, the purchase price of each Investment and acquisition fees (if any) paid to the Advisor and its Affiliates in connection with each Investment. Representatives of the Advisor shall be prepared to discuss each Investment and the reasons for its allocation to particular Investment Entities at the quarterly review meeting.
15.      Relationship of Advisor and CWI 2 . CWI 2 and the Advisor agree that they have not created and do not intend to create by this Agreement a joint venture or partnership relationship between them and nothing in this Agreement shall be construed to make them partners or joint venturers or impose any liability as partners or joint venturers on either of them.
16.      Term; Termination of Agreement . This Agreement, as amended and restated, shall continue in force until December 31, 2016 or until 60 days after the date on which the Independent Directors shall have notified the Advisor of their determination either to renew this Agreement for an additional one-year period or terminate this Agreement, as required by the Articles of Incorporation.
17.      Termination by CWI 2 . At the sole option of the Board (including a majority of the Independent Directors), this Agreement may be terminated immediately by written notice of termination from CWI 2 to the Advisor upon the occurrence of events which would constitute Cause or if any of the following events occur:
(a)      If the Advisor shall be adjudged bankrupt or insolvent by a court of competent jurisdiction, or an order shall be made by a court of competent jurisdiction for the appointment of a receiver, liquidator, or trustee of the Advisor, for all or substantially all of its property by reason of the foregoing, or if a court of competent jurisdiction approves any petition filed against the Advisor for reorganization, and such adjudication or order shall remain in force or unstayed for a period of 30 days; or
(b)      If the Advisor shall institute proceedings for voluntary bankruptcy or shall file a petition seeking reorganization under the federal bankruptcy laws, or for relief under any law for relief of debtors, or shall consent to the appointment of a receiver for itself or for all or substantially all of its property, or shall make a general assignment for the benefit of its creditors, or shall admit in writing its inability to pay its debts, generally, as they become due.
Any notice of termination under Section  16 or 17 hereof shall be effective on the date specified in such notice, which may be the day on which such notice is given or any date thereafter. The Advisor agrees that if any of the events specified in this Section  17(a) or (b) shall occur, it shall give written notice thereof to the Board within 15 days after the occurrence of such event.

 
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18.      Termination by Either Party . This Agreement may be terminated immediately without penalty (but subject to the requirements of Section  20 hereof) by the Advisor by written notice of termination to CWI 2 upon the occurrence of events which would constitute Good Reason or by CWI 2 without cause or penalty (but subject to the requirements of Section  20 hereof) by action of the Directors, a majority of the Independent Directors or by action of a majority of the Shareholders, in each case upon 60 days' written notice.
19.      Assignment Prohibition . This Agreement may not be assigned by the Advisor without the prior written approval of the Board (including a majority of the Independent Directors); provided, however, that such approval shall not be required in the case of an assignment to a corporation, partnership, association, trust or organization which takes over the assets and carries on the affairs of the Advisor, provided : (i) that at the time of such assignment, such successor organization shall be owned substantially by an entity directly or indirectly controlled by the Advisor and only if such entity has a net worth of at least $5,000,000, and (ii) that the board of directors of the Advisor shall deliver to the Board a statement in writing indicating the ownership structure and net worth of the successor organization and a certification from the new Advisor as to its net worth. Such an assignment shall bind the assignees hereunder in the same manner as the Advisor is bound by this Agreement. The Advisor may assign any rights to receive fees or other payments under this Agreement without obtaining the approval of the Board. This Agreement may not be assigned by CWI 2 or the Operating Partnership without the prior written consent of the Advisor except in case of an assignment to a corporation or other organization which is a successor to CWI 2 or the Operating Partnership, in which case such successor organization shall be bound hereunder and by the terms of said assignment in the same manner as CWI 2 or the Operating Partnership is bound by this Agreement.
20.      Payments to and Duties of Advisor Upon Termination .
(a)      After the Termination Date, the Advisor shall not be entitled to compensation for further services hereunder but shall be entitled to receive from CWI 2 the following:
(i)      all unpaid reimbursements of Organization and Offering Expenses and of Operating Expenses payable to the Advisor;
(ii)      all earned but unpaid Asset Management Fees payable to the Advisor prior to the Termination Date;
(iii)      all earned but unpaid Acquisition Fees payable to the Advisor relating to the acquisition of any Property prior to the Termination Date;
(iv)      all earned but unpaid Disposition Fees payable to the Advisor relating to the sale of any Investment prior to the Termination Date; and
(v)      all earned but unpaid Property Management Fees and Loan Refinancing Fees, if any, payable to the Advisor or its Affiliates relating to the management of any property prior to the termination of this Agreement.
(b)      Notwithstanding the foregoing, if this Agreement is terminated by CWI 2 for Cause, or by the Advisor for other than Good Reason, the Advisor will not be entitled to receive the sums in this Section 20(a) (ii) through (v).
(c)      Any and all amounts payable to the Advisor pursuant to Section  20(a) hereof that, irrespective of the termination, were payable on a current basis prior to the Termination Date either because they were not subordinated or all conditions to their payment had been satisfied, shall be paid within 90 days after the Termination Date. All other amounts shall be paid in a manner determined by the Board, but in no event on terms less favorable to the Advisor than those represented by a note (i) maturing upon the liquidation of CWI 2 or the Operating Partnership or three years from the Termination Date, whichever is earlier, (ii) with no less than twelve equal quarterly installments and (iii) bearing a fair, competitive and commercially reasonable interest rate (the " Note "). The Note, if any, may be prepaid by the Operating Partnership at any time prior to maturity with accrued interest to the date of payment but without premium or penalty. Notwithstanding the foregoing, any amounts that relate to Investments (A) shall be an amount which provides compensation to the Advisor only for that portion of the holding period for the respective Investments during which the Advisor provided services to CWI 2, (B) shall not be due and payable until the Property, Loan or Other Permitted Investment Asset to which such amount relates is sold or refinanced, and (C) shall not bear interest until the Property, Loan or Other Permitted Investment Asset to which such amount relates is sold or refinanced. A portion of the amount shall be paid as each Investment owned by CWI 2 on the Termination Date is sold. The portion of such amount payable upon each such sale shall be equal to (X) such amount multiplied by (Y) the percentage calculated by dividing the fair value (at the Termination

 
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Date) of the Investment sold by CWI 2 divided by the total fair value (at the Termination Date) of all Investments owned by CWI 2 on the Termination Date.
(d)      The Advisor shall promptly upon termination:
(i)      pay over to the Operating Partnership all money collected and held for the account of CWI 2 pursuant to this Agreement, after deducting any accrued compensation and reimbursement for its expenses to which it is then entitled;
(ii)      deliver to the Board a full accounting, including a statement showing all payments collected by it and a statement of all money held by it, covering the period following the date of the last accounting furnished to the Board;
(iii)      deliver to the Board all assets, including the Properties, Loans, and Other Permitted Investment Assets, and documents of CWI 2 then in the custody of the Advisor; and
(iv)      cooperate with CWI 2 to provide an orderly management transition.
21.      Non-Solicitation and Non-Hire Following Termination . None of CWI 2 or any of its Affiliates will, for a period of 24 months after the termination of this Agreement for any reason, solicit for employment or employ, solicit for engagement or engage, including as an advisor, subadvisor, consultant or independent contractor, (i) any officer, director or management employee, or any other employee with whom CWI 2 or its Affiliates came into contact in connection with the services to be provided under this Agreement and the Subadvisory Agreement, in each case of the Advisor or the Subadvisor or any of their respective Affiliates (each a "Restricted Person") or (ii) any Affiliate of a Restricted Person.
22.      Indemnification by CWI 2 and the Operating Partnership . Neither CWI 2 nor the Operating Partnership shall indemnify the Advisor or any of its Affiliates for any loss or liability suffered by the Advisor or the Affiliate, or hold the Advisor or the Affiliate harmless for any loss or liability suffered by CWI 2, except as permitted under Section 7 hereof.
23.      Indemnification by Advisor . The Advisor shall indemnify and hold harmless CWI 2 and the Operating Partnership from liability, claims, damages, taxes or losses and related expenses including attorneys' fees, to the extent that such liability, claims, damages, taxes or losses and related expenses are not fully reimbursed by insurance and are incurred by reason of the Advisor's bad faith, fraud, willful misfeasance, misconduct, negligence or reckless disregard of its duties.
24.      Joint and Several Obligations . Any obligations of CWI 2 shall be construed as the joint and several obligations of CWI 2 and the Operating Partnership, unless otherwise specifically provided in this Agreement.
25.      Notices . Any notice, report or other communication required or permitted to be given hereunder shall be in writing unless some other method of giving such notice, report or other communication is accepted by the party to whom it is given, and shall be given by being delivered by hand or by overnight mail or other overnight delivery service to the addresses set forth herein:
To the Board
and to CWI 2 :
Carey Watermark Investors 2 Incorporated
50 Rockefeller Plaza
New York, NY 10020
 
 
To the Operating Partnership:
c/o Carey Watermark Investors 2 Incorporated
50 Rockefeller Plaza
New York, NY 10020
 
 
To the Advisor:
Carey Lodging Advisors, LLC
50 Rockefeller Plaza
New York, NY 10020

With a copy to:
Carey Asset Management Corp.
50 Rockefeller Plaza
New York, NY 10020 and

During the term of the Subadvisory Agreement, with a copy to:

CWA, LLC
c/o Watermark Capital Partners, LLC
272 East Deerpath Road, Suite 320
Lake Forest, IL 60045
 
 
Either party may at any time give notice in writing to the other party of a change in its address for the purposes of this Section  25 .

 
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26.      Modification . This Agreement shall not be changed, modified, terminated, or discharged, in whole or in part, except by an instrument in writing signed by both parties hereto, or their respective successors or assignees.
27.      Severability . The provisions of this Agreement are independent of and severable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part.
28.      Construction . This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of New York.
29.      Entire Agreement . This Agreement contains the entire agreement and understanding among the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements, understandings, inducements and conditions, express or implied, oral or written, of any nature whatsoever with respect to the subject matter hereof. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing.
30.      Indulgences, Not Waivers . Neither the failure nor any delay on the part of a party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver.
31.      Gender . Words used herein regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context requires.
32.      Titles Not to Affect Interpretation . The titles of Sections and subsections contained in this Agreement are for convenience only, and they neither form a part of this Agreement nor are they to be used in the construction or interpretation hereof.
33.      Execution in Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories.
34.      Initial Investment . The Advisor has contributed to CWI 2 $200,000 in exchange for 22,222 shares of Class A common stock of CWI 2 (the " Initial Investment "). The Advisor or its Affiliates may not sell any of the shares purchased with the Initial Investment during the term of this Agreement. The restrictions included above shall not continue to apply to any Shares other than the shares acquired through the Initial Investment acquired by the Advisor or its Affiliates. The Advisor shall not vote any Shares it now owns or hereafter acquires in any vote for the election of Directors or any vote regarding the approval or termination of any contract with the Advisor or any of its Affiliates.
IN WITNESS WHEREOF, the parties hereto have executed this Advisory Agreement as of the day and year first above written.
CAREY WATERMARK INVESTORS 2 INCORPORATED
By:
/s/ Thomas E. Zacharias
Name: Thomas E. Zacharias
Title: Chief Operating Officer

CWI 2 OP, LP
By:
CAREY WATERMARK INVESTORS 2
INCORPORATED, its General Partner

By:
/s/ Thomas E. Zacharias
Name: Thomas E. Zacharias
Title: Chief Operating Officer
 


 
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CAREY LODGING ADVISORS, LLC
By: CAREY ASSET MANAGEMENT CORP., as sole member
By:
/s/ Susan C. Hyde
Name: Susan C. Hyde
Title: Managing Director and Secretary



 
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SCHEDULE A
Investment Allocation Guidelines
CWI 2 invests primarily in lodging and lodging related assets. CWI 2's investment objectives and investment strategy are set forth in its public filings with the Securities and Exchange Commission and are subject to change from time to time with the approval of the Board.
During the First Offer Period (as defined in the Subadvisory Agreement), the Advisor agrees to offer to the investment committee of CWI 2 the opportunity for CWI 2 to invest in all Investment Opportunities sourced by the Advisor.
During the First Offer Period, the Subadvisor (pursuant to the Subadvisory Agreement) agrees to offer to the investment committee of CWI 2 the opportunity to invest in all Investment Opportunities sourced by the Subadvisor.
The Advisor shall consider the following factors, together with such other factors as it deems relevant in the exercise of its reasonable judgment, when deciding how to allocate Investment Opportunities between CWI 2, on the one hand, and the Advisor and its Affiliates and other entities managed by the Advisor and its Affiliates in a fair and equitable manner
•
whether an entity is still in its fundraising and acquisition stage, or has substantially invested the proceeds from its fundraising stage;
•
the amount of funds available for investment by an entity and the length of time that such funds have been available for investment;
•
the effect of the Investment on the diversification of an entity's portfolio;
•
the effect of the Investment on the profile of an entity's mortgage maturity profile;
•
the ability of an entity to service any debt associated with the Investment;
•
the effect of the Investment on the ability of the entity to comply with any restrictions on investments and indebtedness contained in the Investment Entity's governing documents and public SEC filings, in any contract or in any law or regulation applicable to the Investment Entity;
•
whether an entity was formed for the purpose of making a particular type of investment;
•
the financial attributes of the Investment;
•
the future capital expenditures and other investments planned for the Investment;
•
the effect of the Investment on the Investment Entity's intention to qualify as a REIT, partnership or other type of entity for tax purposes; and

 
A- 1
 



•
the effect of the Investment on an Investment Entity's intention not to be subject to regulation under the Investment Company Act of 1940, as amended.
The Advisor and the Subadvisor shall make investment allocation decisions without regard to the relative fees or other compensation that would be paid to the Advisor or the Subadivisor and their respective Affiliates in connection with the applicable Investments.


 
A- 2
 



SCHEDULE B
This Schedule A sets forth the terms governing any Shares issued by CWI 2 to the Advisor in payment of advisory fees set forth in the Agreement. Capitalized terms used herein and not defined herein shall have the meanings ascribed to them in the Agreement.
1.      Restrictions . The Shares are subject to vesting over a five-year period. The Shares shall vest ratably over a five-year period with 20% of the Shares paid in each payment vesting on each of the first through fifth anniversary of the date hereof. Prior to the vesting of the ownership of the Shares in the Advisor, the Shares may not be transferred by the Advisor.
2.      Immediate Vesting . Upon the expiration or termination of the Agreement for any reason other than a termination for Cause under Section 17 of the Agreement or upon a "Change of Control" of CWI 2 (as defined below), all Shares granted to the Advisor pursuant to Section 9(g) of the Agreement shall vest immediately and all restrictions shall lapse. For purposes of this Schedule A, a "Change of Control" of CWI 2 shall be deemed to have occurred if there has been a change in the ownership of CWI 2 of a nature that would be required to be reported in response to the disclosure requirements of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the " Exchange Act "), as enacted and in force on the date hereof, whether or not CWI 2 is then subject to such reporting requirements; provided , however , that, without limitation, a " Change of Control " shall be deemed to have occurred if:
(i)      any "person," as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than CWI 2, any of its subsidiaries, any trustee, fiduciary or other person or entity holding securities under any employee benefit plan of CWI 2 or any of its subsidiaries), together with all "affiliates" and "associates" (as such terms are defined in Rule 14b-2 under the Exchange Act) of such person, shall become the "beneficial owner" (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of CWI 2 representing 25 % or more of either (A) the combined voting power of CWI 2's then outstanding securities having the right to vote in an election of the Board (" Voting Securities ") or (B) the Shares then outstanding (in either such case other than as a result of acquisition of securities directly from CWI 2);
(ii)      persons who, as of the date hereof, constitute the Board (the " Incumbent Directors ") cease for any reason, including without limitation, as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Board, provided that any person becoming a director of CWI 2 subsequent to the date hereof whose election or nomination for election was approved by a vote of at least a majority of the Incumbent Directors shall be considered an Incumbent Director; or
(iii)      the stockholders of CWI 2 shall approve (A) any consolidation or merger of CWI 2 or any subsidiary where the stockholders of CWI 2, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Exchange

 
B- 1
 



Act), directly or indirectly, shares representing in the aggregate 50 % or more of the voting equity of the entity issuing cash or securities in the consolidation or merger (or of its ultimate parent entity, if any), (B) any sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of CWI 2 or (C) any plan or proposal for the liquidation or dissolution of CWI 2.
Notwithstanding the foregoing, a Change of Control shall not be deemed to have occurred for purposes of the foregoing clause (i) solely as the result of an acquisition of securities by CWI 2 which, by reducing the number of Shares outstanding, increases (A) the proportionate number of Shares beneficially owned by any person to 25% or more of the Shares then outstanding, or (B) the proportionate voting power represented by the Shares beneficially owned by any person to 25% or more of the combined voting power of all then outstanding Voting Securities; provided , however , that if any person referred to in clause (A) or (B) of this sentence shall thereafter become the beneficial owner of any additional Shares or other Voting Securities (other than pursuant to a Share split, Share dividend, or similar transaction), then a Change of Control shall be deemed to have occurred for purposes of the foregoing clause (i).
3.      Exception . Notwithstanding anything else in the Agreement to the contrary, the Shares shall continue to vest according to the vesting schedule in this Section A regardless of: (a) the expiration of the Agreement for any reason other than a termination by CWI 2 for Cause or a resignation by the Advisor for other than Good Reason, (b) the merger of CWI 2 and an Affiliate of CWI 2, or (c) any Change of Control of CWI 2 in connection with a merger of CWI 2 with an Affiliate of CWI 2.

 
B- 2
 



Exhibit 10.26
CAREY FINANCIAL, LLC
FORM OF DEALER MANAGER AGREEMENT
February 9, 2015

Carey Financial, LLC
50 Rockefeller Plaza
New York, New York 10020
RE:
CAREY WATERMARK INVESTORS 2 INCORPORATED
Ladies and Gentlemen:
Carey Watermark Investors 2 Incorporated (the “Company”) is a Maryland corporation that intends to qualify to be taxed as a real estate investment trust (a “REIT”) for federal income tax purposes beginning with the taxable year ending December 31, 2015, or the first year during which the Company begins material operations. The Company proposes to offer (a) up to $1,400,000,000 in shares of Class A common stock, $.001 par value per share (the “Shares” or the “Class A Shares”), for a purchase price of $10.00 per Share (subject in certain circumstances to discounts based upon the volume of shares purchased and for certain categories of purchasers), in the primary offering (the “Primary Offering”), and (b) up to $600,000,000 in Shares for a purchase price of $9.60 per share for issuance through the Company’s distribution reinvestment program (the “DRIP” and together with the Primary Offering, the “Offering”), all upon the other terms and subject to the conditions set forth in the Prospectus (as defined in Section 1(a)). The Company has reserved the right to reallocate the Shares offered between the DRIP and the Primary Offering.
Upon the terms and subject to the conditions contained in this Dealer Manager Agreement (this “Agreement”), the Company hereby appoints Carey Financial, LLC, a Delaware limited liability company (the “Dealer Manager”), to act as the exclusive dealer manager for the Offering, and the Dealer Manager desires to accept such engagement.
1.
Representations And Warranties Of The Company. The Company hereby represents, warrants and agrees during the term of this Agreement as follows:
(a)
Registration Statement and Prospectus . In connection with the Offering, the Company has prepared and filed with the Securities and Exchange Commission (the “Commission”) a registration statement (File No. 333-196681) on Form S-11 for the registration of the Shares under the Securities Act of 1933, as amended (the “Securities Act”), and the rules and regulations of the Commission promulgated thereunder (the “Securities Act Rules and Regulations”); and one or more amendments to such registration statement have been or may be so prepared and filed. The registration statement on Form S-11 and the prospectus contained therein, as finally amended at the date the registration statement is declared effective by the Commission (the “Effective Date”) are respectively hereinafter referred to as the “Registration Statement” and the “Prospectus”, except that:
(i)
if the Company files a post-effective amendment to such registration statement, then the term “Registration Statement” shall, from and after the declaration of the effectiveness of such post-effective amendment by the Commission, refer to such registration statement as

1


amended by such post-effective amendment, and the term “Prospectus” shall refer to the amended prospectus then on file with the Commission; and
(ii)
if the prospectus filed by the Company pursuant to either Rule 424(b) or 424(c) of the Securities Act Rules and Regulations shall differ from the prospectus on file at the time the Registration Statement or the most recent post-effective amendment thereto, if any, shall have become effective, then the term “Prospectus” shall refer to such prospectus filed pursuant to either Rule 424(b) or 424(c), as the case may be, from and after the date on which it shall have been filed. The term “preliminary Prospectus” as used herein shall mean a preliminary prospectus related to the Shares as contemplated by Rule 430 or Rule 430A of the Securities Act Rules and Regulations included at any time as part of the Registration Statement. As used herein, the terms “Registration Statement”, “preliminary Prospectus” and “Prospectus” shall include the documents, if any, incorporated by reference therein.
As used herein, the term “Effective Date” also shall refer to the effective date of each post-effective amendment to the Registration Statement, unless the context otherwise requires.
Further, if a separate prospectus is filed and becomes effective with respect solely to the DRIP (a “DRIP Prospectus”), the term “Prospectus” shall refer to such DRIP Prospectus from and after the declaration of effectiveness of such DRIP Prospectus.
(b)
Compliance With the Securities Act. During the term of this Agreement:
(i)
the Registration Statement, the Prospectus and any amendments or supplements thereto have complied, and will comply, in all material respects with the Securities Act, the Securities Act Rules and Regulations, the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the rules and regulations promulgated thereunder (the “Exchange Act Rules and Regulations”);
(ii)
the Registration Statement does not, and any amendment thereto will not, in each case as of the applicable Effective Date, include any untrue statement of material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and the Prospectus does not, and any amendment or supplement thereto will not, as of the applicable filing date, include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading; provided, however, that the foregoing provisions of this Section 1(b) will not extend to any statements contained in or omitted from the Registration Statement or the Prospectus that are based upon written information furnished to the Company by the Dealer Manager expressly for use in the Registration Statement or Prospectus; and
(iii)
the documents incorporated or deemed to be incorporated by reference in the Prospectus, at the time they are hereafter filed with the Commission, will comply in all material respects with the requirements of the Exchange Act and the Exchange Act Rules and Regulations, and, when read together with the other information in the Prospectus, at the time the Registration Statement became effective and as of the applicable Effective Date of each post-effective amendment to the Registration Statement, did not and will not include an untrue statement of a material fact or omit to state a material fact required to

2


be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.
(c)
Securities Matters. There has not been:
(i)
any request by the Commission for any further amendment to the Registration Statement or the Prospectus or for any additional information;
(ii)
any issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the institution or, to the Company’s knowledge, threat of any proceeding for that purpose; or
(iii)
any notification with respect to the suspension of the qualification of the Shares for sale in any jurisdiction or any initiation or, to the Company’s knowledge, threat of any proceeding for such purpose.
The Company is in compliance in all material respects with all federal and state securities laws, rules and regulations applicable to it and its activities, including, without limitation, with respect to the Offering and the sale of the Shares.
(d)
Corporate Status and Good Standing . The Company is a corporation duly organized and validly existing under the laws of the State of Maryland and is in good standing with the State Department of Assessments and Taxation of Maryland, with all requisite power and authority to enter into this Agreement and to carry out its obligations hereunder.
(e)
Authorization of Agreement. This Agreement is duly and validly authorized, executed and delivered by or on behalf of the Company and constitutes a valid and binding agreement of the Company enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws of the United States, any state or any political subdivision thereof which affect creditors’ rights generally or by equitable principles relating to the availability of remedies or except to the extent that the enforceability of the indemnity and contribution provisions contained in this Agreement may be limited under applicable securities laws.
(f)
Absence of Conflict or Default. The execution and delivery of this Agreement and the performance of this Agreement, the consummation of the transactions contemplated herein and the fulfillment of the terms hereof, do not and will not conflict with, or result in a breach of any of the terms and provisions of, or constitute a default under:
(i)
the Company’s or any of its subsidiaries’ charter, bylaws, or other organizational documents, as the case may be;
(ii)
any indenture, mortgage, deed of trust, voting trust agreement, note, lease or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or any of their properties is bound except, for purposes of this clause (ii) only, for such conflicts, breaches or defaults that do not result in and could not reasonably be expected to result in, individually or in the aggregate, a Company MAE (as defined below in this Section 1(f)); or

3


(iii)
any statute, rule or regulation or order of any court or other governmental agency or body having jurisdiction over the Company, any of its subsidiaries or any of their properties.
No consent, approval, authorization or order of any court or other governmental agency or body has been or is required for the performance of this Agreement or for the consummation by the Company of any of the transactions contemplated hereby (except as have been obtained under the Securities Act, the Exchange Act, from the Financial Industry Regulatory Authority (“FINRA”) or as may be required under state securities or applicable blue sky laws in connection with the offer and sale of the Shares or under the laws of states in which the Company may own real properties in connection with its qualification to transact business in such states or as may be required by subsequent events which may occur). Neither the Company nor any of its subsidiaries is in violation of its charter, bylaws or other organizational documents, as the case may be.
As used in this Agreement, “Company MAE” means any event, circumstance, occurrence, fact, condition, change or effect, individually or in the aggregate, that is, or could reasonably be expected to be, materially adverse to (A) the condition, financial or otherwise, earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, or (B) the ability of the Company to perform its obligations under this Agreement or the validity or enforceability of this Agreement or the Shares.
(g)
Actions or Proceedings. As of the initial Effective Date, there are no actions, suits or proceedings against, or investigations of, the Company or its subsidiaries pending or, to the knowledge of the Company, threatened, before any court, arbitrator, administrative agency or other tribunal:
(iv)
asserting the invalidity of this Agreement;
(v)
seeking to prevent the issuance of the Shares or the consummation of any of the transactions contemplated by this Agreement;
(vi)
that would reasonably be expected to materially and adversely affect the performance by the Company of its obligations under or the validity or enforceability of, this Agreement or the Shares;
(vii)
that would reasonably be expected to result in a Company MAE, or
(viii)
seeking to affect adversely the federal income tax attributes of the Shares except as described in the Prospectus.
The Company promptly will give notice to the Dealer Manager of the occurrence of any action, suit, proceeding or investigation of the type referred to above arising or occurring on or after the initial Effective Date.
(h)
Escrow Agreement. The Company will enter into an escrow agreement (the “Escrow Agreement”) with the Dealer Manager and UMB Bank, N.A. (the “Escrow Agent”), substantially in the form included as an exhibit to the Registration Statement.
(i)
Sales Literature. Any supplemental sales literature or advertisement (including, without limitation any “broker-dealer use only” or institutional material), regardless of how labeled or described, used in addition to the Prospectus in connection with the Offering which previously has been, or hereafter is, furnished or approved by the Company (collectively, “Approved Sales

4


Literature”), shall, to the extent required, be filed with and approved by the appropriate securities agencies and bodies, provided that the Dealer Manager will make all FINRA filings, to the extent required. Any and all Approved Sales Literature, when used in connection with the Prospectus, did not or will not at the time provided for use include any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.
(j)
Authorization of Shares. The Shares have been duly authorized and, when issued and sold as contemplated by the Prospectus and upon payment therefor as provided in this Agreement and the Prospectus, will be validly issued, fully paid and nonassessable and will conform in all material aspects to the description thereof contained in the Prospectus.
(k)
Taxes. Any taxes, fees and other governmental charges in connection with the execution and delivery of this Agreement or the execution, delivery and sale of the Shares have been or will be paid when due.
(l)
Investment Company. The Company is not, and neither the offer or sale of the Shares nor any of the activities of the Company will cause the Company to be, an “investment company” or under the control of an “investment company” as such terms are defined in the Investment Company Act of 1940, as amended.
(m)
Tax Returns. The Company has filed or will file all material federal, state and foreign income tax returns required to be filed by or on behalf of the Company on or before the due dates therefor (taking into account all extensions of time to file) and has paid or provided for the payment of all such material taxes, except those being contested in good faith, indicated by such tax returns and all assessments received by the Company to the extent that such taxes or assessments have become due.
(n)
REIT Qualifications. The Company will make a timely election to be subject to tax as a REIT pursuant to Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”) for its taxable year ended December 31, 2015, or the first year during which the Company begins material operations. The Company has been organized and operated in conformity with the requirements for qualification and taxation as a REIT. The Company’s current and proposed method of operation as described in the Registration Statement and the Prospectus will enable it to continue to meet the requirements for qualification and taxation as a REIT under the Code.
(o)
Independent Registered Public Accounting Firm. The accountants who have certified certain financial statements appearing in the Prospectus are an independent registered public accounting firm within the meaning of the Securities Act and the Securities Act Rules and Regulations. Such accountants have not been engaged by the Company to perform any “prohibited activities” (as defined in Section 10A of the Exchange Act).
(p)
Preparation of the Financial Statements. The financial statements filed with the Commission as a part of the Registration Statement and included in the Prospectus present fairly the consolidated financial position of the Company and its subsidiaries as of and at the dates indicated and the results of their operations and cash flows for the periods specified. Such financial statements have been prepared in conformity with generally accepted accounting principles as applied in the United States applied on a consistent basis throughout the periods involved, except as may be expressly stated in the related notes thereto. No other financial statements or supporting schedules are required to be included in the Registration Statement or any applicable Prospectus.

5


(q)
Material Adverse Change. Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as may otherwise be stated therein or contemplated thereby, there has not occurred a Company MAE, whether or not arising in the ordinary course of business.
(r)
Government Permits. The Company and its subsidiaries possess such certificates, authorities or permits issued by the appropriate state, federal or foreign regulatory agencies or bodies necessary to conduct the business now operated by them, other than those the failure to possess or own would not have, individually or in the aggregate, a Company MAE. Neither the Company nor any of its subsidiaries has received any notice of proceedings relating to the revocation or modification of any such certificate, authority or permit which, individually or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would result in a Company MAE.
(s)
Properties. Except as otherwise disclosed in the Prospectus and except as would not result in, individually or in the aggregate, a Company MAE:
(ix)
all properties and assets described in the Prospectus are owned with good and marketable title by the Company and its subsidiaries; and
(x)
all liens, charges, encumbrances, claims or restrictions on or affecting any of the properties and assets of any of the Company or its subsidiaries which are required to be disclosed in the Prospectus are disclosed therein.
(t)
Hazardous Materials. The Company does not have any knowledge of:
(xi)
the unlawful presence of any hazardous substances, hazardous materials, toxic substances or waste materials (collectively, “Hazardous Materials”) on any of the properties owned by it or its subsidiaries or subject to mortgage loans owned by the Company or any of its subsidiaries; or
(xii)
any unlawful spills, releases, discharges or disposal of Hazardous Materials that have occurred or are presently occurring off such properties as a result of any construction on or operation and use of such properties, which presence or occurrence in the case of clauses (i) and (ii) would result in, individually or in the aggregate, a Company MAE.
In connection with the properties owned by the Company and its subsidiaries or subject to mortgage loans owned by the Company or any of its subsidiaries, the Company has no knowledge of any material failure to comply with all applicable local, state and federal environmental laws, regulations, ordinances and administrative and judicial orders relating to the generation, recycling, reuse, sale, storage, handling, transport and disposal of any Hazardous Materials.
1.
Representations and Warranties of the Dealer Manager. The Dealer Manager represents and warrants to the Company during the term of this Agreement that:
(a)
Organization Status. The Dealer Manager is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware, with all requisite power and authority to enter into this Agreement and to carry out its obligations hereunder.
(b)
Authorization of Agreement. This Agreement has been duly authorized, executed and delivered by the Dealer Manager, and assuming due authorization, execution and delivery of this Agreement

6


by the Company, will constitute a valid and legally binding agreement of the Dealer Manager enforceable against the Dealer Manager in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally or by equitable principles relating to enforceability and except that rights to indemnity and contribution hereunder may be limited by applicable law and public policy.
(c)
Absence of Conflict or Default. The execution and delivery of this Agreement, the consummation of the transactions herein contemplated and compliance with the terms of this Agreement by the Dealer Manager will not conflict with or constitute a default under:
(i)
its organizational documents;
(ii)
any indenture, mortgage, deed of trust or lease to which the Dealer Manager is a party or by which it may be bound, or to which any of the property or assets of the Dealer Manager is subject; or
(iii)
any statute, rule, regulation, writ, injunction or decree of any government, governmental instrumentality or court, domestic or foreign, having jurisdiction over the Dealer Manager or its assets, properties or operations, except in the case of clause (ii) or (iii) for such conflicts or defaults that would not individually or in the aggregate have a material adverse effect on the condition (financial or otherwise), business, properties or results of operations of the Dealer Manager.
(d)
Broker-Dealer Registration; FINRA Membership. The Dealer Manager is, and during the term of this Agreement will be, duly registered as a broker-dealer pursuant to the provisions of the Exchange Act, a member in good standing of FINRA, and a broker or dealer duly registered as such in those states where the Dealer Manager is required to be registered in order to carry out the Offering as contemplated by this Agreement. Moreover, the Dealer Manager’s employees and representatives have all required licenses and registrations to act under this Agreement. There is no provision in the Dealer Manager’s FINRA membership agreement that would restrict the ability of the Dealer Manager to carry out the Offering as contemplated by this Agreement.
2.
Offering and Sale of the Shares. Upon the terms and subject to the conditions set forth in this Agreement, the Company hereby appoints the Dealer Manager as its agent and exclusive distributor to solicit and to retain the Selected Dealers (as defined in Section 3(a)) to solicit subscriptions for the Shares at the subscription price to be paid in cash. Upon the terms and subject to the conditions set forth in this Agreement, the Dealer Manager hereby accepts such agency and exclusive distributorship and agrees to use its best efforts to sell or cause to be sold the Shares in such quantities and to such persons in accordance with such terms as are set forth in this Agreement, the Prospectus and the Registration Statement.
The Dealer Manager shall do so during the period commencing on the initial Effective Date and ending on the earliest to occur of the following: (1) the later of (x) two years after the initial Effective Date of the Registration Statement and (y) at the Company’s election, the date on which the Company is permitted to extend the Offering in accordance with the rules of the Commission; (2) the acceptance by the Company of subscriptions for the amount offered in the Primary Offering, which for this section includes any DRIP shares reallocated to the Primary Offering; (3) the termination of the Offering by the Company, which the Company shall have the right to terminate in its sole and absolute discretion at any time; (4) the termination of the effectiveness of the Registration Statement; and (5) the liquidation or dissolution of the Company (such period being the “Offering Period”).

7


The number of Shares, if any, to be reserved for sale by each Selected Dealer may be determined by mutual agreement, from time to time, by the Dealer Manager and the Company. In the absence of such determination, the Company shall, subject to the provisions of Section 3(b), accept Order Forms based upon a first-come, first accepted reservation or other similar method. Under no circumstances will the Dealer Manager be obligated to underwrite or purchase any Shares for its own account and, in soliciting purchases of Shares, the Dealer Manager shall act solely as the Company’s agent and not as an underwriter or principal.
(a)
Selected Dealers. The Shares offered and sold through the Dealer Manager under this Agreement shall be offered and sold only by the Dealer Manager and other securities dealers the Dealer Manager may retain (collectively the “Selected Dealers”); provided, however, that:
(i)
the Dealer Manager reasonably believes that all Selected Dealers are registered with the Commission, members of FINRA and are duly licensed or registered by the regulatory authorities in the jurisdictions in which they will offer and sell Shares; and
(ii)
all such engagements are evidenced by written agreements, the terms and conditions of which substantially conform to the form of Selected Dealer Agreement substantially in the form of Exhibit A hereto (the “Selected Dealer Agreement”).
(b)
Subscription Documents. Each person desiring to purchase Shares through the Dealer Manager, or any other Selected Dealer, will be required to complete and execute the subscription documents described in the Prospectus.
Until the minimum offering of $2,000,000 in Shares has been sold, payments for Shares shall be made by checks payable to “UMB Bank, N.A., as Escrow Agent for Carey Watermark Investors 2 Incorporated.” During such time, a Selected Dealer shall forward original checks together with an original Order Form, executed and initialed by the subscriber as provided for in the Order Form, to UMB Bank, N.A. (the “Escrow Agent”) at the address provided in the Order Form.
When a Selected Dealer’s internal supervisory procedures are conducted at the site at which the Order Form and check were initially received by the Selected Dealer from the subscriber, the Selected Dealer shall transmit the Order Form and check to the Escrow Agent by the end of the next business day following receipt of the check and Order Form. When, pursuant to the Selected Dealer’s internal supervisory procedures, the Selected Dealer’s final internal supervisory procedures are conducted at a different location (the “Final Review Office”), the Selected Dealer shall transmit the check and Order Form to the Final Review Office by the end of the next business day following the Selected Dealer’s receipt of the Order Form and check. The Final Review Office will, by the end of the next business day following its receipt of the Order Form and check, forward both the Order Form and check to the Escrow Agent. If any Order Form solicited by the Selected Dealer is rejected by the Dealer Manager or the Company, then the Order Form and check will be returned to the rejected subscriber within 10 business days from the date of rejection.
Once the minimum offering of $2,000,000 in Shares has been sold, subject to any continuing escrow obligations imposed by certain states as described in the Prospectus, payments for Shares shall be made payable to “Carey Watermark Investors 2 Incorporated.” At such time, the Selected Dealer shall forward original checks together with an original Order Form, executed and initialed by the subscriber as provided for in the Order Form, to Carey Watermark Investors 2 Incorporated, c/o W.P. Carey/DST Systems, Inc., at the address provided in the Order Form.

8


If the minimum offering of $2,000,000 in Shares has not been obtained within six months from the Effective Date, which the Company may elect to extend to a date no later than one year from the Effective Date (the “Closing Date”), pursuant to the Escrow Agreement, the Escrow Agent shall, promptly following the Closing Date, refund to each investor by check funds deposited in the escrow account or shall return the instruments of payment delivered to the Escrow Agent if such instruments have not been processed for collection prior to such time, directly to each investor at the address provided in the list of investors.
(c)
Completed Sale. A sale of a Share shall be deemed by the Company to be completed for purposes of Section 3(d) if and only if:
(i)
the Company or an agent of the Company has received a properly completed and executed Order Form, together with payment of the full purchase price of each purchased Share, from an investor who satisfies the applicable suitability standards and minimum purchase requirements set forth in the Registration Statement as determined by the Selected Dealer or the Dealer Manager, as applicable, in accordance with the provisions of this Agreement;
(ii)
the Company has accepted such subscription; and
(iii)
such investor has been admitted as a shareholder of the Company.
In addition, no sale of Shares shall be completed until at least five (5) business days after the date on which the subscriber receives a copy of the Prospectus. The Dealer Manager hereby acknowledges and agrees that the Company, in its sole and absolute discretion, may accept or reject any subscription, in whole or in part, for any reason whatsoever or no reason, and no commission or dealer manager fee will be paid to the Dealer Manager with respect to that portion of any subscription which is rejected.
(d)
Dealer-Manager Compensation.
(iv)
Subject to the volume discounts and other special circumstances described in or otherwise provided in the “The Offering/Plan of Distribution” section of the Prospectus or this Section 3(d), the Company agrees to pay the Dealer Manager selling commissions in the amount of seven percent (7.0%) of the selling price of each Class A Share for which a sale is completed in the Primary Offering. The Company will not pay selling commissions for sales of Class A Shares pursuant to the DRIP. The Company will pay reduced selling commissions or may eliminate commissions on certain sales of Class A Shares, including the reduction or elimination of selling commissions in accordance with, and on the terms set forth in, the Prospectus. The Dealer Manager will re-allow all the selling commissions, subject to federal and state securities laws, to the Selected Dealer who sold the Shares.
(v)
Subject to the special circumstances described in or otherwise provided in the “The Offering/Plan of Distribution” section of the Prospectus or this Section 3(d), as compensation for acting as the dealer manager, the Company will pay the Dealer Manager, a dealer manager fee in the amount of three percent (3.0%) of the selling price of each Class A Share for which a sale is completed from the Shares offered in the Primary Offering (the “Dealer Manager Fee”). No Dealer Manager Fee will be paid in connection with Shares sold pursuant to the DRIP.

9


The Dealer Manager may retain or re-allow a portion of the Dealer Manager Fee, subject to federal and state securities laws, to the Selected Dealer who sold the Shares, as described more fully in the Selected Dealer Agreement.
(vi)
All selling commissions and Dealer Manager fees payable to the Dealer Manager will be paid at least within ten (10) business days after the investor subscribing for the Share is admitted as a shareholder of the Company, in an amount equal to the sales commissions payable with respect to such Shares. The Dealer Manager acknowledges that no commissions, payments or amount will be paid to the Dealer Manager unless and until the gross proceeds of the Shares sold are disbursed to the Company in accordance with the terms of the Escrow Agreement.
(vii)
In no event shall the total aggregate underwriting compensation payable to the Dealer Manager and any Selected Dealers participating in the Offering, including, but not limited to, selling commissions and the Dealer Manager Fee exceed ten percent (10.0%) of gross offering proceeds from the Primary Offering in the aggregate.
(viii)
Notwithstanding anything to the contrary contained herein, if the Company pays any selling commission to the Dealer Manager for sale by a Selected Dealer of one or more Shares and the subscription is rescinded as to one or more of the Shares covered by such subscription, then the Company shall decrease the next payment of selling commissions or other compensation otherwise payable to the Dealer Manager by the Company under this Agreement by an amount equal to the commission rate established in this Section 3(d), multiplied by the number of Shares as to which the subscription is rescinded. If no payment of selling commissions or other compensation is due to the Dealer Manager after such withdrawal occurs, then the Dealer Manager shall pay the amount specified in the preceding sentence to the Company within a reasonable period of time not to exceed thirty (30) days following receipt of notice by the Dealer Manager from the Company stating the amount owed as a result of rescinded subscriptions.
(e)
Reasonable Bona Fide Due Diligence Expenses. In addition to any payments to the Dealer Manager pursuant to Section 3(d), the Company shall reimburse the Dealer Manager or any Selected Dealer for reasonable bona fide due diligence expenses incurred by the Dealer Manager or any Selected Dealer to the extent permitted pursuant to the rules and regulations of FINRA, provided, however, that no due diligence expenses shall be reimbursed by the Company pursuant to this Section 3(e) which would cause the aggregate of all of the Company’s expenses described in Section 3(f) and compensation paid to the Dealer Manager and any Selected Dealer pursuant to Section 3(d) to exceed 15% of the gross proceeds from the sale of the Primary Shares. Also, the Company shall only reimburse the Dealer Manager or any Selected Dealer for such approved bona fide due diligence expenses to the extent such expenses have actually been incurred and are supported by detailed and itemized invoice(s) provided to the Company.
(f)
Company Expenses. Subject to the limitations described above, the Company agrees to pay all costs and expenses incident to the Offering, whether or not the transactions contemplated hereunder are consummated or this Agreement is terminated, including expenses, fees and taxes in connection with:
(ix)
the registration fee, the preparation and filing of the Registration Statement (including without limitation financial statements, exhibits, schedules and consents), the Prospectus,

10


and any amendments or supplements thereto, and the printing and furnishing of copies of each thereof to the Dealer Manager and to Selected Dealers (including costs of mailing and shipment);
(x)
the preparation, issuance and delivery of certificates, if any, for the Shares, including any stock or other transfer taxes or duties payable upon the sale of the Shares;
(xi)
all fees and expenses of the Company’s legal counsel, independent public or certified public accountants and other advisors;
(xii)
the qualification of the Shares for offering and sale under state laws in the states that the Company shall designate as appropriate and the determination of their eligibility for sale under state law as aforesaid and the printing and furnishing of copies of blue sky surveys;
(xiii)
the filing fees in connection with filing for review by FINRA of all necessary documents and information relating to the Offering and the Shares;
(xiv)
the fees and expenses of any transfer agent or registrar for the Shares and miscellaneous expenses referred to in the Registration Statement;
(xv)
all costs and expenses incident to the travel and accommodation of the personnel of Carey Lodging Advisors, LLC, advisor to the Company (the “Advisor”), and the personnel of any sub-advisor designated by the Advisor and acting on behalf of the Company, in making road show presentations and presentations to Selected Dealers and other broker-dealers and financial advisors with respect to the offering of the Shares; and
(xvi)
the performance of the Company’s other obligations hereunder.
Notwithstanding the foregoing, the Company shall not directly pay, or reimburse the Advisor for, the costs and expenses described in this Section 3(f) if the payment or reimbursement of such expenses would cause the aggregate of the Company’s “organization and offering expenses” as defined by FINRA Rule 2310 (including the Company expenses paid or reimbursed pursuant to this Section 3(f), all items of underwriting compensation including Dealer Manager expenses described in Section 3(d) and due diligence expenses described in Section 3(e)) to exceed 15.0% of the gross proceeds from the sale of the Primary Shares.
3.
Conditions to the Dealer Manager’s Obligations. The Dealer Manager’s obligations hereunder shall be subject to the following terms and conditions:
(a)
The representations and warranties on the part of the Company contained in this Agreement hereof shall be true and correct in all material respects and the Company shall have complied with its covenants, agreements and obligations contained in this Agreement in all material respects;
(b)
The Registration Statement shall have become effective and no stop order suspending the effectiveness of the Registration Statement shall have been issued by the Commission and, to the best knowledge of the Company, no proceedings for that purpose shall have been instituted, threatened or contemplated by the Commission; and any request by the Commission for additional information (to be included in the Registration Statement or Prospectus or otherwise) shall have been complied with to the reasonable satisfaction of the Dealer Manager.

11


4.
Covenants of the Company. The Company covenants and agrees with the Dealer Manager as follows:
(a)
Registration Statement. The Company will use its best efforts to cause the Registration Statement and any subsequent amendments thereto to become effective as promptly as possible and will furnish a copy of any proposed amendment or supplement of the Registration Statement or the Prospectus to the Dealer Manager. The Company will comply in all material respects with all federal and state securities laws, rules and regulations which are required to be complied with in order to permit the continuance of offers and sales of the Shares in accordance with the provisions hereof and of the Prospectus.
(b)
Commission Orders. If the Commission shall issue any stop order or any other order preventing or suspending the use of the Prospectus, or shall institute any proceedings for that purpose, then the Company will promptly notify the Dealer Manager and use its best efforts to prevent the issuance of any such order and, if any such order is issued, to use its best efforts to obtain the removal thereof as promptly as possible.
(c)
Blue Sky Qualifications. The Company will use its best efforts to qualify the Shares for offering and sale under the securities or blue sky laws of such jurisdictions as the Dealer Manager and the Company shall mutually agree upon and to make such applications, file such documents and furnish such information as may be reasonably required for that purpose. The Company will, at the Dealer Manager’s request, furnish the Dealer Manager with a copy of such papers filed by the Company in connection with any such qualification. The Company will promptly advise the Dealer Manager of the issuance by such securities administrators of any stop order preventing or suspending the use of the Prospectus or of the institution of any proceedings for that purpose, and will use its best efforts to prevent the issuance of any such order and if any such order is issued, to use its best efforts to obtain the removal thereof as promptly as possible. The Company will furnish the Dealer Manager with a Blue Sky Survey dated as of the initial Effective Date, which will be supplemented to reflect changes or additions to the information disclosed in such survey.
(d)
Amendments and Supplements. If, at any time when a Prospectus relating to the Shares is required to be delivered under the Securities Act, any event shall have occurred to the knowledge of the Company, or the Company receives notice from the Dealer Manager that it believes such an event has occurred, as a result of which the Prospectus or any Approved Sales Literature as then amended or supplemented would include any untrue statement of a material fact, or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or if it is necessary at any time to amend the Registration Statement or supplement the Prospectus relating to the Shares to comply with the Securities Act, then the Company will promptly notify the Dealer Manager thereof (unless the information shall have been received from the Dealer Manager) and will prepare and file with the Commission an amendment or supplement which will correct such statement or effect such compliance to the extent required, and shall make available to the Dealer Manager thereof sufficient copies for its own use and/or distribution to the Selected Dealers.
(e)
Requests from Commission. The Company will promptly advise the Dealer Manager of any request made by the Commission or a state securities administrator for amending the Registration Statement, supplementing the Prospectus or for additional information.
(f)
Copies of Registration Statement. The Company will furnish the Dealer Manager with one signed copy of the Registration Statement, including its exhibits, and such additional copies of the

12


Registration Statement, without exhibits, and the Prospectus and all amendments and supplements thereto, which are finally approved by the Commission, as the Dealer Manager may reasonably request for sale of the Shares.
(g)
Qualification to Transact Business. The Company will take all steps necessary to ensure that at all times the Company will validly exist as a Maryland corporation and will be qualified to do business in all jurisdictions in which the conduct of its business requires such qualification and where such qualification is required under local law.
(h)
Authority to Perform Agreements. The Company undertakes to obtain all consents, approvals, authorizations or orders of any court or governmental agency or body which are required for the Company’s performance of this Agreement and under the Company’s Articles of Amendment and Restatement (as the same may be amended, supplemented or otherwise modified from time to time, the “Company’s Charter”) and the Company's by-laws, each in the form included as exhibits to the Registration Statement for the consummation of the transactions contemplated hereby and thereby, respectively, or the conducting by the Company of the business described in the Prospectus.
(i)
Sales Literature. The Company will furnish to the Dealer Manager as promptly as shall be practicable upon request any Approved Sales Literature (provided that the use of said material has been first approved for use to the extent required by all appropriate regulatory agencies). Any supplemental sales literature or advertisement, regardless of how labeled or described, used in addition to the Prospectus in connection with the Offering which is furnished or approved by the Company (including, without limitation, Approved Sales Literature) shall, to the extent required, be filed with and, to the extent required, approved by the appropriate securities agencies and bodies, provided that the Dealer Manager will make all FINRA filings, to the extent required. The Company will not (and will instruct its affiliates not to): show or give to any investor or prospective investor or reproduce any material or writing that is marked “broker-dealer use only,” institutional or otherwise bears a legend denoting that it is not to be used in connection with the sale of Shares to members of the public; or show or give to any investor or prospective investor in a particular jurisdiction any material or writing if such material bears a legend denoting that it is not to be used in connection with the sale of Shares to members of the public in such jurisdiction.
(j)
Use of Proceeds. The Company will apply the proceeds from the sale of the Shares as set forth in the Prospectus.
(k)
Customer Information. The Dealer Manager and the Company shall, when applicable:
(i)
abide by and comply with (A) the privacy standards and requirements of the Gramm-Leach-Bliley Act of 1999 (the “GLB Act”) and applicable regulations promulgated thereunder, (B) the privacy standards and requirements of any other applicable federal or state law, including but not limited to, the Fair Credit Reporting Act (“FCRA”), and (C) its own internal privacy policies and procedures, each as may be amended from time to time;
(ii)
refrain from the use or disclosure of nonpublic personal information (as defined under the GLB Act) of all customers who have opted out of such disclosures except as necessary to service the customers or as otherwise necessary or required by applicable law;

13


(iii)
except as expressly permitted under the FCRA, the Dealer Manager and the Company shall not disclose any information that would be considered a “consumer report” under the FCRA; and
(iv)
determine which customers have opted out of the disclosure of nonpublic personal information by periodically reviewing and, if necessary, retrieving an aggregated list of such customers from the Selected Dealers (the “List”) to identify customers that have exercised their opt-out rights. If either party uses or discloses nonpublic personal information of any customer for purposes other than servicing the customer, or as otherwise required by applicable law, that party will consult the List to determine whether the affected customer has exercised his or her opt-out rights. Each party understands that it is prohibited from using or disclosing any nonpublic personal information of any customer that is identified on the List as having opted out of such disclosures.
(l)
Dealer Manager’s Review of Proposed Amendments and Supplements. Prior to amending or supplementing the Registration Statement, any preliminary prospectus or the Prospectus (including any amendment or supplement through incorporation of any report filed under the Exchange Act), the Company shall furnish to the Dealer Manager for review, a reasonable amount of time prior to the proposed time of filing or use thereof, a copy of each such proposed amendment or supplement, and the Company shall not file or use any such proposed amendment or supplement without the Dealer Manager’s consent, which consent shall not be unreasonably withheld or delayed.
5.
Covenants of the Dealer Manager. The Dealer Manager covenants and agrees with the Company as follows:
(a)
Compliance With Laws. With respect to the Dealer Manager’s participation and the participation by each Selected Dealer in the offer and sale of the Shares (including, without limitation, any resales and transfers of Shares), the Dealer Manager agrees, and each Selected Dealer in its Selected Dealer Agreement will agree, to comply in all material respects with all applicable requirements of the Securities Act, the Securities Act Rules and Regulations, the Exchange Act, the Exchange Act Rules and Regulations and all other federal regulations applicable to the Offering, the sale of Shares and with all applicable state securities or blue sky laws, and the Rules of FINRA applicable to the Offering, from time to time in effect, specifically including, but not in any way limited to, NASD Conduct Rules 2340 (Customer Account Statements) and 2420 (Dealing with Non-Members), and FINRA Rules 2111 (Suitability), 2310 (Direct Participation Programs), 5130 (Restrictions on the Purchase and Sale of Initial Equity Public Offerings), and 5141 (Sale of Securities in a Fixed Price Offering) therein. The Dealer Manager will not offer the Shares for sale in any jurisdiction unless and until it has been advised that the Shares are either registered in accordance with, or exempt from, the securities and other laws applicable thereto.
In addition, the Dealer Manager shall, in accordance with applicable law or as prescribed by any state securities administrator, provide, or require in the Selected Dealer Agreement that the Selected Dealer shall provide, to any prospective investor copies of any prescribed document which is part of the Registration Statement and any supplements thereto during the course of the Offering and prior to the sale. The Company may provide the Dealer Manager with certain Approved Sales Literature to be used by the Dealer Manager and the Selected Dealers in connection with the solicitation of purchasers of the Shares. The Dealer Manager agrees not to deliver the Approved Sales Literature to any person prior to the initial Effective Date. If the Dealer

14


Manager elects to use such Approved Sales Literature after the initial Effective Date, then the Dealer Manager agrees that such material shall not be used by it in connection with the solicitation of purchasers of the Shares and that it will direct Selected Dealers not to make such use unless accompanied or preceded by the Prospectus, as then currently in effect, and as it may be amended or supplemented in the future.
The Dealer Manager agrees that it will not use any Approved Sales Literature other than those provided to the Dealer Manager by the Company for use in the Offering. The use of any other sales material is expressly prohibited.
(b)
No Additional Information. In offering the Shares for sale, the Dealer Manager shall not, and each Selected Dealer shall agree not to, give or provide any information or make any representation other than those contained in the Prospectus or the Approved Sales Literature.
(c)
Sales of Shares. The Dealer Manager shall, and each Selected Dealer shall agree to, solicit purchases of the Shares only in the jurisdictions in which the Dealer Manager and such Selected Dealer are legally qualified to so act and in which the Dealer Manager and each Selected Dealer have been advised by the Company or counsel to the Company that such solicitations can be made.
(d)
Order Form. The Dealer Manager will comply in all material respects with the subscription procedures and “The Offering/Plan of Distribution” set forth in the Prospectus. Subscriptions will be submitted by the Dealer Manager and each Selected Dealer to the Company only on the order form, a form of which is included as Annex B to the Prospectus. The Dealer Manager understands and acknowledges, and each Selected Dealer shall acknowledge, that the Order Form must be executed and initialed by the subscriber as provided for by the Order Form.
(e)
Suitability. The Dealer Manager will offer Shares, and in its agreement with each Selected Dealer will require that the Selected Dealer offer Shares, only to persons that it has reasonable grounds to believe meet the financial qualifications set forth in the Prospectus or in any suitability letter or memorandum sent to it by the Company and will only make offers to persons in the states in which it is advised in writing by the Company that the Shares are qualified for sale or that such qualification is not required. In offering Shares, the Dealer Manager will comply, and in its agreements with the Selected Dealers, the Dealer Manager will require that the Selected Dealers comply, with the provisions of all applicable rules and regulations relating to suitability of investors, including without limitation the FINRA Rules and the provisions of Article III.C. of the Statement of Policy Regarding Real Estate Investment Trusts of the North American Securities Administrators Association, Inc., as revised and amended on May 7, 2007 and as may be further revised and amended (the “NASAA Guidelines”).
The Dealer Manager agrees that in recommending the purchase of the Shares in the Primary Offering to an investor, the Dealer Manager and each person associated with the Dealer Manager that make such recommendation shall have, and each Selected Dealer in its Selected Dealer Agreement shall agree with respect to investors to which it makes a recommendation shall agree that it shall have, reasonable grounds to believe, on the basis of information obtained from the investor concerning the investor’s investment objectives, other investments, financial situation and needs, and any other information known by the Dealer Manager, the person associated with the Dealer Manager or the Selected Dealer that:

15


(i)
the investor is or will be in a financial position appropriate to enable the investor to realize to a significant extent the benefits described in the Prospectus, including the tax benefits where they are a significant aspect of the Company;
(ii)
the investor has a fair market net worth sufficient to sustain the risks inherent in the program, including loss of investment and lack of liquidity; and
(iii)
an investment in the Shares offered in the Primary Offering is otherwise suitable for the investor.
The Dealer Manager agrees as to investors to whom it makes a recommendation with respect to the purchase of the Shares in the Primary Offering (and each Selected Dealer in its Selected Dealer Agreement shall agree, with respect to Investors to whom it makes such recommendations) to maintain in the files of the Dealer Manager (or the Selected Dealer, as applicable) documents disclosing the basis upon which the determination of suitability was reached as to each investor.
In making the determinations as to financial qualifications and as to suitability required by the NASAA Guidelines, the Dealer Manager and Selected Dealers may rely on (A) representations from investment advisers who are not affiliated with a Selected Dealer, and banks acting as trustees or fiduciaries, and (B) information it has obtained from a prospective investor, including such information as the investment objectives, other investments, financial situation and needs of the person or any other information known by the Dealer Manager (or Selected Dealer, as applicable), after due inquiry. Notwithstanding the foregoing, the Dealer Manager shall not, and each Selected Dealer shall agree not to, execute any transaction in the Company in a discretionary account without prior written approval of the transaction by the customer.
(f)
Selected Dealer Agreements. All engagements of the Selected Dealers will be evidenced by a Selected Dealer Agreement.
(g)
Electronic Delivery. If the Dealer Manager uses electronic delivery to distribute the Prospectus to any person, that it will comply with all applicable requirements of the Commission, the Blue Sky laws and/or FINRA and any other laws or regulations related to the electronic delivery of documents.
(h)
AML Compliance. The Dealer Manager represents to the Company that it has established and implemented an anti-money laundering compliance program (“AML Program”) in accordance with Section 352 of the USA PATRIOT Act of 2001 (the “PATRIOT Act”) and FINRA Rule 3310, that complies with applicable anti-money laundering laws and regulations, including, but not limited to, the customer identification program requirements of Section 326 of the PATRIOT Act, and the suspicious activity reporting requirements of Section 356 of the PATRIOT Act, and the laws, regulations and Executive Orders administered by the Office of Foreign Assets Control (“OFAC”) of the U.S. Department of Treasury (collectively, “AML/OFAC Laws”). The Dealer Manager hereby covenants to remain in compliance with the AML/OFAC Laws and shall, upon request by the Company, provide a certification to the Company that, as of the date of such certification, its AML Program is compliant with the AML/OFAC Laws.
(i)
Customer Information. The Dealer Manager will use its best efforts to provide the Company with any and all subscriber information that the Company requests in order for the Company to satisfy its obligations under the AML/OFAC Laws and comply with the requirements under Section 5(k) above.

16


(j)
Recordkeeping. The Dealer Manager will comply, and will require each Selected Dealer to comply, with the record keeping requirements of the Exchange Act, including, but not limited to, Rules 17a-3 and 17a-4 promulgated under the Exchange Act, and shall maintain, for at least six years or for a period of time not less than that required in order to comply with all applicable federal, state and other regulatory requirements, whichever is later, such records with respect to each investor who purchases Primary Shares, information used to determine that the investor meets the suitability standards imposed on the offer and sale of the Primary Shares, the amount of Primary Shares sold, and a representation of the investor that the investor is investing for the investor’s own account or, in lieu of such representation, information indicating that the investor for whose account the investment was made met the suitability standards.
(k)
Suspension or Termination of Offering. The Dealer Manager agrees, and will require that each of the Selected Dealers agree, to suspend or terminate the offering and sale of the Primary Shares upon request of the Company at any time and to resume the offering and sale of the Primary Shares upon subsequent request of the Company.
6.
Indemnification.
(a)
Indemnified Parties Defined. For the purposes of this Agreement, an “Indemnified Party” shall mean a person or entity entitled to indemnification under Section 7, as well as such person’s or entity’s officers, directors, employees, members, partners, affiliates, agents and representatives, and each person, if any, who controls such person or entity within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act.
(b)
Indemnification of the Dealer Manager and Selected Dealers. The Company will indemnify, defend and hold harmless the Dealer Manager and the Selected Dealers, and their respective Indemnified Parties, from and against any losses, claims, expenses (including reasonable legal and other expenses incurred in investigating and defending such claims or liabilities), damages or liabilities, joint or several, to which any such Selected Dealers or the Dealer Manager, or their respective Indemnified Parties, may become subject under the Securities Act, the Securities Act Rules and Regulations, the Exchange Act, the Exchange Act Rules and Regulations or otherwise, insofar as such losses, claims, expenses, damages or liabilities (or actions in respect thereof) arise out of or are based upon:
(i)
in whole or in part, any material inaccuracy in a representation or warranty contained herein by the Company, any material breach of a covenant contained herein by the Company, or any material failure by the Company to perform its obligations hereunder or to comply with state or federal securities laws applicable to the Offering;
(ii)
any untrue statement or alleged untrue statement of a material fact contained (A) in any Registration Statement or any post-effective amendment thereto or in the Prospectus or any amendment or supplement to the Prospectus, (B) in any Approved Sales Literature or (C) in any blue sky application or other document executed by the Company or on its behalf specifically for the purpose of qualifying any or all of the Shares for sale under the securities laws of any jurisdiction or based upon written information furnished by the Company under the securities laws thereof (any such application, document or information being hereinafter called a “Blue Sky Application”); or
(iii)
the omission or alleged omission to state a material fact required to be stated in the Registration Statement or any post-effective amendment thereof to make the statements

17


therein not misleading or the omission or alleged omission to state a material fact required to be stated in the Prospectus or any amendment or supplement to the prospectus to make the statements therein, in light of the circumstances under which they were made, not misleading.
The Company will reimburse each Selected Dealer or the Dealer Manager, and their respective Indemnified Parties, for any reasonable legal or other expenses incurred by such Selected Dealer or the Dealer Manager, and their respective Indemnified Parties, in connection with investigating or defending such loss, claim, expense, damage, liability or action; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, expense, damage or liability arises out of, or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with written information furnished to the Company by the Dealer Manager expressly for use in the Registration Statement or any post-effective amendment thereof or the Prospectus or any such amendment thereof or supplement thereto. This indemnity agreement will be in addition to any liability which the Company may otherwise have.
Notwithstanding the foregoing, as required by Section II.G. of the NASAA Guidelines, the indemnification and agreement to hold harmless provided in this Section 7(b) is further limited to the extent that no such indemnification by the Company of a Selected Dealer or the Dealer Manager, or their respective Indemnified Parties, shall be permitted under this Agreement for, or arising out of, an alleged violation of federal or state securities laws, unless one or more of the following conditions are met: (a) there has been a successful adjudication on the merits of each count involving alleged securities law violations as to the particular Indemnified Party; (b) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to the particular Indemnified Party; or (c) a court of competent jurisdiction approves a settlement of the claims against the particular Indemnified Party and finds that indemnification of the settlement and the related costs should be made, and the court considering the request for indemnification has been advised of the position of the Commission and of the published position of any state securities regulatory authority in which the securities were offered or sold as to indemnification for violations of securities laws.
(c)
Dealer Manager Indemnification of the Company. The Dealer Manager will indemnify, defend and hold harmless the Company and each of its Indemnified Parties and each person who has signed the Registration Statement, from and against any losses, claims, expenses (including the reasonable legal and other expenses incurred in investigating and defending any such claims or liabilities), damages or liabilities to which any of the aforesaid parties may become subject under the Securities Act, the Securities Act Rules and Regulations, the Exchange Act, the Exchange Act Rules and Regulations or otherwise, insofar as such losses, claims, expenses, damages (or actions in respect thereof) arise out of or are based upon:
(i)
in whole or in part, any material inaccuracy in a representation or warranty contained herein by the Dealer Manager or any material breach of a covenant contained herein by the Dealer Manager;
(ii)
any untrue statement or any alleged untrue statement of a material fact contained (A) in any Registration Statement or any post-effective amendment thereto or in the Prospectus or any amendment or supplement to the Prospectus, (B) in any Approved Sales Literature, or (C) any Blue Sky Application; or

18


(iii)
the omission or alleged omission to state a material fact required to be stated in the Registration Statement or any post-effective amendment thereof to make the statements therein not misleading, or the omission or alleged omission to state a material fact required to be stated in the Prospectus or any amendment or supplement to the Prospectus to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that in each case described in clauses (ii) and (iii) to the extent, but only to the extent, that such untrue statement or omission was made in reliance upon and in conformity with written information furnished to the Company by the Dealer Manager expressly for use in the Registration Statement or any such post-effective amendments thereof or the Prospectus or any such amendment thereof or supplement thereto;
(iv)
any use of sales literature, including “broker-dealer use only” materials, by the Dealer Manager that is not Approved Sales Literature; or
(v)
any untrue statement made by the Dealer Manager or omission by the Dealer Manager to state a fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading in connection with the Offering provided, however, this clause (v) shall not apply to any statements or omissions made in conformity with the Registration Statement, the Prospectus, any Approved Sales Literature or any other materials or information furnished by or on behalf of the Company.
The Dealer Manager will reimburse the aforesaid parties for any reasonable legal or other expenses incurred in connection with investigation or defense of such loss, claim, expense, damage, liability or action. This indemnity agreement will be in addition to any liability which the Dealer Manager may otherwise have.
(d)
Selected Dealer Indemnification of the Company. By virtue of entering into the Selected Dealer Agreement, each Selected Dealer severally will agree to indemnify, defend and hold harmless the Company, the Dealer Manager, each of their respective Indemnified Parties, and each person who signs the Registration Statement, from and against any losses, claims, expenses, damages or liabilities to which the Company, the Dealer Manager, or any of their respective Indemnified Parties, or any person who signed the Registration Statement, may become subject, under the Securities Act or otherwise, as more fully described in the Selected Dealer Agreement.
(e)
Action Against Parties; Notification. Promptly after receipt by any Indemnified Party under this Section 7 of notice of the commencement of any action, such Indemnified Party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 7, promptly notify the indemnifying party of the commencement thereof; provided, however, that the failure to give such notice shall not relieve the indemnifying party of its obligations hereunder except to the extent it shall have been actually prejudiced by such failure. In case any such action is brought against any Indemnified Party, and it notifies an indemnifying party of the commencement thereof, the indemnifying party will be entitled, to the extent it may wish, jointly with any other indemnifying party similarly notified, to participate in the defense thereof, with separate counsel.
Such participation shall not relieve such indemnifying party of the obligation to reimburse the Indemnified Party for reasonable legal and other expenses incurred by such Indemnified Party in defending itself, except for such expenses incurred after the indemnifying party has deposited

19


funds sufficient to effect the settlement, with prejudice, of, and unconditional release of all liabilities from, the claim in respect of which indemnity is sought. Any such indemnifying party shall not be liable to any such Indemnified Party on account of any settlement of any claim or action effected without the consent of such indemnifying party, such consent not to be unreasonably withheld or delayed.
(f)
Reimbursement of Fees and Expenses. An indemnifying party under Section 7 of this Agreement shall be obligated to reimburse an Indemnified Party for reasonable legal and other expenses as follows:
(i)
In the case of the Company indemnifying the Dealer Manager, the advancement of funds to the Dealer Manager for legal expenses and other costs incurred as a result of any legal action for which indemnification is being sought shall be permissible (in accordance with Section II.G. of the NASAA Guidelines) only if all of the following conditions are satisfied: (A) the legal action relates to acts or omissions with respect to the performance of duties or services on behalf of the Company; (B) the legal action is initiated by a third party who is not a shareholder of the Company or the legal action is initiated by a shareholder of the Company acting in his or her capacity as such and a court of competent jurisdiction specifically approves such advancement; and (C) the Dealer Manager undertakes to repay the advanced funds to the Company, together with the applicable legal rate of interest thereon, in cases in which the Dealer Manager is found not to be entitled to indemnification.
(ii)
In any case of indemnification other than that described in Section 7(f)(i) above, the indemnifying party shall pay all legal fees and expenses reasonably incurred by the Indemnified Party in the defense of such claims or actions; provided, however, that the indemnifying party shall not be obligated to pay legal expenses and fees to more than one law firm in connection with the defense of similar claims arising out of the same alleged acts or omissions giving rise to such claims notwithstanding that such actions or claims are alleged or brought by one or more parties against more than one Indemnified Party. If such claims or actions are alleged or brought against more than one Indemnified Party, then the indemnifying party shall only be obliged to reimburse the expenses and fees of the one law firm (in addition to local counsel) that has been participating by a majority of the indemnified parties against which such action is finally brought; and if a majority of such indemnified parties is unable to agree on which law firm for which expenses or fees will be reimbursable by the indemnifying party, then payment shall be made to the first law firm of record representing an Indemnified Party against the action or claim. Such law firm shall be paid only to the extent of services performed by such law firm and no reimbursement shall be payable to such law firm on account of legal services performed by another law firm.
7.
Contribution.
(a)
If Indemnification is Unavailable. If the indemnification provided for in Section 7 is for any reason unavailable to or insufficient to hold harmless an Indemnified Party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such Indemnified Party, as incurred:

20


(iv)
in such proportion as is appropriate to reflect the relative benefits received by the Company, the Dealer Manager and the Selected Dealer, respectively, from the proceeds received in Primary Offering pursuant to this Agreement and the relevant Selected Dealer Agreement; or
(v)
if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, the Dealer Manager and the Selected Dealer, respectively, in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations.
(b)
Relative Benefits. The relative benefits received by the Company, the Dealer Manager and the Selected Dealer, respectively, in connection with the proceeds received in the Primary Offering pursuant to this Agreement and the relevant Selected Dealer Agreement shall be deemed to be in the same respective proportion as the total net proceeds from the Primary Offering pursuant to this Agreement and the relevant Selected Dealer Agreement (before deducting expenses), received by the Company, and the total selling commissions and dealer manager fees received by the Dealer Manager and the Selected Dealer, respectively, in each case as set forth on the cover of the Prospectus bear to the aggregate offering price of the Shares sold in the Primary Offering as set forth on such cover.
(c)
Relative Fault. The relative fault of the Company, the Dealer Manager and the Selected Dealer, respectively, shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact related to information supplied by the Company, by the Dealer Manager or by the Selected Dealer, respectively, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.
(d)
Pro Rata is Unreasonable. The Company, the Dealer Manager and the Selected Dealer (by virtue of entering into the Selected Dealer Agreement) agree that it would not be just and equitable if contribution pursuant to this Section 8 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable contributions referred to above in this Section 8. The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an Indemnified Party and referred to above in this Section 8 shall be deemed to include any legal or other expenses reasonably incurred by such Indemnified Party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission or alleged omission.
(e)
Limits. Notwithstanding the provisions of this Section 8, the Dealer Manager and the Selected Dealer shall not be required to contribute any amount by which the total price at which the Shares sold in the Primary Offering to the public by them exceeds the amount of any damages which the Dealer Manager and the Selected Dealer have otherwise been required to pay by reason of any untrue or alleged untrue statement or omission or alleged omission.
(f)
Fraudulent Misrepresentation. No party guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any party who was not guilty of such fraudulent misrepresentation.

21


(g)
Benefits of Contribution. For the purposes of this Section 8, the Dealer Manager’s officers, directors, employees, members, partners, agents and representatives, and each person, if any, who controls the Dealer Manager within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act shall have the same rights to contribution of the Dealer Manager, and each officers, directors, employees, members, partners, agents and representatives of the Company, each officer of the Company who signed the Registration Statement and each person, if any, who controls the Company, within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act shall have the same rights to contribution of the Company. The Selected Dealers’ respective obligations to contribute pursuant to this Section 8 are several in proportion to the number of Shares sold by each Selected Dealer in the Primary Offering and not joint.
8.
Termination of this Agreement.
(a)
Term; Expiration. This Agreement shall become effective on the initial Effective Date and the obligations of the parties hereunder shall not commence until the initial Effective Date. This Agreement may be terminated by either party upon 60 calendar days’ written notice to the other party. This Agreement shall automatically expire on the termination date of the Offering as described in the Prospectus.
(b)
Delivery of Records Upon Expiration or Early Termination. Upon the expiration or early termination of this Agreement for any reason, the Dealer Manager shall:
(iv)
promptly forward any and all funds, if any, in its possession which were received from investors for the sale of Shares for deposit;
(v)
to the extent not previously provided to the Company a list of all investors who have subscribed for or purchased shares and all broker-dealers with whom the Dealer Manager has entered into a Selected Dealer Agreement;
(vi)
notify Selected Dealers of such termination; and
(vii)
promptly deliver to the Company copies of any sales literature designed for use specifically for the Offering that it is then in the process of preparing. Upon expiration or earlier termination of this Agreement, the Company shall pay to the Dealer Manager all compensation to which the Dealer Manager is or becomes entitled under Section 3(d) at such time as such compensation becomes payable.
9.
Miscellaneous
(a)
Survival. The following provisions of the Agreement shall survive the expiration or earlier termination of this Agreement: Section 3(d) (Dealer-Manager Compensation); Section 3(e) (Reasonable Bona Fide Due Diligence Expenses); Section 5(l) (Dealer-Manager’s Review of Proposed Amendments and Supplements); Section 6(i) (AML Compliance); Section 7 (Indemnification); Section 8 (Contribution); Section 9 (Termination of This Agreement) and this Section 10 (Miscellaneous). Notwithstanding anything else that may be to the contrary herein, the expiration or earlier termination of this Agreement shall not relieve a party for liability for any breach occurring prior to such expiration or earlier termination. In no event shall the Dealer Manager be entitled to payment of any compensation in connection with the Offering that is not completed according to this Agreement; provided, however, that the reimbursement of out-of-pocket accountable expenses actually incurred by the Dealer Manager or person associated with

22


the Dealer Manager shall not be presumed to be unfair or unreasonable and shall be payable under normal circumstances.
(b)
Notices. All notices or other communications required or permitted hereunder, except as herein otherwise specifically provided, shall be in writing and shall be deemed given or delivered: (i) when delivered personally or by commercial messenger; (ii) one business day following deposit with a recognized overnight courier service, provided such deposit occurs prior to the deadline imposed by such service for overnight delivery; (iii) when transmitted, if sent by facsimile copy, provided confirmation of receipt is received by sender and such notice is sent by an additional method provided hereunder; in each case above provided such communication is addressed to the intended recipient thereof as set forth below:
If to the Company:
Carey Watermark Investors 2 Incorporated
50 Rockefeller Plaza
New York, New York 10020
Facsimile No.: (212) 492-8922
Attention: Mr. Thomas Zacharias
with a copy to:
Clifford Chance US LLP
31 West 52nd Street
New York, New York 10019
Facsimile No.: (212) 878-8375
Attention: Kathleen L. Werner, Esq.
If to the Dealer Manager:
Carey Financial, LLC
50 Rockefeller Plaza
New York, New York 10020
Facsimile No.: (212) 492-8922
Attention: Mr. Mark Goldberg
with a copy to:
Kunzman & Bollinger, Inc.
5100 N. Brookline Avenue, Suite 600
Oklahoma City, Oklahoma 73112
Facsimile No: (405) 942-3501
Attention: Wallace W. Kunzman, Jr.
Any party may change its address specified above by giving each party notice of such change in accordance with this Section 10(b).
(c)
Successors and Assigns. No party shall assign (voluntarily, by operation of law or otherwise) this Agreement or any right, interest or benefit under this Agreement without the prior written consent

23


of each other party. Subject to the foregoing, this Agreement shall be fully binding upon, inure to the benefit of, and be enforceable by, the parties hereto and their respective successors and assigns.
(d)
Invalid Provision. The invalidity or unenforceability of any provision of this Agreement shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provision were omitted.
(e)
Applicable Law. This Agreement and any disputes relative to the interpretation or enforcement hereto shall be governed by and construed under the internal laws, as opposed to the conflicts of laws provisions, of the State of New York.
(f)
Waiver. EACH OF THE PARTIES HERETO WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) RELATED TO OR ARISING OUT OF THIS AGREEMENT. The parties hereto each hereby irrevocably submits to the exclusive jurisdiction of the courts of the State of New York and the Federal courts of the United States of America located in the Borough of Manhattan, New York City, in respect of the interpretation and enforcement of the terms of this Agreement, and in respect of the transactions contemplated hereby, and each hereby waives, and agrees not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement hereof, that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in said courts or that the venue thereof may not be appropriate or that this Agreement may not be enforced in or by such courts, and the parties hereto each hereby irrevocably agrees that all claims with respect to such action or proceeding shall be heard and determined in such a New York State or Federal court.
(g)
Attorneys’ Fees. If a dispute arises concerning the performance, meaning or interpretation of any provision of this Agreement or any document executed in connection with this Agreement, then the prevailing party in such dispute shall be awarded any and all costs and expenses incurred by the prevailing party in enforcing, defending or establishing its rights hereunder or thereunder, including, without limitation, court costs and attorneys and expert witness fees. In addition to the foregoing award of costs and fees, the prevailing also shall be entitled to recover its attorneys’ fees incurred in any post-judgment proceedings to collect or enforce any judgment.
(h)
No Partnership. Nothing in this Agreement shall be construed or interpreted to constitute the Dealer Manager or the Selected Dealer as being in association with or in partnership with the Company or one another, and instead, this Agreement only shall constitute the Selected Dealer as a broker authorized by the Company to sell and to manage the sale by others of the Shares according to the terms set forth in the Registration Statement, the Prospectus or this Agreement. Nothing herein contained shall render the Dealer Manager or the Company liable for the obligations of any of the Selected Dealers or one another.
(i)
Third Party Beneficiaries. Except for the persons and entities referred to in Section 7 (Indemnification) and Section 8 (Contribution), there shall be no third party beneficiaries of this Agreement, and no provision of this Agreement is intended to be for the benefit of any person or entity not a party to this Agreement, and no third party shall be deemed to be a beneficiary of any provision of this Agreement. Except for the persons and entities referred to in Section 7 and Section 8, no third party shall by virtue of any provision of this Agreement have a right of action or an enforceable remedy against any party to this Agreement. Each of the persons and entities referred to in Section 7 and Section 8 shall be a third party beneficiary of this Agreement.

24


(j)
Entire Agreement. This Agreement contains the entire agreement and understanding among the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements, understandings, inducements and conditions, express or implied, oral or written, of any nature whatsoever with respect to the subject matter hereof. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing.
(k)
Nonwaiver. The failure of any party to insist upon or enforce strict performance by any other party of any provision of this Agreement or to exercise any right under this Agreement shall not be construed as a waiver or relinquishment to any extent of such party’s right to assert or rely upon any such provision or right in that or any other instance; rather, such provision or right shall be and remain in full force and effect.
(l)
Access to Information. The Company may authorize the Company’s transfer agent to provide information to the Dealer Manager and each Selected Dealer regarding recordholder information about the clients of such Selected Dealer who have invested with the Company on an on-going basis for so long as such Selected Dealer has a relationship with such clients. The Dealer Manager shall require in the Selected Dealer Agreement that Selected Dealers not disclose any password for a restricted website or portion of website provided to such Selected Dealer in connection with the Offering and not disclose to any person, other than an officer, director, employee or agent of such Selected Dealers, any material downloaded from such a restricted website or portion of a restricted website.
(m)
Counterparts. This Agreement may be executed (including by facsimile transmission) with counterpart signature pages or in counterpart copies, each of which shall be deemed an original but all of which together shall constitute one and the same instrument comprising this Agreement.
(n)
Absence of Fiduciary Relationships. The parties acknowledge and agree that:
(i)
the Dealer Manager’s responsibility to the Company is solely contractual in nature; and
(ii)
the Dealer Manager does not owe the Company, any of its affiliates or any other person or entity any fiduciary (or other similar) duty as a result of this Agreement or any of the transactions contemplated hereby.
If the foregoing is in accordance with your understanding of our agreement, kindly sign and return it to us, whereupon this instrument will become a binding agreement between you and the Company in accordance with its terms.
[Signatures on following page]
IN WITNESS WHEREOF, the parties hereto have each duly executed this Dealer Manager Agreement as of the day and year set forth above.
THE COMPANY:
CAREY WATERMARK INVESTORS 2 INCORPORATED
By:     /s/ Thomas E. Zacharias    
Name:     Thomas E. Zacharias    
Title:     Chief Operating Officer    
Accepted as of the date first above written:
THE DEALER MANAGER:
CAREY FINANCIAL, LLC
By:     /s/ Mark Goldberg
Name:     Mark Goldberg     
Title:     President    

EXHIBIT A
FORM OF SELECTED DEALER AGREEMENT
  

25


Exhibit 12

COMPUTATION OF RATIOS
(in thousands)

For purposes of calculating the ratio of earnings to fixed charges, the term "earnings" is the amount resulting from adding (i) pre-tax income from continuing operations before adjustment for noncontrolling interests in consolidated subsidiaries or income or loss from equity investees, (ii) fixed charges, (iii) amortization of capitalized interest and (iv) distributed income of equity investees, reduced by (i) interest capitalized and (ii) the noncontrolling interest in pre-tax income of subsidiaries that have not incurred fixed charges. "Fixed charges" consist of (i) interest expensed and capitalized, (ii) amortized premiums, discounts and capitalized expenses related to indebtedness and (iii) an estimate of the interest within rental expense.

The following table sets forth information regarding our ratio of earnings to fixed charges for the periods shown.

(Dollar amounts are in thousands)

 
Years Ended December 31,
 
2014
 
2013
 
2012
 
2011
 
2010
Income from continuing operations before income taxes and adjustments for income from partially-owned entities
$
230,360

 
$
95,237

 
$
94,287

 
$
190,254

 
$
109,757

Fixed charges
180,558

 
110,204

 
52,213

 
23,648

 
17,437

Distributed income of equity investees
(31,015
)
 
5,287

 
(16,098
)
 
(30,421
)
 
(12,234
)
Interested capitalized
(18
)
 
—

 
—

 
—

 
—

Noncontrolling interest in pre-tax income of subsidiaries that have not incurred fixed charges
(664
)
 
(3,457
)
 
(1,319
)
 
(2,734
)
 
(1,722
)
Earnings
$
379,221

 
$
207,271

 
$
129,083

 
$
180,747

 
$
113,238

 
 
 
 
 
 
 
 
 
 
Interest expense
$
178,462

 
$
108,193

 
$
50,709

 
$
22,366

 
$
16,233

Capitalized interest
18

 
—

 
—

 
—

 
—

1/3 of rental expense - interest factor
2,078

 
2,011

 
1,504

 
1,282

 
1,204

Fixed Charges
$
180,558

 
$
110,204

 
$
52,213

 
$
23,648

 
$
17,437

 
 
 
 
 
 
 
 
 
 
Ratio of earnings to fixed charges
2.10

 
1.88

 
2.47

 
7.64

 
6.49





Exhibit 21.1
W. P. CAREY INC.
SUBSIDIARIES OF REGISTRANT
Name of Subsidiary
 
Ownership
 
State or Country of Incorporation
(CA) Ads, LLC
 
100
%
 
Delaware
(CA) CHC LP
 
100
%
 
Delaware
24 HR TX (TX) Limited Partnership
 
100
%
 
Delaware
24 HR-TX (MD) Business Trust
 
100
%
 
Maryland
24 HR-TX GP (TX) QRS 12-66, Inc.
 
100
%
 
Delaware
308 Route 38 LLC
 
100
%
 
Delaware
620 Eighth Investor NYT (NY) QRS 16-150, Inc.
 
100
%
 
Delaware
620 Eighth Lender NYT (NY) Limited Partnership
 
45
%
 
Delaware
620 Eighth NYT (NY) Limited Partnership
 
45
%
 
Delaware
ACT (GER) QRS 15-58, Inc.
 
100
%
 
Delaware
ACT Grundstücksverwaltungs GmbH & Co. KG
 
100
%
 
Germany
ACT Grundstücksverwaltungs Management GmbH & Co. KG
 
100
%
 
Germany
ADCIR (CO) QRS 16-60, Inc.
 
100
%
 
Delaware
ADCIR EXP (CO) LLC
 
100
%
 
Delaware
ADS2 (CA) QRS 11-41, Inc.
 
100
%
 
California
ADVA 15 (GA) LLC
 
100
%
 
Delaware
ADV-QRS 15 (GA) QRS 15-4, Inc.
 
100
%
 
Delaware
Aerobic (MO) LLC
 
100
%
 
Delaware
AFD (MN) LLC
 
100
%
 
Delaware
AIR (IL) QRS 14-48, Inc.
 
100
%
 
Delaware
Alum (Alberta) ULC
 
100
%
 
Canada
Alum (Canada) QRS 16-103, Inc.
 
100
%
 
Delaware
ALUSA (TX) DE Limited Partnership
 
100
%
 
Delaware
ALUSA-GP (TX) QRS 16-72, Inc.
 
100
%
 
Delaware
ALUSA-LP (TX) QRS 16-73, Inc.
 
100
%
 
Delaware
Amln (CA) QRS 14-107, Inc.
 
100
%
 
Delaware
Amln Landlord LLC
 
100
%
 
Delaware
Amln Member (CA) QRS 14-108, Inc.
 
100
%
 
Delaware
Amtoll (NM) QRS 14-39, Inc.
 
100
%
 
Delaware
ANTH Campus (CA) LLC
 
100
%
 
Delaware
ANT-LM LLC
 
100
%
 
Delaware
Applied Four (DE) QRS 14-75, Inc.
 
100
%
 
Delaware
Applied Utah (UT) QRS 14-76, Inc.
 
100
%
 
Delaware
Asiainvest LLC
 
92
%
 
Delaware
Assembly (MD)
 
100
%
 
Maryland
Auto (FL) QRS 11-39, Inc.
 
100
%
 
Florida
Autopress (GER) LLC
 
100
%
 
Delaware
Autosafe Airbag 14 (CA) LP
 
100
%
 
Delaware
AW WPC (KY) LLC
 
100
%
 
Delaware
AZO Driver (DE) LLC
 
100
%
 
Delaware
AZO Mechanic (DE) LLC
 
100
%
 
Delaware
AZO Navigator (DE) LLC
 
100
%
 
Delaware



SUBSIDIARIES OF REGISTRANT (Continued)


Name of Subsidiary
 
Ownership
 
State or Country of Incorporation
AZO Valet (DE) LLC
 
100
%
 
Delaware
AZO-A L.P.
 
100
%
 
Delaware
AZO-B L.P.
 
100
%
 
Delaware
AZO-C L.P.
 
100
%
 
Delaware
AZO-D L.P.
 
100
%
 
Delaware
Bbrands (Multi) QRS 16-137, Inc.
 
100
%
 
Delaware
BDF (CT) QRS 16-82, Inc.
 
100
%
 
Delaware
Beaver MM (POL) QRS 15-86, INC.
 
100
%
 
Delaware
Belgov (DE) QRS 15-66, Inc.
 
100
%
 
Delaware
Beverage (GER) QRS 16-141 LLC
 
100
%
 
Delaware
BFS (DE) LP
 
100
%
 
Delaware
BFS (DE) QRS 14-74, Inc.
 
100
%
 
Delaware
Bill CD LLC
 
100
%
 
Delaware
Bill-GP (TX) QRS 14-56, Inc.
 
100
%
 
Delaware
Bill-MC 14 LP
 
90
%
 
Delaware
Blocks (GER) QRS 16-89, Inc.
 
100
%
 
Delaware
BM-LP (TX) QRS 14-57, Inc.
 
100
%
 
Delaware
BN (MA) QRS 11-58, Inc.
 
100
%
 
Delaware
BOBS (CT) QRS 16-25, Inc.
 
100
%
 
Delaware
Bolder (CO) QRS 11-44, Inc.
 
100
%
 
Delaware
Bolt (DE) Limited Partnership
 
100
%
 
Delaware
Bolt (DE) QRS 15-26, Inc.
 
100
%
 
Delaware
Bolt (DE) Trust
 
100
%
 
Maryland
Bone (DE) LLC
 
100
%
 
Delaware
Bone (DE) QRS 15-12, Inc.
 
100
%
 
Delaware
Bone Manager, Inc.
 
100
%
 
Delaware
Borneo Agencies Ltd.
 
100
%
 
Thailand
BOS West (MA) LLC
 
100
%
 
Delaware
Bplast 16 Manager (DE) QRS 16-129, Inc.
 
100
%
 
Delaware
Bplast 16 Member (DE) QRS 16-128, Inc.
 
100
%
 
Delaware
Bplast Landlord (DE) LLC
 
50
%
 
Delaware
Bplast Two Landlord (IN) LLC
 
50
%
 
Delaware
Bplast Two Manager (IN) QRS 16-152, Inc.
 
100
%
 
Delaware
Bplast Two Member (IN) QRS 16-151, Inc.
 
100
%
 
Delaware
Brassington Limited
 
100
%
 
Hong Kong
Brelade Holdings Ltd.
 
100
%
 
Cyprus
Brilliant 437 GMBH
 
100
%
 
Germany
Broomfield Properties Corp.
 
100
%
 
Colorado
BRY-PL (DE) Limited Partnership
 
100
%
 
Delaware
BRY-PL (MD) Trust
 
100
%
 
Maryland
BRY-PL GP (DE) QRS 15-57, Inc.
 
100
%
 
Delaware
BSL Caldwell (NC) LLC
 
100
%
 
Delaware
BST Torrance Landlord (CA) QRS 14-109, Inc.
 
100
%
 
Delaware
BT (PA) QRS 12-25, INC.
 
100
%
 
Pennsylvania
BT-YORK (PA)
 
100
%
 
Pennsylvania



SUBSIDIARIES OF REGISTRANT (Continued)


Name of Subsidiary
 
Ownership
 
State or Country of Incorporation
Build (CA) QRS 12-24, Inc.
 
100
%
 
California
Call LLC
 
100
%
 
Delaware
Can (WI) QRS 12-34, Inc.
 
100
%
 
Wisconsin
Can-Two (DE) QRS 12-67, Inc.
 
100
%
 
Delaware
CAR-4 I SARL
 
100
%
 
France
CAR-4 II SARL
 
100
%
 
France
Car-4 SCI
 
100
%
 
France
Cards (CA) QRS 11-37, Inc.
 
100
%
 
Delaware
Cards (CA) QRS 12-12, Inc.
 
100
%
 
Delaware
Cards Limited Liability Company
 
100
%
 
Delaware
Carey Asset Management Corp.
 
100
%
 
Delaware
Carey Asset Management Dallas LLC
 
100
%
 
Delaware
Carey Financial, LLC
 
100
%
 
Delaware
Carey Lodging Advisors, LLC
 
100
%
 
Delaware
Carey Management LLC
 
100
%
 
Delaware
Carey Norcross, L.L.C.
 
100
%
 
Delaware
Carey REIT II, Inc.
 
100
%
 
Maryland
Carey Self-Storage Participation, LLC
 
100
%
 
Delaware
Carey Storage Asset Management LLC
 
100
%
 
Delaware
Carey Storage Management LLC
 
100
%
 
Delaware
Carey Storage Member LLC
 
100
%
 
Delaware
Carey Storage Mezzanine I, LLC
 
100
%
 
Delaware
Carey Storage TRS (DE) 16-155
 
100
%
 
Delaware
Carey Technology Properties II LLC
 
100
%
 
Delaware
Carey Watermark 1 LLC
 
100
%
 
Delaware
Carey Watermark Holdings, LLC
 
80
%
 
Delaware
Carey/HUSREFIV Self-Storage Holdings LLC
 
40
%
 
Delaware
Carlog I SARL
 
100
%
 
France
Carlog II SARL
 
100
%
 
France
Carlog SCI
 
100
%
 
France
Casting Landlord (GER) QRS 16-109 LLC
 
100
%
 
Delaware
Casting Member (GER) QRS 16-108 LLC
 
100
%
 
Delaware
CBS (PA) QRS 14-12, Inc.
 
100
%
 
Delaware
CCARE (Multi) GP QRS 11-60, Inc.
 
100
%
 
Delaware
CCARE (Multi) Limited Partnership
 
100
%
 
Delaware
CCARE (Multi)LP QRS 9-1, Inc.
 
100
%
 
Delaware
CD UP LP
 
100
%
 
Delaware
Champion Edge SND BHD
 
100
%
 
Malaysia
Chassis (DE) Limited Partnership
 
100
%
 
Delaware
Chassis (GER) QRS 16-118, Inc.
 
100
%
 
Delaware
Chkfree WPC Member (GA) LLC
 
100
%
 
Delaware
CIP Acquisition Incorporated
 
100
%
 
Maryland
Citrus Heights (CA) GP, LLC
 
100
%
 
Delaware
CLA Holdings, LLC
 
100
%
 
Delaware
Clean (KY) LLC
 
100
%
 
Delaware



SUBSIDIARIES OF REGISTRANT (Continued)


Name of Subsidiary
 
Ownership
 
State or Country of Incorporation
Clean (KY) QRS 16-22, Inc.
 
100
%
 
Delaware
Coco (WY) QRS 16-51, Inc.
 
100
%
 
Delaware
Coco-Dorm (PA) QRS 16-52, Inc.
 
100
%
 
Delaware
Coco-Dorm (PA) Trust
 
100
%
 
Maryland
Coco-Dorm (PA), LP
 
100
%
 
Delaware
Comquest West (AZ) 11-68, Inc.
 
100
%
 
Delaware
Conductor (CA) QRS 14-11, Inc.
 
100
%
 
Delaware
Consys (SC) QRS 16-66, Inc.
 
100
%
 
Delaware
Consys-9 (SC) LLC
 
100
%
 
Delaware
Container Finance (Finland) QRS 16-62, Inc.
 
100
%
 
Delaware
Containers (DE) Limited Partnership
 
100
%
 
Delaware
Containers (DE) QRS 15-36, Inc.
 
100
%
 
Delaware
Corporate Property Associates
 
100
%
 
California
Corporate Property Associates 15 Incorporated
 
100
%
 
Maryland
Corporate Property Associates 4-A California Limited Partnership
 
100
%
 
California
Corporate Property Associates 6-A California Limited Partnership
 
100
%
 
California
Corporate Property Associates 9-A Delaware Limited Partnership
 
100
%
 
Delaware
CP GAL (IN) QRS 16-61, Inc.
 
100
%
 
Delaware
CP GAL Fairfax, LLC
 
100
%
 
Delaware
CP GAL Kennesaw, LLC
 
100
%
 
Delaware
CP GAL Leawood, LLC
 
100
%
 
Delaware
CP GAL Lombard, LLC
 
100
%
 
Delaware
CP GAL Plainfield, LLC
 
55
%
 
Delaware
CPA 14 (UK) Finance Company
 
100
%
 
Delaware
CPA 14 Netherlands CV
 
100
%
 
Netherlands
CPA 15 Merger Sub Inc.
 
100
%
 
Maryland
CPA 15 Netherlands CV
 
100
%
 
Netherlands
CPA 16 LLC
 
100
%
 
Delaware
CPA 16 Merger Sub Inc.
 
100
%
 
Maryland
CPA 16 Netherlands CV
 
100
%
 
Netherlands
CPA Paper, Inc.
 
100
%
 
Delaware
CPA16 German (DE) Limited Partnership
 
100
%
 
Delaware
CPA16 German GP (DE) QRS-155, Inc.
 
100
%
 
Delaware
Crate (GER) QRS 16-142 LLC
 
100
%
 
Delaware
CRI (AZ-CO) QRS 16-4, Inc.
 
100
%
 
Delaware
Cups (DE) LP
 
100
%
 
Delaware
CV GP (Dutch) QRS 14-111, Inc.
 
100
%
 
Delaware
CV GP (Dutch) QRS 15-101, Inc.
 
100
%
 
Delaware
CV GP (Dutch) QRS 16-148, Inc.
 
100
%
 
Delaware
Dan (FL) QRS 15-7, Inc.
 
100
%
 
Delaware
DCNETH Landlord (NL) LLC
 
100
%
 
Delaware
DCNETH Member (NL) QRS 15-102, Inc
 
100
%
 
Delaware
Delaware Chip LLC
 
100
%
 
Delaware
Delaware Frame (TX), LP
 
100
%
 
Delaware
Deliver (TN) QRS 14-49, Inc.
 
100
%
 
Delaware



SUBSIDIARIES OF REGISTRANT (Continued)


Name of Subsidiary
 
Ownership
 
State or Country of Incorporation
Delmo (DE) QRS 11/12-1, Inc.
 
100
%
 
Delaware
Delmo (PA) QRS 11-36
 
100
%
 
Pennsylvania
Delmo (PA) QRS 12-10
 
100
%
 
Pennsylvania
Delmo 11/12 (DE) LLC
 
100
%
 
Delaware
DES-Tech (TN) Limited Partnership
 
100
%
 
Delaware
DES-Tech GP (TN) QRS 16-49, Inc.
 
100
%
 
Delaware
DES-Tech LP (TN) QRS 16-50, Inc.
 
100
%
 
Delaware
Develop (TX) LP
 
100
%
 
Delaware
Dfence (Belgium) 15 Sprl
 
100
%
 
Belgium
Dfence (Belgium) 15-16 Sprl
 
100
%
 
Belgium
Dfence (Belgium) 16 Sprl
 
100
%
 
Belgium
Dfend 15 LLC
 
100
%
 
Delaware
Dfend 16 LLC
 
100
%
 
Delaware
DIY (Poland) Sp. Zoo
 
100
%
 
Poland
Dough (DE) QRS 14-77, Inc.
 
100
%
 
Delaware
Dough (MD)
 
100
%
 
Maryland
Dough Lot (DE) QRS 14-110, Inc.
 
100
%
 
Delaware
Dough Lot (MD)
 
100
%
 
Maryland
DP WPC (TX) LLC
 
100
%
 
Delaware
Drayton Plains (MI), LLC
 
100
%
 
Delaware
Drill (DE) Trust
 
100
%
 
Maryland
Drill GmbH & Co. KG
 
95
%
 
Germany
Drug (AZ) QRS 14-42, Inc.
 
100
%
 
Delaware
DSG (IN) QRS 15-44, Inc.
 
100
%
 
Delaware
DSG GP (PA) QRS 14-103, Inc.
 
100
%
 
Delaware
DSG Landlord (PA) L.P.
 
100
%
 
Delaware
DSG LP (PA) Trust
 
100
%
 
Maryland
Dyne (DE) LP
 
100
%
 
Delaware
ELL (GER) QRS 16-37, Inc.
 
100
%
 
Delaware
Eltofi AS
 
100
%
 
Norway
Energy (NJ) QRS 15-10, Inc.
 
100
%
 
Delaware
Engines (GER) QRS 15-90, Inc.
 
100
%
 
Delaware
Eros (ESP) CR QRS Inc.
 
100
%
 
Delaware
Eros II Spain 17-16 B.V.
 
70
%
 
Netherlands
Fabric (DE) GP
 
100
%
 
Delaware
Fair-QB (DE) LLC
 
100
%
 
Delaware
Fast (DE) QRS 14-22, Inc.
 
100
%
 
Delaware
Faur WPC (OH) LLC
 
100
%
 
Delaware
Film (FL) QRS 14-44, Inc.
 
100
%
 
Delaware
Finistar (CA-TX) Limited Partnership
 
100
%
 
Delaware
Finistar GP (CA-TX) QRS 16-21, Inc.
 
100
%
 
Delaware
Finistar LP (DE) QRS 16-29, Inc.
 
100
%
 
Delaware
Finit (FI) LLC
 
100
%
 
Delaware
Finnestadveien 44 ANS
 
100
%
 
Norway
Fit (CO) QRS 15-59, Inc.
 
100
%
 
Delaware



SUBSIDIARIES OF REGISTRANT (Continued)


Name of Subsidiary
 
Ownership
 
State or Country of Incorporation
Fit (TX) GP QRS 12-60, Inc.
 
100
%
 
Delaware
Fit (TX) LP
 
100
%
 
Delaware
Fit (TX) Trust
 
100
%
 
Maryland
Fit (UT) QRS 14-92, Inc.
 
100
%
 
Delaware
Food (DE) QRS 12-49, Inc.
 
100
%
 
Delaware
Foss (NH) QRS 16-3, Inc.
 
100
%
 
Delaware
Four World Landlord (GA) LLC
 
100
%
 
Delaware
Four World Manager (GA) LLC
 
100
%
 
Delaware
Frame (TX) QRS 14-25, Inc.
 
100
%
 
Delaware
Freight (IL) LLC
 
100
%
 
Delaware
FRO 16 (NC) LLC
 
100
%
 
Delaware
FRO Spin (NC) LLC
 
40
%
 
Delaware
GAL III (IN) QRS 15-49, Inc.
 
100
%
 
Delaware
GAL III (NJ) QRS 15-45, Inc.
 
100
%
 
Delaware
GAL III (NY) QRS 15-48, Inc.
 
100
%
 
Delaware
GB-ACT (GER) Limited Partnership
 
100
%
 
Delaware
Gearbox (GER) QRS 15-95, Inc.
 
100
%
 
Delaware
GERB TOLLAND QRS (CT) 16 Inc.
 
100
%
 
Delaware
Gibson Mass Member Two LLC
 
100
%
 
Delaware
Gibson Plus Member Two LLC
 
100
%
 
Delaware
Goldyard S.L.
 
70
%
 
Spain
GRC (TX) Limited Partnership
 
100
%
 
Delaware
GRC (TX) QRS 15-47, Inc.
 
100
%
 
Delaware
GRC (TX) Trust
 
100
%
 
Maryland
GRC-II (TX) Limited Partnership
 
100
%
 
Delaware
GRC-II (TX) QRS 15-80, Inc.
 
100
%
 
Delaware
GRC-II (TX) Trust
 
100
%
 
Maryland
Greens (Finland) QRS 16-14, Inc.
 
100
%
 
Delaware
Greens Shareholder (Finland) QRS 16-16, Inc.
 
100
%
 
Delaware
Guitar Mass (TN) QRS 14-36, Inc.
 
100
%
 
Delaware
Guitar Plus (TN) QRS 14-37, Inc.
 
100
%
 
Delaware
H2 Investor (GER) QRS 15-91, Inc.
 
100
%
 
Delaware
H2 Investor (GER) QRS 16-100, Inc.
 
100
%
 
Delaware
Hammer (DE) Limited Partnership
 
100
%
 
Delaware
Hammer (DE) LP QRS 12-65, Inc.
 
100
%
 
Delaware
Hammer (DE) LP QRS 14-100, Inc.
 
100
%
 
Delaware
Hammer (DE) LP QRS 15-33, Inc.
 
100
%
 
Delaware
Hammer (DE) QRS 15-32, Inc.
 
100
%
 
Delaware
Hammer (DE) Trust
 
100
%
 
Maryland
HEF (NC-SC) QRS 14-86, Inc.
 
100
%
 
Delaware
Hellweg GmbH & Co. Vermögensverwaltungs KG
 
64
%
 
Germany
Hibbett (AL) 11-41, Inc.
 
100
%
 
Delaware
HLWG B Note Purchaser (DE) LLC
 
67
%
 
Delaware
HLWG Two (GER) LLC
 
67
%
 
Delaware
HM Benefits (MI) QRS 16-18, Inc.
 
100
%
 
Delaware



SUBSIDIARIES OF REGISTRANT (Continued)


Name of Subsidiary
 
Ownership
 
State or Country of Incorporation
Hoe Management GmbH
 
64
%
 
Germany
Hotel (MN) QRS 16-84, Inc.
 
100
%
 
Delaware
Hotel Operator (MN) TRS 16-87, Inc.
 
100
%
 
Delaware
Hum (DE) QRS 11-45, Inc.
 
100
%
 
Delaware
Huntwood (TX) Limited Partnership
 
100
%
 
Delaware
Huntwood (TX) QRS 16-8, Inc.
 
100
%
 
Delaware
Ice (TX) QRS 12-29, Inc.
 
100
%
 
Texas
ICG (TX) Limited Partnership
 
100
%
 
Delaware
ICG-GP (TX) QRS 15-3, Inc.
 
100
%
 
Delaware
ICG-LP (TX) Trust
 
100
%
 
Maryland
Ijobbers (DE) QRS 14-41, Inc.
 
100
%
 
Delaware
Ijobbers LLC
 
100
%
 
Delaware
Illkinvest SAS
 
100
%
 
France
Image (NY) QRS 16-67, Inc.
 
100
%
 
Delaware
Initiator (CA) QRS 14-62, Inc.
 
100
%
 
Delaware
Inversiones Holmes, S.L.
 
100
%
 
Spain
Jamesinvest Sprl
 
100
%
 
Belgium
Jen (MA) QRS 12-54, Inc.
 
100
%
 
Delaware
JPCentre (TX) LLC
 
100
%
 
Delaware
Kabushiki Kaisha Mure Property
 
100
%
 
Japan
KF WPC Owner (IL) LLC
 
100
%
 
Delaware
Kiinteisto Oy Tietoie 6
 
100
%
 
Finland
Kiinteisto Oy Tietokilo 1-2
 
100
%
 
Finland
Kiinteistöosakeyhtiö Ruskontie 55
 
100
%
 
Finland
KPH (UK) QRS 16-42, Inc.
 
100
%
 
Delaware
KSM Cresskill (NJ) QRS 16-80, Inc.
 
100
%
 
Delaware
KSM Livingston (NJ) QRS 16-76, INC.
 
100
%
 
Delaware
KSM Maplewood (NJ) QRS 16-77, INC.
 
100
%
 
Delaware
KSM Montclair (NJ) QRS 16-78, INC.
 
100
%
 
Delaware
KSM Morristown (NJ) QRS 16-79, INC.
 
100
%
 
Delaware
KSM Summit (NJ) QRS 16-75, Inc.
 
100
%
 
Delaware
Labels-Ben (DE) QRS 16-28, Inc.
 
100
%
 
Delaware
Labrador (AZ) LP
 
100
%
 
Delaware
Learn (IL) QRS 11-53, Inc.
 
100
%
 
Delaware
Leather (DE) QRS 14-72, Inc.
 
100
%
 
Delaware
Lei (GER) QRS 16-134 LLC
 
100
%
 
Delaware
Lincoln (DE) LP
 
100
%
 
Delaware
Linden (GER) LLC
 
100
%
 
Delaware
Longboom (Finland) QRS 16-131, Inc.
 
100
%
 
Delaware
Longboom Finance (Finland) QRS 16-130, Inc.
 
100
%
 
Delaware
Longboom Landlord (Finland) LLC
 
100
%
 
Delaware
LPD (CT) QRS 16-132, Inc.
 
100
%
 
Delaware
LPORT (WA-TX) QRS 16-92, Inc.
 
100
%
 
Delaware
LPORT 2 (WA) QRS 16-147, Inc.
 
100
%
 
Delaware
LTI (DE) QRS 14-81, Inc.
 
100
%
 
Delaware



SUBSIDIARIES OF REGISTRANT (Continued)


Name of Subsidiary
 
Ownership
 
State or Country of Incorporation
LTI Trust (MD)
 
100
%
 
Maryland
Mag-Info (SC) QRS 16-74, Inc.
 
100
%
 
Delaware
MAGS (UK) QRS 16-2, INC.
 
100
%
 
Delaware
Mala-IDS (DE) QRS 16-71, Inc.
 
100
%
 
Delaware
Mallika PBJ LLC
 
100
%
 
Delaware
Mapi Invest SPRL
 
100
%
 
Belgium
Mapinvest Delaware LLC
 
100
%
 
Delaware
Marcourt Investments Incorporated
 
100
%
 
Maryland
Master (DE) QRS 15-71, Inc.
 
100
%
 
Delaware
Mauritius International I LLC
 
100
%
 
Delaware
MBM-Beef (DE) QRS 15-18, Inc.
 
100
%
 
Delaware
MCM (TN) LLC
 
100
%
 
Delaware
MCM Manager (TN) QRS 16-115, Inc.
 
100
%
 
Delaware
MCM Member (TN) QRS 16-116, Inc.
 
100
%
 
Delaware
MCPA Mass (TN) Associates
 
100
%
 
Tennessee
MCPA Plus (TN) Associates
 
100
%
 
Tennessee
Mechanic (AZ) QRS 15-41, Inc.
 
100
%
 
Delaware
Medi (PA) Limited Partnership
 
100
%
 
Delaware
Medi (PA) QRS 15-21, Inc.
 
100
%
 
Delaware
Medi (PA) Trust
 
100
%
 
Maryland
Memphis Hotel Operator (TN) TRS 16-121, Inc.
 
100
%
 
Delaware
Memphis Hotel Owner (TN) QRS 16-122, Inc.
 
100
%
 
Delaware
Meri (NC) LLC
 
100
%
 
Delaware
Meri (NC) MM QRS 14-98, Inc.
 
100
%
 
Delaware
MET WST (UT) QRS 16-97, Inc.
 
100
%
 
Delaware
Metal (DE) QRS 14-67, Inc.
 
100
%
 
Delaware
Metal (GER) QRS 15-94, Inc.
 
100
%
 
Delaware
Metaply (MI) LLC
 
100
%
 
Delaware
MIAP (MN) LLC
 
100
%
 
Delaware
Micro (CA) QRS 11-43, Inc.
 
100
%
 
Delaware
MK (Mexico) QRS 16-48, Inc.
 
100
%
 
Delaware
MK (NY) Trust
 
100
%
 
Maryland
MK GP BEN (DE) QRS 16-45, Inc.
 
100
%
 
Delaware
MK Landlord (DE) Limited Partnership
 
100
%
 
Delaware
MK LP Ben (DE) QRS 16-46, Inc.
 
100
%
 
Delaware
MK-Ben (DE) Limited Partnership
 
100
%
 
Delaware
MK-GP (DE) QRS 16-43, Inc.
 
100
%
 
Delaware
MK-LP (DE) QRS 16-44, Inc.
 
100
%
 
Delaware
MK-Nom (ONT) Inc.
 
100
%
 
Canada
MM (UT) QRS 11-59, Inc.
 
100
%
 
Delaware
Module (DE) Limited Partnership
 
100
%
 
Delaware
Mons (DE) QRS 15-68, Inc.
 
100
%
 
Delaware
More Applied Four (DE) LLC
 
100
%
 
Delaware
More Applied Utah (UT) LLC
 
100
%
 
Delaware
Movie (VA) QRS 14-24, Inc.
 
100
%
 
Delaware



SUBSIDIARIES OF REGISTRANT (Continued)


Name of Subsidiary
 
Ownership
 
State or Country of Incorporation
MPH (UK) QRS 16-41, Inc.
 
100
%
 
Delaware
Nail (DE) Trust
 
100
%
 
Maryland
Nantwich sp.z o.o.
 
100
%
 
Poland
Neonatal Finland, Inc.
 
100
%
 
Delaware
Neoserv (CO) QRS 10-13, Inc.
 
100
%
 
Colorado
Neoserv (CO) QRS 11-8, Inc.
 
100
%
 
Colorado
New Option-QB (DE) LLC
 
100
%
 
Delaware
Nor (GA) QRS 14-17, Inc.
 
100
%
 
Georgia
Nord (GA) QRS 16-98, Inc.
 
100
%
 
Delaware
Nord B Note (DE) QRS 16-126, Inc.
 
100
%
 
Delaware
NR (LA) QRS 14-95, Inc.
 
100
%
 
Delaware
Olimpia Investments Sp. z o.o.
 
100
%
 
Poland
Optical (CA) QRS 15-8, Inc.
 
100
%
 
Delaware
Orb (MO) QRS 12-56, Inc.
 
100
%
 
Delaware
Overtape (CA) QRS 15-14, Inc.
 
100
%
 
Delaware
OX (AL) LLC
 
100
%
 
Delaware
OX-GP (AL) QRS 15-15, Inc.
 
100
%
 
Delaware
Pacpress (IL-MI) QRS 16-114, Inc.
 
100
%
 
Delaware
Pallet (FRA) SARL
 
100
%
 
France
Panel (UK) QRS 14-54, Inc.
 
100
%
 
Delaware
Paper Limited Liability Company
 
100
%
 
Delaware
Parts (DE) QRS 14-90, Inc.
 
100
%
 
Delaware
Pem (MN) QRS 15-39, Inc.
 
100
%
 
Delaware
Pensacola Storage (FL) LLC
 
100
%
 
Delaware
Pensacola Storage Member (FL) LLC
 
100
%
 
Delaware
Pet (TX) GP QRS 11-62, INC.
 
100
%
 
Delaware
Pet (TX) LP
 
100
%
 
Delaware
Pet (TX) Trust
 
100
%
 
Maryland
PF (GER) QRS 16-96 LLC
 
100
%
 
Delaware
PG (Multi-16) L.P.
 
100
%
 
Delaware
PG (Multi-16) QRS 16-7, Inc.
 
100
%
 
Delaware
PG (Multi-16) Trust
 
100
%
 
Maryland
PG Calgary (DE) Trust
 
100
%
 
New York
PG-Ben (CAN) QRS 16-9, Inc.
 
100
%
 
Delaware
PG-Nom Alberta, Inc.
 
100
%
 
Canada
Pilbara Investments Limited
 
100
%
 
Cyprus
Pipes (UK) QRS 16-59, Inc.
 
100
%
 
Delaware
Plants (Sweden) QRS 16-13, Inc.
 
100
%
 
Delaware
Plants Shareholder (Sweden) QRS 16-15, Inc.
 
100
%
 
Delaware
Plastic (DE) Limited Partnership
 
100
%
 
Delaware
Plastic (DE) QRS 15-56, Inc.
 
100
%
 
Delaware
Plastic (DE) Trust
 
100
%
 
Maryland
Plastic II (IL) LLC
 
100
%
 
Delaware
Plastic II (IL) QRS 16-27, Inc.
 
100
%
 
Delaware
Plates (DE) QRS 14-63, Inc.
 
100
%
 
Delaware



SUBSIDIARIES OF REGISTRANT (Continued)


Name of Subsidiary
 
Ownership
 
State or Country of Incorporation
Plex (WI) QRS 11-56, Inc.
 
100
%
 
Delaware
Plex Trust (MD)
 
100
%
 
Maryland
Pliers (DE) Trust
 
100
%
 
Maryland
Plum (DE) QRS 15-67, Inc.
 
100
%
 
Delaware
Pohj Landlord (Finland) LLC
 
100
%
 
Delaware
Pohj Managing Member (Finland) QRS 16-20, Inc.
 
100
%
 
Delaware
Pohj Member (Finland) QRS 15-82, Inc.
 
100
%
 
Delaware
Pol (NC) QRS 15-25, Inc.
 
100
%
 
Delaware
Pol-Beaver LLC
 
100
%
 
Delaware
Pold (GER) QRS 16-133 LLC
 
100
%
 
Delaware
Polkinvest Sprl
 
100
%
 
Belgium
Poly (Multi) Limited Partnership
 
100
%
 
Delaware
Poly GP (Multi) QRS 16-35, Inc.
 
100
%
 
Delaware
Poly LP (MD) Trust
 
100
%
 
Maryland
Popcorn (TX) QRS 14-43, Inc.
 
100
%
 
Delaware
Ports (Finland) LLC
 
100
%
 
Delaware
Ports (Finland) QRS 16-63, Inc.
 
100
%
 
Delaware
PRA (OH) LLC
 
100
%
 
Delaware
Primo (MS) QRS 16-94, Inc.
 
100
%
 
Delaware
Print (WI) QRS 12-40, Inc.
 
100
%
 
Wisconsin
Prints (UK) QRS 16-1, Inc.
 
100
%
 
Delaware
Projector (FL) QRS 14-45, Inc.
 
100
%
 
Delaware
Provo (UT) QRS 16-85, Inc.
 
100
%
 
Delaware
Pump (MO) QRS 14-52, Inc.
 
100
%
 
Delaware
PWE (Multi) QRS 14-85, Inc.
 
100
%
 
Delaware
QRS 10-1 (ILL) Inc.
 
100
%
 
Illinois
QRS 10-18 (FL), LLC
 
100
%
 
Delaware
QRS 11-2 (AR), LLC
 
100
%
 
Delaware
QRS 11-41 (AL), LLC
 
100
%
 
Delaware
QS ARK (DE) QRS 15-38, Inc.
 
100
%
 
Delaware
Quest-US West (AZ) QRS 11-68, LLC
 
100
%
 
Delaware
Rad-Mon (VA-IN) LLC
 
100
%
 
Delaware
Rails (UK) QRS 15-54, Inc.
 
100
%
 
Delaware
Randolph/Clinton Limited Partnership
 
100
%
 
Delaware
Reyhold (DE) QRS 16-32, Inc.
 
100
%
 
Delaware
RI(CA) QRS 12-59, Inc.
 
100
%
 
Delaware
RII (CA) QRS 15-2, Inc.
 
100
%
 
Delaware
RRC (TX) GP QRS 12-61, Inc.
 
100
%
 
Delaware
RRC (TX) LP
 
100
%
 
Delaware
RRC (TX) Trust
 
100
%
 
Maryland
Rubbertex (TX) QRS 16-68, Inc.
 
100
%
 
Delaware
Rush It LLC
 
100
%
 
Delaware
Salted Peanuts (LA) QRS 15-13, Inc.
 
100
%
 
Delaware
Scan (OR) QRS 11-47, Inc.
 
100
%
 
Delaware
SCHNEI-ELEC (MA) LLC
 
100
%
 
Delaware



SUBSIDIARIES OF REGISTRANT (Continued)


Name of Subsidiary
 
Ownership
 
State or Country of Incorporation
Schobi (Ger-Pol) LLC
 
100
%
 
Delaware
Sealtex (DE) QRS 16-69, Inc.
 
100
%
 
Delaware
Semi (CA) QRS 12-45, Inc.
 
100
%
 
Delaware
SF (TX) GP QRS 11-61, INC.
 
100
%
 
Delaware
SF (TX) LP
 
100
%
 
Delaware
SF (TX) Trust
 
100
%
 
Maryland
SFC (TN) QRS 11-21, Inc.
 
100
%
 
Tennessee
SFCO (GA) QRS 16-127, Inc.
 
100
%
 
Delaware
Shaq (DE) QRS 15-75, Inc.
 
100
%
 
Delaware
Shep (KS-OK) QRS 16-113, Inc.
 
100
%
 
Delaware
SHO Member (FL) LLC
 
100
%
 
Delaware
Shovel Management GmbH
 
67
%
 
Germany
SM (NY) QRS 14-93, Inc.
 
100
%
 
Delaware
South East Asian Pacific Holdings Ltd.
 
100
%
 
British Virgin Islands
Speed (NC) QRS 14-70, Inc.
 
100
%
 
Delaware
ST (TX) GP QRS 11-63, INC.
 
100
%
 
Delaware
ST (TX) LP
 
100
%
 
Delaware
ST (TX) Trust
 
100
%
 
Maryland
Steels (UK) QRS 16-58, Inc.
 
100
%
 
Delaware
Stor-Move UH 15 Business Trust
 
100
%
 
Massachusetts
Stor-Move UH 16 Business Trust
 
100
%
 
Massachusetts
Sun (SC) QRS 12-68, Inc.
 
100
%
 
Delaware
Sun Two (SC) QRS 12-69, Inc.
 
100
%
 
Delaware
Sunny Chip 14 LLC
 
100
%
 
Delaware
Sunny Chip 15 LLC
 
100
%
 
Delaware
Suspension (DE) QRS 15-1, Inc.
 
100
%
 
Delaware
Tech (GER) QRS 16-144, Inc.
 
100
%
 
Delaware
Tech Landlord (GER) LLC
 
30
%
 
Delaware
Teeth Finance (Finland) QRS 16-106, Inc.
 
100
%
 
Delaware
Teeth Landlord (Finland) LLC
 
100
%
 
Delaware
Teeth Member (Finland) QRS 16-107, Inc.
 
100
%
 
Delaware
Telc (NJ) QRS 16-30, Inc.
 
100
%
 
Delaware
Telegraph (MO) LLC
 
100
%
 
Delaware
Telegraph Manager (MO) WPC, Inc.
 
100
%
 
Delaware
Terrier (AZ) QRS 14-78, Inc.
 
100
%
 
Delaware
Tfarma (CO) QRS 16-93, Inc.
 
100
%
 
Delaware
Theatre (DE) QRS 14-14, Inc.
 
100
%
 
Delaware
Thids (DE) QRS 16-17, Inc.
 
100
%
 
Delaware
Thids 16 Company Limited
 
100
%
 
Thailand
Three Aircraft Seats (DE) Limited Partnership
 
100
%
 
Delaware
Three Cabin Seats (DE) LLC
 
100
%
 
Delaware
Tissue SARL
 
100
%
 
France
Tito (FI) QRS 15-81, Inc.
 
100
%
 
Delaware
Tito (FI) QRS 16-6, Inc.
 
100
%
 
Delaware
Toner (DE) QRS 14-96, Inc.
 
100
%
 
Delaware



SUBSIDIARIES OF REGISTRANT (Continued)


Name of Subsidiary
 
Ownership
 
State or Country of Incorporation
Tower (DE) QRS 14-89, Inc.
 
100
%
 
Delaware
Tower 14 (MD)
 
100
%
 
Maryland
Toys (NE) QRS 15-74, Inc.
 
100
%
 
Delaware
Trinity WPC (Manchester) Limited
 
100
%
 
United Kingdom
Trinity WPC (UK) Limited
 
100
%
 
United Kingdom
Trinity WPC (UK) LLC
 
100
%
 
Delaware
Trucks (France) SARL
 
100
%
 
France
TR-VSS (MI) QRS 16-90. Inc.
 
100
%
 
Delaware
TSO-Hungary KFT
 
51
%
 
Hungary
UH Storage (DE) Limited Partnership
 
88
%
 
Delaware
UH Storage GP (DE) QRS 15-50, Inc.
 
100
%
 
Delaware
UK Panel LLC
 
100
%
 
Delaware
Uni-Tech (CA) QRS 15-64, Inc.
 
100
%
 
Delaware
Unitech (IL) LLC
 
100
%
 
Delaware
Uni-Tech (PA) QRS 15-51, Inc.
 
100
%
 
Delaware
Uni-Tech (PA) QRS 15-63, Inc.
 
100
%
 
Delaware
Uni-Tech (PA) Trust
 
100
%
 
Maryland
Uni-Tech (PA), L.P.
 
100
%
 
Delaware
UP CD LLC
 
100
%
 
Delaware
Ursa (VT) QRS 12-30, Inc.
 
100
%
 
Vermont
URubber (TX) Limited Partnership
 
100
%
 
Delaware
UTI-SAC (CA) QRS 16-34, Inc.
 
100
%
 
Delaware
Valves Germany (DE) QRS 16-64 LLC
 
100
%
 
Delaware
Valves Member Germany (DE) QRS 16-65 LLC
 
100
%
 
Delaware
Venice (CA) LP
 
100
%
 
Delaware
Vinyl (DE) QRS 14-71, Inc.
 
100
%
 
Delaware
W. P. Carey & Co. B.V.
 
100
%
 
Netherlands
W. P. Carey & Co. Limited
 
100
%
 
United Kingdom
W. P. Carey Equity Investment Management (Shanghai) Co., Ltd.
 
100
%
 
China
W. P. Carey Holdings, LLC
 
100
%
 
Delaware
W. P. Carey International LLC
 
100
%
 
Delaware
W.P.C.I. Holdings I LLC
 
92
%
 
Delaware
W.P.C.I. Holdings II LLC
 
92
%
 
Delaware
Wadd-II (TN) LP
 
100
%
 
Delaware
Wadd-II General Partner (TN) QRS 15-19, INC.
 
100
%
 
Delaware
Wals (IN) LLC
 
100
%
 
Delaware
Weg (GER) QRS 15-83, Inc.
 
100
%
 
Delaware
Wegell GmbH & Co. KG
 
100
%
 
Germany
Wegell Verwaltungs GmbH
 
100
%
 
Germany
WGN (GER) LLC
 
33
%
 
Delaware
WGN 15 Holdco (GER) QRS 15-98, Inc.
 
100
%
 
Delaware
WGN 15 Member (GER) QRS 15-99, Inc.
 
100
%
 
Delaware
WGS (Multi) LLC
 
100
%
 
Delaware
Windough (DE) LP
 
100
%
 
Delaware
Windough Lot (DE) LP
 
100
%
 
Delaware



SUBSIDIARIES OF REGISTRANT (Continued)


Name of Subsidiary
 
Ownership
 
State or Country of Incorporation
Wisco (WI) Limited Partnership
 
100
%
 
Delaware
Wolv (DE) Limited Partnership
 
100
%
 
Delaware
Wolv Trust, a Maryland Business Trust
 
100
%
 
Maryland
Work (GER) QRS 16-117, Inc.
 
100
%
 
Delaware
WPC Australia 1 Trust
 
100
%
 
Australia
WPC Crown Colony (MA) LLC
 
100
%
 
Delaware
WPC Holdco LLC
 
100
%
 
Maryland
WPC International Holding and Financing LLC
 
100
%
 
Delaware
WPC Pan-European Holding Cooperatief U.A.
 
100
%
 
Netherlands
WPC PR6 (CO) LLC
 
100
%
 
Delaware
WPC PR6 OPT (CO) LLC
 
100
%
 
Delaware
WPC QBE Manager, LLC
 
100
%
 
Delaware
WPC REIT 1 B.V.
 
100
%
 
Netherlands
WPC REIT ADMIR 8 B.V.
 
100
%
 
Netherlands
WPC REIT Cargo 4 B.V.
 
100
%
 
Netherlands
WPC REIT Merger Sub Inc.
 
100
%
 
Maryland
WPC REIT Pola 6 B.V.
 
100
%
 
Netherlands
WPC REIT Sant 5 B.V.
 
100
%
 
Netherlands
WPC REIT Tot 7 B.V.
 
100
%
 
Netherlands
WPC Smucker Manager, LLC
 
100
%
 
Delaware
WPC Sub Trust No. 1
 
100
%
 
Australia
WPC TOT 1 AS
 
100
%
 
Norway
WPC TOT 2 AS
 
100
%
 
Norway
WPC TOT 3 AS
 
100
%
 
Norway
WPC-CPA:18 Holdings, LLC
 
100
%
 
Delaware
Wrench (DE) Limited Partnership
 
100
%
 
Delaware
Wrench (DE) QRS 15-31, Inc.
 
100
%
 
Delaware
Wrench (DE) Trust
 
100
%
 
Maryland
XPD (NJ) LLC
 
100
%
 
Delaware
XPD Member (NJ) QRS 16-12, Inc.
 
100
%
 
Delaware
Zylinderblock (GER) LLC
 
100
%
 
Delaware





Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S‑8 (Nos.333-160078, 333-160079, 333-64549, 333-56121, 333-189999; 333-187729 and 333-90880) and Form S-3 (No.333-194389) of our report dated March 2, 2015 relating to the financial statements, financial statement schedules, and the effectiveness of internal control over financial reporting of W.P. Carey Inc., which appears in this Form 10-K and our report dated March 3, 2014 relating to the financial statements of Corporate Property Associates 16 - Global Incorporated, which is incorporated by reference to Exhibit 99.2 of the Annual Report on Form 10-K filed March 3, 2014 by W. P. Carey Inc.


/s/ PricewaterhouseCoopers LLP
New York, New York
March 2, 2015






Exhibit 31.1

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Trevor P. Bond, certify that:
1.
I have reviewed this Annual Report on Form 10-K of W. P. Carey Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an Annual Report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 2, 2015

/s/ Trevor P. Bond    
Trevor P. Bond
Chief Executive Officer





Exhibit 31.2

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Catherine D. Rice, certify that:
1.
I have reviewed this Annual Report on Form 10-K of W. P. Carey Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an Annual Report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 2, 2015

/s/ Catherine D. Rice    
Catherine D. Rice
Chief Financial Officer





Exhibit 32

Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report of W. P. Carey Inc. on Form 10-K for the year ended December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of W. P. Carey Inc., does hereby certify, to the best of such officer’s knowledge and belief, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1.
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of W. P. Carey Inc.

Date: March 2, 2015

/s/ Trevor P. Bond    
Trevor P. Bond
Chief Executive Officer

Date: March 2, 2015

/s/ Catherine D. Rice    
Catherine D. Rice
Chief Financial Officer

The certification set forth above is being furnished as an exhibit solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and is not being filed as part of the Report as a separate disclosure document of W. P. Carey Inc. or the certifying officers.

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to W. P. Carey Inc. and will be retained by W. P. Carey Inc. and furnished to the Securities and Exchange Commission or its staff upon request.